Innovation Culture

Successful Yet Misdirected Innovation

The Quagmire of a Positive Innovation Culture

by Paul O’Connor

Innovation is interesting. To declare your work a true innovation, you need to create a new offering and then win over a customer.

You seldom hear managers say an innovation is bad. By definition, an innovation is successful. It must fulfill a need, and a customer must pay for it. There’s nothing bad about that, at least that’s what many managers believe.

Problems arise when a company’s culture drives managers to embrace every innovation. Just because a new offering finds customers doesn’t mean it deserves endless praise.

Innovation is Different

The issue is that innovation differs from most business topics. An innovation’s value and costs aren’t reflected in the money and time you invest. Sure, money and man-hours matter, but it’s the innovation itself that matters most. It’s not the investment.

Consider a team of five people working on a new development. They might create a new product, producing $5 million in annual revenue. Compare this case to the same five people working on a different development. The second product is much different. Instead of $5 million, it looks to deliver $250 million in annual revenue. Should the company be happy delivering a $5 million product when they fail to deliver the $250 million opportunity?

The difference is the underlying product; it’s the innovation itself. It’s not the investment, and it’s not the people.

B2C versus B2B

This issue plays out differently for Business-to-Business and Business-to-Consumer innovations. It turns out finance and economics affect much of what happens within these two categories.

In B2C, the retailer will remove an innovation from their shelves or channels if it doesn’t sell in large enough volumes. When sales fall off, continued marketing becomes hard to justify. Success and failure in B2C markets play out clearly.

But B2B judgments are less clear. Companies continue to sell B2B innovations if their variable cost is lower than their price. Plus, you’ll see the original investment doesn’t matter. The thinking is that sunk costs, those that precede any decision, are irrelevant. The decision should look to the future, not the past.

Platform-lever Mistakes

B2B judgments appear competent until they don’t. Unfortunately, marginal innovations add to indirect costs, and these costs grow and spread deeper into an organization, creating ugly situations. It’s because misdirected innovations shortchange a company. They rob the company of bigger opportunities and create major cost structure issues.

But the real problem is that a positive innovation culture makes the misdirected innovations seem stellar.

Avoiding Failure Isn’t Enough

The innovation projects you work on matter. The challenge is to find the significant innovations that are likely to succeed. The task isn’t to search randomly, nor is it to accept marginal projects.

Yet, the approach companies take often creates enormous problems. It happens because management is nurturing a “positive” innovation culture, one that rewards all contributors with praise, whether their project results are genuinely stellar or not. It’s like presenting everyone with a trophy for participation, not for winning.

Whether $5 million or $250 million, companies celebrate the innovation, and they tagged those that fall short as “learning experiences.” The reinforcing message is to fail fast, so you learn quickly. It creates a terrific environment for makers and shakers who need to learn a lot. But such culture can also cause a company’s slow death.

Add to this the knowledge academics offer. They’ve contributed many deeply insightful studies about innovations and product development. It’s because of their work we know to avoid many reasons that lead to failure. The top of the list is matching the potential innovation to customer needs. And while we still get tripped up by the challenge, we’re worlds beyond the “build it and they will come” approach.

It’s an Austin Powers’ logic arguing, “who needs to be a billionaire when you could be a millionaire!”

Our New Problem

Today, there’s a new problem plaguing innovators. It’s not about avoiding failure, as the academic community posits. Instead, today’s challenge is to help companies avoid innovations that deliver positive cash flow but don’t help strategically. Misdirected or marginal innovations are dangerous.

Sure, managers might judge marginal innovations as winners. It works, and somebody bought it; but at what cost? What opportunities were lost to its success? Should we smile about the successful $5 million innovation when we didn’t see the $250 million opportunity?

It’s verboten to lament how a team missed a quarter-billion-dollar opportunity in a positive innovation culture. Instead, the positive culture says, let’s celebrate their $5 million success. It’s an Austin Powers’ logic arguing, “who needs to be a billionaire when you could be a millionaire!”

Many companies have worked through a first response to their issue of having too many small projects. They can thank portfolio management. Here, the recourse is to kill minor projects and shift resources to the better projects.

More Than Portfolio Management

But killing a project does nothing to find new, significant opportunities. That task falls outside portfolio management’s role. You can hear every PMO declaring finding new opportunities is not my job. True enough, but it is the single most important factor affecting the value of the portfolio they manage.

When an innovation culture joins a dominating sales culture, things get more challenging. Who’s to argue with the sales vice president who says, “my top customer wants this innovation?”

The good news is it keeps the customer and the sales team happy. But just because the big customer wants the innovation doesn’t mean others will pay for it. Big customers don’t always represent market segments that lead product lines into the future. Instead, you’ll find the most common big customer requests to be “more-cheaper” demands. They’re saying, “give me more performance at a lower cost.”

