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Primary role of innovation is to grow revenue - period.

  
  
  
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It is not a surprise that revenue growth is the primary driver of shareholder value and the number one challenge for every business sector around the world. Yet today, growth objectives for most industries are tempered by a continuing focus on cost containment.

For U.S. companies, after tremendous focus on "optimizing the bottom line" and losing the competitive edge to other parts of the world, it is time to reclaim the innovation edge. Only way to achieve this, is to point innovation activities to growing the Top-Line (revenue).

Revenue doesn't mean focus on product development alone. That isn't the sole answer either. For example, financial institutions looking for a competitive edge generally focus on product innovation, but most have little sustainable competitive advantage. Many new products never generate a profit. And those that do are often quickly copied by the competition – negating any long-term advantage. The result? Massive investment in product development, without a commensurate improvement in market share.

To achieve sustainable growth, companies must better integrate product innovation with process and service innovation – finding new ways to improve efficiency and customer service. That’s the kind of innovation customers want. And it’s the kind of innovation your competitors will find hard to duplicate. Yet some financial services companies have focused on product innovation for so long they don’t know how to innovate any other way.

Transforming a company into an innovative enterprise is a major challenge that generally requires new strategies, new tools and new behaviors – as well as a dedicated process for nurturing and commercializing good ideas. That deep commitment to innovation is the surest way to achieve meaningful and lasting differentiation.

Institutions with broad-based innovation capabilities enjoy higher customer satisfaction, greater loyalty, faster revenue growth, stronger earnings, and ultimately, dramatic lifts in investor returns.

Do you agree?

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COMMENTS

Jatin: 
 
Your post the other day is provacative, but it's taken a few innovation cycles of my own to get in touch with exactly what it was that troubled me. 
 
Revenue is not the only driver of shareholder value. Shareholder value is also driven by measures such as percentage of revenue spent on R&D. Of two companies in the same industry with the same revenue, which stock would you rather own, the one that spends $0 on R&D or the one that spends 25%? 
 
I would also value a company that demonstrates a high rate of conversion from R&D to product. Similarly, market share is an insufficient evaluative. The worst place for a company to be is gaining market share of a shrinking market. This means that your competitors and customers are both moving on.  
 
More highly valued are companies that are expanding markets or creating new ones. I'd propose that Google and Amazon are both examples.

posted @ Saturday, June 26, 2010 4:32 PM by Charles M Colpitts


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