While I’ve recently argued that revenue per employee is the ultimate productivity metric, I balanced this against over-using financials to run the company, urging that as leaders we must look beyond the spreadsheet. In a nutshell, my message was that you shouldn’t “cut your way to glory” today to the extent that you squeeze your company out of business tomorrow. If you are leading your organization as an ongoing, sustainable business, you need to be making investments in your future.
This implies that the revenue per employee metric can be deceiving because today’s revenue is the result of yesterday’s investment. If our goal is healthy, sustainable, long-term growth, we need to focus on innovation. What types of innovations and what levels of investment are important? Jane Stevenson and Bilal Kaafarani tell us in their book Breaking Away (How Great Leaders Create Innovation that Drives Sustainable Growth--and Why Others Fail) that we need to focus on four types of innovation.
Transformational Innovation: This is that revolutionary, breakthrough, big idea. In the early stages, it’s more of a concept that you believe has value and something that you need to explore. You will be shaping the solution and defining who the true, paying customer is over a period of time.
Category Innovation: This more evolutionary than revolutionary, typically a new application of ideas, products, or services rather than in the creation of inventions. It is putting a new spin on old ideas or combing those ideas in new ways.
Marketplace Innovation: This is about devising new ways to reach and delight the customer in engaging ways. By coming up with unique modifications for products, services, and delivery methods, its aim is to have a positive impact on people’s lives.
Operational Innovation: Operational Innovation is about being efficient, up-to-date, and innovative in your processes, operations, and relationships. Your customers should view you as fast and easy to do business with.
The type of innovation that you are working on helps to guide your efforts and where you need to spend your energy. “If it’s a Marketplace or Operational Innovation, you’ll have access to insight about your customers, who they are, and what they value. So starting there makes sense. For Category and Transformational Innovation, you might not know who your customers are for a long time, so waiting for these answers will only sidetrack your progress. With these two types of innovation, the starting point is almost always curiosity involving science, technology, or some unique way of doing things.”
The multiple types of innovations and the levels they represent follow a timeline that allows you to balance your risk and expectations. Marketplace and Operational Innovations are your lower-risk investments and can be expected to provide financial returns in the short term, say three to twelve months. Category Innovations involve greater investment and risk that are three to five years out, while Transformational Innovations are longer-term, high-risk, game-changing investments that need incubating, protection, and “funding that is not tied to traditional corporate metrics.”
If you aren’t doing any of these things—or not enough of them—you are likely living on past investments and risking the long-term viability of your business.