The newsletters of Adam Hartung.
Keynote Speaker, Managing Partner, Author on Trends
Are You Lost in the Innovation Gap?
In the Wellspring of the product lifecycle river, organizations are creating innovations (see last month’s newsletter on the Lifecycle River here.) In the Rapids it’s all about finding customers for those innovations.
As volume grows organizations start focusing on optimizing operations, thereby “locking in” the Success Formula. Unfortunately, this decision – which seems obvious – almost always leads to decline!
Optimization causes an organizational shift away from focusing on the marketplace, toward focusing internally. More controls are implemented to insure standardization – and “process management” affects all parts of the company. The byword is “focus” as parts of the business are jettisoned, product lines dropped, assets sold and headcount lowered. These actions move the company from the Rapids of growth to the Flats of business model optimization – which produces short-term profit improvements, but cuts ties to market inputs necessary for long-term growth.
Think About GE
As CEO from 1981 to 2001 Neutron Jack expanded GE into multiple businesses from media (NBC/Universal) to financial services (GE Capital.) In the growth Rapids GE’s value (adjusted for splits, etc.) rose from $1.30/share to $46.75 – 35x or 3,500%. As CEO Jeff Immelt has“refocused” GE on its “core,” selling multiple businesses as he moved to grow profitability. Since 2001 GE’s value has fallen to $29.05/share – a decline of 38% (meanwhile the DJIA has almost doubled in value.)
In the Flats investments for low risk projects improving the existing business are approved rather than grander investments in new innovations. Although profits improve,the further the company (or product line) travels from the Rapids of customer focus into the optimization Flats, the greater the chance it will miss the next cycle of innovation and slip into the Swamp of decline.
As other companies continue innovating, market growth continues (often with substitutes) but the former leader does not participate. “First Mover” advantage disappears because innovators leapfrog the creator. This gap between market growth and company growth is called the Innovation Gap. The longer the company focuses on optimization, and profit maximization, the larger the Innovation Gap becomes.
To avoid becoming stuck in the Flats it is crucial to maintain a growth focus and avoid a profit focus. Like Amazon.com, you must track trends and competition and never hesitate to keep innovating. Investments in Wellspring projects must be maintained, and the lure of constantly investing to improve the old must be held at bay.
Next month we’ll discuss how you can track your resources in order to keep investing in the Rapids.
Add me to email list!
“You’ve got to keep reinventing. You’ll have new competitors. You’ll have new customers all around you.”
Chairman, President and CEO of IBM
Actions you can take
Don’t hesitate to ask for help in making your organization more adaptable, and your strategy embedded with options based on market shifts. You could start with an underperforming product or brand. Audit your company’s market sensing process at least twice a year. Does the process look outside the customer base and known competitors? What technologies might put the product line at risk?
How we can help
Our two decades of helping organizations identify and implement innovations gives us keen insight into how sustaining, expanding and disruptive innovations can be identified, evaluated for risk and cost, and managed for successful market growth. Our experience and processes will help you grow via innovation with more confidence, less time investment, lower cost and faster, greater returns.
For more on how to include trends in your planning, I’ve created a “how-to” that you can adapt for your team. See my Status Quo Risk Management Playbook.