The company isn’t planning to reach those goals with big breakthroughs in products or processes. This year’s target is 19%, and next year’s is 16%. Mobile phone provider Nextel is a leader in its industry at reducing churn (22% versus 31% for the industry). And every point of reduced customer churn is an additional point of revenue growth. Incremental product innovations can be particularly good at locking in current customers. (See the exhibit “The Risks of Innovation.”) Similarly, tweaking a business process doesn’t incur much technology risk, but with radical business model innovation, both risks soar. And as the level of product innovation increases from incremental toward breakthrough, marketplace risk rises sharply as well. Now consider that every innovation carries two risks: a technology risk-Will it work?-and a marketplace risk-Will people buy it? The technology risk involved in going after breakthrough product innovations (such as new scientific discoveries in pharmaceuticals) is inherently high-there’s the real possibility that no breakthrough will ever be made. Begin by defining business innovation in two ways: product innovation (what a company offers) and business model innovation (how the company brings that offering to market). Second, get the maximum advantage out of minimal innovation. Simply retaining existing customers and improving the targeting and coverage of new ones can yield significant revenue growth, especially in inefficient markets, where innovation isn’t required to keep customers. Since all innovation incurs risk, managers should ask, “Can I increase revenues without innovation?” The answer is usually yes. How can you ensure your company’s growth without taking on the risks of radical innovation?įirst, don’t forget that the point of innovation is growth. In general, exotic innovation strategies usually get beaten by the slow and steady approach of incremental innovation. Earlier this year, continued losses and customer pressure forced Sun to call a truce with Microsoft and make its products work in the Wintel world. The company has watched 94% of its stock market value vanish since the fall of 2000. Sales since 2001 have slid nearly 40%, and $5.1 billion in losses have piled up. Even worse, in viewing itself as the industry’s biggest innovator, the company eschewed more incremental innovations that could have generated significant growth, including application software and consulting, which rivals have used to lock in customers. But since then, the company has been unable to keep the flow of breakthrough products coming. During the dot-com bubble, Sun acted as if the Internet revolved around it. Since its start in 1982, the company has developed a number of blockbusters-high-end computer workstations the Java operating system, which has driven much Internet software development and the powerful Internet file servers that are home to many a corporate Web site. Yet a body of evidence in recent years makes a strong case that breakthrough innovation should be the growth strategy of last resort.Ĭonsider the travails of Sun Microsystems. Breakthrough innovations, whether the next blockbuster product or a next-generation business model, create a buzz in the boardroom while lesser forms of innovation go unnoticed. Like swinging for the grand slam in baseball or betting on the trifecta in horse racing, going for broke with innovation is glamorous.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |