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Innovation & Survival

The laws of evolution say that survival is for the fittest. In the case of present day organizations, the one that is adaptable has a better shot at making it than the one that is merely strong or profitable. Learn to adapt, or in other words, exploit the opportunities of an ever changing environment, and the profits will follow.

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Maximizing Return on Innovation

- Dr. Martin Lockstrom

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Lack of IdeasThis is usually the least critical obstacle. After all, who hasn’t had a killer idea at some time or other? Most companies are actually brimming with new concepts; alas, they don’t back them sufficiently with time and human capital resources. Our research shows that the ideation process within companies is seldom aligned with strategic business objectives. As a result, companies all too often take their existing technologies and go out and look for a problem, rather than the opposite. It is the responsibility of top management to bring people from different business units and functions to the same table, in order to achieve alignment.

In this endeavour, they can follow the example of companies like Toyota, which pioneered concepts like continuous improvement and have incorporated the same thinking within their innovation processes through measures that are as simple as rewarding employees making the best suggestions for improvement.

Lack of CommercializationA statement made by Austrian economist Joseph Schumpeter a hundred years ago holds good even today. He said, “Innovation is the market introduction of a technical or organizational novelty, not just its invention”. The inability to successfully commercialize an innovative idea into a marketable product has been the downfall of many an organization. On the flip side, an old idea put to work in a new way can work as well as or better than a new invention that is not implemented right. Put simply, ideas are only as good as an organization’s ability to commercialize them. Companies like BMW, despite being very innovative, are open to outside inventions, as long as they help improve their product. For them, it is more important to orchestrate an innovation rather than to own it.

Continuous innovation is the direct outcome of organizations striving to stay relevant in the face of changing circumstances. By challenging status quo and disrupting the done thing, innovative thinking bridges the distance between static organizations and their dynamic environment. However, creating new innovations is quite challenging in an era of fast paced technological change and global markets.

Being truly innovative is fraught with great risk, especially since it involves exploring novel technologies, new geographic markets and untapped consumer segments. In many industries, companies invest heavily in R&D activities, but still see the performance of such activities decline. Why is it so? After all, innovation is about generating some cool ideas – of which there is no dearth – and taking them to market, right? Not quite, unfortunately. In order to ensure that innovation actually yields solid return on investment, innovation activities have to be carefully implemented, and more importantly, in the right order. The road to high innovativeness can be long and bumpy – in fact, most innovations don’t make the cut and are phased out by the market. More specifically, innovation efforts fail because of a lack of any or a combination of four factors: ideas, commercialization, differentiation and IP protection.

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Lack of DifferentiationAnother problem is that very few companies engage in genuine innovation management. Looking to make quick profit and relying excessively on quantitative business intelligence, they end up surveying existing customers and benchmarking against their closest competitors, whose return on investment is known. Unfortunately, this results in more of imitation than innovation. Of course, it is valuable to know one’s own standing among peers, but sometimes this could defeat the whole purpose of innovation, which is to create differentiation!

If products or services are not differentiated, they can never command a premium. Companies that fail to realize this will inevitably become victims of commoditization and subsequently, fall prey to hungry low-cost manufacturers. There are three ways of coping with this challenge, namely, ensuring individual innovations are sufficiently differentiated, ensuring that a number of innovations are taken to market, and better still, doing both of the above. The challenge today is that commoditization is happening at a faster rate than ever, even in very complex industries such as automotive, aerospace and telecom.

Lack of IP ProtectionThat being said, ensuring a steady supply of innovations doesn’t do the trick. History is replete with innovations that lost out to cheaper, smarter competition because their IP wasn’t adequately protected. Like a strong gene, which survives simply because it delivers superior benefits, a good innovation survives on the strength of its competitive advantage. And once it has become commonplace, it has to be in possession in order to avoid competitive disadvantage. The latest string of IP infringement battles between companies like Apple and Samsung are manifestations of this phenomenon.

About the Author

Dr. Martin Lockstrom Principal Consultant, Building Tomorrow’s Enterprise, Infosys Labs

Martin is a specialist in Supply Chain and Operations Strategy, Outsourcing/Offshoring and International Management. During a six-year stint in China, he established the research and education activities at the SCM, Sustainability and Automotive academic centers at China Europe International Business School, Shanghai.

He established the first endowed chair for Purchasing and SCM in China at Tongji University, Shanghai, and was also responsible for setting up Supply Chain Management Institute China, an international network of SCM research and education hubs.

Martin co-founded Procuris Solutions, an IT company specializing in SCM-related solutions, offering consulting services to companies like Accenture, Ariba, BMW, Clariant, Dell, Dow, Ernst & Young and Intel, among others.

He has a Ph.D. in Supply Chain Management from European Business School, Germany, a bachelor’s and master’s degree in Industrial Engineering and Management, from Chalmers University of Technology, Sweden. He speaks Swedish, English, German and Chinese, has published over 50 articles and papers and presented at more than 60 conferences.

Although the path to maximizing return on innovation is clear, following

it is not easy. Yet, companies must make the hard journey from ideation,

through commercialization and differentiation to IP protection, in

order to succeed. Failure could mean sunk R&D costs at best, and loss of competitiveness and market share

at worst. Companies can continue to benchmark and imitate successfully

for some time, maybe a decade at most. But eventually, as we have seen with the rise and fall (and sometimes

the second rising) of companies in virtually all industries, reality will

catch up sooner or later. Many times, inferior corporate culture is the culprit

behind a failed innovation. Having said that, I conclude that the biggest

threat to innovation comes from within the organization, and not from the

competition. Su

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© 2012 Infosys Limited, Bangalore, India. Infosys believes the information in this publication is accurate as of its publication date; such information is subject to change without notice. Infosys acknowledges the proprietary rights of the trademarks and product names of other companies mentioned in this document.

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