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Innovation: Talk or Do?

2007-06-14T17:43:40-05:00

Making Innovation Work:
How to Manage It, Measure It, and Profit from It.

Tony Davila, Marc J. Epstein, and Robert Shelton

Wharton Business School Publishing, Upper Saddle River, New Jersey; 2006; ISBN 0-13-149786-3; 334 pp.

Reviewed by John D. Trudel

This book is about the business side of innovation. I was favorably impressed, to where I put together a seminar linking this work to my own past writings and tested it on selected top managers.

I thought there would be high interest in the topic, given all the talk in the business and popular press about innovation. What I discovered instead is that managers are not willing to invest for much beyond motivational talks (e.g., people with capes in superhero costumes labeled “Innovation Man”) and finding simple rules for how to pick the winners and losers. That’s not the topic of this book. I expect the authors would say, “Innovation doesn’t work that way.” So would I.

Rather the book starts with two key ideas: 1) Innovation is a necessary ingredient for sustained success, and 2) Innovation is an integral part of the business. (pg. xx) If you don’t accept these precepts this isn’t the book for you. You have to believe innovation is a survival issue and be willing to do the work required. Not all CEOs meet these criteria.

It’s not that top managers object to having compelling, high-margin products; it’s that the word “innovation” has been so over-hyped. The subject, as Andy Grove says, “Is so much easier to talk about than to do.” Hard work isn’t as sexy as creativity seminars, making deals, and hoping to win the lottery by doing the next iPod or whatever.

Anyone who’s been successful at innovation can tell you it’s a messy, difficult process. If you accept that, the next question, if you’re a business, is how to manage it.

The first decision is “Who?” and the correct answer is that two levels of management are needed. Top management must set goals, provide support, and monitor progress, but people lower in the organization must be empowered to implement. Senior executives should be involved in setting policy, goals, and strategy, but they should not be intimately involved in designing and operating the elements of innovation. This is a tricky balance. (pg. xxv)

A fashionable topic today is outsourcing, but the book says this is the wrong question to ask. Innovation is simply too important to outsource completely. If you outsource it, you turn your firm’s future over to outsiders. Conversely, if you try to do it all yourself you will greatly increase your risk of failure. In general, success requires perspectives, expertise, and experience from outside your firm. The book argues that the best solution is partial outsourcing, better called partnering. (pp. 100-115)

Bluntly put, innovation is a voyage of discovery where experienced guides and explorers can be helpful. The rewards are great, but setbacks and mistakes are to be expected, as is “organizational resistance” to new things. It’s a difficult art, and, if you don’t tap the right outside viewpoints and expertise, a hard slog.

Finally, we get to the issues of metrics and culture. Innovation is not like a quality initiative where the whole firm is involved all the time. You want the right people involved, and no more. Small, nimble, and focused is better than large, ponderous, and inexorable.

Metrics turn out to be a large part of the problem. Regardless of what management says, what it does matters more. (pp. 25-28)

If your metric is Earnings per Share (EPS), it’s not related to innovation, and, in fact, possibly contra-productive. If your metric is number of products launched, you will at best get small incremental innovations, and, at worst, old products with new names. If you view new products as “R&D’s job” you may get powerful ideas, but will be unlikely to have them fit with what your business units can produce, market, or care about. Few animals will raise the young of a different species; most will kill them.

In short, if your top management views innovation as a corporate survival issue and is willing to invest and do the hard work, this book will be helpful. But if you are looking for motivation, quick fixes, and cost savings, it isn’t for you. I expect it will appeal to only perhaps 10-20% of CEOs, but some of these will be the leaders of tomorrow’s stellar firms.

Andy Grove is right. In the end, it gets down to doing, not talking.

What’s your experience with innovation? Are CEOs and managers willing to do the hard work? Submit your case study on how innovation got or didn't get traction to Janice Scanlan CMC, FIMC.

About the Reviewer John D. Trudel CMC (503/538-1169) helps firms with innovation, business creation, planning, and renewal.

For newsletters and more information about innovation, visit his website.

Opening Pandora's Box

2007-06-14T17:42:26-05:00

Emerging Ways of Doing Business

Some people name iPod as an example of how music distribution has cut out the middleman.

Maybe. Or is there a new kind of middleman? Pandora is an example of a new kind of middleman.

For free, you can build up to 100 radio stations using one, several artists or songs. What Pandora does is allow you to vote on what you want or don't want--but the neatest thing is they play music out of that genre so you can discover new artists. You can also hear clips of music, do research on artists, and, of course, buy music.

