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The Innovation Effect

Balancing Innovation with Execution

light bulb on paper

A stock broker and an economist walk down the street. Spotting a $20 bill lying on the sidewalk ahead, the broker exclaims, “Look! A $20 bill!” To which the economist replies, “Nonsense. If that were really a $20 bill someone would have already picked it up.” At which point the broker bends down, scoops up the bill and puts it in his pocket.

It’s an old joke, but it perfectly illustrates the fallacy in the traditional, “neo-classical” model of economics. The equilibrium between supply and demand may be a bedrock principle, but in reality, no economic system is ever in a state of actual equilibrium. In a true state of equilibrium there would be no economic activity at all, because every product supplied at the current price would have already been bought by a customer willing to pay that price.

Today’s economists are beginning to think of the economy more in terms of evolution, in which adaptation and change propel the overall system, while the success of any individual organism depends on balancing the processes of exploitation and exploration. An animal must be able to exploit existing food resources while constantly exploring to find more. And a business must be able to execute its current business competently (exploitation) while constantly adapting and innovating (exploration) to find more business opportunities. 

An interesting academic study was once conducted that illustrated the exploitation-exploration dichotomy by examining the lockers of professional American football players. The study found that offensive players’ lockers tended to be neater and more orderly than the lockers of defensive players. Probably, the study’s authors concluded, this was because offensive players succeed by exploiting their well-crafted plans, executed flawlessly, while defensive players get ahead by generating disorder, chaos, and unpredictability to explore for potential opportunities to defeat their opponents. 

Play innovation offense and efficiency defense 
In a similar way, businesses must flawlessly execute on their current business operations, while also innovating to explore new opportunities. And, as with a good football team, your company’s own success will depend on being good at both offense and defense. You must not only be able to execute and manage your current operations flawlessly and efficiently, but you must also be capable of innovating entirely new products and services, responding to competitive threats, and exploring new technological opportunities.

To strike the right balance, you have to devote resources and effort to both activities. Google, for instance, encourages employees to dedicate one day a week to explore creative or innovative new ideas of their own choosing. And at 3M, a company known for its perennially innovative products, from Post-It notes and Scotch Tape to slide projectors and HVAC filters, researchers are encouraged to spend 15 percent or more of their time on unstructured projects of their own choosing.

As your own company uses technology to streamline operations and improve its ability to execute, you can easily become either less capable or less willing to consider game-changing innovations. This means that the innovations you do come up with will tend to be more incremental and short term in nature, involving less risk and more likely to return a short-term profit, but they will also have much less upside potential. They won’t be game changers.

To have a genuinely successful business over the long term, you have to make trade-offs. Execution must be flawless, but innovation requires a certain tolerance for failure. 
Execution and innovation are both important, and neither is sufficient all by itself to ensure your long-term success.