You need incremental innovation

More than 50 years ago, Fisher and Pry proposed that different technologies mature and improve over time until they are eventually completely replaced by a new technology that eliminates them from the market. The life cycle of a technology could be represented by an S-shaped curve relating the evolution of performance (Y-axis) to the time and effort spent to improve it (X-axis).

Many years earlier, Schumpeter described the existence of “waves of creative destruction”: a radical innovation disrupts the dominant value chain in a market sector, leading to wholesale changes in products, marketing channels and processes. We can see this today with the arrival of the electric car, which is an earthquake in the automotive value chain, with the disappearance of some players, the arrival of new ones, and major changes in many.

Illustration 2: New technologies replacing established technologies

Observing the S-curve of a particular technology leads us to two conclusions:

• Technologies end their days when they have their best performance: the latest steam locomotives are precisely the best, and we will soon see the best diesel car or the best three-bladed wind turbine ever.
• In the maturity phase, technology improvements become less and less profitable, and are especially costly in the obsolescence phase. If the profitability of your new products is very low, get a check-up.

But the causes of a technology’s death are known in a forensic, i.e. academic, way, and what is needed are solutions for the living. The management of a company with an established technology needs to keep an eye on the new technologies with the greatest potential, but these new competing technologies will generate questions that are difficult to answer:

• How does one know that a technology has moved from the embryonic to the growth phase
• What performance potential can the new technology achieve?
• How much effort (time and money) will be required for it to hypothetically catch up with the established technology?
• Will the new curve grow in three years, five years or ten years? Will it grow steadily or will it have phases of stagnation?

Thus, the management of a leading R&D company, with a market-leading technology with the best performance in its history, and which carefully and diligently monitors competing technologies, may nevertheless be unable to react in time, or may even underestimate or disregard the future threat of embryonic technologies.

After all, the new technology is initially uncompetitive (except for some very specific niches), but continues to improve in performance and begins to grow in market share, accelerating sharply in its improvement (growth phase) until the established technology is pushed out of the market. Clayton M. Christensen defined this phenomenon as the “innovator’s dilemma”.

Voilà! So companies should only pursue radical innovations, is that it? Certainly NOT: incremental innovation is the basis of the diet of the best companies:

Incremental innovation and radical innovation are by no means antagonistic terms. In fact, when a company has a successful radical innovation, it will spend as much time as possible applying incremental innovations to it. For example, the three-bladed wind turbine arose from a radical innovation, and has been improved through many incremental and some radical innovations. The companies that do best succeed in chaining radical innovation and successive incremental innovations. Take two servings of incremental innovation every day, and limit your radical innovation to three servings per week.

Illustration 3: From the moment a technology reaches the market, it must be improved in a sequence of numerous incremental innovations and some radical innovation.

In any case, there is nothing to prevent that sooner or later a new technology will kill our current well-established technology. There are no magic recipes, but there are proactive habits to follow if we want our company to survive the waves of creative destruction:

• Invest most of your R&D budget in incremental innovation, but always allocate a significant portion to radical innovation. Significant means that you are forced to care and that management follows up on radical innovation projects.
• Conduct technology watch, including patents, publications, conferences and publicly funded R&D projects.
• Be the cat so as not to be the mouse: also work on new lines so that it is your company that achieves the new technology. Although the chances of getting it right will be slim. When you develop it, you have to bring it to the market… don’t do like Kodak, which developed digital photography technology and then stopped its development because it threatened its film business.
• Practice open innovation with universities, technology centres and start-ups: they may have the pieces of that disruptive new technology, and sometimes they will have the whole thing.
• And finally, if the company has the means, it works in corporate entrepreneurship, with criteria and a clear and far-reaching strategy.

The composition of this diet should be strategically individualised and personalised, developed with professional advice. And especially remember that waiting for the advent of new technology dramatically shortens life expectancy.