Merriam-Webster defines innovation as 1. a new idea, device, or method 2. the act or process of introducing new ideas, devices, or methods. The crucial part of Merriam-Webster’s definition is the word “new.”

History

History tells us that the concept of innovation is age-old. Stone-age inventions, such as the club, controlled fire, bow and arrow, plus the development of language, transformed the evolution of early humans. The bronze age brought the wheel, the plow, soap and rope. The industrial age ushered in the steam engine, light bulb and loom, all disruptive innovations in their time. These inventions impacted society in material ways and changed the competitive landscape.

In 1939, Austrian economist Joseph Schumpeter offered a new twist on innovation.  Schumpeter defined invention as an expression of intellectual creativity undertaken without considering its possible economic impact. On the other hand, innovations were inventions designed to change a business model or target market positively.

Until the early 1970s, the word “invention” was more popular than “innovation.” Google Books Ngram Viewer, a database of text scans of books written between 1800 and 2000, reveals that the use of the word innovation passed invention in 1973. 

The first book to register on everyone’s innovation Richter scale was “Innovation and Entrepreneurship, written by Peter Drucker in 1985. It formalized constantly searching for innovative product ideas and building a business around them. Another is Eric von Hippel’s 1988 “The Sources of Innovation, which describes the process of end-user innovation — creating innovative solutions because existing products do not meet your needs. A timely example of end-user innovation is the GoPro camera, developed by surfer Nick Woodman for his personal use.

The 1990s saw another sea-change shift in executive attitudes toward innovation. Increased global competition, read China, the internet, and the 95% failure rate of the more than 30,000 consumer products launched each year helped change many minds about the importance of innovation.

A McKinsey study shows just how quickly the attitude toward becoming a “category innovation leader” changed. In 1993, 63% of managers at North American food and beverage companies surveyed were content to be either innovation followers or to stay competitive, while 37% reported wanting to be an innovation leader. By 1999, however, 95% believed they had to be category innovation leaders to remain competitive, and no one wanted to be a follower: 

Transformative conversations about modern innovation arose from bestselling books published during that period, including the 1996 release of James Utterback’s “Mastering the Dynamics of Innovation and Harvard professor Clayton Christensen’s 1997 “The Innovator’s Dilemma, which helped popularize the concept of “disruptive innovation.”

Christensen’s book challenged companies to predict consumer needs and adopt new technologies and business models to address emerging market requirements. It was widely read and changed how managers and industry leaders thought about innovation.

The last year McKinsey studied innovation intentions, 1999, was the zenith of dotcom mania, a period that saw dizzying valuations ascribed to technology innovators. The bubble may have burst, but as the table below convincingly illustrates, the impact of technology innovation is indisputable:

Comparison of Five Largest U.S. Companies by Market Cap

Source: 13-Aug-24 Finance.Yahoo.com, 02-Aug-16 The Wall Street Journal

If the value of innovation remained fuzzy in the 1990s, despite the launch of Amazon.com and Google during that era, a compelling lesson was yet to come.

A Pocketful of Innovation

The year 1996 was an auspicious one. In the midst of the dotcom boom, a figure who had been synonymous with the personal computer revolution of the 1980s, Steven P. Jobs, returned to the company he co-founded. But all was not well in Cupertino, Calif.

A succession of CEOs, John Sculley, Michael Spindler and Gil Amelio, had left Apple Computer in shambles. Cupertino’s most famous progeny was almost bankrupt, but Apple was rescued from the brink of bankruptcy thanks to a $150 million loan from none other than Bill Gates and Microsoft.

In what became a master class in innovation, Jobs launched a “Think Different” advertising campaign in 1997. Thinking differently, or orthogonal thinking is what organizations need to get good at to foster innovation. Despite a briskly selling line of colorful iMac computers, the road back to profitability for Apple was a long and arduous one.

