The Innovative Enterprise
by Katalin Eibel-Spanyi

Successfully implementing even one innovative concept is tough. Creating a business environment where innovation is an integral part of the fabric of the organization is at least ten times more difficult. Yet, that is precisely what is needed in today's business environment. In the absence of innovation, growth falters.

The search for the means to assure a constant flow of innovation is almost as old as commerce itself. Yet, many firms fail in this regard. When asked why, executives frequently reply; 'there's just not enough time', 'the day-to-day pressures of running the business take precedence', and that 'market dynamics and market analysts impose a counter-productive short-term focus.' Is this true for your firm?

Academics and researchers have been preoccupied with various aspects of innovation since the days of Schumpeter circa 1942. In fact, the volume of literature on innovation rivals that which is available on the topic of strategy. A quick search on the Harvard Business Review Web site yields 87 articles on innovation in HBR over the last two years alone. There is so much literature in this domain that one of the major challenges for a practical minded executive is simply to sort through the myriad of advice and identify a course of action that has a realistic chance of success. That is precisely what this article attempts to accomplish, to identify the critical few success factors which - if properly applied - will serve to improve an organization's capability to innovate.

Innovation is not limited to generating new product ideas and new products. While that is important - process, service and market innovations are equally essential. One comprehensive and yet simple definition of innovation found in Theodore Levitt's landmark article [1963] "Creativity is not Enough", where he recognized that innovation must include both idea generation and successful implementation of that idea. After all, in many firms ideas are abundant; it is the results that are often in short supply. That is why some of the best innovations are frequently the most simple, where observers often wonder after the fact,"Why didn't I think of that?"

While the topic of innovation is exceptionally complex, let's consider a few of the critical success factors. The success factors essential to the creation and nurturing of the type of innovation culture which will stimulate profitable growth. These include:

  • Clarity on strategic direction
  • Engaging a broad cross-section of the organization in innovation initiatives
  • Creating an enabling culture
  • Focusing on intelligent experimentation

Strategy

While there are famous examples of innovations which occurred largely by accident, 'post-it notes' and 'Gore-Tex' - just to name a couple, establishing clarity on strategic direction and employing it to guide the overall innovation effort will yield tangible benefits for most firms. Why? Simply because a well thought out strategy can serve to provide focus for innovation. Strategy requires 'a priori' a thorough examination of the external environment and answering a series of questions which shed light on where best to focus innovation. These questions include; but are not limited to: What customer segments and geographic areas will we serve and not serve? What products and/or services will we offer - and not offer? What products and/or services are likely to present the greatest potential? What overall results do we plan to achieve?

Most firms simply do not have sufficient resources to pursue all the opportunities which may arise. Clarity on strategic direction increases the likelihood that the firm's aspirations in product, process or service innovations are realized. Let's understand that this doesn't need to be complicated. For some firms, annotating a simple 2X2 matrix as illustrated below may be sufficient to focus innovation efforts.

It is important that the innovation focus be clearly stated as part of the firm's strategy, with clarity around desired outcomes, timing and the potential benefits to customers and shareholders. That facilitates the communication of a clear and compelling vision by the leadership team and is one of the elements that make the difference between being simply a firm which generates lots of ideas and one which is an innovative enterprise.

Broad Based Engagement

The days of relying exclusively on specialist departments such as R&D or New Product Development to come up with all innovations are behind us. The innovative enterprise will involve a broad range of employees in innovation and may extend the maxim attributed to the Internet to innovation as 'anyone, anytime, anywhere.'

How best to engage a broader base of employees in innovation? There are some solid guidelines in Hamel's and Getz's article "Funding Growth in an Age of Prosperity". [HBR July-August 2004]. They suggest that the innovative enterprise should work to increase the percent of employees who are regarded as, and who regard themselves as, innovators. This involves sending a clear message to employees that they are expected to innovate and then providing them with the time, tools and environment to do so. Hamel and Getz cite the Mexican cement maker 'Cemex' as a prime example, recounting that Cemex dedicates nine (9) "innovation days" annually to reap employees' innovative ideas. Hamel and Getz also recommend using innovators outside the firm's boundaries, investing in radical ideas, and taking advantage of low-cost experimentation. They emphasize that radical does not mean 'risky' and offer the example of the Starbucks debit card program - where coffee drinkers pay for their coffee days and even weeks in advance - as a radical, but low risk idea. In all likelihood, the after the fact reaction of the management of other coffee bars was,"Now, why didn't I think of that?" That's innovation.

