Six Innovation Paradoxes

von Graham Horton

In their book Praxiswissen Innovationsmanagement (Practical Knowledge [for] Innovation Management) authors Oliver Gassmann and Philipp Sutter give a list of 17 so-called „innovation paradoxes“. These are observations on various aspects of corporate innovation which contain (apparent) contradictions.

Here are my six favourite paradoxes from Gassmann and Sutters‘ list. The translation, rephrasing and comments are my own.

• The costs for product development are increasing, but product lifetimes are getting shorter. Due to increased competition, the profitable lifetimes of many products are getting shorter and shorter, deceasing the income gained from them. At the same time, owing to increasing product complexity, the development costs are increasing. The overall result is continually shrinking margins from innovation.
• Innovation must be customer-oriented,  but customers can’t give you ideas for substantial innovations. New products and services can only be successful if they serve the needs and wishes of the customer. However, with the exception of simple wishes for improvments, customers cannot tell you what they need. As Henry Ford famously said, „If I had asked people what they want, they would have told me ‚faster horses‘„. This observation has led to several new approaches to obtaining ideas for innovation such as anthropological and „live-in“ studies of customers, and the „jobs-to-be-done“ approach.
• Inventors often do not profit from their inventions. This is a favourite complaint in Germany, where (it is claimed) many important inventions come from, including the CD, the fax machine and the MP3 audio format, and yet German companies did not significantly benefit from these inventions (Japanese and US companies did.) In the case of the MP3 format, the inventors (the Fraunhofer Research Centers) do receive royalties from patent licensing, however the „real“ money from this invention is now being made by Apple via their iPod / iTunes strategy. In order to be commercially successful, an invention needs the right environment, the right business model and an innovation management which is able to develop the invention into an innovation this attractive to the market.
• Innovative companies are profitable, and yet most innovation projects fail. It is now well known that the most profitable companies in their respective markets are those with the highest innovation rate. It is also well-known that the success rate of innovations (both at the development and at the market stage) is very low (figures varying 1 in 7 to 1 in 100 are quoted.) Innovation is high-risk game, since it involves many crucial variables which cannot be determined with any degree of certainty. For this reason, innovation managers treat innovations like venture capitalists do: they manage a portfolio of projects, in order spread their risk.
• Past success is a significant barrier for future success. When a company has developed a successful new product, it installs devotes resources to maintain the competitivenss and profitablility of that product for as long as possible. This leads to mind-sets and policies which can be hostile to new ideas, especially if these appear to threaten the current major revenue generator. One well-known aspect of this problem is the fear of cannibalism.
• People who question the status quo are indespensible for innovation, and yet companies are often hostile to them. Significant innovation always involves questioning the status quo and suggesting alternatives which may contradict „the way things are done here“. However, since companies must be designed for efficiency with respect to the current line of products, the status quo has a high level of rationalisation. For this reason, innovative thinking is frequently felt to be incomfortable and inappropriate, perhaps even trouble-making. This has given rise to the call for the the so-called „ambidextrous corporation“, which can simultaneously achieve streamlined efficiency with its current offers and the freedom and creativity to experiment with innovative ideas.

Link to the book by Gassmann and Sutter at the publisher’s website (in German).

The Force that Permits Disruptive Innovation

von Graham Horton

In a new article at Forbes.com, Clayton Christensen discusses a subtle point of the theory of disruptive innovation. In this article, Christensen raises an important question with respect to the vertical axis of his well-known functionality-time diagram, which is one of the fundamental elements of his disruptive innovation theory. He asks, „What does the vertical axis actually represent?“

In his theory, this axis denotes product performance. In the accompanying text in the book, the example of hard disk drives is used. In this case, the measure of performance is bytes of storage offered. According to Christensen’s theory, a company’s best customers demand more and more of this type of performance, forcing the company to devote all of its innovation resources to providing it. This situation makes the Innovator’s Dilemma possible, since the company is not able to assign resources to developing newer technologies which perform less well according to this measure (even if they perform better according to some other one).

In the article, Christensen gives two examples of disruptive innovations which cannot be explained by this theory: low cost airlines and advanced placement courses in the (US) school system. In neither case were the incumbents forced into a dilemma by pressure to increase product performance.

To me, it is clear the the vertical axis in Christensen’s graph should be labeled „what the organisation’s stakeholders pressure it to provide.“

Until now, Christensen has used the particular example:

• „Stakeholders“ = „Best customers“
• „What the stakeholders want“ = „Higher product performance“.

„Best-customer/higher-product-performance“ is only one way (albeit a very important one) of implementing the „stakeholder/stakeholder-wants“ variables, many others can be found, including the two examples in the article.

When we look at the mechanism of disruption, we can see that it is in fact the force of „that-which-the-stakeholders-are-pressuring-us-to-provide“ which causes the innovator’s dilemma. In the example in the article, it is actually the school districts‘ need for efficiency which exerts pressure on schools to concentrate on high-enrollment classes.

An example which is even more removed from product performance could be the (state) university system in Germany. In this case, we have

• „Major stakeholders“ = „The state governments“
• „What the stakeholders want“ = „Bureaucracy“

As our state governments burden their universities with more and more rules and regulations, it becomes increasingly difficult for them to act autonomously and react to changing circumstances. Higher education is therefore becoming increasingly attractive for disruptive private sector offers – and of course that is exactly what is now happening: there are more and more private colleges and universities.

Nobody would equate bureaucracy with performance; nevertheless it is the force enabling disruption in this particular case.