Most of you would know the Nietzsche quote “that which doesn’t kill is makes us stronger” (or it could be a Kelly Clarkson quote, depending on your age). My main point for today is that quote also applies to innovation and this has far reaching implications for anyone trying to make a firm or industry more innovative.

Last year I was talking with Narelle Kennedy, CEO of the Australian Business Foundation, who has done a great job in connecting businesses, research academics and politicians to get a sensible and informed debate on innovation and growth in Australia. With colleagues at the University of Queensland Business School we have been running a large longitudinal survey of innovation and performance in Australian firms. One of the consistent patterns in the survey is that firms are far more likely to innovate when they are in a tough competitive environments. When I explained this to Narelle her response was something along the lines of “that makes sense, you need to experience pain to innovate”.

Narelle is exactly right! The list of evidence that innovation comes out of hard times and challenges is very long. For example, this is a central message in Michael Porter’s classic work “The Competititive Advatage of Nations”. To quote Porter:

A nation’s competitiveness depends on the capacity of its industry to innovate and upgrade. Companies gain advantage against the world’s best competitors because of pressure and challenge. They benefit from having strong domestic rivals, aggressive home-based suppliers, and demanding local customers.

And this is also the reason why protecting industries from competitive pain and providing public funds for pain relief rarely makes a business more competitive. With mainly good intentions, millions of dollars have been spent supporting the Australian car industry and yet it continues to die a slow and painful death. Like a billion dollar game of Russian Roulette, each government hopes that they can provide enough support so that the big collapse will occur during the life of the next government.

A good case in point for the ‘benefits of pain’ is a pretty amazing chart from Business Insider of the efficiency gains in the airline industry. I use the airline industry as an example of cut-throat competition in my MBA strategy class and Warren Buffett’s famous quote is particularly good:

If a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.

This is the kind of environment that produces the cummulative innovations that result in chart below (taken from Alan Kohler’s Eureka Report).

While traffic has increased 45%, fuel usage has increased 3%. To stay alive in this industry, firms need to continually find ways to improve pricing power and reduce costs and fuel efficiency is a big part of that.

If you want to be more innovative, embrace pain and challenge yourself.