If an innovation doesn't sell, it doesn't gain a higher price, a higher margin, or a greater share of market - I not only have to ask if it matters, I wonder if it can be called real or meaningful innovation...is it really innovation if no one values it enough to pay for it?
Innovation for the sake of exploration may very well be an important part of how we extend knowledge, understand the meaning of life, or someday discover cold fusion, but in the context of business, this question becomes simple to answer. If no one is willing to pay for it - as far as business is concerned, it shouldn't matter.
This was illustrated quite graphically to me recently. Amidst the imminent collapse of the U.S. auto industry, there has been quite a bit of criticism about a lack of innovative over the last few decades. No one outside of GM and Chrysler is surprised to find that at the end of 2008, they are unable to operate without significant help from the US government - as fewer car buyers are willing to purchase their products every year.
I recently met a very smart person who has"big 3" auto companies as clients and asked him why he thought US car companies have stopped innovating. His answer astonished me.
"US car companies have been delivering innovations at a terrific pace for more than ten years."
He wanted to talk about restructuring and the deals being made in Washington DC, but before he went deeper into the details of labor issues and unfunded pensions - I had to press him further on what those innovations are.
"Just look at the Hemi engine," he said, "the GT, the Cadillac, even the Hummer...these represent amazing technical advances that no one else can match...the amount of horsepower they are now putting under the hood is astonishing."
He was right. When you look around at modern American cars, the amount of pure power is astonishing. The last time I drove a rental car, I was thrilled to pull out from a toll booth at a nearly criminal velocity. It is amazing how much horsepower you get with an American car. The engineers in Detroit have innovated many aspects of what's under the hood - and every year people have been able to accelerate just a little bit faster.
But...
I have one question...with most driving done in cities, and most city speed limits between 30 and 50 MPH, is shortening the time spent going from 0 to 60 MPH the most valuable thing to innovate? I love being thrown back in my seat when I step on the gas - but is that worth $30,000 to me? Are there other innovations that might create a new market, attract more customers and grow margins?
In other words, has Detroit been innovating the wrong things all this time?
While Detroit increased their engine power, companies elsewhere used innovation to create significant new business- Toyota produced a small hybrid car (with anemic acceleration, I might add) that has waiting lists of buyers willing to pay over $30,000 for essentially a small and slow car. Zip Cars experienced explosive growth in major cities by challenging the concept of ownership - offering a new kind of hourly rental And there are several other promising innovations surfacing, including Better Place in Israel that is changing the entire model for fueling cars by offering swappable batteries for electric cars that consumers pay for by the mile - instead of by the gallon.
Other companies are trying to solve car user problems such as environmental impact, fuel costs, total price of ownership and convenience.
Detroit is improving acceleration.
I don't want to denigrate the astonishing engineering accomplishment of a Hemi engine. I do, however, question it's value in a world of drivers spending hours a day in rush hour traffic moving at 20MPH. It seems that auto buyers throughout the world are asking the same questions - and are waiting for more meaningful innovations - innovations they are willing to buy even if it costs more.
I'm surprised at how easily innovation teams can overlook this fundamental idea.
And so when I work with my clients in other industries, the lesson of Detroit sugessts a useful - and perhaps somewhat obvious - rule for everyone to use when evaluating what innovations to persue:
Innovation doesn't count unless someone wants to pay for it.
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