If innovation is about Eureka and success is just the heroic art of a genius, what is the role of management? In managing innovation, is it about just the art of getting things done through people? Despite the contributions made by management gurus like Peter Ducker and many others, perhaps, contemporary management theories miss a few salient aspects of managing innovation. Instead of managing managers, workers, and work, managing innovation focuses on the growth of the lifecycle of ideas for ferreting out profitable revenue in a competitive market. It deals with predicting the future and pursuing ideas out of the technology possibilities for offering better products and processes.
Despite the growing role of innovation in business, often, innovations begin the journey at a loss. The management challenge is to turn it into profit and sustain it. For example, significant innovations like the light bulb, smartphones, and many more started the journey at a loss. To have better clarity, let’s look into different dimensions of managing innovation for turning loss into sustained profit.
- Innovation is a savior for facing conflicting requirements
- Loss-making beginning of innovation
- Managing uncertainty
- Managing synchronization
- Technology sourcing
- Detecting and leveraging discontinuity
- Managing incremental and sustaining innovation
- Managing scale, scope, and externalities
- Pursuing recreation through creative destruction
- Avoiding Kodak moment
Innovation is a savior for facing conflicting requirements
Human beings have an inherent urge to find means to get jobs done better by consuming fewer resources. For this reason, customers are always looking for better products at less price. On the other hand, investors are after growing profit, and employees want an increasing pay package. Besides, the Government wants more taxes, and society demands less consumption and pollution. To address these conflicting requirements, producers are after innovation so that ideas make products better, lower consumption of resources and labor, and reduce emissions. To keep addressing them, innovators need a systematic flow of ideas to keep showing predictable performance. Hence, managing innovation begins with the challenge of the systematic flow of ideas for dealing with conflicting requirements.
Loss-making beginning of innovation
Despite innovations’ role in meeting conflicting requirements, all great innovations began the journey at a loss. For example, Apple I was a loss-making product. Similarly, the first smartphone, Simon, could not show profitable possibility. Hence, just after one year of birth, IBM discontinued it. Likewise, Tesla’s electric vehicle has been at a loss for almost 20 years. Therefore, the loss-making beginning is the natural characteristic of innovation. How to turn this loss into profit and sustain it for decades is a core issue of managing innovation. For it, we a need a flow of ideas to keep improving the quality and reducing the cost. For example, due to ideas, innovators have succeeded in turning the loss-making emergence of microwave ovens into a sustained profitable business.
The journey of innovations is fraught with pervasive uncertainties. Sources of uncertainties include technology, consumer preference, competition response, infrastructure, team’s ability to generate ideas, risk capital need, availability of 3rd party components, and standardization. Each of them deserves management attention. Managing innovation demands predicting and acting in a way that keeps increasing positive effects on the journey of innovation. Due to such uncertainties, often, management makes a wrong decision, kills innovation, or gives away innovation opportunities. For example, IBM could not predict the likely future of the PC. Hence, it gave away the business of microprocessors and operating systems to Intel and Microsoft, respectively. In fact, both Microsoft and Intel grew due to IBM’s this decision, which also caused substantial harm to IBM’s minicomputer and mainframe computer business.
No innovative product succeeded due to the capability of a single firm—let alone a single heroic character. Often, innovators are aggregators of components supplied by many other firms. For example, Apple sources iPhone components from more than 200 suppliers. Notable, if Sony could not keep improving the camera module, Apple could not have been able to release recent versions. Furthermore, there is a need for synchronization with infrastructure and consumer preferences.
Unfolding and evolution of a single innovative product demand multiple technologies. How to source those technologies and leverage them is a significant management challenge. In many cases, innovators need to source them from the outside. But often, they are not readily usable. Hence, they need refinement, and the process of improvement should keep continuing to support the flow of ideas. Due to the crucial role of technology sourcing and the risks of making mistakes, managing innovation faces a big challenge. It demands technology monitoring, assessing the latent potential, and predicting the likely future.
Detecting and leveraging discontinuity
Like living things, innovations keep evolving, often through the reinvention of technology core, supply chain, and business model. For example, the growth of small fabless semiconductor firms created a discontinuity in the semiconductor value chain. It happens to be that Intel ignored it, and TSMC leveraged it, resulting in the rise of TSMC and the fall of Intel. Instead of the big bang, often, innovation successes and failures are caused by the growth of discontinuity through the snowball effect. Hence, managing innovation must pay attention to detecting discontinuity and leveraging it, as opposed to getting burned with its rise.
Managing incremental and sustaining innovation
For expanding the market of innovation, a flow of ideas in incremental advancement should be added. The consistent incremental progress has been at the core of turning loss into profit and sustaining it. For example, the cost of electric vehicles or producers’ loss has been falling due to the incremental advancement of the battery pack. Similarly, word processors softer kept expanding the customer base due to sustained incremental improvement over decades. The remarkable success of dissuasion of automobile innovation has been due to continued incremental advancement over more than a century.
Besides, incremental advancement plays a vital role in sustaining innovations in the market. To counter the erosion of willingness to pay for innovation due to competition, innovators need to keep releasing successive better versions in a predictable manner. Hence, sustaining innovation in a competitive market is a big challenge for sustaining and growing revenue and profit.
Managing innovation focus on scale, scope, and externalities
As said, irrespective of the greatness, all innovations begin the journey at a loss. The core challenge of managing innovation is to turn this loss into profit and sustain it. To deal with this challenge, management should focus on expanding the scale, scope, and positive externality effect. For creating the scale effect, the focus should be on the systematic flow of ideas for adding and enhancing features, so that perceived value keeps growing. On the other hand, the development of a closely related family of products creates a scope advantage as the same core assets are used in member products. Furthermore, management should look into those features, like options of 3rd party plugins, for creating the externality effect. Managing these aspects is vital for creating the innovation effect of winner takes all.
Pursuing recreation through creative destruction
Irrespective of the greatness and management performance in incremental advancement, all innovations mature. As a result, the progress in expanding customer base, revenue, and profitability slows down. Furthermore, the saturation effect also slows down the release of successive better versions to sustain the innovation in the market. One of the underlying reasons for reaching saturation is the maturity of the technology core. Hence, management faces the challenge of embarking on recreation by changing the mature technology core with an emerging one. But innovations after reinventions show up in inferior form, resulting in the management challenge of keep nurturing it, leading to creative destruction.
Avoiding Kodak moment–a key challenge of managing innovation
Although mature products must go through reinvention to find another growth path, it poses decision-making challenges to the management. First of all, mature products have proven market and profitable revenue. But recreated products emerge in primitive form, generating loss-making revenue. Besides, there is uncertainty about whether the primitive emergence is amenable enough to progression for turning the loss into profit. Hence, the management of incumbent firms producing mature products suffers from a decision-making dilemma. Due to it, often, reinvention waves forming the creative force of destruction are led by new entrants. If incumbent firms fail to switch to new waves, they suffer from the disruptive innovation effect known as the Kodak moment.
As explained, managing innovation is far more than activities pertaining to the administration and engaging people to work. Yes, we need an administration and disciplined approach to engaging people to work, but understanding innovation dynamics is a core management challenge. In the absence of it, there will be no strategy and decision-making reference, leading to likely failure or relying on luck.