Dr. Kaihan Krippendorff, Author Driving Innovation from Within: A Guide for Internal Entrepreneurs [Columbia Business School Publishing, October 22, 2019]
Many people assume that implementing innovative ideas will automatically make a company more successful. But while being innovative may generate admiration, press coverage, and a top spot on various “most innovative companies” lists, it does not necessarily equal success.
My new original research shows that the vast majority of companies recognized as innovative do not outperform their competition because the innovations they’re bringing to the table do not create any advantage for the company.
All the world’s a stage
According to innovation experts Rita McGrath and Steve Blank, companies that come up with a flurry of innovative activity that doesn’t ultimately result in tangible outcomes are performing “innovation theater.”
They’re putting on a show of being innovative, perhaps through brainstorming sessions, one-day “hackathons,” setting up an incubation lab near Silicon Valley, or a series of emails to employees encouraging them to submit ideas. But at the end of the day, none of this adds financial reward to the company.
The reviews are in
To determine whether innovative companies outperform their competition, I compiled a list of 367 organizations that have appeared multiple times on Forbes’ or Fast Company’s “most innovative companies” lists over the past five years. After assessing the companies’ five-year averages of annual revenue growth, earnings before interest and taxes (EBIT) margins, return on investment capital (ROIC), and total returns to shareholder (TRS), I removed all of the companies that did not outperform their peers.
That left us with just 13 companies: Amazon, Apple, Coloplast, Regeneron Pharmaceuticals, Illumina, Incyte Corporation, Mastercard, Naver Corporation, Netflix, Starbucks, Tencent, Vertex Pharmaceuticals, and Visa.
Following the definition of “innovation” from Steve Jobs, who said, “innovation is creativity that ships,” this means that 96% of the companies we assessed are not actually innovative. They may be creative, but their creativity is not shipping. They are instead simply performing innovation theater.
Hitting your mark
Looking at the innovation strategies of the “most innovative” companies that failed to outperform their peers suggests four things you shouldn’t do if you want to hit the mark when it comes to innovation.
Avoid the distraction of innovation theater
Don’t get distracted by companies flaunting flashy things like Silicon Valley-style incubation centers, internal business-plan competitions, and modern open-office layouts. Those things attract attention and make people think the company is innovative, but unless they’re also gaining financial value, they’re just putting on a show without substance.
Don’t limit yourself to products
Companies that are on the “most innovative” lists but fail to outperform their peers tend to concentrate their efforts on product-driven innovation, touting figures such as patents filed and number of research labs. But this activity isn’t enough. You also need to build a capacity to continually innovate through institutional changes.
Don’t overlook your scale
Since startups are deemed the epitome of innovation, large companies often make the mistake of using them as inspiration, thinking it will get them off on the right innovative foot. However, by following startups’ blueprints, organizations are overlooking a significant advantage that they have over their entrepreneurial brethren – their size.
As a large organization, the finances, talent and contacts you have access to allow you to innovate in ways startups can only dream of. Capitalize on that advantage.
Innovative companies that fail to outperform talk often of isolating innovations in incubation labs and innovation centers. While such efforts are often necessary initially to reduce organizational friction, it’s important to recognize when to integrate your innovation into other parts of the company to take advantage of access to internal products and services that smaller organizations may not have.
For example, had Amazon managed its Echo smart speaker or Kindle reader as independent businesses, it would have lost the opportunity to give such hardware away at a cost that smaller competitors could not match, capturing value instead through content.
Innovation is not a show. It’s not just about generating as many ideas as possible in innovation competitions, reworking the office layout, or getting media coverage. In order for your company to be considered truly innovative, the ideas your people are generating must not only be different, they must also be valuable.
If you avoid innovation theater and focus on ideas that bring tangible value to your company, you will outperform your competition.
About the Author:
Dr. Kaihan Krippendorff was elected to the Thinkers50 RADAR list as one the 30 management thinkers to look out for in the coming and shortlists as one the 8 most influential innovation experts in the world. He is a top business strategy, growth and transformation keynote speaker that has helped inspire, motivate, and arm hundreds of thousands of people with the tools and mindset needed to win the future. Having begun his career as a strategy consultant with McKinsey & Company, Dr. Krippendorff is now the founder of the growth strategy firm Outthinker and The Outthinker Strategy Network, a global community of heads of strategy of large corporations including Pfizer, CVS, QVC, Macmillan, BNY Mellon, and Viacom. His work has generated over $2.5B in new annual revenue.