Monday, November 22, 2004

Challenge Your Assumptions

INNOVATION: LESSONS LEARNED

Lesson one: challenge your assumptions

The ability to imagine the world around us the way it could be, to shift perspective and think accordingly, is a common characteristic of innovators. Innovators challenge assumptions. They find new, better, more efficient ways of answering human needs. Innovators have changed the way we live.

During tough economic times many organizations say that there is no (financial) room for innovation. In most cases this is their opinion because they see innovation exclusively as the innovation of products and technologies. However, innovation is much larger a notion. We define innovation as any new idea that is exploited profitably. So, every change that results in a better return on cost ratio is a worthwhile innovation. Failing to see this, and worse, failing to stimulate this, can set a company along the sidelines, watching competitors attract market share.

To many managers innovation is a luxury for rich companies. In fact it is the other way around: by being innovative a company gets rich. Therefore it is no longer merely desirable to develop an organizational culture that embraces new ideas, it is imperative.

But ideas are not enough. According to our definition, to be successful, an innovation needs to be exploited profitably. So, an organization must establish the necessary structures and processes to implement innovation.

building an innovative enterprise

Gary Hamel analysed over 200 cases of business innovation and found that innovators are not "prophets looking into the future". Instead, “innovators are heretics, challenging the beliefs that other people take for granted.”

Tekstvak: A major problem within many companies is that they are too rigidly caught up in fixed hierarchies, procedures, habits or even structures that prevent them from seeing new possibilitiesHe continues, “radical innovation is not about taking big risks, being speculative or waiting five years for a payback. Radical is about having the ability to violate industry norms and to challenge the orthodoxies that other people have taken for granted." He calls that "business concept innovation".

One such example is the switching of the business model in traditional sectors of industry, by means of the internet. Everything that can be distributed over the internet shall and will be. So every business that trades in information of any kind is vulnerable. Look what Amazon.com did to the traditional booksellers industry.

A major problem within many companies is that they are too rigidly caught up in fixed hierarchies, procedures, habits or even structures that prevent them from seeing new possibilities, slow down the flow of new ideas and eventually kill them. Examples are the IT and the R&D departments. Companies that see innovation as limited to product and technology, are likely to presume that innovation is the sole accountability of the R&D or IT department. Innovative ideas coming from other departments are not only considered a waste of time but outright disruptive and thus a damage to the company.

Many authors and management thinkers have prayed business leaders to embrace and cultivate an environment that nurtures innovation. Apparently that is too much to ask for, even if Hamel believes that opening the organization to fresh thinking is a task that cannot wait. As he puts it, “Every company, right now, has to be in a race to discover new forms of competitive advantage faster than the old ones disappear.”

Since they do not react as expected, maybe all of this sounds stupid or naive to business leaders?

I don't think it does. But there are at least three hurdles to take.

  • As in so many cases of human behaviour we don't understand, it probably is a matter of knowing how. Not 'know-how' but not knowing how. A case of not knowing an effective and efficient way of tackling the problem. If a company leader does not know which method to use to implement, he'll probably implement nothing at all.
  • Another difficulty is that many managers prefer clean, well worked out, step-by-step-programmed kind of projects. The trouble with making an organization more innovative is the nature of innovation itself. The more it is planned, delineated and defined the less it is valuable for the company's future.
  • Third, there is the fact that most people in a company prefer the status quo. Most managers have performance objectives that not only lead them astray of innovation, but are the inverse of it. Very few managers have 'smart' innovation objectives. It has been said over and over again that first and foremost it is the CEO who must demand innovation and change. But many practitioners will agree that resistance to change is often most important at the top.

In the industrial age a business could be successful by having a specific know-how, the right equipment and work long hours. (This is still the case for low pay workshops in developing Asia that subcontract for major American and European brands). Today in the developed world however, wealth creation is -in Hamel's words- a product of creativity, courage and connections. If this is true, then what must we think of the debate on the public forum, and central topic on political agendas in Western Europe about increasing the number of working hours, in order to preserve and improve the competitive position of European companies? Can one take this seriously just considering the (r)evolution that is taking place in Asia in general and China in particular?

Can companies in Germany, France or the Benelux hope to stay competitive compared to China, by getting their workforce to make 40 hours per week instead of 36?

Innovation is not about working longer but about working smarter. It is about doing things differently, about doing different things, things that create more value, things that deliver better answers to customers' and shareholders needs.

To Hamel, company leaders should ask themselves three questions:

• Do we have the creative impulse that allows us to renew our industry, business or product?

• Do we have the courage or the entrepreneurial energy to experiment and try new things?

