Desparation versus Innovation

On my "other" blog I write about issues around culture and process. There's a new article on Ford in the Wall Street Journal that caught my eye, and I've had to post on both blogs about the issues Ford is facing. Ford is trying to remake itself in the wake of finally coming to grips with the fact that it is not customer-centric, and it is built and staffed to make many more cars than its customers can purchase.

As noted before, I take no joy in the wrenching change that is happening at Ford. I've had relatives and friends who worked at Ford, and was a loyal Ford customer until recently. Ford will play out as a case study for management thinkers and consultants over the next few years, based on what they get right, and what they get wrong.

I write about Ford in this blog about innovation because I'm interested to see what happens to Ford's recent focus on innovation, given the big changes that are about to occur. Will Ford retain it's message and focus on Ford as an innovator during the transition, or will innovation be cast aside during these significant changes?

Ford was built by an innovator, and has been through several cycles of boom and bust, risk and comfort. Ford led the industry when Henry Ford first started it, literally inventing the manufacturing process. But Alfred Sloan innovated with customer focus and GM took the mantle away from Ford. The Whiz Kids after World War II made Ford competitive again, but there's been a long slow slide with the brief exception of the Explorer and some Ford Trucks. Can you name a Ford automobile that really stands out over the last 20 years?

In these difficult times for Ford, their organization needs to stand for something. Will they try to reclaim the innovation mantle and put real effort behind it? Or will the sweeping changes force innovation into a back corner? Where does innovation belong? Should it be a part of the focus going forward or is innovation only pertinent when times are good?

Innovating Alone

I read an interesting document by Egils Milbergs who writes the Accelerating Innovation blog. He and another collaborator wrote an article on innovation metrics, it's available on his website. I agree with a lot of what he writes about, especially the need to change our innovation metrics - or even just create some metrics around innovation and start capturing them. But what really intrigued me was his assertion that you can't innovate alone.

To quote directly "A striking feature of contemporary innovation is that hardly any organization can innovate alone. Most innovations involve a multitude of organizations. This is especially the case for the most knowledge-intensive, complex technologies. " Let's think about that.

Basically, Milbergs is building the case that the day of the individual innovator is dead. Too many different technologies and capabilities are required to create truly new products and services. No one person can build all the circuits of a new MP3 player, for instance, and even if he or she could, distribution, marketing and many other facets are too difficult for one company. Let's put the lie to even Edison's innovations. Edison never worked alone, but surrounded by a large staff of technicians, draftsmen and others who came from different industries. Edison had numerous contacts across different industries as well, and personally knew the capitalists who funded much of his research.

If individuals can't innovate alone, can corporations? Can one corporation create new innovations all by itself? I think here the answer is a little different - it depends on the innovation we are talking about. In the case of new products, it is still difficult to innovate by oneself unless the products can be designed, manufactured, tested and distributed by one firm. It's hard to create new products without involving other firms. In fact, P&G and 3M are constantly bringing other firms and innovators into the product development process. Conversely, a service oriented innovation can be created by one firm. Firms that provide services or differentiate on services can create a service innovation or a business model that does not rely on others for success.

However, longer term, we've got to innovate in the open. The network effect has an impact on innovation - the value of the new product or service - and the availability of the innovation - how quickly it is adopted. This means that firms using open innovation styles and working across the customer-business partner barrier are more likely to succeed.

Innovation and the last war

I don't know which way to feel about this topic. I was reviewing the latest report from the InnovateAmerica site, whose tagline is "Innovate or Abdicate". This is a group sponsored by the Council on Competitiveness to focus on improving innovation in the US. I think many times think tanks present solutions that solve problems we're already working on and miss or distract the real upcoming problems. In military lingo, they are fighting the last war.

In the research, InnovateAmerica has released a report or a better a survey of senior executives from 200 companies in the US. The report calls out a lot of the things you'd expect:

1. New ideas are coming more and more from suppliers and customers over internal resources
2. Engineering and scientific talent are ranked as the most important asset to improved innovation
3. Top barriers to innovation include poor internal infrastructure and lack of internal talent
4. Over 40% of productivity gains in a business can be attributed to innovation alone, yet
many CEOs rank innovation below low price and quick delivery in attractiveness to customers
5. Most innovation is defined as extensions to existing products

So, what to make of this?

