the innovation master plan introduction - Innovation Management

the innovation master plan: the CEO’s guide to innovation by Langdon Morrisspecial edition for InnovationManagement.comintroduction7usually seem predictable, and also look a lot like incremental adjustments. They areconsiderably less risky than bold innovation bets.Given the unpredictable nature of technology-driven competition and theacceleration of change that technology has brought, the focus on the profitability ofexisting operations inevitably leads to a dangerous trap: focusing too much on theday to day leaves organizations vulnerable to fundamental change introduced fromthe outside by competitors who risk big, and who occasionally do win big.Compounding the difficulty is the fact that managers know perfectly well that it’sa mistake to focus so intently on the day to day, even as they repeatedly surrender tothe pressure to do so. They consequently endure enormous anxiety and stress thatresults from the tension between short and long term issues.The organizational risks due to this behavior are large. A study by RichardFoster and Sarah Kaplan calculated the historical death rate for S&P 500 companiesand found that at the currently prevailing rate of mortality, a full 75% of 2010’s S&P500 companies will disappear by 2020. That’s 375 out of 500 companies, which willdisappear through merger, bankruptcy, acquisition, or being broken up and sold inpieces. Stated succinctly, if you happen to work for a company that is currently listedin the S&P 500, the chances are about 3 in 4 that your company will disappear before2020.This statistic should concern you.The vast majority will fail because they don’t adapt to change, to acceleratingchange that is, which will render their products or services obsolete. In other words,they’ll be displaced by more innovative firms.Managers know this as well. In a recent McKinsey survey more than 70% of thesenior executives responding said that innovation will be one of the top three growthdrivers for their companies in the coming three to five years, as well as – and this isimportant – a key means of adapting to the rapid pace of change. 3The companies that endure are often described in terms that we see on magazinecovers, and that we’d all love to be able to apply our own organizations - flexible,adaptable, foresighted, courageous, and yes, innovative. They produce more thanjust short term, incremental, market-share-preserving innovations; they also developand introduce long term, bigger-bet breakthroughs.And what funds the innovation-seeking work that leads to the breakthroughs?Profit from efficient, ongoing operations. And what leads to the next generation ofprofit-generating efficiencies? Innovation.So in the optimal situation, the two, operational efficiency and fundamentalinnovation, are inextricably linked.However, while many executives tell us that they’re working on incrementalinnovations and big breakthroughs, if you observe what their companies actually do,and the products and services they bring to market, you’ll see a heavy bias toward theincremental, and a painful shortage of breakthroughs.If you ask them about it, and I’ve asked a great many, they’ll readily admit thatthey’re short on potential breakthroughs, and overloaded with incremental ideas.They’re hoping, sometimes desperately, that change doesn’t catch up with them, that3 Joanna Barsh, Marla Capozzi and Jonathan Davidson. “Leadership and Innovation.” McKinseyQuarterly, 2008, no 1.www.innovationmanagement.se