Innovation is a word we often bandy about in business. It is one of the words used most often by most companies, yet it is an area where most companies are weak.
Yet, it appears in many vision statements, company value statements and strategy documents.
In my experience, many CEO's are frustrated by how little innovation happens in their companies... yet the word is used all the time. Often they are the biggest constraints to their companies being innovative, not always deliberately.
The American notion of looking at quarterly results, so called "quarterites", does not help either.
Whilst we react to the outcome of innovation, i.e. novel products, we know far less about how to go about creating them.
So why is innovation important?
Because innovation creates brand, consumer and business value more than most things a business can do.
Innovation is the one leverage that will make the same resources create far greater value: an innovative company is more profitable, more talked about, often has a higher share price and are often more valuable than non innovative companies in the same industry.
There are many ways in which a company can reduce its costs to benchmark itself against global norms for its industry. Whilst the ways to do it may differ, they all come down to how much it costs a company to produce, service and market its products. Then, based upon a fairly thin margin of variance, the company will charge slightly more or slightly less for its product or service. The extent to which one company can charge more, relies upon the strength of its brand and whether it can offer the customer something unique. In many industries, this variance is low. This means a company will make more money because it is able to sell more than its rivals, which does not help the smaller brands in the same market.
One option they have may be to innovate.
The greatest advantage of innovation is that there is no "upper limit" to it: if a company produces a product that is truly innovative and offers something totally unique, consumer will pay for it, almost regardless as there is no true "benchmark". We hear horror stories of Chinese kids selling their kidneys to buy an iPad!
Innovative brands are mostly highly profitable, from pharmaceuticals to consumer goods. We can go back far into the history of brands to ratify that: Sony developed the first personal mobile sound system, The Walkman. It became the standard for its industry and commanded high margins. Similarly, Sony developed the Trinitron and Bravia television set models, both innovative and "firsts" in their time. All these products redefined the competitive space, and charged high margins for it.
Gillette razor blades remain one of the most significant personal products today. They innovate on a very regular basis, thereby retaining their category leadership against smaller brands. It is almost inconceivable that any brand can ever catch-up with Gillette again.
Today, everyone talks about Apple - what is significant is that Apple products sell for far higher margins than the same products of rival brands. It is arguable whether Apple products are really three times better than the same products of other brands, yet they have attained the status of highly innovative designs, hence are almost "untouchable". Any debate about the future of Apple, is about whether Apple can retain this innovation lead after Steve Jobs – or how long they can retain it. The "innovation index" of any company is fragile!
Brilliant and innovative designs get noticed even without much marketing support. I even remember this in the automotive sector: great new models will sell, with or without much advertising support. Advertising can add to it, but the design will sell them first and foremost.
Yet, innovation depends upon the culture of an organisation more than upon processes, brainstorms - or giving staff time to "fool around".
No amount of talk will make a company innovative.
Although there are many people that can assist a company to become more innovative, and many processes exist that can assist, a company needs to look at its culture to ensure that it is structured to be innovative. Strategist Prof Gary Hamel states most employees have powerful ideas, but the cultures of most companies make it very difficult for them to be "heard". I find company culture the single biggest hurdle against new ideas. They are not asked for, heard or acknowledged: on top of it, they often just disappear into "the bad hair days" of corporate cultures.
Innovation depends upon a certain mindset and "ecosystem" that supports it.
A few things seem to work:
Some companies have resorted to alliances with smaller companies to help them become more innovative. Smaller companies are naturally more entrepreneurial, less structured, make decisions faster and have lesser vested interests. They also have a far greater upside to being innovative. I have seen very powerful alliances here.
Today many larger companies work with smaller companies that become the incubators for their own innovation.
Creating the management and structural ecosystem that enables innovation. Verganti, in his book Design-Driven Innovation, states that companies that are innovative have highly developed ecosystems of external "influencers", suppliers and customers. These networks provide interface that enables new thinking. Naturally, companies that expose themselves to outside influencers are naturally more innovative and less threatened.
An important way used by some companies is to "institutionalize" what is called "design thinking" into the organization (see a book like Martin, The Design of Business) – instituted in companies like Proctor & Gamble. This is a long term strategy, but a company like P&G have become far more successful at innovation because of that, despite always having had a high R&D spend (one of the more traditional indicators of innovation).
One of the more unconventional approaches used by the Chinese, is to simply put a product on the market and see what happens. Although many innovations then fail, some also work, without having incurred high R&D spend and waiting forever to launch a new product. In South Africa, this was done many years ago by a company like Beacon Sweets, who often came up with innovative new chocolate countlines: some survived, others dissapeared. Although it is more risky to do this, it is as risky to wait forever to market an innovation (as some multinationals so – then they often get pre-empted by competitors).
Supplementing the above with input, processes and methodologies to enable innovation. There are more books written on innovation processes than about almost any aspect of business. These go way beyond traditional brainstorming. I prefer the one's that propose to "unpack" the customer value proposition and the to "re-engineer" it, well covered in books like Business Model Generation and Designing for Growth. Just looking at brainstorming, for instance, is truly simplistic, although it has its place within the right context and with the right processes in place.
