Innovate, or Face the Music

The pace of innovation in our industry, in any tech industry really, can be maddening and sometimes scary. That holds true for nontech industries as well. Recent examples remind me how critical innovation is at all levels of an organization or industry. If lack of innovation in a nontechnical industry can bring category leaders to their knees, what can complacency do to small companies in highly technical fields?

Imagine an industry dominated by five massive companies. They generate billions of dollars in annual revenue. Imagine little has changed in 50 years. There have been technical advances and format changes, but marketing and distribution are largely unaffected.

Then the Internet comes along, spawning revolutions in a wide variety of sectors. Some companies have vision and leaders who embrace change. They encourage and reward innovation. The companies are better for it.

Others are reluctant to admit change into their market, opting instead to stifle innovation in favor of the old ways, proven profitable and believed safe. The leaders of these companies fear the revolution and ignore the substantial changes underway in what their customers want. They are able to maintain the status quo for a few years, but soon all the heel-dragging and infighting lead to innovation driven by outsiders and piracy. Sales and revenue drop. Massive companies that once dominated an industry now fear oblivion.

I’m speaking, of course, about the music industry. My intention here is not necessarily to criticize The Big Five, but rather to use their struggles to illustrate a point. I don’t know enough about the inner workings of the music business to be overly critical, but I’m a die-hard music lover, an amateur musician, and a marketer who constantly advises clients to listen to what the market wants.

Companies must innovate. If they don’t, others will. It was obvious by 1998 or ’99 consumers would want digitally distributed music. It seems reasonable if the industry as a whole had introduced it earlier than this past April (if ones views Apple’s iTunes Music Store as the first to do it right), piracy and file sharing would not be the issue it is today. And The Big Five would not have to spend so much money fighting it.

Instead, the big players in the music business seemed to fear digital distribution. Perhaps with good reason. Compression and rights management technologies were slow to evolve. But that’s precisely where the labels needed to innovate. Instead, there were reluctance to change proven models, squabbling over technology standards, and massive battles to control as much money as possible. While the record labels stifled innovation, MP3 was born. Shortly thereafter, P2P file sharing took off.

Many in the industry now fear for their business lives. They’re trying to assert control over a revolution they should have led from the beginning. One can’t help but feel the current situation is at least in part the fault of the major labels. It’s a direct result of a refusal or an inability to innovate. Standardized digital distribution wouldn’t have prevented Napster and Kazaa, but it would have lessened the impact.

This is now my inspiration, my muse, if you will. Fostering a culture of innovation could have saved the record companies a lot of money and trouble. It could have kept them ahead of the curve and brought the music business into the digital age. On their terms.

It’s an extreme but valid example. Innovation must occur on all levels of an organization. It needn’t be the radical change we’re witnessing in music. Small innovations make a difference, too. That’s precisely why it must be encouraged from the top to the bottom.

Successful companies in a rapidly changing world, in particular high-tech industries such as ours, must innovate. If not, be ready to face the music.

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