Why Great Innovators Spend Less Than Good Ones

[Via HarvardBusiness.org]

A story last week about the Obama administration committing more than $3 billion to smart grid initiatives caught my eye. It wasn’t really an unusual story. It seems like every day features a slew of stories where leaders commit billions to new geographies, technologies, or acquisitions to demonstrate how serious they are about innovation and growth.

Here’s the thing — these kinds of commitments paradoxically can make it harder for organizations to achieve their aim. In other words, the very act of making a serious financial commitment to solve a problem can make it harder to solve the problem.

Why can large commitments hamstring innovation?

First, they lead people to chase the known rather than the unknown. After all, if you are going to spend a large chunk of change, you better be sure it is going to be going after a large market. Otherwise it is next to impossible to justify the investment. But most growth comes from creating what doesn’t exist, not getting a piece of what already does. It’s no better to rely on projections for tomorrow’s growth markets, because they are notoriously flawed.

Big commitments also lead people to frame problems in technological terms. Innovators spend resources on path-breaking technologies that hold the tantalizing promise of transformation. But as my colleagues Mark Johnson and Josh Suskewicz have shown, the true path to transformation almost always comes from developing a distinct business model.

Finally, large investments lead innovators to shut off “emergent signals.” When you spend a lot, you lock in fixed assets that make it hard to dramatically shift strategy. What, for example, could Motorola do after it invested billions to launch dozens of satellites to support its Iridium service only to learn there just wasn’t a market for it? Painfully little. Early commitments predetermined the venture’s path, and when it turned out the first strategy was wrong — as it almost always is — the big commitment acted as an anchor that inhibited iteration.

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One problem of too much money is that bad ideas get funding also. In fact, there are often many more incremental plans than revolutionary ones. They soak up a lot of time and money.

Plus they create the “We have to spend this money” rather than “Where are we going to get the money to spend?”

Innovations often result in things that save money. But they are often riskier to start with. So how to recognize them and get them the money they need, but not too much?

Encouraging people to work on ‘back burner’ projects in order to demonstrate the usefulness of the approach is one way. Careful vetting can help determine whether it can be moved to the front burner or not.

Part of any innovator’s dilemma is balancing the innovative spirit with sufficient funding to nurture that spirit, without overwhelming the innovator with the debit of too much cash.