Friday, 3 August 2007

Innovation – A Key Attribute in Next Practice

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In the book "In Search of BPM Excellence" the concept of "Next Practice" was introduced and discussed as the way of the future for organizations. This article explores one of the key attributes of a "Next Practice" organization, that of Innovation.

The subject of innovation is becoming an increasingly hot topic as organizations all over the world seek to gain competitive advantage. It is a topic, rather like BPM that can be viewed in two ways – to some it can be seen as nothing more than yet another management buzzword or paradigm with little or no value, to others it offers a way out of the current malaise they find themselves in.

But, why is innovation such a key attribute and why do organizations need to innovate more?

Innovation Pays

As we all know the cost of invention can be extremely high and the risks associated can be really off putting. But with innovation we are taking either proven or half formed ideas and learning how to adapt them in order to generate revenue and profit. A quick scan through the history books shows that innovation pays.

The American, Thomas Edison is frequently attributed with developing the light bulb, whereas in fact it was originally invented by the Englishman, Sir Joseph Swann in Sunderland. However, what Edison and his team did was to understand the application of the design and to refine the invention such that it was both applicable and commercially viable and hence it was Edison that made the money and got the association. As a side issue this was just one of the many "inventions" attributed to Edison, where in fact what the Edison Company had done was to perfect other people's ideas to a point where they were able to make money with them.

Depending on how you look at it Irishman, John Boyd Dunlop or American, Harvey Firestone are credited with inventing the pneumatic tire. In fact neither of these gentlemen did, it was in fact invented by a Scotsman, Robert William Thompson. But in the true tradition of innovation it was Firestone and Dunlop who took the invention, developed it further and identified the "Killer Applications" of the day – that of Bicycles and Cars – and it was this innovation that led to Firestone and Dunlop making significant commercial success. (We shall come back to Harvey Firestone in a later article as he was innovative in other areas that differentiate "Next Practice" organizations as well.)

Of course a look at history and innovation would not be complete without a mention of Henry Ford and how he can to innovate around the automobile, but like Firestone his areas of innovation are best covered in other areas of "Next Practice". What is worth noting, given the current dire situation of the Ford Motor Company is that the company that built itself from nowhere on the strength of innovation appears to have forgotten its roots and forgotten what it took to become number one.

Finally for those seeking more current examples of how innovation pays we can look to the technology sector, where organizations such as Google and Microsoft are now household names. Yet in both cases their success did not come through invention but by innovation. Google was seen by many observers late into what was a relatively crowded market, search engines, yet through innovation it has grown to become the number one player in its chosen market. While Microsoft did not invent the PC operating system, what it did was identify a need (IBM's) and created a solution to solve the problem, the rest as they say is history – but not quite, for Microsoft have continued this trend of looking at other peoples inventions and then working out how to perfect them and apply them in such a way that they can generate revenues from them far in excess of what the inventors may have foreseen.

Of course there are countless other examples, too many too mention here, but suffice to say that history has proven that in order to prosper and grow you need to innovate. The concept of innovation brings out some major cultural issues, both with organizations and across national boundaries.

The Cultural Divide: Internationally

The issue of cultural divide is very frightening for forward looking business people in Europe, for as will be seen Europe still lags a long way behind the rest of the world when it comes to accepting, adapting and applying new thinking in business.

In terms of geography we can look at the world as four regions – Asia, The Far East, The Americas and Europe. They are listed in the order of their acceptance of and application of innovation. What is also worth noting is that the reverse order is also true if we were to rank them in terms of their rankings in terms of historical inventions. (Unless of course we were to dig deeper into the history of ancient civilisations.)

The Asian economy is by most accounts still booming, fuelled very much by their export capabilities. As such at a very basic level they are still chasing the faster, cheaper model and doing it very well. But in fact underneath that they are looking at how "innovation" can be applied to the ways they work rather than purely at the products they produce. In countries like Singapore, Malaysia and North Korea they committed very early to the idea of broadband internet, even to the extent of the governments building the infrastructure for the "New Economy". This can also be seen in the way that their managers don't just study the products and services produced elsewhere in the world, but study the way that the rest of the world organizes around that work. Their view is very simple they don't want to simply copy the goods and services we make, they want to find new and better ways of managing work. They want to take the management practices the rest of the world invented and then work out how to apply those practices in new and innovative ways. They are creating a culture where it is normal to keep challenging the way things are done.

It can reasonably argued, that it while the "faster, cheaper" model was perfected in the Far East, it was the Japanese that then added to it by doing it "better" too. The Japanese and now the Chinese have stopped merely copying the goods we produce and have started to improve them, whilst giving us new and innovative devices, especially in the consumer goods market where perhaps the pace of innovation is outstripping our ability to consume the devices and technology! However, as can be witnessed by the recent economic problems in Japan, they have had problems dealing with the innovation required in terms of how they do and organize work.

The America's on the other hand appear to be embracing the idea of innovation with both hands. It is being seen as a key factor in their ability to breathe new life into tired product ranges and to fight back against those "faster, cheaper, better" imports from Asia and the Far East. In the Americas innovation is playing a vital part in helping to reinvent whole organizations, those once giants of Wall Street who are now failing to impress with their less then interesting financial results. Innovation now lies at the heart of so many other initiatives. Forward looking executives have realized that if they can create a culture where change is accepted as the norm and where everyone is encouraged to innovate then they can not only leap frog the competition, but create a position that is far more sustainable than the position they found themselves in during the 60's and 70's and one that is harder to copy. Of course the Americans in particular have an edge in that they have long recognized the power of the customer, they perhaps have just taken a little too long to build on that recognition.

