Innovation and Efficiency - No Contradiction

In discussions with top executives we hear that efficiency is not the highest priority; innovation and new product development are. Therefore, the focus is shifting from improving the cost position and increasing the company performance to succeeding with new products and innovations.

However, innovation and efficiency are often perceived as contradictions: either a firm wants to be efficient or it wants to be creative. It can not be both at the same time, or can it?

Even more so, there is academic research that recommends to top executives to make up their minds: you should pursue cost leadership, customer intimacy or innovation (e.g. Treacy& Wiersma (1997)). 

In fact, our experience in the field teaches us a more differentiated understanding. Innovation and efficiency are very compatible concepts and need to be pursued in tandem. There are specifically these cases, where this is useful: 

1. Innovation itself is a process that should be efficient. Not only the amount of money that is poured into innovation is decisive. It is the effect per invested dollar or euro that counts. For example, Apple is investing a lot less than other much less innovative market players, but is extremely successful with its new products. Therefore, companies need to focus on efficient innovation.
     
2. Innovation and efficiency are based on the same disciplines of effective organizations. These success factors start with a strong leadership team, and goes on with highly motivated employees, strong results-orientation, high quality awareness and other virtues. That leads to the plausible conclusion that highly professional organizations do excel in efficiency and in innovation at the same time.
      
3. Process innovation is not just a slogan. It means the application of new ideas on processes and activities. With thousands of small ideas a lot efficiency is generated. These continuous improvement efforts can make the difference between a highly creative, but bankrupt operation, and a successful innovative company, which earns money with its new products.

These cases show that innovation and efficiency are two sides of a medal. However, there ARE big differences between both. Managers and executives just need to be clear on how these two concepts are understood and implemented in their organizations. 

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