Quest for Innovation

Summary

Innovations have improved our lives across time. Today the pace of change in our environment has increased and companies are looking at innovation to cope with it and also to move ahead of others. However, not all companies manage this successfully and the cost of failure is quite high. This article looks at the difficulties in the quest for innovation by asking and answering three core questions. Correct fusion of the actions from these three would guide to success in the quest.

Introduction

The pursuit of innovation has a glorious past. Steam engines, telephones, light bulbs, computers, televisions, and the list could go on, are all products of this journey which have improved our lives tremendously.

In recent times the pace of innovation has increased remarkably boosted by advancements in the technological, sociological, financial, production, transportation and almost every other element in our environment. Presently progress in one industry impacts many others including even unrelated ones. For example internet has enabled e-commerce which has caused a wide spectrum of industries, ranging from retail to finance, to transform the way they do business. Consequently, innovations are causing major changes in the world around us. In the process they are not only creating new opportunities but also causing companies to take cognizance of the possible disruptions to protect their market shares.

This has reaffirmed the position of innovation as an essential component of corporate strategy. Today companies which are innovative are also seen to outperform others. For example Amazon, Google, Uber, Apple, Snap, IBM, Samsung, LG, Intel, Canon, Microsoft, Volkswagen have been rated as the most innovative companies in the rankings shared by BCG, PWC, Forbes, and USA-Today and these are also among the most successful names today.

The result is that all companies want to pursue innovation. However, this pursuit engenders several difficulties. Not all companies are able to overcome them. Moreover, the cost of failure is very high. Digital could not make personal computers even though it was very successful in minicomputers. Kodak did not come up with digital cameras despite being a leader in photography. Nokia which led in analog phones did not produce great smartphones. Companies left behind in the race for innovation witness erosion of large numbers of their customers along with revenues & profits.

To be victorious in the quest for innovation one must be cognizant of the pitfalls in its path. This article looks at three significant difficulties and makes suggestions on ways to overcome them. This is done by posing three core questions.

 The Three Core Questions

The answers to the three core questions serve as a compass to align the journey to innovation in the right direction. These are as below:

Question 1: Are you really innovating?

The CEO of company ABC wants to drive innovation. Marketing creates a campaign to invite ideas from across the organization. The company’s top executives select the most “innovative ideas” for awards. Winners are rewarded and the ideas are given to the respective functions to implement. A progress review at the end of the year shows no movement on the path of innovation. What has gone wrong?

Firstly, we need to check whether the actions that are being taken fall under the category of maintenance, continuous improvement (Kaizen) or innovation. Each of these are equally important but they cannot substitute the role of the others. Maintenance is strict adherence to processes. It’s about quality. Strong delivery on it can produce competitive edge for a company as in the case of Indigo’s maintenance of ‘on time departures and arrivals’. Continuous improvement is betterment of existing processes. It has been used very successfully by Toyota for improving efficiency of processes which then became a key enabler to gain market share. Innovation on the other hand aims to attack new customer segments or to develop a new business model. Apple’s iPod or Amazon’s e-business model were innovations. So if the actions that one is taking fall into the category of maintenance or continuous improvement they would not achieve the purpose of innovation.

In the example above when the company ABC checked the list of ideas selected it was found that they related to process improvements, matching competition offers, pricing etc. These were good for maintenance and continuous improvement but did not serve the cause of innovation. 

Question 2: How would you handle the ‘paradox of innovation’?

An organization which decides to pursue innovation finds that its current processes and values are the biggest obstacle in the path to it. The existing or mainstream businesses within an organization oppose the new ones as the latter threaten their existence. This is the ‘paradox of innovation’.

Strict adherence to existing processes of the organization, which have themselves been designed post a lot of experience, produces quality and performance. Values are standards by which people make decisions. For e.g. the quantum of revenue and margin expected from any new business undertaken. Innovation requires thinking out of the box and so would seldom be in the domain of existing processes. Further, it may require a different set of standards to evaluate new ideas.

The CEO of an insurance company had called a planning meet. The new age e-business was delivering low volumes and margins currently but making high volume and profit projections for the future. It needed big investments. The mainstream business was facing stiff competition and wanted promotions, development of new e-tools of business etc. The mainstream was delivering almost all of topline and bottom line. The two teams were at each other. Each wanted all the resources.

The inherent paradox of innovation is playing out here. While both mainstream and new are needed by the organization a balance has to be struck between them. This requires segregating the mainstream and the new so that both units can pursue their goals independently. This can be done at the departmental level (e.g. by creating an innovation team), or at the premises level (e.g. by setting up development centers or innovation hubs) or at the corporate level (by spinning out or acquiring another company). Different standards (e.g. quantum of revenue and margins) are needed to evaluate the two teams. This would prevent the ‘Stars’ of tomorrow from being overshadowed by the ‘Cash Cows’ of today. Greater communication between the two teams to create a better understanding of each other’s goals is also required.

