Innovation: The Classic Traps

nnovation: The Classic Traps

Every few years, innovation resurfaces as a prime focus of growth strategies. And when it does, companies repeat the mistakes they made the last time. Here’s how to avoid those errors.

by Rosabeth Moss Kanter

Innovation is back at the top of the corporate agenda. Never a fad, but always in or out of fashion, innovation gets rediscovered as a growth enabler every half-dozen years (about the length of a managerial generation). Too often, however, grand declarations about innovation are followed by mediocre execution that produces anemic results, and innovation groups are quietly disbanded in cost-cutting drives. Each generation embarks on the same enthusiastic quest for the next new thing and faces the same challenge of overcoming innovation stiflers. Over the past 25 years, I have conducted research and advised companies during at least four major waves of competitive challenges that led to widespread enthusiasm for innovation.

The first was the dawn of the global information age in the late 1970s and early 1980s, an era that introduced new industries and threatened to topple old ones. Entrepreneurs and foreign competitors imperiled established companies on their own turf. Information technology was beginning to evolve from the clunky mainframe to a consumer and desktop product, and companies such as Apple Computer made Silicon Valley garages the new base for product innovation in the United States. IBM emulated Apple’s model by developing its PC in dingy surroundings in Boca Raton, Florida, freed from many corporate constraints. High-quality Japanese products, such as the Sony Walkman and Toyota cars, reflected not just good product design but also innovations in manufacturing processes that forced American giants to create their own programs to generate new ideas faster. “Total quality management” became a passion.

The second wave was the pressure to restructure during the takeover scare of the late 1980s. Buyout groups were attacking traditional companies, seeking to unlock the value of underutilized assets; “shareholder value” became a rallying cry. In Europe, restructuring was associated with the privatization of state-owned enterprises now exposed to the pressures of capital markets. Software was emerging as a major force behind innovation, and the strategic value of IT was touted, with American Airlines’ Sabre reservations system widely cited as an example of a process innovation that succeeded as a separate business. Companies created new-venture departments to make sure they captured the value of their own ideas and inventions, rather than allowing a behemoth like Microsoft to arise outside the firm. Financial innovations were the rage: leveraged and management buyouts, derivatives and other forms of financial engineering, or financial supermarkets combining banks and nearly everything else. The restructuring era also favored products that could be instantly global: After defeating a hostile takeover bid in the late 1980s, Gillette boldly and successfully launched Sensor Excel shaving systems in the early 1990s, in identical form worldwide, with a single advertising message.

Third was the digital mania of the 1990s. The promise (and threat) of the World Wide Web drove many established companies to seek radical new business models. Brick-and-mortar companies were at risk for extinction; many rushed to create stand-alone Web ventures, often unconnected to the core business and sometimes in conflict with it. Eyes were on the capital markets rather than on customers, and companies got rich without profits or revenues. AOL bought Time Warner, put its name first, and proceeded to destroy value rather than create innovation.

The current wave of innovation began in a more sober mood, following the dot-com crash and belt-tightening of the global recession. Having recognized the limits of acquisitions and become skeptical about technology hype, companies refocused on organic growth. Surviving giants such as General Electric and IBM have adopted innovation as a corporate theme. GE, for instance, is committed to double-digit growth from within. For its part, IBM is seeking innovation by tackling difficult social problems that require—and showcase—its technology solutions. A good example is World Community Grid, a nonprofit IBM created that aggregates unused computer power from numerous partners to give AIDS researchers and other scientists the ability to work with unusually large data sets. This wave’s central focus is on new products designed to offer users new features and functionality to meet emerging needs. Customers and consumer markets have returned to center stage, after having been temporarily crowded out by other obsessions. Companies are seeking new categories to enrich their existing businesses rather than grand new ventures that will take them into totally different realms. Signature innovations in this era include Apple’s iPod and Procter & Gamble’s Swiffer.

Each wave brought new concepts. For example, the rise of biotechnology, characterized by complicated licensing arrangements, helped legitimize the idea that established firms could outsource R&D and learn from entrepreneurial partners or that consumer products companies could turn to external idea shops, as well as their own labs, to invent new products. Approaches to innovation also reflected changing economic conditions and geopolitical events. And, of course, innovation has covered a wide spectrum, including technologies, products, processes, and complete business ventures, each with its own requirements.

Still, despite changes to the environment and differences among types of innovation, each wave of enthusiasm has encountered similar dilemmas. Most of these stem from the tensions between protecting revenue streams from existing businesses critical to current success and supporting new concepts that may be crucial to future success. These tensions are exacerbated by the long-known phenomenon that important innovations often arise from outside an industry and beyond the established players, creating extra pressure for companies to find the next big concept quickly. Consequently, a large body of knowledge about innovation dilemmas has arisen.

Books such as Tom Peters and Bob Waterman’s In Search of Excellence, my own The Change Masters, and Gifford Pinchot’s Intrapreneuring supported the 1980s innovation wave by pointing to the importance of relieving potential innovators of bureaucratic constraints so they could run with their ideas. This was followed by a body of work documenting the difficulty of exploring the new while exploiting the old, reflected in Michael Tushman and Charles O’Reilly’s call for more ambidextrous organizations in Winning Through Innovation; my work on managing the tensions between the powerful organizational mainstream and fragile new streams produced by innovation groups in When Giants Learn to Dance; and Clayton Christensen’s more recent finding, in The Innovator’s Dilemma, that listening to current customers can inhibit breakthrough innovation.