The New Leader's Guide to Innovation
By Sinan Erzurumlu
As a new leader, you can scan key data points stored neatly in spreadsheets to quickly get a handle on financial, marketing, or operational performance.
But, understanding your organization’s innovation performance often takes much longer, and can become a hurdle to an effective first 90 days. The reason? Often there’s not a common vocabulary of what constitutes innovation, so tracking and quantifying innovation activities remains elusive.
For these situations, it can be incredibly helpful to ask a few basic questions: What are the characteristics and types of innovation to examine? Moreover, what’s the right way to begin deploying talent to manage these various types of innovation? With these questions in mind, below I describe three ways to quickly sort and evaluate innovation activities in your new organization.
First, which innovation activities should you consider a part of your innovation portfolio? Look for three common characteristics.
Innovation Is Novel
The first key characteristic of innovation is the new user/consumer value proposition. An innovation attracts users by improving quality, service, or price—or a combination of the three. It generates value by enhancing essential aspects of a product or service. For example, a tablet device such as Apple’s iPad or Microsoft’s Surface presents some advantages (for example, ease of use, accessibility to applications) over a laptop but some disadvantages, too (for example, computing capacity).
Innovation Is Continuous Change
Innovations spark a degree of newness and might differ greatly in the rate and impact of change. Yet, all innovations are eventually replaced by new ones. For example, the first automobile built on the internal combustion technology was a radical game changer with respect to the horse-drawn carriage. The follow-up models throughout the last century introduced impressive improvements in performance, safety, fuel efficiency, and so on, for the consumer.
Innovation Generates Payback
Ideas are abundant, but resources are limited. What matters is to identify which will sustain competitive advantage and generate payback. Think about clean energy innovations. The majority of power needs are met by fossil fuels (coal, petroleum, and natural gas) because current renewable energy (wind, solar, and geothermal) innovations have not yet advanced to generate payback that could trigger mass-market adoption. Once technological and economic feasibility problems are resolved—that is, payback is ensured—clean energy innovations will be accepted as abundant, cheap, and environmentally friendly.
The three key innovation characteristics—novelty, change, and payback—improve our general understanding about the innovations, but innovations target different opportunities, utilize different resources, processes, and partners, and result in various novelties and uses.
A specific type of innovation requires a particular configuration of resources and processes and innovation strategy. To better manage the innovation process, an organization must, therefore, identify the types of innovation in its portfolio.
Product Innovation versus Process Innovation
Innovation can be categorized by its position in the system that creates value. Product innovations are, in general, the outputs of organizations, whether they are goods or services, for example, Apple’s products, Cheesecake factory’s food offerings on its menu, or a new medical procedure. Process innovations are new ways for an organization to produce or market goods or services, for example, Apple’s supply chain or Cheesecake factory’s efficient kitchen.
Although product innovations might be more visible to users and consumers than process innovations, the performance of the organization and the customer value proposition depend on the presence of each. Think about Toyota. Toyota’s development of the Prius hybrid car is a product innovation, while Toyota’s production system, which operates with the principles of lean manufacturing and total quality management, has benefited from many process innovations. Toyota focused specifically on process innovations for improving manufacturing efficiency by empowering its employees and solving quality problems as soon as they were detected. These process innovations boosted the quality ratings of Toyota vehicles and increased Toyota’s profits and reputation.
Radical Innovation versus Incremental Innovation
Innovations might be categorized using newness and level of change. The degree of innovation novelty determines it to be radical (one with a very new and different idea) or incremental (one with relatively slight changes from existing practices). Whether a concept is radical or incremental depends on the view of the user. A solar–powered, 10-watt battery would not generate enough energy to run most home devices (for example, a laptop requires 15–60 watts) and might be considered an incremental innovation. However, in some impoverished parts of the world, 10 watts might result in a radical change of lifestyle; it might allow for charging a cell phone or for providing light for a family at night. In this context, it is radical.
Architectural Innovation versus Component Innovation
Products and processes are composed of systems of components. A component is a physically distinctive part that performs a well-defined function. Innovation can be classified by the degree of change created by innovation in the overall configuration. A component innovation could cause a change to one or more components, but might not significantly affect the overall configuration of the system. For example, a smartphone is a system of major components such as a touch screen, memory, wireless, microphone, camera, processor, and so on. A camera performs the function of taking high-quality pictures, but it is just one particular task for a smartphone. Each major component also contains other components, for example, a camera includes a lens, LCD, cable, and so on. A new version of a smartphone might incorporate changes to one or more components like higher resolution of the touch screen, enhanced picture quality, increased memory, or faster processing speeds, but this might not require a change to the overall phone design.
