Any company can innovate - few can sustain innovation.
Over the past twenty years, management literature has featured a constantly changing kaleidoscope of "hot" companies, including Enron which was voted most innovative company for seven years before imploding under a dog-eat-dog competitive system that fostered the worst possible behaviors ... as well as some of the best.
It's relatively easy to develop the next new thing - once. It takes a completely different approach to develop a long-term innovation engine. It starts with a mindset that seems to be outside the norm in today's business climate where SBC would rather buy AT&T and risk billions than develop the internal competency needed to create the future of the company. US companies now have over a trillion dollars in cash, so, once again, they are trying to buy growth rather than develop an innovation competency. Thus, Procter & Gamble buys Gillette for $57 Billion, SBC offers $35 Billion for AT&T, and Kmart acquires Sears for $11 Billion.
All of this money spent in spite of the fact that more than half of all corporate mergers fail to create substantial returns for shareholders according to a study by A. T. Kearney, Inc. And, innovation guru, Gary Hamel, calls this the mating of dinosaurs and finds no correlation between size and profitability. "You don't get a gazelle by breeding dinosaurs," he concludes.
An article in "Strategy & Leadership" (Feb 2005) by Woodside Institute authors concludes that a strategy of developing a competency of innovation is more effective than acquisitions and mergers over the long-term. They state, "Though sometimes effective in the short term, this strategy of innovation through acquisition usually fails because the acquiring corporation overestimates the value of synergies and underestimates the post-merger integration difficulties. In any case, innovation by acquisition is always at enormous cost, either in cash or stock, to the shareholders of the acquiring corporations. Shareholders see far higher returns when companies successfully innovate organically."
So, CEOs everywhere, how about taking a little of that acquisition money and put it into developing a competency of innovation. Here are three ways you could spend that money and *guarantee* a return on your investment:
-- hold an Innovation Fair where teams share the new projects they are working on. Create encouragement for people to incorporate the ideas they see into their own situations.
-- give everyone in the company an investment seed fund ($100 - 250) that they can use to develop their own ideas ... or pool them for ideas that have promise. This would help break the management aproval bottleneck that stifles innovation in most organizations.
-- put the implementation of a new idea that creates revenue or saves money into the performance evaluation process of every person in the organization.
Rather than spending billions for a dinosaur, why not try micro-funding a bunch of gazelles?
More information:
"Metrics for innovation: guidelines for developing a customized suite of innovation metrics," Strategy & Leadership, Vol 33, p 37, by Amy Muller, Liisa Valikangas and Paul Merlyn, Woodside Institute. Download account_for_innovation.pdf
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