Idea 24 - Innovation
Innovation
is back on the corporate to-do list. When the innovative frenzy of the dot.com
years came to its abrupt end, big companies stepped back from the new and
refocused on the familiar. Now they are cautiously re-emerging from the
bunkers. The IT industry shrieks 'innovation' and depends on it for much of its
continued livelihood, but new and public commitments to innovate by large firms
like General Electric and Procter & Gamble have encouraged other industries
back into the lab.
Innovation comes in waves, nourished by advances in
technology. That was true in 1450, when Johannes Gutenberg invented the
printing press. The advent of the personal computer set off a similar wave in
the 1970s, ushering in the information age. In the 1980s it was software and,
in the 1990s, the Internet and all things digital. The digital revolution
continues, but today's urge to innovate also looks inward as firms turn to
their own competencies in search of the new.
If, as Michael Porter says, the only sources of competitive
advantage are price and differentiation, then innovation is the most powerful
differentia tor, though history suggests it doesn't always lead to greater
profitability over time: Companies are drawn to it as a way of entering new
markets and generating organic growth without having to resort to acquisition.
Innovation
is not invention Innovation is not a synonym for invention - an
invention has to be taken to market for it actually to innovate. Innovation
must change the way people do something. In an essay on creativity, Teresa Amiable
and others describe innovation as 'the successful implementation of creative
ideas within an organization'.
Creativity, which includes invention, is only the starting
point for innovation, a necessary but not sufficient condition for it. As Amiable
implies, the business of innovation needs to be managed all the way from the
creative inspiration through to a launch able product or service. Innovation
isn't restricted to products and services. It might be internal to the
business, in the form of new and more effective organizational structures or
processes. It could be a new way of marketing or distribution, like the
Tupperware party or online grocery deliveries.
By today's thinking, innovation can also be in the shape of
a significant improvement to an offering. Build a better mousetrap, as Ralph
Waldo Emerson is supposed to have said, and the world will beat a path to your
door. He didn't say build a 'revolutionary' mousetrap. However, some companies
get bogged down in so-called incremental innovation at the expense of radical
innovation. Wharton marketing professor George Day believes that a lot of
'small i' innovation is more akin to continuous improvement. He says this type
of project makes up 85-90% of the average corporate development portfolio, but
doesn't make firms notably more competitive or profitable. While successful
'Big I' projects contribute hugely more to profits, they are shrinking as a
proportion of development projects.
That's because big I is difficult and dangerous.
Innovativeness is made, not born, but many big companies are simply not very
good at managing the process. Certain rules of thumb have emerged through
successive innovation phases. Ever since the first Apple computer was developed
in a Silicon Valley garage, people have realized the importance of giving
creative people space away from the burdens of bureaucracy. (The risk now is
that these 'skunk works' teams become too detached from the organization, which
then finds it easy to dismiss their ideas.) Big, established businesses have
accepted that they too must be innovative. In Winning through Innovation,
Charles O'Reilly and Michael Tushman introduced the idea of the 'ambidextrous
organization', which juggles inconsistent structures and cultures so that it
can exploit (the old) and explore (the new) at the same time, This picks
winners in technologies and markets by staying close to its customers,
responding swiftly to mar] signals and knowing just when to kill a product or
project that isn't working out. Later thinking, however, suggests that
listening to your customers too intently can inhibit Big I breakthroughs,
Harvard business administration professor Rosa Beth Moss Kantar thinks that many
would-be innovators simply haven't learnt from their mistake the last time
around, and the time before that. In 'Innovation: the classic traps', a recent
essay in the Harvard Business Review (which she used to edit), she detects the
same lack of courage or knowledge that halted previous innovation waves: 'they
declare that they want more innovation but then ask "Who else is doing
it?" ... They claim to seek new ideas but shoot down everyone brought to
them.' She maintains that, with a few honorable exceptions such as Intel and
Reuters, corporate venture capital departments don't often create significant
value for the core business.
Too small
to count the reasons to innovate may be strategic, or linked to
process, structure or skills. A typical shortcoming is that, in looking for the
blockbuster, managers reject opportunities that seem too small. Some firms
throttle innovation by applying the same standards of planning, budget and
assessment as they do to the rest of the business. As Kantar points out, creative
teams need different treatment, but that often exposes them to class warfare on
the theme of 'they have all the fun and we make all the money'. A common
mistake is to put the techies in charge. Galvanizing the creative team and
communicating new ideas to management is crucial, but not always something that
engineers and IT specialists are good at.
Creativity takes time, and studies suggest that people need
to have been part of a creative or research team for two years to be really
productive. How often are people promoted off to another part of the firm
before that?
Even with the killer idea, companies may not reap all the
benefits they hope for. The extent to which they capture the value of an
innovation is known as 'appropriability'. Can they protect the idea? How much
lead time do they have before the inevitable imitator's crowd into the market?
How many specialized resources are needed to mobilize the
innovation? For instance, if you invented quick-frozen foods, you had to
surrender a lot of the value to suppliers of refrigeration equipment. One of
the hard facts of innovation is that the profits are often enjoyed by someone
else. The PC was invented by Micro Instrumentation Telemetry Systems - yes,
who?
Generating innovation is one thing, and exploiting it quite
another.
Reference: 50 Management Ideas You Really Need to Know
Book by Edward Russell-Walling
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