Structured innovation

Ahead of a forthcoming workshop on structured innovation, Dr Phil Samuel chats to Kate Clifton about definitions of innovation and how it can benefit organisations

Innovation means different things to different people – how do you define structured innovation?
The term ‘innovation’ is frequently used in annual reports, on websites and within company values. If you do a Google search you get more than one million hits. My first question to clients is ‘what does innovation mean in your company’, followed up by ‘is there a shared understanding?’ – and most of the time the answer is no. For some, it’s about creativity; for others it’s problem solving, breakthrough change or paradigm shifts in behaviour. A common definition has three components:

Innovation brings a new idea to life – there is creativity, but it needs to be executed;
Innovation generates value for the customer; and
Innovation generates value for the provider (organisation).

The ‘structure’ aspect is interesting, as for some people the idea of the systematic application of innovation is an oxymoron. They might argue that innovation can’t be ‘taught’. There are certain gifted individuals, who are very good at coming up with ideas, but if you ask them what process they used they find it difficult to explain. There is value but the process isn’t scalable – it’s difficult to replicate with other employees.

The secret ingredient for scalable and sustainable innovation is embracing the paradox of structure. This provides a common framework and understanding, which enables us to collaborate. On the downside, the rigidity can limit creativity. You have to understand that people’s brains are wired differently so ‘zero structure’ is very difficult to work with. It’s time to swing the pendulum towards innovation that is driven with elements of structure and process, while being flexible and accommodating for the different ways in which people work.

How can applying its principles enable organisations to achieve growth?
While achieving consistent growth rates remains at the top of the agenda for most CEOs, many organisations struggle to achieve high growth rate over a long period of time. Research shows that approximately 90 per cent of companies fail to sustain above average shareholder return in the long term. Similarly, over 80 per cent of all venture capital investments fail.

Primary vehicles for growth are mergers and acquisitions (M&A) and organic strategies. Several studies have shown that most M&As fail (for example, one study led by Boston Consulting Group showed that over 62 per cent of the time, M&A destroyed shareholders’ wealth). However, delivering organic growth consistently and repeatedly has been challenging due to poor success rates with innovation.

It has been shown that about 75 per cent of all new products that established companies put into their markets fail. As a result, the management of innovation has generated a sense of high risk and unpredictability for managers responsible for delivering results for the investors. The primary reason for the historical uncertainty and unpredictability is that we have not understood the critical variables that impact growth, innovation and creation of new market space. This reminds us of the state of manufacturing quality over 25 to 30 years ago. We assumed that quality was at the mercy of random events that we had no control of. Today the management of innovation is at a similar predicament. We are beginning to turn the table around in managing innovation and growth through systematic and predictable manner.

What kind of balance needs to be achieved between technological systems and people-centric processes?
To answer this question, we must think about the different type of innovations. A convenient way to think of different types of innovation is product/service innovation, process innovation and business model innovation. Product/service innovation represents solutions we create for external customers. Process innovation represents activities and solutions that are carried out behind the scenes and outside the purview of customers. Often, process innovation generates unprecedented value for the provider in terms of better profitability, cost, productivity and lead times. Business model innovations usually focus on value levers outside of product/service design and core processes. These can take the form of innovations in partnerships, alliances, channels, branding, customer experiences, enabling processes and revenue models.

In addition, we can also think of degrees of innovation in terms of incremental, substantial and breakthrough innovation. This way of thinking enables us to position each of our innovation projects into one of the nine buckets created by the types and degrees of innovation.

Innovations in technological systems are almost always an enabling approach to product/service, process or business model innovation. Internet, Web x.0, search engines, YouTube, overnight shipping approaches such as FedEx and DHL, GPS systems, speech recognition systems, ERP systems and Microsoft Office Suites, are all examples of technological innovations that improved the productivity convenience of our external and internal customers.

On the other hand there are plenty of processes in which technological systems have not replaced the need for human activities. For example, many of our law enforcement and other judicial processes require the intervention of manual problem solving by the human brain. It is the leader of the organisation, not a technological system, who typically determines the portfolio of projects that business decides to execute. However, we are constantly looking for ways to improve human productivity through innovations in automation and decision making using business rules.

How do you measure the outcomes and benefits of structured innovation projects?
The benefits of innovation are experienced by the customer, business, employees and society at large. These benefits can be measured in terms of financial and other tangible values. As a result, one can estimate the return on innovation and growth projects. Other measures relating to risk and failures can also be tracked.

What is the role of six sigma in structured innovation projects?
Six Sigma, for the most, part focuses on ‘doing things better’. Innovation, on the other hand, focuses on ‘doing this different’. Sometimes they appear to clash. It should be viewed like Ying and Yang. On one hand, we want to perfect our existing paradigms and flawlessly deliver on our promises to our customers. On the other hand, we should abandon the very thing we are trying to perfect in favour of a newer paradigm. This is where the notion of ‘ambidextrous organisations’ comes into play. It is the role of leadership to manage the ambidextrous paradox.

Innovation and Six Sigma have much to learn from each other. The paradox of structure suggests that structure is enabling and limiting at the same time. Six Sigma is founded on the idea that structure is enabling. The more it enables, the more limiting it becomes. Similarly, innovation can borrow from the success of Six Sigma structures and apply processes and structures to improve the odds of success from innovation projects.

What should organisations avoid doing?
There is a sense of glamour attached to the notion of ‘innovation’. Organisations should realise that innovation is risky by nature and can be rewarding at the same time. When we have exhausted the potential from an existing system, we must embark on a new system to get the job done. This is also true when no solution exists. Organisations must avoid pursuing innovation just for the sake of chasing a glamorous theme.

What advice would you give to a manager taking their first steps towards implementing an innovation pilot?
First, be clear on what innovation is. A common definition and clarification on the purpose of innovation is a great place to start. Second, it is important to remember that innovation is risky but rewarding. By implementing systematic processes and structures, we can reduce the risk and improve the odds of success. However, the actual risk never reaches zero. Third, we know from history that most innovative ideas were first rejected by the stakeholders of the status quo systems. It takes repeated attempts and endless negotiations before innovations are accepted by the organisations. The following quote from Machiavelli is very apt in this regard. “There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things. Why? Because the innovator has for enemies all those who have done well under the old conditions and lukewarm, indifferent and uninterested defenders in those who may do well under the new.”

Dr Phil Samuel is chief innovation officer at Breakthrough Management Group International (BMGI). For more information visit www.bmgi.com