Crafting an Innovation Strategy

How does a firm reliably innovate time and again? Choosing those approaches that play to your company’s strengths can be the difference between success and failure.

By Dev Patnaik and Colleen Murray

A hunger for internal growth has made billion company. An 8% organic growth rate innovation a critical mandate for top for GE would amount to generating $13 billion executives. As a result, many companies have in the first year alone – equivalent to creating a turned to an emerging group of innovation brand the size of Nike every year. Put in terms methodologies. Still highly varied in approach of another popular innovation, GE aimed to and reliability, these toolsets fuse right- and create the equivalent of what was at the time left-brain thinking, often drawing upon four new iPod businesses every year. Clearly, methods from anthropological research, turning GE into an innovation leader is no industrial design and business planning. The easy task. Moreover, it points to the real idea is that if companies discover unmet challenge for business leaders looking to drive customer needs, they can then develop clever new growth on an ongoing basis. Sponsoring and compelling new offerings to help drive one, two, or even several innovation projects growth. Indeed, many of these approaches do probably won’t satisfy the appetite of a large seem to yield repeatable results. Yet most of company. The problem is just too big. What’s their successes involve an individual product needed is a systemic approach to identifying or project. Promising though they might be, and developing new opportunities that can be it’s unclear how these tightly focused scaled across a large organization. approaches can satisfy the growth needs of a large company. A new crop of executives have emerged in the corporate world to meet this mandate for Consider, for example, the mandate set by innovation. Many firms have appointed Jeffrey Immelt, CEO of General Electric. In Directors of Design, VPs of Innovation, SVPs 2004, Immelt launched an initiative to make of New Business Development and CMOs, GE a global leader in growth and innovation. tasking them all with one mission: Make In doing so, GE aimed to increase its organic innovation happen for the company. Show us growth rate to 8% from a historic average of how we can be more like Apple or Nike. Help 6%. The scale of that challenge becomes us unlock our great ideas. Such directions clearer when you consider that GE is a $160 from the top don’t always mean the same Crafting an Innovation Strategy

thing. Some CEOs want to see more wacky many companies proceed to make the same creativity. Some want ways to stay a bit ahead mistakes when trying to spark innovation. of the curve, coming up with a slightly better solution to the latest problem. And others 1. Over-reliance on pilot initiatives. want to radically disrupt their industries. “We’ll be more innovative if we have more brainstorming sessions.” For anyone on the front line of delivering In an attempt to take action quickly, some innovation for a company, it’s imperative to companies initiate projects that focus on a define what innovation means in general, single product idea or a promising near-term understand how it applies to your organization opportunity. Alternatively, they latch on to a and put together an action plan for how to single technique, such as ethnographies or facilitate innovation within the company. As brainstorming. Invariably, these initiatives part of our innovation strategy work for work brilliantly in some situations and fail in clients, we’ve had the opportunity to examine others. Moreover, many companies eventually many of America’s leading companies find that the scale of impact required is too firsthand. This includes both direct audits of massive to depend on a single approach. our client companies as well as benchmarking of competitors. We have conducted both 2. Unhealthy fascination with unique charismatic examples. formal interviews and casual conversations “Steve Jobs is so cool…we need to be more like with a broad sample of business leaders him.” directly responsible for innovation in fields It’s difficult to have a discussion on innovation that represent the full spectrum of industries. without invoking the names of charismatic Finally, we have drawn on the extensive visionaries like Steve Jobs or Richard Branson. documentation of innovation methods and Apple and Virgin, along with Nike, Starbucks practices published over the last several and other media darlings, certainly make for decades to get a full survey of the landscape. great storytelling. Unfortunately, they also Through this process, clear patterns have serve as lousy models for the rest of us. Such merged, both for success and for failure. cases too often depend on a kind of business Understanding these patterns can help a firm leader that is, for better or worse, nonexistent to avoid common mistakes that companies in most companies. If you work for Steve Jobs, make, and craft an innovation strategy that has innovation seems like a fait accompli. If you an increased likelihood of success. don’t, the only useful lesson seems to be to quit

your job and go work for Apple. Either way, Common Mistakes When Trying To there’s no assurance of an approach or Spark Innovation methodology that can be generalized to other

situations or that is likely to outlive the There’s an increasing amount of literature charismatic visionary in question. concerning innovation in both the general

press and mainstream business journals. 3. Misapplication of other companies’ Many of these pieces focus on the need to approaches. account for different types of innovation. “P&G is using a Connect and Develop strategy, They remind us that innovation isn’t just so we should, too.” about products, and that firms need to It can be more enlightening but equally consider innovation in services, supply chains, dangerous to emulate the approaches of other business processes and channels. They’ve been companies. Of late, Procter & Gamble has asked to consider something more ephemeral received much attention for its “Connect and called experience innovation. As interesting as Develop” strategy, whereby the company these typologies are, they’re of limited utility to reaches out to promising entrepreneurs, business leaders, if only because they describe scientists, and consumers in the hopes of the various possible outcomes of innovation mainstreaming the ideas that they present. work without suggesting how to practically get IBM has received similar praise for its there. Without more actionable advice, too

