5 Innovation Lessons From High Performance Companies

HIGH PERFORMANCE INNOVATION
5 INNOVATION LESSONS FROM HIGH PERFORMANCE COMPANIES
BAKER REID ASSOCIATES
Table of Contents
Introduction: High Performance Innovation 1. Real Reason Company Must Innovate 2. Innovation Culture 3. Innovation Strategy 4. Managing Innovation 5. Measuring the Innovation Process
The world is changing very fast. Big will not beat small anymore. It will be the fast beating the slow Rupert Murdoch
HIGH PERFORMANCE INNOVATION High Performance Innovation is the use of innovation by high performance companies to sustain their high performance status. This principle states that, in 21st century world of accelerating change, being a high performance company is not enough to ensure sustainable growth. Innovation system that is intertwined with the operations and processes of the company, is what guarantees sustainable growth.
High Performance Environment High performance is a description many a people want to be associated with. From individuals to companies, public bodies to even governments. The tag line High Performance is a sign or a statement of the highest regard. The reason why many organisations are high performance is mainly due to the high performance environment that exists in that organisation. This high performance environment serves as a launchpad for the organisation to score high in high performance indicators.
HIGH PERFORMANCE INNOVATION PROGRAM
Innovation Culture Introduction
A culture of innovation isInnovation Program is aenvironment that High Performance very simply a workplace series of
programs designed to to think creatively into the constantly encourages people embed innovation and facilitates governance and operations of an may become implementing creative ideas so that they organisation.innovations. Well be The program architecture is on Page 7. looking further at innovation culture based on the High Performance Innovation principle. This principle states that in todays world of accelerating change, being a high performance organisation is not enough to ensure sustainable growth. It is the combination of a high performance environment and a culture of Innovation, wired into the organisations systems and innovation that gives you a High Performance Innovation status processes, is what guarantees sustainable growth.
HIGH PERFORMANCE ENVIRONMENT
INNOVATION CULTURE & CAPABILITIES
REAL REASON COMPANIES MUST INNOVATE Ask any group of senior executives why they think innovation has become such an imperative, and the answer is invariably, Because it drives growth. This is quite a reasonable and obvious way of thinking. Pushed into a relentless race to grow earnings faster than the industry average, companies are increasingly turning to innovation as todays best bet for closing the growth gap. Trouble is, by thinking of innovation almost solely in terms of growth, many executives are actually missing the bigger picture. For most companies today, the real issue is not how to grow earnings by a certain percentage from quarter to quarter. Its how to avoid the big and unexpected downside. Because the thing that kills companies today is not whether they are growing by 8% instead of 12%; the thing that kills them is when they miss some turn in the road some fundamental change in the external environment that axes the share price by 50% and sends the firm into the toilet. This is what has wrecked so many companies in so many industries. It might be a disruptive new technology that causes all the trouble, the way digital photography decimated
Kodaks traditional film-based business. It might be a fundamental shift in customer preferences, lets say from fuel-guzzling SUVs to economical, environmentally-friendly hybrid vehicles. It might be another companys gamechanging business model; an Amazon.com in books, or an easyJet in air travel. It might be regulatory upheaval, as we have seen in countless markets and industries. Or it could be a lifestyle trend that suddenly turns millions of people off the food, or the drinks, or the clothes, or whatever else it is that you make. So, yes, of course top line growth is important; nobody would argue with that. Maximizing the upside is all well and good. But the real issue is: how do you minimize the downside? A lot of people would reply that minimizing the downside is about avoiding risks. It is precisely the opposite. Minimizing the downside is about recognizing that we are living in a world where old things can quickly lose their value and relevance. In this new disruptive age, competitive strategies and business models dont last anywhere near as long as they used to. Therefore, unless a company is innovating deeply and strategically at the level of the core business itself economic growth can very quickly turn into economic failure, decay and even death. Essentially, in todays turbulent times, the only long-term insurance against the downside is rampant and radical innovation. Thats the real reason for the innovation imperative.
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INNOVATION CULTURE Every culture, innovative or not, is an expression of the behaviors, attitudes, and actions of the people who are its members. Culture isnt created overnight, but rather it emerges through time, so it also exists as a consequence of history, reflecting what has been done in the past. Hence, when we reflect on our own situation today, we can see past trends interacting with new forces during our own times, and the aggregate picture is exactly what constitutes our culture right now. Culture is also a force that influences whatever will be accomplished in our future; culture, that is, is largely self-perpetuating. The innovation culture likewise must develop as a consequence of particular
behaviors and attitudes, as well as structures and tools, and most especially actions; the actions that result in innovations of all types - breakthroughs, useful incremental changes, and even radically new ways of doing business. Organisations that have an innovation culture create innovations, by definition,
with some regularity, and actually the concept of regularity is a quick test to see if a company really does have one. How frequently does the company produce interesting new ideas, concepts, products, or services? If cool new stuff seems to be coming out all the time, in different contexts and forums, and if the internal discussion in the organisation is also rich with the talk of innovation, then its indeed likely that an innovation culture exists there. Since the innovation culture is not all that common among todays organisations we can infer that its not so easy to create. Weve all worked in companies that felt sluggish and stifling, and most of us yearn to work in organisations that are vibrant and dynamic. A key reason for the rarity is that the characteristics needed to achieve an innovation culture are frequently not viewed as necessary, or even desirable, in successful companies. Business leaders love stability and predictability because these are the conditions that make for reliable profits and increasing scale. Innovation pursued reluctantly means that we consider changing only when were forced to. We generally hate it, because it means we have to give up our comfortable ways, even though the market may be telling us that this way isnt good enough any more. Companies get thrown out entirely when they fail to adapt. So if standardization has triumphed totally over innovation, this is perhaps an indication that the past has overtaken a company.
