The Risk of NOT Innovating

We are at that time of the year when many of us are working on next year’s strategic plans. A question that often arises is, “What is the risk of [doing something new]?” What is asked less often is, “What is the risk of not doing something new or distinctive?”

‘Innovation = life’ when you court early adopters

In newly emerging markets—be they as high-tech as augmented reality or as low-tech as fashion—the answer is obvious. Innovation is occurring all around you; those who so not innovate enough will be left behind. The challenge here is to stay ahead of everyone else (instead of copying the innovation of others).

Examples:

• Facebook out-innovated MySpace, Friendster, and everyone else
• Can you name three competitors of Amazon.com from the late 90s?
• Groupon is worth billions  (after less than three years of operation)

Innovation allows you to ‘cross the chasm’

When you are entering the tornado, (i.e., when demand takes off and the top leaders are established), the speed of change requires innovation to shift from creation to speeding and scaling execution. You need to be able to out-market, out-deliver and out-support the competition. If not you will find yourself as Chimp (or worse).

Examples:

• AOL out-ran all other ISPs—including a buy-or-break challenge by Microsoft
• McDonalds’ innovations in franchising has enable it to serve billions
• Ford’s Model T made cars affordable for the masses

Innovation keeps leaders on top

When you are the leader, everyone is aiming to displace you. Innovation in marketing and promotion will keep demand for your product fresh. Innovation in partnerships and distribution will create barriers to block you competition. The challenge is ensuring your teams know they have to keep innovating once they have reached the top.

Examples:

• Intel is still the worlds largest chipmaker (in a world with Moore’s Law)
• GE is the only original Dow Jones stock still independently trading
• Nike has been the top provider of sporting equipment for decades

Innovation is the only way to disrupt the leader

The familiarity and market share of leaders gives them enormous advantages in terms of cost of sales, speed of sale, distribution, etc. If you are smaller, you cannot disrupt a market leader by being playing “me-too” (unless the leader makes a big mistake). You need to “change the market” by meeting needs your customers did not realise they had or delivering in ways established “leaders” cannot match.

Examples:

• Salesforce is worth nearly 3x what Siebel was when it sold to Oracle
• RedBull has wings
• President Obama’s campaign managers used social media, mobile, and CRM software to raise more money than more-established opponents

Innovation is the only way to ensure life in the future

Clayton Christensen has written volumes on need the foster disruptive innovation to ensure your remain a leader in the future (see my notes below).  If you do not invent the future, someone else will—moving your market to a place where they lead (and you do not). If you want to avoid this, you have two option (ones that need not be mutually exclusive): 1) create incubation teams to innovate the future or 2) acquire proven innovators (this can be expensive).

Examples:

• Apple continuously invents the “next big thing”
• Amazon is selling more books on Kindle than in print
• IBM went from typewriters to computers to services (and acquisition of many business information infrastructure innovators)

So “What is the risk of not innovating?” Your entire future