While there continues to be some debate as to how best to structure innovation efforts, one thing is clear. There is tremendous value in harnessing the knowledge of people from different functional or departmental areas. It's the cross-pollination of people from various disciplines that creates the framework for asking not only questions around how to do it better, how to do it differently, but also - why are we doing this at all - and that often leads to radical concepts in product, service or process innovations.

In terms of reaching outside the formal boundaries of the firm, Hargaddon and Sutton offer valuable insights in "Building an Innovation Factory". [HBR, May 2000] They emphasize the best innovators employ old ideas as the raw fodder for new ideas, a practice termed knowledge brokering, and encourage firms to develop systematic skill in taking an idea that is obvious in one context and apply it in not-so-obvious ways to a different context.

Create an Enabling Culture

What is a culture that enables innovation? First, it is characterized by an environment where success in innovation is prized and failure is not lethal. In the words of Edward DeBono,"It is better to have enough ideas for some of them to be wrong, than to be always right by having no ideas at all". New idea generation will only truly thrive if it is understood that the consequences of failure are not career threatening. That also implies it is important to tear down walls which may have been built up between departments, and nurture a corporate climate in which there is co-operation and collaboration across levels and divisions. Of equal importance is making a concerted effort to eliminate denial, nostalgia, and arrogance that may have built up within the organization.

Then, there is the matter of rewards and recognition. Publicly recognize those who enjoyed success in innovation, and those who tried - even though they may not have made it this time.

Another key element is to encourage the early involvement of customers and suppliers. It is no longer wise to engage in secretive product, service, or process development. This might have been appropriate in the days when management practiced a 'command and control' mentality, it has no place in the pursuit of innovation. On the contrary, conscious effort needs to be taken to assure the early and ongoing involvement of customers and suppliers in the quest for innovative ideas and business practices.

Focus on Intelligent Experimentation

What is intelligent experimentation? It is low risk, low cost effort to test the viability of ideas. Let's face it - the majority of creative ideas often fail to pass the test of economic viability. That is why it has been reported that as few as one in ten new products yield positive financial returns.

So it makes sense to develop the capability of making small investments in an assortment of promising ideas. This not only has the benefit of sending the right message to employees - it is OK to take risk, but also optimizes the chance of identifying those concepts where a larger investment is merited according to Hamel and Valikangas in "The Quest for Resilience". [HBR, September 2003] The authors contend that companies should steer clear of making big bets, and instead should "launch a swarm of low-risk experiments". They cite the example of Whirlpool which involved over 10,000 of its 65,000 workforce in generating over 7000 ideas and launching over 300 small scale experiments. This method is not limited to just product innovation - it holds equal if not greater promise for process and service innovations. This approach emphasizes not how many times a firm succeeds or fails in converting good ideas to money making ventures. Instead it focuses on the value of the successes versus the failures and the performance of the entire experimentation portfolio.

Seems simple, doesn't it? Pursue clarity on strategic direction, engage a broad cross-section of the organization in innovation initiatives, create an enabling culture, and focus on intelligent experimentation. Let's understand this is not a smorgasbord, where one can pick and chose just one or two of these success factors. It's essential to engage in all four. Even then, it's easier said than done.

Why make the effort? Chances are that several of your competitors don't even have a plan to evolve into an innovate enterprise.


Dr. Katalin Eibel-Spanyi is an Associate Professor of Marketing at Eastern Connecticut State University [ECSU]. Previously, she taught marketing courses at Ryerson University, Toronto, Ontario, Canada and was an Associate Professor of Marketing at the Budapest University of Economics. She is a member of the American Marketing Association and a former Director of the AMA's Toronto Chapter. She can be contacted at eibel-spanyik@easternct.edu .

Many more articles in Creativity & Innovation in The CEO Refresher Archives

   


Copyright 2005 by Katalin Eibel-Spanyi. All rights reserved.

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