Then we come to Europe, mother of so many of the base inventions we take for granted today, everything from radio and television, to electricity and engines. Where it would appear that management spends more time driving business by looking in the rear view mirror than watching the road ahead! For some reason in Europe we manage to fund an invention but stop short of funding the innovation required to make money from it. In the UK this situation is causing immeasurable damage to the economy as company after company falls prey to buyers from other countries. It has been suggested that if organizations in the Times Top 100 today don't start innovating and fast! Then over half of those companies will find themselves owned by non-UK corporations in less than 5 years, and this applies across all industry sectors. Whether one is talking about innovation, the application of technology or any of the other initiatives underway in organizations around the globe, it seems that European Business is lagging behind. Many observers suggest that the situation is so bad it can only be resolved when the occupants of those corner offices and boardrooms actually die! It seems that Europe is still basking in those glory days of Empire and failing to recognise not just that the world is changing but that it is changing fast.

The Cultural Divide: Internally

Having suggested that there appear to be differences across national borders when it comes to innovation this is nothing compared to the issues faced internally within an organization.

At risk of making a sweeping generalization, it appears that the organizations most likely to innovate are those that are less than 25 years old and in general have fewer than 5,000 employees. It also appears that innovative organizations tend to have strong leadership from charismatic leaders. Of course these rules do not apply in every case buy seem to be the norm.

An example of a larger organization dedicated to innovation appears to be Home Depot in the USA, where they are striving hard to be innovative in everything they do. Their driver is a simple one and one that could explain many of the issues facing retailers in the UK. They have understood that the average life of a retailer in the US is 25 years, from studies they have undertaken they realized that after 25 years the original ideas and concepts behind the starting of the retailer are tired and no longer work. They have realized that in over the period of 25 years retailers get stuck into a certain way of doing things that they can't get out of. Of course, it is no co-incidence that this drive to reinvent themselves through innovation occurred as the company neared its 25th Birthday. But as revenues and profits show this is certainly paying dividends for them as they continue to outpace the market in terms of both sales and income growth. Proof again that innovation pays.

At another level within an organization we can look at the age of innovators. A recent study of 2,000 employees by Vodafone Group in the UK yielded some surprising results. It found that over 29% workers came up with at least one new idea per week, although 25% or workers say those ideas stayed in their head, not surprising really when the survey also found that 67% of people said that management did not listen to their ideas. Of those ideas over half were being generated by staff over 55 years of age. It seems that younger people (16-25) generated the most ideas, but that management did not share the viability of those ideas in the same way.

It would appear that organizations are conditioning staff early about those new ideas until they stop generating them (25-55) before being willing to listen to those wise old heads (55+). This may explain by companies that prosper from innovation are those younger companies with fewer staff, the people willing to listen to those 16-55 year olds before someone else gets the ideas to the market first.

The other factor that decides how innovative a company is likely to be is the reward structure. If we look at organizations in the Healthcare, Utilities, Manufacturing and Engineering fields we would struggle to find many organizations who would be held up to be innovators, whereas in the Retail, Financial and Insurance sectors there are good examples. The difference in these two groups is the likely reward for innovation, in the former there is little or no reward for people coming up with new ideas where in the latter there appears to be a willingness to reward employees who come up with good ideas.

It is also true that in terms of reward we see very little to incentivize staff in the public sector, in fact staff in this sector can be likened to that of many of the manual workers in the Vodafone survey. This group as whole felt that new ideas were not good as it probably meant reducing staff numbers and therefore meant risking their own job security/ An issue of communication for all such organizations on the basis that putting ones head in the sand is hardly a recipe for continued employment.

In order to ensure that innovations works in an organization it must, learn to listen to the ideas from all staff in the organization, find ways to reward staff for ideas that are put into practice, communicate that the ideas used came from staff and finally to encourage people to innovate. Over time it will be interesting to watch as "idea generation" becomes a factor in promotion rather than years served.

Innovation Is For All

The need to innovate applies to all sizes and shapes of organizations. It applies equally to Charities, Local and Central Government Departments, Not-for-Profit Organizations and Commercial Entities. It applies to all sizes of organizations from single person organizations right up to the very largest employer. The concepts and needs for innovation are too strong to be ignored by anyone.

The rationale for this is very simple EVERY organization of whatever kind relies on income from somewhere (and is having to compete harder to get it) and is required to do more and more with les and less (having to keep costs down to a minimum).

To just keep doing the same old things the same old way will only end in failure. To keep doing things a little better does no more than prolong the agony that little bit longer. Only innovation will enable us to serve our customers/citizens better and to ensure our survival in the long term.

As a recent study into the demise of the Rover Car Company in the UK highlighted the company had been doomed for over 40 years. The failure of every team of managers in that time to innovate meant that it was not a question of whether it would fail but when it would fail and who was at the helm when it eventually did.

Note: This article first appeared on Mark McGregor's series of articles on

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