Calculation Has, and Always Will, Out Perform Innovation

June 6, 2018

Overuse of the word and why the majority of the fastest growing companies grow  

I have had it up to my eyeballs. All this talk of innovation, its everywhere! I can’t pick up a business magazine without seeing half of the magazine, if not the entire magazine, dedicated to innovation. Go to your local Barnes and Noble and peruse the business section. All you will see is Innovation and its siblings, Passion and Intuition. We are sending the wrong message to our kids, new entrepreneurs, and especially management.

I went a bit extreme to get your attention. I do understand the role of Innovation and its value to our lives and businesses, but it absolutely has gone overboard. For those who were intrigued by my attack continue on. I WILL make the case that Calculation statistically beats Innovation. But first I must put Innovation in its place.  

Overuse of a Perfectly Good Word

I didn’t wake up hating innovation. It was novel when it first became a popular term during the industrial age and I liked it just like everyone else when it resurged during the “Silicon Valley age” and sensibly peaked during the “Facebook age”. I mean what better word to describe things like Facebook and a phone that does e-mail, text, browser, GPS, camera, recording device, video games, etc. etc.

But is making a video website that limits the video to 6 seconds or squirting melted plastic out of a computer dictated metal arm really innovation or just improvement?         

Definition of Innovation

Let’s look at the definition of innovation and two other words that consistently get confused with it (or maybe not), according to the Merriam-Webster dictionary.

Innovation is a new idea, device, or method: the act or process of introducing new ideas, devices, or methods.

Invention is discovery, finding; a device, contrivance, or process originated after study and experiment.

Improvement is the act of improving something: the act or process of making something better: the quality of being better than before: an addition or change that makes something better or more valuable.

Depending on what you read, Innovation can just slide back and forth between Invention and Improvement all day long as it sees fit. Allow me to suggest a new clarified definition complete with examples. My dislike of the word has prevented me from reading a single book on Innovation, so I apologize in advance to any mastermind like Peter Drucker or Michael Porter, if the following paragraphs in anyway paraphrase a 400pp book you may have written. But I seriously believe what I am about to say is as obvious as a heart attack and most people will react with a resounding “duh!”. But that will of course proof my point that the word is WAY over used.

I believe Innovation is slotted between Invention and Improvement. Take the actual symbol of invention itself, the light bulb. No one argues that the original incandescent light bulb was an invention since it didn’t exist before. We can get into the discussion that it was Invented well before Edison but that Edison Improved it enough to actually work reliably… but to keep it simple I define the Invention as electric powered light emanating from a container… a “bulb of light” if you will. Every new size and shape of bulb, type of filament or gas used, or different variations of wire, light, etc. are all considered “bulbs of light” or “light bulbs”. You CANNOT invent a new light bulb! Light bulbs have already been invented!

Innovations would be relevant leaping changes to our bulb of light while Improvements would be smaller incremental changes. New sizes and shapes of the incandescent bulb and even new gasses are incremental changes. The halogen bulb for instance is an improvement.

A fluorescent lamp on the other hand, completely did away with filament. The entire concept of a piece of wire getting hot and glowing bright was replaced by electrically excited mercury vapor causing a phosphor coating to fluorescence. A fluorescent bulb of light was certainly more than a simple improvement. It was a completely different way to make light come out of a bulb. It was Innovative.  

LED lights are also an innovation. Nothing like incandescent or fluorescent lighting, they utilize electrons and holes. When the electron finds a hole, it releases energy in the form of a photon (light). This too is such a leap from glowing wires and fluorescent gases that it is an innovation.

LED’s inherently have all sorts of problems for commercial use such as that fact that they do not make white light and are extremely directional. All the things that have occurred after their initial innovation to make them useful as actual lights would be considered Improvements.

Walk up to whoever is in earshot right now and ask them what they think innovation is. I just did and got “Innovation is new exciting things that have never been seen before.”

The first four companies in Fast Company’s October 2013 10th Annual Innovation by Design Issue are Burberry, Nike, PepsiCo, and Warby Parker… seriously? Aside from the Nike Pump and PepsiCo’s Vitamin Water (innovated by someone else and acquired by PepsiCo), I don’t see how they are the top four innovators. These four have simply calculatedly and incrementally improved just like the majority of the Inc. 500 Fastest Growing Companies in America.

Inc. 500 Fastest Growing Companies in America

Reading the September 2013 Issue of Inc. Magazine is what really prompted this article. I read through each and every description of the 500 companies listed. Let’s go through them by industry:

Advertising and Marketing – 58 Companies, $9.2Million Median Revenue, 1,799.3% Median Growth Rate. The majority either market to specific industries or market via digital collateral (web, social, etc.). A few provide some from of application that targets, tracks, and/or collects information on the internet. Marketers have been collecting data, stereotyping people and their interests, and targeting forever (look at a magazine’s press kit some time). But using the internet to track people’s interests to hit them with ads in real time is a new enough combination of old ideas to be considered innovative.

