Penny-pinching innovation vs. sustainable profitability

As it seems, being successful in an Innovation division within some profitable companies may somehow be difficult, if not impossible. Let me elaborate.

I have attended in Paris – a few weeks ago – a very interesting conference on Innovation, by Francis Pisani, following up his 10-month world tour of Innovation (links to his blogs at the bottom of this post). Francis told us of vivid examples of highly refreshing ideas, most of them very simple, some of them somewhat unexpected. At this occasion, I have learnt about “serendipity“, a very interesting concept I must admit I did not know before, which seems to be – unfortunately for innovators – a key factor in the discovery of new trends and products…

Still, all of these initiatives have been led by people who are totally convinced of one thing: only innovation will allow them to solve the issues they are facing. So continuous investment in innovation is the key, and the one who goes asleep is bound to decay and eventually to die.

I knew several people in the audience, and while listening to their comments and experiences, I could realize that Innovation is an area where jobs are especially under pressure. A whole lot of them are experiencing drastic budget restrictions, if not cuts, like myself, and this for very different sectors (Food, Beauty, Consumer Electronics).  For those with remaining significant budgets, a strong ROI controlling is behind their back, and this at the earliest stages of their projects.

A specific case in the food sector was namely related and is illustrating this. Should innovation’s newly developed product fail to reach pre-defined sales rates in the very first weeks of their on-shelf presence, they would be rejected. Even if user pre-tests are satisfying, even if new clients are acquired, even if a niche has been detected. The driving word is ROI, but not on the long-term, to help defining new ranges of products and new business opportunities, but on the short-term. Cash-flow first.

There may be several reasons to such behaviors and budget reductions (business decision, financial strategy, economic environment), but I do believe this is mostly due to the disappearance of the entrepreneurial spirit. To counterbalance the cold reasoning of a finance director, there is a need for vision, a will to look over the hedge, to find new grounds for development and even adventure. Let me give an example: in the nineteenth century, if American settlers had looked first at the danger of moving westward, the US would be highly different nowadays… But the hope for something better was so much bigger. That was all about entrepreneurship.

In most innovative companies, there is a turn of tide when the original entrepreneurs leave, especially if this happens in a rather short time frame. Often a new generation of financial administrators is hired to replace them, so as to ensure the initial success is not spoiled. The risk is then to alter the perception of innovation within the company. When, in the past, innovation has always been identified as a key long-term development feature, it is now more balanced with the short-term costs it may induce, and the risk of degrading this magnificent margins shaped by the previous management. While balancing, the world, especially the digital one, is boiling with thousands of initiatives. Too much balancing, too late…

Protecting one’s profitability may then lead to postpone innovation investments until a moment when developing them does not make sense any more. The typical case of Kodak missing the digital camera age to protect its highly profitable core film business… Think where Kodak was, and where they now are.

So, eventually the company will seek for a rebound, and has no other choice than finding somewhere else the ready-to-use innovation that it could (should) have developed by itself much earlier. The lead may be lost and the final cost will most probably be higher…

See Nokia. So as to protect their worldwide leadership and their dominant Symbian OS, their management ignored the first tactile phones prototypes developed internally and only reluctantly came to the SmartPhone revolution, missing both initial waves, the hardware (iPhone) and software (Android) ones. Thanks to Microsoft’s Windows 8 success on mobile devices, especially in North America, they have a third chance, and may thus narrowly escape disaster…

So my question:

Is innovation still compatible with profit-making policies within such companies, especially for those that are public-listed? Or are big companies bound to innovate solely through the buyout of small innovators’ businesses?

Looking for some answers…

Francis Pisani blogs:

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