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‘Innovation’. Just means more new flavours, right?

07 May 2010

Most of us have a fixed view in our minds about the word ‘innovation’, what it means and the impact it can have on the fortunes of any business. But perhaps there are finer nuances to this term that we would do well to consider. David Drew of the US based consulting firm, Kepner Tregoe, believes there’s more to innovation than simply ‘doing new things’, and he makes his case rather convincingly in our newsletter this week.

Much is written in business about innovation, and it usually means developing a new product, market, or service which the innovator hopes will take the world by storm, and turn around an ailing company. It’s the holy grail of product development the world over: everyone from consumer goods manufacturers to budding entrepreneurs are looking for the ‘next big product’ that will set the world - and their bank balances - alight.

The problem with this kind of innovation is that it’s ultimately a race that cannot be won - there is no finish line. Start-up companies and entrepreneurs who have spotted a niche and moved quickly to serve it will, of course, do well…until someone else reverse-engineers their product, out-prices them, or simply produces something that does the job better.

But what of companies that have been long established in their respective markets and have serious, mature competition? What should innovation mean for them?

We tend to think of innovation as ‘doing new things’, whether it is developing new products or services, entering new markets, or refining the way products and services are delivered to customers. A new soft drink flavour; a lower-emissions car; a better-performing smartphone; an easier-to-navigate phone menu on the customer support line - these are all innovations we can recognise, and we think they must be intrinsically good because of all the R&D time the company has put into them.

This is what makes them innovations, right? We assume that all innovations are things that didn’t exist before, and which exist now because we built them, right? Wrong. This typically simplistic view completely ignores a critical element of the innovation equation: namely, that when we talk about innovation, we seldom talk about what we will
stop doing.

Addition by subtraction
Human nature wants to build a better mousetrap. But, corporate realities often require a tighter control on what can be ‘new’. With ever-reduced resources in terms of dollars, people, and intellectual capital, companies can’t just ‘product develop’ their way out of trouble by adding new stock-keeping units to their product line or new markets to their existing portfolio. Every new product or service line (depending on the industry) requires development, sales training, marketing materials, lead generation campaigns, inventory management, billing procedures, pricing schedules - the list goes on and on.

Every innovation an organisation invests in consumes massive resources, not just in the pre-launch planning and development phase, but also in post-launch promotion, selling, maintenance, and support activities. Teams need to keep learning about new products, technologies, sales processes, unique selling points, features and benefits, etc. That list goes on and on, too.

Yet the organisations that most need to change are probably simultaneously reducing their headcount. So, the range of activities a recently streamlined business can support simply can’t keep growing. If some new activities are going to be approved for development and launch, companies will need to find time and money to be freed up in order to enable smaller teams and budgets to drive these new activities.

Therefore, in addition to selecting new things to invest in, innovation now also needs to mean deciding what not to do any more. An organisation with a 50-year heritage making and marketing five different widgets might determine that its new business model actually lies in widget servicing, or focusing on delivering the best possible particular type of widget, leaving a wide range of historic activities in need of speedy retirement.

Eliminating activities that don’t work will only free up some resources. Analysis tools such as Kepner-Tregoe True Cost Performance can identify high-value existing activities for increased investment, and often turns up some valuable and surprising lessons. In addition, organisations will need to make some complex decisions about where to move resources around in order to focus on the most important priorities.

Coulda, woulda, shoulda!
In 2002, when the European B2B telecommunications industry took a sharp downturn, one global telecommunications company was hurriedly scrambling to identify which products, services, and customers were profitable and which were not. Years of ‘innovating by acquisition’ had left the company with a huge portfolio of systems, platforms, services, and clients.

Not only did the company not know which ones were worth keeping and which needed to be divested, but when the industry dipped the organisation had very little human capacity to review and resolve the issue, and just couldn’t move quickly enough. Internal resources were so stretched by supporting all the products and services on the books that no one had the time or knowledge to figure out which ones were viable and which ones weren’t.

If only it had regularly reviewed which products/services/customers were profitable (or at the very least were strategic loss leaders) and acted accordingly as a regular discipline, it would have put itself ahead of the competition before the industry dipped, and subsequently emerged stronger as a result.

