Innovation and repeated transactions
I was having a conversation with a friend of mine about the lack of serious innovation in some of the big companies in the world. If I look at the successful brands of my generation — Coke, Sony, Kodak, Unilever etc, what I see is serious lack of innovation. While these comapnies did billions of dollars of business, they also stagnated or declined.
Clearly, when a company is successful, its successful in terms of share holder value increase. And the shareholder value increases when the company starts making a lot of money. And a lot of money is made when millions of consumers buy the same thing and the company is able to make them at a lesser and lesser price, in turn increasing the profit per unit. Hence, the soul of a profit making organisation is doing repeated transactions.
When a company is doing repeated transactions and making a lot of money, who has resources for doing something different? Why would a CEO relishing shareholder attention will distract them by saying I am taking away money for the future.
And thats the precise reason a company will not invest in innovation. It happens only when the current starts looking troublesome. When a company is not making money, has a lot of trouble, the shareholder attention is less and CEO has all the time to look at the other things. Thats when the Innovation team is put under a lot of stress to get something out that will work.
The very reason innovation exists is to create the next set of products that will allow more repeated transactions. The problem is, not all that the innovation churns out will lead to repeated transactions. At the same time, unless once keeps innovating, will not have one product that will help repeated transactions.
My thinking is, a good CEO will ensure a healthy mix of innovation and repeated transactions. At times, its good to err towards innovation than the repeated transactions part of the business. If there is a pipe that will allow the company to do many transactions, it will not only remain in the business but will rule it.