The Paradox of Portfolio-Based Businesses: Stability that Numbs Innovation
Some sectors enjoy financial blessings through recurring revenue, yet suffer strategic consequences from that same stability.
These are industries that live off a broad and relatively stable client portfolio, where monthly renewal is almost an involuntary reflex. Insurance, B2B healthcare, utilities, private education, and even certain banking sub-segments.
They all share a common trait: earned recurrence that reduces immediate competitive pressure, but also acts as a low-grade anesthetic that dulls the urgency to innovate.
Structural inertia, or the sedation of the innovation muscle
In these “rock-solid” industries, inertia is so deeply embedded that it works like a muscle relaxant: things move, yes, but with far less tension than needed. The result is an organizational culture that normalizes a technological adoption speed far below what today’s market increasingly demands.
If we look at Porter’s value chain, the problem becomes clearer:
- These industries are asked to innovate in support areas (internal processes, IT, data, automation) whose direct impact on sales is not immediately visible.
- And because “only what moves revenue counts,” anything with a delayed return is perceived as secondary or “nice to have.”
Outcome: innovation gets systematically postponed, because it lives outside the field of view of the current quarter.
The portfolio effect: when stability becomes a brake
Earned recurrence is fantastic for forecasting revenue, planning, and growing without shocks. But it introduces a dangerous bias: the belief that because clients stay, there’s no real need to change much.
In insurance, for instance, many companies still rely on Excel for critical processes, poorly integrated workflows, or CRMs that only work on the surface. Competitive pressure to innovate is low because renewals come anyway.
In B2B healthcare, inertia is even stronger:
- Hospital systems running on decades-old software.
- Highly hierarchical decision chains.
- Changes that require clinical, regulatory, and budget approval.
All of this compresses the organization’s ability to move toward more agile or digital models.
Sectors where this inertia also operates
- Energy and utilities: very rigid commercial processes and clients with low mobility.
- Education and vocational training: annual recurrence and little real competitive pressure.
- Traditional professional services: law firms and auditors that only innovate when regulation forces them to, or when a new entrant breaks the equilibrium.
In all of them, recurrence has a gravitational effect: the more stable the portfolio, the less incentive there is to transform what “already works well enough.”
Innovation hurts: it requires investment, focus, and time
Innovation is not (only) adding new features; it’s changing the way people work, breaking inertia, retraining teams, redesigning processes, accepting temporary efficiency losses, and assuming that returns will appear later. Sometimes much later.
“This time lag between investment and return is one of the biggest barriers to innovation in portfolio-based businesses, where the financial culture is heavily centered on short-term profitability.”
And if we talk about publicly traded companies, the brake is even more obvious:
- Shareholders push for immediate dividends, not future promises.
- Executive teams are incentivized around the quarter, not the decade.
Even if we articulate the strategic rationale for innovation, the gravitational pull of the desired dividend is enormous: it drags decisions into its orbit and displaces any initiative whose return is not immediate. We can build the best business case in the world, but if it impacts the Q2 dividend, innovation will be sacrificed — not the dividend.
So how do we break this dynamic?
Not easily, but there are paths:
- Isolate innovation budgets from the operating cycle to avoid “defensive cuts” when numbers get tight.
- Define a layered roadmap, where short-term impact coexists with structural projects.
- Create units that operate at their own speed, detached from the inertia of the core business.
- Measure innovation with deferred KPIs linked to operating cost, future churn, NPS, and internal efficiency.
- Generate artificial competitive pressure by benchmarking against more agile players, even if they’re from other sectors.
Portfolio-based industries are not doomed to fall behind. But they do need to fight the anesthesia generated by stability and understand that recurrence is a privilege — as long as it’s used to build the future, not to justify staying still.
