Innovation today is on every CEO's lips, every Chairman's speech notes and every marketing director's 'to do' list. It has become the business axiom of our generation, the torch-bearer of progress and the driving force of change. Not tectonic societal or political change, but the everyday bubbling of life and culture feeding a seemingly insatiable desire for the new and the different. In business, if you're not innovating, you're dead.
'The engine of real economic growth is not technology but innovation.'Hector Ruiz, CEO, Advanced Micro Devices
If you are a CEO then you had better have a pretty good innovation story to tell your shareholders.
'The only source of profit, the only reason to invest in companies in the future is their ability to innovate and their ability to differentiate.'Jeffrey Immelt, CEO of GE
Innovation is increasingly held up as the solution to business issues, anything can in principle be conquered by the smart thinking and cunning reallocation of resources that innovation can achieve. It can turn low margin categories into profit stars - just look at Ryanair's results in the beleaguered post-9/11 airline industry. It can create growth in declining markets - margarine in the UK is a large category that has been in decline for more than 5 years, Unilever's Flora Pro-Activ innovation bucked the trend and has been in double-digit growth every year. Marketing directors are also crystal clear on innovation's role in delivering corporate growth, as shown in Figure 4.1.
Figure 4.1: The Importance of Innovation for growth.Source: Brandgym Research.
Speed is good. Not only is innovation critical, it is needed urgently. Innovation is taking too long in big companies. Smaller competitors are getting there first too often. Standard idea-to-launch timelines of 2-3 years are no longer delivering first-mover advantage. Nimbler, unencumbered competitors are outmanoeuvring the multinationals on an almost daily basis. Who was first to introduce current account mortgages? The big banks? No. It was the new entrants, like Virgin in the UK, who innovated first. Who first delivered reliable, easy to use mobile email to business users? The big mobile players? No. It was a start-up company called Research InMotion that introduced the Blackberry, which is still the lead player in hardware and software. Even if major corporates' new ideas are really good, they still might fail unless they are delivered to market as fast as a new entrant.
Increasing scrutinyAs a result of this situation innovation has come under an unprecedented amount of scrutiny. The business process engineers have pored over the workings of Marketing, R&D, Research and countless other departments. They have been installing and perfecting ways to make innovation more effective. All manner of management information systems have sprung up to quantify innovativeness; from softer organizational cultural measures like 'openness to new ideas', to harder quotas like specific return on innovation investment targets. All these and more are popping up on CEO's radars. Greater accountability, greater efficiency and greater effectiveness are the goals they're after because they know that doing innovation better will drive sustainable sales growth and profits.
Figure 4.3: Proportion of Innovation projects that fail.Source: Brandgym research.
But it's just not happening.
Innovation isn'tYou don't need me to tell you that innovation success rates are low. For most companies, most of the time, innovation is not happening faster, more efficiently or more successfully. In fact, it's quite the opposite. It's getting worse. More resources, energy and time are being spent innovating than ever before, and the results are dismal. Only 50% of brand extensions survive after three years (Taylor, 2004). If you expand this to include all new brand launches and business start-ups - the numbers get worse.
And this poor hit rate is just for those that get launched. How about all the innovation projects that fail to deliver new products or services that are worthy of launch? Research by the Brandgym, shown in Figure 4.3, shows that approximately half of all innovation projects fail to deliver the ideas that are launched. And that is shining a pretty positive light on the numbers. The real proportion of failures could be nearer two-thirds.
It's a lotteryThis means that as you set about your next innovation project, dreaming of the golden day when the CEO slaps you on the back and says 'well done' for turning around the company's fortunes with your brilliant idea, the actual chances of your delivering something that will last longer than three years are . . . well, incredibly small.
Taken from Return on Ideas: A Practical Guide to Making Innovation Pay, by David Taylor, published by John Wiley & Sons