Business innovation - changing companies for a changing world
"We ought not to be over anxious to encourage innovation," wrote the 19th Century English essayist Charles Colton, "For an old system must ever have two advantages over a new one: It is established, and it is understood."
While the maxim might apply in certain situations, it could not be more out of place in the world of modern business.
Innovation, the capacity for a company - be it a small family run firm or a giant multi-national corporation - to come up with new ideas and adapt to changing situations, is crucial not simply for business success, but, in many cases, for actual business survival.
"If you don't change you die, it's as simple as that," says Mindy Wilson of the Confederation of British Industry. "While you may be happy for your company to be average, if you don't make changes and improvements your competitors certainly will be, so in effect you will be slipping backwards."
This need for innovation, for constant development, self-assessment, and where appropriate, re-invention, is not in itself a new thing. As Eric Beinhocker of the Corporate Executive Board puts it: "Innovation has always been economically important, ever since the first caveman chipped a stone axe."
If it has traditionally been a key element of business practice, however, the capacity to innovate has never been at more of a premium than it is in today's climate of economic globalization and rapid technological change, where adaptability can make the difference between success and failure.
"The more stable the world, the less important innovation is," says John Kotter, a professor at Harvard Business School and a world expert on leadership. "Conversely, the more you get flux - new competitors entering the arena, new technologies upsetting your current production lines - the more important innovation becomes.
"At the moment we are living in a period of enormous flux."
Eric Beinhocker agrees.
"The internet and other communications technologies have placed an awful lot more power in the hands of the customer in terms of the transparency of how money is made. For businesses to continue to be successful in the face of this increased transparency innovation is the only way forward."
Professor Julian Birkinshaw, London Business School
"It is imperative for business survival and success for employees to feel that they are actually a part of a business, that the success of the company is their personal success."
Amanda Besemer, president of Abinav Innovation.
"Where does the impetus for product innovation come from? Frustration!"
"If you are innovative, if you are doing something innovative, then people look up and go 'God, that's amazing!'"
Simon Woodroffe, founder of Yo!Sushi
"The fetish of the new and the young is in many cases a real hindrance to business innovation."
Nigel Topping, industrialist
"The main difference recently has been the pace of change," he says. "In the early 1980s you had the idea of sustainable competitive advantage.
"When you talk to business leaders today the notion that any competitive advantage is sustainable has gone away. Success is now based on creating a flow of temporary advantages, and to do that you have to be able to innovate."
New products, new strategy
There are many different types of business innovation, and many different areas within a company to which it can be applied.
"It's not necessarily about something really big and earth-shattering," says Mindy Wilson. "Nor is it necessarily about doing something that is entirely new to the world.
"Innovation is above all about implementing something that is new to you and your organization, the way you do things, what you are producing and so on."
If the concept is a broad and at times abstract one, most business experts agree that there are certain key areas in which innovative thinking can have a particularly profound effect on the development and success of a company.
One is product innovation, the creation of something - a commodity, a technology, a drug, a hospitality or leisure concept - that is either entirely new, or else enhances an existing product, helps move that product onto a higher plain.
"Because the world is a changing place," says Simon Woodroffe, founder, of Yo!Sushi, "and there is so much competition out there, if you can innovate so that your product is better than you competitors' products, or does something different, then you are going to be more successful."
James Dyson, inventor of the "bagless" vacuum cleaner and one of the UK's most admired entrepreneurs, likewise sees product innovation as crucial to the success of his business.
"As a company we are committed to designing, engineering and manufacturing different and better machines," he says.
"I work alongside 350 colleagues in research and development, where there is a strong commitment to product evolution and technological development."
Company strategy is another area where innovation can have a dramatic impact on the fortunes of a given organization.
"Stategic innovation involves coming up with a completely new business model," explains Julian Birkinshaw, Professor of Strategic and International Management at the London Business School. "A new way of thinking about your company, a new way of positioning it.
