Mention the word ‘innovation’ and most people think of extraordinary inventions created by solitary geniuses. However, the majority of business innovations today are quite the opposite. The companies that generate them thrive on collaboration, a free exch
on the need for innovation to bring differentiation and value addition.
Even though every known statistic says that nine out of ten innovations do not work, there continues to be an unflinching faith in innovation, evident from a simple search that throws up the popularity of the word ‘innovation’ in the core values, strategic priorities and/or, mission and vision statements of companies. In their quest for the ‘next big thing,’ companies often overlook the small stuff that also adds enormous value. Line/brand extensions or renovations of existing brands or services are not considered in the same league because of the perception that they are incremental and not disruptive.
So, what creates this infatuation with innovation? The obvious answer is the belief that the market rewards companies that have a successful innovation track record, with higher multiples in their valuations. The not-so-obvious insight comes from companies with an average or unsuccessful track record of innovation, in
that such companies often tend to overestimate their own competence and underestimate the complexity that innovation brings. There are two unintended consequences of this—the first is the hidden cost of not allocating adequate resources to strengthen or fortify existing propositions that could work harder and generate profitable growth; and the second is that the already limited resources get allocated to innovation initiatives that generate sub-optimal value.
The narrow view of innovation is to restrict it to new products or services. The more comprehensive view of innovation and one that I would urge readers to hold is that innovation is anything that is capable of bringing ‘new value’ to an enterprise or organization. (This also kills the never-ending debate in companies on what innovation is and what renovation is).
This perspective liberates us from restricting innovation to new products or services, and extending it to encompass all activities and processes in the value chain—from the design of the products and/or services to the design of the business model that delivers these products and/or services, and the operational excellence that aligns each process in the implementation of the business model. This is as true of a commercial enterprise as it is of an academic institution, a social enterprise or any other definition we use to describe a set of activities that ultimately deliver a benefit to both the architect of the activity and the consumer of the activity.
Viewed from a systemic lens, innovation is a concept that requires both capacity and capability to be monetized in order to create new value. It dislocates the traditional way of thinking and doing, and therefore demands new capacity and capability from organizations—the capacity to take risk and challenge the status quo, and the capability to create an ecosystem where people, process, structure, metrics, and the environment and culture align in a manner that creates something unique and meaningful. Innovation is therefore the culmination of a set of capabilities that can produce in a recurring and sustainable manner, products and services that create a commercial and social benefit.
Organizations need to continually innovate because the natural tendency of all systems is to atrophy over time, and innovation is the only way to keep these systems relevant and differentiated. Moreover, with time, consumer needs change, markets evolve, and mature and competitors create ‘sameness.’ In this context, innovation is not an end in itself, but a way to revitalize business by making the old, new again, thereby attracting new users, creating new uses, and benchmarking competition.
To generate new value, the new activity must be both relevant and differentiated. A recent case in point is the Tata Nano, which was an extremely innovative product, except that the user group to which it was targeted did not consider it relevant or meaningful to their needs. It met all the disruptive criteria for innovation—novel, unimaginably affordable, accessible, etc., but it did not meet the criteria of consumer relevance and differentiation.
Great brands across categories ensure that they remain relevant and contemporary, and offer something distinctive that consumers really care about. If a brand is relevant, but not differentiated, it gets easily lost in the sea of sameness; and unless the business model itself is one of cost leadership, the brand is unlikely to be a success.
Innovation requires inspiration, insight, and the pursuit of excellence. It enables organizations to differentiate themselves, which is why some of the path-breaking innovations come, not from the incumbents or market leaders, but from the newcomers, the insurgents, who in the pursuit of finding new opportunities find new, underserved segments or markets. The legendary launch and success of single-serve sachets of shampoo is credited to a relative newcomer in the market, CavinKare, and not the market leaders of the time. This attempt from a late entrant to differentiate its offering spawned
single-serve packs across several categories. However, from a business perspective, this success was as much the discovery of an affordable single-serve pack as it was the creation of a new business model and system capability to manufacture and sell these at a profit and sustain the momentum.
Sustainability in any enterprise demands a new way of thinking and doing because the context in which businesses operate continues to change. The competitiveness of markets demands differentiation from organizations to stay relevant. In recent times, there is no better example of this than the innovations unleashed by Apple, only to be challenged by Samsung, which in turn has been challenged by other smaller brands in an attempt to offer ‘sameness’ at a lower price to consumers. Differentiation is therefore a moving target and innovation/ renovation is a key ingredient of its success.
The problem that most companies run into whilst chasing innovation is that they forget to renovate, which is simply continual innovation in an existing product or process. Renovation is seen to be less glamorous than innovation. But, renovation is also capable of adding new value at a cost that is significantly lower than innovation because renovation largely uses core competencies of an organization and extends them to new areas whereas innovation requires new competencies.
It can be argued that oftentimes business model innovation is capable of generating far greater revenue and profit than product innovation. From a systemic perspective, innovations that converge a new product idea with a new process to generate new value are the most successful—the Dell model of order taking and delivery when the brand was launched in an already crowded personal computer market is a great example of this.
A critical factor that companies overlook while driving innovation is a deep understanding of consumers and how product functionality fits into their usage behavior. But limiting innovation to consumer feedback in turn limits innovation because consumers do not know what they do not know. Here comes the role of convergence of science and technology, of consumer insight and routes to market, and of the design of a business model that is capable of generating value on a continual basis. All this put together is ‘innovation.’
VINITA BALI IS A GLOBAL BUSINESS LEADER WITH EXTENSIVE EXPERIENCE IN LEADING LARGE COMPANIES BOTH IN INDIA AND OVERSEAS. SHE HAS WORKED WITH EMINENT MULTINATIONALS SUCH AS THE COCA-COLA COMPANY, CADBURY SCHWEPPES PLC, AND BRITANNIA INDUSTRIES LIMITED.