The ability to be or remain innovative depends on the organisation’s willingness to continue supporting not just new ideas and products, but also processes. Continuous innovation requires constantly changing aspirations, expectations and behaviour. There will always be vested interests rejecting change outright or supporting it half-heartedly, even if those vested interests were successful innovators of the past who now feel threatened by new ideas. McKinsey’s “The Eight Essential Elements of Innovation” identified the following requirements for consistently successful innovation:
1. Aspiration: NASA’s success in developing entirely new products – the basis of much of the modern world in electronics, communications and digitization was the result of the bold aspiration set by President Kennedy in 1962, to “go to the moon in this decade”. In a corporate setting, however, the aspirational challenge must translate into departmental targets, if it is to change behavior.
When linking aspirations to targets, many organisations tend to focus on revenues created by launching new products or entering new markets; requiring them, like 3M, to reach a certain percentage of total sales within a given time. It is an obvious choice because new products and their associated revenues are tangible and easy to measure. It engages R&D, marketing and sales who can feel emotionally involved, as it challenges them directly to come up with something new. However, it overlooks two other important areas where innovation can have an important and beneficial impact on value creation: the business model processes and the workplace itself, which are more likely to be continuous and incremental in nature.
There are four important advantages in having formal aspirations to improve processes and working conditions:
- It embeds the concept of kaizen – continuous improvement.
- Innovative improvements in working conditions affect everybody, leading to greater employee satisfaction and retention with resulting improvements in profitability.
- Every employee can propose new ways of doing things because they now have three areas where they can contribute: product, process and workplace.
- It creates a culture of innovation affecting everybody in the organisation, facilitating buy-in and reducing resistance to change.
2. Selection: Most organisations have too many creative ideas rather than too few, when it comes to new product ideas. They fail to select effectively from them in three ways:
- They play safe, filling their product development pipelines with relatively riskless projects, yielding incremental improvements.
- They spread their resources too thinly, instead of concentrating on those projects with the best returns.
- They fail to allocate/reallocate sufficient resources each year, with the resulting stagnation in innovation
3. Discovery: Effective discovery of innovative ideas and processes does not depend just on creative genius, however much we like to believe in ‘lightbulb’ moments. It is the result of a disciplined iterative process, involving the interaction of changes in technology and partnerships with customers to define what they are lacking or what they do not like about either product performance or processes for doing business with the organisation. It encourages the active use of prototypes to test and validate improvement hypotheses, be they for products or processes
4. Evolution: Established companies have much to fear from upstart disrupters, who threaten their dominance by introducing new products, based in part on different business models. They should be prepared to change their business models before the upstarts do it to them. Incumbents find it very difficult to do. This is because changing the business model requires changes in behaviour; creates political winners and losers in the organisation; and may incur expensive write-offs in plant and equipment, resisted vigorously by the finance function.
Effective evolution even in companies with a track record of past success in innovation is often blocked by the ‘Innovator’s Dilemma’. Vested interests will fight such changes when it is not immediately obvious change is required. And when it becomes obvious change is required, it may be too late to do anything about it, as Blackberry’s, Nokia’s or Sony’s fall from grace demonstrated.
AI and robotics are serious threats to all jobs not requiring creativity and compassion. However, jobs requiring both will not be affected at all; jobs requiring compassion, but a great deal of compassion or empathy, such as doctors, will change with AI providing the tools to diagnose better, faster and cheaper, turning doctors into the compassionate link between patient and diagnostics. Jobs requiring creativity, such as scientific research, will be enhanced by AI’s ability to screen and evaluate data faster, objectively and free from biases, leading to more discoveries. Proponents of blockchain believe all back-office jobs, regardless of industry, will be threatened by its introduction. Boards will have to understand how these megatrends will affect their business models and the employability of their staff; and evolve accordingly.
5. Maverick acceleration: Ironically, the caution created by good governance processes may stifle the organisation’s ability to bring a new product to market quickly. Some of the most important innovations have been the result of mavericks refusing to be cowed by the managerial processes of their organisations. For example, the Israeli subsidiary of Intel was able to insist the US operations were wrong to focus on increasing the speed of their computer chips, championing instead reducing their size, saving the company as a result.
6. Scale: Getting scale right is crucial. Some innovations are suitable for niche markets with small volumes; others are designed to serve mass markets with large volumes. The problem for innovators is how best to move from small start-up volumes to the much larger volumes expected once the market is fully developed.
One of the reasons why incumbents find it so difficult to deal with disruptive innovation is their mismatch of scale. Their business models are designed to deal with mature markets with corresponding volumes, unit costs and achieved prices, whereas innovative disrupters start with business models to serve much smaller volumes, using fewer resources profitably.
7. Extension: It is now common for companies to work with outside parties to develop proof of concept ideas, prototype them jointly and develop trials to test whether they work as expected. Engineering and life science companies work with universities; FMCG companies work with customers to develop new concepts – for example, Unilever’s Sunsilk™ shampoos, co-developed with leading haircare experts from different countries.
8. Mobilization: This is achieved through providing a clear ‘line of sight’ between the mission, vision and values of the organisation and the role of innovation in achieving them, including the part each individual is expected to play in creating and sustaining the values of innovation. It is made easier if the concept of innovation includes processes as well as improvements in working conditions; so every employee can be incentivized to come up with ideas to be implemented in the three areas of product, process and place. Larger organisations set up cross-functional teams to develop new products and processes, often locating them in different buildings or cities, so vested interests cannot obstruct progress, citing legacy and history as reasons why not.
To conclude: Successful innovation requires setting aspirations by department; selecting project priorities; disciplined discovery; continuous evolution; deliberate acceleration; appropriate scale; customer-based product extension; and employees mobilised by a ‘line of sight’, connecting them to their organisation’s need to innovate.
by: Datuk John Zinkin