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.
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