INNOBLOG

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.

These ingredients are a recipe for sustaining thinking — trying to leap-frog over existing incumbents with cutting-edge technologies. Research shows that market leaders tend to beat back these kinds of attacks, resulting in a lot of squandered resources.

Read the rest at Scott's Havard Management blog, Innovation Insights.

The current issue of Fast Company was sure to get my attention. "The World's 50 Most Innovative Companies!" the cover blared. I start flipping through. The first eye roll came when the #1 ranking went to "Team Obama," which last time I checked was not a company. Then Google. Seemingly fair enough. Then Hulu, the online video joint venture between News Corp and NBC Universal. Huh?

I am a big fan of Hulu. Chapter 9 of The Silver Lining names it as one of 10 innovations that are well positioned to thrive in today's tough times. My colleague Renee Callahan has done an excellent analysis of Hulu's success to date. But the third most innovative company in the world?

My pet peeve with these kinds of compendiums is they often don't define what exactly an innovative company is. Often they will list companies that are doing cool things, or companies that have done a masterful job exploiting their core business. I couldn't even find a description of how Fast Company put its list together in the magazine.

I'm even more skeptical of surveys that ask executives to name innovative companies. Those surveys suffer from endless Halo Effects, and really shouldn't be trusted.

I empathize with editors trying to put these lists together, because it's awfully hard. After all, what does an innovative company look like?

In my mind, an innovative company does more than exploit a single idea. It develops the systematic ability to extend into new markets, and create entirely new business models. And importantly, it doesn't just invent new things; it makes money with its new efforts....

Read more at Scott's Innovation Insights blog.

In September, Renee Callahan wrote in Strategy & Innovation about the appealing GPS unit Dash Express, which distinguished itself in a very crowded field with its ability to aggregate data about users’ positions and speeds to generate real-time, accurate traffic information. However, Dash is now undergoing a complete overhaul of its business model: it will no longer sell its own branded devices and will focus instead on business-to-business sales of its software platform. If nothing else, this rapid death of a new device serves as a further warning of the dangers faced by new entrants with great ideas seeking to improve on existing offerings in sustaining ways.

This is a welcome change, and as Renee’s original article indicated, it was a foreseeable one. Dedicated GPS navigation devices from a few large incumbents have continued to become more ubiquitous and more affordable, while at the same time GPS has rapidly become an increasingly common feature in phones. After the Dash Express was introduced, it quickly became clear that positioning it among other devices with extremely similar features would be an ineffective strategy, as demonstrated by series of price cuts evidently driven by weak demand that brought the price from $600 to $399 to $299, not counting a monthly service fee.

Essentially, the Dash Express was positioned as a device that does what other devices do, only a little better and more accurately. Unfortunately, viewed from this perspective the Express was a sustaining play, and market entrants tend to do very poorly when attempting to one-up established players.

Dash’s new strategy, however, is substantially more promising. As a restructured business-to-business software platform developer, Dash is entering fairly new territory: GPS device manufacturers use their own closed, proprietary operating systems, and generally speaking mobile devices like phones run on an enormous variety of proprietary software platforms that have only recently shown some potential for standardization. Within this new, less-cutthroat competitive landscape, Dash may flourish. Of course, it’s also worth noting that the piece of Dash’s software that makes it truly compelling – its use of users’ data to provide extremely accurate traffic data – will only work better as it is made available in and gathers data from a wider variety of devices.

At the end of the day, the demise of Dash as a device maker demonstrates the difficulty of penetrating a mature market with established incumbents and fierce competition. The “new” Dash may also run into trouble, but from our perspective Dash’s new business-to-business model seems to be a safer, faster-moving road to success.