Well, it's a good thing that ideas are coming more and more from suppliers and partners, but I think that was fairly evident. What bothers me about a lot of these findings is that it feels like we are fighting the last war! If 80% or more of our economy is based on services, why do we need such an emphasis on scientific and engineering talent? I am going to assume, although I could not find it in the writeup, that most of the people who participated in the survey were from the manufacturing or product sector. There's simply too much emphasis on product-focused innovation.

And another thing - which CEOs place more emphasis on low price and quick delivery? Sony didn't. Apple didn't. But Dell does. Is Dell an innovator? Possibly with it's business model but not in its products.

That's another problem with this research - a lot of innovation is focused today on business process innovation, business model innovation and service innovation, not product innovation. Sure we want to provide goods and services at low prices, but we can command greater margins and more loyal customers by providing valuable and differentiated goods and services.

Innovation should be about more than simply cutting costs, yet that seems to be the primary focus of the people who wrote this research. We should consider more than just product innovation, yet this research does not dive deeply into business model or service innovation.

We're building the innovation maginot line and missing the service innovation revolution.

The Innovation Race heats up

Somewhere along the line I signed up for an email subscription to "strategy + business", a periodical published by Booz Allen. I have found it to be well-written and it almost always includes an article on innovation.

The most recent edition, which I received today (Jan. 17) has an article about business in China, and the things that might surprise you about business in China. The one that caught my eye was the topic of innovation in China. According to the article, China has several structural and cultural advantages for innovation.

One of the first is a lack of conventional wisdom or existing business paradigms. Since China's economy and businesses are growing so quickly, there's not a lot of existing business process or knowledge which will quickly knock down new ideas, the way more bureaucratic companies in the US or Europe will quickly kill many new ideas.

Another advantage in China is the customers and the market. With rapid urbanization and rapid income growth comes demand for many new products and services. A rapidly growing economy means consumers have more money and are more willing to purchase new products, and are very open to new innovations.

Third, China is focusing and spending vasts sums of money to promote technology and innovation. This money goes towards improving existing universities and encouraging technology education, new business parks and consortia and encouraging business investment. Already, China is third in the world economy in terms of investment in R&D, trailing only the US and Japan.

The final advantage that the article talks about relates to the first two. The Chinese entrepreneurs are very willing to take risks and make mistakes. Given a rapidly growing economy and a population with money to spend and a lack of products, the Chinese entrepreneur is encouraged to try many new things and to quickly abandon those that don't work out.

What the Chinese are doing is a top-down approach to innovation by the government, but they seem willing to allow a lot of autonomy at the local or business level. The Chinese government has recognized that the country needs new companies, new products and new exports to grow and remain competitive. What they don't have right now are repeatable processes and methodologies. Most entrepreneurs and businesses are simply learning by doing when it comes to innovation. As the Chinese market evolves, it will become harder to simply create new products and abandon those that don't work, and the Chinese businesses will need improved processes, marketing intelligence and systems to support their innovation. But they don't need them now.

We need to counter this approach in the US and western countries to demonstrate a purposeful, methodical approach to innovation. The US and the west will not necessarily remain the leaders long term in innovation dollars, but we can remain the best in return on innovation.

Not just for R&D anymore

There used to be an advertisement for a breakfast food - the actual brand escapes me now - and the tag line went "Not just for breakfast anymore." In this way the manufacturer was trying to get new users and new customers, and encourage existing customers to use the product outside of just breakfast hours.

We should be doing the same thing with innovation. Innovation for a long time has been the responsibility of just a few people, probably R&D and product management. But is it realistic to think that only a few people in any organization possess all of the insights and good ideas? What about outside of the firm? Don't your customers, vendors and business partners - even competitors - have great ideas?

I wrote in a recent post that management should dictate the means for innovation, not the results, and what I meant was that management should not try to tell people what innovations are valuable or how to "do" innovation, but management should provide the tools and the culture to encourage innovation. And this encouragement should be open to those in traditional "innovative" roles like R&D, and also in every other part of the business. Good ideas are where you find them and where you encourage them. No one group has a lock on insight.

