Despite the growing recognition that innovation is the only sustainable source of growth, competitive advantage, and new wealth, an Arthur D. Little survey of 669 global company executives found fewer than 25 percent of the companies believe innovation performance is where it needs to be if they are to be successful in the competitive marketplace. Having tried an endless array of alternatives, company leaders are now accepting enterprise wide innovation as a key operational discipline, just as in the past they adopted the disciplines of quality, planning, and management.
Of course, innovation is not a new discipline in most organizations. But the old ways, even those that may have worked in the '80s and' 90s, are no longer adequate. Firms across the board are engaged in exciting experiences to reinvent the way they create the future, because "business as usual" has not produced the desired results.
Given the torrid pace of technological and global change, the commoditization of product lines and industries, and convergence of strategies, companies are actually having to reinvent how they accomplish the all-important task of "inventing the future." Having examined numerous companies and their innovation approaches for a forthcoming book, I believe that, winning firms will embrace the following four essential principles of managing innovation in the new century.
Principle No.1 – A company's approach to innovation must be comprehensive. One day in l977, an engineer at Canon put a hot soldering iron a little too close to an ink-filled syringe. The heat boiled a tiny amount of ink in the needle, expanding it into a gas, which pushes ink out the tip of the needle. The result of this accident was Canon's breakthrough bubble jet printing technology.
At Pfizer Pharmaceuticals, scientists attempting to produce a drug that would stimulate receptors in the human heart ended up stimulating receptors elsewhere in the human anatomy, giving rise to the impotence wonder drug Viagra. NutraSweet, the artificial sweetener, was discovered when a research chemist working on an ulcer treatment, licked his finger to pick up a piece of paper and noticed the astonishingly sweet taste.
While spending millions and even billions of dollars annually on research, most companies innovation successes come about primarily by accident. And while serendipity will always play a role in innovation, most companies approach their innovation process in a piecemeal, haphazard fashion that is anything but comprehensive. This can backfire, as Gillette discovered.
Gillette powered through the previous decade heavily on the strength of a breakthrough product: Sensor. Introduced in l990, the new shaving system abrupt imitators at bay with no fewer than 29 patents and men from Jakarta to Peoria to Paris raved about the closeness of the shave. After selling at a hefty price premium, Sensor outsold its closest rival ten to one. Wisely wasting no time after Sensor's launch, Gillette began development of Sensor's offspring, Mach3, which was introduced in l998.
But Mach3, while a hit in North America, did not have the same impact on revenue growth or stock price for Gillette. The super-premium product sold poorly in financially depressed Asian countries, growth stalled, and suddenly Gillette was being referred as a takeover target. Formerly laudatory Wall Street analysts began focusing on Gillette's heretofore hidden weaknesses: … inertia, inefficiency, mismanaged inventories and receivables, a Golbergian corporate structure cobbled together over years of acquisitions, it underperforming divisions.
The lesson of Gillette's sudden reversal of fortune is this: while breakthroughs like Sensor are beneficial, innovation must be promulgated in every area of the firm. Today, the practice of innovation is generally similar to how companies approached quality in the early 1980s. In those days, quality was a department – products were inspected before they were shipped. Now, quality is the responsibility of everyone in the organization. It has become systematized: "It's the way we do business around here." Today innovation is still confined to a few departments – primarily R & D or marketing. New ideas are almost always directed from the top down, rather than emerging from the bottom up, from suppliers, or from customers. But we are rapidly entering an era in which innovation, by necessity, must become everyone's responsibility.
To produce ongoing results, a small but growing number of firms are making innovation as much a responsibility of purchasing, operations, and human resources, as it is for new product development or marketing. It is not just a term to drop into the company's advertising and marketing, it must be part of the DNA of the organization. This deep commitment to innovation as a core competency does not preclude a company from purchasing smaller start-ups as part of its growth strategy. B & D (buy and develop) is quickly taking its place alongside R & D (research and develop) as part of company's comprehensive approach. But growth through acquisition is no substitute for a deep-dated commitment to home grown innovation, if those acquisitions are to bear fruit.
