Lessons from companies that make innovation a way of life
January, 2004 – Organizations today understand the need to constantly re-invent themselves. It’s everywhere.
- Loblaws, a grocery retailer, is now a successful banker with over a million customers in less than 5 years.
- Dell, not known 10 years ago, is now the leading PC manufacturer.
- Shell is the leading producer of non-oil based renewable energy. They are piloting a web-based laundry service in Florida. Shell? Yup.
- Cemex, a Mexican cement company, rose from being a niche player in Mexico to become the third largest cement producer in the world by fundamentally altering how cement was delivered in the marketplace (delivery went from days to 20 minutes).
There is hardly an industry today that is not characterized by a proliferation of competitors and near competitors. And with this increased competition comes an increased need to innovate, to stay ahead of the pack. Most executives now realize that without a strong capacity to envision and create new offerings they will:
- expose themselves to too much risk in an ever increasing competitive environment
- miss out on the many opportunities for growth that are available in our global economy.
The questions are simple, “How does an organization learn to innovate? How does it increase its capacity? To answer these questions we first need to look at how the strategy of innovation has evolved over time.
Evolution Of Innovation
Over the last 40 years the pervasiveness and frequency with which companies innovate has steadily grown. What used to be a one shot activity, often entrepreneurial, has evolved to the state where some companies have made innovation a cultural norm (where virtually everyone in the organization has the responsibility to innovate.)
Logically this only makes sense.
As the need to innovate grows, spurred on by increased opportunity and increased competition it is only natural that companies respond by applying more resources (people and time).
“That’s all well and good you say. More people spending more time in dreaming up new ideas to grow the business. In the meantime who runs the business?”
Therein lies the innovation paradox.
On the one hand constantly rising customer expectations coupled with increased competition means you need to spend more time focused on the existing business to protect your base. On the other hand, when a company doesn’t devote sufficient resources to innovating it can easily fall victim to competition and/or leave enormous opportunities on the table. So how do the companies who have achieved innovation as a cultural norm embrace this paradox?
When you look at the leading innovative companies you see some trends emerging.
INSIGHT 1 – MANAGE INNOVATION AS A PROCESS
Shell with their “GameChanger” program, 3M, the Virgin Companies and others recognize that innovation does not need to only happen as a Eureka phenomenon. They’ve discovered that you can systemize the whole process of dreaming up new ideas and developing them into businesses. This process view enables them to increase the number of people who are involved. You find they use reward and recognition, performance reviews, etc. to create significant incentives for their bright and energetic employees to bring ideas forward.
INSIGHT 2 – EMPLOY A FLEXIBLE BUSINESS DEFINITION
Shell is not just an oil company, they are in the energy business. Loblaws provides for everyday needs. 3M is all about flat surfaces. By employing a flexible business definition these companies provide a wide platform for their employees to innovate that transcends industry constraints and orthodoxies, while keeping them true to their core purpose. This capacity is a critical component to generating those (seemingly) unorthodox ideas that have the potential for big wins. While at the time it seemed unorthodox when Dell sold PCs direct, it doesn’t seem unorthodox now. That’s the fascinating part about innovation. Before an idea hits the marketplace it seems crazy, wacky, absurd. After it succeeds these same ideas seem obvious.
INSIGHT 3 – FAIL EARLY AND FAIL OFTEN
Many organizations spend considerable time planning and then go on to invest more time and resources in running pilots. Or even worse, go straight to business. (Remember convergence?) By comparison, leading innovators substantially reduce their risk by moving quickly and running low cost experiments to weed out unviable concepts before they become over-invested in time and psychic capital.
INSIGHT 4 – ESTABLISH AN INTERNAL MARKETPLACE FOR IDEAS
By establishing an internal marketplace, complete with buyers and sellers, they formalize a set of rules for the criteria used to evaluate potential new business ideas. With rigourous criteria and standards they ensure that only those sellers (employees) who are passionate about their ideas will invest the time needed to bring them to the marketplace. Secondly, it places in the hands of those in authority (the buyers) the control of how resources (time and $) are allocated against the competing ideas brought to the marketplace. Through its rigour this formalized marketplace reduces risk substantially, with the added benefit of greatly increasing the probability of success. It’s all based on an agreed upon set of criteria at each stage of the process. (Which in the early going has nothing to do with 5 year cash flow projections.)
INSIGHT 5 – MANAGE INNOVATION AS A PORTFOLIO
These companies recognize that it is impossible to accurately predict early on which ideas will soar and which will fail. So they apply rigourous and ever increasing criteria throughout the process of bringing an idea to market to separate out the winners from the also-rans. They compensate by managing a portfolio of ideas. In addition, they move at light speed. Ideas are frequently tested within 60 days. Pilots within 6-9 months. The attitude is simple. Adopt a venture capitalist approach. Learn and learn fast.
INSIGHT 6 – EXECUTIVES ARE COMMITTED
Probably the most important is the degree of commitment at senior levels to innovation. Compensation, reward and recognition, measures and metrics, and management processes have all been modified to make them innovation friendly. Only when senior executives are appropriately compensated do they make the resource allocation trade-offs needed to bring ideas to market. These companies walk the talk.
Globalization, consumer choice, ever increasing competition are all facts of life. Leading companies are responding to these challenges by significantly increasing their capacity to innovate. They recognize that there are more opportunities, and more threats, than ever before and that the best solution to ensure their prosperity is the creative tension caused by establishing innovation as a way of life.
John Sutherland is an innovation consultant with over 15 years experience in developing new businesses and consulting with companies on how create new markets for their firm. John has facilitated market creation/differentiation workshops for Senior Management in financial services, grocery/retail, furniture, manufacturing, telecommunications, publishing, travel, office-equipment, property management, health care, IT, energy, and pharmaceuticals industries. He can be reached at 905.294.3334 or [email protected]