“84% of executives regard innovation ‘extremely or very important’ to their companies’ growth strategy” [1]
We know innovation is important.
However, our research also tells us that whilst significant time and often money is committed to innovation, few organisations actually realise the improvements they had forecast in performance or growth. The reasons as to why this is the case became the starting point for a workshop “On Becoming an Innovative Organisation” with our BIG Network of ambitious business owners.
To effectively examine this issue, in addition to our team of professional facilitators, we were joined by Marian Garcia, a Professor of Innovation and Marketing. As a former McKinsey Consultant now turned academic, Marian has lead innovation programmes and observed the way organisations successfully innovate across a range of industries, and her recent research delves into the way SMEs can use consumer insights to enhance their innovation performance.
What does ‘innovation’ really mean to you?
The first challenge to the group was to define what innovation really means. What is it that we are actually talking about? In order to facilitate a debate, Marian presented some examples of the way one might conceptualise innovation. Is it…
A new idea?
Some may see innovation as a new idea, an output of a creative thinking process. It doesn’t have to necessarily be a good idea, or something that can be made into a product, just interesting, different or creative.
A new, good idea?
Others may feel that innovation is a new and good or better than previous things in some way. Something can be innovative in concept, before it is a product or a tangible, usable thing.
A successful exploitation of a new idea?
Finally, some people separate ideas from innovations and they draw the line at products or services. To be an innovator means you not only have an idea, but you need to be able to successfully deliver it to the world as a product or service. It is not an innovation if it is not out in the world in someone’s service. So you can take someone else’s ideas, and if you are the first to make a product out of them, you are an innovator.
The iPod was not the first portable music device (Sony popularized the “music anywhere, anytime” concept 22 years earlier with the Walkman); the iPod was not the first device that put hundreds of songs in your pocket (dozens of manufacturers had MP3 devices on the market when the iPod was released in 2001); and Apple was actually late to the party when it came to providing an online music-sharing platform (do you remember Napster, Grokster and Kazaa, all of which preceded iTunes!?)
What made the iPod and the music ecosystem it engendered innovative was not that it was the first portable music device. It was not that it was the first MP3 player, or that it was the first company to make thousands of songs immediately available to millions of users. What made Apple innovative was that it combined all of these elements — design, ergonomics and ease of use — in a single device, and then tied it directly into a platform that effortlessly kept that device updated with music.
Apple invented nothing. Its innovation was creating an easy-to-use ecosystem that unified music discovery, delivery and device. And, in the process, they revolutionized the music industry.
As our Network of business owners debated these examples, they raised the following issues:
- Do truly ‘new’ ideas really exist?
- Are we aiming to promote an evolution or a revolution? A repackaging or a reconfiguration? Are they mutually exclusive?
- Are we really talking about the ability to problem solve, to find different ways of responding to consumer and customer challenges?
- Do we need to be proactive in the innovation space, or can we also be reactive?
The above debate drew attention to the contrast between innovation and invention. What innovation requires is the interplay between a product/service offering (technology) and a market (people). Ultimately, there are no shortage of ideas and invention in the world. The challenge is to introduce these successfully to a market, So:
“innovation is the successful exploitation of new ideas” [2]
Innovation is big business
And why is innovation important? Well, it is big business…
Billions of pounds are spent annually on technical development alone. The challenge of creating radical innovation (totally new product categories) is viewed by business consultant Gary Hamel as “the most important business issue of our time” [3]. New products and services are the lifeblood of every organisation.
And, if you get it right and commit to new product and service development you will be rewarded. For the top new product firms, on average a third of company sales and profits come from products that were introduced in the last three years. For the rest, the contribution of innovation is much smaller, at around 10% [4].
What does it look and feel like to be an ‘innovative organisation’?
How do we know if we are being innovative? What should we be looking for? How should it feel?
This understanding business owners shared at the workshop included:
- the feeling of confidence, excitement and energy!
- constantly looking for opportunities
- reinforcing a philosophy that ‘any idea is a good idea’
- obtaining feedback on the impact that innovation has had
- making time for innovation
- having a clear process
- providing opportunities for all to innovate, and that it is okay to take risks
Increased revenues and an improved bottom line were also raised by the group, but only as a final point. It was recognised that it is easy to state an improvement in measures, like increased revenue or a reduced cost base, however these types of measures only provide us with the outputs of innovation. As such, they do not really help us understand how we might become more innovative, personally and organisationally.
The business owner’s Innovation challenge
So, how do we innovate, successfully?
The group raised five key challenges that they are currently experiencing in the innovation of new products, services and processes:
- focus is essential
- you need to understand the choices you have, and make decisions on innovation
- smaller firms are more nimble and agile than larger firms, so how do they leverage this potential?
- our organisational cultures needs to embrace and support innovation
- we need to commit resources to the innovation process
Beyond this, Marian shared what she felt were the key innovation challenges.
Challenge 1: improving conversion
For every 100 ideas…fewer than 70 make it through initial screening, fewer than 50 pass concept evaluation and testing, a little more than 30 make it through development, about 30 make it through testing, about 25 are commercialized, 15 of these 25 are successful [5]. Improving the conversion rate is essential to maximize your chances of success.
Challenge 2: mastering the front end
The performance of organisations in generating new ideas and then converting these into something of relevance to the marketplace is limited. The majority, just under half of all innovations are only marginally effective when launched [6].
Challenge 3: achieving product-market fit
The true business owner’s problem is to understand who the consumer is, and what the right product or service is.
In competitive markets, the best and strongest firms sustain growth through the introduction of new products and services to meet the changing needs of the consumers. The objective of consumer-driven new product/service development is the creation of the right product to fulfil consumers’ needs and expectations.
What is essential here is to remember that whilst your brand can drive awareness and trials, repeat purchases will only be made if your product/service is liked, regardless of branding. All products have a finite life span and this is influenced by the type of product, its innovativeness, the management of the product through its life cycle and the markets in which it is sold. All products will eventually decline and need to be replaced by new ones and companies need to be adept at adapting marketing strategies to respond to the dynamics of the environment, so as to manage the product through its life cycle effectively.
References:
[1]: McKinsey, 2010. Innovation and Commercialization, 2010: Global Survey Results
[2] DTI, 2004. Innovation, Unit, UK Department of Trade and Industry
[3] Hamel, G. 2002. Innovation Now, Fast Company, November.
[4] Cooper, R.G and Edgett, 2012. Best Practices in the Ideas-to-Launch Process and its Governance, Research Technology Management, March-April, p43-54.
[5] Adams-Bigelow, M. (2004) First Results from the 2003 Comparative Performance Assessment Study (CPAS), in The PDMA Handbook of New Product Development, Second Edition (ed K. B. Kahn), John Wiley & Sons, Inc., Hoboken, NJ, USA. doi: 10.1002/9780470172483.ch36
[6] Booz & Company Inc, 2012. The 2012 Global Innovation 1000 Key Findings, by Jaruzelski, B., Loehr, J. and Holman, R.
About us
The BIG Network provides a space for ambitious business owners to explore, challenge and resolve issues that are central to the sustainable success of their organisations. The Network is led by its members and is prefaced on openness and honesty, mutual respect and confidentiality.
For further information contact Dr Simon Raby on +44(0)1227 824740 or S.O.Raby@kent.ac.uk