Chasing value often disappoints
Here’s the problem. Despite substantial investment, most executives remain dissatisfied with innovation outcomes. McKinsey notes that only 6% of executives are satisfied with their innovation efforts. That means 94% are dissatisfied!
Only 6% of executives are happy with their innovation initiatives
McKinsey
Why? It is our addiction to value:
- value is hard to define – and we end up playing innovation theatre
- value-in-exchange model – that reflects a goods-dominant world – has blind spots that are increasingly important
- our economies are nowadays predominantly service-based rather than goods/manufacturing-based
- we tend towards manufacturers/providers determining value and flagging as price
Defining value is hard
Value feels easy to define, until you start thinking about it. Then it becomes difficult to define, inconsistently measured, and assessed primarily from the supplier’s/manufacturer’s perspective.
Grönroos tells us “value is a concept that is difficult to define”. Adam Smith saw two types: “value in exchange” – the power of purchasing; and “value in use” – the utility of an object. Marx observed English writers in the 17th century used worth (value in use) and value (exchange value). Karababa and Kjeldgaard identified a long list of competing value concepts, each “lacking a definitive basis”.
No wonder Anderson and Narus observed:
remarkably few suppliers in business markets are able to answer…questions like…How do you define value? Can you measure it?
Anderson and Narus (1998) ”Business Marketing: Understand what customers value”
McKinsey wrap up the easy definition by tying it to the greatest amount a customer is willing to pay::
A product’s value to customers is, simply, the greatest amount of money they would pay for it.
Golub, H., and Henry, J. (1981) “Market strategy and the price-value model” via “Delivering value to customers”, McKinsey (2000)
If you’re defining innovation as chasing/addung value, but neither you nor customers can define, or understand, value, are you surprised your innovation activities fail?
Performing Innovation theatre
A consequence of value being hard to define is on all those innovation activities you sponsor – the hackathons, ideation competitions, brainstorming sessions, open innovation, and so on. They descend into what Steve Blank calls, innovation theater. Activities that feel good internally, and look good in shareholder/marketing reports, but yield no tangible results (additional customers, reduced costs, growth etc).
When our innovation activities deliver few/no tangible results, we are performing innovation theater.
Steve Blank (2019) “Why Companies Do ‘Innovation Theater’ Instead of Actual Innovation”
How many hackathons, ideation competitions, and brainstorming sessions have you sponsored, only to see few (if any) tangible results? How confident are you that your organisation even shares a common definition of “innovation success”, or understands what customers truly value?
Are you excusing the innovation theatre in your organisation as “but, innovation is hard”, or “the next hackathon will be the one that changes our fortunes”? It’s your definition of innovation, based on an undefinable concept of value, that needs to change.
Not seeing the blind spots
There’s no doubt that the value-in-exchange model has been wildly successful. It powered centuries of industrial and economic expansion, rewarding firms that produced efficiently, priced competitively, and exchanged effectively.
But it carries blind spots – before, after, and across the point of exchange. For example:
- Prioritising consistency over customisation – missing value before exchange
- Chasing the next transaction – missing post-exchange value
- Valuing new exchanges over circular thinking – missing value across the exchange
- Elevating goods over services – narrowing the solution space
- Falling into marketing myopia –
- Favouring simple exchange over more innovative business models
- Assuming providers define value
For much of the 20th century, these blind spots didn’t seem to matter. Growth was abundant, resources appeared limitless, and the negative consequences of short-term value capture were distant or diffuse. But today, it seems we may have run out of space to ignore them.
Growth has slowed/stagnated. The International Monetary Fund warns that we may be entering a decade of structural stagnation — the “Tepid 20s”.
The world is facing a decade of stagnation – the “Tepid 20s”.
Chair of International Monetary Fund
A prime example of a blind spot is sustainability. Under a value-in-exchange mindset, a manufacturer’s economic incentive ends at the point of sale. There is little motivation to design for durability, recyclability, or long-term impact. In fact, the opposite often applies: short product lifespans drive repeat purchases and higher turnover, even as they increase environmental cost.
