When Innovation Isn't

When Innovation Isn'ttcbrPDF normal

By Michael E. Raynor

Theory To Practice

Michael E. Raynor headshotWhen asked, few people will say anything bad about puppies. Similarly, who could possibly have anything bad to say about innovation and the well-intentioned pursuit of it? I have a hard time finding an organization of any type that isn't loud and proud about its dedication to and lionization of innovation. And whether bottom-up (tournaments, hothouses, and start-up-athons) or top-down (corporate SWAT teams, dedicated innovation functions, and outright acquisitions), the talk is very often more than just talk.

So what do we have to show for it? Rather less than we might have hoped for, it turns out. Over the last couple of years, a number of credible and informed observers has been making the claim that innovation, in the United States and around the world, has not merely stalled but is in fact declining.

You're forgiven if it doesn't feel that way. The salience of change and innovation in media and telecommunications makes it seem as through we're awash in life-enhancing advancements. The same period that has seen breakthrough and patenting rates declining or stagnant has nevertheless seen the iPod/Phone/Pad, Facebook, Twitter, the Kindle, Netflix, and so on. People of goodwill can differ over the cosmic significance of these products and businesses, but their commercial successes suggest that they have improved many people's lives in many ways.

Now, the best things in life are not things, and so the quality-of-life benefits of this highly visible innovation should not be dismissed lightly. But as Michael Mandel pointed out in a widely circulated 2009 BusinessWeek article, the most promising breakthrough technologies of the past decade, consistent with Huebner's long-run trends, have mostly failed to deliver. Cancer treatments, cloning, gene therapy, nanotechnology, and more—the confident predictions of Ray Kurzweil notwithstanding—have been the technologies of tomorrow for so long that it's worth asking whether they always will be.

This dearth of innovation is starting to matter. It is, in the eyes of some, a major contributing factor in the declining relative and absolute wealth of most Americans. Consider Tyler Cowen's analysis in The Great Stagnation. Cowen notes that even as overall economic activity has grown, sometimes very strongly, much of the American population has been left behind. According to this view, the housing bubble and what others see as an incipient student-debt crisis are the desperate but ultimately doomed countermeasures of a growing underclass, victims of a system that must be reinvented if it is to provide growth and true equality of opportunity.

At the risk of piling on, Erik Brynjolfsson and Andrew McAfee at MIT observe what they call the “great decoupling”: Since the end of World War II, as productivity rose, so did employment. Then, beginning in 2000, productivity continued to rise, but employment stagnated and even fell. The same data leads Cowen to suggest that the grand bargain between business and labor has been broken—where rising productivity once lifted all boats, for the last decade the economy has been increasing its productivity largely by firing the unproductive.

We see this anecdotally in the changing patterns of employment in what used to be “gateway jobs” in service industries: greeters, cashiers, waitstaff, servers in quick-service restaurants and coffee shops, and so on. According to New Yorker columnist James Surowiecki, these positions used to be the way that students financed their education or those new to the workforce demonstrated their reliability and work ethic as they climbed their own ladders of economic advancement. Today, those same jobs are too often no longer initial rungs but plateaus, as primary bread winners for families with children now hold these positions for years.

What this means is that for all we say and do in the pursuit of innovation, we are manifestly failing to deliver. Joseph Schumpeter, in his masterwork Capitalism, Socialism, and Democracy, in which he shows that innovation is at the root of capitalism's success as an economic system, observes that the innovations that define a capitalist system tend not to mean much to the rich: Queen Elizabeth had silk stockings; capitalism put them within reach of factory girls. “The capitalist process,” he concludes, “not by coincidence but by virtue of its mechanism, progressively raises the standard of life of the masses.” But many signals suggest that these mechanisms have slipped a cog or two, and that's putting it kindly.

There are, no doubt, macro-level causes, and perhaps policy-level remedies are part of the solution. That conversation is above my pay grade. I am of the strong opinion, meanwhile, that a big part of what's required is a new and much more clear-eyed analysis of what innovation is and how to best pursue it.

Perhaps the first problem, ironically, lies in the general enthusiasm for innovation generally. For too many companies, “innovation” has become little more than a shibboleth, a word almost without meaning that serves primarily to gain access to the “in crowd” and a way to bask in the scattered light of the halo of the new and cool.

As a result, all manner of initiatives attach themselves to the innovation bandwagon. Yet “innovation” means more than just “new”—it means breaking a constraint, doing what had previously been, at best, only imaginable. Going beyond the current limits of the possible demands a suite of organizational tools that, like many types of medication, can have near-miraculous effects but insidious side effects. Indeed, freedom from strategic, financial, and operational constraints can be crucial to breaking new ground, but it can also make it all but impossible to add value within the boundaries of the current game.

Take, for example, how many management consultancies responded to the emergence of the dotcom-focused consulting firms in the late '90s. The so-called “Fast Five” (in a dig at the consulting arms of the then “Big Five” accounting firms) of Razorfish, iXL, Scient, Viant, and marchFirst were scooping up the cream of the business-school crops and securing high-profile engagements with not just other start-ups but even the incumbent firms' major clients.

Feeling threatened by these seemingly innovative upstarts, consulting's corporate aristocracy set up new divisions with new names, new brands, new locations, and unprecedented autonomy. They aped the “payment in equity” with some clients and developed new compensation models, sometimes based on ghost equity in the division itself in an effort to create high-powered reward structures.

It all ended in tears. The Fast Five either went bankrupt or were acquired at fire-sale prices. The mainstream consulting firms, if they'll talk about this period at all, do so with considerable chagrin: Their dotcom divisions were all disbanded or reabsorbed into the mainstream and smoothed over the way one copes with a bad haircut until the hair finally grows out and is forgotten.

It turns out that no one had actually innovated at all. Organizational tools of innovation were invoked, but the results were, predictably, disappointing: The basic consulting model of expertise-for-hire had not been overturned or even significantly modified. No fundamental constraints had been broken. It was old wine in new bottles and nothing more.

In contrast, when a true innovation is on offer, failing to respond appropriately can be equally if not more ineffective. The low-cost-carrier (LCC) airline model, arguably pioneered by Southwest Airlines in the early 1970s, has broken many of the performance/cost constraints that define the hub-and-spoke model preferred by many mainstream airlines. Those hub-and-spoke carriers that have tried to launch their own LCC divisions have typically not provided the necessary strategic boundaries and operational autonomy required for successful innovation, and most have ended up shutting down their LCC divisions, often with little more than painful losses to show for it.

In these tales lies a potential remedy. Perhaps the key to saving innovation from its own popularity is to define it precisely yet practically. Not everything valuable is an innovation, and not every innovation is valuable. Sometimes—in fact, perhaps quite frequently—it makes more sense to create value by exploiting tradeoffs in pursuit of differentiation. In other circumstances, you can break tradeoffs in pursuit of successful innovation. Knowing which you're after is crucial, because exploiting and breaking tradeoffs require very different organizational responses. By using the right tools for the right jobs, more organizations might be able to achieve both differentiation and innovation more predictably and successfully. I have to think that's good for everyone.

It's not the entire answer, but it can't hurt.


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