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Apple and Innovation

December 25th, 2003 · No Comments

Fast Company attempts to answer the question we all have about Apple: “The battle over digital music is just another verse in Apple’s sad song: This astonishingly imaginative company keeps getting muscled out of markets it creates. So what does Apple have to tell us about innovation?”

Almost everyone agrees that Apple’s products are not only trailblazers but also easier to use, often more powerful, and always more elegant than those of its rivals. Yet those rivals have followed its creative leads and snatched for themselves the profits and scale that continually elude Apple’s grasp.

All of which raises some interesting questions. If Apple is really the brains of the industry–if its products are so much better than Microsoft’s or Dell’s or IBM’s or Hewlett-Packard’s–then why is the company so damned small?

That Apple has been frozen out time and again suggests that its problems go far beyond individual strategic missteps. Jobs may have unwittingly put his finger on what’s wrong during his keynote speech earlier that day in Paris. “Innovate,” he bellowed from the stage. “That’s what we do.” He’s right–and that’s the trouble. For most of its existence, Apple has devoted itself single-mindedly, religiously, to innovation.

With such examples as Apple in mind, a number of skeptics are beginning to ask whether our heedless reverence for innovation is blinding us to its limits, misuse, and risks. It’s possible, they say, to innovate pointlessly, to choose the wrong model for innovation, and to pursue innovation at the expense of other virtues that are at least as important to lasting business success, such as consistency and follow-through. When it comes to economic value, Schumpeter’s creative destruction may have an evil twin: destructive creation.

James Andrews, of the Boston Consulting Group, for example, argues that too many companies presume that they can boost profits merely by fostering creativity. “To be a truly innovative company is not just coming up with great new ideas, or products and services,” he says. “It is coming up with ones than generate enough cash to cover your costs and reward your shareholders.”

Andrews says companies can boost the odds of their success by choosing the most appropriate of three innovation models. The first and most traditional is the integrator model, in which a company assumes res-ponsibility for the entire innovation process from start to finish, including the design, manufacture, and sale of a new technology. In general, large, well-heeled companies–Intel, for example–do best with this model. Second is the orchestrator approach, in which functions such as design are kept in-house, while others, including manufacturing or marketing, are handed off to a strategic partner. This model works best when speed is of the essence, or if a company wants to limit its investment. When Porsche couldn’t meet demand for its popular Boxster sports coupe in 1997, for example, it turned to Finnish manufacturer Valmet rather than open another costly plant. Finally, Andrews says, there’s the licensor approach, in which, for example, a software company licenses a new operating system to a series of PC manufacturers to ensure that its product gets the widest distribution at the lowest possible investment cost. That’s you, Microsoft.

From the beginning, Apple appears to have employed the integrator approach–the model with both the highest costs and highest risks.

At the heart of Apple’s innovation conundrum also lies a powerful cultural bias: the lionization of purely technical innovation. Ours is a material society. So it’s natural that when we think of innovation, we are more inclined to think of objects, things that we can see, touch, and feel, and of inventors such as the Wright brothers and Thomas Edison. It turns out, though, that the most economically valuable forms of innovation often aren’t the tangible kind. Instead, they are forms of innovation that we might belittle as less heroic, less glamorous: the innovation of business models.

In virtually any industry, business-model innovators rather than technical innovators have reaped the greatest rewards in recent decades, argues Gary Hamel, the chairman of Strategos, an international consulting company that focuses on helping businesses innovate successfully. Hamel points to Amazon, eBay, and JetBlue. Each company either delivered goods and services differently (by bringing distribution of books or secondhand goods to the Web) or more cheaply (by becoming a sort of Wal-Mart of the skies). Dell has done both.

There’s one last essential element to successful innovation that has often been missing at Apple: follow-through. As Howard Anderson, founder of both the consulting firm Yankee Group and the Boston-based venture capital firm Battery Ventures, puts it, “Innovation isn’t the key to economic growth. Management is the key to economic growth.” In practice, that means supporting product innovation with such things as a solid sales force, a strategy for collaborating with developers and makers of complementary products, and a strategy for customer ser-vice. “Companies that rely too heavily on creativity flame out,” Anderson says. “In many ways, execution is more important. Apple is innovative, but Dell executes.”

Tags: Management

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