Conceived by Art Director Craig Tanimoto, who worked in the L.A. office of TBWA Chiat/Day, the “Think Different” ad campaign was inspired by Rene Magritte’s surrealist work, Ceci n’est pas une pipe.  These bold yet straightforward ads featured a host of famous thinkers and individualists, including Albert Einstein, Mahatma Gandhi, Martin Luther King, Jr., Muhammad Ali, Pablo Picasso and Amelia Earhart, pictured here, among others. Thinking differently is a core tenet of practicing innovation.

Apple was back on the ropes five years after Jobs’ return. In fiscal 2001, Apple’s revenues were down 34%, or $2.6 billion, compared to $8 billion in fiscal year 2000 revenues.  That $5.4 billion in 2001 revenues was even lower than the $6.1 billion the company earned two years earlier in 1999. The setback was due to the double whammy of the dotcom bust and 9/11.

However, 2001 was also a pivotal year for Apple. On May 15, Jobs gave journalists, including Walt Mossberg of The Wall Street Journal, a tour of one of Apple’s first retail stores at the Tysons Corner Center shopping mall in McLean, Virginia.  When that store opened on May 19, 2001, together with another one at the Glendale Galleria in Glendale, Calif., a crowd of 500 people formed a line to enter the store, a preview of things to come.

“No computer manufacturer has successfully branched into retail stores. It’s completely flawed. They’ll shut it down and write off the huge losses in two years.’’— David Goldstein, Channel Marketing Corp.
12-Jul-01 The New York Times

It was a risky proposition, observed The New York Times, calling it “an aggressive move during an economic slowdown.” That same article quoted Channel Marketing Corp. President David Goldstein saying, “No computer manufacturer has successfully branched into retail stores. It’s completely flawed. They’ll shut it down and write off the huge losses in two years.’’ 

That comment has come back to haunt Goldstein. Today, Apple operates 530 stores in 27 countries and regions across the world, including 271 U.S. stores.  With an average revenue of $48.5 million per store, Apple generates nearly $25 billion in sales from its stores or about 10% of its total annual revenues.

According to retail analysts, Apple stores produce the highest retail sales, with sales estimated at $5,546 per square foot.  That means that, based on its current 77,000-square-foot size, Apple’s New York flagship store generates as much as $427 million per year. 

On October 23, 2001, Apple introduced the iPod. Then came the iPhone, iPad and Apple Watch — each device establishing a new standard in its particular product category. Today, Apple is worth more than $3 trillion after becoming the first company ever to be valued at $1 trillion in 2018. In a little over two decades, Apple went from teetering on the precipice of bankruptcy to the world’s most valuable corporation.

Apple unquestionably is the most stellar example of what innovation can contribute to the bottom line. The company personifies one of Jobs’ tenets: “Innovation distinguishes between a leader and a follower.” An uncanny assessment, particularly given those 1990s McKinsey studies that heralded an innovation paradigm shift among executives.

The lesson was not lost on the executive suite. By July 2011, just four years after the iPhone shipped, a global survey by Forbes and Wipro of 300 CEOs and other C-level executives at global enterprises found that two-thirds believed that innovation was more critical than ever, especially in light of the economic downturn of 2008-09.  The study also revealed that studying best practices was the primary innovation assimilation tool for 80% of survey respondents.

The resounding success of Apple’s innovation strategy lit a fire under business executives everywhere. The Wall Street Journal confirmed innovation’s buzz status with a search of SEC reports that found that the use of some form of the word “innovation” occurred 33,528 times in 2011, up 64% from five years earlier. 

What did five years earlier look like? It was 2006, the year Apple’s revenues were three times higher than before the iPod launch. It was also the year Google’s advertising revenues exceeded $10 billion for the first time, and Facebook reached 12 million active users. A period that saw anticipation building for the imminent arrival of the Apple iPhone.

And what companies used the “i” word most in the The Wall Street Journal’s research? Apple and Google, naturally. But also Procter & Gamble, Scott’s Miracle-Gro and Campbell Soup.

Why had innovation become mission-critical? As Microsoft Co-Founder Bill Gates puts it, “Innovation fundamentally shifts the trajectory of development.”  Two confluent examples of how innovation changes market trajectories are Apple and Google, frequent users of the word innovation in their financial reports. Both companies introduced disruptive technologies that significantly changed the destinies of their respective markets, smartphones and search, each shifting Microsoft’s trajectory.