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If no one wants to buy your products, even if they are made to six sigma quality standards, then you have a different sort of problem. What you require are new and better designs, not ever more perfect manufacturing standards; the wrong product, perfectly made, is still the wrong product. A culture of innovative operations is partly where the genius of firms like Apple, IBM, and Toyota lies, because their leaders have found a way to standardize or systematize the process of innovation. How do you standardize innovation? They have created true innovation cultures, which is precisely what it means to make the creation of novelty a consistent output of an organisations behavior, and hence an attribute of its culture. At Toyota, for example, the fruits of manufacturing innovation led to transformative breakthroughs in simplification, resulting in a company that is universally recognized as the most proficient auto manufacturer. They also pursued elusive but important goals related to design, engineering, and business innovation, yielding the happy marriage of quality and innovation that led it to become the worlds most admired car company. The means of achieving this, and likewise the commitment to doing it, originated with the very top management of these companies, and then spread throughout.
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Innovation has nothing to do with how many R&D dollars you have. When Apple came up with the Mac, IBM was spending at least 100 times more on R&D. It's not about money. It's about the people you have, how you're led, and how much you get it.
- Steve Jobs
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INNOVATION STRATEGY At many companies, the term innovation strategy refers simply to an agenda for new product development or a technology roadmap for R&D. This is like picking up a single leaf in the forest and calling it a tree. Innovation strategy is not merely about the next product launch or patent registration. Its about exactly how your company intends to become (or remain) a world-class innovation champion. Lets face it, not many organisations have so far managed to build a deep, enduring capability for innovation one that consistently drives profitable revenue growth and that delivers a strong competitive advantage over the longer term. This should be the highest goal and purpose of any innovation strategy. The real strategic issue facing every company is this: How are we going to create growth and shareholder value in the future? Sounds like a simple question. But organisations have had a wide variety answers at their disposal over the last few decades. For some, the solution was going global, or cutting costs, or improving quality. For others, it was raising productivity,
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or offering the best customer service, or standing out with excellent product design. Today, however, these traditional strategies are running out of steam. They no longer offer very much potential for driving growth and wealth creation over the longer term. There is a growing realization around the world that organisations have only one strategic option left for delivering growth, company value, market share and competitive advantage. And thats radical innovation in products, services, technologies, processes, cost structures, marketing strategies, and business models. However, an honest assessment of the business landscape reveals that radical innovators are still very few and far between. When you pick up a copy of Forbes or BusinessWeek, you inevitably find yourself reading about the usual suspects a small handful of innovation champions like Apple, Google and IBM. It simply seems incredibly difficult for all those other companies out there to make the transition from innovation laggards to innovation leaders. And thats why theres an urgent need right now for organisations to develop a corporate innovation strategy a blueprint for building, sustaining, and managing an enterprise-wide innovation capability.
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At the core of this strategy must be a broad-based vision of innovation embedment a vision that is created and owned by the top team, that is accessible to all levels of the organisation, that is both feasible and flexible, that can guide decision making, and that can be clearly and easily communicated. It must be based on a highly systemic view of the organisation a sense of connection, interaction and integration between all of the various parts of the system where the whole is much greater than the sum of its parts. And it must enable each and every employee to understand the link between their own individual performance and the attainment of the companys strategic innovation goal. Once this vision is in place and widely shared across the company, the next imperative is to turn strategy into action by making the necessary stepwise changes to leadership commitment and accountability, organisational infrastructure, management processes and policies, resource allocation, knowledge management, employee contribution, rewards and recognition systems, competence development programs, measurement and reporting systems, cultural values, and so on. All of these organisational components need to be hardwired into the companys innovation strategy.
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But stop, you say. Is all of this actually possible? Can companies really make the gargantuan leap from boring to breakout, and from insipid to inspired? Examples including P&G, IBM, Whirlpool abound. What these examples amply demonstrates is that it is entirely possible to turn an old-line industrial organisation into a catalyst for continuous, break-the-rules innovation. But it cant be done piecemeal an innovation reward program here, a corporate venture fund there, or a few days of brainstorming somewhere else isnt enough. Rather, a company has to be willing to recalibrate its whole organisational system around the paradigm of innovation. And that is never going to happen unless it develops a wall-to-wall, top-to-bottom, soup to nuts innovation strategy.
