Yearly Archives: 2012

About This Series

Innovation is always a hot topic. Business leaders are curious about the best ways to generate out-of-the-box ideas.  They worry about keeping great ideas alive long enough to reach commercial success.  And, they wonder if their company has what it takes to drive growth through innovation.

In this series of blog posts, we explore the topic of innovation and address these issues. We tap the expertise of Bruce MacGregor from award-winning global design and innovation firm, IDEO.  And, we share views from our experiences working closely with clients in pursuit of  innovation-driven growth.

Highlights and links to the posts in this series are below.

Highlights

Post	Highlight
What Is Innovation?	“Successful innovation is a 50/50 split between concept and delivery.”
The Ability to Innovate: Nature or Nurture?	“Innovation … challenges organizations by introducing new elements that don’t fit into [their normal operating] model.” “The type of innovation an organization pursues impacts its ability to absorb and leverage … [it].”
An Innovation Success Story	“Western Digital … made products simpler and more beautiful, … growing revenues from $200 million to $1.2 billion in a four year period.”

Introduction

There isn’t much disagreement with the idea that innovation can be a great growth driver. But there are differing views on what it takes to be an innovative company.  Some believe that a revolutionary idea is all that stands between a company’s status quo and meteoric growth.  Companies with this view tend to invest heavily in R&D believing that dollars drive results. 

In our experience, however, growth-through-innovation relies on multiple factors:

• Customer-focused ideas
• A supportive culture
• A reliable innovation process
• Persistence

Data from a recent Booz & Company survey¹ supports our view.  The survey results show that top innovators – companies  like Apple, 3M and GE who have created an ecosystem to support lasting innovation – outperformed top R&D spenders on three key financial measures: five-year revenue growth, average EBITDA and market cap growth.

To take our thinking further, we asked Bruce MacGregor, Managing Partner and Chief Capabilities Officer at IDEO to share his insights on the nature of successful innovation.

Interview

People think of innovation as coming up with a “big idea” — a game changing product or service.  How important is a big idea to being an innovative company?

Successful innovation is a 50/50 split between concept and delivery.  Without a great concept, you won’t change the world or be an innovative company, even if you execute well.  Likewise, a lot of great concepts fail because of poor delivery.  You can’t be an innovative company or get growth from innovation without both a great idea and great delivery.

Are there different types of innovation?

Yes!  Innovation is not always just about world changing ideas.  There are multiple flavors of innovation which we’ve categorized into three types at IDEO:

• Incremental – An example would be extensions of existing offers to similar markets or new marketing offers.  The risk is low; the process change is low; and it only takes one to two years.
• Evolutionary – An example would be engaging a new audience or engaging an existing audience with a new offer.  The risk is medium; the process change is medium; and the timeframe is two to three years.
• Revolutionary – An example would be a disruptive technology that changes what you make, how you make it, or who you sell to.  The risk is high; the process change is high; and the timeframe is five years or more.

Can an organization sustain all three types of innovation or is it best to focus on one type?

Every organization is different but as a rule of thumb, we have found successful firms investing in innovation efforts along these lines:

• Incremental: 70% – Incremental innovations drive the business forward in a predictable way.  Because they are incremental changes, you can predict returns from them using existing product cost, revenue and other data as a baseline.  Incremental innovations tend to be the primary cash drivers of most businesses and are a good source of funds for future and more experimental innovation.
• Evolutionary: 20%-25% – Evolutionary innovation is a hedge against the commoditization of your offer or against the competition.  It’s like buying options.  You’re investing so you have the opportunity to bring out something new at the right time.  For example, when Apple introduced the iPad, there was some concern that it might cannibalize computer sales but also an awareness of the need to develop new markets for the future.
• Revolutionary: 5%-10% – Revolutionary innovations can create massive opportunities but at greater expense and risk.  An example of this is iTunes which required a complete change in Apple’s business model but led to its enormous success and ability to own 70% of the market for music players.

¹ The Global Innovation 1000: Why Culture is Key, Booz & Company Strategy+Business, Winter 2011

Introduction

Ever wondered whether being an innovative company is the product of nature or nurture?  In our experience, it’s a bit of both.  Some companies – like IBM or Apple – seem to be natural innovators.  Others aren’t born innovators or have lost the aptitude over time, but they can learn to innovate better. 

In either case, culture is key.  Even the best innovations can’t survive a culture that kills good ideas. But companies can generate real innovation-based value if they develop a culture that supports innovation and closely align their innovation strategy and their corporate strategy. 

For example, A Booz & Company report¹ found that companies with these characteristics saw a 17% higher gross profit growth and a 30% higher enterprise value growth than companies lacking these characteristics.

We asked Bruce MacGregor, Managing Partner and Chief Capabilities Officer at IDEO to weigh in on the nature vs. nurture argument about innovation.

Interview

Is an innovation capability part of a company’s DNA or can it be learned?

