Note: This is part of a series of posts explaining the individual parts of The Innovation Matrix. See this post for a description of the full model and what can be done with it.
Not Innovating Very Much
Firms that fall into this category have none of the processes or skills in place that are needed for innovation. Management exhibits no Innovation Commitment – innovation is not addressed in the firm’s strategy or values, no resources are allocated to innovation and no official effort is expended on getting better at innovation.
However, this isn’t always the kiss of death for innovation. As we’ll soon see, it is actually fairly common for firms to lack Innovation Commitment but still be reasonably good at executing ideas. It’s just that firms with no innovation capability aren’t any good at executing new ideas.
They simply lack any innovation capability.
When we often hear things like “Innovate or die” it might seem like this is a very bad place to be. But this is not necessarily true. Some firms that don’t innovate are actually reasonably safe, at least for the time being. Here are some examples of firms that end up in this category:
- Well-established firms in stable industries: if you fit in this category, then it might be ok to ignore innovation. Ignoring innovation is fine as long as your are meeting your objectives, and, more importantly, the environment isn’t changing around you. Many government departments fall into this category, which is part of what makes public sector innovation challenging.
Some other examples include: television broadcasters before the advent of cable TV, US automakers before they got hit by the OPEC oil embargo and then Toyota, and Newspapers before the rise of Craigslist and the internet.
A lot of the major resource-extraction companies fall into this category right now too.
If you’re in this category, it’s ok to ignore innovation, as long as your environment isn’t changing. But if you think it isn’t, are you sure?
- Monopolies and oligopolies: rarely think about innovation. In fact, this is one of the stronger arguments against monopolies. In addition to extracting rents from customers, monopolies and oligopolies tend to strangle innovation in their fields. Examples include: many government departments (again), firms with legislatively-protected markets (Telmex-telephones in Mexico, EMBRAER-plane manufacturing for many years in Brazil, CSL – vaccines in Australia), banks in most countries (see the big 4 here in Australia).
If you’re a monopoly, putting any effort into innovation takes away from the profits that you’re making from your market position, so why bother?
- Some startups: most startups don’t fall into this category. Schumpeter was one of the first to argue that all new firms are founded on an innovation, but there are two groups that don’t: startups in bubbles and startups in trouble. Startups in bubbles don’t need to do anything new or special – they can often get by just by jumping in and doing what everyone else is doing (see The Property Ladder Theory of Bubbles for an example). One of the characteristics of a bubble is that everyone investing in them looks really smart, right up until the bubble pops.
Startups in trouble is the other group here. These are ones that are entering into new markets with no new ideas. Why do so many new restaurants fail? It’s usually not because the food or service is lousy. It’s usually because they’re not doing anything that’s in any way distinctive.
- Established firms that have forgotten how to innovate: one of the features of The Innovation Matrix is that it looks at dynamics. Most of the firms in this category were not born un-innovative, they evolved their lack of innovation capability. This can be driven by several factors: an increasing focus on efficiency, forgetting what made you successful in the first place, losing all of your creative people (is this happening with Google right now?) and so on. This is what Jeffrey Phillips frames so well as the Business As Usual problem.
What should you do if you are in this category? In part it depends on why you’re here. If you are a well-protected monopoly, then you don’t really need to do anything. I don’t think innovation will ever be a big priority for Carlos Slim and Telmex.
However, I actually end up working with a lot of firms in this box. For many of them, the first step is to start thinking about how they can put some innovation infrastructure in place. They start increasing their Innovation Commitment. I’ve also seen a few firms move out of this box by improving their innovation capability in a more bottom-up way, by getting better at executing new ideas.
If you are in this category, there are two critical questions to consider:
- Is there a gap between your current performance and where you’d like to be?
- Is your environment changing?
If you are performing well in a stable environment, then maybe you don’t need to do anything about innovation.
But if you face a performance gap and/or a changing environment, then you need to develop a strategy for building your innovation capability.