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Accenture High Performance Business research has shown conclusively that high performers share the ability to innovate successfully.
Less obvious, perhaps, the corollary: unsuccessful innovators are actually harming themselves and entering into a vicious downward spiral that could affect the company’s chances of survival. This in-depth article looks at the nature of innovation, the characteristics of the “innovation death spiral” and how to turn things around.“Adi Alon, executive director in Accenture's Operations practice, speaks to CNBC’s Lerato Mbele on how companies can extricate themselves from the doldrums and apply innovation effectively. Watch the video."
Too many companies find themselves trapped in what Accenture calls “the innovation death spiral.” The spiral begins when a company’s new products, developed and launched with high hopes, end up yielding only disappointing results. Nonetheless, once those products are out in the field, they soak up valuable resources, including manufacturing and purchasing capacity, marketing budgets, warehouse space, back office systems and management attention.
As a result, the company has to restrict its investments to safer, incremental innovations of existing products and services, which in turn contribute to the gradual contraction of market share and ability to attract top talent. Once in the spiral, the company suffers both strategically and operationally, while losing the ability to invest in successful initiatives and game-changing innovations that could provide sustainable competitive advantage and fuel profitable growth.
To break out of the innovation death spiral, companies need to understand what innovation is, and the characteristics of the spiral itself.
Accenture believes there are three types of innovation, and that companies should maintain a balanced portfolio:
Incremental. This type of innovation plays a necessary role in defending a company’s baseline against competition, but is more a maintenance activity.
Platform. Innovation in this mold? Delivers superior customer benefits, and can drive some market growth.
Breakthrough. Market-changing innovation that delivers new benefits to customers.
Innovation is all about allocating scarce resources to projects whose outcome is uncertain. While companies are familiar with the need to address market and technology opportunity costs, they tend to ignore the strategic, operational and systemic opportunity costs associated with the innovation spiral.
The spiral consists of two negative spirals:
The strategic negative spiral. Unsuccessful innovation not only cuts into profitable growth—it affects market positioning. Companies with relatively undifferentiated projects have to sell on cost, and find it hard to attract potential partners and suppliers who can help them excel.
The operational negative spiral. New offerings—whether they are successful or not—consume the same amounts of a company’s operational resources. In addition, companies seldom pay enough attention to discontinuing unprofitable products. The result: fewer and fewer resources available for further innovation, and a shift in corporate culture. Such companies find it hard to attract top talent, and tend to end up focusing on incremental innovation exclusively.
Strong leadership is essential in creating and driving a successful innovation program. Once the company’s leaders have communicated the overall strategy and the role of innovation within that strategy, they need to ensure that the organization focuses on doing the right things and doing things right. Basically, the process consists of six steps:
Define top-level ownership of innovation and clear accountabilities.
Create an innovation strategy aligned with corporate strategy.
Identify white spaces and must-win battles.
Reduce time to market (doing things right).
Increase innovation efficiency (doing things right).
Continuously measure and improve innovation performance.
May 27, 2011
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