What was interesting to me is that Pandora was named on National Public Radio by a 20 year old student one of the six hot trends on the Internet.........but the big thing for marketing people is what a 60 year old woman likes about Pandora and a 20 year old woman is the same--we can discover new artists based on music we already like.

What music we enjoy is likely very different. And Pandora "knows" all of it.

Think about that from a marketing perspective. The possibilities for learning demographic trends to deliver a wide range of product or service segments could potentially expand and apply to any kind of product or service people have an interest.

Especially with a glut of information just a click away--will it be the Pandora's of the world that open boxes of information in ways those interested don't have to search, but can experience?

Just as Pandora is categorizing the "music genome" others such as librarians, professional societies and academics may do the same in other areas.

Is there a Pandora type application in your future?

Do you know of any businesses taking this new middleman approach? Is it gaining any traction?

PS. And Pandora is not just for your computer anymore. There's a new "Squeezebox" that you can enjoy Pandora through out your home with your stereo equipment.

It's not just music. Video has a new search engine.
While they don't have "affinity" built in yet (for example, on Amazon people who bought this book, bought this book as well), check out Blinkx

Copyright 2007, Traction. You are encouraged to pass on so long as attribution is given to Traction.

We'll Know It When We See It

2007-06-14T17:41:18-05:00

If you've ever heard someone say or said it yourself, "we'll know it when we see it." That phrase describes an approach to tackling a complex subject. Just pinpointing an elusive area of your business can be challenging.

And anyone who's approached a multi-faceted issue knows that you wish you knew as much before you got into the issue as you did afterward. So we're inventing and "making it up" as we go along anytime we approach new territory.

Yet we often can't think creatively because we specify too tightly. A simple example: the need is to fasten two boards together, yet just by using the phrase screw two boards together you've limited the ways to fasten the boards together.

Reading the history of Proctor & Gamble in the book Rising Tide (Harvard Business Press, 2006) provides a candid look the starts and stops in developing and marketing new products . . . or making changes in diversity policies in plants for example.

Change is tough.

Tide detergent was such a difficult product to develop, that the R&D manager of the developer required the developer omit it from his project status reports because it was taking so long to work out the problems.

Can you imagine that happening today? It would take a gutsy manager.

Crest toothpaste had real issues of being accepted by the dental community. However, because there was a focus on what customers needed, these products have been two most successful . . . and lasting. So what we have is "staying the course" but also learning as they go along.

However, there's another facet: these successful products were built around customer needs. Have many of our businesses today become obsessed with making a deal or doing a transaction, not with a purpose that serves a customer need?

Contrast Toyota and GM on developing hybrid cars. Even though Toyota may be losing money initially on hybrids they bet on the future. GM dropped its hybrids. Its focus this past spring was trying to make a deal to buy Chrysler--before that Renault and Nissan. The Wall Street Journal never took GM seriously and pinpointed the ultimate "buyer." Yet I wonder how much energy was spent on this endeavor?

Will GM know it when they see it? I doubt it.

Tide, Crest and Toyota hybrids all have one thing in common: solving a customer need. So yes, they knew it when they saw it or when they would have to work on it further.

Except for making a deal, it's pretty uncertain what GM has in mind--and how it solves a customer need is fairly dubious as well.

Can any of the merger and acquisition people tell me how they will know it if they see it? Much less how it will produce any business traction for GM?

Daimler Benz may come out pretty well. Well, maybe not unless divesting will help them move forward.

Business Should Stick to Business

2007-02-22T10:21:26-06:00

Editor's Note: Point Counterpoint articles provide alternative views of topics. This article is in response to a December post on Corporate Social Responsibility and specifically to an article mentioned from the Harvard Business Review, "The Link Between Competitive Advantage and Corporate Social Responsibility" (see footnote 2). The question raised is Corporate Social Responsibility just so much fluff and Should Business Stick to Business?

Business Should Stick to Business

by Alis Valencia

Corporate Social Responsibility (CSR) has arrived.¹ Once pursued by companies at the fringes of the corporate world, it now receives the attention of executives from corporations worldwide. Look beneath the public relations fluff and you may find substantive contributions designed to meet an array of important social and environmental problems. Huzzahs are called for, plaudits distributed. But is CSR good for people and nations?

On a superficial level, yes. Otherwise, no. Although CSR has unquestionable benefits, there need be no relation between social or environmental needs and a corporation’s CSR strategy. Moreover, both society and the environment would benefit more if corporations abandoned the notion of CSR and instead focused on gaining integrity.