What does it mean to be innovative?

Right now, in literally hundreds of board rooms and senior executive suites, management teams are preparing edicts to their teams to "become more innovative". All of the recent press indicates that senior managers are turning their focus to innovation, and are challenging their teams to become more innovative. Three different studies over 2005, by firms such as Bain, Booz Allen and Arthur D Little, all confirm that innovation is a key focus for senior executives.

There's just one problem. What, if anything, does "become more innovative" mean to the people in mid-level management and on the shop floor? Can we translate this rather vague pronouncement into something that people can actually do? What motivation or incentives apply to these pronouncements? How does the workforce come to understand that this initiative is important?

Well, first I think the management teams need to be more specific. Instead of "become more innovative" they need to set goals. P&G and 3M have set innovation goals for their firms, so why can't other firms do likewise? Seems to me a firm would set a goal that 5% of its revenue in two years will come from products or services newly released in the market. Set some goals that are measurable, realistic, attainable and in a reasonable timeframe.

Second, the management team should indicate the areas for innovation. Should the teams work on "incremental" innovation - in other words, make the existing products a bit better or adapt them for new markets, or should the teams work for disruptive innovation, attempting to identify new products or services or business models that will dramatically change the landscape in a particular industry? A lot of this question has to do with timeframes and expectations for short term and/or long term change.

Third, the management team needs to indicate if the firm itself and its processes should be innovated. Are we merely talking about dressing up the processes and products we already have and use, or are we going to examine the internal approach and how we work as well? Given that any change is hard in an organization, poorly defined change is even more difficult. Without exact definitions, measurable actions and outcomes, introducing innovation by fiat will be very hard to do.

What can the management team do? Let one thousand flowers bloom. Encourage small team innovation and idea generation. Encourage change and promote change through tweaks to the culture, motivation and compensation systems. Provide tools and processes to support innovation. Listen to customers, business partners and employees who have great ideas. Don't dictate the result - provide the means.

Discuss amongst yourselves - What's the BIG LIE?

Time to weigh in this ongoing discussion in the innovation space. In case you haven't been following along:

Several weeks ago Jeffrey Baumgartner, head of a Belgian innovation consultancy, wrote a paper that argued, basically, that we are all overly complicating innovation. His article, available at www.innovationtools.com, is entitled The Great Innovation Lie. At it's core, innovation is simple. Well, that sparked a spirited response from Boris at Imaginatik. He felt that innovation and idea management was not given proper due by Mr. Baumgartner and that he had overly simplified the issue.

Now, I see that Chuck Frey has blogged about this as well, and I just received an email newsletter from Joyce Wycoff, who appears to agree with Jeffrey Baumgartner, but suggests that there are other innovation "lies", such as "we don't need more ideas, we just need to implement the ones we have", "innovation must be radical not incremental", "we can expect innovation from people who are already overloaded" and several others.

Hmm. Is there a BIG LIE in innovation? Is it easy or hard? Do we have enough ideas or too many? Can software or process make an improvement, or do they just get in the way?

What we are seeing is a normal shaking out process in what is still a very new industry. In effect, all of these folks are right. Depending on the circumstance, innovation is:

- overly complicated in some cases
- necessarily complex in other cases
- best supported by new processes in some cases
- etc

Let's face it, there are as many different challenges and issues in innovation as there are in any other major business function, only more so, since innovation often cuts across several business functions. Other business functions have been successful using tools and processes to solve some problems, but not all problems. Why should innovation be any different?

Joyce points out what I would consider to be a lot of cultural issues. Do you have the right people? Are they available for innovation or is it a part-time job? Does management support the initiative? Strangely enough, these are very similar questions to ones we asked management teams when ERP (SAP, Oracle, Baan, etc) were being implemented by every firm on the block.

Innovation will be different in a services firm, with different outcomes and different processes and teams, than it will be in a products firm. I suspect that innovation processes will be implemented differently in consumer packaged goods firms than in automotive firms, just due to the necessity of innovation and the corporate culture.

What's the big lie? That anyone, anywhere has a complete grasp on what innovation is, and how it should be defined. This, ultimately, is a question that needs to be answered in the context of a particular industry or firm, and in light of a particular problem.