Selling a company on the need for disruptive or transformative innovation has always been a challenge. Some businesses simply don’t need it, others can’t afford it, and most struggle to justify investing in something inherently high-risk. The instinct to protect the core business—its efficiencies, margins, and financial predictability—often overrides the desire to explore bold new opportunities.
Executives resisting transformative innovation typically cite risk, failure aversion, or potential cannibalization of existing revenue streams. However, a deeper, often-overlooked barrier exists within the organization itself: the deep-rooted focus on cost efficiency, particularly in marketing, sales, and operations.
Why CFOs and CMOs Resist Disruptive Innovation
For decades, companies have honed their ability to sell the same products to the same audience with increasing efficiency. And ‘the street’ has rewarded that with good valuations and high stock prices.
Marketing and sales functions are optimized for predictability—leveraging refined customer segmentation, proven messaging strategies, and finely tuned distribution channels. The company’s Cost of Goods Sold (COGS) is meticulously managed because it directly impacts gross profit, operating margins, and ultimately, stock price performance.
The relentless focus on COGS optimization means businesses go to great lengths to:
- Negotiate better supplier contracts and reduce procurement costs.
- Streamline production through automation and operational efficiencies.
- Minimize inventory costs and optimize supply chains.
- Standardize marketing and sales efforts to maximize return on investment.
When a company introduces a radically new product or business model, it disrupts this carefully orchestrated efficiency. Selling and marketing an offering vastly different from the company’s core requires new capabilities, new distribution strategies, and new ways to measure success. Re-learning these processes is expensive, time-consuming, and—perhaps most critically—threatens the company’s finely tuned financial structure.
The Case for Adjacent Innovation
Because of this built-in resistance, many companies looking for growth through innovation—without jeopardizing financial performance— should turn to Adjacent Innovation. This strategy focuses on developing new products or services that extend the core business in a logical, manageable way. These innovations either:
- Expand into a new customer segment while leveraging existing capabilities.
- Introduce a new value proposition within the company’s core market.
Adjacent innovations offer a lower-risk, more predictable path to growth because they:
- Leverage existing assets (brand, supply chain, distribution, and operational efficiencies).
- Minimize disruption to the company’s financial structure, particularly COGS.
- Benefit from existing marketing and sales expertise, making adoption smoother.
Example: A Legacy Beverage Company’s Move into Functional Drinks
Consider a traditional soft drink company that has spent decades optimizing its supply chain, marketing, and sales around a core portfolio of carbonated beverages. If the company were to introduce a radically new product, such as meal-replacement shakes or personalized nutrition subscriptions, the shift would require entirely new customer acquisition strategies, pricing models, and supply chain configurations—disrupting existing efficiencies and threatening margins.
Instead, an adjacent innovation approach might involve launching a functional beverage line—such as vitamin-enhanced waters or plant-based energy drinks. These products still leverage the company’s core competencies (distribution network, retail partnerships, and brand recognition) but target a new consumer need without significantly altering the company’s financial or operational DNA.
This was the case of PepsiCo. PepsiCo, known for soda and snacks, expanded into sports drinks (Gatorade), kombucha (KeVita), and plant-based protein beverages to capture a growing market while leveraging its existing distribution and marketing strengths.
Research indicates that diversified companies often outperform their non-diversified counterparts, particularly during economic downturns. A study by the Boston Consulting Group and HHL – Leipzig Graduate School of Management found that diversified companies perform as well as focused companies during stable periods but have a measurable financial advantage during crises.
Conclusion: The Path to Scalable Innovation
For CEOs and innovation leaders, the key to driving growth without destabilizing financial performance lies in striking the right balance between ambition and feasibility. While disruptive innovation may capture headlines, adjacent innovation often delivers sustainable, scalable impact.
By leveraging existing strengths while carefully expanding into new opportunities, companies can innovate effectively—without alienating the CFO, frustrating the CMO, or upending the financial foundation that makes long-term growth possible.
This article was originally published on the Outcome blog.