Consider Gillette’s “razor and blade” model, often celebrated in business schools as a masterstroke of recurring revenue. The firm sells the razor handle at low cost, then captures margin through a continuous stream of blade replacements. Financially elegant, but is it best environmentally? The business model encourages disposability rather than durability.
The same dynamic can be found in fast fashion, where value is extracted through high volume and low price, with little consideration of the environmental or social aspects.
Mismatching to Economic make-up
Our traditional value-in-exchange model is deeply rooted in goods and manufacturing. That was natural when the model was conceived. That was during an era defined by industrial production, physical goods, and efficiency at scale.
Over time, we’ve tried to force-fit services into a model designed for products. This legacy produces the familiar distinction between goods and services, often expressed through the so-called “five I’s”:
- intangible – services cannot be physically held or inspected before purchase
- inconsistent – quality varies by instance, context, and provider
- inseparable – production and consumption often occur simultaneously
- involvement – services typically require active customer participation
- inventory – services cannot be stored for later use
These differences have led to a lingering goods-versus-services mindset. Where goods are perceived as stable, tangible, and valuable, while services are seen as variable, transient, and somehow lesser.
Yet this mindset is increasingly out of step with economic reality. As Chesbrough highlights in Open Innovation, the structure of our economies has shifted dramatically. Manufacturing’s share of GDP has declined, while services have surged — not only in mature economies but across emerging markets as well.
The World Trade Organization makes the point plainly:
The services sector today generates more jobs (50 per cent share of employment worldwide) and output (67 per cent share of global GDP) than agriculture and industry combined – and is increasingly doing so in economies at earlier stages of development
The future of trade lies in services: key trends, World Trade Organisation
In other words, two-thirds of global economic value now comes from services. The question, then, becomes inescapable: is a model of innovation built for goods still viable in a world dominated by services?
Our economies have evolved, but our innovation model has not. We’re trying to navigate a service-based world with manufacturing-era maps – and the result is declining innovation returns, rising inefficiency, and slower growth.
Too much internal focus
For many organisations, inward focus has become the default. As Clayton Christensen observed, most marketing leaders agree with Levitt’s warning about marketing myopia, yet few act on it.
People don’t want to buy a quarter-inch drill. They want a quarter-inch hole
Levitt (1960), Marketing Myopia
Despite acknowledging this truth, organisations continue to interpret markets through the lens of what they already sell. Segmentation, surveys, and A/B tests are built around existing categories and consumption patterns. The result is a closed feedback loop: new features are inspired by what customers already buy, not by what they are truly trying to accomplish. Organisations learn to read the signals of their own behaviour, mistaking activity for insight.
Much of this stems from how modern firms were built. They evolved in an era when competitive advantage came from producing efficiently. Systems, incentives, and accounting frameworks were all tuned to outputs – products, features, volume, and margin – rather than outcomes. This production bias traps attention inside the firm: what we can make, how we can make it cheaper, and what we can sell next.
The problem compounds through measurement. What gets measured gets managed – and most innovation metrics still track internal effort or pipeline activity: R&D spend, patents filed, prototypes built, and launches completed. These indicators show what the organisation has done, not whether it has made anyone’s life better. Even “customer satisfaction” scores tend to reflect delivery performance, not genuine progress in the customer’s world.
This inward lens isolates innovation from reality. Product, marketing, and R&D teams are separated by function, with customer insight filtered through research summaries or “voice of the customer” decks. The result is a widening abstraction gap between those designing change and those living the experience. Detached from real progress attempts, teams default to adding features — a behaviour that feels safe, measurable, and promotable.
Each added feature signals internal progress but rarely external improvement. It often conceals a deeper anxiety: the fear of losing relevance. Instead of examining how customers’ progress sought and progress origin have evolved, organisations layer on complexity, hoping something will resonate. The consequences are familiar — Kodak, Blockbuster, and countless others that confused more with better.
This manufacturing-era mindset made sense when advantage came from ownership and production. But in today’s service-based, experience-driven economy, it creates friction and waste. Customers no longer buy products merely to own them; they buy outcomes that move them forward — the tangible evidence of progress made.
The innovation problem is structural: the wrong endgame (adding value), the wrong mental model (value-in-exchange), and the wrong success lens (supplier-centric rather than Seeker-centric).
Let’s progress together through discussion…