The term “innovation” is being bandied about as the new holy grail in business. Yet, while innovative ideas are easy to develop; doing them is hard. Bruce Nussbaum, editorial page editor of BusinessWeek, offered advice for business leaders last year, writing, “Listen closely”. There’s a new conversation under way across America that may well change your future. If you work for Procter & Gamble or General Electric, you already know what’s going on.” Ditto IBM as it moves its messaging from On-Demand to IBM becoming the “innovator’s innovator.” Indeed, it is time to innovate innovation itself – as a business process.
Since 2000, I’ve written extensively about the globalization of white-collar work as the new trend beyond sending blue-collar jobs to Asia. Even much of the so-called “knowledge economy,” once thought of as the last bastion of America’s economic might, has been digitized and beamed to China, India and beyond. In short, knowledge work is being digitized, globalized and commoditized. So, what’s left for companies wanting to avoid commodity purgatory? Welcome to the Innovation Economy.
What is an innovation economy? Nussbaum writes, “The new forms of innovation driving it forward are based on an intimate understanding of consumer culture – the ability to determine what people want even before they can articulate it. Working in what is still the largest consumer market in the world gives U.S. companies a huge edge. So does being able to think outside the box – something Americans still do better than most. But Toyota Motor Corp. has a feel for U.S. consumers, and the Samsung Group can be pretty creative too. Competition will surely be intense.”
Business innovation has multiple dimensions that interact to form a true breakthrough for competitive advantage.
Nussbaum adds, “You’re thinking ‘this is all hype.’ Just another ‘newest and biggest’ fad, right? Wrong. Ask the 940 senior executives from around the world who said in a recent Boston Consulting Group Inc. survey that increasing top-line revenues through innovation has become essential to success in their industry.” He also reports that nearly 96 percent of all innovation attempts fail to beat targets for return on investment, leading to talk of “innovation frustration” in the corner offices.
Currently 96 percent of all innovation attempts fail to beat targets for return on investment.
Understanding Innovation
So where does innovation come from? One answer lies in the notion of clusters. American innovation isn’t restricted to the research labs of the big companies or famous universities. America innovates when there is a cluster of technologists who live in concentrated areas, such as Silicon Valley or Boston’s Route 128, and frequent the same bars. As international software development and R&D clusters move to China, India, Russia and Korea, innovation will follow and be increasingly stateless.
In 2004, China began speaking of technological nationalism, meaning that the country wants to make innovation an indigenous national asset, not an import. The Chinese don’t just want to make what Americans innovate, they want to dominate global markets with their innovations.
But what exactly is innovation? The tendency is to think of a glitzy new product with bling, such as Apple’s iPod. But when we think of innovation as the Next Big Thing in business, we need to understand it in a business context that includes many variables besides product innovation. Business innovation has multiple dimensions that interact to form a true breakthrough for competitive advantage. Further, the word “innovation” is problematic. Strictly speaking, an innovation is something completely new, but practically speaking, there is no such thing as an unprecedented innovation in business or technology. Even scientists will tell you of an invention accredited to them as really an act of “climbing on the shoulders of others” – their peers and predecessors.
With business innovation, it’s usually about “connecting the dots” across the major types of business innovation to create something distinctive and new, especially as perceived in the eyes of a company’s customers. It’s also about connecting the dots between unique business practices in other industries.
British business process consultant, Mark McGregor, describes how best practices can be drawn from several industries to create what he calls next practices. He has written, “What if you looked to brand-based companies such as Coca Cola for your ideas on marketing. What if you looked at someone like Amazon for your inspiration in building on-line shops for your products, and possibly someone like McKinsey as your inspiration for providing service? I am sure you will agree that a company that delivered products to the same quality as a pharmaceutical
company and services to the standard of McKinsey, while being as smart at brand awareness as Coca Cola and as easy to buy from as Amazon – would cause more than a few ripples in its marketplace.”
The Context of Innovation
Business innovation takes place with a specific context. At a high level, the simplest of business models is buy-make-sell. Companies have three key activities. They buy goods and services from suppliers. They add value to these inputs to make something of greater value than the sum of the parts, the inputs. Then they sell the good or service, hopefully at a margin that reflects the value added as perceived by the customer, not just the sum of the costs of the parts.
All of the buy-make-sell activities of a company consist of two types: direct activities that see the goods progress from acquiring the inputs through to producing and delivering the final product or service; and indirect activities that are essentially support activities, including facilities management, human resource administration, financial management, repairs and maintenance.
All of these activities are objects of potential innovation, taking us beyond the simplistic notion that business innovation only equates to product innovation -which is usually an invention. Everyone associates Thomas Edison with the light bulb and many assume that Edison invented the light bulb. In fact, it was invented by Joseph Swann in the United Kingdom. What Edison and his team did was to perfect the light bulb and to create demand for it. It was Edison’s “business innovations” that made money, not Swann’s invention. Xerox’s Palo Alto Research Center (PARC) invented many of the technologies behind today’s Macintosh PCs; it was Apple Computer that made the money. In other words, product invention is but one type of “business innovation.”