experiments with “Open Innovation.” Such even moments when individuals or teams strategies are far more useful than those that within the organization were at their most rely on charismatic individuals. At the same innovative. And do more of that. time, these approaches work because they’re tailored to the conditions of the companies in The concept of playing to your strengths goes question. “Connect and Develop” is a back to the fact that companies are ultimately wonderful strategy for P&G, because of who groups of individual people. As any great P&G is, the categories that P&G plays in, and manager, coach or teacher understands, the structural systems and DNA of the individuals are far more likely to improve company. But just because something is good when coaching focuses on what’s going well for P&G doesn’t mean it will be good for the and encourages more of that. Comparisons to rest of us. The mechanical application of other people often produce dismal results, inappropriate methods has led to the failure of especially when the metrics of success are more than one innovation program. ambiguous. Anyone seeking tangible evidence of this need only go home tonight to one’s 4. Descent into a cycle of self-recrimination. spouse, talk fondly about a co-worker’s “Our people just aren’t creative enough.” behavior and suggest that their spouse act Looking to external sources of inspiration can more like that. Concern for the general safety sometimes have further unintended of the reader insists that we recommend this consequences if the firm decides that they can tack remain theoretical. People, individually never measure up to the level of outside or as a group, simply don’t respond well to exemplars. It’s not unusual for innovation getting told that they should stop acting like planning teams to benchmark other themselves and start acting like someone else. companies only to come away feeling that their And yet, as obvious as this mistake is on a own problems are insurmountable. human scale, it’s a mistake that companies commit all the time. Seeking to improve their 5. Resignation to superficial changes. firms’ capacity to innovate, otherwise savvy “Let’s just paint the walls purple.” executives will too often look to examples of Perhaps most depressing of all are companies other companies that they can emulate. that turn away from significant structural Though intended to inspire, such methods improvement in favor of cosmetic changes. ultimately do more to demoralize employees After benchmarking several Silicon Valley than anything else. companies, one firm noticed that many companies had yellow and purple walls. The In fact, people are much more easily persuaded team went back to their offices and painted the to change when they are reminded of key walls yellow and purple, thinking that this moments of strength. Researchers at Case might actually make them more innovative. Western University discovered this principle While paint color does affect behavior, and on an organizational scale in the 1980s. David there’s something important to be said for the Cooperrider and Suresh Srivastva developed a effect of environment, such initiatives alone model for organizational change called usually aren’t enough to fundamentally change Appreciative Inquiry. The model suggests that, the behaviors of an organization. rather than trying to fix those things that are bad or wrong with your organization, it’s Play to Your Strengths better to look internally to see what a company is already doing well, and then figure out how How then does a company become more to replicate that success. When business innovative? The short answer is to play to leaders devote their energies to figuring out your strengths. Look at what you actually do ways to promote and amplify what already well in the world and see how those examples works at their companies, their approaches to can be extended. Decrease your reliance on change and innovation hold a substantially external benchmarking and case studies alone. higher chance of success. Instead, identify those projects, meetings or

The notion of playing to your strengths has The key to playing to an organization’s profound implications for crafting an strengths, then, lies in its culture. Moreover, innovation strategy. For example, Apple, Dell the cultural habits that an organization and IBM have been innovation leaders in emphasizes in turn have a profound effect on computing, yet each has pursued a very the kind of innovations that firm creates. different approach to achieving that success. Some innovations depend on technological invention. Others on market insight. Still Of course, an emphasis on playing to your others on the creative combination of strengths doesn’t mean that nothing should disparate business ideas. Even as different change. Current business models may no companies display different culrures, so then longer be relevant. Old assets may need to be do these different cultures lend themselves to sold off and new ones acquired. Increasing a different kinds of innovation. firm’s capacity to innovate may require the development of entirely new competencies. Different Cultures to Achieve Different Where, then, does a company’s strength’s Objectives reside? The answer is in its culture. It’s well-known that most companies need to nurture a culture of creativity if they want to Cultures of Innovation foster growth and innovation. But creativity is only one part of the equation. Indeed, Recent studies of innovation have focused on depending on the kind of innovation you want the need for improved methods, processes, and to achieve, other traits may be equally, if not metrics to help an organization foster more, important. Creativity will likely need to innovation. And while these factors are be coupled with customer understanding, important, they cannot succeed without implementation and continuous improvement. considering a company’s inherent When do each of these factors come into organizational culture. Culture sets the primacy? That depends on the particular type environment, tone and code of behavior that of innovation you seek to foster. enable teams to do their best work. Existing organizational cultures influence what people Research conducted in the 1990s by Amy consider important: which problems to solve, Edmondson at Harvard Business School which accomplishments to reward, and which focused on how institutions learn. She found ideas to adopt. Culture dictates how people in that people’s behaviors differed according to a firm frame a problem, and even how they the kinds of cultures and environments in decide which strategies reflect the best possible which they operated. Based on that work, we ways forward. For innovation in particular, have developed the following framework to culture plays a critical role. As Andrew illustrate how different cultures of innovation Hargadon showed in his book How achieve their different ends. Organizations Breakthroughs Happen, innovation is an vary in two important ways that affect the inherently social process that can depend as kinds of innovations that they create: how they much or more on helping the right groups to manage knowledge, and how they manage connect as it does on coming up with truly objectives. Some organizations place a priority revolutionary ideas in a lab late at night. It on creating new knowledge, while others makes sense, then, that a company that values prioritize the effective use of existing short-term action tends not to focus on long- knowledge. That is to say, some cultures term issues, or that companies that value glorify the “new new thing,” while others are novelty will challenge itself to create new suspicious of ever “reinventing the wheel.” At things, while companies that prize efficiency the same time, some companies define avoid any new solution that reinvents the objectives in very explicit ways at the start of wheel. The nature of personal relationships any initiative, while others keep such goals and practices in a company deeply influence relatively fuzzy and allow objectives to emerge what people actually work on. over time. That is to say, some cultures place a great importance on beginning with the end in

mind, while others insist that they’ll know place a firm-wide emphasis on invention, what they’re looking for when they find it. execution, application and exploration, Taken together, these variables suggest four respectively. very different types of organizations, ones that

Different cultures are built to suit different objectives. The cultural habits you emphasize will affect the kind of innovations that you create. knowledge Create New Knowledge Use Existing Knowledge

Invent Execute Prize Novelty Prize Efficiency Ensure Slack & Support Train & Measure Objectives are Competitive Play Reliability & Integrity Fixed at Onset x Regiment x Reinvent the Wheel

objectives Explore Apply Prize Learning Prize Roll-Out Discovery & Variation Create Buy-In Objectives Psychological Safety Engagement Emerge Over x Assume Outcome x Over-engineer the Time System

Adapted from work by Amy Edmondson, Harvard Business School.

