Innovation: Why Is It So Difficult to Innovate?

The word innovation is constantly used in the vocabulary of companies and professionals. But what does innovation really mean?

When I started my career in technology, I was responsible for developing new products for a telecommunications company. After a few years, I became a managing partner.

It was one of the most magical and transformative times of my life. Creating a new product for the company, setting it apart from competitors and often getting ahead of them, then seeing the results drive profit and growth. It inspired a level of motivation in me that words cannot describe.

We came into this world to evolve. Evolution is part of our nature, and innovation comes with evolution. When all of this comes together, success follows.

The word innovation means something new, a novelty that changes old customs, habits, processes, legislation, and so on. In other words, something entirely new, never done before.

Today, however, anything done a little differently from before is being called innovation. Depending on your point of view, that is not necessarily wrong. But at the heart of what innovation really is, there must also be something evolutionary, disruptive, bold, and entirely new. Without these four ingredients, we will simply do more of the same, just a little differently.

With technology advancing rapidly, competition intensifying, products becoming increasingly “commoditized,” and time-to-market getting shorter, it is becoming rarer to find companies that are truly innovating in the market and making major investments in Research and Development (R&D) departments.

A study by ADAMS and BOIKE shows that innovations considered new to the world fell from 20.4% to 11.5%. By contrast, improvements and modifications to a company’s existing products grew from 20.4% to 36.7%. True innovation initiatives are in short supply. In light of this, it is easy to understand why we no longer see those groundbreaking products as often, the ones that catch our eye and make us spend hours in line for the chance to buy one.

Figure 1 below helps us understand how a company views new products and how the market views them. When the level of novelty is high for both, the product can truly be considered innovative.

Figure 1 - How companies and markets view new products

The figure above shows a few types of “new products”:

• New product lines: These are not new products to the market, but they allow a company to enter a market or a specific product category for the first time.
• Improvements to existing products: Replacing an existing product with one that performs better and/or offers greater perceived value.
• Cost reductions: Products designed to replace existing ones without affecting their functionality, but with lower production costs, thereby increasing sales competitiveness and/or profits.
• Additions to existing product lines: These are not new products to the market, but they are new to the company and allow it to expand its offering within a category already available in the organization.
• Repositioning: New applications for existing products in a new market segment or for another specific use.
• Products new to the world: These are truly new products. They create an entirely new market.

One interesting point highlighted in APQC’s benchmarking study is that successful innovation is also directly tied to a positive climate, culture, organization, and leadership. In other words, organizational leaders need to understand that innovation is essential and the key to corporate prosperity.

One important metric to measure when launching a new product is the delay rate, which is the gap between the project’s planned timeline and the actual time it takes to launch. The higher the delay rate, the greater the likelihood that a project launch will fail (see Figure 2).

Figure 2 – Delay rate in launching a new product

Another scenario is not giving a product enough time to mature after launch. Many companies, especially those in the consumer goods industry, have not even launched a product before they start working on its “version 2.” This only shows that the development and innovation process was ineffective and that there was no real innovation, since a replacement product needs to be launched within just a few months.

Just as we need to calculate the delay rate, we also need to calculate the productivity rate. This metric gives us a summary of the ROI (Return on Investment) applied to R&D versus the sales or profits generated by the new product. It is one of the most important metrics for measuring the effectiveness and productivity of a launch. Figure 3 below shows how to calculate this metric.

The best companies have productivity rates 12 times higher than the worst-performing ones.

Figure 3 – Productivity Rate

Based on these brief insights into what innovation really is, it is now possible to identify a truly innovative product and better organize the planning of a new product by measuring important metrics that help determine whether a launch succeeds or fails.

Rodrigo de Oliveira Neves

CEO and Founder of VitaminaWeb