Business Products and Services – 36, $7.1mm, 1,851.4%. The vast majority are good old fashioned business services like consulting, telemarketing, outsourced HR, and equipment. The rest simply do the same via the internet.

Computer Hardware – 2, $15.7mm, 1,808.2%. Chips and routers. The chip guys have been around since 2003 so they may have come up with something the chip world considers innovative.   

Construction – 15, $8.8mm, 1,808.2%. 1 Solar installer and 14 construction/restoration/design/management companies.

Consumer Products and Services – 36, $8.4mm, 1,581.5%. FUHU makes an Android tablet and software for kids. Remember the 1981 Children’s Discover System, the V-Tech1000, LeapFrog? How about toy lawnmowers and Barbie Jeeps? Is it cool; absolutely! Is it innovative to take an adult item, add only kid centric software, and cover it in drop proof plastic? This section really surprised me. It is filled with car rentals, barbeques, furniture, and resale electronics. Very few like Living Social even use the internet in new ways.

Education – 6, $7mm, 1,746.8%. Nothing new here at all unfortunately.

Energy – 22, $29mm, 2,363.9%. There might actually be a few innovative companies here in solar and software but the majority are simply selling/advising/servicing gas, oil, and electric.

Financial Services – 33, $7.5mm, 1.670%. Basic moving, lending, investing, and tracking money. Online banking and credit card processing is probably one of the few innovations that people would tend to call an improvement.

Food and Beverage – 6, $10.7mm, 2,995.6%. Vertex does energy drinks and meal replacement bars, both innovative. The rest are organic or healthy… a trend.

Government Services – 37, $9.2mm, 1,601.6%. Nothing Innovative here, just duplicates of everything on this list but targeted to government.

Health – 41, $9.3mm, 1,312.4%. The majority operate the same as government services. Payroll, bill tracking, consulting, etc. tailored for the medical industry or medical tailored for another industry (such as construction site). There are a few device and drug manufacturers that may have Innovated or even Invented something.

Human Resources – 21, $8.2mm, 1,288.8%. Staffing, recruiting, and consulting.

IT Services – 54, $6.8mm, 1,621.1%. Lack of innovation in this industry surprised me. All were consultants, outsourced IT, and software/cloud/apps that did the former two.

Logistics and Transportation – 14, $9.7mm, 1,733.2. Mostly brokers and consultants focusing on shipping margins. ATDynamics seems to have Innovated aerodynamic tractor trailer tails.

Manufacturing – 9, $4.9mm, 2,528%. About half of these could be potential innovators. It’s hard to tell without extensive research on each company AND the history of their product.   

Real Estate – 16, $15.6mm, 2,229.7%. All just buy, sell, broker or manage real estate.  

Retail – 28, $7.6mm, 2,093.1%. With the exception of using the internet (which they all surely do to one extent or another), they simply sell stuff like we have for 100’s of years.   

Security – 5, $2.4mm, 2,117.3%. Security guards, file backup, and background checks. Good old-fashioned safety.

Software – 40, $8.2mm, 2,184.8. Every piece of software that first did a particularly unique thing was arguably innovative. This list of developers might legitimately have quite a few innovations.

Telecommunications – 8, $10mm, 1,452.7%. This list provides equipment and services to the telecom industry.

Travel and Hospitality – 4, $8.5mm, 1,088%. Private jet and luxury concierge services. No innovation here.

The Real Reason for this Kind of Growth

Now that I adequately bashed the systemic and incorrect overuse of the word innovation, what is the real reason these companies do so well? Things are never black and white so I am going to acquiesce to the fact that some in fact have done well because they innovate. Others have been in the right place at the right time and some just have the right connections, access to capital, or any combination of the above. But I can tell you with certainty that even with ALL that, they would not be on this list if it were not for calculated and meticulous planning and attention to detail.

It may not be organization wide but someone internally or on an external consulting basis is plotting the map, measuring performance and deviations, and making sure the ship continues to sail in the right direction.

THAT is why 5 and 10 year old companies are on this list. Now go dig past all those silly innovation books to the back shelf where the boring fat books on Business Planning, Operational and Marketing Strategy, Financial Measurement, and Valuations are. Or hire someone who has read them all and been doing it for decades. But don’t ignore them and rely on innovation. It’s hard enough to make this list of 500 let alone the 5 that might have made it on innovation alone!