Bill Gates knows this first hand. In August 1997, Gates and Jobs announced that in exchange for Apple bundling Internet Explorer with each Mac sold and Microsoft supporting the Mac with Microsoft Office, Microsoft would lend Apple $150 million.  Since the company was mired in an anti-trust investigation by the Department of Justice, the deal kept a weakened Apple alive while alleviating concerns about Microsoft’s monopolistic behavior.

That $150 million investment netted Microsoft 150,000 preferred shares, convertible to Apple common shares at a price of $8.25 with a three-year lockup. By 2001, Microsoft had converted all of its shares into common stock, netting the company approximately 18.1 million shares. It sold all of its Apple holdings by 2003. Since then, Apple’s stock has split three times, including a 2-for-1 split on June 21, 2000 and Feb. 28, 2005, plus a 7-for-1 basis on June 9, 2014, which would have resulted in Microsoft owning 506.8 million Apple shares. Had Microsoft held on to its Apple stock until 2018, it would have been able to unload it for about $109 billion at current stock prices, a very tidy profit on a $150 million investment.

As Gates said, innovation fundamentally shifts the trajectory of development, and it frequently changes history in the process too.

More evidence of the fervor for innovation came courtesy of The New York Times, which reported in August 2010 that a search of LinkedIn revealed that more than 700 people listed their current job title as “Chief Innovation Officer.”  Today, more than 10,000 chief innovation officers are on LinkedIn, a 1,329% increase in 14 years:

Part of that growth is due to the hybridization of some titles, i.e., “Chief Strategy and Innovation Officer,” but this title explosion demonstrates just how enamored corporations have become of innovation. Yet, it’s quite evident that while more than 10,000 organizations worldwide boast a chief innovation officer, the practical applications of innovation are few and far between, a subject to be explored later on.

This lack of evidence is an increasingly structural shortcoming because, as London Business School Dean Sir Andrew Likierman notes, “Innovation is one of the key drivers of everything that goes on in business.”

Under these circumstances, activists might exclaim these words: “What do we want? Innovation! When do we want it? Now!”

As more organizations realize the importance of innovation and its role in the workplace of keeping products, people and profits on the cutting edge of emerging business strategies, more will, hopefully, put innovation into practice and help boost their financial success. Under these circumstances, activists might exclaim these words: “What do we want? Innovation! When do we want it? Now!”

Innovation Typology

We are in the midst of an era of sweeping change, with major challenges to address, including global warming, hunger, poverty, and the decline of the American middle class. Some entrepreneurs believe that colonizing distant planets, like Mars, will help the lucky and rich few escape a dying earth.  The urgent need for common sense change and reinvention points to a future in which much-needed innovation accelerates.

Disney CEO Bob Iger famously said that the heart and soul of a company are creativity and innovation. But what exactly is innovation? The past millennium has produced a host of transformational inventions, including the printing press, photography, microscope, telescope, engine, automobile and light bulb. However, there are many less obvious disruptive innovations, like the paper milk bottle, which received a U.S. patent on October 19, 1915. To this day, the Pure-Pak “gable-top” carton, as it came to be known, is one of the world’s most instantly recognizable innovations. 

After John Van Wormer received a patent in 1915 for his paper container, he struggled to perfect its mass production. Unable to make milk cartons in quantity, he sold his patents and trademark in 1928 to the American Paper Bottle Company. That company also struggled for the next few years and sold its rights to Detroit-based Ex-Cell-O, which succeeded in getting the Borden Company to use its containers.

The Pure-Pak “Gable Top” milk carton was patented in 1915 and is one of the most widely adopted product innovations. The original container features a fold-out spout, which has been enhanced with a screw cap in newer packaging. The first practical examples were sold on San Francisco and Los Angeles streets as early as 1906.

The Pure-Pak milk carton met with much resistance from dairies because they were heavily invested in glass bottles. Dairy producers were so hostile to carton containers they succeeded in getting local health authorities to ban them.