Invent Cultures cultures prize novelty far above metrics like Organizations that have a culture of invention effectiveness or efficiency. are the sorts of places that we most often associate with being innovative. Working Invent cultures innovate by answering within defined boundaries, they’re often tasked questions that begin, “How can we create a with creating new knowledge. As Stanford cooler or better shoe or computer or Engineering Professor James Adams once advertisement?” Such organizations thrive on characterized, such firms are populated with competitive play, and often have cultures that folks who when asked to design a toaster will look like teenage boys on the playground. As invent fifty new ways to heat bread. Invent you might expect, classic brainstorming cultures are on a constant quest for the novel techniques were born out of Invent cultures, as and different, and often appear in engineering play helps to drive such sessions. Invariably, labs, advertising agencies and design firms. one person will come up with an idea, spurring Companies like Apple, Nike and 3M fall into others in the room to try and produce an even this camp, as does the notable product better idea. development firm, IDEO. Invariably, Invent

For example, Nike’s shoe designers compete to Like any cultural trait, this commitment to win the coveted “Shoe Dog Award.” This reliability manifests in even small ways. For internal award showcases what they judge to instance, employees at GE tend to demonstrate be the best designs in different categories, such a relatively high level of punctuality. as “Best Kids Shoe” or “Best Active Life” shoe. Conference calls that are scheduled for 10 a.m. Prominently displayed in the lobby and will invariably have everyone on the line by constantly changing, it’s a way for top 9:59. The meeting will often continue until designers to showcase their work and keep up 10:55, when a computerized voice will interject the spirit of competitive play. to inform participants that the call is scheduled to end in five minutes. At exactly 11 a.m., the Invent companies work to offer adequate time computer shuts off the call. While such a rigid and resources for individuals to experiment, as system might seem draconian in other well as the apparatus to accurately evaluate the companies, it works well at GE, if only because risks and opportunities of a large number of people prize efficiency and clarity of task. projects. Successful Invent cultures display a tremendous amount of slack and support, Execute cultures focus on trying to make what working to make sure that everyone has the they’re already doing better over time. For tools that they need and the freedom to work instance, while FedEx’s initial idea for as and when they like. By contrast, attempts to overnight shipping constitutes a huge over-regiment the system can obstruct this innovation in itself, most of the organization’s type of work and kill the kind of play that’s attention focuses on getting incrementally necessary to create new ideas. better every year as new technologies emerge to better track and deliver packages. Similarly, Successful Invent teams... Toyota’s production system for manufacturing Create a culture of “competitive play” automobiles and Wal-Mart’s system of cross- where innovation begins as an attempt to docking have allowed these companies to respond to the challenge of an idea, co- achieve unparalleled efficiencies over time. worker, or competition. Tend to be somewhat aggressive, where Execute cultures seek efficiency, embrace a participants need to speak loudly to get hierarchal structure and clearly delineate roles, their ideas heard. responsibilities, and accountability. Execute Find ways to keep Competitive Play from strategies for innovation are based on turning into copying. What’s more developing standards, defining and optimizing important is the impetus that gets teams processes, establishing clear guidelines, thinking, innovating and building off of training their employees, and holding them one another’s ideas. accountable for success. As a result, these organizations have high control over the Execute Cultures quality of their products and services. These Execute organizations have very clear cultures avoid reinventing the wheel every objectives at the beginning of a process, and time that they have a problem. Instead, they draw upon existing knowledge to meet those build on what already works. objectives. Often resembling a well-run factory, such cultures tend to prize efficiency Successful Execute teams... and work to eliminate errors from the system. Create a culture of reliability and integrity Not surprisingly, such an environment can be based on the efficiency and success of the found in companies like General Electric, entire organization. FedEx, Toyota and Wal-Mart. These cultures Make individual roles and responsibilities tend to prize reliability and integrity: they urge explicit by clearly defining handoff points. individuals within the organization to say what Keep deviation from the established they’ll do, do it, and then show that they did it. protocol to a minimum.

Apply Cultures need to react quickly to what’s going on and Like Execute companies, Apply cultures use modify along the way. existing knowledge, but they do so in pursuit of outcomes that can seem relatively unclear at Successful Apply teams... the beginning. They may be asked to Seek consensus and input in the quest to implement an existing idea in a new area. For discover the best way to get a job done. example, teams that are asked to implement a Encourage people to contribute ideas, new process, such as Six Sigma, are often improve methods and challenge the status Apply cultures. Such teams are working with quo. an established set of methodologies, but the Avoid overly managed or rigid processes implemented system may look very different and systems. depending on the environment. Explore Cultures In this way, Apply cultures innovate by rolling Finally, some cultures thrive in situations out a pre-existing idea to a new area. Virgin where they must create new knowledge, didn’t invent airlines, but the company despite the fact that the overall objectives may successfully innovated travel by taking the old be initially unclear. Such folks are often on idea of an airline and applying the essential the hook for solving large, ambiguous and Virgin brand attributes to it. Starbucks took complex problems. Their end goals are often something that had been around for a long unclear, as are the means to get there. Less time, coffee – or more specifically, the common in mainstream business European-style espresso bar – and turned it organizations, such Explore cultures place a into something uniquely American. The primacy on learning above all else. Google, company rolled this model out across the Pixar and Cirque du Soleil all display a very entire country and now the world. Even a different kind of organizational culture company like Disney has a particular “Disney” compared to more traditional firms that is in approach to storytelling that gets applied to some cases more akin to academia. As one everything from Cinderella to Snow White to employee described it, Google is “Stanford Tarzan. If you were to hear that Disney is with stock options.” about to come out with a new King Kong movie, it would be quite easy to imagine Pixar, unlike the rest of parent company exactly what the film would be like. King Disney, is an Explore culture. They don’t have Kong’s mom would die in the first act, there the same kind of singular approach. And at would be a lot of anthropomorphic weeping, the same time, they don’t prize the kind of and at some point Elton John would break out novelty for novelty’s sake that we see at a place into life-affirming song. The application of like Apple. In fact, the great thing about Pixar existing ideas is very much Disney’s approach is that it constantly comes up with new to innovation, and it’s been quite successful for objectives for its own people even as they come them. up with the means to get there. Pixar’s people create computer systems that they use to tell Organizations that are good at application new stories while also thinking about which constantly develop new ways to roll out and new stories they could really tell. It’s only implement ideas. Rather than seeking when they discover that they have a better way competition or reliability, Apply cultures to animate water that one of their directors prioritize engaging with people to ensure that gets inspired to come up with a new way to tell their ideas are implemented. More than a story about fish, which became the anything else, these cultures prize a sense of revolutionary film “Finding Nemo.” It’s this buy-in. Successful Apply cultures realize that kind of back-and-forth questioning of the they shouldn’t over-engineer the system. They beginning and the end of the story while also don’t want to impose overly strict methods discovering the means of production in the and processes that tell people exactly what to process that puts Pixar squarely into the do at every step. Instead, they know that they Explore box.

