Innovation is Necessary - But Is "Innovate" Good Advice?

Part 1 of a three-part series on innovation, reinvention, and the migration of customer value.

Everybody's telling everybody to innovate these days.

Innovate your products. Innovate your processes. Adopt AI. Digitize the customer experience. Automate the plant. Transform the business.

It's hard to argue with any of it. Who's against innovation? Nobody raises their hand in the boardroom and says, "Let's stay exactly the same."

But suppose you run an $8 million parts manufacturer.

You're not managing a venture-funded software company with eighteen months of runway and a pitch deck. You're managing customer concentration, capital equipment, skilled labor you can't easily replace, quality, delivery performance, working capital — and the daily fires that come with actually making and shipping physical things.

So here's my honest question: is "innovate" really useful advice for you?

Maybe. But on its own, innovate is no more of a strategy than grow, differentiate, or be customer-focused. It points in a generally desirable direction. It doesn't tell you where to go.

And that distinction matters, because a company can innovate — sometimes impressively — without improving its position one bit.

It can build a better product that customers don't value enough to pay extra for.

It can automate a process that should have been eliminated instead.

It can add features when what the customer actually wanted was simplicity.

It can get more efficient at manufacturing while a competitor quietly takes over the customer relationship.

It can pour real money into technical capability while customer preference — and profit — migrate somewhere else entirely.

Innovation is necessary. It is not sufficient. Those are two different sentences, and most innovation advice only bothers to say the first one.

Innovation is a description of change — not proof of value

I went looking for how the people who actually measure this stuff define "innovation," and I landed on the Oslo Manual — the OECD and Eurostat's official framework for tracking business innovation across countries. Their definition is broad on purpose: a new or meaningfully improved product or process counts, whether it's in your product line, your production, your marketing, or how you're organized. It has to actually get implemented — an idea that dies in a meeting doesn't count.

Here's the part that stopped me, though. The baseline definition doesn't require the innovation to work. It doesn't require it to succeed. That's fine for statisticians counting activity across an economy. For an owner, it's something closer to a warning label:

You can innovate and still lose.

Buy a new machine — that's an innovation. Launch a digitally-enabled product — innovation. Roll out AI-assisted quoting, or build a customer portal — innovation, innovation. None of those things, on their own, prove your business is becoming more valuable to your customers or harder for a competitor to replace.

Innovation is an activity. Customer preference is an outcome. Profitable growth is an outcome. Being strategically relevant five years from now is an outcome. The job isn't to produce more change — it's to aim the change at something your customers will value more, from a position where you can actually capture a fair share of that value.

No market is 100% stati

When I was a boy, my father took me to the barber shop. My mother went to "a lady." That was the whole sentence — nobody needed more detail than that.

Today, my kids can choose an independent barber, a traditional salon, a national franchise, a men's grooming concept, a kids' salon, a luxury experience, a discount chain, a mobile stylist who comes to the house, or — during COVID, I'll admit it — an electric clipper kit I bought off Amazon because I got tired of looking shaggy on video calls.

Hair still grows. It still needs cutting. Scissors and skill didn't stop mattering. But the number of ways to solve that exact same problem exploded. Some people still want the guy who's cut their hair for fifteen years. Others want convenience, or a brand they trust, or the ability to just do it themselves in the bathroom.

The need stayed the same. The market didn't.

That's the thing industrial owners can't afford to miss. A market doesn't have to disappear for the basis of competition to change. Your customers may keep needing the same category of part, assembly, or service for the next twenty years — and still stop choosing suppliers the way they used to, stop valuing the same capabilities, stop tolerating the same friction.

If even a haircut is a dynamic market, yours is too.

The real issue is the migration of value

Here's the term I want to plant in your head for the rest of this series: value migration. It's the movement of customer preference — and eventually revenue and profit — from one way of solving a problem to another. The product itself might not change much at all. What surrounds it can change a lot.

Picture a manufacturer that's built its reputation on application expertise. Customers call because they're not sure which component they need. An experienced salesperson asks the right questions, checks compatibility, loops in engineering, and gets them to the right part. That's real expertise — it might have taken decades to build.

Now watch what happens as more of that routine selection work gets absorbed into configuration software, searchable technical libraries, or an AI-assisted purchasing tool. The customer still needs the part. The hard, unusual cases still need your best people. But you may not get the first call anymore on the easy ones. What used to be your primary source of value quietly becomes an exception-handling capability.

Where does the value go instead? Usually toward availability. Faster, more reliable delivery. Easier configuration. Documentation and traceability. Preassembled components. Guaranteed compatibility. Field support. Somebody willing to be responsible when it doesn't work.

The expertise didn't become worthless. Its position in the buying process changed. That's a different problem, and it needs a different response than "get better at what we already do."

I've spent a career telling people their value proposition has to be I³ — Innovative, Indispensable, Inspirational — if they want customers to pay a premium and stay loyal. Notice something about that formula: only one of the three letters is about being new. The other two are about staying essential and staying exciting to the person paying you. You can innovate your way to a shinier "I" and still watch Indispensable and Inspirational erode underneath you, because those depend on where the customer's attention and trust are moving — not on how clever your latest release is.

Industrial companies love to assume their markets are protected because the product is physical, technical, custom, regulated, or relationship-driven. Those conditions slow down change. They don't stop it.