The only thing that separates you from your competitors are the skills, knowledge, commitment, and innovative abilities of your people. To win the competitive game, every company must strive to provide customers with a value proposition that is noticeably superior to the one you offered yesterday. To win, companies must respond to newly emerging customer needs with well designed products and services and business models that anticipate these needs. They must employ new technologies that reduce their cost of doing business, and allow for greater speed and customization.
For these reasons, innovation can not be defined to one or two departments or farmed out to an elite group of star performers. Instead, it must permeate the entire company, and it must encompass new products, new services, new processes, new strategies, new business models, and the pursuit of new markets. It must be comprehensive.
Principle No.2 – Innovation must include an organized, systematic, and continual search for new opportunities. Back in the early 90s, AT & T's top brass allowed a small unit of its mammoth planning department to call itself the Opportunity Discovery Department, or ODD for short. This band of maverick thinkers cave itself the truly odd task of shaking up the giant company's thinking. One day in l995, members of the unit donned sandwich boards outside an important meeting which read: "what if long distance were free?"
While the question was dismissed as "ridiculous and insignificant" at the time, today AT & T's long distance revenue is declining so rapidly that the company may sell off its long distance business in order to pursue faster-growing parts of its portfolio. Moral: today's seemingly irrelevant question could quickly become tomorrow's threat – or opportunity.
What methods do you and your company employ to detect changes that could spell doom – if appropriate action is not taken, or boom, if they are. At firms that make innovation a core competency, specific systems and practices are in place that promote a defect understanding of social, demographic and technological change. Delphi Thermal Systems, the Westport, NY division of Delphi Automotive, has a Futures Council. Eastman Chemical in Kingsport, Tenn., Has formed a think tanks to track the trends and ask searching questions such as: What do these developments mean to us? How might we take advantage of them? What threats are on the horizon that we must respond to now if we are to turn this change into an opportunity?
While such questions are traditionally the purview of senior management, the pace of change today requires broader participation. Forming opportunity-spotting teams allows people from all functional areas and all areas of the company to self-select for participation.
Beyond merely amassing data, such teams can be helpful in discovering hidden opportunities, and in "assaulting assumptions" that may preclude exploration from traditional departments. Creativity is valued in such teams, and is allowed to flow freely. Successful innovation means more than just hatching ideas. It means being able to move on those novel solutions and champion them into specific results that create tangible customer value, improve processes, and build new opportunities. Creativity and passion are required at theception and during each phase along the way to deal with bureaucracy and inertia. From the small improvement to the "bet the company" mega-product, ideas depend on people's commitment to bringing them to fruition.
Futures councils or "opportunity SWAT teams" as they are sometimes called, will not guarantee you'll be a first mover on any trend. They will not guarantee you'll spot discontinuities. What they will do is provide an early warning system for imagination and innovation and creativity and dreaming to become a part of the fabric of the organization where none existed before. The trick then is to keep the momentum going, to sustain the enthusiasm.
Principle No.3 – Organizations must involve everyone in the innovation process. Today, the vast majority of organizations do not pay their people to innovate. In fact, they do not even expect them to think! Nearly two thirds of 641 managers and hourly workers surveyed by consultant Kepner-Tregoe of Princeton, New Jersey, said their companies do not use even half their brainpower. More than 70 percent compared their organizations to a "slow moving truck" blaming the condition on a failure to involve employees in decisions and a lack of training or rewards. Many jobs have actually been designed to eliminate the thinking component altogether, and not just entry level jobs either. Then, in the mid of a crisis, employees are asked to suddenly be creative, to "think outside the box," and management is underwritten by the results.
In the innovation economy, this dormant creativity must be tapped. Unleashing people's ability to solve problems and create opportunities becomes paramount to survival. Teaching people how to "work the system" in an organization, and to champion their ideas towards implemented solutions is quickly becoming the real work of forward-looking training departments.
