The Five Innovation Myths That Destroy Big Companies

The Five Innovation Myths That Destroy Big CompaniesNokia is seen as a company that was innovative but is in decline. It was the company that made cell phones fashion accessories. In 2008 it had a 40% share of the global mobile phone market. Today it has just 3% of the smartphone market and the company is worth just 5% of it’s 2008 value.

What makes a company go into such a sharp decline? What hampers their innovation?

Let’s look at some innovation myths that can destroy big companies.

Myth 1: It’s Easy for Big Companies to be Radical Innovators
Myth 2: Big Companies Know Their Competitors
Myth 3: ‘No Problem, We’ve Got That Covered’
Myth 4: Our Customers Love Our Brand and Will Stay Loyal
Myth 5: If We Fall Behind We Can Catch Up Quickly

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Myth 1: It’s Easy for Big Companies to be Radical Innovators

Big companies have established products and strong sales revenue. They focus significant time and resources on efficient manufacturing, marketing and the next generation of products. In short, big companies focus on operational efficiency and incremental innovation. They focus on the present, not the future.

In big companies radical new ideas can be killed by complacency or fear. If sales are strong does the company really need to invest in an expensive, high risk product? If the new product is successful will it destroy the sales of our existing products?

To create truly innovative products and services a company must be able to spot-emerging trends and devote resources to exploiting new opportunities. To create radical innovations they must be adaptable and quick to embrace new ideas .

In the late 1990s Nokia built a prototype touch screen, internet-enabled phone. Nokia spotted a trend. It developed a prototype nearly 10 years before Apple launched the iphone. But Nokia failed to translate this lead into a product.

Innovative companies need to back good hunches. They should take a balanced approach and invest some of their resources in high-risk, radical innovation projects. They need the flexibility to drive innovation projects forward quickly, while maintaining ‘business as usual’.

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Myth 2: Big Companies Know Their Competitors

Big companies focus on their direct competitors. They know what these competitors have in their product development pipeline.  Nokia knew what Blackberry, Motorola and Samsung were doing.

However, the disruptive innovator was Apple. This ‘computer company’ entered the mobile phone market. It produced a phone with great hardware and great software.

Apple’s innovation was more than that. It produced an innovative product with an innovative business model. Apple provided an environment where anyone could develop an app and make it available to other people. Apps made the iphone significantly more useful, more interesting and more desirable.

Radical innovation often comes from adjacent industries. Radical innovation creates innovative products, services and new business models that change the game.

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Myth 3: ‘No Problem, We’ve Got That Covered’

Companies need to be realistic about their current situation and their capabilities. Last year, 5 years after the introduction of the iphone and when Nokia’s share price had fallen by 75%, Nokia CEO Thorsten Heins said there was “nothing wrong” with the company.

Nokia has great marketing – it turned the mobile phone into a fashion accessory.

Nokia has great engineers  – it’s hardware is fantastic.

Nokia underestimated the importance of software. Perhaps the company thought it ‘had that covered’. It has internal software developers. But Nokia’s software lagged behind it’s competitors. For today’s smartphones hardware and software are equally important. Nokia didn’t have the balance right.

Companies need to be realistic about their strengths and weaknesses. They must identify where they need to build capabilities or partner for success.

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Myth 4: Our Customers Love Our Brand and Will Stay Loyal

Today, brands are not as resilient as they were. Yes, customers love your brand now. Things can change. Fast.

In our high-tech world people expect continual innovation. If other companies offer attractive products with enhanced benefits customers will switch their purchasing and their loyalty.

Nokia products came too late and couldn’t compete. Customers switched allegiances.

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Myth 5: If We Fall Behind We Can Catch Up Quickly

Big companies often think it will be easy to catch up if they fall behind. This is especially true for companies with large amounts of cash in the bank.

In the high-tech sector things move quickly. A six to twelve month delay creates a huge gap to bridge. Playing catch up isn’t easy.

Some big companies think that spending money will solve any problem. Here comes the bad news. Research by the Marshall School of Business (University of Southern California) studied over 3500 cases of companies making innovations internally, buying innovations externally or partnering to access innovation. They found internal innovation and partnerships delivered positive returns. Buying innovations delivered negative returns.

It will be interesting to see if the acquision of Nokia by Microsoft leads to greater innovation and increased success.

Or will creating an even bigger company just make it harder to bring forward radical innovations?

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Original images courtesy of Free Grunge Textures, used under a Creative Commons license.

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