Every innovation is a fad

You read that right, every idea is a fad. No truly it is. Here’s why – to sustain a strong competitive position in the marketplace, an innovation HAS to be a fad. Every innovation must be replaced by a subsequent innovation thereby relegating the previous innovation to something that was important yesterday.  Continuous innovation isn’t just something which is a nice to have, it’s a necessity for a long term sustainable business.

The critical characteristic of an innovation is determining it’s competitive shelf life. In a low competition industry (say Cable), even small incremental innovations can provide a sustained advantage for much longer than a similar innovation would in a highly competitive industry (say Cell Phones). Competitive industries tend to move in a “neck and neck” type of race. i.e. Look at the race for 4G coverage.
Ultimately every innovation degrades from a competitive advantage to a commodity feature and is why innovation is a fad.

Better Innovation means failing more often

It’s an odd thought that failing more often is better for you. After all failure is, well failure, and not something that is typically celebrated. However one place where failure is absolutely necessary is in a highly innovative corporation.

Innovation Choices and Opportunities

Lots of failure highlights a tremendous corporate asset – the presence of choice. Remember the Edison quote on failure:

I have not failed. I’ve just found 10,000 ways that won’t work.

If your company runs dry of choices, design options, Plan B’s, or plain old business opportunities, you are in serious trouble.  Simply put, the well has run dry and you might as well start looking for a buyer, get as much as you can, and let someone else harvest the existing market share.

Innovation Effects

Failing often also weakens the demoralizing effects of failure. Here’s a Wikipedia quote on innovation failures:

The impact of failure goes beyond the simple loss of investment. Failure can also lead to loss of morale among employees, an increase in cynicism and even higher resistance to change in the future.

And it’s true, failure can be morally devastating, hard to recover from, and potentially cancerous to the corporate spirit. However, think about that Edison quote, not only does it speak to choices, but it echoes a spirit of resolve. Edison didn’t see failure as traumatic; it was simply something which accompanied innovation. Today Google has a similar mentality. Here is how Google presented the death of Google Wave

Wave has taught us a lot, and we are proud of the team for the ways in which they have pushed the boundaries of computer science. We are excited about what they will develop next as we continue to create innovations with the potential to advance technology and the wider web.

There is nothing in the tone to indicate disappointment or loss of morale.

So failing often is actually a good thing, it teaches you how to keep moving forward.

Do you have a What If unit?

How many companies have/need a “what if” business unit? Most existing business units focus on operations and thereby execute and optimize an existing business model. But who looks out for the new stuff or the stuff that falls in between silos? Whether or not your company has a formalized structure, the truth is that someone, somewhere is the “what if” person and you can only hope they are good at.

When the day comes to formalize, what I’ll refer to as the Discovery Unit, then existing corporate rules will no longer apply. For example, short term financials are out because the performance horizon for a Discover Unit is long term development. Predictable year over year incremental growth fused with cost reductions is also a thing of the past. A Discovery Unit is not a little edgier version of an existing business unit.  It is a drastic change from the norm and it will cause contention among the ranks, thus for it to be successful it will require the highest level of executive support. If you interested in a great example, take a look at P&G’s Future Works unit, it may be an eye opener.

HP’s transition to inorganic growth

Now that the HP v. Dell acquisition fight over 3PAR seems to be settled, I began wondering why did HP pay – a lofty – 11x of the trailing 12 months of revenue for 3PAR (ie. $2.4b/$204m).  A typical technology acquisition warrants a 5-6 time revenue multiple.  What really made them chase this deal? After all, HP used to be an innovation story – a company rich in R&D initiatives. Recently however, as this chart from Business Insider demonstrates, HP’s research spending has been dwindling. In this case I believe this is actually a good thing. Don’t get me wrong I would love to see HP continue to innovate and create new revenue streams, however with $123b in revenue, could they really feed the machine based solely on internal brain power? Even a 2% YOY top line growth means that HP would have to create a $2.5b business EVERY year. Basically HP has a mathematical scaling problem not an innovation problem and I’m glad to see that the Board is aware enough to shift the strategy. Though 3PAR may only add a small amount to the top line growth, HP may see longer term strategic benefits which warranted the higher multiple. After the Palm purchase earlier this year, and now 3PAR, the CEO-less HP may pause to catch its breath, thought I doubt they will exit 2010 without another notable acquisition.