"Amazon and Dell are classic examples of business model innovation. Amazon.com revolutionized book buying. Dell revolutionized the way computers are sold, cutting out the retail link in the chain and getting their products straight from the factory to the customer."
"One of the key innovations that companies need to make is to look at the small internal processes that drive that company."
Bud Cox, CEO, the Kaizen Institute.
"Innovation isn't just about new product. It's about the successful exploitation of ideas, both old and new."
Mindy Wilson, the Confederation of British Industry
"It is now accepted wisdom that the organization of the future must be flatter, more empowering, less hierarchical and more networked in order to be sufficiently agile and responsive to the ever-more-powerful customer's needs."
Dave Pollard, formerly Chief Knowledge officer with Ernst and Young
"The world is changing very fast. Big will not beat small anymore. It will be the fast beating the slow."
Product development and strategy shifts are perhaps the most obvious type of business innovation, the areas that immediately come to mind when the term is used.
While both are powerful forces for change, however - "sexy" is the word many analysts use to describe them - there are other, less immediately striking forms of innovation that can have an equally if not more profound influence on company performance.
Two in particular are being touted by business leaders and analysts alike as crucial for success in this era of intense competition and growing customer expectations.
The first is service innovation - coming up with new and better ways of serving the customer, of adding extra value to a company's core product.
"We need to expand the idea of innovation away from something that is solely product related," says Mindy Wilson, "And ensure that it encompasses other activities such as services.
"Companies could gain much from looking innovatively at the services they are offering the customer, both in terms of the kind of services they make available, and also the nature of service per se."
Eric Beinocker also attaches great importance to this particular field of innovation.
"The whole area of services is a huge untapped opportunity for innovation," he says. "We live in a service economy, and yet on a day to day basis most people receive a very poor quality of service.
"It's about wrapping service innovations around product innovations, and also about finding new ways to manage front-line staff, deliver consistently high quality service to the customer. These are things that, at present, very few companies are able to do."
The Rolls Royce "Power by the Hour" program is a good example of this type of innovation.
Where previously the company's aerospace arm simply sold engines to plane companies, they now offer a fixed-fee maintenance back-up service for those engines, thus allowing customers to accurately project their maintenance and part replacement costs.
Similarly, the success of James Dyson's vacuum cleaners and washing machines - his company made £46.3 million ($89.83 million) profit in 2003 - is down in large measure not simply to the effectiveness of the product itself, but to the quality of service back-up attached to that product.
"From the start we put a customer telephone helpline number on every machine," explains Dyson, "Something that was deemed odd at the time but is now being widely copied.
"We also have an easy diagnostic Web site that helps people pinpoint and resolve problems themselves."
"Organizations will have to loosen up so that they feel less like organizations to their employees. People want to work in organizations that feel a bit more human, that offer greater flexibility and autonomy."
Paul Miller and Paul Skidmore, Demos.
"An environment where people have to think brings with it wisdom, and this wisdom brings with it the concept of kaizen - continuous improvement."
Teruyuki Minoura, president and CEO, Toyota Motors North America
"After a company gets to a certain size bureaucracy starts killing off innovation. They start looking inwards on themselves rather than outwards for new possibilities."
Professor John Kotter, Harvard Business School
Fixing the process
The second type of innovation that is seen as especially potent in helping companies meet the challenges of a changing world, and to exploit the opportunities presented by those changes, is what is termed process, or management innovation.
"This is about finding new ways of working internally, digging deep inside a company to look at how it actually operates, how things are done," explains Julian Birkinshaw.
"In many ways it is the most obscure of all types of innovation, and yet at the same time the most deep-seated and important.
"If you look back in time at the really successful business innovators, it is often process innovation that underpins their success.
"Ford's assembly line, for instance, was a process innovation, one that gave them untold increases in efficiency in the production of cars."
While process innovation can sometimes involve big ideas and sweeping changes - the aforementioned Ford assembly line being a good example - it is as often as not about making small but telling improvements to basic company practice, improvements which in themselves might seem insignificant, but when taken together can effect a revolution in the way a business operates.