New Business Teams within larger Successful Explore teams... organizations are fairly widespread instances Rely on Psychological Safety, or a person’s of what we term Explore cultures. These teams perception of the personal consequences are typically charged with figuring out of taking risk, to build group cultures of potential new areas for growth for an shared ideas. organization. Encourage individuals to ask questions of anyone on the team, experiment with Thankfully, these cultures have a few methods and processes, and become characteristics that help them thrive under comfortable with expressing their such a difficult mandate. They prize constant opinions to anyone in the team hierarchy. learning, discovering new technology and Avoid creating fear in the workplace that knowledge as they go. In addition, they use may cause individuals to filter their extreme amounts of collaboration to build on thoughts and creative ideas. each other’s ideas. Both these tactics help teams uncover directions and figure out where Mapping Companies to a Single Culture they need to go in the long-term. In terms of Comparing the mandates of these different distributing their learning and insights, cultures shows that the factors that make one Explore teams often add to and draw from a kind of culture great are exactly the things that shared pool of knowledge. Where an Invent will destroy another. In a very strong Execute culture is being asked to create new answers, culture, Stephen Covey’s “Seven Habits of Explore cultures are invariably trying to Highly Effective People” are at play – where identify new questions. individuals are exhorted to begin with the end in mind. But in an Explore culture, beginning Cirque du Soleil operates along similar lines. with the end in mind is a great way to ensure a But unlike Disney, Cirque du Soleil isn’t doing poor outcome. After all, if we knew what the this by taking its brand and applying the same end should look like, we wouldn’t need to magic to each performance. Each production explore. Similarly, slack and support are is different in its own right, drawing on critical for an Invent culture, but can damage collective group activity to create an productivity and disrupt the systems of an interesting alchemy of technology, visuals and Execute culture. music. The founder and CEO, Guy Laliberte, has spent more than two decades building the Most companies tend to have one infrastructure to constantly reinvent the predominant culture of innovation. That said, company, take risks and turn athletes into any discussion that equates a particular culture artists. to a particular company must acknowledge that most firms aren’t entirely homogeneous. As we can see from examining the cultures of Indeed, while most firms have a single cultural Pixar and Cirque du Soleil, Explore groups are bias that is predominant throughout the constant learners. They avoid assuming the organization, enclaves will invariably exist. final outcome of a project in the beginning. That’s a good thing. Even the most They know that they don’t know where they freewheeling Invent culture needs an enclave will find themselves, and they are comfortable of rigorously Execute types, if only to keep the living with this ambiguity. Their strategy for lights on. While it’s true that every company success revolves around continual discovery needs to explore new businesses, apply what and variation. Keep in mind that because one they know to new objectives, invent new of the primary goals of these teams is to figure versions of existing products and execute at a out what the correct outcome ought to be, high level, one culture still tends to set the tone assuming the end of a project will destroy an in a given company. Companies occasionally Explore culture. Also, Explorers are challenged find that they have one primary culture that in workplaces that cause individuals to pre- dominates most of the firm and a second “beta filter their thoughts and creative ideas. culture” that resides in parts. GE, for example,

has a strong culture of execution. At the same innovative cultures offer very little in the way time, it’s able to maintain a smaller culture of of formal processes. Conversely, each of the invention that’s centered in its global research cultures shouldn’t be confused with phases of center. Yet even when GE invents new innovation or product development. Explore technological solutions, it does so in a way cultures bring refined work to market all the that’s very execution-focused. time, and rigorously Execute companies invent innovative solutions all the time. A culture of innovation shouldn’t be confused with a process for innovation. Indeed, many

Companies display different innovation cultures. Most large companies have a little bit of everything residing inside them. Still, one culture tends to predominate. knowledge Create New Knowledge Use Existing Knowledge

Invent Execute

Objectives are Fixed at Onset

objectives Explore Apply

Objectives Emerge Over Time

Having thus mapped organizations to a Rather than trying to create a culture of particular type of innovation culture, it begs innovation, the most successful firms create the question as to whether one type of firm is innovations that leverage their culture. better suited to innovate. In fact, we’ve been able to identify companies that exemplify Eight General Strategies innovative practices in every category. They for Innovation differ greatly from each other in how they choose to innovate. GE doesn’t spend a whole An approach to innovation that plays to a lot of time on open-ended exploration. Disney company’s strengths rather than simply doesn’t foster a great deal of technical emulating others has an increased likelihood of invention. But they remain similar in their success. That said, understanding a company’s commitment to playing to their strengths. cultural strengths doesn’t point to the specific

activities that will drive innovation. Knowing strategies. Execute methods, which encourage what kind of culture you are doesn’t tell you individuals to promote maximum efficiency what you should do. Fortunately, a broad and outplay the competition, include survey of different companies and the Competitive Response and Incremental techniques that they use suggest that there Improvement. Methods that discover new and aren’t an infinite number of ways to innovate. exciting uses for existing knowledge include Our research indicates eight basic strategies Systemic Deployment and Captured that different companies use to launch Serendipity in the Apply space. Finally, innovations. Each culture lends itself to two of Explore methods, which seek to discover new these approaches. opportunities and define new problems, include Institutional Research and Needs For instance, methods that actively encourage Identification. The multiplicity of innovation individuals to go out and try things, helping initiatives that corporations launch can be them search for the distinct and different bewildering. Yet, all of them fit within one of include Concept Development and these general strategies. Workbench Venturism. These are Invent

