Outlook 2013: Innovation is crucial to business success
CAPITAL REGION In business, innovation is about more than inventing the next big thing.
It’s about trying new things and not being afraid to fail. It’s about developing new ways of delivering age-old products, such as books and music. It’s about leaders who listen to new ideas and departments collaborating across disciplines.
And in today’s competitive global economy, innovation is more important than ever.
“Businesses don’t know where their competition is coming from anymore,” said Timothy Harper, chairman of the department of management and business at Skidmore College. “They don’t know who their competition is, but they’ve got to beat them.”
Jeff Lawrence, executive vice president for technology at the Center for Economic Growth in Albany, agreed. “If companies don’t innovate and grow their top line, with the global competition, they won’t survive,” he said.
Harper said that innovation is a mindset that permeates a company’s entire culture and good leaders cultivate it. In innovative companies, “there’s an emphasis on innovation,” he said. “[Employees] become think tanks. They want people walking in and thinking about what can be different.”
They also have a willingness to fail quickly and cheaply, learn from the experience and move on to the next project, as well as a willingness to collaborate with other departments.
“If you fail, you’re not stripped down and humiliated,” said Dan Robeson, dean of the school of management at Sage Graduate School. “There might be crucial learnings that go on the shelf.”
Robeson said that innovation can be incremental — modest, smaller-scale improvements — or radical, creating new industries or markets.
“Usually, people are trying to discover a new market,” said Robeson, who researches innovation in Fortune 500 countries. But this isn’t easy to do. “A real game changer takes about 18 years to develop,” he noted.
When people think about innovation, they’re usually thinking about technological innovation — a game-changing gadget such as the iPhone or the Kindle.
But many of the most successful companies are about “business model innovation,” meaning they develop new ways to deliver popular products, said Bela Musits, dean of the school of management at Union Graduate College in Schenectady. He pointed to Amazon and Apple as examples of this type of innovation: Amazon’s success hinged upon the company’s ability to develop a new way of selling books, while Apple’s recent success stems from creating a new way to sell music.
One local company that’s been particularly innovative is Clifton Park-based Apprenda, which has made a name for itself in the “platform-as-a-service” market. Such companies allow customers to deploy applications using resources delivered over a third-party network, such as the Internet; the idea is to provide companies with a way to deploy applications without having to purchase and manage the underlying software and hardware.
Apprenda was formed in 2007 by three young software developers; today, the company has 40 employees and boasts customers such as Honeywell and Diebold.
“It used to take roughly three months to be able to deploy an application, where now it takes a few minutes,” said Abraham Sultan, Apprenda’s vice president of engineering. “[Companies] don’t have to worry about the tedious work that they used to have to do before.”
Musits said that Apprenda’s business model has evolved — one of the hallmarks of an innovative firm. The company’s founders originally envisioned Apprenda as an independent contractor whom other companies would hire to upload their applications, but they soon discovered that most firms preferred to do that sort of work in-house. So they created a tool to make the uploading and storing of applications easier and sold it to other companies.
“They changed their business model,” Musits said. “They changed their product.”
Innovative companies are constantly investing in new products, according to business experts. They are also willing to “cannibalize” themselves — to invest in products that threaten their existing business. The idea, experts said, is to develop these products before someone else does.
“You have to be willing to try new things,” Musits said. “You have to be willing to reinvent yourself.” He added, “Would you rather cannibalize your existing customers, or would you rather have someone else do it?”
Robeson said that Eastman Kodak is a good example of a company that failed to develop new products because it feared those products would hurt its business.
Best known for photographic film products, the Rochester-based company failed to adapt to changing times and transition to digital photography, despite having invented the basic technology used in digital cameras.
“They couldn’t envision another world,” said Robeson, who worked at Eastman Kodak as a consultant from 2000 to 2002. “They were the inventors [of digital] and they thought that if they repressed it, they could beat digital back to the sea. But technology will always get out there, even if others discover it. For success, a company has to change, to think differently. That’s the challenge.”
“IBM was a very different company 25 years ago,” he said. “But Kodak is pretty much the same.”
Harper said that while some firms are highly motivated to innovate, others are not. He said that it’s important for companies who cannibalize their own products to get the timing right; if they introduce a new product too soon, they risk destroying the market for their older products before they’ve fully reaped their benefits.
One company that owes its recent success to bringing a new product to U.S. shores is Johnstown-based Fage USA Dairy, which owns the only Greek-style yogurt manufacturing plant in the country.
The company built the plant in 2008, and Fage spokesman Russell Evans recently told The Daily Gazette that “sales have been very good. We have grown 50 percent per year on average for the last 10 years.” He said that Fage plans to add a new product line at the Johnstown plant called Fruyo, which consists of stirred yogurt and fruit in a homogenized base.
“There is nothing like this out there,” Evans said.
For Fage, growth outside of the company’s native Greece, where its market share has declined as a result of the country’s economic woes, is key to survival.
Green Conscience Home & Garden also saw opportunity in the Capital Region despite the recession, opening its Saratoga Springs-based showroom in 2009. The company sells non-toxic and sustainable interior finishes, lawn and garden products and lifestyle goods, such as cabinets and countertops.
Green Conscience owner Karen Totino attributes her success to the rapidly growing local environmental movement.
“When I first opened up, it was a very niche market,” she said. “Only a certain type of person searched me out.” But her clientele has expanded during the past two years. “More people see their purchases as a statement these days,” she said.
Many companies are using new and innovative methods to refine their products, Harper said. One such method is crowdsourcing — seeking feedback from those who purchase the product.
“The idea is that the people who will be most helpful are the people who use the product or who watch people use the product,” Harper said.
Harper said that innovation can have a downside, and he pointed to big-box stores to illustrate both the advantages and disadvantages of innovation. These stores tend to sell lower-cost items and can help make life easier for people who live in rural areas where stores are few and far between, but they can come with environmental costs, he said.
Hospitals are also very innovative, but being innovative often requires employing a greater number of well-paid business professionals to focus on the marketing and unveiling of new services, which can drive up the cost of services.
Innovation can also be a sign of desperation, Robeson said.
“There’s a theory that when companies are in their death throes, they’re at their most creative,” Robeson said.
A weak economy can be a good time for innovation, as it can spur entrepreneurs and businesses to think outside of the box and consider new ways of doing things, experts said. But when times are tight, it can be harder to obtain the capital needed for new, ambitious products, and the companies in the best position to innovate tend to be large companies such as IBM — companies with capital to invest in longer-range innovations.
A bad economy “always makes it more difficult to sell a new idea,” Musits said, but he added that new ideas are crucial.
“Innovation is absolutely critical to the success of the country and the economy,” Musits said. “When you think about it, everything we have as human beings is the result of someone being willing to try something new. In our culture, we have a long history of innovation.”