On the other hand, an architectural innovation might affect the overall design of the system and change the way in which the components of a product are linked together. Think about the first wireless smartphone with a touch screen: it required new components, circuit design, and software. Therefore, the smartphone producers had to make changes to the core design concepts of a cell phone. Further, such architectural innovation is likely to require process innovations that result in supply chain changes to allow for production of the phone.
Whether it is a product or process, radical or incremental, architectural or component, innovation is the outcome of a process. Further, the three characteristics (novelty, change, and payback) of innovations provide the context for innovation management: innovation management indicates the means by which the manager or the entrepreneur creates novel economic and social change by developing ideas with the acquisition and configuration of resources, activities, and partners such that the resulting outcome generates payback.
In this perspective, innovation management comprises a systematic range of processes, routines, and methods that begin with concept generation, design, and development, and continue with market diffusion and growth. In other words, innovation management is involved with planning, coordinating, and developing the strategy for development, deployment, and growth. This strategy is implemented with key resources, activities, and partners that show the rationale of how an organization is fit to translate thought and knowledge into products or services that meet specific user needs. The principle of strategic fit directly inspires a framework for formulating innovation management:
For Successful Innovation, the Organization Must Configure and Acquire Key Resources and Develop Key Activities That Best Fit the Innovation Strategy
Apple, for instance, manages the innovation process of turning novel concepts into leading products that deliver superior value. But, Apple was not merely a design firm. Apple’s innovations also depended on the way it organized activities such as production and marketing and utilized a global flexible supply chain that enabled the company to deliver its products cost effectively and on time to the market. Similarly, the Cheesecake Factory has been recognized as a popular global restaurant chain with a menu that is like a small book. The restaurant’s success depended not only on its food and service, but also on its kitchen process design that enhanced the efficiency and quality of the customer value proposition and supply management.
For Successful Innovation, the Organization Must Forge Strategic Partnerships (with Suppliers, Noncompetitors, and Competitors) That Make the Innovation Process Work.
Besides key resources and activities, an organization depends on key partners for innovations to thrive. In the examples of Apple and Cheesecake Factory, there are critical partnerships for the successful execution of innovation. IBM’s success in the service industry did not come solely from its technological structure, but also from its global network of internal expertise, access to external knowledge, and the company’s innovation process that enabled fast and effective communication within this network. For example, an employee at any IBM office could post a question regarding a project on IBM’s internal network and receive feedback from IBM offices all around the world. IBM also created a Services Innovation Lab (SIL) that would accelerate the expansion of cloud computing, business analytics, services science, and smarter planet™ solutions. SIL aimed to foster the innovation process, commercialize effectively, and turn internal innovations into new revenue streams for IBM. In summary, innovative organizations not only create new ideas and methods, but they also manage the acquisition and configuration of resources and processes, and nurture values for the capability and culture to innovate.
For Successful Innovation, the Organization Must Nurture Values and Culture Fit for Innovative Thought and Action.
Although an innovation might be considered risky, it must have a structure and strategy that will not stop execution. This means making bold decisions that the entire organization must embrace. For example, Kodak’s corporate values that consider photographic film as the core business shut down its innovations on digital photography. Although a group inside Kodak already developed the technology and owned patents for digital photography, the organizational structure and strategy overlooked the developing industry, leading to disastrous bankruptcy of the tech giant. On the other hand, another tech giant—IBM—has traditionally been known for creating robust hardware devices such as computers and servers supported by extensive service systems. In order to stay competitive, IBM increasingly outsourced the manufacture of its hardware devices to overseas manufacturers, and the company ultimately sold the ThinkPad brand to Lenovo. Simultaneously, IBM has increased its service focus using its expertise with product innovations, market power, and service system knowledge. Since then, IBM has generated a variety of service innovations, from IT operations to smarter planet™ solutions.
Of course, this is just a basic evaluative framework to get you started. As your tenure at the firm increases, you’ll be better positioned to think long term, and to consider new questions around Innovation Life-Cycles and S-Curves. But, you can leave those concepts for your second 90 days.