Week 5 Lecture: How Can We Innovate?

“On December 9th, 1968, a research project funded by the US Department of Defense launched a revolution. The focus was not a Cold War adversary or even a resource-rich banana republic, but rather to “augment human intellect” and the man driving it was not a general, but a mild-mannered engineer named Douglas Engelbart.

His presentation that day would be so consequential that it is now called  The Mother of All Demos  (Links to an external site.)Links to an external site.(this video is very long…you are not required to watch it unless you would like to!). Two of those in attendance, Bob Taylor and Alan Kay would go on to develop Engelbart’s ideas into The Alto, the first truly personal computer. Later, Steve Jobs would take many elements of the Alto to create the Macintosh.

So who deserves credit? Engelbart for coming up with the idea? Taylor and Kay for engineering solutions around it? Jobs for turning it all into a marketable product that created an impact on the world? Strong arguments can be made for each, as well as for many others not mentioned here. The truth is that there are many paths to innovation” (Satell, 2016, para.1-3).

 

https://hls.ted.com/talks/63.m3u8?preview

Satell (2016) went on to highlight “nine rules to innovation” that are salient for this week’s lecture. You can find the following information  at this link (Links to an external site.)Links to an external site. .

Rule 1: Innovation Is Never A Single Event

Alexander Fleming discovered penicillin in 1928, but it wasn’t until 15 years later, in 1943, that the miracle drug came into widespread use. Alan Turing came up with the idea of a universal computer in 1936, but it wasn’t until 1946 that one was actually built and not until the 1990’s that computers began to impact productivity statistics.

We tend to think of innovation as arising from a single brilliant flash of insight, but the truth is that it is a drawn-out process involving the discovery of an insight, the engineering a solution and then the transformation of an industry or field. That’s almost never achieved by one person or even within one organization.

Rule 2: Innovation Is Combination

The reason that Fleming was unable to bring Penicillin to market was that, as a biologist, he lacked many of the requisite skills. It wasn’t until a decade later that two chemists, Howard Florey and Ernst Boris Chain, picked up the problem and were able to synthesize penicillin. Even then, it took people with additional expertise in fermentation and manufacturing to turn it into the miracle cure we know today.

This isn’t the exception, but the norm. Darwin’s theory of natural selection borrowed ideas from Thomas Malthus, an economist, and Charles Lyell, a geologist. Watson and Crick’s discovery of DNA was not achieved by simply plowing away at the lab, but by incorporating discoveries in biology, chemistry and x-ray diffraction to inform their model building.

Great innovation almost never occurs within one field of expertise but is almost invariably the product of synthesis across domains.

Rule 3: First, Ask The Right Questions

Too often, we treat innovation as a monolith, as if every problem was the same, but that’s clearly not the case. In laboratories and factory floors, universities and coffee shops, or even over a beer after work, people are sussing out better ways to do things. There is no monopoly on creative thought.

But that leads us to a problem: How should we go about innovation? Should we hand it over to the guys with white lab coats? An external partner? A specialist in the field? Crowdsource it? What we need is a clear framework for making decisions.

The best way to start is by asking the right questions: (1) How well is the problem defined? and (2) How well is the domain defined? Once you’ve asked those framing questions, you can start defining a sensible way to approach the problem using the Innovation Matrix:

InnovationMatrix.jpg

Clearly, no one method can suffice. Look at any great innovator, whether it is Apple, Tesla or Google, and you’ll find a portfolio of strategies. So the first step toward solving a difficult problem is asking the questions you need to define your approach. To paraphrase Voltaire, if you need to solve a problem, first define your terms.

Rule 4: There Is No “Right” Size For Innovation

When most people think about innovation, they think about startups. And certainly, new firms like Uber, Airbnb, and Space X can transform markets. But others such as IBM, Procter and Gamble and 3M have managed to stay on top for decades, even as competitors rise up to challenge them and then, when technology and markets shift, disappear just as quickly into oblivion.

While it’s true that small, agile firms can move fast, larger enterprises have the luxury of going slow. They have loyal customers and an abundance of resources. They can see past the next hot trend and invest for the long term. There’s a big difference between hitting on the next big thing and developing it consistently, generation after generation.

Rule 5: Leverage Open Innovation To Expand Your Capabilities

When Microsoft launched Kinect for the Xbox in 2010, it quickly became the hottest consumer device ever, selling 8 million units in just the first two months. Almost immediately, hackers began altering its capabilities to do things that Microsoft never intended. Yet instead of asking them to stop, it embraced the hackers, quickly releasing a software development kit to help them along.

Like Microsoft, many firms today are embracing open innovation to expand capabilities. Cisco outfoxed Lucent not by developing technology internally, but by smartly acquiring startups. Procter & Gamble has found great success with its Connect and Develop program and platforms like Innocentive allow firms to expose thorny problems to a more diverse skill set.

