The innovation dilemma is a balancing act every leader faces: should a company stick to what works or venture into new, often uncertain, territory to innovate? Established companies often grapple with this question because, while their traditional offerings drive current profits, new solutions or technologies might open doors to future growth. However, innovation also brings risks that can disrupt a business’s existing structure and even threaten its survival. Leaders often find themselves at a crossroads, wondering how much innovation is enough—and when it might be too much.
Let’s look at the innovation dilemma in action with real-world examples and explore approaches for overcoming it.
Real-World Examples of the Innovation Dilemma
- Kodak: The classic example of the innovation dilemma is Kodak, a company that invented the first digital camera in 1975 but hesitated to launch it. Fearful that digital photography would disrupt its profitable film business, Kodak failed to capitalize on its innovation, eventually filing for bankruptcy in 2012. Although the technology was there, Kodak struggled to balance its reliance on film profits with the push to innovate.
- Blockbuster: Blockbuster’s failure to embrace digital streaming highlights another facet of the innovation dilemma. While it enjoyed profits from its brick-and-mortar stores, it hesitated to pivot its business model when online streaming services like Netflix began to gain traction. The reluctance to innovate cost Blockbuster its market position, as Netflix quickly overtook the video rental market by adapting to consumer demand for online streaming.
- Apple: Apple’s continuous commitment to innovation illustrates how leaders can successfully manage the innovation dilemma. Although it initially thrived with its Macintosh computers, Apple didn’t stop there. It diversified its product line by launching groundbreaking products like the iPod, iPhone, and Apple Watch. Each new product involved significant investment and risk, but Apple’s balanced approach to maintaining core products while innovating has made it one of the world’s most valuable companies.
Why the Innovation Dilemma Exists
The innovation dilemma stems from conflicting priorities within organizations. Established companies usually prioritize stability, short-term profits, and efficiency, while innovation is inherently disruptive and resource-intensive. Here are three main factors that exacerbate the dilemma:
- Organizational Structure: Traditional, hierarchical structures are often designed to enhance efficiency and predictability rather than foster innovation. Hierarchical chains of command can slow down decision-making, making it challenging to pursue bold, innovative ideas quickly.
- Short-term Pressure: Companies are often under pressure to deliver short-term profits to satisfy shareholders. This focus on quarterly results can make leaders wary of allocating resources to long-term innovations that may not yield immediate returns.
- Risk Aversion: Executives know that innovation doesn’t guarantee success and can sometimes cannibalize existing revenue streams. The fear of failure or disrupting current revenue can result in hesitation when it comes to investing in new ventures.
Strategies to Overcome the Innovation Dilemma
Leaders facing the innovation dilemma need a roadmap to navigate between current operational stability and future growth potential. Here are several key approaches to consider:
1. Adopt a Dual Operating System
One effective way to balance stability and innovation is to adopt a dual operating system. This approach entails running the company’s core business and innovative initiatives as two parallel systems, each with its own goals, structures, and metrics. The core operation can focus on incremental improvements, while a separate, leaner team explores disruptive innovations. This structure gives innovation room to flourish without interrupting the company’s ongoing operations.
2. Encourage an Experimental Mindset
Creating a culture that values experimentation can help leaders manage the uncertainty associated with innovation. By fostering an experimental mindset, companies can adopt agile methodologies that allow for rapid testing, iteration, and pivoting when necessary. For example, Google’s 20% time policy encourages employees to dedicate one-fifth of their time to passion projects, leading to innovations like Gmail and Google Maps. Although not all companies can afford to implement this exact model, leaders can create a culture of exploration and experimentation within their teams, allowing small-scale innovations to be developed and tested before being scaled.
3. Develop Innovation Portfolios
Companies can categorize innovations into different types and manage them as a portfolio, similar to financial investments. This approach enables leaders to balance high-risk, high-reward projects with more incremental innovations, helping to maintain a steady stream of new ideas while safeguarding the core business. Boston Consulting Group’s Innovation Ambition Matrix suggests three categories: core (improving existing products), adjacent (expanding into closely related areas), and transformational (pursuing breakthroughs). Leaders can allocate resources across these categories based on their strategic goals and risk tolerance.
4. Focus on Customer-Centric Innovation
Placing customers at the center of innovation initiatives can help mitigate risks. By understanding customer needs and preferences, companies can make informed decisions about which innovations are likely to succeed. For instance, Amazon’s approach of “working backwards” starts with identifying customer needs and then developing products that fulfill them. Leaders can encourage teams to engage in regular customer feedback loops to ensure that innovations align with market demand and consumer expectations.
5. Commit to Long-Term Vision
Leaders need a compelling vision for the future that can justify the pursuit of risky innovations. When employees and stakeholders understand the long-term potential of new initiatives, they are more likely to support short-term sacrifices. For instance, Microsoft’s shift from a software-based company to a cloud-first organization under Satya Nadella was fueled by a clear vision of the growing importance of cloud computing. The transformation involved risks and required significant investment, but a clear long-term vision helped align the company’s culture and strategy with its new focus.
The innovation dilemma is a balancing act every leader faces
The innovation dilemma is a complex, ongoing challenge that requires leaders to find a balance between securing today’s profits and driving future growth. Companies that choose to “play it safe” risk being outpaced by competitors or disrupted by market shifts. In contrast, those that embrace well-managed innovation strategies are often better positioned to thrive.
By implementing a dual operating system, fostering a culture of experimentation, developing an innovation portfolio, focusing on customer-centric innovation, and committing to a clear long-term vision, leaders can navigate the innovation dilemma successfully. In doing so, they build resilience and adaptability, ensuring their organization’s relevance and competitive edge well into the future.
About Rowdy Bijland
Rowdy is a strategic and creative thinker. He acts as a digital business partner with the mission to support leaders, their teams and organizations, to drive digital business strategy, innovation and transformation execution, with the aim to maximize potential and to contribute to the creation of sustainable value and meaningful impact. He released his first publication “Digital Disruption: A leader’s Guide for Business Development in the Digital Age” available both as paperback and eBook in the shop. In addition, he released a digital masterclass “Leading Digital Disruption” on Udemy. He is facilitator, moderator and keynote speaker for companies and organizations. Furthermore, Rowdy offers 1:1 digital business coaching for leaders worldwide.
To connect with Rowdy, please follow him on Linkedin.
