THE FIVE ENEMIES OF INNOVATION

Much has been written about the competitive and social importance of business innovation, but a close look at the companies credited as being America’s most innovative would indicate there’s more talk about innovation than action. This article suggests there are five reasons for that.

Take a look at the ‘most admired’ companies lists of business magazines (you’ll need a prescription — these magazines aren’t very innovative online) and you’ll see yesterday’s news, and precious little innovation. The definition of ‘most admired’ is supposed to embrace innovation and social responsibility, so I expected to see companies on these lists I’d really want to work for. Fortune’s top ten are Wal-Mart, Southwest Airlines, Berkshire Hathaway, Dell Computer, GE, J&J, Microsoft, FedEx, Starbucks and P&G. These are companies known more for production efficiency, slashing costs and investment acumen than innovation. The reason they head up the Fortune list? Only CEO’s, Directors and securities analysts get to vote. No wonder. I guess it never occurred to Fortune to ask any customers who they admired.

Next stop in the search was Forbes. They define ‘best’ as synonymous with fastest-growing. Whether you get there by exporting jobs, slave labour, shoddy products or marketing sleaze doesn’t matter. Their top profile? A factory that does nothing but breed animals for a life of torture in laboratories. Uh, yeah, OK.

After finding the archives of Business 2.0 impervious to non-subscribers, I finally found what I wanted, where I should have looked first, in Fast Company. Ironically the only magazine I currently subscribe to is the only one I don’t have to. There’s a message there, perhaps.

On its Business At Its Best page, Fast Company keeps kind of a running tabulation of the world’s leading innovators. It currently lists these fifteen:

1. GPS – The satellite system that cost $9B to develop, and which underlies a host of innovations in just about every industry on Earth. Who paid for it and (so far still) owns it? You do. And it’s absolutely free for anyone to use. The money came entirely from American taxpayers. It’s a true, courageous, awesome innovation, done completely by the public sector. Don’t let Bush privatize it.
2. Pottery Barn – The company that made ‘brand’ something more than a swish.
3. World Wide Pants – Letterman’s comedy production company.
   
4. Google – No surprise here.
5. Washington Mutual – The company that bought 30 banks and then refocused them exclusively on the neglected lower/middle income market.  However: They offer free chequing but gouge users $30 for NSF cheques, and a lot of their customers bounce cheques.
6. Amoeba Music – Huge stores that carry and support the independents.
7. Wal-Mart’s Next Stage – Expansion into service stations, groceries, reno stores, car dealerships, anything retail. All using Sam’s one true innovation: Get out of the business of selling stuff to customers, and into the business of leasing shelf space and display space to vendors. The ultimate middleman. Brilliant. Barren. Scary.
8. ESPN – Extreme Games brings sports back to the people.
9. Take Good Care – Health Superstores for aging boomers.
10. The Container Store – Three strategies: Partner with vendors, Give customers hands-on, informed service, and Keep your offerings very flexible as demand changes.
11. Electronic Arts – Four strategies: Disciplined creativity, Continuous improvement for core customers, Expand the market to new gamers (they developed the SIMS, the first game played mostly by females), Exploit the genius of cheap Canadian software developers.
12. Wipro – The Indian firm that outsources the world’s technology R&D. Innovation at the cost of American jobs. Hmmm.
    
13. BMW – For design innovation.
14. TIVO – The cautionary tale that everyone thinks is the innovation of the decade, but still isn’t out of the red, or the courts. Video on demand, freed from its commercial shackles. We’ll see. Fingers crossed.
    
15. Parkland Memorial Hospital – At last, maternity and neo-natal care that’s safe and affordable even if you aren’t rich.

Well. Definitely better. But lots of question marks, and hardly a mother lode of revolutionary business genius benefiting consumers. Why aren’t there more, and more exciting, innovations, especially among America’s largest corporations, the ones that can actually afford to invest in innovation? Five reasons, present in almost every large organization:

1. Shareholders – Large public companies are slaves to shareholder demands for steady, uninterrupted growth in profits. No risks please. Spend your money buying your competitors and your congressmen, not investing in unproven ideas.
2. Intellectual Property Laws – Bush has allowed what can be patented and trademarked to expand to ridiculous, anti-innovative, and anti-competitive extremes. He’s allowing big corporations to patent or trademark ideas (as general as e-mail), broad processes, symbols and representations (cartoonists may soon have to pay license fees to caricature celebrities). Huge armies of corporate intellectual property lawyers snuff out new innovations as competitive threats. These laws will kill innovation, and put our most creative minds out of work, in bankruptcy, or in jail.
3. Customer Antipathy – The new mantra of business is “we’d have a good company if it weren’t for the damn customers”. Most visible in the entertainment industry, but increasingly true everywhere. It’s us versus them. Not clear yet who has the most power, but with new laws preventing customers from suing suppliers, the tide is turning away from us, and that’s bad news for innovation. Trust no one. When they ask you what you want, they’re just trying to figure out how to make you want what they’ve got.
   
4. Size & Concentration – Large corporations are like oil tankers. They move slowly and can’t change direction in less than a generation. Not only does corporate concentration reduce the motivation for innovation (and as the economy turns around, get ready for lots more consolidation), it also makes it harder to do even when the motivation is there. Size is the enemy of agility.
5. The Race to the Bottom – The incessant drive for cost-efficiency without any consideration for its human, social and environmental cost is leading corporations to outsource and export jobs, automate processes, and disintermediate services (i.e. ‘serve yourself’). The consequence is lower product quality, commoditization, loss of employee continuity, creativity and loyalty, and even less money for investment in innovation. If it’s cheap enough, it’s easier to throw it out than make it better.

There are solutions, ways of overcoming these enemies of innovation, and I’ve developed a prescription for them. But without structural and cultural changes to address the five problems above, innovation is going to get more and more difficult for business to foster, and less and less palatable. In the mindless pursuit of profit at any cost, we are digging ourselves into a big hole.