Questions to help determine your firm’s innovativeness

Is ‘copy’ the standard procedure?

What new innovative product have insurance companies or banks introduced in the last three years? What happens is a lot ‘me too’ copying in, for instance, digital products for the youth market, AI assisted customer service, or taking on a warm and cuddly approach.

Strangely, the more enterprises compete, the more they look the same – in an environment of almost perfect competition. This is despite the fact that the idea of differentiation is drilled into every managers’ business school training.

Clayton Christensen’s landmark ‘innovator’s dilemma’ thinking pointed out that corporates are not the source of disruptive innovations. Paradoxical reason for this is that managers are taught to maximise profits in the short-term, and control the exposure to risks. By following accepted good management practice, major corporations that have skills and resources miss opportunities right under their noses.

Trace the history of disruptive innovations like, for instance, the personal computer, or even AI chips and you will see that they were developed by the misfits, the upstarts on the fringe that no one was paying any attention to. In the beginning these oddballs’ products may have served a tiny [often unprofitable] niche market, and been a touch unreliable. But gradually, lean and hungry, they sort out the bugs and move up the value chain displacing the well endowed market leader incumbents.

Questions to ask

Time to assess how innovative your organisation really is -- not what it says in the strategy documents, but what it actually does. These are just some of the questions that may provoke a mindset shift to stress genuine innovation.

What percentage of revenue comes from products, services, or business models introduced in the last three years? How often does leadership discuss innovation in management meetings? What major assumptions about the business have been challenged in the last 12 months? Do staff feel safe proposing unconventional ideas?

How are new ideas captured and evaluated? How frequently does the organisation engage customers to identify unmet needs? What customer problems are currently being solved that competitors are ignoring? Is there a formal process for ‘test and learn’ experiments moving ideas from concept to implementation? How many new ideas are generated, tested, and implemented annually?

When it comes to innovation, helps to consider the original ideas of ever controversial Peter Thiel, one of the first investors in Facebook, and co founder of Palantir with a market capitalisation of $ 279 billion.

“Listen to anyone with an original idea, no matter how absurd it may sound at first. If you put fences around people, you get sheep,” said William McKnight, the original force behind innovator 3M.

Escaping daily survival mode

Peter Thiel views perfect competition not as an ideal economic state, but as a destructive force that annihilates profits.

"Competition is for losers" is his famous phrase -- meaning that if businesses are locked in a struggle for survival, no one is actually making money.

In his book Zero to One, he outlines his core ideas. In a world of perfect competition, all economic profits are eventually competed away as identical firms undercut each other. Companies are forced to focus solely on daily survival and margins, leaving no room for long-term innovation.

An ‘illegal, predatory entity’ is how we normally think of a monopoly. But Thiel defines a monopoly differently as -- a company that is so uniquely differentiated – innovative- that it owns its market.

In Thiel’s view, true monopolies create so much value that they no longer have to compete, allowing them to set their own prices and reinvest in future innovations. Prime example would be Google, or M-Pesa – that the owners would not want to be considered a monopoly in the conventional sense.

Copycat markets are everywhere. Restaurants and hotels are the prime examples of business trapped in perfect competition. Hundreds of similar establishments battle for localised market share on razor-thin margins, often resorting to gimmicks just to stand out.

Thiel’s view is that entrepreneurs should aim for value creation by building proprietary technologies and leverage advantages – creating a disruptive innovation, leveraging network effects, scale, or brand -- that make competition irrelevant, rather than mindlessly fighting incumbents in crowded, highly competitive markets.

Business occurs in cycles of success and [often hidden] failure, and the in-between shades of gray. As Woody Allen said "If you're not failing every now and again, it's a sign you're not doing anything very innovative."

David is a director at aCatalyst Consulting [email protected]