Innovation: The New Route to Wealth: Schwab, Sony and Turner Did It. Can You?

Abstract

Where does new wealth come from? Like a four-year-old asking how babies are born, it's a deceptively direct question that often disarms our conventional capacity to answer. To be sure, we're ready with pat responses peppered with references to ROI, RONA and EVA, but these measures tell us more about how existing revenues are rearranged rather than created anew. After all, we're not talking about market share sliced loose from a competitor, or revenues boosted by an MA it took a renegade named Turner operating out of Atlanta to wed three trends--the advent of the shoulder-held minicam, more affordable access to satellite transmission and the fact people no longer make it home in time for the 6 o'clock news--into the concept of a continuous news format. Innovations like the minivan, the Walkman and CNN succeeded not because they responded to market need but because they created a need consumers had yet to sense themselves. All of which attests to the fact that in the New Economy, the greatest rewards go to companies that create new business models--ideas that spark new sources of revenue based on changing technology, demographics and consumer habits. By definition, new business models destroy old ones, which is why creating new wealth is a threat to every traditional, unimaginative business. Never before have strategy life cycles been shorter and has market leadership counted for less. Call it the First Law of the Innovation Economy: Companies that are not constantly pursuing innovation will soon be overwhelmed by it. Strategy innovation is the only way to deal with discontinuous--and disruptive--change. THE INNOVATION IMPERATIVE Some companies seem to understand the innovation imperative instinctively. Consider Charles Schwab's daring plunge into the online unknown: When the bricks-and-mortar broker took the view that online trading was inevitable, it faced a choice between leading the brokerage industry to the future or being a victim of some dot.com start-up getting there first. Thus, on the fateful day in 1995 when a technology team within Schwab presented a demo of what the Web could do, senior managers almost instantly recognized how the Internet could make life better for Schwab customers. Schwab invested in the Web even before it realized it Would face aggressive price-based competition from other Web brokers. By committing to the goal--and pursuing it through a series of low-risk experiments--Schwab was able to establish a dominant position in the online trading world. Today, Schwab controls some 30% of all the stock trading that takes place on the Web. Even more impressive, Schwab's market cap--$3.5 billion in 1995, less than half that of Merrill Lynch--has now pulled even with Merrill's, which instead of engaging the Internet pursued until recently a policy of digital denial. YOU'RE NEVER TOO OLD TO INNOVATE Schwab is not an upstart. And innovation isn't the special preserve of Internet upstarts or the denizens of the dot-com motels of Silicon Valley. In fact, innovation can happen at any company, regardless of its line of business, age or location. Can a century-old company learn to innovate like an industry ingenue? The answer is yes--provided the company is willing to examine its orthodoxies, abandon its strategy-by-habit ways and engage its employees broadly and deeply in the effort to envision the new markets and new opportunities that promise new wealth. …