Don’t knock ‘innovation’, create a framework for it
In the movie Apollo 13, the crew must deal with rising carbon-dioxide levels. To fix the problem, they need to install square canisters in—you guessed it—round holes.
“I suggest you gentlemen invent a way to put a square peg in a round hole. Rapidly,” urged flight director Eugene Kranz, played by Ed Harris, to the engineers back on Earth.
Companies today depend on innovation to survive, a characteristic displayed by the engineers on that fateful mission. But outside of the space programme, the term is applied to some far less momentous moments.
In an earnings calls, Kellogg chief executive John Bryant has referred to new Kellogg products, including its peanut-butter-flavoured Pop-Tarts—“Gone Nutty!”—as innovations. As the Wall Street Journal quickly pointed out, S&P 500 CEOs had also applied “innovation” to perfume, potash, and higher-alcohol beer. Is the term being misused?
It may be useful to step back and think about the tasks that are fulfilled by innovations.
At a very basic level, the role of innovation in business is to create, sustain, and enhance the success of a company, product, or product line in the market.
This can be done in a variety of ways that are new to the company in question.
If Kellogg’s wanted to increase its overall sales of the Pop-Tarts line and prevent customers from defecting to rivals or to other breakfast and snack alternatives, and if the new product achieved that objective, the outcome was consistent with what the firm set off to accomplish with the “innovation.”
However, innovations need not be restricted to the physical product. They could, for example, involve a change in how a firm prices its products.
Think about the 99¢-per-track download on iTunes.
Or think about Broadway’s move to dynamic pricing, which involves increasing or decreasing prices for certain seats based on week-to-week, or even day-to-day sales trends. Again, if the objective is to increase demand, or to better capitalize on differences in consumers’ willingness to pay, then it makes sense to categorize these tactics as innovative. A second task fulfilled by innovation is to enhance the brand. By brand I mean more than the physical product or the service. I mean the host of associations that consumers conjure up in their minds when faced with the name of a company or its products.
Consider the Chevy Volt, GM’s plug-in electric car. In the first 10 months of 2013, 18,782 Volts were delivered.
That was 2.7% less than 19,309 delivered in the first 10 months of 2012.
Has the Chevy Volt generated large sales and profits for GM and Chevrolet?
But has the Volt, along with the other new product introductions, improved the GM brand in general and the Chevrolet brand specifically?
The answer appears to be yes.
For example, Chevrolet entered Interbrand’s 14th-annual ranking of the best global brands at No. 89 last year.
Pradeep K. Chintagunta is faculty at the University of Chicago.
This article is adapted from an article in the Chicago Booth Review. To read the original, go to bit.ly/2FyQVIf
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