Both.  Organizations are generally optimized around what they do today.  Their DNA has evolved to be efficient at what they do now to enhance their chances of survival.  Innovation is also a way of ensuring survival but it challenges organizations by introducing new elements that don’t fit into the current efficiency model.

The type of innovation an organization pursues impacts its ability to absorb and leverage the innovation.  For example, if you take a revolutionary concept and try to execute it in an incremental way, it will fail.  If the organization measures itself on quarterly share and revenues, it is going to struggle to support the implementation of a revolutionary idea with a five year time horizon.  The culture has to change for innovation to take root.

This is one reason why large corporations often use skunkworks to develop revolutionary ideas.  They allow the team to get out of the day-to-day environment to create something revolutionary.  Once they have a great idea, however, they encounter the next hurdle.  Many times they have trouble when they bring the ideas back into the organization to execute them because the delivery capability hasn’t shifted to accommodate the way things need to get done for the new idea.  Startups, on the other hand, live in the world of revolutionary ideas with evolving cultures and processes that are forming around the ability to deliver radical new ideas.

How can innovations be nurtured?

Six things are critical to nurturing an innovation within an existing organization:

1. Vision – An idea that sets the direction for the change to come (think of Tony Hsieh’s vision for Zappos as a customer service business, not a shoe business)
2. C-level Sponsor – A top executive who supports the innovation direction, gathers support from the rest of the organization, and gives permission for the innovating group to drive to different (innovation appropriate) performance targets than the rest of the organization until that group is part of the mainstream organization.
3. Champion – A person with the humility, respect and authority to 1) build bridges between the existing organization and culture and the innovation team and 2) take the  innovation from concept to reality
4. Roadmap – A map of the steps that need to occur and the associated parts of the organization that need to be involved
5. People Plan – A plan that identifies the specific individuals within the organization with the skill and mindset to move innovation forward.
6. Metrics – Traditional metrics like ROI and NPV measure performance when a product or service is up and running in the marketplace.  Innovation metrics, however, need to measure the ongoing evolution of the organization and the progress of innovations as they move to market (e.g., Did the design group get established? On time? Is it staffed with the right people? Is the group turning out enough new concepts each year? How many of those ideas have gotten to market?)

 

What’s the one thing a company must have to innovate well?

A sense of optimism.  Change is hard and to succeed at being innovative, companies need to move from a vision to a sense of ownership about the innovation, from something they see as a possibility to something they take on and work every day to make a probability.  Most companies are not set up to have an optimistic attitude about change and they struggle with moving from possibility to probability.  So to succeed they have to believe that the envisioned reality – the future value created by the innovation – is going to be better than the status quo and therefore worth investing in to get there.

¹ The Global Innovation 1000: Why Culture is Key, Booz & Company Strategy+Business, Winter 2011

Introduction

Innovators at some companies, particularly in the technology arena, believe that customers can’t drive innovation. We disagree.

While customers may not be able to design the innovative products they will ultimately use, they can describe their challenges, their needs, and their likes and dislikes.  In our view, understanding customer behaviors and meeting unmet needs is what drives successful innovation.

We aren’t alone in this view. Innovation professionals from 40 companies around the world responding to a Booz & Company survey¹ chose ‘a strong identification with the customer and an overall orientation toward the customer experience’ as the most important cultural attribute in achieving innovation success.

We asked Bruce MacGregor, Managing Partner and the Chief Capabilities Officer at IDEO to share an IDEO innovation success story with us about an innovation based on customer insights.

Interview

Which company surprised you as an innovation success story?

Western Digital was a great success story.  They were a distant third in the marketplace when we started working with them to create a cost-effective but differentiated design that would help them establish a leadership position in the external hard drive category.

We looked holistically with the division at the meaning of data storage, finally coming up with the concept that meaningful things like photos and music are often stored in books or albums that protect, organize and make accessible important parts of a person’s life.  The resulting innovation transformed the storage unit from a functional square metal box to a device called the MyBook which looks like a book standing on end with a rounded spine and user-friendly features.

MyBook was the first in a series of physical and digital products that created new market opportunities for the external hard drive division of Western Digital.  Each of these new opportunities came with new implementation challenges for the organization.  The company has always been driven by technical innovation and was now taking a much more human centered and iterative approach.  The new approach led to changes both in how the products were perceived and marketed and how they were engineered and built.

Although it was a lot of work to incorporate these changes, the division was able to evolve and deliver a series of successful innovations.  They made the products simpler and more beautiful, taking the MyBook, for example from 14 parts down to two.  They expanded distribution to mass market stores like Target and Walmart and even Apple stores.  And, they achieved the number one hard drive share position in the Americas growing revenues from $200 million to $1.2 billion in a four year period.

Key Things to Know about Innovation

• You don’t have to change the whole organization to benefit from innovation but you do have to know how to sustain your own culture of innovation
• Be realistic — don’t assume it’s all going to be easy or you won’t plan for the difficulties
• Innovation involves both rational and emotional elements; the emotional elements are harder

¹The Global Innovation 1000: Why Culture is Key, Booz & Company Strategy+Business, Winter 2011