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MANAGING INNOVATION Back when innovation related only to products, it was easier for companies to manage. One group of employees designed the product and passed it on to another group who sold it. But the broader boundaries of innovation have changed things for company managers responsible for delivering innovations to the marketplace. Implementing an innovation today may require making major organisational changes. For example, implementing an innovative service could mean making changes to employee training programmes and company procedures. A business model innovation entails getting everyone to understand the new way of making money, or, if this is not possible, setting up a new business unit. To understand what sort of organisational changes are required for an innovation, a manager first needs to understand what sort of challenge the innovation is going to pose. There are three categories of challenge the customer, technology, and business model. Understanding which category the innovation falls into is the key to understanding what steps the company needs to take next.
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If it's a customer challenge, then you need to orient your intelligence and services one way. If it's a challenge on the organisational side, then it's another way. The customer challenge addresses how far away this innovation is going to be from the way the customer usually thinks. For example, using the games console industry, Nintendo designed the Wii video game console to appeal to an entirely new customer base, namely people who wouldnt ordinarily think of playing electronic games. What's interesting in the Wii is not the technology, which is fairly straightforward, and its not the business model, because it's actually quite a traditional business model for the gaming world. The really innovative and creative thing is making games that appeal to the people who don't play typical combat games on PS3 (PlayStation 3). The second type, technology, asks how much of a challenge the innovation is going to be for the organisation. The PS3 posed a typical technology challenge for Sony because the company was inventing a new super-processor for their existing game console and customer base. The business model challenge addresses how the company can get money out of the existing value chain. The ultimate goal of any innovation is to create value in the minds of the customers. There are five key tasks the organisation needs to do to accomplish this and provides the tools for managers to use to accomplish the tasks.
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The first task is organisational and involves setting the direction and fixing the rules for implementation. The second is setting up the team. Teams are key to success, so the firm needs to select the most appropriate team for the type of innovation. Task three involves working with customers as co-creators. You get much more mileage by working with the right customers at the right time than by suddenly popping up and saying: Here's our bright and shiny new thing, how do you like it? Once the goal has been defined, the right team selected, and a solution defined that meets a strong customer need, the fourth task is to make the necessary organisational changes to deliver the solution. The fifth task is to build momentum in the market for the solution. Managers need to design and create markets for innovations with a thorough understanding of how customers accept or reject them, which is something companies dont always do right.
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Its tough when markets change and your people within the company dont. - Harvard Business Review
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MEASURING THE INNOVATION PROCESS Like everything in business that involves the investment of capital and time, innovation should be a disciplined process that has to be measured so that it can be genuinely managed. This isnt news, but it is nevertheless problematic, because measuring innovation the wrong way, or measuring the wrong aspects of it, can be a genuine detriment to its progress. Further, there are a lot of ways to measure innovation productivity, so choosing the right metrics requires some selectivity. Process-oriented metrics typically consider the means, such as the number of new ideas proposed or new ideas introduced. Financial metrics are focused on ends, the results, and include ROI based models to track financial performance, or the proportion of sales or profits from new products. Unlike most other forms of business measurement, innovation metrics present problems for the process that has to be measured. We might call this an innovation uncertainty principle, as many of the assessments that we might use to measure innovation can significantly impede the process itself.
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In exploring the measurement of innovation weve found the following to be most consistently useful. Impact on brand and image The opinion that customers have of our company, as indicated through brand image surveys, customer feedback, and analyst rankings, improves consistently and significantly. Impact on growth and revenue The innovation system results in a significant increase in the number of attractive, new, internally-sourced investment opportunities. Valuation of the total innovation portfolio increases significantly compared to prior period, year over year. Impact on culture Speed of innovation project completion increases year over year. The number of people who are participating in all aspects of innovation efforts increases significantly year over year together with the quality of contribution. In summary, successful development of the innovation process will steadily enhance your companys overall capability in many areas of performance including innovation, and the innovation results themselves will also get better.
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BIBLIOGRAPHY Adesanya Dapo High Performance Innovation 2013 Morris Langdon the innovation master plan 2011 Gibson Rowan Real Reasons Companies Must Innovate Innovation Excellence (October 2012) Gibson Rowan What exactly is innovation strategy Innovation Excellence (October 2012) Midgley David A practical guide to managing innovation Insead The Knowledge (March 2009)
ABOUT BAKER REID ASSOCIATES Baker Reid Associates is a business innovation consultancy that helps teams and companies achieve industry-leading sustainable growth. We do this by helping these organisations execute the innovation capabilities. Our expertise is built around helping companies with - Innovation Strategy - Building an Innovation system and function - Training and developing innovation executives.
BAKER REID ASSOCIATES
Learning and innovation Learning and innovation go hand in hand. The go hand in hand. The arrogance of success is to arrogance of success is to think that what you did think that what you did yesterday will be yesterday will be sufficient for tomorrow. sufficient for tomorrow. --William Pollard William Pollard
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HIGH PERFORMANCE INNOVATION