In the ongoing battle to differentiate from your competitors and offer sustained customer value, innovation is becoming a critical success factor for most companies. However many of them struggle to define what innovation really means for them, let alone how to go about setting up the conditions to promote and take advantage. Innovation consists of two crucial elements:
One element is no good without the other – invention without application, is just a bunch of good ideas while application without invention is just being efficient at delivering nothing new. Innovation can take many forms. We are, perhaps, most familiar with product and service innovations from consumer-focused organisations like Sony and Apple, where there has been an emphasis on bringing new and superior product offerings to market rapidly. However there are many other sources of innovation, including:
Customer Experience – e.g. Lexus in the US where the customer experience bar was redefined and raised in the executive car market.
Business Processes – e.g. Toyota, using the Toyota Production System, radically redefined the quality and efficiency of automobile manufacturing and distribution – leaving its larger western competitors behind in the space of a few years.
Business Model – e.g. Southwest Airlines, in the US, along with Easyjet and Ryanair, in Europe, have developed a new airline business model to drive low cost, mass air travel and radically re-define the competitive landscape to the detriment of traditional airlines.
The crucial factor to consider is the type of innovation that will bring most competitive advantage for a company. This can range from:
Short-term incremental improvements of current products and services.
Through transitional improvements such as developing and introducing new products and services into existing markets.
Adapting current offerings for new markets.
Disruptive or discontinuous innovation which can involve new products and services using new technology to completely redefine existing markets or, indeed, define new markets.
So why is innovation the exception rather than the rule in many companies? The answer is simple: there is an inherent tension between an emphasis on traditional efficiency and operational effectiveness in running ‘business as usual’ against a focus on innovation – which demands a focus on and investing in the future, in other words risk taking.
Many organisations have invested heavily in improving their operational effectiveness by introducing programs such as life cycle management, lean and Six Sigma. The emphasis is usually on looking at today’s customers, products, services and value creating processes to improve management, efficiency and quality. Lean emphasises value creation from the customer’s perspective – everything else is “waste”; so where does investing in research and development of future products, services and markets fit with this view?
Another key tension is to be found in the concept of “homoeostasis” – that is the tendency for any system to return to equilibrium. This means that any stable organisation confronted with the challenges of change will tend to work against those forces and return to the status quo – albeit unconsciously and not necessarily deliberately.
So how do companies overcome the risk of serving today’s customers and markets with yesterday’s products and services while attempting to innovate for tomorrow’s new offerings? The answer lies in designing an organisation deliberately to foster and encourage innovation.
A company needs to find ways to spur innovation – from creating feedback loops from markets and customers to effective horizon scanning and learning lessons from non-adjacent markets that can be applied to its own competitive space. Processes and practices such as these require investment in dedicated, expert resources that can be focused on analysing feedback and scanning horizons and turning these insights into things that the organisation can respond to.
Second, companies need to find a way to effectively develop, test and incubate new ideas, protecting this process from the tendency of the rest of the organisation to pull things back towards the status quo. Many organisations have separate innovation/incubation units that take such ideas and develop them right through to implementation. These units are able to develop expertise in the process of innovation, which can be deployed on multiple projects time and time again. Staff members can be seconded to these units for periods of time; it’s a great way to bring fresh thinking and also develop individuals, as well as sowing the seeds of innovation throughout the organisation as the staff members rotate back to mainstream roles.
Finally, the organisation needs to identify key decision gates and define measures of success for the innovation process overall. These gates and measures will be different to the traditional ways of measuring performance and they need to assess how future value is being created from investments today – within these decision points and measures should be the value of experience learned from projects that have been tried but not brought to market.
Innovation is becoming more critical than ever to the way a company is able to create sustainable competitive advantage. Yet so many organisations struggle to approach it in a systematic and deliberate way, failing to address inherent tensions and not being able to balance the value of innovation against the, all too visible, costs. The wisdom of “design for what you want to achieve, or get what you get” is especially true for innovation!
By Simon Davies
ON THE MARK’s experience and passion for collaborative business transformation that’s supported by pragmatism, systems thinking, and a belief in people is unparalleled. OTM has been in business for 25 years and is a global leader in organization design consulting.