"There is too much attention paid to the idea of big, sexy innovations," says Nigel Topping, an executive with international brake-pad manufacturers TMD Friction, "And not enough to the small nitty-gritty innovations that on their own might not be especially dramatic or exciting, but when combined serve to bring about major change.
"It's what the Japanese call Kaizen - the philosophy of continuous improvement, of thousands of small innovations all drawing on the intellectual capacity and experience of every participant in an organization."
Bud Cox, CEO of the Switzerland-based Kaizen Institute, expands.
"Kaizen is about focussing on what we call the Gemba, the factory floor, the shop counter, the hotel reception - anywhere the day-to-day work is done, basically - and getting things right there, getting the mindset right, looking at the small internal processes," he says.
"It is probably the key innovation any company can make, the driving factor in improving that company."
"Innovation is about businesses not resting on their laurels, becoming more flexible, more progressive, more sexy if you like; installing a permanent culture of questioning everything, looking for improvements in every process."
Philippe Vanrie, Managing Director, the European Business Innovation Centres Network
"The whole area of services is a huge untapped opportunity for innovation. We live in a service economy, and yet on a day to day basis most people receive a very poor quality of service."
Eric Beinhocker, Executive Director Europe, the Corporate Executive Board
The Toyota model
Appropriately for a concept that originated in Japan, it is a Japanese company, car giant Toyota, which, with its Toyota Production System, offers one of the best examples of the implementation of Kaizen.
"Toyota are brilliant at coming up with innovative practices that alter and improve the basic activities involved in production," says Nigel Topping.
"For instance, they have something called the 'Five Whys.' When a problem arises the workers involved are encouraged to ask themselves 'Why?' five times so that they get right to the very heart of the issue.
"It might not be especially dramatic, but it has a massive overall impact on efficiency and product quality. This is something we don't do nearly enough of in the West."
Julian Birkinshaw agrees.
"Toyota is a great example of a company that has systematically built quality into its entire system," he says. "And it has done that by investing in the problem-solving skills of its employees, by saying: 'Our workers are smart people, let's give them the training and responsibility to make things work better on the production line.'"
It is this fanatical attention to detail, the determination to examine and improve every aspect of a company's internal workings, to draw on the skills and knowledge of everyone involved in that company, that lies at the heart of the concept of process innovation.
It is what has made Toyota such a successful organization - third only behind General Motors and Ford in the list of the world's most successful automotive manufacturers - and it is why most analysts now agree that it is to this type of innovation more than any other that companies should be looking if they wish to survive and prosper in the 21st Century.
"The key area that will help companies maintain their dynamism and deal with a changing world is process innovation," says John Kotter.
"This was, is and will remain for the foreseeable future a very important and a very powerful element of how companies remain successful."
Eric Beinhocker is of the same opinion.
"My feeling is that over the next few decades product and service innovation are going to be table stakes, but it is with internal management technologies (i.e. process innovation) that the real competitive advantage will come."
For all that innovation - be it in process, product, strategy or services - is important, however, Charles Colton remains correct in one respect at least: coming up with new ideas and implementing new practices is useless if they do not incorporate the wisdom and experience of the past.
As Nigel Topping puts it:
"If there is one area of innovation that could really transform not just enterprises but society as a whole, it is the ability to build on, and learn from the wisdom and experiences of previous generations.
"If you forget that wisdom then you have to innovate very fast just to stand still."
External LinksThe Confederation of British Industry - http://www.cbi.org.uk
The Corporate Executive Board - http://www.executiveboard.com
Dyson - http://www.dyson.co.uk
Harvard Business School - http://www.hbs.edu/
The Kaizen Institute - http://www.kaizen-institute.com/
London Business School - http://www.london.edu/
TMD Friction - http://www.tmdfriction.com
Yo!Sushi - http://www.yosushi.com/
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