Value-Creation and Innovation

Innovation efforts often fail completely or disappoint. One senior executive involved in innovation for a very large corporation in the telecoms sector told me only 7% of the projects the firm invested in ever produced any value. The root cause of the problem has been well researched, defined and articulated by Curt Carlson of The Practice of Innovation (TPI), and formerly president and CEO of one of the world’s most productive innovation enterprises based in Silicon Valley, SRI.

Having discovered, “only 5% of venture capitalists in Silicon Valley make all the money, and 70% lose money”, whilst “only around 20% of all investment in research and development creates any real value for stockholders”, he set out to understand why. He wanted to know how we can “innovate smarter”. His conclusion is that in most cases “failure starts at the start”, with the lack of a real value proposition. And, if you can’t describe your value proposition you don’t know what you’re doing”.

Regular readers of my articles will note that this echoes my view, “if you can’t define what value you create, who for, and how your strategy is probably not worth any more than the paper it is written on”.

Carlson goes on to say, “the real focus needs to be on value creation” where value is defined by the customer, not by the business or organisation. Value is a customer perception — or a patient, citizen or client perception. Management Guru Peter Drucker also said the only purpose of an organisation is “to earn and keep a customer”, and the only way to do that is to create customer value. But let me stress, attention must also be given to the value demanded by all those upon whom the business or organisation depends to create and deliver customer value — suppliers, distributors, employees and society as a whole — referred to as stakeholders.

This may seem obvious, but it is far from common sense as Ron Adler explains in detail in his excellent book, The Wide Lens: A New Strategy for Innovation, which deals with “the innovation blind spot” and recognises that, “with ever greater frequency, your success depends not just on your ability to execute on your own promises, but on whether a host of other partners-some visible, some hidden — deliver on their promises too”. The sponsors and managers of major innovation projects may have a better understanding of this than many, but the frequency of failures and disappointments suggests otherwise.

All interests must be considered, but they rarely are. The biggest mistake may be made by the firm that focuses on maximising shareholder value, especially in the short to medium-term. This leads to an immediate conflict of interest between shareholders and customers. Another problem stems from the false idea that all the interest associated with an enterprise must compete for a fixed amount of value in what Michael Porter called the Value Chain. In truth, the value chain — the process or activities by which a company creates value, including production, marketing, and the provision of after-sales service — does not need to be about creating a fixed amount of value, and fighting for the largest share of it.

Continue reading this this article which was first published on Medium

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