The Last Shall Be First? How to Invest in Innovation Without Cracking Up
We live in the Innovation Era, a heady time when Chief Innovation Officers speak and we all listen attentively. Nothing is quite so intoxicating as hearing from the future, and their job is to “think outside the box” and help us arrive safely.
But have you ever wondered how often innovation fails? And if there might be a business strategy for making better decisions as to where resources are deployed in the pursuit of it? When does it make sense to be a strategic laggard?
A few years ago, a $3 billion client of mine hired a new CIO to help them transform their technology infrastructure. $75 million and two years later he was quietly dismissed, and nobody ever mentioned him again. What was astounding to me was how quiet innovation is when it fails. Nobody ever talked about this debacle — it was quickly replaced by new strategies, new investments and new people.
So what’s a CEO to do? We clearly need to innovate, but where and when? And how can we reduce our failure rates to be more successful?
A recent study cited by the Harvard Business Review uncovered an interesting point of view from an unlikely source. City University of London professor Paolo Aversa and his team documented every innovation on more than 300 Formula 1 race cars over 30 years and compared that to race results.The professor is using these results to help coach a variety of businesses into better innovation investment decisions.
They found that sometimes less innovation wins.
According to Aversa, “We think it has to do with the environment around the innovation. If you have a complex product, like an F1 car, and are in a turbulent market, your instinct might be to innovate — to get ahead of all the change. But your chances of failing with an innovation in a dynamic, uncertain environment are very high. Often, it seems, it is better to wait until things are more stable and let others who are busy innovating during times of turmoil fail.”
“We already use this framework in other fields. Think of any complex product — a cell phone, a drug. We’ve seen that any time exogenous forces or shocks to the system happen in their markets — for instance a new set of regulations or a major political shift — innovators tend to lose. Sudden changes create instability that seem to beg for innovation, but it’s probably better to sit tight and focus on execution and efficiency.”
So the business strategy is to sit tight and hope the competition fails? On the contrary, it’s to invest in the areas of your business — perhaps less exciting areas, more likely to generate a positive return. And to avoid innovation-rapture syndrome by bringing a Buffet-esque sensibility and pragmatism to every innovation investment.
As you probably know he’s the guy who’s done pretty well investing in railroads.
To read the HBR article visit https://hbr.org/2017/05/sometimes-less-innovation-is-better
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