The Pure-Pak story illustrates just how difficult innovation can be, both from an idea development and marketing perspective, particularly if it’s disruptive and upsets the income streams of established players. The term “disruptive innovation” applies to inventions that disturb the existing world order. In other words, they upset the proverbial applecart.

Airbnb and Uber are case-study examples of disruptive innovations. Both have been met with fervent opposition from government, local labor unions, industry lobbying groups and concerned citizens. When a dust-up produces a lot of dust, some parties will get coated with dirt.

The smartphone, particularly the iPhone, is considered a disruptive, or groundbreaking, innovation — one of the most important inventions of the 21st century. The milk carton was equally disturbing to some.

Whether it’s a simple paper milk container or a complicated communications device, it’s innovative as long as it’s something that hasn’t been created before or functionally works like nothing else before. From there, the concept of innovation can be broken down into several types based on what kind of problem needs to be solved and the approach chosen to solve it.

The following classifications are good starting points for organizations looking to create or expand innovation strategies. No innovation strategy should rely on a single form of inventiveness; it may make sense to pursue a combination of the following strategies:

• Efficiency or Incremental Innovation – Efficiency innovations seek to produce the same product more cheaply or efficiently and are the most popular type of innovation. It involves small upgrades or enhancements to existing products, services, processes or methods over time to maintain or improve a competitive position, think automated credit checks. Incremental innovation means advancing a product by manufacturing it with materials of higher quality, by making partial changes to a complex product made up of many integrated technical subsystems, or by using industrial robots, an innovation to itself, to make automobiles more efficiently, consistently and cost-effectively.
• Sustaining or Orthogonal Innovation – Sustaining, or orthogonal, innovation turns good products into better ones. Coined by Judy Estrin, orthogonal refers to inventions that don’t create new technology but use existing tools, products, and services to create something distinctly new. The iPod is an orthogonal innovation because Apple didn’t invent the portable MP3 player, it was beaten to the market in 1997 by South Korea-based Saehan Information Systems. The iPod quickly dominated the market despite being a latecomer because it introduced an innovative click-wheel interface, an easy way to buy music from the iTunes store, plus an amazing, at the time, 5-GB capacity. The Toyota Prius’ hybrid engine design is another example of orthogonal innovation.
• Disruptive or Breakthrough Innovation – Disruptive innovations are those rare inventions that change the way the world works, including the automobile, television, the personal computer, VCR, compact disc, cellular telephone, desktop publishing, digital photography, e-commerce, TiVo, OpenTable, Netflix, iPhone, Airbnb and Uber. These innovations roiled industries and competitors in their respective spaces, rendering various tools, formats, services and media, ranging from horse and buggies to records to typesetters to BlackBerries, obsolete. Disruptive innovations distinguish themselves as much for the market impact created by a new product or service and the originality of the entry itself.

The Toyota Prius engine is a superb example of orthogonal thinking, or thinking differently: “Let’s combine an internal combustion engine (ICE) with an electric motor that can independently power the engine once fully charged.” It was cutting-edge when it was first released in 1997 — some two decades ahead of most of the competition.

Modes of innovation and rates of technological change vary from sector to sector, and factors such as market appeal, growth potential, industry restructuring capability and competitor reactivity should be considered before executing a new strategy.

Service and low- to medium-technology sectors tend to favor lower-risk forms of incremental innovation, relying on existing methods and technologies to drive sales. Companies that employ incremental innovation strategies focus on efficiency in manufacturing, marketing and product differentiation. Tech companies tend to place greater resources in research and development and are more likely to go for the riskier disruptive or breakthrough forms of innovation.

Inspiring Transformation

In a seminal 2012 article, entitled “You Call That Innovation?,” The Wall Street Journal called out what it saw as a recurring theme: “Businesses throw around the term to show they’re on the cutting edge of everything from technology and medicine to snacks and cosmetics. Companies are touting chief innovation officers, innovation teams, innovation strategies and even innovation days. But that doesn’t mean the companies are actually doing any innovating.” 

