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Driving Success: How You Innovate Determines What You Innovate

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Chapter 1: Driving Success: How You Innovate Determines What You Innovate

Innovation Is the Power to Redefine the Industry

For any organization, innovation represents not only the opportunity to grow and survive but also the opportunity to significantly influence the direction of the industry. Apple Computers took the industry by surprise when it launched iTunes and iPod, not so much because these were innovations that nobody had ever thought of before in the PC arena. Instead, it was the strategy of combining technology change and business model change into a one-two innovation punch. And the iTunes/iPod combination is only starting to generate new concepts; one of the latest is an iPod special edition with U2 (the famous rock band), which opens up rich partnership opportunities with content providers. Apple has put its mark again on the direction of the PC industry—a mark that will be tough to erase.

As innovation leaders like Apple, Toyota, Dell, Nucor Steel, Sony, and others have shown, making important changes to key parts of the dominant business model or the essential technology can redirect the competitive vectors of an entire industry. Innovation provides the opportunity for a company to put its mark on the evolution of business. By setting the rules of the game in their industries, these companies have taken a leadership position and play the game that favors them the most.

Innovation is not only a weapon in competitive markets; it has proven itself as an important source to redefine philanthropy and government under the umbrella of social innovation and social entrepreneurship. The idea of micro-credits, with Grameen Bank as the best-known example of these, has dramatically changed the standard of living of thousands of people who were trapped in a vicious circle where high-interest loans captured all the value from their work and kept them in poverty. Micro-credits are very small loans, as small as $30–$40, that offer individuals the chance to start or grow a business. Used to foster economic improvement for individuals, families, and regions, they are commonly made available in emerging countries and struggling economies. Micro-credit entities improve the risk profile of these loans through careful selection, social control, and diversification. Lower risk translates into better interest rates and the possibility for these people to significantly increase their standard of living.

While achieving a leadership position is not easy, maintaining it has consistently proven to be much more challenging. The ability of innovation to influence the direction of an industry does not in itself guarantee success for the innovator. Unleashing an innovation and expecting the market to reward the company with sustained growth and success is a common mistake.1 For example, Boeing launched the highly successful 777, and established the norm for commercial airplanes in the 21st century. However, Boeing has not been able to maintain dominance of the industry, and Airbus has challenged its leadership, surpassing it in sales in 2004. All companies have seen their market advantages derived from breakthrough innovations whittled away and eventually reversed by competitors. A blockbuster innovation is not a guarantee of success, just an opportunity. It must be followed up with a successive stream of innovations, from incremental to radical. Leading companies know this and have a developed portfolio of innovations from which they can draw to sustain growth.

In the long run, the only reliable security for any company is the ability to innovate better and longer than competitors. Nokia’s management has frequently said that its real business isn’t phones; it’s innovation. In Nokia’s case, innovation is a capability fused to the core of the organization; the company calls its culture of continuous innovation "renewal."2 The ability to innovate has taken Nokia from the equivalent of an approximately $6 billion company in 1994 to an approximately $36 billion company in 2003. But even for Nokia, innovation has not been an easy path; its financial performance faltered since early 2004, and it has been challenged as the innovation leader.

Superior innovation provides a company the opportunities to grow faster, better, and smarter than their competitors—and ultimately to influence the direction of their industry. For the CEO, this is growth on the company’s own terms. The following case study shows how the role of innovation at Coca-Cola provides insight into the importance and challenges of harnessing innovation.3,4

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