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Is your organization innovative?

Is your organization innovative?

In my experience there are but few managers that would rate their organization as absolutely not innovative. There is always a number of changes going on or some development regarding markets or products. But if you would look honestly into the innovation mirror? What would you see in comparison to similar organizations in similar branches, around the world? The best question to ask yourself here is: what part of your revenue – not profit – do we get from products or services that have been introduced on the market only recently?

What is ‘recently’? Best indication for the number of years to look back is the replacement cycle of your most profitable product in the market. Every time your customer ‘replaces’ your product, what do they do? With heavy industrial machinery the replacement cycle may be more than ten years. With consumer electronics this goes down to five years. Mobile phones even three, at most. So the shorter the replacement cycle, the bigger the innovation challenge(*).

Now, before you go and make an estimate – exact science is not possible nor wanted here – the question is: how much percentage of your revenue from new products over that period would you rate as innovative? 1, 5, 10, 20%?

As we all know, Apple may have set the golden innovation standard with the introduction of the iPhone. At this moment (beginning of 2012) it gets more than 50% (!) of her revenue from this new product (launched in 2007). If we look at the more recently launched iPad, the revenue is already at 20%. And that was the same percentage for the iPhone three years after introduction.

So, our question is: how does your ‘innovative revenue share’ compare to the golden standard of 20%? Because, really … Apple does not have some something you can’t have.

(*) I exclude the Fast Moving Consumer Goods (FMCG) market from this method of analysis as this has a completely different dynamic of purchasing decisions and extremely high replacement cycles.