Although the need for innovation is built into a company’s strategy at its birth, the right quantity and form of innovation varies. The quantity and dominant Form of innovation required for business success can be superimposed on a market value and economic value map as shown in the “Quantity and Dominant Form of Innovation Required” figure.
Important in this graph is that new startup companies or stage one disruptors are created with very high market value added per capital. As startups they have no financial capital to work with and what they’re doing is rapidly increasing in market value. As individuals working in a garage build a business and build the ability to attract capital the move to Stage two. This is the growth phase where the active innovators are building out their business, geographically expanding it and going into additional market segments in building out their product lines. Stage three is the rebuilding phase where increasing amounts of capital have been added to the corporation to build up the distribution and manufacturing facilities, sales organizations, etc. The economic value add is relatively high on such capital but we see that the market value add is starting to drop off as growth occurs, both because the money capital is increasing as well as a rate of growth is starting to decline. The last stage for industrials is really having very little economic value added per capital and low market value add per capital. For industries in their mature phase it is very difficult to grow the businesses that has become a commodity. Both economic and market values are difficult to come by. Also the capital base here is typically large dragging their performance down. As one can see the appropriate focus and distribution of R&D funding between product and process (capital reducing) programs changes as companies move through this cycle. Far too often R&D, marketing, and IP have initiatives based on where the company was, not where it is going.