Professor of Strategy and Entrepreneurship
London Business School

Means & ends; profits & innovation

Don’t ask why, but I have long been interested in what makes certain companies better at innovation than others. Research shows that it is actually not that easy to remain innovative. Once a firm becomes profitable, over time, it is as if the organisation loses the urge to be really innovative and creative, and come up with truly new products and services.

Therefore, one of the things I always ask the executives of a company whose innovation process I am examining is “why do you want to be innovative?” Invariably, the answer is that they realise they need to innovate in order to remain profitable in the long run.

And this is a good point. You may be profitable now, but if you wait to invest in innovation till you see your performance dropping – trying to innovate yourself out of the looming trouble – it may be too late. True innovation has a long lead time; only starting to think about new stuff once your old stuff is beginning to show signs of decay often means you have left it too late. Moreover, by then, you may be out of touch; once you really stop innovating it will be very difficult to get back into it.

All this is of course not rocket-science. Yet, over the past year or so, I have been examining a rather different but also consistently very innovative organisation – as a matter of fact, one of the most innovative organisations of its kind it the world: the famous Sadler’s Wells theatre in London.

Sadler’s Wells is a large theatre (their main auditorium takes about 1900 people) which is focused on modern dance. And they host and (co)produce some of the most innovative productions in the world. Moreover, they manage to consistently attract large audiences and are – which is quite rare for such a theatre – financially self-sufficient, very healthy and sound.

When I was talking to their managing director (Chrissy Sharp) and chief executive (Alistair Spalding) – about their many productions, how they organise them, the relations between the theatre and the artists, etc. – at some point I also asked them my usual question: “why do you want to be innovative?” They both stared at me in silent disbelief…

While I was pondering whether they might be wondering whether I was serious (or mad), thinking it was just an incredulously stupid question, or considering to stop the interview immediately, Chrissy finally stammered “but… because we have to… it is what we do”.

Then it dawned on me, they had never even considered the question before.

And gradually, speaking to many more people in the organisation, I figured out that there is a subtle yet fundamental difference between Sadler’s Wells’s commitment to innovation and that of many of the businesses I’ve seen. Companies invariably see innovation as a means to an end; you have to innovate in order to remain profitable. Sadler’s Wells theatre views it the other way around; you have to make a healthy profit in order to be able to continue to innovate.

For them, profit is the means and innovation the end. Companies often struggle to remain truly innovative when they are making huge profits; the urge and feeling of necessity just inevitably slips away. Not for Sadler’s Wells; they continue to innovate, and innovate a bit more the more profit they make. It is not the big, tried-and-tested projects that they have been running for years that excite them, but the new, risky, creative productions that no-one in the world has seen before that get their hearts racing. They respect their established projects but invariably use the profit they make through those to invent new stuff.

And I wonder whether not more companies should adopt this stance: where the organisation’s ultimate commitment is to innovation. It is good to make a profit, and ever better to make a lot of profit. But innovation is what keeps you healthy in the long run, and what generally tends to excite your people; employees and customers alike.

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