Each culture suggests a strategy for innovation. When thinking about how to innovate, it’s important to play to your strengths. knowledge Create New Knowledge Use Existing Knowledge

Invent Execute Workbench Competitive Venturism Response Objectives are Fixed at Onset Concept Incremental Development Improvement

objectives

Needs Systemic Objectives Identification Deployment Emerge Over Time Institutional Captured Research Serendipity Explore Apply

Invent Strategy: Concept Development might be possible. Such Concept Development Innovation can emerge through intensive has people go to the metaphorical garage to see explorations of a particular topic. This often what neat things they can create to fulfill a looks like teams who remove themselves from clear objective. the daily activity of work for a defined period of time to brainstorm and ideate on what

When most of us think about innovation, This strategy was piloted by Hewlett-Packard. Concept Development approaches are what Originally a spin-off from technology giant usually come to mind. Lockheed set the HP, Agilent Technologies is now a premier standard for this sort of strategy. During measurement company advancing electronics, World War II, the company set up its first communications, life sciences and chemical Skunkworks program at the Burbank Airport. analysis. The company’s leaders realize that The goal was to support the war effort by projects that go to completion are quite coming up with as many new and interesting expensive, but the investment required to start ideas for airplane technology as they could. a new project is relatively low. In response, Later skunkworks developed a number of Agilent seeks to start as many projects as it can revolutionary aircraft, including the U2 spy and then either fix or quickly kill off those plane and the first stealth fighter. In every case, projects that run into trouble. Lockheed engineers were provided the necessary slack and support to invent against a But Workbench Venturism doesn’t just apply relatively clear set of performance objectives. to technology companies. McDonald’s has run experiments throughout its history, relying on Palo Alto product development firm IDEO’s local franchisees to try out new recipes. The Deep Dive practices a more contemporary company nationalizes those menu items that approach to Concept Development. As shown have the greatest local success. The classic in a 1999 episode of ABC’s Nightline, Ted example is the development of the Egg Koppel challenged the company to reinvent McMuffin. It was created by a particular the shopping cart in a week. The firm’s McDonald’s restaurant to drive more traffic designers and engineers used the Deep Dive during breakfast time using existing capital methodology to prototype the single concept equipment and training. The sandwich was of the shopping cart from multiple such a success that McDonald’s picked it up standpoints. The sleek, flexible shopping cart and rolled it out throughout the rest of the with removable baskets that emerged is quite organization. By observing each of the distinct from existing carts, but its essential different franchise initiatives and funding the purpose is identical to the products it replaces, ones that are most successful, McDonald’s is a hallmark of Invent innovation. able to create a pipeline for innovation.

Companies that rely on Concept Development Individual tactics within Workbench as a strategy for innovation draw on many Venturism include setting up excellence individual tactics to meet their mandate. These awards or giving people allotments of free time efforts range from setting up a rapid to explore their own ideas. Some companies prototyping program to immersion sessions run 100-day experiments, where an employee with experts all the way up to the formation of with an interesting idea gets 100 days to an advanced concepts lab. experiment with an idea. If the organization is pleased with the experiment’s progress, the Invent Strategy: Workbench Venturism concept gets refined into a market offering. By contrast, the second Invent strategy for Other companies set up internal venture funds innovation, Workbench Venturism, draws that provide time and money to internal from the philosophy that managers should groups that bring new ideas to the table and have their groups work on what its people are request time away to refine the idea. interested in. In fact, we have found that providing incentives to individuals to try new Execute Strategy: Competitive Response things actively engenders innovation. Many In Execute cultures, innovation can begin as an technology firms encourage individuals to attempt to answer the actions of a competitor. tinker, all the while monitoring the results. While more of a reactive stance, such an Organizations using this approach start many approach is typical of a “fast follower” projects, and then monitor them closely, organization that observes the innovations of killing off all but the most promising. others, then emulates and improves on what it

