Results of interviews with corporate executives and senior innovation officers in four of the largest publicly-traded companies and one government agency in the Chicago-area, provide some insights into how businesses approach innovation.
The dictionary defines innovation as ‘the introduction of something new’. Regardless of the type of innovation – whether it be product, process, or service – it results in significant change. This change could be as simple as ‘changing the way we do something routine,’ a breakthrough which provides a substantial benefit to the customer, or one that dramatically increases the revenue or profitability of the company.
Participants interested in breakthrough innovation believe ‘if innovation doesn’t deliver bottom-line results, it is just creativity’. Indeed, the very definition of innovation for Afuah (2003) is ‘invention plus commercialization.’ The relationship of innovation to financial performance was well demonstrated by Kirn and Mauborgne (1997). In manufacturing environments, they found that while 86% of product launches involved some small improvements to existing models – that is, incremental changes – they accounted for only 62% of total revenues and 39% of total profits. The remaining 14% of launches – the real breakthrough innovations – generated 38% of total revenues and a huge 61% of total profits.
Innovation may offer one significant way that companies can gain advantage. Utterback’s (1994) concept of ‘dominant design’ provides insight into how an innovation can create a temporary monopoly situation that will weaken competitive forces; however, when an innovative product or service is launched, rivals typically begin to copy it (once patents run out). Hence, it is necessary for the company to continuously seek further ways to innovate.
Every innovation process has its strengths and weaknesses, but it seems that when a company sets up a systematized innovation process it communicates the importance of innovation to the entire organization. In these companies, more resources are devoted to development. The best companies have learned to systematize the process (Hargadorn & Sutton, 2000).
The primary disadvantage to having a structured innovation process is speed to market – the more structure, the longer the lead time is from idea to product. The only company that described its process as ‘quick’ did not have such a process. Employees were empowered to solve problems and create new products for the customer by responding to demand. While this benefits customers, the company stated it lacks systems to share learning with other segments of the organization. A potential disadvantage of this approach, according to Utterback, is that evolutionary change can be missed when companies are too focused on pleasing customers.
The most challenging aspect of any innovation is determining marketability. No company said it lacked creative ideas or creative people, but many ideas require significant resources to test, develop, and launch. Millions of dollars are at stake, so an element of risk-taking is required.
Taking risks is generally defined as being able to drive new ideas forward in the face of adversity. Publicly-traded companies have a major dilemma. To guarantee a leadership position, they have to stay on the leading-edge of innovation. This requires a long-term approach and a high tolerance for risk. Investors, especially in a down economy, want short-term results. As investors’ tolerance for risk decreases, so does the company’s ability to take the significant financial risk necessary to create breakthrough change; however, most recognize that investing in innovation is the ‘right thing to do’.
One company actively pursues a rather unusual strategy of ‘acquiring’ innovation by purchasing other smaller companies or partnering with specialized companies. This enables the acquiring company to bring a product to market more quickly and gives the smaller company access to funds it might not otherwise have.
How can a company involve all its employees in the innovation process? It may be as simple as requesting new ideas. A brainstorming session during a staff meeting need only take 30 minutes. Another system is to use existing ‘suggestion box’ processes. Involving employees in idea-generation can reap some large benefits at a very low cost. Only modest monetary rewards are necessary for successful innovation ideas, especially since many companies have found that employees place high value on recognition.
In most organizations, teams are extensively used to evaluate ideas, but rarely to generate them. Companies need to learn how to construct teams for the purpose of innovation. A team member should be selected based on their tendency to be more creative or more risk-taking. This could markedly increase innovation output. According to Hargadorn and Sutton, using teams to capture and share ideas is one method of keeping ideas alive – a key step in the innovation process. Good ideas need to be nurtured by teams and incorporated into the information and communication systems of the company.
In conclusion, innovation can be difficult to structure. It is the authors’ perception that even the most innovative companies in the sample underinvest in market research during the concept refining phase.
Risk could be reduced considerably by adoption of this strategy, but, of course, it could not be eliminated.
Most of the ‘problems’ cited by participants were due to a low tolerance for risk – by employees (what they would or would not say), and by committees (being afraid to invest money without knowing the return on investment). Raising the risk tolerance would reduce the amount of analysis required to bring a new idea to market, thus shortening the cycle time of new product/service development. According to psychologists Kahn and Hirshorn, people come alive when they feel safe. It is threat and anxiety that inhibit them. It would follow that in order for people in organizations to take risks, lack of success must be tolerated. The organizations that manage risk most effectively transform those risks into challenges and opportunities.
Questions 27-33
Look at the following theories (Questions 27 – 33) and the list of experts below. Match each theory with the correct expert A – E. Write the correct letter A – E in boxes 27 — 33 on your answer sheet.
NB You may use any letter more than once.
27 A business cannot rely on the success of one good innovation.
28 A group approach is an effective way of generating innovation.
29 Employees are more creative in a culture that accepts failure.
30 Radical innovations will provide greater income than minor changes.
31 Businesses with a structured approach to innovation are more likely to succeed.
32 Innovation consists of a new idea combined with business potential.
33 A business that concentrates on responding to clients’ needs may overlook the need for wider development.
List of Experts
A Afuah
B Kirn and Mauborgne
C Utterback
D Hargardorn and Sutton
E Kahn and Hirshorn
Questions 34-40
Complete each sentence with the correct ending A-I below.
34 Unfortunately the development of an organised innovation process……………
35 One of the most difficult issues in innovation…………
36 A company wanting to maintain a leading position in business…………
37 A different approach to achieving innovation…………..
38 Getting staff to come up with new ideas…………….
39 A recommendation for companies already committed to innovation…………….
40 Problems experienced by companies participating in the study……………..
A can be to develop a sympathetic manufacturing environment.
B must put time and money into innovation.
C can be a very cost-effective way of achieving innovation.
D may require a more sophisticated communication system.
E may give rise to a lengthy period between initial concept and launch.
F could be attributed to an unwillingness to accept risk.
G can be to work out the saleability of a future product.
H would be to put more money into the analysis of customer demand.
I might involve collaboration with another company with particular expertise.
