Saturday, February 12, 2011

The Three Key Reasons to Keep Innovating

Everyone can agree that innovation is import--for every type of organization. I was reading the "Innovator's Solution" the other day and Christensen made an interesting observation in one of his footnotes that I think is worthy of further discussion, which are the three key reasons to keep innovating: to keep investors happy, to keep employees, and to enable the adoption of technology.

First the traditional view: keeping investors happy. I did a hasty search on the web to see what other bloggers are saying about why innovation is important and from what I can tell they give several reasons that support only this one. Frankly, I think growing profitability and market share are what the general population generally thinks about as the ONLY reason to innovate. Out of the three reasons, this one is the only one that is directly measurable--the hard reasoning--but there are two soft reasons which are dependent on this first one.

Innovation is important for keeping employees also. So long as the company is growing the employees will have a sense that there are opportunities for career opportunities. As growth slows the sense that career opportunities lie outside the firm will be perceived more and more frequently. Unfortunately, it will be the top employees that will have the greatest opportunities, which means it is the less capable employees that are left to shoulder the firm's growth.

The third reason to keep innovating is that investment in new technologies becomes more difficult. When the firm stops growing it will have to do more with what its got because it will be less capable to support the capital investment required to bring new technologies into the organizational architecture.

No one needs to be reminded why innovation is important--the idea is intuitive. Nevertheless, as you are looking at new companies to invest in or work for you can ask yourself if the pace of innovation in the firm under inspection can be sustained to keep the top talent AND whether they are able to invest in new innovations. The two soft reasons to innovate support the major reason to innovate and are the key to impacting the fundamental metrics of innovation: product value, costs and the pace of innovation.