sees. Though some classify this strategy as Specific tactics that fall under Competitive copying, the resulting innovations can look Response include competitive product nothing like the offerings that inspired them. dissections, benchmarking or even war game The essential quality of this strategy is that the simulations to plot strategies contingent on a impetus to innovate must come from the rival plotting a particular course of action. actions of a competitor. Other companies build patent-monitoring teams that have the sole task of observing The success of the Swatch Group in the 1980s which patents competitors are filing. When is a great example of a company employing something new or interesting comes along, Competitive Response to innovate. The Swiss patent monitors try to figure out a way to company’s watches became fashion icons of block it off, break it or copy it, and then get to the Reagan years, but Swatch originally created market even before the patent applicant does it its stylish, low-cost plastic watches as a for themselves. defensive response to inroads that Japanese manufacturers had made in the watch Execute Strategy: Incremental Improvement industry. Traditional Swiss watch Execute cultures also stay competitive through manufacturers SSIH and ASUAG, each formed continuous improvements to existing in the early 1930s, merged in 1983 after seeing products, services or processes. This can mean their traditional markets erode. CEO Nicholas introducing variations on a theme, creating Hayek realized that the combined group didn’t aesthetic modifications, adding features or have the low-cost labor systems in place to extending product lines. Incremental compete with the Japanese products on price improvements leverage existing conditions unless they created a low-cost product of their and markets. Upon first examination, some own that could still command a market might argue that the outcomes of Incremental premium – the “second watch,” or Swatch. Improvement aren’t really innovations. This is Swatch combined an attention to fashion likely because their mindset for innovation is design with the Japanese-proven concept that that it means wackiness or coolness. Since inexpensive yet reliable quartz watches could innovation is any invention that has a social or reach a wider market than traditional economic benefit, incremental improvements mechanical offerings. In doing so, the Swatch clearly fit. Group created an entirely different approach to watch-making that has left a lasting impact One way to foster Incremental Improvement on the market, and the company is the largest Innovation is by looking at what you’re already watch-maker in the world. doing and figuring out ways to do it a little bit better. Many process improvement programs Similarly, in 2005, The Spanish group Inditex, fall into this camp, including Six Sigma. best known for their Zara chain of cheap-chic Motorola first introduced the concept of Six clothes, was able to leapfrog the longstanding Sigma in 1986, as a way to continually improve European retail apparel leader H&M. Both its business and manufacturing processes. retailers catered to the rapid changes of the Although many of the individual Six Sigma fashion world, where quick inventory turnover process tools date back to 1920s engineering is the lifeblood of success. But by bringing and process methodologies, Motorola’s design in-house, keeping production runs synthesis of this knowledge transformed first small and tightly controlling their distribution its own organization before moving on to the networks, Zara was able to create a centralized rest of the manufacturing world. Today, Six infrastructure to move new designs from Sigma Blackbelts innovate throughout the best concept to store shelves in just two weeks. This Execution cultures in the business world. quick turnaround remains unparalleled by any competitor. In the process, Zara created an No one company better embodies a culture of entirely new distribution model valued by both Incremental Improvement than Toyota. fashion retailers and fashion mavens Recently having passed General Motors as the worldwide. world’s largest car company, Toyota’s success

is often attributed to the methods of just-in- tremendous success in bundling several time productivity. But the company’s applications together as the Office suite is commitment to Incremental Improvement legendary in the computer industry, and this goes far beyond any single method. Eiji general approach shows up in all of their Toyoda and Taiichi Ohno’s pioneering efforts. This even showed up during the concept of lean production after World War II ‘browser wars’ of the 1990s. Hard as it is to revolutionized the way Toyota thought about believe now, in 1995, Netscape’s Navigator mass production and the capabilities of the dominated the market for web browsing organization. Since then, however, many other software. Microsoft had licensed the Mosaic companies have adopted these methods. technology to create its own Internet Explorer, Toyota stays on top because they see their but had a lot of catching up to do against Production System as a way of thinking, not a Netscape’s market and technological series of techniques. The Toyota Way reflects leadership. But within three years, Microsoft the company’s overall culture of efficiency, was able to capture over 90% of the browser problem-solving and constant drive for market. How did the company do it? By improvement. As a result, Toyota’s growth has bundling Internet Explorer with every copy of been methodical and incremental. the Windows operating system. The product suddenly reached millions of customers for Specific tactics for cultures practicing free. During this roll-out, Microsoft continued Incremental Improvement include to fund feature improvements until Navigator implementing efficiency programs and no longer had a technological advantage. As a processes such as Six Sigma, Kaizen or Value small company, Netscape just wasn’t able to Engineering. Conducting internal Innovation keep up with the juggernaut platform that Audits, Past Success Audits or even setting out Microsoft built. Suggestion Boxes can help organizations understand what works and what doesn’t IBM made a similar strategic move into E- about their current approach to doing Business that provided the impetus for a host business. Cross-Functional Rotations, of internet-related activities. Although a late- Customer Support Monitoring and Innovator comer to adopting web technologies, then- Benchmarking can also shed new light on old CEO Lou Gerstner recognized as early as 1994 ways of doing things. that the future of the web was all about business and transactions, not mere Apply Strategy: Systemic Deployment information retrieval. Gerstner saw services as Apply cultures often leverage existing a way to bring IBM out of its slow-growth knowledge to meet new goals through a businesses like mainframes and storage Systemic Deployment strategy. When the systems. And although providing internet needs and opportunities facing a company are services was new to IBM, offering services was both complex and intertwined, it’s not. E-Business fit well with IBM’s existing advantageous to develop an overall vision for a strengths of building powerful computers and future state, then call on individual projects to software and then providing tons of tailored articulate specific pieces of that puzzle. Using services to support their customer’s business this systemic approach allows the organization needs. Gerstner created a mandate that every to manage its efforts and solve larger problems product work with the web, weaving the that can’t be answered by isolated products. culture of E-Services into every corridor of the company, from products to practices to A good example of this is Microsoft. marketing. Surprisingly, they have originated very few technical innovations within their own walls. Tactics that support Systemic Deployment Rather, their talent lies in rolling new include in-market experiments, simulated test technologies into their own platforms, markets or pilot lines to learn what it will take managing their large-scale deployment and, in to conduct a successful full-scale roll-out. turn, driving adoption. The company’s Grassroots campaigns or influencer outreach

programs can also help to create early buy-in. this is something that would be good for the Technology brokering, platforming and rest of the world as well.” The company then adjacent market development can also help rapidly rolled it out in the United States organizations uncover new opportunities to market. apply their current capabilities. How could these companies have been able to come up with these new innovations? They Apply Strategy: Captured Serendipity had established processes for Captured You never know when lightning will strike. Serendipity. Examples of these tactics include Often, innovation is as much a matter of being setting up an innovation program fund or in the right place at the right time as it is an knowledge-sharing databases. Like P&G, element of genius. Yet despite the inherent some companies set up overseas concept unpredictability of such an approach, some scouting programs for a team to go to places companies have been able to induce lightning like China, Germany and Japan, observe to strike again and again. Their real secret lies what’s going on, and find good ideas to not just in creating the right environment for mainstream. Similarly, groups can do trade great things to happen, but in creating the show scouting closer to home. This involves infrastructure to capture and leverage good visiting small start-ups and interesting people, fortune when it prevails. buying their ideas and rolling them out.

