Co.Design

How Real Innovation Moves the Needle

Up until a year ago, innovation was the toast of the business world. Companies around the world were investing heavily in design, launching new products, and even building virtual retail stores in Second Life. Then the financial crisis erupted, destroying shareholder value, corporate budgets, and family income alike. In the wake of that disaster, it's entirely legitimate to wonder: is innovation relevant anymore?

Well, it depends on how you think about it. If it means making a bunch of cool stuff that gets a lot of buzz but doesn't go anywhere, innovation is way out of season. But that's missing the point. Real innovation isn't about novelty, it's about how many million, or even billion, dollars you need to add to the top line next year. It's about asking new questions that your organization needs to answer. It's not that innovation isn't relevant, it's that stupid innovation isn't relevant anymore. Especially in tough times, companies need innovation that addresses one of three key strategic mandates: reinventing the core business, expanding beyond the core, or facing down an existential threat. That's what this blog is all about: innovation that actually has a business impact. And here's how to create that kind of innovation.

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Reinvent the core business. No matter how much an industry, product, or sector is booming today, it will either be transformed or demolished tomorrow. Every single company needs to constantly innovate and experiment just to deliver steady results in the face of an ever-shifting market and overwhelming price competition. Such market serenity is an audacious mandate. Just as a graceful swan moving through a pond needs to paddle like hell underwater to maintain momentum, corporations need to do wild stuff below the surface to remain calm above the water line. Five years ago, making mobile phones was a fantastic business to be in. Now margins have eroded, growth is slowing for the first time ever, and only Apple and RIM are making any money. That's why Tero Ojanpera's efforts to transform Nokia into an entertainment company actually matter. He knows Nokia won't remain great by coming up with one or even fifty new phones--it needs to fundamentally reinvent itself.

Expand beyond the core. As any good farmer will tell you, diverse systems are significantly more productive and resilient than homogenous ones. If you grow only corn, the arrival of a single pest can destroy your livelihood. Unfortunately, most industries are banking their future on one type of crop. When their existing markets flatten or slow, they have nowhere to go. Great companies figure out how to find new growth beyond their existing businesses that, in turn, reignites excitement about the core. Think about Disney starting out in animated films and expanding into theme parks and eventually cruise lines that reinforced its dominance in personal entertainment. Nike has also done remarkably well here. About a decade ago, its leaders realized that Nike wasn't just a shoe company, it was a sports company. And as a result of this strategic shift, it got into sunglasses, watches, and MP3 players with remarkable speed and success. Those adjacent businesses have, in turn, helped to increase demand for the core footwear business.

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Face down an existential threat. It's not that often that companies face obsolescence. The car doesn't replace the horse-and-buggy every day. But when such threats arise, it's time to innovate or die. Think about AT&T when long distance rates collapsed in the face of a deregulated market. Think of Sony when rising labor costs made their Japanese manufacturing base no longer cost-competitive. Think about the struggles of every newspaper in America today. These are the kind of issues that business leaders don't like to deal with but can't afford not to. When faced with such a threat, managers feel a very human need to be the one person who has the answer. It's far more important to frame the question to the rest of the organization and spur hundreds of new ideas and experiments to find a way out of the mess you're in. Amazon's remarkably unflashy Kindle was initially viewed as a dalliance with hardware for the world's biggest book store. It's actually a response to just such a big-picture threat. Newspapers, magazines, and book publishers are all vanishing right now. Wood pulp might be going away as the dominant medium for information, but Amazon's defining what comes next so it will be around as long as reading and writing are.

Get back to real innovation. Especially in tough times, innovation matters. Just remember: It's not about novelty. It's about creating new businesses that actually move the needle. It's about growth.

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Dev Patnaik is the CEO and founder of Jump Associates, a firm that helps companies create new businesses and reinvent existing ones. A trusted advisor to senior executives at some of America's most admired companies, including GE, Nike, Target and Hewlett-Packard, Dev is also an adjunct professor at Stanford University, teaching design-research methods.

His book Wired to Care: How Companies Prosper When They Create Widespread Empathy, making the audacious argument that the human power of empathy is the source of all innovation, was published in spring of 2009 by the Financial Times Press. A frequent speaker at marketing, design and innovation forums, Dev was recently featured as a guest on "The Business of Innovation," a series on CNBC. His articles on innovation and strategy have appeared in several publications including BusinessWeek, Brandweek and the Design Management Review.

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