The Innovator’s Dilemma: to innovate or operate?

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Remington and other typewriter companies had it going great in the early 20th century. As long as the world wrote, they could virtually mint money in their product godowns. The world was still writing when Microsoft introduced the PC in the eighties and writers all over the world confined the typewriter into the trashcan of history.

Today, Microsoft faces the same fate from the Googles and Apples of the world – the new age innovators. But it is doubtful if Google and Apple can themselves survive the onslaught of competition from fresh innovators. The world is yet to witness a pioneer in one generation, lead the pioneering effort into the next.

So do Google and Apple just operate and await their fate? The most likely result is ‘yes.’ The effort to reverse that trend would be pioneering in itself. The main issue here is that once an innovator gets into the operations mode, they tend to operate both functions with the same mindset. Once they are successfully operating, companies try hard to retain their existing employees – the pillars of their success.

 Innovators of one era are history for the next era. If the trend is to be reversed, employee retention needs to be reversed. Companies need to hire fresh thinkers every five years or so. After an idea becomes a success, it needs to be delivered in an operationally efficient manner – that means the product has to be constantly made cheaper and more efficient. And business entities often confuse operational excellence with innovation. Moving from Intel’s Pentium II to Pentium IV is just operational excellence, not innovation. The current innovation team can be utilized well towards operational excellence.

Companies need to learn to keep their operations stream and innovations stream, separate from and independent of each other. And the charter needs to be well set for both of these. The operations team needs to focus on getting the product out to the customer faster, cheaper and more efficient – better than the competition.

 The innovations team needs to try to compete with the product, even eyeing influencing the customer need itself. Today, a fleet of planes is central to FedEx’s existence. The FedEx operations team should focus on getting the most out of these planes – operating them most efficiently so maximum items can be delivered to the most number of places possible. And that they do very well already.

But the fleet of planes has no place in FedEx’s future. FedEx’s innovation team would focus on the core customer need – getting documents, gifts and other items to their destination. Would that need planes? – certainly not in the future. And that has a chance of success only if the FedEx Innovation team comprises a set of younger individuals – individuals, who had nothing to do with the original idea behind FedEx.

 Innovation though is a risky investment – the return is not guaranteed. And when companies are raking in the profits, they may look upon innovation as an unnecessary expense. For these companies, acquisitions are a viable alternative. Let the innovators knock themselves out and they gobble up one as soon as it seems economically feasible. After all, didn’t Google acquire You-tube?

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2 thoughts on “The Innovator’s Dilemma: to innovate or operate?

    Ravi Sankaran said:
    May 20, 2011 at 12:50 PM

    In general, I agree with your point that a company must invest in constant innovation and not rely only on improving operational excellence.

    However, once a company has an innovative product, it needs to capitalize on it by improving it and mint money as fast as it can and sustain it for as long as it can. The key is to focus a portion of the energy and resources on innovation while the good time lasts.

    You said – Innovators of one era are history for the next era. If the trend is to be reversed, employee retention needs to be reversed. Companies need to hire fresh thinkers
    every five years or so.

    The assumption you are making here is that innovators dont adapt to changing era. The key is to not rest on ones laurels. In the operational excellence part, the resources involved need to constantly innovate to make it better and not rely on formulaic procedure to make something better. Resources who rely on formulaic procedure or hesitate to move out of the comfort zone are the ones that tend to become excess baggage for organizations. Any organization need to enforce this well rathan than base it on duration. The problem I see is that many employers dont tend to enforce it strictly and the organizations suffers in the long run.

    vishu said:
    May 25, 2011 at 3:42 PM

    Oh! there are so many sides to this classic dilemma.
    Don’t overlook another type of innovation – the operational innovation. In your FedEx example it might be a more efficient routing algorithm.
    Keeping your religious beliefs aside, don’t you think Apple has transcended the classic barrier? Once a desktop innovator, it’s also an innovator on the mobile side unlike Microsoft.
    In general I think acquisitions are a preferred route for several reasons.
    And from financial side I don’t think investors would allow you to be innovator on steroids. Investors (ironically enough) like some stability and predictability. If I’m an investor in Google I’m seeking an exposure to retail/advertising segment. I’m not so sure if I like Google to spend too much money on finding alternate fuels when it has no core competency in that area nor is it synergistic with advertising. So companies tend to specialize in one segment and it’s not easy (for the reasons you mentioned) for them to repeat the performance in the same segment over and over.

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