The Theater of Innovation: Why Companies Prioritize Appearances Over Innovation

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Abstract: This article explores the phenomenon of "innovation theater," whereby companies prioritize the appearance of innovation over genuine creative investments. Despite executive rhetoric about disruption and new product development, many organizations fail to properly resource or incentivize true innovation, instead opting for visible but shallow initiatives that generate positive PR without challenging the status quo. The author examines how misaligned incentives, short-term thinking, and risk aversion collectively undermine authentic innovation efforts across industries from technology to pharmaceuticals, while proposing that companies can overcome these barriers by restructuring compensation toward long-term outcomes, empowering autonomous innovation teams, and fostering cultures that view failure as valuable learning rather than punishable error.

In today's fast-paced business environment, innovation has become a buzzword that companies pay lip service to but fail to authentically prioritize or resource appropriately. While executives preach the importance of inventing new products and disrupting their own industries, their actions often betray a focus on appearances over actual innovation. This phenomenon of 'innovation theater' represents a missed opportunity for businesses to differentiate themselves and gain competitive advantage through genuine creativity and breakthrough ideas.

Today we will explore the key reasons why companies indulge in 'innovation theater' rather than committing to real innovation efforts.

Misaligned Incentives Reward Appearances over Innovation

Research shows that one of the primary reasons corporations indulge in innovation theater is misaligned executive incentives that reward visible outcomes over longer-term investments (Crossan & Apaydin, 2010). Quarterly earnings expectations and annual bonus structures encourage strong bottom line numbers today rather than risky bets on tomorrow's innovations. As a result, leaders often find it strategically safer to speak loudly about innovation priorities without allocating the time, money, and autonomy required for true innovations to emerge (Bughin et al., 2010).

A prime example is Google's "20% time" policy, intended to allow engineers discretionary time to work on self-directed ideas. While hailed as a driver of major Google products like Gmail, industry insiders note 20% time has more recently become a public relations stunt rather than the innovation backbone it once was (Chafkin, 2018). With increased Wall Street pressure, Google now tracks engineering time more closely and expects profits from discretionary projects, contradicting the philosophy of allowing ideas to freely incubate.

In the pharmaceutical industry, researchers are similarly incentivized to pursue "me-too" drugs that serve existing markets over riskier explorations of new therapeutic areas (Dickson & Gagliardi, 1986). The 5-10 year road to FDA approval means executives accountable to quarterly profits see little upside to "moonshot" research projects. As a result, major drug companies invest in flashier innovation "centers" and "accelerators" with few commercialized products to show, prioritizing PR milestones over developing real breakthrough drugs (Spellberg et al., 2019).

Short-Term Thinking Discourages Disruptive Innovation

Short-term business horizons widely perpetuate innovation theater rather than disruptions that could reshape industries over the long run. Public companies in particular face consistent pressure from shareholders to maximize value within 2-3 year windows (Barton & Wiseman, 2014). This discourages executives from back burning current returns for a remote chance at a drastically different future.

Consider electronics giants like Samsung and Intel who have poured billions into research yet struggle to develop genuinely new product categories as disruptive as their initial innovations (Christensen, 1997). Their incremental improvements keep them competitive against peers in the near term, but cannot possibly outpace Silicon Valley startups unburdened by institutional inertia.

In the automotive industry, legacy manufacturers like GM and Ford only significantly increased electric vehicle investment after pressure from regulators and new entrants like Tesla that pioneered the modern EV market (D'Aveni, 1994). Their cash cows of gas guzzlers disincentivized disruptive thinking despite obvious market shifts toward sustainability. Meanwhile, PR around concepts like GM's Ultra Cruise generates short-lived excitement without resolving misaligned priorities or budgets.

Risk Aversion Favors Incremental 'Improvements'

When executives and investors prioritize minimizing risks over breakthrough outcomes, the safest path is invariably incrementalism rather than experimentation. While small changes accumulate over time, they rarely constitute true innovation and cannot compete with disruptors willing to place larger bets (Christensen, 1997).

In consumer packaged goods, low risks and high barriers to entry have led to stasis despite a crowded marketplace. Companies churn out line extensions and new flavors in an arms race of marginal gains. Unilever's recent "incubator" initiatives serve mostly to rebrand pre-existing R&D as innovative, lacking strategic portfolio shifts or high-risk/high-reward investment (Stopfort, 2016).

In healthcare IT, epic systems like Cerner's Millennium platform evolve incrementally through regulated upgrades rather than exploring adjacent applications or platforms. Focused on serving existing clients, Cerner's "innovation" announcements repackage roadmaps as breakthroughs to maintain an innovative brand perception (Dobrzanski, 2017).