The CEO in our problem previously needs to handle the paradox by creating a virtual ring fence around the two teams so that each can pursue its own goals, evaluate them differently and get them to share their journeys and destinations with each other.  

 Question 3: How do you innovate?

The CEO of a financial products company was worried. New age e-commerce companies were planning to enter the market. How should he handle the challenge?

The CEO of a new mobile phone maker saw a market with established players. He wanted to grow his company to the top position. What should he do?

The requirement for innovation may be triggered by a change in the business environment which threatens status quo or due to the need to leapfrog over existing players or something else but the process to innovate would be same. The process comprises generation and management of ideas, selection of the ones to work on and testing and launch of successful ideas.

Firstly a funnel of a large number of ideas to work on is needed. While some companies run internal campaigns for this there are other effective ways as well. For example ‘Innovate Brew’ randomly matched University of Michigan faculty for a 30 minute meeting once in a month over coffee to foster more innovative thinking on the campus. Such interactions sparked new ideas for research and put the spotlight on a method which can be applied elsewhere. In recent times special techniques like hackathons and design thinking have also been used widely to generate ideas for alternate solutions to problems.

It is important not to limit the scope of ideas to only product development or to just one area of the business. One needs to be open to ideas from all departments. Ideas which can lead to disruptive innovation can come from any part of the organization. For example the packaging function as in the case of Ocean Spray which moved ahead of established players in the US by getting a 15 month exclusive license on tetra packs and the marketing function as in the case of the much acclaimed ‘Intel Inside’ campaign.

Old ideas can be used as raw material for new ideas. Steam engine was around for 75 years and was being used in coal mines to drain water before Robert Fulton placed it on a boat to create commercial steam boats. Management of ideas generated is very important. To start with the ideas once generated must be kept alive even if they do not solve the problem on hand currently. Library of innovations and knowledge management systems facilitate this. The idea management can be further bolstered by promoting networking in the organization. This will ensure that people know who to reach out to for specific problems. Further, new uses must be found for old ideas through discussions. When the light bulb was first made it kept falling off the socket. A technician suggest using a metal cap with a threaded screw as used in a kerosene bottle to solve it and this solution is used even today. 

Finally, the selection of ideas for launch is critical. This selection should be free from negative biases (like my idea versus yours). All ideas must be evaluated on a matrix comprising of user journey on one side (the steps include Purchase, Delivery, Use, Supplements, Maintenance and Disposal) and the user utility (Customer Productivity, Simplicity, Convenience, Risk, Fun and Image and Environmental Friendliness) on the other. The aim is to select those ideas which provide new or significantly more utility to the customer at one or more stages of user journey. Finally, the ideas need to be tested quickly so that one can measure the customer acceptance of our assumptions and commercial viability.

These principles have been used from the first Innovation Factory of Thomas Edison to the modern day innovation labs and incubators and offer the process by which companies can institutionalize innovation. The CEOs in the situations above can design the innovation process for their companies using them.

Fusion of the answers to Core Questions

While there are many examples for application of each of the Three Core Questions individually it is the way these are fused together to work seamlessly that makes the outcome awesome. This fusion would produce a way of working which would lead to success in the quest for innovation. The best way to visualize this fusion would be to see it working in an example.

 One of my favorite books is “Steve Jobs” by Walter Isaacson. This book gives a very good account of the creation of iPhone, perhaps one of the most innovative products of our generation. We read about Steve Jobs challenging every element of user experience from design to packaging to content to stores etc. to redefine it. This is pure innovation and distinct from maintenance and continuous improvement. The established mindsets of the team are challenged and support is coming from the top for the new concept. At every stage the established processes of the industry were challenged – e.g. using a closed system. Finally, a large number of innovators generated many ideas and even picked them from other places (the design came from Europe and the glass screens from China), made models and subjected them to rigorous testing.

 Conclusion

In nutshell, the quest for innovation involves high stakes as success begets glory and failure leads to loss of customers and revenues. To be victorious one needs to ensure that the actions taken should lead exclusively to innovation. Moreover, the inherent conflict between the mainstream business and innovative new business needs to be recognized. The two businesses need to be ring fenced, evaluated differently and must communicate with each other to ensure they produce their respective goals. Furthermore, a company must also have an organized process of innovation comprising generation, management and selection & testing of ideas. The correct fusion of these will surely produce success in the quest for innovation.

References

1. Foundations for Growth: How to identify and build disruptive new business by Clayton M Christensen and others, MIT Sloan Management Review
2. https://www.entrepreneurshipinabox.com/9599/difference-kaizen-innovation/
3. Meeting the Challenge of Disruptive Change by Clayton M Christensen and Michael Overdorf, HBR March 2000
4. Innovation, The Classic Traps by Rosabeth Moss Kanter, HBR, 2008
5. https://ns.umich.edu/new/multimedia/videos/23200-random-coffee-meet-ups-spur-innovation-at-u-m
6. https://hbr.org/2000/05/building-an-innovation-factory-2
7. Knowing a Winning Business Idea When You See One by W Chan Kim and Renee Mauborgne, HBR September-October 2000