Apparently every serious business article these days must include the word "innovation". So I guess it’s about time I wrote something serious instead of the silly stuff up until now on useless topics like lean, waste, knowledge, and other sources of real competitive advantage.
Of course I’m being facetious. We’ve taken many organizations to task for focusing on "innovation" instead of real fundamental change. Companies like Ford believe they can innovate their way [forward] to success while maintaining a cost structure, grounded in unnecessary internal waste, that is at a 30% disadvantage to Toyota.
But innovation is still important… it just won’t single-handedly create success. A recent study pokes some holes in the myths and misperceptions of what innovation is, and it’s worth taking a look at their summary presentation given to the NSF. As the authors summarized:
- What is innovation? – not what we typically measure
- Who does it? – not whom we typically assume
- How is it done? – not how we implicitly believe
- Who gains the most from it? – not who we often think
Of course that summary is intriguing, but really tells you nothing. So I’ll expand a bit:
The data for the study crosses hundreds of firms, globally, across many industries. The authors discuss some of the difficulties in obtaining good data on some metrics, and that need for improved metrics becomes one of the results of the study itself.
Let’s start with the expected results:
- Importance is important. No surprise. The probability of an innovation being converted to reality rises as the importance of that innovation increases. In effect, if the innovation is important enough, resources are applied to overcome even significant technological problems to convert it to reality.
- Experience counts. No surprise there again. Firms with deep experience can convert innovations more effectively.
- Speed can kill. Taking the time to do it right yields more effective innovation conversion.
- More ideas lower the conversion. Many of us have seen this phenomena at the micro scale with suggestion programs. If you’re generating a bazillion small suggestions, so much time is spent managing the program that it often breaks down… and important suggestions are swallowed up.
- Innovations coming from outside of the U.S. are growing as expected.
Now for a few that may open some eyes. Most people believe that smaller more entrepreneurial firms create most radical innovations. Large companies can be encumbered by bureaucracy, having a "not invented here" culture, a fear of cannibalizing existing business, or simple technological inertia. Small firms have more personal desire, but less resources. But the actual results:
- The split of innovations is fairly equal, with 53% coming from outside of an organization and 47% from inside. However the trend is strongly toward innovation coming from inside an organization.
- Also an even split between the size of the company… 58% from small and 42% from large. Of course this can be viewed many ways, as there are far more small companies than large companies, but the group of large companies probably has more total resources than the small companies. Perhaps because of this the trend is strongly toward larger companies creating most innovations.
- Firms dominant in an industry gain far more from innovation than secondary level firms. This is part of the reason behind GE’s old mantra for "be number 1 or get out".
The presentation goes into considerably detail on the statistical analysis behind their findings, and I won’t put any more of you to sleep by commenting on it. And there is some discussion on the traits of innovating organizations, but nothing really new: a tolerance for risk, a focus on the future market, willing to cannibalize, availability of product champions, and incentives for enterprise.
The bottom line is that innovation is necessary, it may evolve a little differently than expected, but it definitely does not assure future success. You can’t innovate your way out of a waste-related competitive abyss. Good luck, Ford.