innovation — as defined by the Collins English dictionary
(ɪnəveɪʃən)

1. countable noun
An innovation is a new thing or a new method of doing something.

Being able to meet customer needs and wants — better than anyone else — is what creates Market Leaders.

Take any current market leader, like Apple / Amazon / Toyota, and you will see that in addition to figuring out what the customer needs and wants, they have also come up with compelling ways to service these requirements.

However, in order to stay at the top, a market leader cannot afford to stand still ... it must innovate or be eventually overtaken by competitors that serve their customer needs and wants better.

Innovations can come in many forms, such as:
1. Lower Price / Cost
2. Faster Delivery
3. Improved Functionality / Performance / Results
4. Improved Safety / Reliability
5. Improved Convenience / Accessibility
6. Higher Desirability
7. Availability

In some cases, simply making the product or service available can make an organization a market leader.

Types of Innovation

Innovations can be classified into three main types:

1. Incremental Innovations — wherein changes build on current ways of meeting a customer needs and wants (e.g. improving mobile phone battery life from 12 to 16 hours)

2. Disruptive Innovations — wherein changes focus on tapping needs and wants (e.g. specific market segments) that are, critically, being ignored by the market leader (e.g. releasing a low priced mobile phone)

3. Radical Innovations — wherein new ways to address customer needs and wants are introduced (e.g. introducing a phone with customizable components, much like a laptop, prior to purchase)

Market Leaders, as a function of their leadership, are always under the threat of disruptive innovation (as it eats at their market share), or radical innovation (as it steals customers away).

Clayton CHRISTENSEN — the much respected Disruptive Innovation theorist — made a very interesting statement in his book “The Innovator's Dilemma”:

“as we shall see, the list of leading companies that failed when confronted with disruptive changes in technology and market structure is a long one ... One theme common to all of these failures, however, is that the decisions that led to failure were made when the leaders in questions were widely regarded as among the best companies in the world.

There are two ways to resolve this paradox. One might conclude that (the) firms ... must never have been well managed ... An alternative explanation, however, is that ... there is something about the way decisions are made in successful organizations that sows the seeds of eventual failure.”

Pushing Innovation

Innovative firms — like IBM, APPLE, AMAZON and TOYOTA — stay on top of their markets by continuously pushing out new, innovative products and services. These innovations are what help them maintain their market leadership.

Here is a short list of innovations introduced by each firm, over the years:

IBM — Punched card systems, the Hard disk drive, FORTRAN programming language, Mainframe computers, Magnetic stripe cards, IBM Personal Computer, microprocessor designs, transition to from a Hardware manufacturer to a Consulting and Service solutions firm.

APPLE — Apple I, II and Macintosh computers; Newton handheld computer, MacOS, iPod, iPad, iPhone, App Store (software distribution), Apple Movies, Apple TV and Podcasts (i.e. digital content streaming), M1 microprocessor

AMAZON — Online Shopping and Home Delivery, Cloud computing

TOYOTA — Automatic loom, Toyota Production System (aka Lean Manufacturing), Hybrid automobiles

In the case of both IBM and APPLE, many of their innovations were radical. However, even after introducing these radical innovations, they did not rest on their laurels; but rather, went on to the next radical innovation, as well as working on continuous incremental innovations over time.

In the case of TOYOTA, their most radical innovation was not a product, but rather an methodology / philosophy, the Toyota Production System.

The benefits of market leadership, in the case of APPLE, are evident. APPLE (on Aug 19 2020) became the first company to hit a market capitalization of USD 2 TRILLION. This allows it to continue funding research into innovations and acquiring firms in order to bolster its inventory of innovative technologies.

Not Pushing Innovation

In organizations where there is little or no management support and/or funds for research, then you can be sure that innovation will take a back seat.

Market leaders that fail to prioritize innovation do not stay in that position for long — all it takes is a disruptive innovation or two, or a series of incremental innovations from a competitor, to knock them off their perch.

In other cases, the Market Leaders maintain their top position, but notice their market decreasing in size over time — only to realize that another organization, one with a radical innovation and possibly in a totally different industry, is now servicing their previous customer’s needs.

Whether this failure to innovate — either incrementally, disruptively or radically — is due to fear, sloth, hubris or ignorance; the sad truth is that once something better — something innovative — comes along, the loss of market share / customers to the proverbial “New Kid In Town” is inevitable.

In a 2016 AMERICAN STATISTICAL ASSOCIATION talk, Vincent BARABBA expounded about what he felt was a missed opportunity by EASTMAN KODAK.

He stated that during a 1980 visit to one of KODAK's largest retail photo finishing customers, the owners asked him the following question: “What is the time period over which silver halide technology will retain its superiority over digital technologies in capturing images and making prints?”

He went on to say, that in response to that query:

"Teams were formed (within KODAK) to take strong positions on whether silver halide or electronics would dominate capturing images by 1990.

Each team debated their positions with the purpose of uncovering and assessing the most important assumptions that would have to be true for a particular point of view to be accepted.

Out of this debate grew a list of critical assumptions upon which Kodak would develop its longer-term strategy.

The process provided management a clear picture that change in the capturing of images through digital technologies would actually happen, and that they had until 1990, that is an entire decade, to prepare for it.

Despite this compelling evidence, management had a hard time putting in writing that Silver Halide technology would eventually be replaced -- as it eventually was. (And then) ... because of their discomfort with the thought of dropping silver halide, they focused most of their attention on digital methods to improve silver halide technology."

So why didn't KODAK decide to go into the digital imaging market, back in the 1980s?

Many reasons come into mind, a lot of them attributable to the unknown. However, we cannot discount the effect that corporate culture and financial standing can have on innovation efforts.

