Why innovations are killed despite having a clear innovation strategy

Companies have comprehensive, communication-effective strategies — for corporate development, products, and especially innovations. It is not uncommon that companies want to achieve innovation leadership in their industries. But if this topic is so present, and a top priority on a company’s agenda, why do so many companies fail?

“Your strategy is not what you say it is.” — Clayton Christensen

Superficial justifications point to poor management, inappropriate organizational structures, etc. But these justifications lack clear causality ignoring the root cause of the real “what”, and “why”. By studying various innovation management theories, The Innovator’s Dilemma, and corresponding theories by Clayton Christensen have made it clear to me what the major challenge is:

Choosing the right metrics of success for your strategy.

Success is often defined as profitability. Companies focus on metrics like NPV (net present value), ROI (return on investment), RONA (return on net assets), or IRR (internal rate of return). All these metrics are killers for innovation as they force the management of a company to optimize for short-term cash flow, and investment pay-offs. Especially regarding the return metrics: The smaller the denominator, the better the numbers. Investments that pay off within several months are much more tangible than investments that pay off in 10+ years. Therefore, incumbents obviously do everything right today — but at the same time not. If cashflow is available, it is in most cases allocated to projects, and topics that give you the most immediate evidence of achievement, which means activities that create even more cashflow as soon as possible through increasing efficiency.

The RoX metrics show very clearly: The smaller the denominator, the better the numbers. From this point of view, companies can seem to be very successful, but in the long run, these metrics can lead to deceptive security, and cause the company to miss the boat on innovation by false investment decisions.

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