The Innovation Journey

A Business Growth Imperative

Highlights

  • Pursuing an innovation journey can produce market disruption and order of magnitude revenue growth. Any startup or competitor that can find a new or better product, or a new or better way for customers to acquire, consume, use or benefit from a product, can displace an incumbent delivering the status quo.
  • Innovation is a risk-reward business growth equation. When successful, breakthrough products create differentiation, revenue growth, higher margins and customer loyalty. Delivering breakthrough products is not easy, but it's also not optional for companies seeking differentiation, revenue growth, higher margins and customer loyalty. Growth and comfort do not coexist.
Johnny Grow Revenue Growth Consulting

What's the big idea?

For most executives, transformative products or services are something they read about. It's exciting stuff but shrouded in mystery and reserved for eccentric futurists or billionaires such as Elon Musk or Jeff Bezos. Too many business leaders falsely believe transformative or disruptive innovation is beyond their capability.

Fortunately, that's changing as more forward-looking business leaders realize there are different ways to innovate for different business objectives. Executives are discovering innovation can be learned. They are applying innovation best practices. They know the cost and risk are dropping, and delivering innovative products or services is a business growth accelerator.

A McKinsey Global Survey shared that "84 percent of executives say innovation is extremely or very important to their company's growth strategy." And the reasons for the increased adoption are simple – to accelerate revenues, increase margins and grow their companies.

"Companies pursuing breakthrough innovation are able to generate up to twice the product sales of their peers." — Gartner

But when it comes to innovation it's been our experience there are two types of business leaders. Those that proactively innovate to disrupt their market, and those that get disrupted.

The disrupted generally follow a predictable four-stage process.

First, they live in denial, and claim that disruption in their market is unlikely to occur anytime soon, if at all. Unfortunately for them, the pace of market disruption continues to accelerate in virtually all industries.

Second, once a competitor introduces disruption, the laggard executive suggests the change is hype or a fad. Once the so-called hype is substantiated, they like to say things like "it's 5 years away from reality." They usually know that's not true.

Third, after they recognize their denial and delay isn't working, they try to prop up their product or business model that is being disrupted with new never-before realized benefits or value propositions. However, these repackaged benefits deliver insignificant value that fails to compete with the innovator.

And finally, after acknowledging the competitor offers superior customer value, they embrace the disruption and pursue a me-too strategy. This usually comes too late, pales in comparison to the disruptor and leaves them to find market niches that the disruptor chooses to ignore.

The Innovation Journey

The Innovation Journey

The disruptor takes a different path.

First, they recognize that while the creation of novel products is far from prescriptive, it follows patterns and processes that can be learned, improved upon and replicated with an innovation methodology. Many large organizations have teams that regularly create the new revenue streams for the company. Many midsize firms and even some smaller firms are starting to replicate these successes.

Types of Innovation

Innovators know they can apply different types of innovation to balance their desire for growth with their appetite for risk. Business executives need not bet the farm on a big bet or moon-shot wager.

There are three different types of innovation, each with its own investment, risk, and payback.

  1. Incremental innovation includes existing product advancements and normal product life cycle evolution. It's the most common but delivers marginal value and often just keeps pace with competitors.
  2. Transformative innovation creates new products for existing markets or pursues new customer markets with existing products. Sometimes the existing products are adapted for the new markets, but the changes are generally not significant. This method can be successful in expanding market share and revenue streams but doesn't have a big impact on margins and profits.
  3. Disruptive innovation creates a new and unique product or service for a new customer market. That achieves first-to-market competitive position, extraordinarily high margins, and a new business model for the company. This type of new product or service release usually gets the headlines.

Incremental efforts are the most popular. After all, what company doesn't continuously advance their products and services? Unfortunately, the safest method is also the lowest payback.

A big challenge for incremental deliveries is that most customers use only a fraction of a product's capabilities. Adding more capabilities does not increase their utilization but quite often makes the product more complex and difficult to use. This scenario provides the opening for disruptors to enter the market by offering a simpler, easier to use or lower cost alternative.

The Corporate Executive Board (part of Gartner) Transformational Innovation Survey found that most companies allocate two-thirds less R&D dollars to transformational solutions than the companies growing most profitably in their industries. That’s a clear finding that should not go unnoticed. They also share, "The average company is sacrificing five percent growth annually due to its failure to act on transformational ideas."

What’s the cost of not innovating? Research from Gartner shows that "The average company is sacrificing five percent growth annually due to its failure to act on transformational ideas."

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One of Google's Nine Principles of Innovation is "Think 10x, not 10 percent". Google wants to bypass evolutionary advancement with revolutionary impact. I was reminded by a colleague that it was Google, not a car manufacturer, that created the first self-driving car.

The Pace of Change is Changing

Businesses that have comfortably rested on their perceived size and barriers to entry are increasingly finding themselves challenged, displaced or worse. Look no further than the most recognized companies in the world.

About three-quarters of the companies listed on the Fortune 500 in 2000 are no longer around. They have been taken over, gone bankrupt or simply no longer exist. Only two of the most valuable companies on the S&P in 2007 are still on that list today. As shown in the below chart, the lifespan of S&P companies continues to decline.

Company Lifespan S&P 500

If digital start-ups and cross industry entrants can unseat the largest incumbents, including Fortune 500 companies, they can unseat anybody.

It is estimated that each day there are 274,000 new startups worldwide.

Being complacent, inert or passive when facing unprecedented levels of customer disruption and fundamental industry interruption is a one-way ticket to irrelevance and business decline.

Born-on-digital startups are created with express intent to disrupt a market, increase cost competition, lower barriers for consumers to change providers, and take market share from stalwart incumbents.

Fortunately, the answer is clear. Be the innovator or be disrupted. Savvy business leaders see innovation accelerating around them, and they don't ignore the implications. They recognize it's only a matter of time before a competitor creates a disruptive solution that directly impacts their business and viability.

It's less clear whether the new disruptive competitor will be a traditional competitor, a cross-industry entrant or a scrappy start-up, but that doesn't really matter. Tomorrow's leaders realize before their competitors that they can either be the innovators that capitalize on disruption, or the disrupted that wait the sidelines for others to act. The leaders of tomorrow will be the people who begin their innovation journey today.