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94% unhappy Firm has only 2 purposes forgotten why innovate get myopic goods-dominant logic innovation definition is wrong ideas-first misalignment perform theatre roadblocks 54% unable bridge the gap

The Big Picture…

“94% of executives are unsatisfied with innovation performance”. Yet “84% see innovation as important to growth”! And “54% of companies struggle to bridge the gap between innovation and business”. Worse; “very few executives know what the problem is and how to fix it”! This is the innovation problem.

We have forgotten the basics – that “the firm has two, and only two activities: marketing and innovation”. Instead, we drive only for efficiencies and maximising money at the point of exchange.

At best we bolt on innovation as a side thought. Yet weave the words innovation and innovative into every corporate speech, advert and job description. At worst we embark on innovation theatre, misalign execution with vision, forget to address innovation resistance, and don’t appreciate how inefficient “ideas-first” approaches are.

And, sadly, we see innovation as creating something of value. Our definition is wrong. Innovation doesn’t create value, it needs to offer a way of helping a beneficiary make progress (that the beneficiary sees as valuable through use).

The solution is something I explore across this site, and I update this article with links to those solutions as available.

The Idea

Innovation, as a buzzword, is everywhere. CEOs highlight innovation in corporate speeches. And so does marketing copy, which can’t stop using the word. Organisations perform grand-standing innovation activities (innovation theatre). We try internal, external and open innovation. And, seemingly, every job advert is looking for innovative people to fill innovative positions.

However, we are not making the difference we expect and need. McKinsey’s found only 6% of executives are happy with innovation performance. This is a concern since our economies are becoming stagnant. And growth for companies is elusive.

Let’s explore this innovation problem in this article.

And it is this article that sets the question for this site: how do we fix this innovation problem? – the answer to which I am constantly updating on this page.

OK, so what is this innovation problem?

Of the executives surveyed by McKinsey’s, 84% agreed that innovation is important to their growth strategy. However, only 6% of those executives are satisfied with innovation performance.

Think about that.  94% of executives are unsatisfied with innovation performance. Despite 84% of those same executives believing innovation is important for their organisations’ growth!

The innovation problem in numbers.
Figure 1: various insight into the innovation problem

And it is not just McKinsey surfacing these challenges. PWC’s 2017 Innovation Benchmark found that 54% of the companies they surveyed were struggling to bridge the gap between business and innovation.

In fact, there are many reports and figures I could repeat and summarise indicating there is an innovation problem. But I think this blog post from Viima – 50+ statistics on innovation – does a great job.

And, what is worse, is that McKinsey’s survey uncovers that “very few [executives] know what the problem is, or how to fix it”.

The innovation problem: "very few executives know what the problem with innovation performance is, or how to fix it" according to McKinsey. Here are some insights… Tweet this

Our economies are stagnating and organisations are failing to find sources of growth. As Peter Drucker coined it: “innovate or die”. R.I.P. Blockbuster, Toys’R’Us, AOL, MySpace, Nokia and many more. And more concerningly: potentially you.

But why should we innovate?

Let’s take a capitalistic view. We innovate to drive growth and reduce costs. If we do nothing, then our revenue will drop off. As competitors produce better offerings attracting away our potential customers. In such a situation, we find ourselves on the downward red line in Figure 2.

When innovation works in a firm then we can predict an increasing revenue stream as new products are are released. Conversely, if innovation is not performing, then no enhanced or new products are being released and so revenue will drop. Either because demand has dropped/been satisfied; or competitors are taking market share by releasing more innovative products. <span class='bctt-click-to-tweet'><span class='bctt-ctt-text'><a href='https://twitter.com/intent/tweet?url=http%3A%2F%2Fsolvinnov.com%2Finnovation-problem%2F&text=%22Innovation&via=InnovatingAdam&related=InnovatingAdam' target='_blank'rel="noopener noreferrer">"Innovation </a></span><a href='https://twitter.com/intent/tweet?url=http%3A%2F%2Fsolvinnov.com%2Finnovation-problem%2F&text=%22Innovation&via=InnovatingAdam&related=InnovatingAdam' target='_blank' class='bctt-ctt-btn'rel="noopener noreferrer">Click To Tweet</a></span> We should not forget that innovation can also apply to the costs side. Over time the cost of producing should naturally fall due to knowledge gains and efficiencies. Innovation can be used to increase savings even further. Note that this is a product-dominant perspective. I hypothesis it is not as applicable to services, and as we are generally in service-dominant economies, this pure product perspective is a cause of the innovation problem.
Figure 2: Why Innovate? Here’s why (from a goods dominant logic perspective)

And while we can expect our costs to reduce a little over time – as we naturally become more efficient – we miss out on reducing those costs quicker.

When we innovate, our intention is to shift to Figure 2’s blue lines. We look for innovations to reduce our costs. And we look for innovations to keep our offering fresh, and better still, improved, in they eyes of our customers to generate more sales.

Even if you are a not-for-profit organisation, you still aim for cost reductions driven by innovation. And revenue is likely replaced by some other metric like people helped, or area of land saved. Yet innovation is still needed to keep the offering fresh, or to do more with available resources.

And, as Drucker said:

Because the purpose of a business is to create a customer, the business enterprise has two – and only two – basic functions: marketing and innovation

Peter Drucker (1954) “The Practice of Management

What else drives the need for innovation?

And he even gave us some hints on why we need to innovate. Drucker highlights, in “Innovation and Entrepreneurship“, seven sources of innovation that every manager should be monitoring all the time. These drive the need for innovation:

  • The unexpected – what of your and competitors unexpected successes and failures can you capitalise upon?
  • Incongruity – what are the unmet needs and wants of your customers?
  • Process needs
  • Changes in market/industry structure
  • Demographic changes
  • Changes in meaning and perception
  • New knowledge

On the next page, I’ll share my thoughts on why innovation is not performing. Hope to see you there, and your thoughts in the comments.

Contents
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Various insights to the Innovation Problem
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