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Innovation: The High Cost of Low Risk

Oct. 31, 2013
Over the past 12 years, while producing three world-changing products, Apple also released 37 iterations, versions and distinct offerings of the iPod, 23 iPhones, and now 16 iPads. And already fans are talking about new incarnations.

To some, Apple is -- and will always be -- the king of innovation. No matter what the numbers say. 

They have a point. In the last 12 years alone, Apple (IW 500/4) has put out three products -- the iPod, iPhone and iPad -- that have totally disrupted their industries and changed computing, mobility and, arguably, the world in the process. And really, starting with the Apple I, the company has changed the world consistently just about every two years since 1976. 

So it was no surprise when Apple chief Tim Cook told Bloomberg earlier this year that "to not innovate is to die." 

And Cook stayed on that message when he pooh-poohed the company's first profit loss in 10 years back in April by telling investors, "We have a lot of innovation in the works." 

See Also: Manufacturing Innovation & Product Development Strategy

And the following quarter when Android devices increased their market share by nearly 80% as Apple's fell 13%, that was fine too, because, as Cook said, "We have some really great stuff coming out in the fall."

The public appears to agree with him. The newest iPhones, released in September, really are innovative. Or at least enough to convince 9 million people to buy them in the first few days. And the new iPads, just entering the market now, might end up being pretty interesting as well.

Yet Android tablets and smartphones keep consuming more of the market, in fact overtaking Apple in the global tablet race in Q3. So even though Apple is making money -- a lot of money -- its growth seems to have stalled, even while all of this "really great stuff" keeps getting piled on the market. 

What is going on? How can a company that spends nearly $12 million on R&D every day fall behind? How can the innovation king lose ground?

It might be because they are doing the wrong kind of innovation.

The Low-Risk Trap

"Not all innovation is the same," explains Adi Alon, a managing director of the Operations Innovation and Product Development Consulting Group for technology consultancy firm Accenture.

He says companies can either aim for the big-deal, disruptive innovations -- like the iPhone or iPad were in their day -- or take the "safe" approach and focus instead on renovations. But the latter, he warns, is risky business. 

"Low-risk approach to innovation -- line extension or incremental improvement or sort of improvement at the edges -- helps maintain the brand, maintain the core offering, but it doesn't result in a significant value creation," he explains. "And over time, if that's the only type of innovation you do, it's going to erode your market position because you are not going to be at the forefront of the next big wave of the industry."

This seems to describe Apple's model lately. 

Over these past 12 years, while producing those three world-changing products, Apple also released 37 iterations, versions and distinct offerings of the iPod. There have also been 23 iPhones, and now 16 iPads. And already fans are talking about new incarnations.

Apple isn't alone here. As Alon lays out in Accenture's new report, "Why 'Low Risk' Innovation is Costly," frustration with slow innovation results is leading more manufacturers to the safe approach every year -- throwing them into a cycle from which it can be difficult to escape.

"Low-risk innovation is a trap that many companies fall into, and unfortunately it's a self-fulfilling trap," he explains. "You invest a lot of resources into incremental innovation, it doesn't yield a whole lot, so the willingness to invest even more or to try to take more risk is reduced, which leads you to this safe approach to innovation, which results in low return and impairs your competitive ability, and so on."

Breaking free of that trap, he says, takes some work. Reapplying Apple's $4 billion R&D budget back to disruptive change, for example, would mean giving up the giant cash rewards of the biannual renovations. But it could also restore -- and crystalize -- its position at the top. And that's a difficult argument to make. Harder still to make it happen.

But Apple may have no choice.

As Alon says in his report, the cautious approach to innovation is a "potentially perilous strategy." It's only by applying R&D dollars to breakthrough innovations that companies like Apple can dominate and prosper in the changing market. Otherwise, he says, they will just "lag ever farther behind." 

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