Innovating Innovation
BusinessWeek’s Bruce Nussbaum writes, “There is, in fact, a whole new generation of innovation gurus. They are not the superstars of the ’90s, such as Clayton Christensen, who focused on what might be called macro-innovation – the impact of big, unexpected new technologies on companies. The new gurus focus more on micro-innovation – teaching companies how to connect with their customers’ emotions, linking research and development labs to consumer needs, recalibrating employee incentives to emphasize creativity, constructing maps showing opportunities for innovation.”
But there’s more to innovating innovation; it’s about innovation as a systematic and repeatable business process. The man who just might turn out to be the Edwards Demming of 21st century innovation, Howard Smith, CTO of CSC’s Innovation Center of Excellence in Europe, thinks business innovation is really about process. Where Demming brought process to the quality movement, Smith brings a rigorous problem-solving process to innovation.
“Former director at Xerox PARC labs, John Seely Brown observes that ‘as much, if not more, creativity goes into the implementation part of the innovation as into the invention itself.’ In this respect, Xerox, the inventor, failed as an innovator, leaving billions in profits for Apple and Microsoft. Creativity, invention, design and business innovation are often confused,” Smith explained. “Innovation is a holistic process involving the entire organization of a commercial enterprise, whereas invention is a discrete event, typically performed by specialist individuals or very small teams. Innovation requires multi-disciplinary teams and is a complete lifecycle process. Creativity and design are necessary, but insufficient.
“In this sense, one of the world’s great design firms IDEO’s design innovations are, like every other element in the operating system for innovation, a part of the mix. Yet, in a world of product abundance, mass-customization and extraordinarily high expectations when consumers interact with public or private services or business people deal with suppliers, IDEO’s core competence is no doubt a vital ingredient. Their design process turns genuine inventions into useable, interesting and beautiful products and services, rendering them acceptable to commercialization. And what IDEO produces must be relevant to markets, and the timing of the release of those innovations to markets is critical, as Christensen has taught us. Yet, just as we must move beyond Christensen’s management frameworks if we are to understand the sources of innovation and the critical role of problem solving, so too must we move beyond IDEO’s design innovation if we are to understand the full extent of what innovation is. Seen as the creator of new value, innovation isn’t hit-or-miss, trial-and-error lateral thinking, but a repeatable process. What is innovative about innovation today is the realization that it can be achieved systematically, and that the innovator is an obsessive problem solver.”
Kinds of Innovation:
- Operational innovation
- Organizational innovation
- Supply-side innovation
- Core-competency innovation
- Sell-side innovation
- Product and Service innovation
Source: Extreme Competition: Innovation and the Great 21st Century Business Reformation
To put teeth into his approach of business innovation as problem solving, Smith goes beyond the techniques and methods most often associated with innovation. He states, “To the current plethora of strategies for adaptation and survival is now added something that may be a way of thinking, a set of tools, a methodology, a process, a theory or even possibly a deep science, but which may be gradually shaping up as ‘the next big thing.’ It’s called TRIZ, pronounced ‘trees’ and is an acronym for the Russian words that translate as ‘The Theory of Inventive Problem Solving.’ Its systematic approach to innovation is the antithesis of unreliable, hit-or-miss, trial-and-error, psychological means of lateral thinking. Its scientific, repeatable, procedural and algorithmic processes surprise all who first encounter them.
“After just one TRIZ workshop, engineers at National Semiconductor modified a machine that tests integrated circuits (ICs) that had gobbled up $76,000 in the previous five months of trial and error. Within a week, TRIZ-based software responded with 40 directions in which the engineers could investigate a solution. The most promising idea was the replacement of frail IC contacts with an elastomer. The consensus among the engineers working on the problem was that, without guidance from TRIZ, the project would still have been hunting for a solution.
“As globalization advances and companies see fewer opportunities for growth, the clamor for invention and innovation–proxies for ‘economic value’ – will inexorably rise. Innovation poster-child GE redid a 23-year-old slogan, ‘We bring good things to life,’ and replaced it with ‘Imagination at work.’ The firm includes a creative drawing tool on its Web home page. By contrast, FedEx is almost dull. Its core competence in logistics implies supply-chain efficiency and reliability. Those qualities define the FedEx ‘identity’ business process. “Is FedEx less innovative than GE? Not necessarily. What do GE and FedEx have in common? Both are obsessive problem solvers.
“Companies do more than perfect the known and optimize for efficiency. Glib use of the terms ‘creativity’ or ‘innovation’ means little if relevant problems are not being solved. Innovative firms develop an ability to solve problems that remove barriers to greater economic value. Whether an engineer is figuring out why an industrial process won’t start, or a call center operator is re-designing support processes to avoid answering similar problems over and over again, both are solving problems and each requires methodology and in-context expertise. At the macro level, numerous elements are involved: a learning environment, creative thinking tools, design flair, engineering skill, scientific method, enabling work practices, an amenable culture, specific organizational structures, supportive management frameworks, numerous business processes, information systems, market strategy, inventive and predictive algorithms. At the micro level it comes down to the individual employees, their talent, qualifications and knowledge.’
Conclusion
Recognizing innovation as a systematic business process is far more important than just creating ‘an innovation.’ If a company is to lead, it must set the ‘pace of innovation.’ To become a serial innovator, a company will need to view innovation as an ongoing business process that spans all six dimensions of business innovation.