This all-too-familiar response is woefully reactive; the business could clearly have been performing this ‘portfolio optimisation’ activity already. Doing this regularly as a programmatic discipline is a corporate equivalent of ‘buying downturn insurance’ while simultaneously positioning the organisation for the perceived better times ahead.

Stop doing stupid stuff
In 2010 and beyond, ‘innovating’ to drive renewal, to effect change in a business, to restore a company to levels of performance seen before the recent recession, means comprehensively behaving in a new way. The organisations that will best position themselves for success are those that behave differently in terms of innovation – making a conscious decision to stop doing those things that no longer make sense strategically, even if these initiatives are still only a few months old. Due to rapidly changing business conditions, organisations must be prepared to go through shorter and shorter decision cycles. This is absolutely a form of innovation, as it requires new behaviour at strategic, organisational, team and individual levels.

Instead of asking “what new products should we be developing?” organisations should ask “what should we be doing differently across the board,” and especially “what should we stop doing?” As a former colleague of mine privately puts it (with his colourful language modified appropriately for this publication): “People need to stop doing stupid stuff.”

In this context, “stupid stuff” means every pet project in a business, which is consuming resources despite being off-strategy.

Innovation, then, is all about strategy. A tightly defined and validated corporate strategy provides a test bed for evaluating the myriad creative ideas any given population of people will generate. In my company’s experience, organisations don’t actually need huge amounts of help with stimulating creative thinking or innovative ideas. The key to success (where the ‘rubber meets the road’) is in correctly identifying which new activities merit investment, correctly identifying which existing activities need to be retired, and simply getting on with doing it better than anyone else - which means faultless implementation.

Everyone’s an “ideas man”
But how can an organisation encourage or stimulate innovative ideas? People are actually pretty good at finding creative and resourceful ways of doing things. Humans have been proving that for thousands of years. They just need the right encouragement, which organisationally is all about establishing the right consequences for the desired kind of behaviour.

When we set about driving sustainable change for a client, we help them engineer their company-wide human performance systems to emphasise and favour precisely the behaviours sought. This can be done across a whole business, with astonishing results. Then an organisation can select for investment those ideas which best meet the company’s strategy and other key decision objectives, such as ‘minimise time to develop’, ‘minimise cost of development’, ‘maximise projected incremental revenue’, ‘maximize projected cost savings from cessation’ or any other criteria the company’s strategy dictates are important.

Creativity, then, is not the only tool organisations need to lever innovation and change. Strategy and implementation are equally important. It is only by doing these three things well, and simultaneously, that we will enable innovation to become a true engine of renewal, rather than simply a programme for thinking up new stuff - the ‘flavours factory’.

The dreaded ‘silos’ and how to overcome them
An inclusive, collaborative process for evaluating what to start and stop doing is also critical. Sales may know things that the service department doesn’t, or finance may have information that operations doesn’t. The challenge is to define a common strategy, align business functions (the ‘silos’) under that strategy, and then provide a common process and language for those functions to exchange information in ways that are meaningful and relevant to all concerned. Only by doing all these things well and in concert can innovation and renewal be driven, from strategy through to execution.

Brave New World
A final thought: innovation, in whatever form it takes, will by definition mean that the individual, team, or organisational ‘performers’ will be moving from the known to the unknown, and may do so with alarming regularity; change is the new status quo. Whether a new responsibility, job, project (for individuals and teams), new product, alliance, or vertical/geographic market (for an organisation), the performers will be moving outside their comfort and expertise zones. In order to do this successfully or even to have a chance of success, the performer will need a toolkit to mitigate their incomplete content knowledge of the ‘new world’ being entered.

What is required then is a set of tools/skills/protocols which will enable the performer to identify, capture, manage, and communicate what they do and don't know, and put in place structured plans for filling in the blanks. A leadership skill-set of critical thinking and analysis techniques gives individuals, teams, and organisations the confidence and energy required to move from the known to the unknown. It also positions those executives who possess such toolkits as true leaders who will motivate and inspire others by visibly demonstrating that moving into the unknown - even if it means stopping doing some things - is not something to fear.

David Drew is global director of marketing at Kepner-Tregoe, Inc., an international business performance improvement consulting firm. He is based at Kepner-Tregoe’s worldwide headquarters in Princeton, New Jersey and may be contacted via email:
ddrew@Kepner-Tregoe.com.

Les Hunt
Editor


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