A few companies have known this all along. Akio Morita, the founding chairman of Sony, believed that a company would never rise to its potential if all the thinking was left to management. "Everyone in the company must contribute," Morita wrote in his book, Made in Japan, "and for the lower-level employees their contribution must be more than just manual labor.
Beyond a sold-used suggestion system for cost-saving ideas, most companies have no organized method for stimulating or harvesting the good ideas of their most valuable resource, their people. Not so at companies that are constructed for continuous, all-enterprise innovation. Some of Dana Corporation's plants receive 3.5 ideas per month, per employee, with a 75 percent implementation rate. At Disney, a thrice-yearly Gong Show, where anyone in the company can pitch a new concept, is the forum where the company's retail format was first proposed by an employee. At London-based Virgin Group, a flight attendant who did not like how she was treated in planning her own wedding, that led Alisa Petchey to pitch the idea through the company's Speak Up Program.
Not all ideas that people come up with will be useful. Many will be redundant, self-serving, and absolutely useless. But not to have organized method for harvesting ideas is tantamount to erecting a billboard at the entrance to your company announcing, "If we had wanted your ideas, we would have asked for them."
Principle No.4 – A company must work consistently on improving its climate for innovation. The word culture is generally used to describe a company's values, traditions, priorities, and paradigms. A company's culture may be centered on spreading its service ethical, "going the extra mile for the customer," or its fierce commitment to quality, or engendering loyalty to the "company way," while its climate may stifle innovation by fostering too much loyalty and an unwillingness to make a mistake or take a risk.
To gauge the climate in your firm ask yourself these questions: What happens to creative, out-of-the-box mavericks in your company? What happens when someone fails? How many people say to employees, "We want you to take risks, and we want innovative ideas bubbling ahead. And, by the way, we also want you to make your numbers, and we do not want any embarrassing failures." Unfortunately, only the latter half of that message gets communicated. The first half falls on deaf ears.
There are at least three possible responses to a "failure." You can: a) cover up the failure and refuse to acknowledge it. You can, b) acknowledge the failure, assign blame, or c) you can acknowledge the failure, make every effort to learn from it, and share the learning broadly. Innovative companies are above all, learning organizations. They realize that the degree of learning is directly related to the degree of open acknowledgment of the failed effort, and what happens to those associated with the "failure" says everything about who ventures forth in the future.
Unleashing an innovative climate has little to do with sending employees to rah-rah creativity seminars. It has more to do with how "innovative activity" is looked up by management – the emphasis it is given, the role it takes in the organization's collective conscience, and people's views of what behaviors management genuinely expects.
Climate is the "feeling in the air" that you get when you visit a company. That climate is created by practices, procedures, and rewards. If the climate is favorable for innovation, you will sense that everyone is eager for the organization's advancement – to reach a milestone that has never been met; in other words advancing towards a specific stretch goal, whether it's a new product, a new business model, or opening a new market. The organization is in a state of becoming, rather than a state of being. It is creating the future rather than managing the past.
The organization with a favorable climate for innovation is one that provides the context for people to collaborate in groups, teams, divisions, and departments without boundaries or fear. And since innovation is really a process of problem-solving, this informal networking can not be limited only to internal sources. A team of researchers at Rensselaer Polytechnic Institute (RPI) in Troy, NY, conducted extensive field interviews with the teams involved in such breakthrough projects as GE's digital X-ray, Texas Instrument's digital light projector, GM's hybrid vehicle, IBM's silicon-germanium devices , and DuPont's biodegradable polymer. The research found that informal networks were critical in all 11 of the breakthrough projects. The networks were not confined to the R & D community, but operated between R & D and the business units, and between R & D and outside constituents: customers, suppliers and governmental agencies. These contacts helped give early validation to the idea's potential and generate political and financial support. They also helped to provide access to scarce resources, friendly customers, and government funding.
The new century promises to bring more change, more complexity and more competition. The expectations of customers and Wall Street will continue to rise. But companies that pay attention to strengthening this core competency have nothing to fear – and everything to gain.