Tuesday, December 08, 2009

Innovation and Goal Setting

Typically one of the most significant strategic challenges for any innovation effort has to do with goals.  When executives ask their teams to "be more innovative" it's often unclear how innovative and what the ultimate goals for innovation should be.  Since the natural inclination in most firms is to be cautious, this means that the goals for innovation are often set very low, which can result in incremental innovation.  Successful innovation programs usually have very well defined and specific goals set by executives and carefully measured.

A good example of an innovation goal set by a government that's had real impact was reported on last night (December 7) by Marketplace.  The story was nominally about energy usage in Japan, which imports almost all of its energy sources.  After the oil shocks of the 1970s, the Japanese government created a number of new rules about energy usage.  These rules also imposed new requirements on manufacturers and their products.  Probably the most interesting to me were these two rules:  first, manufacturing companies had to become 1% more efficient in their use of energy each year, and second, any product they introduced had to be at least as efficient as the most efficient product in the market. 

These mandated goals forced Japanese industry to consider how they use energy, as well as how to create products that were compelling for the consumer but also met strict energy usage requirements.  In the story, an executive from a firm notes that the rules were at first onerous, but the firm recognized that they should view the energy rules as a means of innovation. 

Imagine what would have happened in the US automotive industry if the government had simply stipulated that every vehicle that was introduced had to be at least as efficient as one it replaced, or that every three years the average fuel efficiency had to increase 5%.  Small, continuous increases in these expected goals would lead to more innovation, not less, and achieve other social goods as well.  A reasonable step-wise increase year on year forces firms to innovate and would probably create better products.

How can ideas like this translate into an innovation effort in a company?  Perhaps we should set innovation goals as continuous goals over longer periods of time, and make them continuous but incremental.  For example Ford or GM could set a goal of a 3% increase year on year for fuel efficiency, or health care firms could set a 1% increase in the number of people covered year on year with no change in costs.

The success of the Japanese (they consume the amount of energy today that Japan did over 40 years ago with a much larger economy) demonstrate several key points about innovation:
  1. Real, radical innovation happens when people are forced to change.  The Japanese had no other alternative when the oil shocks happened since they rely on imported energy.
  2. Innovation works more effectively when there is a top down, organizational commitment to innovation.  In the case of Japan this started in the prime ministers office.
  3. Sustained innovation becomes part of the fabric of the culture.  In the article, the interviewer notes that the family he visits keeps the thermostat low, uses high efficiency appliances and re-uses bath water (didn't need to know that one).  The business people they interview note that the restrictions have made the industries more innovative.
  4. Setting clear, distinct goals helps communicate the kinds of innovation necessary.  Sustained, continuous goals demonstrate the need for innovation over time.
What distinct, measurable goals does your firm set for its innovation efforts?  Are they sustained, continuous goals over a long period of time, or are they very short term, discrete goals?  These goals, and how you communicate them, dictate the kind of innovation your firm will achieve.
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posted by Jeffrey Phillips at 5:55 AM


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