• Do we have the connections we need? Are we plugged in to the global knowledge network?

innovation starts with the customer question

Tekstvak: Therefore we must constantly challenge our assumptions at all levels because if we don't, our competitors will. One of the major flaws in corporate innovation practice is the one we mentioned before: i.e. that innovation is the job of R&D and ICT. Innovation of any kind will do no good unless it pleases the customer. Internal customer or external customer is not the point: the customer from whichever point of view.

And who is supposed to know the external customer best? Whose job is it to know what the external customer wants? Whose job is it to understand the external customer, to know what he needs, appreciates and likes? Right: sales and marketing.

And how about the internal customer? An internal customer is everyone within an organization who uses work that is done or information that is provided by someone else in the organization. This means that most -if not all- employees, at all levels, are internal customers, supplied by colleagues. That is why innovation is not at all restricted to incubators or laboratories somewhere deep down the organization.

The 'miracle question' any supplier must ask is: "What is my customer really trying to do?" The answer is of course not always that easy or straightforward. But the greatest danger relies in assuming what the client needs or taking for granted that it is simply the same as you provided yesterday. Worthwhile innovation means that every employee in the organization wakes up every morning of every day and, say: ‘How can I fulfil the real needs of my customer?'

On company level this means you have to understand your customers better than your competitor does. Far too many suppliers think it is their role and job to "persuade" the customer that the service or product perfectly matches his expectations. And if that wouldn't be the case, to change the customers expectations. And this is a terrible mistake. You can change a client's expectations, but you can't change his or her needs.

We have to make sure that we perfectly understand the needs of our client, whether external or not. Therefore we must constantly challenge our assumptions at all levels because if we don't, our competitors will.

posted by es @ 15:25 0 comments

Monday, November 08, 2004

An Approach to Innovation

Ask people what 'innovation' means and you get lots of different answers. But to almost everyone, the word has a positive meaning. Usually people think of new products, new things. To business leaders, innovation is considered necessary to the growth of their company and closely linked to competitiveness. CEOs consider innovation as a fundamental and critical factor in achieving competitive advantage.

It is striking though that when managers, politicians or even customers are asked what the word "innovation" means to them, they almost invariably mention new products. Politicians and scientists also see new technologies as innovations. Sometimes the two are mixed up and one can hear people talk about new technologies when they actually mean products or materials (e.g. kevlar). That may be one of the reasons why innovation is most commonly associated with knowledge-intensive sectors such as biotechnology, pharmaceuticals and IT which tend to generate the highest numbers of product innovations. This in turn is probably the reason why innovation is most commonly closely associated with high tech, knowledge management, data bases and sophisticated laboratories.

We define innovation as the successful application of a new idea. In which 'successful' means that the application decreases associated costs (time, energy, money...) and/or increases value for the user (such as income and comfort). So success may come directly from the effort itself, from the new or improved product or process, or from increasing revenue or profit, or from the fact that people learned something.

Fear of failure on the one hand and fear of disrupting the security of status quo seem to be the real important barriers for managers to develop innovations. No need to worry: an innovation does not need to be absolutely new to the world. Just new to your organization is enough. However, new to your industry is better.

The same with size: a small innovation is good (incremental), an important one (breakthrough) is better. After all one thing is certain: a business cannot survive without changing over time.

Today, most companies prefer a relatively safe life in established markets, competing primarily on the basis of price. It is however easy to understand that one cannot indefinitely lower the price of the product, and still be generating profit, creating jobs and growing continuously.

(If politicians are serious about innovation and their goal to keep the west ahead, some radical innovation within governments themselves may be required.)

For any organization that is serious about innovation, there are broadly speaking three approaches that can be followed.

  1. Change tools and technologies. This consists of changes in the immediate work environment, so that people execute certain tasks in a particular way that differs from the way they did these before. It usually involves the introduction of new equipment, which 'forces' the individual worker to work differently. This may include machinery, computers, tools, software etc.

  1. Change processes and methods. This consists of changes in how a collaborator performs a task. In most cases this involves some kind of process re-engineering or the introduction of an accepted best practice.

  1. Change behaviour and mindset. This approach teaches people how to look at their jobs and accountabilities in a new way. It is not a matter of simply teaching them how to do things another way, but to see themselves as provider of services to other people, whether within the company or not.

One can easily see that these approaches are not only ways to follow but are indeed levels of innovation. Highly individualistic companies with autonomous workers will rely on changing tools to make progress. But companies facing severe competition for market share will need to turn to the highest level possible: changing behaviour of employees. Only this level can bring about innovation competitors cannot imitate or buy since all renewal stems from the minds of its own personnel. Tools can be bought, processes can be re-engineered, but these may not work or people may try to boycott or sabotage them.

Only the highest level ensures changes that people want or like. The more an organization relies on the lower level change, the more it will need coercion, the more it will have to install incentives such as pay stimuli and the less competitive advantage it will build up.

posted by es @ 18:21 0 comments