The Curse of Success

As I’ve regularly noted in this column, the only way for a company to achieve real growth, with rare exceptions, is to create offerings that are so innovative that they contain “must haves” that define new subcategories. The alternative— to build existing businesses with incremental innovations—in general does not create any sustainable sales growth.

Look at any product category, and the answer is the same. All of the meaningful changes in market position and sales of individual brands occur only when the brand creates a “must have” for which competitors lack visibility and credibility to be considered. However, most firms seldom foster such innovation and bring it to market—and in most cases, it is not because there is a lack of resources. Firms that are profitable and successful are actually less likely to fund market-changing innovation than firms that are struggling or in crisis. Why? One answer is the curse of success, which can take several forms.

First on the list is the insidious and common “stick to your knitting” curse practiced by firms that have been successful by focusing on their core businesses: investing vigorously in incremental innovation to reduce costs and improve the offering, pursuing “my brand is better than your brand marketing” to garner more customers and higher loyalty, and building assets and capabilities that support the business.

This commitment strategy, however, leads to:

a.) A failure to see opportunities even when they are obvious, because the perspective doesn’t encourage the consideration of major changes in offerings or customer motivations, or use contexts.

b.) A bias against any innovation that may cannibalize the core business (Why invest in an offering that may kill the golden goose?)

c.) A fear of going outside the existing set of skills and assets to make what is perceived to be a risky investment.

Second, there’s the related “huge silo” curse. Many firms such as McDonald’s, Intel, Frito-Lay, Coca-Cola and Microsoft all have had innovation smothered by their huge brands and businesses that control the organizational power and access to resources. Any embryonic business idea simply will not matter financially, so why bother? At Microsoft, for example, Office and Windows are so large and profitable that any new venture looks insignificant.

And these large, controlling business units will have no shortage of justifiable incremental innovation projects or marketing programs to pursue.

Third, there’s the “competing story” curse. There is always an alternative investment story. Nearly every executive in the organization will have a list of investments that are worthy, even indispensable, for his or her silo business. Even though most will represent marginal new offerings or more marketing that is unlikely to foster growth, they will have strong advocates. A proposed new offering, particularly a game changer, will compete for those resources.

Then there is the investment risk story associated with an investment in meaningful innovation: Technological barriers will not be overcome, the market is smaller than planned and customers will not respond. With decision influencers biased, the competing stories are likely to win.

Finally, there is the “short-term financials” curse. The pressure to create short-term growth and margins, driven by the needs of stock investors and by managers with short job tenures, can be intense. Short-term results can best be obtained by diverting R&D funds to support or enhance the core businesses. Creating a new business platform is risky, expensive and likely to result in short-term financial pain. So how can substantial or transformational innovation occur in the face of these impediments? It’s not easy, especially in the absence of a financial or market crisis.

Here are three suggestions to set the wheels in motion:

1. Make the support of major innovations a priority and explicitly built into your business plan. GE developed the Imagination Breakthrough (IB) initiative in which each business each year is charged to propose three breakthrough proposals with an ability to transform markets that would realize a $100 million potential in a three- to fi veyear time frame. Four years after it was launched, the IB initiative was adding $2 to $3 billion in sales each year and had some 45 projects under way.
2. Centralize all or some resource allocation so that the huge silos do not control and stifle meaningful innovation, and embryonic ventures that do not fit into an existing silo have a stable source of funding. Some firms, including GE, have an internal “venture capital” source of funding.
3. Create a culture supported by measures that encourage and reward major innovations and risk taking. GE, for example, has augmented its performance measurement indicators to include innovation- and growth-oriented measures to incent managers to take innovation risks.

Allowing and enhancing real, market changing innovation has never been more vital. Being aware of the curses of success is the first step, and changing the organization’s planning process, structure and culture is the second.