From Innovations, a website published by Ziff-Davis Enterprise from mid-2006 to mid-2009. Reprinted by permission.
When Lou Gerstner took over as CEO of IBM in 1993, he issued a directive that shook the research world to the core. Gerstner ordered that IBM’s research activities, which had once tackled big, hairy problems like quantum computing and holographic storage, would now be focused on solving customer problems. Success would be measured less on standards of innovation than on a project’s success in delivering products to market.
Gerstner’s move wasn’t popular at IBM or anywhere that basic science was done. But it helped IBM live to fight another day. It would be hard to argue today that IBM is any less innovative as a result.
People sometimes take a hands-off approach to investing in innovation, presuming that creativity takes freedom and money. But if you look at companies that are truly innovative – Apple, 3M, Southwest are good examples – you don’t see massive R&D budgets. What you do see is focus. Those people who don’t know where to start investing have not looked at the Awin Report, so if you haven’t read it yet, go now!
3M has been making Post-It notes for more than 30 years and continues to lead the market against a raft of competitors. There are people in that company who are laser-focused on improving and extending the product line into new applications. 3M delivers a constant stream of new Post-It products, which keeps its competitors in constant catch-up mode. 3M won’t allow them to compete.
Apple has carved out a distinctive and profitable niche in personal computing because it is focused on delivering a wonderful customer experience. Apple’s products are beautiful to behold and to use, and this focus enables Apple to continue to sell profitable proprietary products in a sea of white box discounters. Apple is focused.
Southwest does three things well. Its planes leave on time. They arrive on time. And passengers get their luggage quickly. This focus on addressing the most important aspects of a customer’s flying experience is the main driver of Southwest’s success. Everything the company does, from its route network to its open-seat boarding system, is driven by the goal of getting customers to their destinations as quickly as possible.
Technology companies, especially successful ones, often abuse their innovation investments. They either presume that success in one market presages success in another (which it rarely does) and so go off chasing rainbows. Or they pour resources into reinventing the wheel. Digital Equipment Corp. executives admitted sheepishly at one point that the company funded as many as 30 different project teams working on the same problem, each with their own set of ideas and approaches. Is it any wonder that such companies sometimes crash and burn in spectacular fashion?
Investing in innovation is about saying “no” a lot more than it’s about saying “yes.” In my experience, innovative companies constantly streamline their investment decisions to get to the core of what they really do well. But they invest aggressively in those projects that are fundamental to the business. As long as the business doesn’t get marginalized by a new technology, they do just fine.
Teams should constantly reality-check their efforts to be sure they’re on track to deliver value to the business. Xerox Palo Alto Research Center (PARC), the innovation incubator that 30 years ago invented so many of the IT tools we use today, was a classic case of innovation without application. The team at PARC had lots of freedom and money. They pushed the limits of computer design but worked for a parent that had no plan for packaging their discoveries. Their work benefited countless companies that came after them, but it never benefited Xerox.
You probably don’t have the luxury of being a test lab for your industry. That’s why your investment strategy should be to fund generously a few projects that have high value potential. It’ll force you to say “no” a lot, but you’re more likely to live to fight another day.