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May 2010

Channel Chat

Successful innovation

By Jim Pinto

Innovation is the key to generating growth and success in today’s competitive, global environment. It stems from a business culture that encourages and breeds value improvements in all areas.

Innovation is not just the occasional disruptive advance; it includes the process of generating new products and ideas, making steady and consistent changes that yield significant value shifts. Innovation causes improvements in efficiency, productivity, quality, competitive positioning, sales channel selection, advertising, etc.

While it adds value, innovation may also have a negative or destructive effect as new developments change old organizational structures and practices. An innovation process often stems from completely new thinking, which conservative organizations cannot adopt. Organizations that do not innovate effectively may be destroyed by those that do. Consider what happened to yesteryear’s giants like Westinghouse, RCA, and Western Union; they fizzled and withered away with antiquated products and services.

Managing innovation

Innovation has ethereal and elusive characteristics, which cannot be “managed.” Dean Kamen, best known for his innovative invention the Segway, pokes fun at the “management” of innovation. He basically said innovation requires leadership, and management kills it.

Managers miss the point when they try to set aggressive innovation goals. What they achieve is incremental improvements in areas such as development cost, product cost, and quality. Those have value, but they are not the major shifts that bring significant change, explosive growth, and real leadership.

There is a crushing anomaly behind the failure of many declining industry leaders. By focusing on pleasing their largest customers, they pave the way for their own demise. They ignore innovations that initially target smaller customer segments, but evolve to displace leading products and services.

An innovative organization must move forward in the face of old management thinking, old financial ratios, and guidelines and controls. During difficult times, downsizing, streamlining, and cost-cutting often get precedence over new ideas, which are often seen (by old-fashioned managers) as impractical distractions. Innovation usually suffers in cost-cutting drives to protect existing business revenue streams.

Most businesses face the same challenge—overcoming innovation suppressors. Myopic managers continued to drive the annual planning process through rear-view-mirror strategy, with budgets based on last year’s financial ratios, tweaked to produce the desired profit and, at most, making token contributions to innovation through R&D and new-project allocations. Too often, mediocre execution produces poor results and innovation plans are quietly sidelined.

Today, innovation is much more than just designing new products. It is about taking corporate organizations, which were built for efficiency, and rewiring them for creativity and success in fast-moving global environments. It is about reinventing business processes, building entirely new markets, and generating new supply chains that meet global customer needs. More important, it is about selecting and executing the right ideas and bringing them to market quickly and effectively.

The Apple ethos

Innovation does not depend on just one person, or even a few; it stems from a culture that encourages and breeds innovative thinking in the face of accelerating change. The culture, or ethos, is the collective personality that embodies the values, beliefs, philosophies, attitudes, and operating norms.

Three years ago, Apple introduced the innovative iPhone. With well established and formidable major competitors—the likes of Motorola and Nokia—Apple introduced a new design and captured significant market share. The results boosted Apple’s image as an innovation leader and provided the platform for the launch this year of yet another ground-breaking new product, the iPad. From making just computers, Apple has converted itself into a completely different technology leader, selling iPods, music, videos, and now iBooks through its iTunes software and web portal.

Consider the thinking styles in the Apple culture, notable in hits and misses. The company has always had a grander vision. It was not enough to create good products; the aim was to reinvent the product categories. They were not afraid of risk. Key decisions were made not just by Steve Jobs and senior managers, but others who “owned” the projects. At Apple, responsibility is pushed down; talented people are let loose.

Apple’s biggest accomplishment cannot be measured by growth of product revenues or design awards. The biggest long-term impact derives from the company’s culture of innovation and its existence as an incubator of the best designers and engineers. And even when some key people have exited, the Apple culture still thrives.

The benefits of innovation generate growth and success for the winners, and inexorable decline for those who base their plans on yesterday’s paradigms. Study your own company’s innovation processes, and you’ll get clues about its future growth and success.

ABOUT THE AUTHOR

Jim Pinto is an industry analyst and founder of Action Instruments. You can e-mail him at jim@jimpinto.com or view his writings at www.JimPinto.com. Read the Table of Contents of his book, Pinto’s Points, at www.jimpinto.com/writings/points.html.