Questioning Innovation

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Business Relationship Manager - Product Lifecycle Management, Chevron Corporation

A dictionary definition of innovation is “introducing something new.” But these days, with the rise of the buzzword “innovation” in the business literature, you’d be led to think that innovation itself is something new. Let’s see if we can net out what’s new about innovation by asking a few questions about this hot business topic.

What’s New About New?

Here we go again with yet another hype curve, the Innovation Hype Curve. Why all the newfound interest in innovation? In short, globalization. Executives fear their companies becoming commoditized as a result of total global competition, and they desperately seek new ways of distinguishing their products and services so they can continue to earn healthy margins. But even though companies know they must innovate, it’s not clear exactly how to go about it in the complex global markets of the 21st century. Is there more to it than just inventing some new gizmo or thingamajig?

Isn’t Innovation Just Invention?

3M’s Geoffrey Nickelson once described the critical point about invention versus innovation, “Research is the transformation of money into knowledge. Innovation is the transformation of knowledge into money.” It was Dan Bricklin and Bob Frankston who co-invented the spreadsheet (Visicalc) that launched the microcomputer as a mainstream business tool. Of course, it was Bill Gates who ultimately transformed this digital invention into real money – that’s “business innovation.”  So, one key aspect of innovation that’s new is the changing focus from invention to innovative new business models and initiatives that bring compelling new value to the marketplace.

Isn’t Innovation About R&D Labs?

Secretive R&D labs used to be the main source of invention. In 1900, Charles Proteus Steinmetz convinced the GE leadership that they would need a research laboratory, and the first industrial research lab in the U.S. was born in the carriage barn in Steinmetz’s backyard. Today, GE Global Research consists of 2,500 employees working in New York (a few miles from the original barn), Bangalore, India, Shanghai, China, and Munich, Germany. But there’s even more to this story; it’s called Open Innovation. Open Innovation changes the game of where ideas come from; they are no longer the exclusive property of internal R&D, marketing, and product development organizations.

What’s Open Innovation? The brave new world of widely distributed knowledge has led to the business proposition of “open innovation.” No longer can companies win the innovation arms race from the inside-out (internal R&D). They should, instead, buy or license innovations (e.g., patents, processes, inventions, etc.) from external knowledge sources, turning the table to outside-in innovation. In turn, internal inventions should be considered for taking outside the company through licensing, joint ventures, spin-offs, and the like. Procter & Gamble, the poster child for open innovation, is determined to move to the position where half of its ongoing stream of innovation comes from outside the company. Don’t confuse open innovation with open source, free software. Open innovation is all about the money to be made. In short, in today’s wired world, knowledge can be transferred so easily that it seems impossible for companies to stop it. Instead, smart companies are going to the ends of the Earth in search of knowledge that they can transform into money.

Aren’t Customers the Target of Innovation?

No, now they are the source! The Industrial Age was about mass production. Innovation was R&D-driven, from the inside-out. It was about supply-push. The Customer Age is about mass customization. Innovation must now be driven from the outside-in. It’s now about demand-pull. It is about turning a company, and its entire value chain, over to the command and control of customers. This new reality demands a shift in our thinking about innovation. Winning companies will be so close to their customers, they will be able to anticipate their needs, even before their customers do, and then turn to open innovation to find compelling value to meet those needs. That, in turn, as pointed out by the late management guru, Peter Drucker, means becoming a buyer for your customers. That means “business mashups” where your company joins forces with suppliers, sometimes even your competitors, to expand your product and services offerings, blurring industry boundaries. Because your customers are your only true asset in the new world of low-cost suppliers, your business model will likely need to be expanded so that you can fulfill as many of your customers’ needs as possible. This is how smart companies are seeking true growth and avoiding commoditization – they are no longer in the product business; they are in the customer business.

Isn’t Innovation An Episodic Event?

Innovation isn’t just about some star in the R&D suite delivering a radical breakthrough, a home run, every now and then. What’s wrong with hitting singles and doubles with regularity? Isn’t it time that we stopped just talking about out-of-the-park innovation and got serious about developing the capability required to manage the complete innovation lifecycle? And companies better manage that lifecycle because in today’s wired world competitors can catch up to your innovation in an instant. Just look at the glitzy new Apple iPhone. Hackers broke the code requiring the exclusive use of AT&T, a Chinese company has a clone under development, and Google is pursuing the gPhone. In just weeks after its introduction, Apple had to cut $200 off of its price due to competitive pressures. Today, it’s not a single innovation; the challenge is to set the Pace of Innovation – once you innovate, then you really have just begun and will need to run hard to outpace your competition.

Isn’t Innovation Just About Great Ideas?

There is certainly no lack of great ideas in today’s wired world. But companies report a 96% failure rate on their innovation attempts. What’s up with that? It’s largely a result of innovation being approached in a haphazard fashion. Today, however, leading companies are taking the unsystematic approach to business innovation and turning it into a repeatable, managed business processes (think Innovation Process Management or IPM). IPM can be compared to the rise of the total quality movement in the1980s, where leaders such as Toyota taught the lesson of quality-or-else. It turns out that quality is all about process. Ditto for innovation. Some companies have already implemented systematic approaches to innovation process management. GE calls it CENCOR (calibrate, explore, create, organize, and realize). The Mayo Clinic calls it SPARC (see, plan, act, refine, communicate).

Takeaway. We’ve touched on some of the key questions companies should ask as they position themselves for total global competition in the 21st century. Forget the old idea that innovation simply means product invention. We’ve seen the need for systematic innovation processes. We’ve seen that innovation certainly isn’t new. Innovation has been around since the harnessing of fire by early man. A new generation of innovation in the material world began when Sir Isaac Newton watched the apple fall from the tree. Yet another new generation of business innovation began when Joseph Schumpeter observed and described capitalism’s power of creative destruction.

The current generation of innovation is customer-driven process innovation, the kind that can transform business models and strategies in the brave new world of total global competition – the kind of process innovation that can transform innovation itself, the kind of innovation that touches, and is driven by, your customers. It’s about new ways of entering new market channels, creating new value-adding services and new ways of anticipating unarticulated customer demands. This is precisely where business process management meets innovation; for you simply can’t do these things without process innovation that enables collaboration across the globe.

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