Viagra was originally a medicine designed to Explore Strategy: Institutional Research treat angina. What manufacturer Pfizer found, Envision people committed to the ongoing however, is that apart from its use as a heart exploration of ideas. Imagine these people medication, Viagra also had the unusual and taking their ideas and converting them into embarrassing side effect of improving men’s products— the classical model for technical blood flow a bit south of the heart, causing innovation. A lot of Ph.D.’s, even Nobel prize- immediate erections. While another company winners, do this kind of open-ended might have considered this product a failure, exploration in their field for a living. They Pfizer had the systems in place for people to create the kinds of new knowledge that look at it and say, “How can we turn that actually spark tangible ideas and innovations. unwanted side effect into its central benefit?” As a result, the field of erectile dysfunction The corporate research institute classically medication was born. The little blue pills have embodies Institutional Research. First become cultural icons, and Pfizer realized pioneered by Thomas Edison at General revenues of $1 billion per year from Viagra Electric, this model was widely adopted by alone very quickly upon launch. The everyone from Alcoa to Xerox Most notable company’s structures supporting the among these adopters is AT&T’s Bell Labs. commercialization of accidental innovation Founded in 1925, AT&T’s R&D arm was allowed it to take advantage of what might legendary for developing innovations that have have been a disastrous result. altered society. At its peak, Bell Labs employed 20,000 people in 19 different facilities, many of Procter & Gamble practices Captured whom held Ph.Ds. Seven researchers won Serendipity as well as anyone. One of the Nobel prizes for their work at Bell Labs. Most company’s biggest successes in the last ten importantly, the system was able to years is the Swiffer, a unique sweeping tool demonstrate results. Bell Labs generated more that combines the functions of a broom and a than 21,000 patents and developed such mop in a fun and easy way. Though innovations as the transistor, the solar cell and understood as an American innovation, the the satellite TV. The scientists that worked Swiffer is actually a product that Kao of Japan there credited this success to their ability to had been making for ten years before P&G dedicate all their time to research, ever brought it to market. But the company’s collaboration with other brilliant people and overseas scouts were smart enough to not having to fight for resources or take time recognize the genius of the Swiffer say, “Hey, out to teach classes.

In these traditional hot beds of innovation, development. Developed by MIT professor Institutional Research has fallen by the way Eric von Hippel, the Lead User process works side. Even Bell Labs is no longer what it once on the belief that breakthroughs can be was at the height of the cold war. Many discovered by identifying and learning from corporate research institutions have felt the any individual or organization that has needs pressure of producing short-term results and that are ahead of current market trends. These worrying more about business relevance. At people are the true innovators, often coming the same time, we’re seeing new labs appearing up with their own work-around solutions to in places like Google and Yahoo, built on a meet their own needs. Since, over time, more similar model. These companies understand and more people are likely to have these same that having a strong lab component is needs, these make-shift solutions suggest particularly useful when developing large-scale directions for future development. This insight technology plans. Google Labs, for example, revolutionized the way 3M conducts product bills itself as a “technology playground” where development. In 1996, 3M’s Surgical Drapes the public can test out ideas “that aren’t quite Team was suffering from declining profits and ready for prime time.” Not only is Google little room for growth. They needed a building its own technology capabilities, but breakthrough and their standard product it’s using its online presence to test, learn and development process wasn’t getting them prototype potential new businesses. At the there. The group decided to prototype the lead same time, Google Labs is able to recruit talent user process. Surgical drapes are thin, adhesive by offering a mix of challenging research work plastic films that stick to patients’ skin at the that can also make a big impact on the world. site of a surgical incision. They isolate the area being operated on and protect the patient from Companies that conduct Institutional infection. By talking with lead users, the group Research put in place activities like guest realized doctors in developing countries lectures, fellowship programs and sabbatical couldn’t afford the drapes. They reframed their programs. These give people the kind of project goal from improving their current freedom to understand and explore where drape offering to finding cheaper and more their hearts lead them. Encouraging employees effective ways to prevent infection. Now, to participate in conferences or publish ideas instead of coming up with all the ideas in academic or business publications also helps themselves, teams have systemized the process to build exploration into the culture of the of identifying their lead users and learning company. from them to come up with ideas for new products, services and business models. Explore Strategy: Needs Identification Needs Identification is the last strategy we’ve Products are not the only opportunities identified. Discovering what people most presented by the identification of unmet needs. desire can point to direct and immediately As an example, Jump Associates worked with profitable solutions. Firms that employ this GE Advanced Materials in 2005 to create a approach find ways to uncover people’s unmet strategy for market entry in the high-end needs and exploit them to drive innovation. plastic fibers market. GE’s strength had been The most effective Needs Identification in dealing with science and technology-centric typically involves more than simply asking injection molded applications, not textiles. By customers what they need. Often it involves comparison, rival DuPont was an established using an open-ended approach to gain insight competitor in both high-performance and into needs that people may not even realize commodity synthetic fibers. In collaboration they have. This can lead to proprietary insights with GE, Jump researchers entered the field to about the world that can be turned into study the textile producers who use the raw solutions that help make people’s lives better. materials the company planned to offer. Contrary to initial assumptions that great Multi-talented organization 3M, for example, applications of GE’s technical innovations uses a Lead User process for product would be critical to the company’s market

