Within itself, innovation holds many paradoxes. It can become a rod for the back of a company. It can drive growth. It can motivate people. It can be very difficult to do. It may at some point become impossible to innovate a given product further. This article explores the paradoxes of innovation as a major driver of company success today.

1. 31 strategicmarketing June–July 2014
Dr Thomas Oosthuizen on the paradoxes of disruptive
innovation and why we must remain young at heart in business.
DISRUPTIVE INNOVATION
When we become
victims of our
own constraints
businesses in the Fortune 2010 list of
fastest growing companies received
US$3,40 in incremental market
capitalisation for every $1 of revenue
growth. Yet, for companies that created
new categories, this figure was notably
higher – US$5,60!
In South Africa we have seen how
the high innovation rate of FNB created
customer growth and shareholder value
beyond that created by the competitor
banks. We also saw how the share price
of FirstRand responded negatively to the
announcement that Michael Jordaan,
who was widely seen as its innovator-in-
chief, would be stepping down as CEO.
The innovation paradox
Yet, within itself, innovation holds
paradoxes. Can any product – like an
iPhone, for example – continue to be
improved in significant ways? Or will
it reach a point where innovation will
merely be incremental, as it has been
in the recent past when Apple has been
subject to criticism.
T
HE GLOBAL REACTION BY
investment analysts, industry
commentators and the media to
the slowing rate of innovation at Apple
since the death of Steve Jobs begs a few
important questions about innovation
in business.
It is a fact that Jobs, more so than any
CEO is recent history, made innovation
centre stage paramount to the growth
in Apple’s value and profits. Innovation,
a word often used by CEOs yet rarely
actually practised, suddenly became a lot
more salient – precisely because Jobs was
able to drive such enormous equity and
profit margin growth through developing
truly ground-breaking products.
But, at most companies, innovation is
incremental at best; a factor that tends to
correspond to profits that are either slightly
above or below average. The likelihood
of achieving a dramatic increase in profit
margins – unless aided by an upsurge in
national or global economic growth cycles
– is generally low.
Achieving high growth
By contrast, at highly innovative companies
strong profit margin growth is the norm
rather than the exception. From previous
research studies done over the years, it is
clear that so-called ‘disruptive innovation’
makes a company leapfrog competitors.
As a way to illustrate this: The top 20
At highly
innovative
companies
strong profit
margin
growth is the
norm rather
than the
exception

2. 32 strategicmarketing June–July 2014
DISRUPTIVE INNOVATION
June–July 2014 strategicmarketing 33
PHOTOS:GETTYIMAGES,SUPPLIED
DR THOMAS OOSTHUIZEN HAS
A DOCTORATE IN MARKETING
COMMUNICATIONS. HE IS AN
HONORARY PROFESSOR IN
BUSINESS MANAGEMENT AT THE
UNIVERSITY OF JOHANNESBURG,
A BOARD MEMBER OF THE
INDEPENDENT INSTITUTE FOR
EDUCATION AT THE JSE-LISTED
ADVTECH GROUP, AND AN ADVISORY BOARD
MEMBER OF THE VEGA BRAND SCHOOL.
Moreover, one of the big questions
that must be answered is whether the
average consumer actually expects
dramatic improvements all the time?
Some years ago, for example, Microsoft
was criticised for updating its Windows
platform so often that its users started
lagging far behind in their own platform
applications; they were simply receiving
more features than they needed.
Customers were also often forced to
upgrade, even when they could not afford
to do so, or it made no sense in terms of
what they wanted the system to do.
The paradoxes go further. Did Apple
create such high expectations with its
ongoing series of disruptive innovations
that investors and consumers eventually
became conditioned to expect a forever-
increasing spiral of new products with
revolutionary capabilities that delivered
exceptional equity and margin growth?
Did Apple therefore, unwittingly, create a
rod for its own back? Will an inability to
retain its remarkable rate of innovation
undermine its very success to date –
all of which has been achieved
through innovation?
And does this mean that a company
should accept lower equity and revenue
growth, rather than seek exceptional
innovation that may ‘expose’ the
organisation and create high
expectations which it may not be able to
meet at some point in future?
If we assume business is ultimately
about the leveraging of scarce resources
to create investor and customer value,
surely these issues must lie at the heart
of most companies? Increasingly, we
see innovation, as rated by CEOs, stated
as one of the most important issues in
business. Just recently, an industry report
listed “critical thinking” and “problem
solving skills” as becoming the most
important attributes large companies look
for when appointing staff.
Despite these issues being paramount
to the ability of a company to create
value beyond its peers, they are hardly
ever practised in real life in the pursuit
of product innovation. Indeed, I believe
most companies do not even think about
what innovation within their business
context actually means!
Disruptive innovation
Today, ‘innovation’ is less about
incremental innovation and more about
disruptive innovation. Most serious
new business developments over the
last 20 years have been about creating
new industries (Google; Amazon.com;
Facebook) rather than about updating
current ones (Hyundai; Emirates).
These new industries have by far
outpaced the growth in value of the
traditional companies. The latter, with
their regular product updates which
are often merely facelifts – now lag
far behind. However, where traditional
companies do break the mould, like
Nestlé with its Nespresso coffee
machines, these innovations have
created disproportionate value.
Disruptive innovation expects a new
way of thinking and doing within an
organisation. As Professor Gary Hamel,
recently rated as the most influential
thinker in business by the Wall Street
Journal newspaper, states: a serious
new strategy “is the most intellectually
challenging thing any organisation
can do”.
Being young at heart
Hence, I was pleasantly surprised
when speaking to students at a
leadership conference at the University
of Stellenbosch recently. A second
year engineering student posed this
question: “Can a company indefinitely
innovate with a given product, or is
there a time when innovation can no
longer create substantive increases in
value for customers?”
What amazed me is how few CEOs
or executives that I have come across
over the years even mooted this
question! Yet, here was junior student
who had already come to this important
conclusion – one that had taken me
many years of experience to get to.
Is this because the way in which most
companies operate makes innovation
– of the kind that adds dramatic
business value – almost impossible?
Is it because most large organisations
become like old people; too scared
to ‘think’ differently, let alone ‘do’
differently? Why do global giants like
Unilever and Proctor & Gamble buy, or
create, small offspring companies to
bring the kind of product innovation into
the organisation that they themselves
may find difficult to do?
How could a student ask a question
many executives never think to ask?
I was inspired by this student as
he made me realise how remaining
‘young at heart’ will make our ‘thinking’
and ‘doing’ in business a lot easier.
We become the victims of our own
constraints. Once we get trapped in
them, they take on a life of their own
– even if they are devoid of reality,
ignore the needs of customers, or fail to
capitalise on the opportunities offered
by our insights and capabilities.
It is only when we fundamentally
question the status quo that we can
start making the changes that will create
new contexts altogether. Becoming
highly innovative takes a lot more than
vision statements, brainstorm processes
or staff ‘fooling around’ for 10% of their
time. Neither are they ‘eureka moments’
devoid of any substantive executive
direction or an underlying support
structure and ecosystem.
After all, when Akia Morita of Sony
conceived the Walkman many years
ago, or when Steve Jobs came up with
the iPad, they were essentially young
at heart. They kept an open mind as
to how they looked at consumers, they
interpreted that within their own skills-set
– and then went off and did something
that was clearly out of the ordinary!
Nestlé created
disproportionate
value by
disrupting the
market with its
Nespresso coffee
machines
We become the
victims of our own
constraints