18 Apr Failure is Not an Option

I believe the answer to the question: “Why do companies fail?” is pretty straightforward. First of all, to answer that question, we really have to go back and redefine the term “innovation.”

Innovation is such a generic term that it doesn’t really mean anything any more. In fact, many of the least innovative companies in the world use the term “innovation” in their tag line, and they’re under the impression that putting the words “leaders in industrial innovation” or “HP Invent” or some such by itself makes them top-notch innovators. Note that I’ll come back to HP later as an example of a company that’s put a lot of focus recently into its innovation processes, but the turn-of-the-millennium version of the company was a good example of “promise without a premise” as evidenced by this tagline.

And so again, why do companies fail in a down economy, and what is the role of innovation? Well, true innovation, in my view, is first and foremost a phenomenally strong and accurate connection to what your customers want. The world famous business guru Peter Drucker said that there were three things you need to know about your business: 1) What is my business? 2) Who are my customers and 3) What do my customers value?

I would argue that Drucker’s definition is really one of innovation. What is my business? You need to know what you do. What your core values and efficacies are. You need to know who your customers are – really know who they are – not just from a demographic analysis, but who they are in terms of what they really care about. Knowing who your customers are and what they value is innovation.

The Difference Between Invention and Innovation

Many, without thinking, use the two words interchangeably, and I would argue inappropriately. When one thinks of an invention, one thinks of a shiny whizbang new product based on some sexy new technology to do something new or do something better. A handheld GPS device is an invention. An innovation is a higher level, more conceptual success that may be developed around an invention, but is something that really serves a customer need and delivers customer value in excess of what it costs, that is, net customer value. A GPS device that uses a well-designed global GPS system to deliver the right information customers need when they need it at a reasonable price is an innovation.

As an exercise, take a few minutes to look at products or services around you to determine whether they are inventions or innovations. A standalone iPod might be an invention (a very good one) but an iPod bundled with iTunes as a complete digital music platform? That’s an innovation. An In-N-Out Burger, fries and milkshake, on the other hand, would hardly be considered an invention, right? But the way it’s delivered? Even without an invention, In-N-Out is a clear example of an innovation.

Most companies don’t know the answer to the third question: “What do my customers value?” Why? The main reason is this: The people who have the greatest authority – and make all the decisions about what a business delivers to its customers – have the least customer contact. Conversely, the people in an organization who have the greatest amount of customer contact almost always have the least amount of control over what is delivered to the customer. Even worse, companies rarely provide a regular venue to allow high customer contact people to be able to communicate ideas to the people who do have authority to make decisions.

Innovations – and businesses – fail in this economy due to the lack of customer contact. Circuit City is but one example – do we really think the managers who made the decision to fire all the expert level employees were fully aware of the needs of their customers?