Strategic CIO // Executive Insights & Innovation
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1/21/2014
09:06 AM
Shane O'Neill
Shane O'Neill
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Why Most Companies Renovate Instead Of Innovate

Low-risk, incremental improvements aren't innovation, but that's where most companies focus, Accenture finds.

Innovation is thrilling when it actually happens in a business, but all too often it's the emptiest of buzzwords.

Last fall, our annual InformationWeek 500 rankings highlighted IT innovators like The Gap, UPS, Dish, and Home Depot that have turned great ideas into action using cloud services, data analytics, collaboration tools, and/or mobile apps. It's no small feat. But these are the exceptions.

What's more likely is an uninspiring parade of low-risk, incremental improvements. That's the rather dreary conclusion of an Accenture study of more than 500 executives from companies with more than $100 million of annual revenue.

[An inflexible IT strategy could break your business. Read: IT's Famous Last Words: If It Ain't Broke, Don't Fix It.]

If a company invests in a disruptive product or business model and the returns are disappointing, the pursuit of "the next big thing" dries up fast, and so do expectations and funding, the study found. Fool me once and… innovation is replaced by renovation.

Seventy percent of the respondents called innovation a top five priority, and 67% said they depend strongly on innovation for long-term success. However, more than half said their company has a sluggish innovation process. Only 34% agreed that their "organization has a well-defined innovation strategy," and 21% agreed that they "have an effective process for capturing ideas outside the company."

What's preventing companies from crossing the innovation threshold that Netflix, Amazon, and Apple seem to leap past every year? The study blamed two main factors:

  • Dependence on a conservative, incremental approach that fails to generate revenue
  • The tendency to invent a product and not bring it to market in a timely fashion or help it grow

After invention, companies still need to craft the business model, customer experience, and "ecosystem that helps expand the market."

Innovation breakdowns often get blamed on IT, marketing, and the C-suite being out of sync. Yet the 2013 InformationWeek Global CIO survey of IT executives downplayed that explanation. Respondents listed thin budgets and weak skill sets as innovation obstacles more than CEO resistance. Only 14% chose "CEO or senior executives discourage innovation" as a barrier, and only 18% picked "poor relationships with other business units."

[Read: Why Innovation Fails: The Past Vs. Future Problem]

Nevertheless, solid relationships can soften unless business units communicate consistently. And innovation is all but impossible without clear goals. According to the Accenture study, your best chance to confront innovation inertia while protecting yourself from risk is to go to senior management with a formal and systematic plan that emphasizes speed, present a well-defined business model that supports an ongoing revenue stream, and identify early on the risks (and rewards) of disrupting a market.

Accenture's survey results vouch for this systematic approach. Respondents from organizations that use a formal system for innovation reported better outcomes and satisfaction. Fifty percent of companies with a formal innovation plan "intend to transform their business in the next 3-5 years primarily with innovations." Only 25% of companies with an informal plan had such intentions.

In a recent column on LinkedIn, the innovation consultant and author Gijs van Wulfen echoed the need for a precise methodology to help "structure the chaotic start of innovation" so that the "results at the end of the innovation pipeline will improve." He outlined his 5-step FORTH method to tackle innovation. Here are some key points:

  • Ask your senior management in advance what kind of innovations they expect: evolutionary improvements or revolutionary, new-to-the-world ideas? Deliver them.
  • Make clear "what's in it for us". Present your innovative ideas with a concrete business case showing estimates of sales and profit potential.
  • Make the feasibility clear. Can we make it? What will it cost?
  • Make it clear that there's a market out there. Small-scale experiments are perfect ways to prove there's a potential market.

These are all good guidelines to get an innovation project going, but most IT and marketing teams will hit the fear-of-failure wall with senior management. Disrupting a market usually means disrupting reliable revenue streams. And that's a scary proposition for a CEO. A prime example of this fear unraveling a company was Kodak choosing not to invest heavily in disruptive digital cameras to protect its (dying) film camera sales.

CEOs will continue to pay lip service to innovation, but it's up to small innovation teams to knock on C-suite doors, present a formal plan, and convince senior managers to help throw down internal barriers to innovation.

If your company's leaders remain blind to the digital disruption that's reshaping our economy and culture, your employees will smell a rat. They will leave. And a nimble digital force inevitably will blindside your company. Just ask Borders, Blockbuster, and all the taxi companies that never saw Uber and Hailo coming.

Shane O'Neill is managing editor for InformationWeek.

Too many companies treat digital and mobile strategies as pet projects. Here are four ideas to shake up your company. Also in the Digital Disruption issue of InformationWeek: Six enduring truths about selecting enterprise software (free registration required).

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Stratustician
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Stratustician,
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1/21/2014 | 10:11:34 AM
It's a nice idea, but...
This always gets me, since yes, every company wants to innovate and bring forth the latest and greatest idea.  They want to be the next 3M with the Post-it note. The problem is, have you actually ever tried to innovate in a company? I find the larger the company, the harder it is to actually get an idea heard and implemented.  From the 101 controls in place to crush all innovation, especially from product development and forecasting, to getting senior level buy-in, this is why so many folks are starting their own companies.  It's often way too discouraging to actually innovate.
Thomas Claburn
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Thomas Claburn,
User Rank: Author
1/21/2014 | 4:32:51 PM
Re: It's a nice idea, but...
>It's often way too discouraging to actually innovate.

And it's risky for existing employees and managers. People are fired for initiatives that misfire. Not so for initiatives that never happen.
D. Henschen
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D. Henschen,
User Rank: Author
1/21/2014 | 1:13:14 PM
Are Uber And Hailo really putting taxi companies out of business
Call me a skeptic, but I see Apple, Netflix and Amazon no incrementally renovating and augmenting around their original innovation themes. The list of one-time big breakthroughs is much longer than the list of companies really innovating over and over again. I'd also submit that some innovation themes are overstated. From what I can tell, the list of failed Uber and Hailo copycat apps is much, much longer than the list of taxi companies going out of business because they're not hip to mobile opportunities. In short, don't discount innovation, but don't expect too much from it, either.
Shane M. O'Neill
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Shane M. O'Neill,
User Rank: Author
1/21/2014 | 1:35:38 PM
Re: Are Uber And Hailo really putting taxi companies out of business
You're right, Uber and Hailo aren't putting taxi co's out of business yet, but they have definitely disrupted the market. They are eliminating the need for dispatchers and have made a dent in corporate accounts that were once aligned with one taxi company. Employees now could use an Uber or Hailo corporate account -- or a personal one and expense it -- to order a Lincoln towncar (Uber) or the nearest taxi (Hailo). Personally, before using Hailo I would always call the same taxi company (Boston Cab) and order a taxi. Now I tap the Hailo app and take the first taxi that responds. It doesn't matter to me which taxi company it is. That kind of loyalty has been upended.
ChrisMurphy
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ChrisMurphy,
User Rank: Author
1/22/2014 | 10:23:26 AM
Re: Are Uber And Hailo really putting taxi companies out of business
Innovation consultant Doug Stone offers a smart framework for looking at why innovation fails, and it's not just about existing companies playing it too safe. That protect-what-we-have approach is one side (what he calls "reliability mode," but the other is companies thinking like startups building new products but never getting around to crafting a solid business model (what Stone calls "eventuality mode").    

Here's a link to that analysis: 

http://www.informationweek.com/it-leadership/why-innovation-fails-the-past-vs-future-problem/d/d-id/1110290
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