Why Innovation Matters

In any competitive market innovation is a requirement. Whenever a product or service is introduced it must struggle to catch on with the market.  Once it does there is a near magical window of time when the company that offers the product has an open field without material competition. This is the Land of Opportunity:

Opportunity to Exposure on Life Cycle

But, success breeds imitation and soon there are multiple similar offerings and the competitive advantage transitions from the unique product to unique customer service to uniquely – commodity product or service.  Unless something is done company revenues from the product will decline even as unit sales increase.  This is the land of Exposure.

Someone is going to come up with something better; a newer product with broader applications and features.  It could be the original company, it could be a competitor, it could be a new entry from outside the industry.  What is certain is that the revenue growth from the current offering will peak and the long-term winners are companies that are working on and introducing the next innovation as the market is approaching the peak.  It is those companies that ride the next upsurge in revenues when competitors are fewer and margins are at their best.  Any company that can continuously take advantage of the next market before their current products are commoditized is a winner.  Just ask Apple.

At the same time, one can over innovate, reach too far.  A company with too little coordination and discipline regarding what ideas are being worked on, which are being placed into the market and how much of the company’s future is tied up in their success or failure is asking for trouble.  Just ask AIG.

Innovation matters because for most businesses in most industries it is the key to sustained success.  Without it management is steering a path to a long decline and eventual exit from the market.  Innovation matters because it can be directed.  Management can say how much of current revenue to retain for the next idea, what kinds of idea to foster, what kinds to look for in customer requests and the ideas and actions of competitors and tinkerers alike. Innovation matters because left unguided it can damage and even break entire companies.

Innovation matters.

Doug Brockway

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