Aligning Incentives to Reward Long-Term Innovation

To transition beyond innovation theater, companies must first align executive and employee incentives with long-term goals that prioritize disruptive thinking and risk-taking. This starts with compensation structures focused on multi-year targets and key performance indicators beyond near-term profits alone.

Leaders like Reed Hastings at Netflix have pioneered incentive systems rewarding innovation over margin expansion. Netflix shares vest over several years, meaning Hastings profits from value created rather than quarterly financial engineering. Similarly, Amazon's innovative culture stems from a performance review system grounded in employees' long-term impact rather than current-quarter achievements (Maurya, 2012).

Promising examples also exist in pharma, where Vertex set shareholder expectations to accept a long road to profitability as they aggressively pursued transformative cystic fibrosis drugs. Focusing on important long-term milestones over short-term profits allowed bolder innovation that ultimately led to medical and commercial breakthroughs (Kanter, 2006).

Empowering Dedicated Innovation Teams

To foster genuine innovation, companies must empower autonomous teams with dedicated budgets and decision rights separated from core operations (O'Reilly & Tushman, 2008). 3M is an exemplar of allowing scientists to pursue ideas openly within an innovation unit operating independently from sales and production pressures.

Similarly, Google established independent units like X and CapitalG with board-level support and resources to freely explore potentially company-changing innovations like self-driving cars and healthcare technologies unburdened by current business lenses.

In contrast, merely bolting "innovation labs" onto existing firms risks their ideas being judged and discarded through ingrained selection biases. True empowerment requires new teams being given space and staying power to nurture radical ideas (Schmidt & Rosenberg, 2014).

Promising approaches include selective venture arms like CVS Health's new CVS Caremark business incubator. By operating separately from core pharmacy benefits with dedicated funding and leadership, the incubator model balances innovation freedom with strategic alignment to the parent company's expertise and assets (Glass, 2021).

Embracing Failure as Learning

To seed disruptive ideas that may fail but could yield massive successes, organizations must foster a culture encouraging risk-taking without fear of failure. At present, public and private firms alike excessively punish missteps, conditioning many would-be innovators to play it safe (Hwang & Christensen, 2008).

Business icons like Amazon and Tesla made it okay to fail by framing mistakes within an overall march toward ambitious aims. Their leaders treat failures as inevitable learning on the path to pioneering new frontiers, freeing teams to place more substantial bets. Similarly, Anthropic's approach training of AI safety researchers allocates time for "innovation sprints" where attempting risky ideas comes before expectations to succeed (Muller, 2020).

Such cultures of treating individual failures non-punitively contrast with prevailing corporate approaches threatening repercussions. Instead, framing setbacks positively as offering wisdom encourages backing more uncertain innovations that could yield radical leapfrogs versus low-risk tinkering (Sitkin, 1992).

Conclusion

While espousing innovation's importance, many companies in practice prioritize appearances through "innovation theater" over authentic creative efforts. Misaligned incentives, short-term thinking, and risk aversion all too often discourage genuine innovation in favor of incremental tweaks and PR wins. However, those redirecting focus to long-term success, empowering autonomous innovation teams, and cultivating failure-positive cultures stand to reap massive rewards by unleashing disruptive potential. For organizational leaders committed to innovation, the choice is clear between surface-level theater and meaningfully cultivating the breakthrough ideas of tomorrow.

References

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Glass, A. (2021, May 12). CVS is launching an incubator for digital health startups. Axios.
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Kanter, R. M. (2006). Innovation: The classic traps. Harvard Business Review, 84(11), 72-83.
Maurya, A. (2012). Running lean:_ Iterate from plan A to a plan that works_. O'Reilly Media.
Muller, V. C. (2020). Risk and responsibility for artificial intelligence. Nature Machine Intelligence, 2, 15-16.
O'Reilly, C. A., & Tushman, M. L. (2008). Ambidexterity as a dynamic capability: Resolving the innovator's dilemma. Research in Organizational Behavior, 28, 185-206.
Schmidt, E., & Rosenberg, J. (2014). How Google works. Hachette Books.
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Spellberg, B., Gilbert, D. N., & Schlossberg, D. (2019). Science education, discovery, and therapeutic innovation: Preparing physicians for the future. Clinical Infectious Diseases, 68(8), 1241-1246.
Stopfort, W. P. (2016). Corporate entrepreneurship: How incubation works at Unilever. California Management Review, 58(3), 26-47.

Jonathan H. Westover, PhD is Chief Academic & Learning Officer (HCI Academy); Chair/Professor, Organizational Leadership (UVU); OD Consultant (Human Capital Innovations). Read Jonathan Westover's executive profile here.

Suggested Citation: Westover, J. H. (2025). The Theater of Innovation: Why Companies Prioritize Appearances Over Innovation. Human Capital Leadership Review, 19(4). doi.org/10.70175/hclreview.2020.19.4.5