The Awesome Power of Innovation

The recent passing of Steve Jobs has struck a collective nerve, as only a few do.

For me, Steve Jobs personifies the awesome power of innovation in business. Steve Job’s forte is innovative products that enchant his customers. Start with the Apple II computer, which Jobs and Steve Wozniac built in a garage and, in a commercial sense, initiated the personal computer industry.

The personal computer industry soared in the 1980s, so the company he founded fired Jobs as CEO (go figure). So, Jobs founded Pixar, the computer generated animation giant, and NEXT, a tour de force computer system.

Fast forward to the mid – 1990s, when Apple was on the verge of bankruptcy. Apple, remarkably, re-hired Jobs. His product stream at Apple went on to include the Macintosh, iMac, iPod, iPhone and iPad. Add to that marketing innovations including the tony Apple retail stores and the iTunes music distribution system that makes the iPod a commercial winner.

Great, but so what?

>> The Harvard Business Review did a retrospective evaluation of CEO performance for the first decade of this century. After cranking the numbers, the Harvards rated Steve Jobs’ performance as CEO #1. During Job’s second gig as CEO of Apple (1997 – 2009), Apple’s industry adjusted return increased by whopping 3,188% (that’s 34%, compounded annually, across a time period that includes two recessions).

>> Exxon Mobil is America’s most valuable company, measured by market capitalization. Most of the time, that is. For a brief time in August of this year, Apple’s market capitalization exceeded Exxon Mobil’s, never mind that Exxon Mobil’s revenues are almost four times Apple’s. The profit margins and the stock price multiple to earnings make the difference.

>> Last year, only a small percentage of the cell phones sold in the world carried Apple’s brand. However, because of the price premium the iPhone enjoyed, Apple earned the lion’s share of the entire industry’s profits.

>> Pixar, the computer animation company that Steve Jobs founded after Apple fired him in the mid 1980s, makes animated movies for Disney (makes animated movies for Disney! – Wow!). Blockbuster movies like Toy Story and Cars. In the check-out line at my local supermarket, Disney movie DVDs – including the Pixar films — enjoy a $4.00 – $5.00 price premium over almost everything comparable. What does that do for profits?    

That’s the awesome power of innovation in business.

Food for Thought:

>> Innovation leads to competitive advantage, and competitive advantage opens the door to profitability. Firms that lack a durable competitive advantage are at the mercy of global market prices. That’s why Warren Buffett is interested in only firms that have demonstrated a durable competitive advantage.

>> Product innovation is usually the most obvious. However, innovative business processes and even innovative business models also count. Consider Amazon, with their new Kindle product line, their Wispernet content delivery process and their internet – based business model.

>> Successful product innovation is tough. Few new products are truly market successes. For example, the much of technology behind Apple’s Macintosh and just about every other personal computer released since the 1980s originated at Xerox’s Palo Alto Research Center. Xerox couldn’t take those product innovations to market. And Xerox is not a bad marketing company.

>> Innovation needs a “driver” to really flourish. That “driver” is often a new technology or new way of thinking that destabilizes the market status quo. Think of Thomas Edison and the many innovative products that accompanied electrification a century ago. Think of Steve Jobs and the advent of semiconductors and the internet.

Sustainability is another such “driver” for innovation. Don’t miss it.

Thoughtful comments are always welcome. Click on the title of this post to open the comments section.

…  Chuck

  Many of this blog’s recent posts offer specifics as to where and how Sustainability can help manufacturers innovate. Take some time to browse the previous posts. Look for more to come in future posts.