One of the biggest challenges facing our world today is chief executives, top educators and government officials giving lip service to innovation without actually pursuing it. As noted earlier, there are now more than 10,000 organizations worldwide with a Chief Innovation Officer (CINO) in place, up from just 700 fourteen years earlier. Yet, concrete evidence of this massive injection of innovation remains noticeably scant.

In some industries, it’s not the innovation team that drives renewal but rather the specter of a new rival. Unfortunately, having a creative visionary like Steve Jobs exerting competitive pressure is usually missing from most market segments. That explains why many enterprises rely on a process resembling osmosis — the transfer of innovation molecules through a semipermeable membrane — to acquire the mindset required to nurture innovation.

As Forbes and Wipro discovered, studying best practices is the primary way executives today introduce innovation into their organizations. That has resulted in thousands of books, hundreds of conferences and countless innovation consultants whose job it is to try to make readers, attendees and clients take action.

Unfortunately, spurring action is the biggest challenge facing organizations trying to instill more innovation. This issue looms large in companies that want to please short-term-profits-focused Wall Street while also driving innovation forward.

Subterfuge revolving around how well an organization is handling innovation can reach the highest levels. One perfect example is my speaking engagement at one of Mexico’s top luxury real estate firms. The firm’s principal warned me not to include content in my presentation that mentioned digital tools for fear of unleashing a storm of “why don’t we have that?” questions from the sales team. It’s a telltale sign that an organization is not as cutting-edge as it says it is.

While it’s not easy to bring about a culture of innovation, follow these four core principles to help bring about change:

• Challenge orthodoxies – Clogged arteries keep blood from flowing to the heart and brain. So does an “If it ain’t broke, why fix it?” mentality. Creating innovative products or services requires an unfettered flow of ideas, free from old, calcified thinking.
• Identify unmet needs – When creating innovative products, there are several essential questions one should ask. How do customers interact with current market solutions? What challenges do they encounter with current offerings? This so-called “pain point” analysis is one of the quickest ways to bring about innovation. Imagine what Steve Jobs was thinking around 1999: “Why is it so hard to buy music to download to an MP3 player, and why is it so difficult to navigate a music library?” Nest Labs Founder Tony Fadell had a similar question, “Why are thermostats so unresponsive to user needs?” A bit of due diligence in researching target audiences can shed light on issues consumers may not know they have. Remember not to put the what before the why and pay attention to how other companies approach innovation.
• Leverage resources – Large organizations can easily leverage existing resources, including corporate libraries and customer research, to help the process of generating innovations. Employees brainstormed the Disney MagicBand RFID bracelet at an offsite meeting. Smaller organizations should study Silicon Valley and copy some of their ideas, from open offices, where employees can more easily share information, to incubators and hackathons — all concepts that propel creative thinking. Remember that hackathons are not just for techie nerds, the concept can be adapted to brainstorm any type of idea.
• Ride trend waves – Trends are undoubtedly the best platforms for innovation because change equals disruption. There’s no greater colliding force with the future than the Ubertrend, so try to adapt your innovative solution to addressing pain points raised by the Unwired and Time Compression Ubertrends, for example, with wireless products and services that save time. Ubertrends change consumer values, and these value changes open up markets to new opportunities. The iPod saved music lovers time by allowing them to find, buy and store music quickly. The Nest Smart Thermostat conveniently learns from your behavior to create a comfortable home environment.

Not everyone can be a Steve Jobs or Tony Fadell, of course, but with some proper motivation and training, one can acquire many of the attributes necessary to become an innovation leader. Some may not believe that they possess visionary traits, but the reality is that both Jobs and Fadell merely observed human behavior and saw something was missing.

I have no special talents. I’m only passionately curious.”

— Albert Einstein

This requires constantly broadening one’s perspective by staying on top of trends, technology and human culture. Remember what Albert Einstein once wrote to Carl Seelig, “I have no special talents. I’m only passionately curious.” Innovators know that curiosity does not kill the cool cat.

To accomplish results, innovation leaders must be resilient and not easily impeded by structural, procedural, cultural or political barriers. Remember that there are all too many assclowns all over the world today. Being an innovator requires having compassion for others and continuously looking for ways to improve results, a philosophy dubbed kaizen in Japan, or the practice of “continuous innovation.” 

