In today’s competitive business environment, a creative and innovative culture is a notable characteristic of most successful companies. Many of these businesses encourage their employees to think “outside of the box” by providing them with time and resources to explore and test new ideas. It is believed such thinking is essential for progress and differentiation.
However, history is full of examples of world-class companies who, for whatever reason, chose not to improve their products, internal processes or their core business model. As a result of this reluctance to adapt to new realities, most of these companies wrote their own death warrant. Three examples will suffice.
In 1976, Kodak accounted for 90 percent of film and 85 percent of camera sales in America. A year earlier, Steven Sasson, an engineer at Kodak, invented digital photography and created the first digital camera. Rather than capitalize on that first-mover advantage, Kodak fought the change, fearing a shift toward digital would cannibalize the company’s film-based business model. By the time Kodak woke up, it was too late. In 2012, Kodak filed for Chapter 11 bankruptcy.
In 1962, three newly-branded big box stores entered the US retail market, Kmart, Walmart and Target, essentially selling the same stuff. In the mid-1980’s, with over 2,000 stores, Kmart became the 2nd largest retailer in America, second only to Sears. In 1985, Walmart had just 880 stores. The Kmart strategy rule for the next decade was: “If we stop doing what we are doing, we have no idea what will happen. We will stick with the tried and true mechanisms of success and will keep doing what brought us here, no matter what.”
After years of decline, Kmart filed for Chapter 11 bankruptcy in 2002, while at the same time, Wal-Mart become the world’s largest private employer, enjoying unprecedented success. Sears Holdings (Kmart’s current owner) is now in Chapter 11 bankruptcy and is in the process of closing 80 stores across the country.
In 1985, the first Blockbuster store opened in Dallas. By 1992, Blockbuster was the undisputed global video rental leader, with over 2,800 stores worldwide. In 1994, Viacom bought Blockbuster for $8.4 billion. In 1997, After being fined $40 in late fees by Blockbuster, frustrated customer Reed Hastings, founded Netflix. A few years later, in 2002, Blockbuster turned down a chance to purchase the fledgling Netflix for $50 million. By 2004, Blockbuster had about 9,000 stores globally. In 2010, with Netflix and Redbox heating up, and Blockbuster refusing to update its business model to meet the new realities, the shrinking company filed for bankruptcy protection. In 2019, out of 9,000 stores that once existed, only a single Blockbuster store remains. Netflix 2018 income was $15.8 billion – and growing.
Although it’s clear a certain amount of innovation is necessary just to stay even, the question is, does creativity and innovative experimentation make any real contribution to the bottom-line profitability, or is such thinking unrealistic?
In 2014, Adobe commissioned Forrester Consulting to determine if creativity has any real impact on business results. The study surveyed 324 senior managers from multiple corporations across a diverse set of industries throughout the world, to see if those companies that proactively cultivate creativity, enjoy higher profits and more satisfied employees.
What Did Forrester Learn?
The study found the companies that embrace creativity significantly outperformed peers and competitors on a number of key business performance indicators, including a) revenue growth, b) market share, and c) talent acquisition. These innovative companies also enjoy a high-performance working environment, driven by progressive leaders and managers who support methods, funding, and education to back creative initiatives. Specifically:
1. Companies that foster creativity achieve exceptional revenue growth more than their peers. Fifty-eight percent of survey respondents that said their firms foster creativity had 2013 revenues exceeding their 2012 revenues by 10% or more. In contrast, only 20% of less creative companies performed similarly.
2. Creative companies enjoy greater market share and competitive leadership more than their peers. The survey showed that creative companies are also more likely to report a commanding market leadership position with a higher market share than their competitors. Of those reporting market share leadership, creative companies outnumber their less creative counterparts by a factor of 1.5.
3. Creative companies are regarded as a best place to work by their employees. A positive employee work environment is a fertile breeding ground for creativity. The survey showed that 69% of creative firms also reported winning awards and national recognition for being a “best place to work.” Just 27% of less creative companies achieved similar accolades. Creative companies in the survey create a high-performance work environment, since 83 creative firms reported winning national attention while only 26 less creative firms did the same: a difference of 3 to 1.
Both history and research validate the need for innovation in business. As Drucker so famously said over 40 years ago, Innovate or Die. Change is a foundational characteristic of business in the 21st Century. But most change doesn’t come easy. Change begins from the top down and is driven by a culture of constant improvement and progressive thinking.