The Role of Innovation in Organizations

 This is the first of a three part series on innovation. This series will discuss the importance of innovation, how it’s realized in organizations, and how organizations compensate for a lack of innovation. The second post, which will be released Wednesday, is written by Lawyer, NFL Agent, former collegiate athlete, and good friend of mine, Andrew Schmidt. It details the history of innovation at Apple and the influence of Steve Jobs. Be sure to check it out.

“The desktop computer industry is dead. Microsoft dominates with very little innovation. That’s over. Apple lost. The desktop market has entered the dark ages, and it’s going to be in the dark ages for the next 10 years, or certainly for the rest of this decade.” -Steve Jobs, February 1996.

Before entering the video game market in the 1970s, Nintendo was a company that made playing cards. Tiffany’s sold stationary before becoming an iconic retailer of fine jewelry. Before engineering the photocopy machine, Xerox sold photography paper. LG was first an industrial chemical company, and then it sold hygiene and cosmetic products, before becoming a premier electronics retailer. The Gap was founded in 1969 as a record store, before realizing its future was in blue jeans.

Kodak was a giant of a company with 89% of the market share of photographic film sales, but the company miraculously missed the transition to digital photography despite having invented the core technology for it. Kodak filed for bankruptcy in 2012.

In 1999, Napster became the first prominent peer-to-peer file sharing Internet service, but couldn’t create a sustainable business model and became defunct in 2001.

Woolworth’s was one of the most successful and largest retail companies in history and is credited with developing the modern retail business model. Founded in 1878, it enjoyed wild success until increased competition led to its decline in the 1980s and eventual failure in 1997.

Most recently, BlackBerry has been in the news for its impending failure (See this post for details and this post on the company’s proposed sale). BlackBerry’s failure is analogous to Blockbuster Video’s with both being put out of business largely by tech companies (Apple/Google and Netflix/Redbox respectively) with new and consumer friendly products. The two once proud companies both met their demise abruptly, but not without warning.

Why is it that some companies endure over time and others fail seemingly overnight? Research and history show the answer is Innovation.

Organizations compete in an environment with rapidly changing technology, low cost competition, expanding markets, and changing customer demands. Organizations must constantly create unique value for their customers through innovations in products, services, and processes. Innovation is the way companies profit and endure. Innovation is both a process and an outcome.

Innovation is the development and exploitation of novel ideas that add value to an organization. These ideas can include renewing and improving products and services or developing new to world or new to market products, processes, or services.

Innovations can fall into two categories. Radical innovation involves creating products or business models with unprecedented features that offer significant improvements in performance or cost that transform existing markets or create new ones. Incremental innovations are minor improvements or adjustments in current technology. Radical innovations are more risky, but their success is what keeps companies alive. Incremental innovations are important too, but they are more likely to maintain existing business than drive profitable growth.

The best predictor of whether a company will innovate or not is its culture. An innovative culture includes a shared vision, a passion for learning, support for experimentation, and tolerance of risk taking. A company’s culture needs to be aligned with a mission and strategy that feature supplying human and financial capital for research and development initiatives.

As more money is spent on research and development, the likelihood of innovative success increases. That makes logical sense, however adding additional people focused on innovation along with increased R&D spending maximizes the likelihood of innovative success. Steve Jobs was a leader that was able to instill an innovative culture and allocate resources effectively for innovation. He once said, “Innovation has nothing to do with how many R&D dollars you have. When Apple came up with the Mac, IBM was spending at least 100 times more on R&D. It’s not about money. It’s about the people you have, how you’re led, and how much you get it.”  Jobs got it and set his company up for success.

With the recent release of iOS 7 (see my first thoughts here), it feels like Apple has lost its innovative mojo. Apple is known for radical innovations that shock and radically change the world. The Mac, iPod, iTunes, and iPhone all had that effect. Since the iPhone was introduced in 2007, we’ve seen incremental innovations to those products, but it’s been six years since Apple has truly produced something new and remarkable. Where is the breakdown in the chain?

The second part in the series on innovation can be found here. It looks at the history of innovation at Apple and the role Steve Jobs played. It’s brilliantly written, informative, and funny. I think you’ll enjoy it.