What difference does innovation make?

I recently attended the “Open Innovation 2016” conference put on by the Marcus Evans group. Open innovation refers to people collaborating and partnering with others outside of their organization to cultivate innovative solutions to various opportunities and challenges, such as new product development, quality and marketing. Open innovation has grown in recent years as the “membrane” of an organization has become more permeable, allowing the resources for innovation initiatives to flow in and out of an organization more seamlessly.

For years I have been saying that innovation is not the goal of an organization, only the means to accomplishing its goals. Executives don’t want innovation per se – they want innovative solutions to real problems. Customers don’t want innovation per se – they want innovative solutions to meet their true needs.

I’ve always been dissatisfied that, while the above statements are true, they diminish the importance of innovation in the vitality and sustainability of organizations. So I’ve often wondered, “What could I say in addition to, or instead?

At this conference, an executive from Luxottica – the holding company that owns Sunglass Hut, Pearl Vision, LensCrafters, and other major brands for eyeglass wear – “nailed it” for me. That’s a phrase often heard in gymnastics for a perfect performance and/or perfect landing. I thought of Mary Lou Retton, the USA gymnast who won the all-around gold medal for women’s gymnastics at the 1984 Olympics. She nailed it with her performance and landing on the very last event.

I may be overly dramatic here, but Melissa Day, Director of Design Strategy for Luxottica, nailed it when she said, “Performance runs the business. Innovation drives the business.” That’s it. That puts innovation on par with performance in a way that brings out its value while highlighting that it has a different kind of priority.

The metrics Melissa highlighted for each statement underscored her point. Metrics for running the business include sales and margins. Metrics for innovation include changes in consumer perception of their brands and other customer experience drivers.

“Performance runs the business. Innovation drives the business.” To me, the truth of that statement shows up in the way Forbes Magazine evaluates the most innovative companies in the world. They measure an “innovation premium,” which is the difference between (a) the net present value of the cash flows from existing businesses and the anticipated growth from those businesses and (b) their market capitalization.

Investors are looking at what the future holds for a company. They’re asking questions like, “To what degree do we believe that a company can and will do things that are new, better or different to drive future results?” They’re becoming well aware that past and present performance doesn’t tell the whole story about the future.

In other words, investors are evaluating how innovative they believe a company is. And they reflect that belief in how well they value innovation as a driving force beyond the expected performance of existing businesses. That is the innovation premium, with a tangible value.

Performance runs the business. Innovation drives the business. Thank you Melissa for “nailing” this important distinction that explains why innovation is such a critical core competency needed across the organization today.