The cover story of the December issue of FastCompany magazine is a fascinating profile of Apple Computer, and how its relentless fervor for innovation may have hindered its growth over the years.
According to author Carleen Hawn, Apple’s corporate culture has been focused for many years on developing breakthrough products, such as the first graphical user interface for personal computers (the Macintosh) and personal digital assistants (the ill-fated Newton). Yet, in most cases, the company has failed to capitalize upon the opportunities it has created; instead, its competitors have captured the lion’s share of the market for these new technologies by underselling or out-marketing Apple (i.e., Microsoft capitalized on the graphical user interface with its Windows dynasty, while Palm and a host of other technology companies have grown the market for PDAs).
According to Hawn, developing business models and distribution networks to sell these new technologies hasn’t gotten as much attention as it should within Apple, because the company’s culture is so focused on the next “killer” product:
“Apple’s products are not only trailblazers but also easier to use, often more powerful, and always more elegant than those of its rivals. Yet those rivals have followed its creative leads and snatched for themselves the profits and scale that continually elude Apple’s grasp.”
Clearly, according to the author, it’s not enough to develop innovative products. Some of the most innovative companies in the history of American business have ended up being colossal failures. As examples, she cites Xerox Corp.’s famed Palo Alto research Center (which developed laser printing, the ethernet and the graphical user interface) and Polaroid (famous for its instant photography technology), which filed for Chapter 11 bankruptcy in 2001. Not all innovation is beneficial to organizations, she concludes:
“With such examples as Apple in mind, a number of skeptics are beginning to ask whether our heedless reverence for innovation is blinding us to its limits, misuse and risks. It’s possible, they say, to innovate pointlessly, to choose the wrong model for innovation, and to pursue innovation at the expense of other virtues that are at least as important to lasting business success, such as consistency and follow-through. When it comes to economic value, (Joseph) Schumpeter’s creative destruction may have an evil twin: destructive creation.”
The article quotes James Andrews of the Boston Consulting Group, who argues that too many companies presume they can boost profitability merely by fostering creativity:
“To be a truly innovative company is not just coming up with great new ideas, or products and services. It is coming up with ones that generate enough cash to cover your costs and reward your shareholders.”
Andrews suggests that a company can increase its odds of success by selecting the proper innovation model, rather than just pursuing innovation as an end unto itself.
The article also quotes innovation strategy expert Gary Hamel, who points out that in virtually any industry, business model innovators rather than technical innovators have reaped the greatest rewards in recent decades:
“You can be tremendous at innovation on the technical side. But if you can’t wrap that innovation into a compelling value proposition, with a dynamic distribution strategy and attractive price points, than the innovation isn’t worth much at all.”
In addition, new product innovations tend to deliver a lower profit margin than business model innovations, because competitors can often engineer and launch their own copycat products, driving margins down. In contrast, business model innovations tend to be harder for competitors to duplicate, and so they usually deliver higher profit margins.
This is an area where, historically, Apple has been particularly weak. And when you’re competing against a company like Dell Computer, which has focused almost entirely on business model innovation — producing and delivering high-quality computers at the lowest possible cost to the largest number of customers — that’s a major strategic challenge!
What’s the lesson to be learned from Apple’s experience? Clearly both product and business model innovation are necessary for organizations to survive and thrive in today’s turbulent marketplace.
(Please note: At the time of this post, a link to this article was not yet available. Please check the FastCompany Web site in mid-January, when it should be available online)