What can executives of small and medium sized firms infer from these soaring survey stats?
- While high-tech, venture startups are born innovative, "big" companies are typically in mature (manufacturing) industries populated with commodity products, intense price competition and bureaucratic resistance to innovative change. But, they have the bucks to invest in formal innovation management methods.
- Lean, defect-free production methods and computerized equipment have been put in low-cost Asia in excessive capacity to export back perfect clones for most traditional branded goods. Because of plunging communication costs, jobs in back offices, call centers, and many more support areas are also migrating to Asia. "Automation, Asia and abundance" is eating away at US jobs and the corporate profitability of traditional, branded, cash-cow products at an accelerating rate. As in past waves of economic "creative destruction", lots of firms and the US at large will have to invent new solutions that will require new domestic jobs.
- Most first-world, big companies are not making enough profits to fund their pension plans and small businesses can’t afford health insurance. Today’s profit gaps in mature industries are really innovation gaps. Businesses need new ideas and ways for making money.
(P.S. Because 85% of small and medium sized businesses are also in mature industries and surrounded by internet realities, they too must innovate.)
CAN WE TURN THE ART OF INNOVATION INTO A SCIENCE?
If "innovation" is the need, then the consulting firms, research-oriented business schools and authors have rushed to create a flood of solutions. The traditional, messy, happenstance, art of innovating has started to become, at least for some companies, a journey towards management processes that will deliver consistent innovation. Consider these out take quotes from an interview Fortune Magazine had with the CEO of P&G, A. C. Lafley in 2004 that got – no doubt – a lot of CEO followers including Jeffrey Immelt of GE:
"The P&G of 5 years ago (’99) depended upon 8000 scientists and engineers for the vast majority of innovation…. The P&G we are trying to unleash today asks all 100,000+ of us to be innovators… We are trying to get 70% of our new technology from outside the company."
Perhaps a first step to thinking about innovation as a management practice is to define the term. Here’s a pithy definition that has four distinct elements to it:
"THE PROFITABLE IMPLEMENTATION OF STRATEGIC CREATIVITY"
Here’s an immediate problem: most companies are quite mediocre at all four elements – strategy, creativity, execution, making money – within this definition of innovation. Doing them all well in an integrated way may seem daunting, but let’s take a deeper look.
Both strategy and creativity are usually limited by company and industry groupthink unless management has consciously surfaced, defined and then modified the collective, mindset of the team. At future planning meetings, CEOs must start asking themselves and others out loud: "What are the assumptions and facts that have lead us to think and do (some conventional practice)?" If underlings are assured that they won’t be criticized for asking the question, new conversations and wisdom will unfold.
Most companies also fall short on good implementation or execution for many reasons. Some of the most common are:
- Many types of fear within most employees cause enough resistance to change.
- Most people don’t really have a clear understanding of what is to be done and why it benefits them, so they don’t give change their all.
- There is a general lack of time, funding, patience and implementation skills at the profit center level to do proactive initiatives. At lean-and-mean organizations, everyone is so busy working in the business to make monthly numbers that they don’t have time and slack resources to work on the business. And, why would a firm want to do new things when they are still struggling with how to improve basic (service) execution performance?
Profitability, the fourth factor, is a by-product of the first three elements of the innovation definition. But, aggregate, financial-number reporting for profitability usually masks the huge cross-subsidies that co-exist within most businesses. Super profitable products, employees and customers all offset their super loser counterparts. For momentum purposes, most executives need to get more courageous and innovative about weeding losers to feed winners before they go out of business or a turnaround firm buys them to do it for them.
By shaping up or out losing elements of a business, a company can generate the slack resources to then:
- Find innovative ways to retain super winners and take them to the next level.
- Find innovative ways to crack the less than 5% of all mature industry accounts that will generate over 80% of the future profitable growth for the industry and its would be suppliers.
- Finally, invest the new momentum, confidence and free resource flow into more innovative possibilities including changing the underlying strategic model of the business. We shouldn’t try, however, new, big stuff before we have reinvented the basics of what we have been doing.
QUESTIONS TO THINK ABOUT BEYOND THE DEFINITION FOR "INNOVATION"
- Reweaving our corporate DNA to become more innovative is a journey, what are the first few steps?
- Shouldn’t we first assess how successful we have been at doing different levels of innovative change over the past few years? Why don’t we list all of the things we planned to do over the past X years and see: a) how well we did them? And, b) how much sustainable profit power did the changes add to our bottom line? Were most of the successful changes minor ones that were apparent and easy enough that our competitors did them to yielding no competitive advantage? Should we revisit some of the major improvement efforts that didn’t pan out?
- Is there a quick, inexpensive experimental way that we can get an outside view on how innovative we are? (try this one: