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Idea 24 - Innovation (50 Management ideas you really need to know)


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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