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“In my view, innovation is just another word for ‘giving up’. It’s saying that things are so bad that it’s easier to get into an entirely different line of business than to deal with our problems.”
Childish resistance to change or a cautionary note for the overzealous innovator? Read on to find out.
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“Innovation is the Only Way to Grow Your Business”
Wrong. Many established companies, faced with investor demand to show double-digit growth, exhibit an unhealthy preoccupation with innovation. The drug industry is a classic case in point. After a decade of healthy profit-taking, powered by a sleuth of billion-dollar drugs invented in the late 80s, the industry is now experiencing a significant slowdown. As the patents protecting their blockbuster drugs expire, drug companies are finding it harder and harder to introduce new ones.
So how are drug companies reacting to this challenge? By doing more of the same. Instead of looking for alternative ways to grow their business, drug companies are investing more and more in research and development, despite consistent evidence that more investment in R&D isn't the solution.
Indeed, as one drug company has shown, product innovation isn’t the only way to grow your business. For years, AstraZeneca enjoyed billion-dollar revenues from its patented heartburn drug Prilosec. But as the years went by and Prilosec’s patent came closer to expiration, AstraZeneca became increasingly worried that Prilosec copycats would soon flood the market and bring down revenues.
So in 1995, seven years before Prilosec’s patent was due to expire, the company assembled a team of marketers, lawyers and scientists, to figure out what to do. The team came up with almost 50 possible solutions. Topping the list: Develop a radically better heartburn drug.
But instead of spending billions to develop a new drug, AstraZeneca decided not develop a new drug at all. Instead, it made enough minor adjustments to Prilosec to gain a new patent under a new drug, called Nexium. It then spent half a billion dollars each year to convert Prilosec users to the marginally better Nexium. In addition, it launched a legal assault to try and postpone, if not stop altogether, the competition from generic drug manufacturers.
AstraZeneca could have chosen the well-traveled road of growth through innovation. Instead, it combined early planning with a strong dose of contrarian thinking. The results speak for themselves – while the Dow Jones pharmaceutical index has flat-lined in the past two years, AstraZeneca’s share price has gone up by over 50%. “Innovation is the Key to Business Success”
An exaggeration.Browsing through this summer’s crop of business magazines leaves us with a clear conclusion: Innovation is cool again. After years of cost-cutting, right-sizing and naval-gazing, companies are ready to take on the world again with new, improved, better, faster products.
Maybe they shouldn’t. Increasingly, there is evidence that innovation isn’t the only way to grow your business.
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In 1986 Harvard professor Nitin Nohria set out to uncover the most important management practices. Ten years later, and after studying 200 management practices in 160 companies, Nohria and his research team discovered that the most successful companies excelled by focusing on only four primary management practices: Strategy, Execution, Culture and Structure.
Innovation, to be sure, was also found to be an important practice, but only as a supplement to the above four practices.
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After years of cost-cutting, rightt-sizing and navalgazing companies are ready to take on the world again with new, improved, better, faster products. maybe they shouldn't. |
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“Given the copious literature on corporate innovation, it might be expected that most of our winning companies would have excelled at innovation,” wrote Nohria, “In fact, a bare majority did so—which underscores how difficult this practice is. Innovation should not be entered into lightly.”
“The Reason Most Organizations Aren't Innovative is Their Inability to Generate Enough Ideas”
Not True.Innovation isn’t about coming up with new ideas; it’s about putting ideas to work.
“The fact that you can put a dozen inexperienced people into a room and conduct a brainstorming session that produces exciting new ideas shows how little relative importance ideas themselves actually have,” wrote Ted Levitt in the Harvard Business Review some 40 years ago. “Almost anybody with the intelligence of the average businessman can produce them, given a halfway decent environment and stimulus. The scarce people are those who have the know-how, energy, daring, and staying power to implement ideas."
It’s not that creativity isn’t important. It’s that companies often enamor themselves with the “ideation” process, disregarding the importance of execution.
To innovate effectively, argues Levitt, requires:
- Effectively presenting ideas to decision-makers;
- Risking implementing those ideas, since not every idea that’s shining and pure in the abstract succeeds under the harsh light of reality; and
- Striking the right balance between organization flexibility and rigidity.
Many companies try to be more creative. “If we could only generate more ideas,” their thinking goes, “we’d be more innovative.” But coming up with new ideas might be the wrong thing to focus on. Instead, companies could be better off focusing on their capability to execute new ideas. As Apple founder Steve Jobs used to remind his creative team: “Real artists ship”.
"Established Companies Must Innovate or Die"
Not always. “So now we’ve got a bunch of companies," argues marketing consultant Sergio Zyman, "that have forgotten all that boring stuff that made them successful in the first place and are getting into areas they don’t know anything about and have no business being in at all.”
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Zyman might be controversial, but that doesn't make him wrong. Take Coca Cola, for example. Ever since its inception in 1886, the company was devoted to one thing: staying the same. Year after year the company refused to make any alterations to its “secret formula,” opting to grow through better branding and distribution. But in 1985, worried that Pepsi would steal its market share, Coca Cola decided to break with its 99-year tradition and released the “New Coke.” The results were disastrous. In attempting to develop something “cool,” Coca Cola ended up alienating its customers and handing over an even larger share of the market to Pepsi.
So what should established companies do? Zyman recommends companies focus on recapturing the essence of their “brands, products, and core competencies, and do more of the things that made [them] great in the first place.” Zyman should know – he was the marketing director responsible for “New Coke.”
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"So now we've got a bunch of companies that have forgotten all that boring stuff that made them successful in the first place and are getting into areas they don't know anything about and have no business being them at all. "
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Ziv Navoth helps organizations improve their performance by creating a unique and valuable position in the marketplace. He is the Managing Director of Verve! (www.verve.nu) and can be reached at ziv@verve.nu.
Copyright 2006, Ziv Navoth. Feel free to print, quote, or forward, so long as you credit me. |
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