The Business of Innovation

Roger BEAN, Russell RADFORD

• Publisher: AMACOM
• Year: 2001
• ISBN:
  9780814413104
• Topic: Betriebswirtschaft
• Subtopic: F&D

This is a guide to building innovative, creativity-rich organizations through astute and skillful management. Whatever the end goal, this book provides a systematic process for managing focused, usable innovation - without the micro-managing that can stifle creativity. With examples from McDonald's, Toyota, Palm (Pilot), 3M, Sony, Singapore Airlines and others, this model helps managers and executives: nurture an environment of innovation; support market-focused innovation through effective policies; gather expert feedback to properly evaluate innovations; develop and launch innovations successfully; and project future trends and developments.

CHAPTER ONE

THE STRATEGIC IMPETUS FOR INNOVATION

SOME 59 MILLION YEARS AGO, a solitary triceratops pushed slowly through the heavy foliage of what is now southern Montana. She was beautiful—or she would have been to a male triceratops. At 26 feet long, with three prominent horns and weighing in at a svelte 20 tons, she was as desirable as a triceratops could be. But there were no male triceratops left. She was the last dinosaur, the very last of a great multitude of similar species that had roamed the earth for 140 million years. We don’t know whether she died of old age, disease, or loneliness. But she died nevertheless, and there were no more.

Paleontologists tell us that dinosaurs vanished because their environment changed. They are not sure exactly what changed, but something changed, and these seemingly invincible animals were unable to adapt and perished. There were, however, some exceptions. Many paleontologists believe that birds were almost certainly evolved from the small bipedal dinosaurs of the Jurassic era. These creatures did change. They were able to adapt. They were able to evolve.

In the natural world, evolution is a continuous process. There are currently 2 million species sharing our fragile blue sphere, but over the past 600 million years, some 2 billion species have lived and evolved. Of all the species that have ever lived, today, 99.9 percent are extinct.

The natural environment changes, and business organizations share an environment of similar continuous change. The economy, political and legislative requirements, competition (both domestic and global), and technology are all advancing at an uncomfortable pace. The organization is itself also changing. It evolves each day through changes in personnel, knowledge, customer base, and stockholder value. And as with the natural world, many businesses also become extinct. The companies that survive and prosper are the ones that are continually changing in ways that favor their continued survival.

Every business will adapt, or it will disappear. The key to survival and vitality is innovation. The way to premium profits is innovation. Peter Drucker once wrote that innovation is the only thing that will support a premium price. We agree. The stairway to a successful future is a continuing series of creative improvements.

THE BUSINESS OF INNOVATION

OVER THE PAST quarter-century, we have worked with a variety of companies. Some were innovative, successful, and vibrant. More were innovative only when necessity demanded it, though most were able to “get along” okay. A few found innovation difficult, troublesome, and expensive. But none had found a way to successfully and consistently manage the innovation gremlin that determines their ultimate survival and prosperity. Perhaps it is more accurate to say that none were content with “their way” for the management of innovation. Even the best—particularly the best—were sure they could do better and in fact were actively seek that better way.

This book is about stimulating, creating, and directing innovation. It’s about selecting the best area in which to focus innovation. It’s about exploiting unexpected innovations and implementing innovation in ways that result in competitive advantage. It is about the excitement, the confidence, and the vibrant environment that comes with being an innovative organization. In short, it’s about managing the ever-evolving successful business.

THREE BIG IDEAS

IN OUR DISCUSSIONS with organizations great and small, we hear three recurring themes, three big ideas that surface again and again. These ideas are omnipresent and powerful beyond their humble countenance. If neglected, these ideas will reduce even the most profitable opportunities to just another mundane day at the office. The ideas are:

1.Innovation matters.

2.Management matters.

3.Strategy is the key enabler.

Let’s look at the three big ideas.

INNOVATION MATTERS

IN VIRTUALLY EVERY case, our discussions with managers and employees alike identify innovation as an essential ingredient to future success. After all, every organization innovates to some degree. For some, innovation takes the form of creative and successful new products. Others rely on innovative solutions for achieving cost reduction and higher quality service. Still others see innovation as the source of competitive advantage to secure greater market share. At every level, conscientious members of the corporate family see innovative ways to help the organization prosper. Innovation matters—and it matters to everyone.

Why does innovation matter? It matters because when organisms fail to adapt, they die out—corporate organisms included. In the natural world of the triceratops and the bird, evolution helps each organism to survive by producing alternatives and mutations, some of which are better suited to their environment, and thus they go on. Innovation is the organizational equivalent of evolution. Without a continuous flow of innovative energy, the organization is sluggish, if it can change at all. It is vulnerable to changes in its environment, usually from competition but maybe from legislation or technology. The organization does not shape events. Instead, events act upon the organization. It is at the mercy of outside elements, and it is vulnerable. A vulnerable organization may not survive. It surely will not prosper. It is ripe to become a dinosaur.

Management fads of the past several decades, whether or not they satisfied the promises made for them, all depended upon innovation for success. Reengineering asked us for radical redesign of our business processes to achieve dramatic improvements. Was this not a call for innovation? In fact, to the extent that reengineering succeeded, it was because of the innovation it inspired. Total quality management asked everyone in the enterprise to take an active role in continuous-process improvement. TQM is an enterprisewide application of kaizen, the Japanese idea of “everybody improving everything all the time.” How does this come about if not by innovation, by everybody?

