“I think frugality drives innovation, just like other constraints do. One of the only ways to get out of a tight box is to invent your way out,” said Jeff Bezos, founder of the retail platform.
Amazon’s revenue for the 12 months ending June 30, 2023, was $538 billion, a 10 percent increase from the previous year. Frugality, that ability to stretch resources and ‘do more with less’ is one of the three principles of good management notes The Economist.
Who does not think that innovation is important? Most managers would agree that innovation is the way to create value and drive economic growth but the question is how. The paradox is that the ingredients of game-changing innovation are there now, the trick is to have the present-moment awareness to see differently.
In practice, people and their organisations are in a constant state of change. Change management is a bit of a misnomer, as movement and flux are a daily constant. In companies, the second law of thermodynamics is at play, with entropy, that declines to disorder, things falling apart, gradually replacing the feeling of calm structured stability.
One way to combat entropy in the business is to inject an energetic dose of genuine innovation. Not simply the fluff and business jargon of a vacuous PR exercise. But a more systematic calculated injection of an innovative vaccine, combating the debilitating virus, leading to a slow decline to corporate mediocrity.
It’s often the case that CEOs will only embrace the need for an innovative shift when the pain of doing nothing — preserving the status quo — becomes greater than the fear of making a leap.
Fear of failure
What holds most companies back is fear of failure, criticism and the feeling that the career impact of a wrong move from embracing innovation could be a disaster. For established companies, most focus on slight incremental improvements in day-to-day operations, rather than targeting a breakthrough innovation.
Yet the companies that harness the essentials of innovation gain a substantial performance edge that separates them from the herd. Research by McKinsey suggests that mastering innovation can generate an economic profit that is 2.4 times higher than peer organisations.
Innovation guru Clayton Christensen gives the historical example of car manufacturers, of how innovation can gradually disrupt a market and completely change the dynamics. In the early 1960s Japanese car makers like Toyota and Nissan entered the US market with simple, low-cost reliable models of surprising quality.
With time they brought the once dominant big three car makers, GM, Ford and Chrysler to their knees, which stuck to the production of large gas guzzlers, rather than attractive fuel-efficient models.
With time, new entrants in the low end of the US car market included South Korea, Malaysia, India, and now China. Each started with low-cost cost simple basic models for their home market, then began to export, each gradually moving up the value chain.
Christensen believed that this theory of disruption, starting at the low less competitive end of the market, then moving up with more sophisticated models applies both the at the micro and macro level, with a correlation between countries that are breeding grounds for Tesla like disruptive innovation, being leaders in economic growth, and job creation.
Just about everyone can agree innovation is important but the question is how does one do it. Successful innovation lies at the intersection of several elements which answer: who, what, and how.
Who is the customer with the unmet need? Who is the buyer and what problem do they need to solve? Plus, what are the big-picture trends that are driving changes in customer’s needs?
What – involves asking can the proposed compelling solution and can be delivered in practice? How — probes what is the business model that can be monetised? And, questioning how will the approach create value?
One nitty-gritty practical way to do this is to create an innovation portfolio. Essentially, come up with a range of bright ideas - embodied in products or services - that address unmet customer problems. Imagine a portfolio of 10 to 15 low-cost, low risk experiments in an innovation pipeline. Basically, test in the market what works, and what doesn’t’ and move forward only with the most promising two or three, all the time adapting — and evolving.
Inventing oneself out of the box, based on being creative and being ready to invest resources. And, to be able to hold two conflicting divergent thoughts and approaches in one’s gray matter at the same time. For example, being able to serve the core business today, and simultaneously target innovations that may eventually disrupt business as usual.
Nobel prize-winning biochemist Linus Pauling put it this way: “The way to get good ideas is to get lots of ideas and throw the bad ones away.”