Some possible reasons why KODAK did not enter the digital imaging market:

• They compared the new technology to their existing product and found it wanting
• The digital imaging market was too insignificant to merit investment
• It was deemed too risky an investment, due to all the unknowns
• They were not the market leader in new technology and thus would not be leader in the defined space
• The current silver-halide market was large enough to sustain them
• They assumed that film camera users and photograph printers would hesitate to purchase new equipment to replace their fully functional systems
• The transition from film to digital would require too much work and too many systems to develop
• They did not have any 'experts' in the new digital imaging field
• They did not want to cannibalize their existing market
• They did not want to divert funding to the development of this untried technology and/or market

With all these reasons, KODAK may have determined that the potential positives of entering the digital imaging market did not outweigh the potential negatives. It is possible that digital imaging technology was seen as more of a threat to the silver-halide market, rather than something they should tap or look into.

Radical Innovations

Radical Innovators do not have any of the qualms or concerns that Market Leaders (like KODAK at that time) have regarding the new product or service — in fact, they see their innovations as an opportunity to serve a (possibly new) market — they just need to figure out how to define the market, reach the potential customers and then service them.

The only unknown variables would be market acceptance, speed of uptake and the rate at which potential competitors will bring out similar innovations to the market.

Since Radical Innovators — unlike the Market Leaders — already have the innovative technology / product / service, and are familiar with its ins and outs; they end up having a big head start; which is sometimes enough to make them the market leader in their new space.

Often times, the speed of uptake seems slow, as customers need to become familiar with the new innovations and the advantages provided. This sometimes lulls the Market Leader into a false sense of security, justifying their decision not to invest in the new innovation.

However, there usually is a tipping point wherein the new 'market' explodes, and the competitors are left wondering what happened. Once this happens, competitors either scramble to get a piece of the new pie, or just find ways to hold on to what customers they have left.

Sadly, in KODAK’s case, their final demise may actually be attributed to an overwhelming firestorm of radical innovations — all of which contributed to radical and drastic drop in demand for silver-halide film and printed photographs, namely:

• the introduction of digital cameras by NIKON and CANON (and others)
• the continuous introduction of cheap(er) and high(er) capaciity digital storage options (e.g. SD cards)
• the INTERNET, which allowed people to consume and share digital content (like photos and videos)
• the introduction of SMARTPHONES with built-in high resolution cameras and high-capacity file storage (by APPLE, SAMSUNG and others)
• the rise of digital photo sharing applications on the internet (like FACEBOOK and INSTAGRAM, to name a few)
• the introduction of cheap and high-resolution inkjet and laser printers from HEWLETT-PACKARD, CANON, etc.
• the popularity of mobile messaging applications (FB MESSENGER, VIBER, etc.) , wherein users can imbed photos directly and send them to friends and family

Could have KODAK survived this innovation firestorm? Possibly ... probably ... perhaps if it was able to acquire a company with a significant foothold in the digital imaging market, say like CANON, for example. Acquiring innovative technologies through purchases, partnerships and corporate takeovers have been used many times in the past by firms to get access to enabling technologies and innovations.

However, the financial situation of KODAK vs CANON during 2005 may be one explanation as to why this did not happen. KODAK, at that time, had documented Total Assets of USD15.2B (and Shareholder‘s Equity of USD3.0B), whereas CANON had documented Total Assets of USD34.3B (and Shareholder‘s Equity of USD22.0B).

KODAK would not have been in any position to acquire CANON to “buy” itself a place in the digital imaging market at that point in time — as CANON was significantly larger, and in better financial shape, than KODAK.

And even if, for some reason, KODAK was able to purchase CANON, it still would have ended up dropping its silver-halide products for the newer "digital versions".

Left without a good foothold on the emerging digital imaging market, KODAK eventually lost its position as the global leader in the imaging market.

Our Opinion

So can industry leaders truly innovate? Of course they can! Chances are extremely high that innovation(s) are what made them leaders in their respective markets.

However, in order to stay on top of the game, these market leaders have to keep their eyes on which customer needs or wants they are satisfying — rather than just focusing on the product or service they are providing, or to what market they serving.

In many instances, true radical innovation comes from external sources, with no direct relationship(s) with the industries and/or products affected. The impact of the INTERNET and SMARTPHONES (with cameras) on the viability of the traditional film-based photography and printed photograph industries cannot be underestimated.

In the case of KODAK, its management and stakeholders may have not realized that they were (ultimately) in the imaging business, rather than the photographic film and photo printing business. Things may have turned out differently if KODAK saw digital imaging technology as another tool to add to their imaging business, rather than a competitor / alternative to their photographic film / printing technology.

Which brings us back to the CHRISTENSEN quote above — “there is something about the way decisions are made in successful organizations that sows the seeds of eventual failure”. Organizations have a bias leaning towards (and rightly so) maintaining the value of existing investments. However, this bias must be overcome when determining what should be done when their industry is at an inflection point.

While there were many reasons, possibly valid at that time, as to why KODAK did not look into developing and building digital imaging systems; we, with perfect hindsight, know which path they should have taken.

And as with any innovation, being the first mover would have provided KODAK with a sizable advantage in the new digital imaging market. Who knows what would have happened if they started focusing on that market back in 1980?

Customers, at the end of the day, are very pragmatic when it comes to spending money. They choose products or services that they feel meets their needs best — whether the product is new or old, innovative or otherwise.

If an innovative new product or service — with or without track record — meets customer needs better than an established product or service provided by the market leader, you can be sure that some customers will try it out. For innovators, that will most probably be the start of something good.

Related links on INNOVATION

Gamechangers: On Radical Innovation — We talk about some examples of radical innovation — innovations that changed the game, so to speak.
The Apple M1 chip breakthrough — Apple's latest desktop / laptop CPU chip represents a breakthrough in processor chip technology. Here are some reasons why.