There is no "one answer", as a lot depends upon your industry, rate of disruption in your category, and your risk appetite. I got some thoughts in a session led by Stefan F. Dieffenbacher, a renowned framework thinker, and a collaborator with us at Indus Net Technologies (INT.)
Not all change is the same, and using the wrong kind of change at the wrong time is how businesses slowly lose relevance.
When markets are relatively stable, improvement works. This is where efficiency and predictable outcome matters. Examples: - Automating manual reporting - Reducing delivery cycle time - Improving utilisation and cost structures - Standardising processes using ERP or workflow tools This is about doing the same things better. Incremental improvements.
As markets begin to shift, improvement stops being enough. That's when transformation is required. Examples: - Redesigning customer onboarding and service delivery - Rewiring workflows end-to-end instead of optimising silos - Shifting from fixed-price projects to managed services This is about doing the same business differently. Giving a new shape to the same business. Changing the form factor.
But when markets change fast and discontinuously—and AI is a good example here—neither improvement nor transformation is sufficient. That's when innovation becomes unavoidable. Examples: - Outcome-based pricing instead of effort-based billing - New AI-first service lines that reduce dependency on headcount - Platforms or accelerators that fundamentally change unit economics
Rethinking the value chain starting from the customer, not internal structure This is about changing what business you are really in.
One line from the session stayed with me: The faster the market changes, the more dramatic your response must be. Incremental improvement in a fast-moving market doesn't reduce risk. It increases it.
Stefan also made an uncomfortable observation: If most of your initiatives are succeeding, you're probably improving—not innovating.
Innovation is radical by nature, which means a higher probability of failure. Predictable success is usually a sign of safety, not relevance.
Why do we end up improving or transforming, and not innovating?
- Many organisations keep improving because it feels controlled. - Organizations are scared of cannibalizing their stable business - They call it innovation because it sounds reassuring.
The real leadership question isn't: "Are we innovating?" It's: "How fast is our market changing—and are we responding at the right level?"
How much shall we invest in innovation?
Typically 2%–15% of revenue.
Typical allocation: 70% → Incremental improvement 20% → Transformative change 10% → True innovation (broad benchmark)
If you are highly differentiated, you can afford to invest less in innovation. If you are commoditising, you must invest much more in innovation.
#innovation #transformation #improvement