I wrote recently in my blog Innovate on Purpose a post entitled More Efficiency or More Innovation? The idea behind the post was that the two are considered mutually exclusive and compete for the same funds and resources. If a company decides to invest in efficiency, then it has less to invest in innovation. Since efficiency programs like Lean and Six Sigma have become familiar and reasonably successful, many firms double down on their investments in efficiency.
This tradeoff reminded me of my freshman year in college, studying economics, and the example of a national economy making choices between “guns” and “butter”. If an economy chooses to invest in “guns”, less butter is produced. The reverse is also true. The tradeoffs are evident – but the real question is: what’s the intent?
Governments are supposed to defend the population AND help ensure people have enough to eat, conflicting goals that demand an investment strategy. The same is true in businesses which have limited funds and must make strategic choices – should they invest in more efficiency or more innovation? Currently, that question looks more like: should we invest in initiatives that are comfortable, known, proven and will result in short term gains, or in initiatives that are unfamiliar, unproven and will only result in long term gains, if at all?
The “guns” vs “butter” economic analysis is simplistic – clearly governments have far more investment needs, but it clarifies one important aspect that is relevant for businesses as well. The final investment strategy, whether for more guns or more butter, for more innovation or more efficiency, is a strategic choice. In Relentless Innovation I’ve made the assertion that many firms are abdicating the decision and choosing efficiency again and again. The risks and the costs associated with this unbalanced approach will become evident over time, as it is simply not possible to shrink your way to growth and differentiation.
Relentless Innovators like P&G balance innovation and efficiency by starting at the top, with clear strategies. P&G provides an excellent example through its goal of 50% of products developed from ideas that originated outside of P&G. 3M provides another example in its stated goal that 20% of profits must originate from products generated in the last three years or less. These strategic goals established by the executive team demonstrate strategic choices that demand more investment in innovation, allowing these firms to strike a balance between efficiency and innovation.
I’ve drafted a PowerPoint deck to illustrate some of the points from this post and from the book.