In This Issue:
Do You Want to Be Most Innovative or Most Profitably Innovative?
Being the most innovative sounds admirable. But, might being innovative to a lesser degree be more profitable?
Insights on this can be derived from the Forbes list of America’s Most Innovative Leaders featured in the September 30, 2019 issue. Elon Musk, CEO of Tesla is at the top of the list, in a tie for first place. Yet, Tesla struggles with losses. Tesla loses money for the year, incurring only occasional quarterly profit. The publication Investopedia ran an article dated May 9, 2019 titled “Why Tesla May Never Turn a Profit”.
Lower down on the Forbes list at sixth place is Satya Nadella, CEO of Microsoft. Nadella’s sixth place ranking indicates that he is highly innovative, but not most innovative. However, in contrast to money losing, but list topping (in a tie) Tesla, Microsoft had a recent profit of over $35 billion for the year. Thus, most innovative does not necessarily mean most profitable.
Based on my 25+ years researching business success and failure patterns, there is a reason being somewhat less innovative drives greater profitability. The reason is related in the book by Microsoft CEO Satya Nadella titled “Hit Refresh”. The book explains that the approach Nadella takes at Microsoft is like hitting refresh to update a computer screen. The update doesn’t change everything. It only refreshes what changes, leaving the rest of the screen intact.
Likewise, Nadella’s innovation at Microsoft did not change everything, And, based on my 25+ years researching business success and failure patterns, this is why his innovation was successful and profitable for Microsoft. In contrast, Tesla CEO Elon Musk, who ties for the top spot on the Forbes list of America’s Most Innovative Leaders, has been changing so much of what is normally done in the auto industry. That is a major reason why Tesla struggles for profitability, despite being most innovative, while Microsoft has innovated more profitably.
Interestingly, in that very same issue of Forbes where the America’s Most Innovative Leaders list appears, there is a full-page ad for Fifth Third Bank. The ad says Fifth Third Bank is “Where Experience and Innovation Intersect.” As I see it, that ad slogan happens to describe the most profitable kind of innovation. By bringing in experience, the most successful innovation ends up a bit less innovative because it tends to build on what has already been done. Nonetheless, it still is innovative, but it is generally a more profitable kind of innovation.
Also making a case against being the most innovative is material in a September 26, 2019 Fortune article titled “Learning to Love the Bot: Managers Need to Understand AI Logic Before Using It as a Business Tool”. The article mentions one company’s highly innovative approach of adding an AI bot to their corporate board so decisions would be more data driven. The bot’s role was primarily veto power to stop decisions for which AI had identified red flags.
Today, the bot is no longer on that board, according to the Fortune article. Removing the bot from the board is consistent with more recent trends where the limitations of AI black box decisions are being recognized and human input is more greatly valued. Human input can be especially critical in life or death situations, a recent example being the Boeing 737 Max. Material in the Fortune article sees “the fatal crashes of two Boeing 737 Max 8 airplanes following problems with its autopilot system as a wake-up call. The pilots didn’t fully understand the system and had no way to easily determine that it was making decisions based on faulty sensor data.” The 737 situation illustrates the importance of having systems that humans can understand, rather than blindly relying on automation.
In my view, the bot on the board is one more example of how being the most innovative is not necessarily best. Yes, putting an AI bot on the board was extremely innovative. But, having the bot try to force data driven decisions can lead to problems. The bot’s decisions are black box based, so no one really understands them. Consequently, those decisions may not be in the best interest of the company and its profitability.
So, in conclusion, it’s crucial to be selective in choosing which innovations to adopt. It’s not enough merely to be innovative. And, in a number of cases, being the most innovative can have major downsides. It’s far more important to adopt the right innovations. Doing so probably won’t be the most innovative, but it may very well be the most profitable.
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