Little improvements crowd out world-changing innovation

The notion that we’re getting worse at generating big, world-changing ideas has been gaining currency. As the Wall Street Journal’s Greg Ip wrote earlier this month:
Outside of personal technology, improvements in everyday life have been incremental, not revolutionary. Houses, appliances and cars look much like they did a generation ago. Airplanes fly no faster than in the 1960s. None of the 20 most-prescribed drugs in the US came to market in the past decade.
Is this because all the “low-hanging fruit,” a phrase that I think my Bloomberg View colleague Tyler Cowen should get most of the credit (or blame) for popularizing, has been plucked already? Is it because government regulators are standing in the way of innovation? Is it because investors are pushing too hard for immediate gratification?
I don’t know! I’m not even sure we really are witnessing a slowdown in world-changing innovation. But I do have yet another theory for why we might be: We’ve gotten so good at non-world-changing innovation that we don’t have time for the world-changing stuff.
This thought occurred to me while I was reading “Superconsumers: A Simple, Speedy, and Sustainable Path to Superior Growth,” a fun little book by Eddie Yoon, who works at the Cambridge Group, a consulting firm that’s part of market-research giant Nielsen Holdings Plc.
Yoon argues that paying close attention to the most committed, enthusiastic consumers of a product can teach you lots of things about how to market and improve your own offerings.
The notion that companies should identify and focus on their best or most profitable customers isn’t new. Neither is the idea that understanding customers’ needs and desires is important. What Yoon describes is an approach that mixes serious data mining and personal connections (his wife, for example, is a superconsumer of scissors) to help companies find new sources of growth.
Yoon’s arguments are smart. But his book’s examples of corporate successes with superconsumer strategies didn’t exactly bowl me over. There’s the office-supply retailer that moved top-of-the-line staplers and hole-punchers onto their prime shelf space, there’s Ball Park’s launch of Angus Beef Franks, there’s Bud Light Lime — and then Bud Light Platinum, and Bud Light Lime-a-Rita. The resulting sales-growth figures cited by Yoon are more than enough to quicken the heart of a fast-moving-consumer-goods marketer, but these weren’t innovations that changed the world.
It’s probably too much to expect world-changing innovations of office-supply retailers, hot-dog makers and the world’s largest brewer, of course. But it seems telling that the company with perhaps the most committed superconsumers described in Yoon’s book is American Girl, the product not of market-research-driven innovation by a big company but of a former TV reporter and textbook writer inspired by a visit to Colonial Williamsburg in the 1980s. Mattel Inc. did buy American Girl back in 1998 — that’s one time-honored way for a big company to get its hands on an innovation — so its continued growth since then can be attributed to smart cultivation of superconsumers. But the initial inspiration was something else.
I asked Yoon about this when he paid a visit to Bloomberg on Tuesday. “I get that it seems daunting to come up with something out of whole cloth,” he replied. “But it does seem like at one level you’re one dinner-party conversation away.” Or one visit to Colonial Williamsburg away!
Still, I would guess that, at most large corporations, dinner-party or vacation inspirations with no data to back them up usually don’t get very far. Consulting of the sort that Yoon does — and this applies to pretty much everybody who gives advice to corporations — necessarily has to build on existing products and existing information about consumers.
And so here’s my theory: People love to dump on consultants, business school professors and assorted other management gurus, but I would venture that on balance the flood of advice that has washed over large corporations for the past half-century or so has actually made them much better at what they do.
Economists Nicholas Bloom of Stanford and John Van Reenen of the Massachusetts Institute of Technology (along with several co-authors) have been compiling evidence for a while now that companies that follow management best practices outperform their peers. In a similar vein, the University of Chicago’s Luigi Zingales recently offered this explanation for the rise in corporate profits’ share of US gross domestic product.
My hypothesis is that markups have increased because firms became better at creating product differentiation and erecting barriers to entry. In 1980 [Harvard Business School Professor] Michael Porter wrote “Competitive Strategy,” the ninth most influential book of the 20th century according to the Academy of Management. In this book, Porter explained how firms can create barriers to entry and obstacles to competition to increase their pricing power. The book became the primary textbook of all of the strategy courses taught in business schools and the gospel of the leading consulting firms.
In short, the reasoning goes, Porter and others taught corporations how to be more profitable.
For the past decade or two, innovation has been a big focus for those who offer management advice. HBS professor Clayton Christensen helped get things started in the 1990s with his theory of disruptive innovation, and since then lots of other professors and consultants have been offering advice on innovation, design thinking and the like. Much of what they say is probably bunk, but much isn’t — and as a result, corporations have probably gotten better at innovation. Meanwhile, the startup ecosystem has become more routinized and, well, corporate.
The nature of management best practices is that they’re based on experience and data. So while the wave of innovation advice has probably led to more innovation, most or even all of it — as I already wrote a few paragraphs ago — necessarily has to build on existing products and existing information about consumers. And maybe, just maybe, all this incremental innovation has been crowding out the world-changing stuff.
OK, OK, it’s just a theory. I don’t have any data to back it up. But that’s sort of the point, isn’t it?

—Bloomberg

Justin Fox is an American financial journalist, commentator, and writer born in Morristown, New Jersey. He is the editorial director of the Harvard Business Review Group and business and economics columnist for Time magazine