You can innovate in the wrong place

Say a manufacturer invests in better equipment — tighter tolerances, faster cycle time, less labor per unit. Good operational call, probably. But what if customers already think the quality is fine? What if the real reason orders are slipping is slow quotes, unpredictable delivery, or an unwillingness to hold the inventory customers actually need?

The company innovated. It might even have improved its margins on the work it wins. But it hasn't touched the actual reason customers were choosing someone else.

This is how innovation gets disconnected from strategy, and it happens constantly. Manufacturing people see manufacturing problems. Engineers see product problems. Sales sees pricing problems. Your IT vendor sees a digital problem, funny enough. Every one of them might recommend something legitimate. The owner's job is figuring out which problem actually matters right now.

So don't ask "what can we improve?" There's always something to improve — that's not a strategy question, it's a to-do list. Ask instead:

Which improvement would actually move customer preference, cut customer risk, strengthen our economics, or keep us from getting bypassed?

That's a much higher bar. Most innovation ideas don't clear it.

You can make the product better while value moves around it

Industrial companies default to putting their innovation dollars inside the product — stronger material, tighter tolerance, a redesigned part, a new feature. That matters. In some markets, it's still the whole game.

But the product is only one slice of the customer's experience. A technically superior part can lose to an adequate one that's easier to spec, faster to get, and feels lower-risk. A great manufacturer can lose ground the moment another company controls the specification. A distributor can keep moving the box while a digital platform owns the customer's attention and data. A service company can do excellent work while somebody else owns the contract.

The physical requirement stays put. The value moves.

AI doesn't repeal physics — a part still has to be engineered, made, inspected, shipped, and eventually replaced. But it can change who helps the customer decide which part to buy, how fast alternatives get compared, and how much previously scarce expertise just becomes... available. You might still make the part. Somebody else might increasingly shape the decision to buy it.

Operational excellence can preserve a business — and trap it

None of this is an argument against running a tight operation. For an $8 million manufacturer, execution isn't optional — nobody rewards a beautiful strategy if your deliveries are late and your quality is inconsistent. Operational excellence buys you cash, credibility, and room to maneuver.

The danger shows up when running the current model becomes the strategy.

You can get very efficient at delivering something customers are starting to value less. You can polish a sales process without ever asking whether customers want to buy that way anymore. You can get faster at responding to RFQs while your competitors are shaping the spec before the RFQ is even written.

Good execution strengthens a valuable position. It has nothing to say about whether that position stays valuable.

The assumptions underneath your success have a shelf life

Every business runs on assumptions. Customers need our people to help them pick the right product. Local inventory matters. Our experienced folks know things customers can't easily find elsewhere. This work is too technical to buy digitally. Customization protects us from cheaper competitors. Our responsiveness earns us a premium.

Those things might be true. Some of them might stay true for another twenty years.

But none of them are laws of physics. And the risk isn't having assumptions — every company runs on some view of how its market works. The risk is not going back to check them, because the business is still profitable.

A model can keep throwing off cash for years after the conditions that made it strong have started to weaken. Relationships, installed equipment, reputation, plain old inertia — all of that can hide the shift for a long time. By the time it shows up on the P&L, somebody else has usually already claimed the better response.

Innovation requires deciding what not to preserve

Peter Drucker, by way of the Drucker Institute, argued that an innovative organization has to practice the "regular abandonment" of products, processes, and systems that are obsolete or heading that way. He wasn't saying discard profitable things carelessly — he paired abandonment with continuous improvement and exploiting today's strengths. Run today's business. Build tomorrow's. At the same time.

For most industrial owners, "abandonment" isn't shutting down a product line. It's abandoning an assumption. The belief that every inquiry has to go through a salesperson. A quote process customers tolerate but quietly hate. The idea that technical competence, by itself, is enough to earn preference. Revenue that eats capacity without reinforcing the position you actually want.

Reinvention doesn't start with a brainstorm. It starts with being honest with yourself.

The question was never whether to innovate

Yes — industrial companies need better processes, better tools, better products, better ways to serve customers. That's not in dispute.

But "innovate" only becomes useful advice once you've answered a more basic question first:

Where is value migrating in our market?

What are customers finding easier to do without us? What used to be scarce that's now common? What friction are they no longer willing to put up with? What piece of our expertise could end up embedded in someone else's product or platform? What outcome is still hard enough, risky enough, or consequential enough that someone will keep paying us to be responsible for it?

Not every manufacturer needs a research lab. Not every company needs a radical reinvention. But every owner needs a way to notice when the ground under customer preference has started to shift.

Because innovation, on its own, was never the goal. The goal is to stay meaningfully valuable while the market changes what it values.

The customer's underlying need might hold steady for years. Where value gets created, noticed, and paid for won't.

Next in the series: What IBM, Microsoft, Google, and Amazon reveal about innovation, reinvention, and the danger of protecting yesterday's successful model.

• Have you caught your own company innovating in the wrong place — polishing something customers don't value as much as they used to?
• What assumption under your business would be the hardest one to say out loud and question?
• Where do you think value is migrating in your market right now?
  
  Research Source Notes:
  OECD/Eurostat, Oslo Manual 2018: Guidelines for Collecting, Reporting and Using Data on Innovation, 4th Edition (oecd.org).
  Peter F. Drucker, "Planned Abandonment: Out With the Old, In With the New," republished by the Drucker Institute (drucker.institute).