What’s wrong with CSR? From a business perspective, CSR is rarely integrated with corporate strategy. From a social perspective, CSR serves various needs but none wholly.

In their recent Harvard Business Review article, Michael Porter and Mark Kramer distill three ways companies can do well by doing good: They can meet social and environmental needs with new products and services; model social responsibility through their business operations; and contribute money and expertise to society in ways that also benefit the business.²

At first glance, these approaches to CSR seem eminently sensible. To approach CSR from a strategic, income-producing orientation reduces the role that personal whim or bias may play and keeps the focus on business. To model social responsibility is another plus, a demonstration of walking the talk. In neither case, however, are we really dealing with social responsibility; both are simply smart business practices.

That leaves Porter and Kramer’s third category of strategically integrated CSR, to invest in the development of an area’s social and economic infrastructure so that company needs can be met. There is no question that such practices by Nestlé, Unilever, Philips Electronics, and other corporations are significant aids to development. Like nonstrategic CSR initiatives, however, these practices produce haphazard, uneven results because business imperatives, not social or environmental needs, drive CSR-related decisions. Worldwide, small pockets of society benefit in multifarious ways, but the rest of society is not helped.

In such circumstances, companies are undertaking a role traditionally filled by government, though on a limited scale. Is this good? Is stepping into the breach to facilitate the operations of a company, and coincidentally benefit pockets of society, the way to meet public needs? Or should we figure out why government fails to meet these needs and make changes to strengthen its capacity to do so?

When we do this we find an inherent flaw in CSR.

We know that corruption, nondemocratic practices, and lack of public funds keep a government from meeting societal needs. We also know that corporate practices contribute significantly to these circumstances. Here in the United States, we see how the revolving doors between corporate suites and government agencies lead to delays in setting regulations and to poor regulatory enforcement. Corporate contributions to election campaigns assure open doors in Congress and state legislatures. Lobbyists are more numerous than ever and play a direct role in writing legislation favorable to their clients. Then too, companies routinely seek subsidies and tax relief, pursue strategies to minimize taxable income, and negotiate reduced fines for illegal acts—and so rob governments’ coffers.

To take from society with one hand and then to give back (much less) with the other through CSR practices is a fine expression of hypocrisy. So too are the contradictions found among the practices of most companies that have adopted CSR in one form or another.

Wal-Mart, for example, even though late to climb on the CSR bandwagon, exemplifies the mixed signals that rebut corporate claims to social and environmental responsibility: The company has committed to reducing energy use and packaging, to recycling plastic, and to selling organic foods and buying organic cotton, but by contrast, the company continues its strategy to minimize labor costs through low wages, part-time jobs, suppliers’ use of sweatshop labor, a flexible staffing program that leaves employees with irregular and unpredictable work hours, and a health plan used by fewer than 50% of qualified employees.

Indeed, it is not as if corporate leaders are anxious to pursue CSR: A 2006 McKinsey Global Survey reported that only 8% champion social or environmental causes out of “genuine concern,” while almost 90% are motivated by public relations or profitability or a mix of concern and business benefits.³

Corporate leaders can pursue an alternative to CSR, one that allows business to stay focused on business, yet benefit society and the environment as well: the Pursuit of Integrity (POI).

When a company strives to have all of its practices consistent with one another and also designed to avoid harming society or the environment, it is engaged in POI. When it takes responsibility for removing the harms it has caused and meets or exceeds regulatory standards, it is engaged in POI. When it responds to a changing environment by aggressively seeking new business opportunities instead of trying to hold on to what it has, it is engaged in POI. When it considers employees a valuable asset and treats them accordingly, it is engaged in POI.

When a company engages in POI, it is increasing the likelihood of continued success.

Many companies use their accounting of CSR practices to pat themselves on the back for doing what they should be doing anyway in response to changing social and environmental circumstances. Why not take a vow of integrity and lead the institution of business away from profit mongering and toward a genuine practice of doing well by doing good?

__________________

¹ For ease of expression I use CSR as an umbrella term to cover socially and environmentally beneficial, as well as sustainable, practices.

² “The Link Between Competitive Advantage and Corporate Social Responsibility.” Harvard Business Review, Dec. 2006.

³ “The McKinsey Global Survey of Business Executives: Business and Society.” January 2006.

Alis Valencia (avalencia@mcn.org) has served as editor of Consulting to Management (C2M) and of At Work: Creating a More Enlightened World of Business and Work.

What's your experience with Corporate Responsibility Programs? Can they provide an organization traction or are they so much fluff? Email our editor with your experience.