Slippery Life Cycle Curve

To an extent, “more-cheaper” is fine. But suppose you stick with these requests without adding new performance attributes. In that case, you’ll be racing down your product line’s life cycle while losing opportunities to renew and extend the curve. That’s why most strategists would consider the “more-cheaper” big customer innovations to be misguided.

Big customers aren’t the only reason for misguided innovations. You’ll also see them when top managers support “open” techniques. This work purposely stretches perspectives. It demands freedom from norms and assumptions, a classic approach that drives creative thinking.

Cultural support for openness can empower managers and teams to go in interesting directions, but it can also cause problems. Often, the open and positive innovation culture will allow teams to forgo testing an innovation’s fit to the business, at least not until the project closes in on launch.

Why do companies do this? It’s because the culture encourages the belief that testing the fit of a potential innovation is an opposing force pushing against creative activities. It’s a force the culture purposely seeks to offset or squelch.

Focus on Product Lines

The problem is that non-fit innovations only matter to a business when they’re notably large. They must be large enough to start completely new product lines and business units. When companies uncover such large innovations, the culture should rightfully release their endorphins and celebrate the win!

Difficulties arise because non-fit innovations are neither well-thought-out nor well-planned. Supporting openness that leverages a company’s knowledge rarely leads to complete new businesses. When it does, it’s great. Most often, though, it leads to contributions that alter existing products and approaches. These changes don’t help product lines enough. They are marginal, and they become significant sources for mounting complexity costs.

Most companies don’t tailor their search for innovations to improve product lines meaningfully. They don’t create innovation projects based on a strategy. Instead, it’s the opposite. They find an opportunity and seek to alter the product line.

Pivot to Renewal

The most severe challenge companies confront is when products and product lines slip into maturity. Mature life cycles create a great need to renew platform-levers, reposition products against competition, and ramp up customer satisfaction across different market segments.

These are strategy challenges that demand companies to focus and target their innovations. And companies achieve this by building insights and coordinating actions that cause potential innovations to boost one another. The fit of the products with one another and their markets matters most in product line renewal. Product unison enables a synergistic boost to the line.

The strategy-based approach delivers much more than companies realize from one-off product creations supported by an open and positive innovation culture. The results can be stellar when companies anchor innovation efforts in strategy.

When a well-thought-out strategy sits alongside a strong innovation culture, the results can be profound.

A positive innovation culture without strategic footing can cause much damage. Even when resulting innovations appear successful, the randomness of results will negate opportunities for synergy across products. Competitors who follow a smart strategy course will leave a strategy-less company in the dust. The only benefit gained from pushing an innovation culture without strategy is that managers won’t feel the pain of losing opportunities.

Strategy and Culture

Smart managers and leaders capture much within an intelligent product line strategy. It couples insights and foresight to systems thinking and creative design. To work, however, culture-driven behaviors and decision-making must align with the strategy. It’s the alignment that’s critical to pushing a product line’s performance.

Don’t confuse a positive innovation culture with a good product line strategy. Strategy and culture are different. It may feel correct to embrace a positive innovation culture. But if you do so while ignoring a product line strategy and its parts, you’re bound to marginalize your work and fall short of your goals. Ironically, the positive culture will encourage you to revel in such marginalized success.

An innovation culture must not only support a product line but also push the line forward deliberately and energetically. The interplay between culture and product line strategy doesn’t mean product innovations outside existing lines are wrong. Instead, innovations should drive current lines, and if they don’t, they must be big enough to create new lines with their own strategies. These non-product line innovations are the reason businesses must enable lean startups independent of existing product lines.

Product innovation goals should strive to improve revenue, increase customer satisfaction, and beat competitors. These are hallmark results of a stellar strategy.

The “No” Strategy

If a company’s culture sets up an environment where managers can’t say “no” to marginal or misdirected innovations, then the company has no strategy. Saying “no” shouldn’t be an opposing force swirling within a positive innovation culture. Instead, clearly stated strategies should help guide teams in pushing a product line forward while avoiding marginal innovations.

A culture’s job is to help managers to make excellent decisions and revel in outstanding work. It’s not to support innovation blindly.

The problem for many companies with positive innovation cultures is they fall short on strategy. They mask their misguided and marginal innovations by creating an environment of positivity. That’s not smart. Culture shouldn’t mask poor strategy.

Product Line Strategy Fundamentals

To create a productive culture, innovators and leaders must understand what makes a product line strategy, and what makes one better than another. The link between strategy and culture is critical. It’s up to managers and leaders to learn the fundamentals needed to create this link. And hopefully, the learning is specific to their products, business, and organization.

Learn More and Take Action

Recognizing how marginal innovation can harm a business is crucial.  But it’s also irrelevant if you don’t take action. Translating this knowledge into actions requires whole organizations to learn and act. One person cannot carry out all that is needed.

Please encourage others in your organization, not just those in marketing or technology, to learn the importance of product lines and their strategies. But do this with an eye toward moving your business  forward.  Smart innovation is key to your future, marginal innovations are not.

Here are three short online courses to give you and your colleagues a deeper understanding.

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