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OPINION

Innovation as a Last Resort
Going after breakthrough innovations may be glamorous, but mounting evidence suggests that's the last growth strategy you should try. by Michael Treacy

Like swinging for the grand slam in baseball or betting on thetrifecta in horse racing,going for broke with innovation is glamorous. Breakthrough innovations, whether the next blockbuster product or a next-generation business model, create a buzz in the boardroom while lesser forms of innovation go unnoticed. Yet a body of evidence in recentyears makes a strong case that breakthrough innovation should be the growth strategy of last resort. Consider the travails of Sun Microsystems. Since its start in 1982, the company has developed a number of blockbusters-high-end computer workstations; the Java operating system, which has driven much Internet software development; and the powerful Internet file servers that are home to many a corporate Web site. During the dot-com bubble. Sun acted as if the Internet revolved around it. But since then, the company has been unable to keep the flow of breakthrough products coming. Even worse, in viewing itself as the industry's biggest innovator, the company eschewed more incremental innovations that could have generated signif-

icant growth, including application software and consulting, which rivals have used to lock in customers. Sales since 2001 have slid nearly 40%,and $5.1 billion in losses have piled up.The company has watched 94% of its stock market value vanish since the fall of 2000. Earlier this year, continued losses and customer pressure forced Sun to call a truce with Microsoft and make its products work in the Wintel world. Sun's recent experience is not unusual. In general, exotic innovation strategies usually get beaten by the slow and steady approach of incremental innovation. How can you ensure your company's