What is the innovation S curve?

Grant Leboff: Costas, in your book you talk about the S curve, and I would like you to explain that a little bit more about that to the audience and how that process works.

Costas Papaikonomou Everything evolves according to an S-curve. Anything that changes will always go through a period of not being very ideal or good or well functioning. Then, all of a sudden, rapidly increase in performance and efficacy and ideality, and then taper off again. Depending on which lens you look through, whether it’s a business lens, or a product lens, or a human lens, you could probably see where on the S curve you are, and you need to act differently accordingly.

I think what is misunderstood, in the business world, is that every S-curve is followed by the next S curve and that it just happens naturally. The reality is that when you get to the top of the S-curve as a business, that’s probably when you’re making most money, when your most efficient, and also when you’re most likely to go out of business too, because whatever is happening in that industry you’re in, it’s reached the end of its maturity. It’s not going to get any better than this. Whereas in the meantime, someone in a shed – probably in another country – is thinking about a way to dramatically improve again, all the barriers that that market is bumping up against.

But the problem is, if you were doing that is a big blue-chip, a big corporate environment, the next S curve actually starts a lot lower from where the previous one ended, because that’s a drop in efficiency which you will see. That new technology, or that new system, or that new product benefit – whatever it is – does have the potential to grow much further, but at the start it will be less efficient which is, you could say, the big barrier for businesses to actually introduce the next big game changer.

Now there is a solution there, which is to simply not to develop it yourself. Of course you’ve probably heard of things like ‘skunk works’ or were little teams are set separate from the operational environment to work on the next big innovation – well that’s exactly for that reason – because you don’t want, within the operational ecosphere, for people to work on truly dramatic game changing ideas, because they would never cut it if you put normal KPI’s against them.

You could say that there is a solution, in one way; it is by creating a new team. A much easier solution is to just forget about trying to make it at all, and what you do is buy the next big game changer and that’s where I think, personally, a lot of big blue-chip businesses are missing the trick. This is because, when new ideas are offered to them – literally by the inventors who invented them, with their tiny little peanuts businesses, working with tiny little budgets and generating almost no revenue – the question is, as a big blue-chip, how do you recognise those that actually have the potential to completely overtake your own business and then invest in them at the right time or just buy them. You don’t need to develop everything from scratch, that’s the thing, people are developing new ideas within your category everywhere, all the time. All you have to do is track them down and buy them in time. Make or by, that’s the decision when it comes to game changing.

Grant Leboff: That’s interesting that you’re going to say that because one of the things I wanted to ask you is to say should a big business not bother innovating at all? What I meant by that is this kind of cynical view, but when you think when you think the creativity, the entrepreneurial spirit, then most blue chips, if they are honest, and there are a few exceptions to that and I accept those, but most blue chips just aren’t geared up for it at all and is it easier for them to just go and buy smaller companies that are already doing it and they should say we don’t innovate, that’s not us, we’ll just go by others. Is that a strategically better approach for most businesses?

Costas Papaikonomou That would be a bit cynical indeed, but you could make a case that the real game changing, the radical side of innovation, now that’s probably easier to buy. The problem is, even with blue chips; what do they buy in practice? They buy two things; they buy raw sourced ingredients or raw materials, or they buy other businesses, these are the two things they buy. What they don’t buy are ideas, because they are just not set up to it.

If you have a fantastic idea for, let’s say, a new cleaning product, walk up to one of the big blue-chip cleaning product companies and try to sell that idea to them. They won’t even know how to. They won’t even have a person sitting in an office buying ideas. What they buy are start-up businesses – may be – and that, indeed, is where a little bit of the answer is when you’re looking at those more radical ideas. Buy them when they are just maturing as a business, because then you have something that you can easily bring into your own operational environment.

That said, that’s only for the really radical stuff you could say. There is so much between radical and doing nothing. There is all the incremental innovation which you do all the time, that’s the little ticking machine of new news. There is stretch innovation for which you have the muscle and capability to do successfully, if you allow yourself to, I would almost say, as a blue chip. There is still plenty of innovation to do. But I agree, to a degree, with your point. The really radical stuff, navigate carefully, it is probably better to buy than to try and do it yourself.

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