Why Innovate?

Over the past several decades I have heard a variety of reasons to justify innovation efforts and the investments required. Implicit in Clayton Christensen’s book, The Innovator’s Solution, are several of the more prominent ones. “Sustaining” (versus “disruptive”) innovations are driven as much by the needs of their innovators to competitively differentiate their products or services. For example, this is one of the primary reasons Tier 1 or Tier 2 suppliers in the automotive industry use to explain their need to invent and create patentable positions.

“Disruptive” innovations, on the other hand, are driven by the emergent needs of customers to “do ‘jobs’ those customers need doing.” These innovations may be disruptive to incumbent competitors; but to customers, these innovations are actually more welcome than disruptive.

Increasing shareholder value is a third rationale used to justify innovation efforts—though this rationale is often a more difficult case to make—of which Christensen does an admirable job in his very first chapter.

Between these three reasons for a company to innovate—competition-driven innovation, shareholder value-driven innovation, and customer-driven innovation—there is something qualitatively distinct about the last one. As important as it is to differentiate your products and services from the competition, and as important as it is to increase shareholders’ value, isn’t it actually a bit more important—or more fundamental—to create customers?

That perennial piece of management wisdom: “pay attention to motivations and related patterns of behavior,” may be pertinent here. Not all motivations are created equally. Customer-driven innovation may be the first among equals, relative to the other possible motivations for innovation. A.P. Giannini, the founder of the Bank of Italy in San Francisco (later called Bank of America), reflects this fundamental understanding in his words engraved on the marble wall of the lobby in the Bank of America Building: “To service the needs of others; the only legitimate reason for a business.”

My hypothesis here is that the success of any innovation effort, particularly to the enterprise hosting the effort, depends to some degree on the nature of the motivation to innovate in the first place.  When that motivation is driven by competition or even by shareholders’ interests (e.g., growth, profitability, etc.)—as legitimate as those reasons may be—the patience required of the innovator for the necessary gestation efforts may not be long or strong enough to endure the “wait.” Whereas, when the motivation is to create a customer, the “wait” may be more easily understandable and worth it. “Good money” before it goes “bad,” as Christensen states.

In his classic style, Peter Drucker alluded to this point when he wrote in his tome Management (1973). “Because its purpose is to create a customer, the business enterprise has two—and only these two—basic functions: marketing and innovation. Marketing and innovation produce results: all the rest are “costs.”

The best “sponsor” of our innovation efforts may be the clarity of the need of a customer (new or existing) the innovation is designed to meet, reduce or eliminate.

This article was originally published in Innovating Perspectives in March 2004. For this and other back issues of our newsletter, please visit our website at innovationsthatwork.com or call (415) 387-1270.