January 1, 2012
There isn’t much disagreement with the idea that innovation can be a great growth driver. But there are differing views on what it takes to be an innovative company. Some believe that a revolutionary idea is all that stands between a company’s status quo and meteoric growth. Companies with this view tend to invest heavily in R&D believing that dollars drive results.
In our experience, however, growth-through-innovation relies on multiple factors:
- Customer-focused ideas
- A supportive culture
- A reliable innovation process
Data from a recent Booz & Company survey1 supports our view. The survey results show that top innovators – companies like Apple, 3M and GE who have created an ecosystem to support lasting innovation – outperformed top R&D spenders on three key financial measures: five-year revenue growth, average EBITDA and market cap growth.
To take our thinking further, we asked Bruce MacGregor, Managing Partner and Chief Capabilities Officer at IDEO to share his insights on the nature of successful innovation.
People think of innovation as coming up with a “big idea” — a game changing product or service. How important is a big idea to being an innovative company?
Successful innovation is a 50/50 split between concept and delivery. Without a great concept, you won’t change the world or be an innovative company, even if you execute well. Likewise, a lot of great concepts fail because of poor delivery. You can’t be an innovative company or get growth from innovation without both a great idea and great delivery.
Are there different types of innovation?
- Incremental – An example would be extensions of existing offers to similar markets or new marketing offers. The risk is low; the process change is low; and it only takes one to two years.
- Evolutionary – An example would be engaging a new audience or engaging an existing audience with a new offer. The risk is medium; the process change is medium; and the timeframe is two to three years.
- Revolutionary – An example would be a disruptive technology that changes what you make, how you make it, or who you sell to. The risk is high; the process change is high; and the timeframe is five years or more.
Can an organization sustain all three types of innovation or is it best to focus on one type?
Every organization is different but as a rule of thumb, we have found successful firms investing in innovation efforts along these lines:
- Incremental: 70% – Incremental innovations drive the business forward in a predictable way. Because they are incremental changes, you can predict returns from them using existing product cost, revenue and other data as a baseline. Incremental innovations tend to be the primary cash drivers of most businesses and are a good source of funds for future and more experimental innovation.
- Evolutionary: 20%-25% – Evolutionary innovation is a hedge against the commoditization of your offer or against the competition. It’s like buying options. You’re investing so you have the opportunity to bring out something new at the right time. For example, when Apple introduced the iPad, there was some concern that it might cannibalize computer sales but also an awareness of the need to develop new markets for the future.
- Revolutionary: 5%-10% – Revolutionary innovations can create massive opportunities but at greater expense and risk. An example of this is iTunes which required a complete change in Apple’s business model but led to its enormous success and ability to own 70% of the market for music players.
1 The Global Innovation 1000: Why Culture is Key, Booz & Company Strategy+Business, Winter 2011