If innovation is so helpful as my previous post shows then what is the big deal for firms – they should simply pour resources behind innovations to continue to increase their profits.
However, there is a catch, in fact a big catch for firms pursuing innovation. We know firms have limited resources to expend no matter how large a firm becomes. At the same time, the innovations are often risky in an early stage. You can think about Apple’s Newton as an innovation. It was a great concept, a hand held device. But it didn’t succeed and Apple lost the investment poured behind the device. In fact, there are more failures than successes when firms pursue innovation. If you look back at the early stage of the internet boom, you can identify more failures than successes. So market uncertainty is a major risk for an innovation. As a result, firms have to be judicious in backing some innovations and not backing the other ones.
Another major risk for firms pursuing innovation is the technological challenge a firm faces. A new technology for a firm is akin to a new skill for a person. Sometimes firms fail to learn the technology or incorporate it in a flawless manner into its products or services. This could prevent a firm from innovating too. There are several other major challenges for a firm trying to innovate.
However, the rewards of innovation are so high that firms overcome tremendous challenges to pursue innovation. That’s how major firms in leadership positions emerge. Google came up with a superior algorithm to make web search easier for us. Apple came up with a cool portable media player. Amazon made shopping online a breeze. Microsoft allowed anyone to interact with a computer without knowing those geeky codes. No doubt these firms are leading in their industries.
In short, innovations is a holy grail but requires a firm to travel a difficult path.
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