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Companies that are losing their market leadership position often act like countries at war. They start to focus on building up their internal armies and processes, instead of making peace with their customers. In response to revenue drops, businesses shift from external innovation to internal innovation, often leaving product innovation lying dead in the dust.
Since this article will be read by people around the world, I need to set up a joke: For three years I attended a university named Texas A&M, whose students are called Aggies (derived from the word agricultural in the original college name). Aggies are known for their "Aggie jokes," which poke fun at the Aggies themselves. (I guess the Aggies figured that if they were going to be the brunt of jokes, they might as well be the people telling the jokes.)
In Texas (where I grew up) and other parts of North and South America lives a bizarre-looking animal known as the armadillo, which is Spanish for "little armored one." Armadillos, which often live in burrows in the ground, are the mammal equivalent of the little "pill bug" that rolls up into a ball within its protective shell when frightened. Armadillos seem to like testing the strength of their outer shells, and therefore armadillo carcasses litter the highways around the state of Texas.
Now, after that long and hopefully not-too-boring setup, here's the promised Aggie joke:
After years of research, scientists at Texas A&M have determined that armadillos are born dead on the side of the road.
Innovation Road Kill
There are two generally accepted ways to increase income: Increase revenues or decrease costs. That's it. Most other methods either are illegal or should be.
There are also two generally accepted ways for a company to innovate: externally or internally. External innovation increases the value of a product to the consumer, resulting in increased revenues. Internal innovation decreases the overhead of internal infrastructures and processes, resulting in lower costs.
Unfortunately, for many companies, the way that innovation occurs within the company isn't much different from the results of the Aggie joke above. Decisions are made based on little or no information, and the information that is available is accepted as completely accurate and universally true.
When innovation actions are determined based on limited information that's poorly interpreted, the result is "innovation road kill," where the bulk of innovations are born dead on the side of the road.
Even worse, each new innovation "death" is attributed to the implementation skills of the employees, rather than to the original information that was used to identify the invention and potential innovation in the first place.
I love the game of roulette. It's simple and mindless. You bet on your favorite number combination; if the ball lands in your number's slot, you win. If the ball lands somewhere else, you lose (in most cases). The way the odds and the payouts are defined, the house always makes money eventually.
Roulette is a very nice game of chance with little or no skill required. Hardcore roulette players look away from the table while the wheel is spinning. Essentially, they're saying, "I know it's random and I don't care. I really like the number 13. And I have enough money to sit here and wait to be lucky." I once watched a man lose over $50,000 in two hours playing roulette. Amazingly, the next day he was sitting near me in the coach section on a flight to Dallas. Whose money had he been gambling away?
External innovation is considered by many people to be just as random as playing roulette. You put down money in developing a new product feature, and you pray that it wins you revenues. If it doesn't, you repeat the process until you either win or run out of money. After all, even if the first innovation is born dead, maybe the next one will be livelier!
Then, when you run out of external innovation money and/or patience, you switch to internal innovation. Why? Because internal innovation isn't random. You know that cutting your staff by 10% will reduce your costs by a fixed amount, no matter what else happens. There's no spinning wheel with a little white ball that decides the fate of your internal innovation effort.
But it's a copout.
And it's deadly.
Internal innovation is great, to a point. Internal innovations that benefit both you and your customer are superb. But if they just help your company and not your customer, your internal innovations probably are increasing the odds of instant death for your external innovations. Your internal success can create your external road kill.
Death by Innovation
Most "turnaround executives" actually have a pretty straightforward job. Yet they get credit for being highly innovativeand they get paid a whole lot of money! From my point of view, they follow just a few key tenets:
- Increase internal innovation in order to reduce every cost by a set percentage. If you need more savings, do it again.
- Eliminate product groups where the external "innovation roulette" game is losing.
- Emphasize product groups where the external "innovation roulette" game is winning. If these product groups then fail to win, shift them to the losing category and eliminate them.
- Duplicate your competition's external innovation efforts, since they may be better than you are at creating random successes.
- Acquire competitive products that exist in a growth market, and start a new external game of "innovation roulette."
Given some skill and a little luck, these tenets will stabilize a company for a short period of time. Given a lot of luck (and I do mean a lot), the company will return to success.
Each of these tenets follows one underlying rule: Bet only on markets that are already winning for your company or your competition. Keep gambling on random external innovations that appear to wineven if they ultimately damage the value of the product to your customer.
At most casinos, roulette tables have a screen that shows you the previous 20 or so winning numbers. Gamblers walk up, see the number 13 three times in a row, and immediately place a bet on number 13. Or they see that most of the previous winning numbers were red, so they bet on black. That's why the casino puts the screen up thereto make people feel that the probability of winning is affected by these previous winning numbers, so they'll increase their bets accordingly. Stupid. Random is random.
Executive teams often do exactly the same kind of innovation gambling. They bet based on a review of the success of previous features. They rarely understand why one innovation loses and another wins. In fact, they often don't even realize that they're gambling!
Quite often, every bet that a company makes, external or internal, has the potential to lower the value of the product to the overall consumer base. Quality goes down. Complexity goes up. Price goes up. Customer satisfaction goes down. Your loss for a single innovation bet increases every time you place a new innovation bet.
Innovation of the wrong kind is deadly. Maybe it's time to stop gambling?
Your Customer Is Driving the Car
So who ran over your innovation? That road kill probably wasn't the fault of your sales team, the marketing team, or even the product team. In reality, your customer ran over your innovation. The customer didn't want your innovation enough to avoid running it down.
But that wasn't your customer's fault. It was your fault, as the executive, because you keep playing innovation roulette based on your past successes or the successes of others.
Discover what your customer needs and wants, target those areas with new innovations, and you'll likely place winning innovation bets and avoid becoming road kill yourself.