When Fast Company ranked the 50 Most Innovative Companies for 2011 a glance at the top ten would seem to tell you one thing: the cutting edge of innovation is headquartered on the web and that, by-and-large, companies in mature industries need not apply. Does this mean that companies in mature industries need to begin raiding Silicon Valley for a new wave of entrepreneurs to replace their failing ones? I think not, as I will argue below many of the companies on this list benefit from an overly positive view of the virtues of ‘creative innovation’ compared to ‘constrained innovation’.
Most readers will be familiar with Everett Rogers theory of diffusion of innovations[i] – in his book Diffusion of Innovations Rogers’ argues that as technology is applied to a market, penetration phases from low to high along an S-curve while adoption follows a bell-curve with innovators and early adopters in the first phases and laggards at the end.
The S curve model is often also applied to technology development. Traditionally, the focus is on the creation of new technologies (embodying radical or disruptive innovations) that can create a new curve (curve B) and restart the adoption bell-curve.
However, firms in established markets often face a reality where no new technologies or disruptions are available to replace the current one and ‘incremental’ innovations become the only currency for retaining and gaining market share in the face of slow segment growth. It is within this space, where market penetration is near complete and technologies are mature that innovation becomes a real challenge (line C extension of Curve A). This is not to argue that radical and disruptive innovation is unimportant for corporate strategy, rather that it is essential to utilize incremental innovation to maintain market leadership in the absence (or during the development) of these types of innovation.
But why is it that incremental innovation is so often ignored in favor of innovation occurring at the leading edge of technology? Disruptive or radical innovation has the potential to capture the imagination not to mention the market, however, it is the incremental innovation that sustains a company while it seeks out success in these riskier areas. Companies themselves often discount their own incremental innovations – selling the innovators and themselves short in the process. This is especially frustrating to those in these environments because successful incremental innovation can be very difficult.
To understand the key differences between innovation on the leading edge of technology compared to the trailing edge the curve could be moved to a graph that shows ‘constraints’ increasing as a market or space matures. This reflects the fact that in mature markets development is constrained by higher expectations and limiting technical specifications. For sake of simplification, the curve could then be viewed in two halves around the inflection point: to the left, the ‘easy to innovate’ space, and to the right, the ‘hard to innovate’ space. (Figure 3) It is important to note – ‘easy to innovate’ is no guarantee of commercial success. For a specific example, Pets.com seemed like an easy win or innovation early in the development of the web however was a commercial failure.
Radical or disruptive innovations aren’t necessary early in a technology or market development because artistic creativity or marketing can be nearly enough to ensure continued growth, while later in development high levels of skill are necessary to continue innovation for growth when it is most important. If it were to be considered in scientific terms, it is as if in the initial stages of technology or market development innovation is free from constraint – few rules apply as companies develop the market. Take a look at the lists of ‘Most Innovative’ Companies for 2010 or earlier – it will be littered with failed start-ups and failing companies. The winners, or those that define the market, find themselves in an interesting position when the market or technology has matured. At this point, the survivors are forced to work within a falsifiable system – a system with highly developed rules and limits to pure creativity. Masters of innovation in these environments are people that can operate creatively within a highly restricted area, like Einstein developing the theory of relativity within the bounds of Physics.
Innovation in a developed market or technology field means meeting a very advanced set of customer expectations. Staying a market leading company in this case requires maintaining an advanced core technical skill set, absolute focus on the customer, and the ability to quickly transform ideas into products with limited time for redesign. This balance of skills is what we referred to earlier as ‘constrained innovation’ – the ability to create new products and excite the customer while operating within a strict set of conditions established by the market.
Can and should firms focus on creating new markets using radical or disruptive innovation? Yes. However, one cannot ignore the fact that without a strong ability to deliver ‘constrained innovation’ firms will not survive long enough to implement the more widely appreciated types of innovation. That, the ability to grow and survive regardless the market constraints, is why ‘constrained innovation’ should be recognized as an essential and critical function for any firm that should be more widely appreciated by the world at large. Imagine if we recognized the best innovations of 2012 as those that succeeded despite constraints – would we be talking about the innovators from Ragu, Dunlop, Haines and Colgate instead of Facebook, Twitter, and Google?