Businesses and the people who work at them tend to go to extremes. Rationally, an objective should be pursued only when it makes sense to pursue it – but emotionally, an objective becomes and end-all-be-all. In particular, I’ve been thinking about the topic of innovation and the way in which firms seek to “always innovate” rather than focusing their time and resources for innovation in areas where it makes sense to be innovative. Nothing – including innovation - is a categorical proposition. It does not always make sense, and it is not always productive. There are a number of instances in which innovation is pointless or counterproductive. Here are a few examples:
Innovation Yields No Market Advantage
The main reason to innovate is to gain a competitive advantage in the market – so investing excessive effort in an innovation program that has no impact to market performance is wasteful and can be counterproductive. A good litmus test is to ask whether the customer can witness and appreciate the results of innovation. If the answer is “no” then your R&D dollars are likely better spent elsewhere.
A common misuse of innovation is on transforming internal services such as logistics and accounting. These operations rarely have an impact on the customer and innovations seldom yield any noticeable improvement. Efficient operations can improve financial performance and should definitely be considered, but unless logistics or accounting is a core service of the firm, innovation in these areas will likely be negligible in terms of market advantage. The firm would be better off wither seeking to optimize (rather than innovate) or outsourcing these operations to a more efficient provider than attempting to improve its own internal services.
Market Demand Supports a Basic Good and/or Service
There are instances in which there is sufficient demand for a product that does one thing well and customers see no benefit in enhanced or ancillary services. This can be tested through market research that asks the customer what they value in a product – where it is unrealistically believed that the customer would learn to want something if only they could get their hands on it, then test marketing will uncover a bad decision.
There are shopworn examples of the Swiss Army Knife, a tool that does many things poorly and nothing particularly well, or the Internet-enabled toaster that offers functionality that no-one wants enough to pay for. There is plenty of demand for a toaster that just makes toast well. It doesn’t need additional capabilities or new uses – it just needs to do one thing well. Here, innovation is unnecessary and fruitless, and development resources are better directed to making the product better, cheaper, and easier for its existing purpose.
Time and Money are Needed to Innovate
Quick-and-dirty innovation is seldom fruitful, and while the innovation cheerleaders are constantly using fear of obsolescence to push half-baked ideas to market prematurely, it takes time to innovate well: to explore a problem, evaluate solutions, and set up operations to provide them requires a firm to move at a more deliberate pace, and a bread-and-butter product that is not innovative may still generate sufficient revenue for the firm to stay afloat.
When this occurs, the current (and soon-to-be-obsolete) product is needed to provide the life-blood of the firm while it seeks to make significant changes in its core operations. The basic product and its performance can be marginally improved by optimization and efficiency improvement rather than innovation. Particularly when this product is scheduled to be phased out when its successor is sufficiently mature, investing in innovation on that line is not merely beating a dead horse, but trying to feed one.
We Don’t Know Why Our Competitors are Winning
In some instances, insiders at a firm have no idea why its competitors are winning – they may seek to imitate the practices of other firms (aka “industry standard best practices”) without knowing why other firms are doing these things. This is a very bad practice because the company will eventually be doomed – but it is a very common one and a situation in which innovation is impossible because the firm does not understand the market. Hence, any attempt at innovation would be a shot in the dark, more likely likely to waste scarce resources than save the firm.
This situation is entirely similar to the firm that needs time and money to innovate, but is different in that a firm in this position doesn’t know how to innovate at all – and if it can admit that, then it is a rational decision to stop innovation efforts and retrench until a strategic approach can be discovered and implemented. Happy accidents occasionally occur when an ignorant person stumbles on a viable solution – but this is the exception rather than the rule.
The Firm is Stable and Profitable
Perhaps the best reason not to innovate is that innovation is unnecessary: the firm has a commanding position in its target markets and is entirely capable of sustaining itself on its revenue and there is no plausible evidence to suggest that the competitive landscape will change. Or more importantly, when there is no sign that customers are dissatisfied with the product, and change would decrease satisfaction and loyalty rather than increase it. The best example of a firm that shot itself in the foot by innovating where it was utterly unwanted by the market can be summed up in two words: New Coke.
This brings us back to the original consideration: that the extremists who feel that innovation is always necessary lack and understanding or appreciation of stability and success by current methods. There are many firms whose operations are successful and who can maximize performance by maintaining their present operations. There is always room for improvement, or so it is said, but in this situation efficiency improvements that do not jeopardize the firm’s position in the market and the financial sustainability of existing operations are better than innovating with wild abandon.