The French have a gift for elevating often mundane products simply by bestowing an elegant name on it. Croque monsieur will always justify a higher price than its American cousin, the grilled cheese (sandwich; the equivalent American linguistic gift is brevity). Portmanteau is one of my favourite examples: conjuring the image of two bodies “wearing” the one “coat”, with its whiff of adventure. I imagine two children, one on the shoulders of the other, using a parental raincoat to enter a cinema to watch a film with an adult rating.
Modern innovation even supports combining multiple experiences into a single—even more incredible!—adventure, as with this year’s summer blockbuster films. A giddy meme proposes enjoying two movies, with a total running time of 4 hours and 54 minutes, in the same day. Wear pink for one, a fedora for the other; drink coffee for the first one, a Coke during the second. In other words, another in a long line of rationales for escapist consumption. And hugely successful in commercial terms: Barbenheimer combined for an estimated $342M in worldwide box office receipts, the fourth best opening weekend ever.
In this case, the innovation was an unplanned joint venture created socially and then amplified by studio marketing budgets. But it shows how random breakout success can be for new innovations; the product or experience has to hit the zeitgeist just right to truly exceed expectations. Corporate innovation is where I’ve spent most of my career, and behind the facade of ‘best practice’ processes and creativity-friendly industrial chic workspaces, innovation remains a simple equation: a % of Revenues re-invested in pursuit of sustaining growth.
For firms in more mature industries, innovation budgets are usually pointed towards process improvements that underwrite product or delivery quality, and cut costs: new manufacturing techniques, better inputs, better input-output conversion efficiency. Innovations often reduce buying friction for customers: think restaurant drive-thru lanes, and apps that create a 24x7 sales portal. For businesses in growth sectors, there is an additional opportunity to benefit from stimulating higher revenues. This is where the most speculative fraction of innovation budgets get spent: the creation of ‘novelty-seeking’ product changes that might find the firm new customers or prompt existing ones to spend more. Think Nike’s new shoe designs, McDonald’s’ new wraps, Samsung’s new Galaxy Flip5.
I say speculative because, for all the sales projections run by product marketing teams to support the development plans, the actual outcomes are highly uncertain. Many new launches are complete flops, and as product innovation specialist Alberto Savoia points out, it usually isn’t because the product was poorly made, or fails at its job. It’s to do with what innovation specialists call Product-Market Fit (PMF), the elusive quality achieved when a product not only meets a need but matches the desire to buy. This is why Alberto’s method, pretotyping, pushes entrepreneurs to test authentic demand at the earliest stages of development.
Whatever intellectual alchemy delivers a winner, the macro problem should be obvious: speculative innovation efforts lead to unnecessary consumption and wasted resources, including those lost to unsold inventory. If we are to build a sustainable economy, we need to start discriminating between efforts to produce goods that can become a market success and those that satisfy human needs. In other words, at the resource level, a big no to $50, 20-item Shein “hauls” or your 25th pair of limited edition Supreme shoes; a hearty yes to regenerative agriculture and affordable insulin.
Post Growth Pioneer (PGP) firms understand the distinction and take an enlightened view of innovation, which I call “mission- or morals-biased innovation”, directing innovation efforts more towards delivering improvements to human wellbeing and natural prosperity, and less to simply chasing profitable growth. The PGPs do this in three main ways:
- Pursuing an innovation agenda consistent with their social mission across the business cycle, whether it is always delivering profit. Having weathered significant competition in lending into the UK social housing sector during the mid-2010s, the PGP bank found it had the sector almost to itself when credit conditions tightened during the recession of the pandemic years.
- Innovating on sustaining process such as performance metrics in parallel with product or service. The PGP energy supplier tracks the degree to which its customers (many among whom have installed solar generation) are exposed to price variation arising from wholesale market volatility, to draw favourable comparison with competitors supplying predominantly grid-generated energy. If Average Price Volatility Exposure can become a comparative indicator for the market, the PGP supplier will punch above its customer numbers.
- Telegraphing commitment to missional intent with innovations unconnected to increasing profit. An example of this is the Regenerative Money Centre set up by the PGP bank in order to share discretionary surpluses earned by the bank into regenerative organisations such as community agriculture projects.
These are not purely altruistic efforts. The material-intensive consumer goods PGP I spoke with believes that framing innovation in natural prosperity terms is essential for long-term viability; the energy supplier believes it can sustain profitability by distinguishing itself in terms of longer-term resilience outcomes for customers. In many ways these are akin to the types of disruptive innovations long advocated by strategists when advising startups or smaller firms challenging established dominant players, except that the gains are shared well beyond the investor group.
In my next post I’ll start outlining what I call Post Growth Strategy. In other words, how for-profit firms can take inspiration from these PGP firms and apply it to their own agenda, underwriting their future ‘licence to operate’ by reshaping their approach to innovation efforts, stakeholder engagement, employee compensation, and more.
Read all my posts about sustainable strategy at: world.hey.com/jeremy.clark/