Digital Disciplines: Attaining Market Leadership via the Cloud, Big Data, Social, Mobile, and the Internet of Things

Chapter 14Innovation and Transformation

There is perhaps no topic that perpetually engages leadership as much as innovation. It holds out the promise of renewal, reinvention, and success, yet remains challenging because of complex, nondeterministic relationships between technology, the innovation process, customer behavior, competition, and profitability.

Consultant and author Geoffrey Moore says that since virtually all products and services commoditize over time, failure to innovate equates to a failure to differentiate, and without differentiation, profits deteriorate.¹ As cogent as that argument seems, innovation per se does not equate to profitability. In a study by professor Michael Porter of the Harvard Business School covering 15 years, two industries tied for a close second place for profitability, measured by return on invested capital (ROIC). One was software, which one might reasonably argue is highly innovative. However, the other industry was soft drinks, yet the formulas for the leading soft drinks are a century old, as are key elements of their business model such as outsourcing raw materials production and finished product distribution.² There surely has been innovation in the beverage industry, such as incorporating açaí or goji berries, creative packaging and advertising, in-home production such as via Sodastream, and Louis XIV energy drinks, which are made “with real 24-carat gold flakes!”³ However, the modern formula for Coca-Cola—the one without cocaine—does ...