"Innovation" is a favorite buzzword across all industries. Despite attempts to integrate innovation efforts into strategy, companies often find themselves in a state of strategic inertia, or an innovation plateau, according to an article in the Harvard Business Review.
The author, Alejandro Ruelas-Gossi, PhD, a professor of strategy at the University of Miami School of Business Administration, says the greatest indicator of the innovation plateau phenomenon is the decline in corporate investment in research and development. Investment in R&D has dropped from over 2 percent of U.S. gross domestic product in the 1970s to 0.78 percent today. "The less science, the fewer ideas for new businesses," Dr. Ruelas-Gossi wrote.
CEOs must have the ability to recognize when their organizations are struck with strategic inertia. He says there are four main symptoms to look out for, according to the article.
1. Fixation on cost-reduction programs. Dr. Ruelas-Gossi wrote that CEOs tend to focus on reducing the denominator (costs) instead of growing the numerator (revenues). The primary reason for this is executives believe lowering costs is the easiest and quickest way to grow the "quotient," a mindset that Dr. Ruelas-Gossi says is akin to "organizational anorexia."
"Lean is a powerful management tool, but having the 'exact' number for efficiently doing the 'work' of today jeopardizes the future by not having 'extra' people thinking on it," he wrote. "Efficiency is not innovation."
2. Obsession with heeding to the customer. Although it's imperative to an organization's business to understand and address consumers' wants and demands, great CEOs understand that it is the firm's responsibility to define value, not the customer's. Dr. Ruelas-Gossi quotes Steve Jobs, who famously asked, "Am I really going to ask customers if they want an iPad?"
3. Hyperfocus on incrementalism. Although "small ball" can be an effective growth strategy in the short term, radical innovation is often absent from CEOs' agendas, according to Dr. Ruelas-Gossi.
4. Fixation on acquisitions. CEOs seek new talent when they hit an innovation plateau, according to Dr. Ruelas-Gossi. He says that the most innovative firms tend to make fewer acquisitions. Instead, these CEOs focus on "develop[ing] the talent inside, focusing on a few great things," he wrote.