WHEN DO YOU NEED INNOVATION?

Is Innovation a panacea for all business problems? The answer is an unequivocal no. But it is still one of the most potent tools for business leaders. But do you know when do you need innovation the most? This knowledge will make your innovation efforts more effective.

Core Business Goals

The core business goals for any business are survival, profitability, and growth. Beyond these goals, companies pursue many other targets too. Employee satisfaction, stakeholder’s expectations, government compliance, and societal impact as a few of these. But, without survival, profitability and growth, others goals become difficult to achieve. Employees do not enjoy career progression and meaningful work in a company facing downsizing. Societal impact takes a backseat when a company is often in the red. In short, the most critical goals for any business are survival, profits, and growth.

Slow Growth World

Since the great financial recession, economies across the globe have struggled with slow growth. As a result, companies also face stagnant growth. This is evident in the slow growth in revenues across the board. However, most companies were able to deliver profit growth quarter after quarter.

You can achieve profit growth without revenue growth by cutting costs and investments. But it makes lives of employees harder as fewer people shoulder a greater amount of work. By cutting future investments, companies sacrifice future revenue growth. For example, major oil companies have been cutting investments in the face of low oil prices. Although this will hurt them in future, maintaining profits and dividends is critical today.

Slow growth also resulted in greater competition as companies focused on share shift. At the same time, other factors have led to events that threaten the survival of firms.

Disruptive Events

While companies are dealing with growth and competition, another trend has emerged. More disruptive events are emerging across industries, at a faster speed.

For example, a startup called Dollar Shave Club appeared and garnered 8% of shave care market in just four years. Uber and Airbnb emerged and became ubqious within a matter of 5 years. These disruptive forces have a significant impact on existing businesses.

Disruptive forces threaten the competitive advantage of existing firms. Uber and Airbnb are threatening stable industries leading to pain for many. An increasing number of disruptive events do not necessarily disrupt incumbents. But they erode competitive advantage and resources of incumbents. Eroding competitive advantage makes incumbents weaker for the next wave of disruptive incidents.

Innovation as a savior

Innovation is especially useful for companies seeking refuge from slow growth and disruptive threats. The iPhone enabled Apple to rise from being a small business to being the largest in the world. Its market capitalization went from USD 6 billion to over 600 bn in just 12 years.

Companies such as Netflix and Uber have been growing fast due to their innovations. Gillette has been able to upsell expensive blades to consumers because of innovation.

For companies threatened by disruptive forces, innovation is a powerful antidote. When Apple’s iPhone becomes an existential threat to Google, it was innovation that saved Google. When TiVo threatened cable companies, they neutralizes that threat with innovation.

Innovation is indeed a powerful antidote for disruptive forces.