Innovation has never been more important to companies as it is now. The recession is creating new needs and new forms of value are needed to fulfil them.
Yet there remains a yawning gulf between business leaders’ rhetoric on innovation and the reality on the ground. So what holds our companies back, and why is breakthrough innovation so rare? Here are seven factors that prevent successful innovation.
- Professional Management. Robert Sutton has described how, following its early success with Lotus 1-2-3, new senior managers were brought into Lotus to lead its ongoing growth. The problem was that these new managers had big company backgrounds and were not used to working in a young, entrepreneurial business. Innovation quickly stalled. As a test, the chairman then disguised the CV’s of the first 40 people to join Lotus and sent them to the recruitment team. Not one of the 40 was offered an interview, signalling that the company was screening out innovative people.
- A desire for a magic pill, not a daily exercise regime. Nothing fails like success. All products, services and even organisations will, at some point, fail. The only way to prolong success is, paradoxically, to destroy it and create something even more valuable. This requires innovation as a way of life rather than as an isolated change programme. Over the past 10 years at Whirlpool, for example, many thousands of people have been coached to use innovation-based tools, embedding innovation as a core competence of the organisation. According to Whirlpool’s annual report, this systematic approach led to $2.5 billion sales in new products in 2007, and a pipeline of $4.5 billion.
- An unwillingness to cannibalise sales. Economist Joseph Schumpeter called the symbiotic link between innovation and the elimination of existing forms of value ‘creative destruction’. If you aren’t willing to destroy, you aren’t willing to innovate. All technology companies know that they must consistently add new features at lower prices if they want to stay ahead in the market. The same principles are true in other markets and Gillette, for example, has consistently strengthened its leadership in razors through its willingness to make its existing ranges redundant.
- A reliance on a small cadre of innovators. Quantity of ideas creates quality, and quantity requires broad involvement from a large and diverse group. Relying on a small business development team to identify, create and deliver game-changing innovations is simply unrealistic. You have to cast your net much wider. In the past 5 years P&G has dramatically increased its willingness to work with external organisations. From developing all its new products in-house, P&G now finds and develops at least half of its new growth ideas through its external networks.
- An excessive customer focus. Professional managers, as discussed above, are great at honing existing solutions to existing customers. The problem with innovation is that people are poor predictors of their own future behaviour when confronted with something that is radically new. For example, when Renault designed the Twingo in the late 80’s, they tested this innovative small car with consumers. A majority of those tested did not warm to the car, but a small minority loved it. Renault held their breath and went with the launch. The Twingo went on to be one of their greatest successes. Because it was so innovative it initially shocked the majority of car buyers who needed time to appreciate its benefits.
- An intolerance of failure. The Business Week #1 top tactic for innovation, as expressed by leading innovators, was to ‘experiment fearlessly’. Nothing works first time, so you may as well get it wrong as soon as you can. If you cannot accept failure you are unlikely to see too much innovation, no matter how much money you throw at it.
- Setting and rewarding incremental goals. Incremental goals have a good chance of being delivered by making the current organisation work that little bit harder. Goals that significantly raise the bar can only be achieved by doing things differently. Tesco, for example, has announced that it has a five-year profit goal of £1 million for its Retail Services division. This goal can only be achieved by changing the way things are done and by introducing new forms of value for customers.
The bottom line
How many of these factors are present in your company? Until you are willing to set big goals, welcome failure, lead rather than follow customers, involve your whole organization and beyond, cannibalise your existing businesses, see innovation as a way of life and recognise the limitations of professional management, you are unlikely to make real and material progress.
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