Steve Jobs was not nice, but his early market success meant that he could dispense with niceties and demand only the best from his team.

Becoming an innovator requires being savvy enough to be able to deftly navigate an organization’s morass of culture and politics — not a trivial task by any stretch of the imagination. A big dose of self-awareness is required.

They must also be resourceful, able and willing to leverage networks and relationships while using their influencing skills to cross company boundaries and divisions. When IBM gave Bill Lowe the go-ahead to quickly and independently develop the IBM Personal Computer in Boca Raton, it undoubtedly irked many rank-and-file members (sidebar). 

Yet, by 1985, some 10,000 IBMers were enjoying Boca Raton’s balmy weather. Then the corporate winds changed, and employees were shipped out to Raleigh, N.C. and Austin, Tex., leaving just 1,500 employees in Boca Raton.  The moves were clearly related to the untimely death of IBM Vice President Don Estridge, who, along with his wife, Mary Ann, perished in an Aug. 2, 1985 Delta plane crash while on approach to Dallas/Ft. Worth airport.

When IBM entered the PC market in 1981, Apple ran an ad in The Wall Street Journal headlined, “Welcome, IBM. Seriously.”  In 1985, Apple Computer had just concluded its second year of marketing its groundbreaking Macintosh computer, with total sales just shy of $1.9 billion.  IBM, by comparison, was a $50 billion behemoth.  IBM’s revenue for the twelve months ending March 31, 2024, was $62 billion.  That’s less than one-sixth the $382 billion in revenues Apple generated for the same period.

The Ultimate Incubator
In 1980, IBM was absent from the most dynamic sector of the tech industry, personal computing. That year, IBM established the Personal Systems Division in Boca Raton, Fla. tasked with developing a new computer, code-named “Acorn.” A small engineering team led by Bill Lowe and later by Philip “Don” Estridge received unprecedented autonomy from IBM’s top brass in far-away Armonk, N.Y. In August 1981, IBM debuted the 5150 Personal Computer, a product that launched an entire industry. Under pressure to meet an incredibly tight one-year deadline, IBM made a breakthrough decision to rely on an open architecture consisting of Microsoft MS-DOS, Intel 8088 microprocessors, Tandon disk drives and SCI Systems circuit boards. That open design created a huge aftermarket of add-ons that could be used to expand the system, a move that instantly solidified IBM’s lead in an embryonic personal computer market. In another break with tradition, IBM sold its PC via outside retailers, including Macy’s, Sears and Computerland. In 1983, Time named the IBM PC “Machine of the Year,” the first time the honor was bestowed on an inanimate object. This remarkable success story of incubating ideas independently and remotely makes one wonder why this innovation model hasn’t been used more often since.

Apple’s case study provides plenty of evidence that relentless innovation drives financial success.

In 2004, IBM sold its PC division to Lenovo for $1.75 billion, which IBM says was due to the fact that “the PC had become a commodity business.”  After crushing the computer market with a global standard for PC innovation, IBM failed to innovate and slowly ebbed away, taking the company along with it. Could Estridge have reversed IBM’s slow death march? We’ll never know. However, Apple’s case study provides plenty of evidence that relentless innovation drives financial success.

Innovation leaders must be prepared for the long haul. They cannot afford to slack off because in this connected world, with its nearly 1.1 million startups raking in more than $300 billion each year in venture capital, virtually every pain point will eventually be addressed.  Thwarting lurking competition requires building a strong and diverse team with a clear sense of purpose while fostering a climate that facilitates innovation and develops worker skills. If your team thrives, your organization will thrive, too.

Many other elements come into play, including a sound and aspirational financial plan. A well-crafted discovery process that searches for pain points to solve is also critical. Once everyone agrees on a viable solution, the key is to move with high speed to get innovations to market quickly. Mobilize your workforce by making innovation part of your company’s core values. Respect any move the competition makes to help you improve your innovation. It’s a life-and-death struggle.