success, we found that the people operating in meaningful direction about what to actually the market took a uniquely artisanal approach do. They’re also, however, incredibly easy for to their work. As a result, we recommended people to work around without effecting real that GE bring its customers into the change. For instance, teams that are evaluated development process. GE’s marketing team for on the number of projects underway are all too the space even sends its producers holiday often prone to simply take their existing cards now. As a result, the company realized projects and divide them in half to double the revenue from the new market in 2006, two number of projects on their docket. As years ahead of schedule, with significant Dartmouth College business professor Vijay growth forecast for the years to come. Govindarajan has noted, it’s simply too easy to game the system. In addition to lead user research and customer ethnography programs, companies pursuing a Building an Innovation Dashboard Needs Identification strategy can set up These general measures of innovation health customer ethnography programs, consumer can, however, be useful when viewed more as a lifestyle labs or monitor different cultural windshield – a heads-up view of overall trends. The insights gained from these performance. The real dashboard, then, is activities can then help focus new business instead a single document that lays out all the exploration activities. possible activities the company could follow to achieve its objectives, organized on the page by Managing Innovation Outcomes overall innovation strategy. Informed by an understanding of market conditions, What to Measure and What to Manage competitive activity, and cultural fit, a robust The diversity of possible inputs and outcomes innovation strategy can then initiate, measure available to an innovation leader suggests the and reward actions at the tactical level. need for some sort of dashboard. In current business parlance, such a dashboard usually Mapping your current innovation activities to refers to a management system that an Innovation Dashboard can reveal a few summarizes multiple measurements of common trends. Invariably, large companies business performance. Applying that find themselves engaged in a wide variety of metaphor to innovation activities can be competing initiatives, often with wildly problematic, if only because there isn’t always varying levels of success. Lacking a more a clear relationship between innovation thoughtful approach, some firms try to do activity and expected outcome. every possible innovation tactic without doing any of them truly well. Others engage in a few For instance, consider some of the ways in strategies that run directly counter to their which companies measure innovation outputs. own strengths. Yet, armed with a The simplest metric is overall revenue growth. comprehensive view of innovation activities, But you can also measure things like number companies are able to engage in a more of projects in the new product pipeline, the deliberate decision-making process, leveraging success rate of new innovations, percentage who they are and what they’re trying to revenue from recently introduced offerings, or achieve. For instance, certain initiatives may be even the relative price premium new offerings deemed core to the organization because command in the marketplace. Indeed, such they’re both appropriate to the market and variables are useful for a company to track leverage what the company inherently tends to quarter by quarter over the long-term if you be good at. Other activities may need to be seek to gauge whether you’re actually getting protected in separate hothouses away from the any return on the company’s innovation core business. Still others may be completely activities. outsourced because they’re considered necessary but ultimately depend on Such measures make poor management competences that the firm is unwilling or systems at the tactical level. They fail to give unable to develop.

For instance, a firm might want to increase the activities. Such a program might include number of projects in its new product pipeline. chartering a team to conduct overseas concept Recognizing that it has historically been a scouting, visiting markets around the globe, strong Apply culture, the company might then looking for regional innovations to then roll choose a number of Captured Serendipity out globally. Managing that group then

Managing innovation outcomes Developing an at-a-glance dashboard for innovation metrics helps track the progress of innovation programs.

Invent Apply e C Ex xplor Workbench aptured System ecut E Concept ic e t Venturism Serendipity D Competi Needs velopmen eployment tive l De Respo Inc itutiona ploration nse rement Inst Ex Early Concept Cross-Functional Adjace al rch Brainstorming nt Market Improv esea Test Program Offsites De Competi ement R stomer sions velopment tor Cu s Ses Bench Cr e ographie Idea Databas marking oss-Fu ferenc Ethn n Free Time e Grassroots R nctiona Con Co-desig Co otatio l ipation r Allotment Campa mpetitive ns Partic stome rogram Innovation igns Cu P Product CRM ips mersions d Day Program Fund Moni llowsh Im pt Cars Hundre Influencer Disse toring Fe r Conce ctions In e Cente Experiments Outreach novati ered Lifestyl ing Invention C on Aud Chart oncept Test ompetitiv it ss C Cards Purchase e Inno unding w Busine Idea In-Market Respo vator F Ne ives Progra nse Be tures ration Deep D m Experimen Pro nchma st Lec Explo Idea Contest ts jects rking Gue with t nity Immersions Overseas Com Dogfoo nden pportu ncentive mercializing Patent d Prog Indepe O erts I Concept Scouting ram pping Exp Process Applica Kaiz rojects Ma Program tion en Pro P ng Mon gram eeks Monitori Product Social Network PDP Pro itoring P ding W Trend Excellence cess ast Su Rea evelopment Analysis ccess ing D s Wargam Audit icals endspott Award Test Markets e abbat Tr rototyping Trad Simul S Rapid P e Show ations Six Trips Science Fairs Pilot Line Sigma nario Program Scouting s P Sce rogram nning Virtual Concept Tech Br Pla okering S map Marketplaces ugges Road T tion Tech ech Platforming Boxes Value Engin’g

depends on understanding the resource It’s not just about growth. It’s about required to keep the team traveling, providing sustainable growth. them the resources to acquire new ideas, and In today’s competitive business environment, measuring the number of new ideas that companies face increasing pressure to innovate they’re able to bring forth on an ongoing basis. continuously. They don’t just want growth, New project performance is part of the they want sustainable growth. The most windshield. Overseas concept scouting is one successful firms have recognized that their lever to pull on the dashboard. At the same company’s organizational culture is something time, the company may launch other Systemic to be leveraged, not simply ignored or Deployment programs, and rely on external overcome. Rather than trying to create a partners for Concept Development. Such a culture of innovation, these companies create program is quite similar to Procter & Gamble’s innovations within their culture. It’s that Connect and Develop strategy. Recognizing culture – that set of implicitly shared habits, its own strengths as an Apply culture, the firm practices and ideas – that serves to accelerate has shifted its emphasis away from internal and amplify innovation initiatives. Moreover, Concept Development. these companies find that certain innovation

strategies leverage the inherent strengths of doubt the most important thing that their cultures, while others simply run up innovation leaders can do to increase the odds against their weaknesses. When crafting an of success. j innovation strategy, understanding one’s own culture and playing to its strengths is without a

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