If you read about innovation, particularly the popular literature on innovation, you will have the impression that everyone should be innovating all the time on every aspect of what they are doing. Now, I don’t believe that this is true. So I introduce the concept of the innovation fitness to describe what sort of role innovation plays in what we do and how it contributes to our survival as an organisation. So the first metaphor that I use is that of the first cuckoo. So the first cuckoo use the early bird, isn’t it? So that’s the creator of the new idea. So this is that type of company who always comes up with new stuff, and then they do something about it.
Now, if you look at what they are good at, it is creating new things is what they are good at. Where they spend most of their money, they spend everything on R&D. Usually they don’t have enough money for anything else. They are very often not too good at selling those things. And they are not ever the company who is making the great money. OK, so if they are successful, they will be known. They will be famous as the grand innovators, which does not go together with making lots of money. However, as a company, if we want to describe them, we would call them valuable companies. Why? Because they are producing value.
Basically the word innovation can be described as the first stage being creativity, when you created the new idea. And then when it becomes an innovation, it means that you create a new value from that creative idea. Now this is very close to what we usually hear what everyone should be doing. However, most companies don’t do that. And these companies as I said before, they don’t make the big money. Who makes huge money are the parrots. What the parrots are good at? They are repeating things. If you look at the literature on innovation, these will be called the early adopters.
They don’t create the new things, but they are adopting them at the very early stage when it is still a high risk, when they don’t know whether it will work or not and so on. So they are repeating what the first cuckoos came up with. They don’t create new things, but they are adopting them very early. They are spending most of their money on marketing. Why? Because they need to get the idea about this new thing into the heads of the customer so that they will be buying it. Why they are making great money if they are good at what they are doing?
It is because they can sell it very expensive, those things that they produce, which does not have to necessarily be something that is very expensive to produce. So they are focused on the customer. They understand the customer if they are good. And then they deliver to the customer what they need or they convince them that they need what they have to sell. So if they are successful, we will know them as the ultimate customer focus in the industry. And of course, they are the profitable companies because they are making the big profit. Now after the early adopters came, those who are not so early, and that’s why I describe them with the bear.
And if you see, the bear is sleeping in that cave. So the bear describes the approach by waking up after a long winter sleep. So they are really the late adopters, OK? So they only take the new stuff when it is already certain that it works, when everyone is already happy with it, and there is nothing much to change. It is really clear that it is making good money, that it is reliable, that it works fine, and so on. Now it means that they are focusing on exploiting the already existing stuff. What they are usually good at is saving money. So if we look at who spends on what, they try not to spend at all.
And this means that they are usually good at these economies of scale, mass production, reducing costs, optimising processes, and that kind of stuff. And that means that they will be able to produce things at very, very low cost. Obviously by the time they started adopting it, it is very well-known, how things can be done. And they find out the ways how to do that quite cheap. However, they also focus on being reliable. So it means that they are delivering some sort of traditional values, well-established values.
And that is where they make the big money, which is not as big as in the case of the parrots, but still quite big, but not because of the huge margin as in the case of the parrots. They make very little money on each of the individual things they sell. But they sell a lot of it. OK, so they are very good at that part. And if we want to label them similarly as the other organisations, based on what they good at, they are very efficient. They spend a little. They earn a little bit more, but that small difference can add up to a decent amount of money if you are good at what you are doing.
Now, usually these things end here, and nobody talks about those who just hate innovation. And I describe them with the metaphor of the frogs. Now imagine this is a very, very ugly thing. The frogs are in that stinky swamp, and what they are doing? They are intriguing with other frogs. All they try to do is to prevent any innovation from happening. Not only that they don’t innovate, they don’t adopt what others did, they try to prevent anyone from innovating. Now, what they spend? They actually spend quite a lot of money on things, on conservation. They spend money on how to keep things as they are, how to keep every change from happening.
And this means that they will have one strength. It is their position, sometimes their size as well. But their position is the most important thing. And obviously, if you have a network of these kind of institutions, you will see that, in this case, I did not even use the word company, I talk about organisations, because very, very rarely a company can afford to do this. But many organisations can do that, institutions and so on, who are highly influential in various circles. So they are very good at lobbying usually. And they can actually influence policy making and that kind of thing. So it means that they are bureaucratic organisations, which are just against any innovation at all.
Now, what is really interesting is that companies usually belong only to one of these, and they very rarely change. So your innovation fitness is something that you are used to.
However occasionally, it happens. And the example of Apple is very instructive. They were cuckoos for a long time. They were making the most beautiful computers. Steve Jobs said at one point when the current version, the first variant of the current version of the operating system came out when they asked him what is the strength of the new operating system, he said that the buttons are so beautiful that you want to lick the screen and it was true. They were producing fantastic things and they were on the edge of bankruptcy all the time. And then they changed their innovation fitness. So if you look at the iPhone, the iPad, the first iPod, isn’t it?
The iPod when it was released it was not a great innovation. It was imitating others and it was not at all the best product in the market. So there were much better products. However, they switched into parrots mindset. They convinced people that you need to have that because that’s how you belong somewhere. And they became incredibly profitable, actually one of the most profitable companies in the world currently.