Monday, December 17, 2007

The challenges of innovation

Innovation has been defined in various ways – invention, new idea, how to do more with less, cost reduction, new market entry, new usage of a current idea, etc. Then, there are various types of innovation – social, process, marketing, supply chain, financial, product, service, disruptive, etc.

In pure economic terms, the change (innovation) must increase value (for the company, customer) through a combination of variables (revenue, cost, etc). According to Regis Cabral “Innovation is a new element introduced in the network which changes, even if momentarily, the costs of transactions between at least two actors, elements or nodes, in the network”. Here, Cabral is talking about reduction on the cost side. An example is Wal-Mart squeezing efficiencies in supply-chain logistics (with its suppliers) – thereby reducing cost. There is also a revenue side story about innovation. Think of the Apple ipod – and the revenue side becomes clear. Innovation encompasses areas outside the supply pushed (due to technical possibilities) or demand-led (based on customer need). Especially, disruptive innovation like the Internet changes the rules of the game (and in some cases changes the game itself).

What can companies do to stay ahead of the innovation curve?
As they say, “even though every company has sales reps, selling is everybody’s responsibility”. In other word’s, even folks outside of the Sales function have a responsibility in selling/pitching their company’s products and services. While they (non-sales folks) may not actively engage in the selling process, they must be ready to outline their firm’s value proposition and differentiators.

In the same vein, innovation is not just the responsibility of the “R&D” department. While the “R&D” department’s focus is on innovation, it does NOT absolve others of their responsibility in driving innovation across the organization. The days of simply relying on R&D to come up with the next wave of products/services is the thing of the past. With the advent of the Internet, free-flowing information and the fast pace of change, every person within the firm be empowered to contribute his/her share in the innovation life-cycle.

Companies that do not realize this are wasting precious human assets by under-utilizing them. However, it is not just enough to recognize that each person can contribute (many a times disproportionately) to breakthrough innovation. Companies need to provide structure (framework) and the freedom to encourage fresh ideas/experimentation, provide an opportunity to incubate them and eventually capitalize on the ideas that are ready for action.

In his book “The Future of Management”, Gary Hamel outlines the success of 3 highly innovative companies – Google, Whole Foods and W.L.Gore (makers of Gore-Tex). Whole Foods breaks down traditional hierarchies and gives authority (as well as responsibility) to each store to perform and exceed targets. Since the team is accountable, they self-manage. An example is a new hire is vetted by the entire team before confirmation. The team knows that if it picks a “slacker”, its performance will be down and as a result, everyone suffers. In the 15 years following its IPO in 1992, the company’s stock price rose by nearly 3000 %, dramatically outperforming its grocery-sector rivals. Between 2002 and 2007, its same-store sales growth averaged 11% per annum, nearly three times its industry average. W.L.Gore believes and practices a flat organization. People work in teams. Its structure is similar to lattice than a ladder. Senior folks don’t appoint juniors; instead the team nominates “leaders”. At its core, Gore is a marketplace for ideas, where idea champions compete for time of the company’s most talented individuals, and where associates eager to work on something new vie for the chance to join a promising project. Gore is a highly successful $2 billion privately held company. Google needs no introduction about its massive success. Most of us have heard about the fact that Google encourages its employees to spend 20% time on projects that they are passionate about (that are not in their job description). The culture supports experimentation, small teams and a flat organization. In short, innovation happens at every level and touches each employee. For a detailed description of innovation at these 3 firms, read “The Future of Management” by Gary Hamel (Chapter 4, 5, 6). Or view this link

Companies need to encourage each employee to think “innovation”. Innovation is not the birth-right of executive management or the “R&D” department. In many cases, they are (many a times) so far removed from the “grinds of every-day battles”, that unless they engage with the field at a close level, they may miss the innovation bus. While every organization may not be able to change itself into a flat organization like Gore, they can at least ensure that they encourage their employees to share radical ideas and provide a “safe” environment to do that. The companies of tomorrow will be the ones where front-line workers collaborate with customers, suppliers, partners and provide feedback on the trends they see to the organization which in turn provides a sound platform to take it to the next level.

While the “R&D” department will still continue to exist, innovation will no longer be its exclusive ownership. Rather, firms that provides and encourages employees at all levels to think and outthink the competition and then takes steps to execute those ideas will be the winners of tomorrow. As William Pollard said “Learning and innovation go hand in hand. The arrogance of success is to think that what you did yesterday will be sufficient for tomorrow”. So, go out there, create an open environment that encourages employees to think up innovative ideas and have a structure in place that selects the best ideas, incubates them and makes it ready for prime time.


Anonymous said...

Good point
- LM

Rocky said...

Well said. Every organization should develop a calendar of regularly scheduled Innovation sessions- they are guaranteed to be more reflective than performance reviews.

Rana Singh said...

Well written Sunny!

"Innovation is not just the responsibility of the "R&D" department" is what struck me the most. All organizations can benifit from this culture and innovate and grow faster.

Sridhar Ramaswamy said...

Well Said Sunny. I like this subject.

Innovation is a hidden attribute in all/most of us. Some of us naturally display that attribute, some would need a spark to be ignited and some probably are not able to get to it due to the culture and work style that exists in their current setup. In todays age newer and leaner organizations would naturally allow individuals to think out-of-the box and set expectations around this, irrespective of what areas they are in.

Its very important to get the right people on board before taking that bus ride together.