The Trappings of Success – Breaking Out of the Innovation Curve

April 24, 2014
General Foundation

There is a strange phenomenon in innovation and business growth. To make a splash in the marketplace, an entrepreneur or business must think outside the box, creating an innovative product or service that consumers demand but is not offered by existing companies. Yet, once that business finds success and cultivates a lucrative consumer base, the company is limited in how innovative it can continue to be. This is the “Legacy Trap.”

This trap is what analyst Jack Gold (found of J. Gold Associates) calls the “innovation curve.” Gold uses the smartphone market as an example. When Apple’s iPhone first hit the shelves, it was radically innovative, as was the iPad when it was released. Almost immediately, other tech giants jumped on board and began developing their own smartphones, in many ways simply mimicking Apple’s product. While these mobile wars began with an innovative boom, the level of innovation in each succeeding generation has dwindled from a raging river to a steady drip. Today’s latest smartphones only incrementally improve upon their predecessors. Why has smartphone and tablet innovation dropped off so dramatically?

“The fact is, the farther you move down the innovation curve, the more likely you are to have challenges,” writes Gold. “When you have an existing product, it’s much harder to innovate – both because you are primarily making fine tuning adjustments on next generation products, and because you don’t want to alienate your base by changing too radically from what they already know and like so they will continue to buy new products and/or upgrade.”

This need to keep the consumer base happy is what drives the type of innovation large companies pursue in incremental improvements. Harvard Business School Professor Clayton Christensen (the Godfather of disruptive innovation who wrote the 1997 classic, The Innovator’s Dilemma) says there are two kinds of innovation strategies for large companies: disruptive innovation (such as Apple’s iPhone Gen 1) and sustaining innovation (iPhone Gen 5).

While sustaining innovation may satisfy consumer desires in the short run, over time, incremental improvements mean consumers are less motivated to buy the latest generation, in turn leading to reduced profits. What is more, because imitators follow innovators, a company offering incremental innovations faces competitors whose product looks remarkably like their own. Differentiating a company from its competitors becomes less about innovation and more about competing on price or in marketing and advertising.

So what comes next? The world’s smartphone makers are all hocking what is effectively the same product, and none are necessarily motivated to take a risk with a groundbreaking innovation, lest they lose market share to a competitor who upholds the status quo. Christensen calls disruptive innovation a disease that has shortened a company’s average lifespan on the Fortune 500 list (currently less than 15 years). Large companies, he says, are challenged to innovate the way smaller companies and start-ups do. In some ways, Gold’s innovation curve almost makes room for disruptive innovations from smaller business, as large companies with robust R&D budgets are otherwise preoccupied with incremental innovation and not necessarily pushing the envelope. This creates what might be called an innovation vacuum.  

That’s not to say, however, that Apple, Samsung et al. are on their way to obscurity. Indeed, as smartphone penetration steadily climbs (65% in 2013), it creates a mobile consumer infrastructure for more disruptive technologies, such as wearable mobile devices. Gold says, “those [wearables] markets are not fixed or mature and many experiments are going on. It's very early in the innovation curve for wearables.”

Google Glass, the anticipated Apple iWatch and Sony’s new SmartBand are all coming to market. As smartphone innovation slows, these new technologies offer a way for the world’s tech companies to break out of the innovation curve. Yet, if history is a teacher, the next “Big Thing” might not emerge from any of the mobile giants. An unknown innovator could be toiling in obscurity right now, developing a world-changing, disruptive innovation—that will someday be trapped in the innovation curve.