Wednesday, June 13, 2012

Innovation will become a core competency

If you've lived a while as a consultant to corporations, you've had the chance to see significant, even tectonic change to the way things work in larger enterprises over the last 20-30 years.  Stuff that would have seemed illogical or inconsequential we now consider imperative, and right now, things that seem incremental or short-lived may rapidly become mission-critical. 

When I think of this I am constantly reminded of Gandhi's saying about change:  first they ignore you, then they laugh at you, then they fight you, then you win.  The history of significant change in larger organizations is exactly this.  Consider, for example, one of the first "waves" of change - the quality movement. 

Back in the 70s, the major American manufacturers built fairly good cars and had the customer convinced that he or she should simply trade it in every 3 or 4 years.  This meant plenty of repeat business and a lack of exposure to perhaps some less than stellar quality.  The Japanese entered the market with cars in a lower price point that were good enough for many first time buyers.  Those manufacturers learned from feedback to improve quality, which meant that car buyers held on to cars longer and could compare the Japanese imports and their quality to the American manufacturers.  I remember reading in the late 80s about American manufacturers establishing "quality" review at the end of the manufacturing line.  This struck me then as absurd.  You don't change quality at the end of the process - you design for it and implement quality throughout the process.  And that's what eventually happened.  The story of quality is that it at first was laughed at, then bolted on, then it became a core operating principle.

The subsequent waves of management thought pursued much the same methodology.  Concepts like Lean and Six Sigma were at first experiments in small outposts, which were slighted or ignored by the larger organization.  As they proved their worth, these tools were introduced throughout the organization, and have now settled in and become the new normal.  They are now "table stakes" to compete effectively.

But when do we hit the stage of diminishing marginal returns for efficiency and need to shift to a new management philosophy?  I've argued here before that that time is now.  Our operating models are working at peak productivity and efficiency.  Concepts like quality, Six Sigma, Lean, downsizing are embedded in the operating model, they aren't laughed at or bolted on.  But there's not much more runway or gains to be had from an ever increasing focus on efficiency.

Today, innovation is in the second of Gandhi's three phases.  We've been through the "laughed at" phase where innovation is considered interesting but ultimately childish.  IBM showed us commercials of people "innovating" - lying on the floor in a dark room.  Many organizations have a room with outlandish colors and interesting toys to spark creativity.  But these brief interludes haven't threatened anything yet.  Innovation needs to declare war on the "status quo" so we can move briskly into the second phase.  Innovation and efficiency are itching for a fight.  One of them will win.  Either efficiency will defeat innovation, and leave innovation as a nice to have, valuable at the fringe, or innovation will win, but do so graciously, recognizing the importance of efficiency and demanding only a return to balance between efficiency and innovation.  They've laughed at innovation, now, we need a good fight, because somebody or something has got to win.

My final argument is that regardless of what wins in your organization - innovation or efficiency - the market has already decided.  The market has indicated that efficiency is important, but innovation is vital.  Innovation is vital because of the increasing pace of change, the rapid acceptance and adoption of new products and services, the falling barriers to market entry.  The clockspeed of your market is accelerating, and you can't compete by becoming more efficient.  This thinking is akin to having a car with ever increasing gas mileage in a drag racing competition.  Your car may be more efficient, but that's not the competitive advantage any more.

Innovation, like many of the other corporate strategic waves, will simply enter the business model as a "must have" core competency, and take its rightful place alongside quality and Six Sigma and a lot of other management strategies.  The difference is that innovation is a growth strategy and a differentiation strategy rather than a consolidation or efficiency strategy, so its entry into the lexicon may require a different style of thinking and attitudes from senior executives.  The model can't change until it needs to, and until there are people to shepherd its change.  One day, ten years or so from now, we'll look back and wonder what all the fuss was about.  Innovation competencies and core capabilities were inevitable for competitive differentiation, we'll say.  What were they thinking?

Innovation as a core competence is inevitable.  The question is:  can your organization shift quickly enough to adopt innovation as a core competence?  Not to bend innovation to the corporate will, but to bend the corporate will to innovation. Those that do will gain long term success.  Those that ignore or laugh at innovation now will fight a much more difficult fight later - attempting to adopt innovation while fighting for market share with competitors that made the transition earlier.
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posted by Jeffrey Phillips at 11:11 AM


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