Why do so many big organisations fail to innovate? Here’s my theory and it all revolves around optimisation.
Launching new products and services is an expensive and risky business. There are many unknowns, processes are immature and the opportunity cost of launching this product (over another opportunity) adds to the pressure.
Assuming you have a successful launch, you’ll want to generate as much profit as you can. So over time the organisation will hone its processes, skills and expertise to become very efficient at delivering their product or service.
More efficiency results in a bigger profit margins, meaning everyones happy.
However, at some point the organisation decides to launch a new product. And doing this requires them to re-direct people and resources away from the existing product.
In addition to this, the research & development costs start to kick in, along with the inefficiencies of starting a new production line and the launch marketing costs too. Profitability takes a tumble and shareholders get worried.
Potentially, in the future the new product will double the organisation’s profitability and save them from their own ‘Kodak moment’ when demand for the existing product dries up.
But at this point, there’s no guarantee this will happen. Its all a big unknown! So deciding to innovate is a pretty gutsy decision.
Thanks for reading 🙂