Another recent management fad, quality function deployment (QFD), is a technique used for analyzing customer needs and relating them to specific actions that will satisfy those needs. It is certainly a useful methodology, but aren’t the specific actions that will satisfy those needs the product of someone’s innovation?

When an organization adopts a strategy of value stream reinvention (VSR), it seeks to identify current and potential “value streams.” The purpose of each value stream is to provide specific results for a customer (either internal or external), thus making that customer as satisfied as possible. The goal of VSR is to reinvent the value stream to meet those customer needs in the most simple and direct manner. How would one go about doing so in the absence of innovation?

Innovation matters because it is all around us. Every enterprise depends on innovation to a much greater degree than it may recognize. Success without innovation is almost inconceivable. Success over an extended period becomes impossible. The reality is that it is not enough just to survive. The vibrant organization must prosper. For this organization, innovation is not negotiable.

WHAT IS INNOVATION?

Webster’s New Unabridged Dictionary defines the noun innovation as the “introduction of new things or methods.” The same dictionary defines the verb to innovate as “to make something new or to make changes in anything established.” While this is a concise and accurate definition, it certainly fails to capture the flavor and energy of innovation as normally envisaged in business. The official definition may be bland and neutral, but when innovation is mentioned in business circles, it often takes on a reverence approaching piety and virtue.

There are many ways of defining innovation. For most people, though, innovation is something good. But is innovation always good? Are there—just maybe—some situations when innovation is counterproductive, or at least not particularly helpful? We find that occasionally innovation can be a two-edged sword, a kind of commercial version of the sword of Damocles, signifying impending disaster. For instance, take the case when implementation of an important new program is nearly complete, and someone proposes an innovative new way to achieve still better results. What if this improvement would delay implementation of the program another six months? Is this new proposal helpful? It may be innovative, but it may not be appropriate.

In every sizable organization, there are many folks who are unaware of the goals or strategies being pursued. When the goals are unclear, these folks are the first to find themselves out on a limb and out of the mainstream of directed activity. Would it not be preferable to communicate clearly as to when innovation is useful so every one of us can recognize when our ideas support corporate goals and when such ideas are most helpful? The word appropriate is a good fit here. When is an innovation appropriate and when is it inappropriate?

Introducing the concept of commercial relevance (think of it as appropriate innovation) fits our concept of applied strategy—that is, strategy harnessed to the task of focusing innovation. Frank Bacon defines invention as the solution to a problem.¹ He defines innovation as the commercially successful use of the invention. It’s an important and useful distinction, pointing out that invention is not, by itself, necessarily commercially important. Take the case at Xerox. Xerox’s Palo Alto Research Center (PARC) has been responsible for some of the most significant inventions of the past thirty years. For example, UNIX came from the PARC laboratories, as did the graphic user interface (GUI) that skyrocketed the Apple Lisa and Macintosh computers to stardom. The mouse, now a standard fixture on Windows computers as well as Macintoshes, is also a PARC invention. But it was Apple that brought it to market and put one on every desk. Xerox had the inventions, but it did not commercially and successfully make use of them. It invented, but it did not innovate.

As this is being written, in early 2001, there is considerable comment in the press on Xerox’s performance and future. The company has failed to impress Wall Street that it can innovate in ways that will prove sufficient to guarantee a healthy and profitable future, and its stock price is taking a beating. This icon of corporate success finds itself at an important and challenging crossroads.

The Xerox case shows that invention in itself, even brilliant invention, does not ensure commercial success. It is not enough. In the examples given above of Xerox’s inventions, none were commercialized or exploited by Xerox. Innovation, on the other hand (as Frank Bacon defines it, as the “commercially successful use of the invention”), can produce monumental commercial gain.

Because of its more humble origins, innovation can seem deceptively simple. Jacques Barzun puts it this way:

Technology, or more exactly techne, the practical arts . . . came earlier and was for a long time the foster mother of science. The working inventions of the mechanic, who fiddles to improve his tools, accumulate into large aids to science. We are not used to the reverse effect: so-called pure science finds some new principle and applied science—engineering—embodies it in a device for industry or domestic use. That is why industry devotes part of its profits to research and development, an innovation that dates only from 1890.²

As Barzun points out, organized R&D (innovaton) is relatively recent. Even what today passes for organized research still relies heavily on the tinkering and fiddling of talented individuals. With the skyrocketing costs of research today, we can and we must find ways to ensure that our efforts are relevant.

MAKING INNOVATION RELEVANT

Innovation can take place in the product, obviously, but there can be equally significant gains from innovation in promotion, sales, pricing, support services, or distribution. Developing a better way to get the product to the user can be an enormous innovation. Amazon.com began as an electronic bookstore, but Jeff Bezos saw it as an electronic bookstore with a vision and a strategy. Hence, Amazon today is much more than just an online bookstore.

Commercial relevance is realized most visibly in the direct support of the strategic goals of the organization. If it’s this simple, why do so many companies find innovation—relevant innovation—so difficult to achieve? Having a strategy to guide what is appropriate is a big help. Exactly what is appropriate is determined by three factors: (1) whether the idea supports the strategic direction, (2) the company’s current structure, and (3) whether the innovation is within the company’s capacity. Let’s look at the three factors.

The first, of course, is whether the innovative idea supports the company’s strategic direction outlined in the corporate vision. Alignment begins here. Effort that does not directly support the chosen strategic direction is wasted.

The second factor is equally important: How is your company currently structured? What are its prevailing cultural beliefs, values, and behaviors, which all d...