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The Innovation Imperative: Driving Long-Term Growth in Top and Bottom Lines

According to Peter Drucker, "Innovation is the effort to create purposeful focused change in an enterprise’s economic or social potential."5 That statement very accurately positions innovation as the agent for change and a crucial tool for every CEO. True enough, but it does not capture the fundamental importance of innovation to competitive survival.

More recently, James M. Kilts, then chairman and CEO of The Gillette Company (currently co-chairman of P&G after the acquisition of Gillette), summed up innovation this way: "We created a simple vision two years ago: Build total brand value by innovating to deliver consumer value and customer leadership faster, better, and more completely than our competition."

He also observed: "You need to encourage risk-taking. One of the themes in our company is to remember that the opposite of success is not failure but inertia."6 That puts innovation in the right context; innovation is critical to growth in a competitive environment. Without innovation, you stall, your competitors take over, and you die.

Back in 1979, CompuServe began to offer online services and developed a myriad of applications including email, online banking, and online shopping. By 1990, the market amounted to about 1 million subscribers, and CompuServe was the undisputed leader. However, by the end of the decade, AOL had emerged as the dominant player in the market, buying CompuServe in 1998. CompuServe led with innovation, paused and then faltered, and eventually succumbed to a more innovative company. CompuServe is not alone in the list of dethroned leaders. Similar stories exist across every industry including airlines, investment banking, computers, and personal digital assistants (PDAs).

Innovation is the key element in providing aggressive top-line growth, and for increasing bottom-line results. Companies cannot grow through cost reduction and reengineering alone. Most of the past attempts at diversification have been largely unsuccessful in creating the required top-line growth.7 Companies turn to innovation to produce growth when these conventional approaches fall short. For example, Figure 1.1 depicts the challenge of top-line revenue growth. The combined forces of market expansion, anticipated mergers and acquisitions, and the expected increased sales from products in the commercialization pipeline failed to produce the required revenue growth to meet targets.

Figure 1.1

Figure 1.1 Innovation produces value via top-line growth.8

This real- life example is taken from a leading electronics company. The company could not achieve sufficient revenue growth through expansion of current product sales and mergers and acquisitions to satisfy its growth needs. Closing the growth gap required innovation.

Exactly what type of growth is created by innovation depends on the needs of the company and its competencies. Innovation can result in revenue growth, a stronger bottom line, improved customer relationships, more motivated employees, enhanced performance of partnerships, and increased competitive advantage.

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