Innovation As A Tactic, Not A Strategy

Innovation has been looked at as an admired business strategy over the past decade. We’ve even written about it. But the other side of the story is that most companies that require a constant flow of new, innovative products will someday find themselves in deep trouble. Proof of that claim is that Sharper Image, home of innovative products such as the Razor scooter, the robotic dog, the Ionic Breeze, the StressEraser and the R2-D2 interactive droid, filed for Chapter 11 bankruptcy, as did a whole list of others.
 
As timeless author Al Reis points out, “Every successful company needs a branding strategy, which may or may not include innovation. Yet many marketing gurus have elevated innovation to a point where it is widely perceived as the single most important function of a corporation.”

There’s also the famous Peter Drucker quote, “The business enterprise has two, and only two, basic functions: marketing and innovation.” But as Reis advocates: “A business enterprise has only one basic function — build a brand that can dominate a category.” While early on, innovation can help a company build a brand, when a category matures the situation changes.
 
For example, in the automotive industry, the significant innovations of the past were the V-8 engine, automatic transmission, power steering, air conditioning, seat belts, air bags, etc.  But what makes a powerful automobile brand today is not innovation, but excelling on a key attribute or segment of the market. Think reliability and Toyota. Driving and BMW. Youth and Scion.

Another lesson is that innovation outside of a brand’s core strength can actually undermine the brand.  What did the PT Cruiser do for Chrysler, except to confuse customers? How about Phaeton for Volkswagen? 

The point is that most brands don’t need innovations — they need focus, and excellence within that focus.  They need a business plan that addresses the needs of the market they serve.  And they need to figure out what the brand stands for, what it could stand for, and then what specifically needs to be done to excel in that space.

And instead of companies spending hundreds of millions of dollars to innovate into markets and product lines that they know nothing about, how about using scarce resources to build a second, complementary brand, like Toyota did with Lexus, instead of potentially weakening the core brand (and the income statement)?

Innovation as the core strategy cannot last forever. It is not sustainable in our opinion. Sooner or later even companies like Apple are going to run up against a brick wall and find themselves fighting a host of competitors who will enter and attempt to dominate their categories – always with lower margins – or face the potential loss of their founder and inspiration.

As the Sharper Image story illustrates, innovation is not a strategy. It’s a tactic that needs to be used carefully in support of a company’s overall strategy, including a plain old-fashioned core understanding of your customers, and knowing what is truly important and meaningful to them — including unmet needs that can be profitably met.
 
And with most of the companies we work with, resources are more productive when invested where core strengths exist. Because, as the old saying goes, “A fool and their money are soon parted.”


Posted by John Harden  February 19th, 2009

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