As was the case with Alexander Fleming and penicillin, most firms will find that solving their most important problems will require skills and expertise they don’t have. That means that, at some point, you will need to utilize partners and platforms to go beyond your own internal capabilities.

Rule 6: Disruptive Innovations Require New Business Models

When Chester Carlson perfected his invention in 1938, he tried to market it to more than 20 companies but had no takers. It was simply far too expensive for the market. Finally, in 1946, Joe Wilson, President of the Haloid Company, came up with the idea of leasing the machines instead of selling them outright. The idea was a rousing success and in 1948 the firm changed its name to Xerox.

The tricky thing about disruptive innovations is that they rarely fit into existing business models and so the value they create isn’t immediately clear. Kodak made money by selling film, so was slow to adopt the digital cameras that the company had itself invented. Yahoo’s business was focused on keeping users on its site, so passed on the chance to acquire Google.

It’s not just products that we have to innovate, but business models as well.

Rule 7: Innovate The Core – The 70/20/10 Rule

Many people think of innovation as discarding the old to make room for the new, but as Bain & Co.’s Chris Zook points out in Profit From The Core, smart companies realize that the bulk of their profits will come from current lines of business.

Take Google for example. Yes, it pursues radical innovation, like self-driving cars, at its Google X unit, but the continual improvement of its core search business is what made it the world’s most valuable company. That’s why Google, as well as many other innovative companies, follow the 70/20/10 rule.

The premise of the rule is simple. Focus 70% of your resources in improving existing technology (i.e. search), 20% toward adjacent markets (i.e. Gmail, Google Drive, etc.) and 10% on completely new markets (i.e. self-driving cars).

Rule 8: In The Digital Age, We Need To Use Platforms To Access Ecosystems

It’s no accident that the people who would make the vision Engelbart presented at “The Mother of All Demos” a reality actually attended the event and knew Engelbart personally. In those days, it was difficult, if not impossible, to actively collaborate across time and space. Today, however, we can use platforms to access ecosystems of technology, talent, and information.

Take Apple’s App Store. It is, of course, a highly effective way for Apple’s network of customers to access functionality on their phones, but it also allows the firm to access the talents of literally millions of developers. It’s hard to imagine any single enterprise, no matter how efficient or well organized, pulling off that kind of scale.

In a networked world, the surest path to success is not acquiring and controlling assets, but widening and deepening connections.

Rule 9: Collaboration Is The New Competitive Advantage

When we look back to the great innovations of the past, it hard not to wonder how it could’ve gone differently. What if chemists had picked up on Fleming’s discovery of penicillin in weeks rather than years? How many lives could have been saved? Was there really no one who could have helped develop Engelbart’s vision of the personal computer outside of Northern California?

And now, the problems we seek to solve are significantly more complex than in earlier generations. That’s one reason why the journal Nature recently noted that the average scientific paper today has four times as many authors as one did in 1950. At the same time, knowledge has been democratized. A teenager with a smartphone today has more access to information than a highly trained specialist a generation ago.

That’s why now collaboration itself is becoming a competitive advantage.

Today, there are a variety of major efforts, such as the JCESR at Argonne National Labs to develop next-generation batteries, the National Network for Manufacturing Innovation and the Center for Applied Cancer Science at MD Anderson that is forging a more collaborative approach. Increasingly, we’re finding that to solve really tough problems, we need to work harder to integrate people with diverse talents.

Take a slightly broader view and it becomes clear that innovation today goes far beyond research labs, Silicon Valley pitch meetings, and large corporate initiatives. We all have something to offer and can add to the world’s knowledge in a way that may differ in degree, but not in kind, to the giants of the past.

 

Reference: Satel, G. (28 February 2016). If You Want To Innovate, Learn These 9 Rules. Forbes.com. Retrieved April 23, 2018 from https://www.forbes.com/sites/gregsatell/2016/02/28/if-you-want-to-innovate-learn-these-9-rules/#3c9829445cff (Links to an external site.)

Can Innovation Be Sustained?

The innovation process may help a company develop incremental as well as radical innovations, but can an organization become innovative to its core?  Can continuous innovation be sustained?

Apple’s product suite, and the innovative processes developed by Zappos and Amazon suggests sustainable innovation is possible. But, how do they make sure they continue to be the industry leader, and not the old line company that gets taken by surprise by the next upstart?

The February 2014 issue of Inc. Magazine includes the article “Built to Last Forever”, by Leigh Buchanan. The article discusses how a group of relatively small businesses that sustain both themselves and their innovations for generations in a highly competitive environment, and in the face of a difficult economy. There are 5 lessons, but the most relevant is the recommendation for incremental innovation

1. Incremental and Internal Innovation

The focus is on ” improving the existing products and services, not coming up with things that are radically new”.  Much of this is customer-driven innovation – making new products or modifications to meet a specific customer demand, a demonstration that the company understands both its customers and the market.

Internal process innovation is important as well. One company, Igus, makes cables, chains, bearings and other products. While their products themselves are seen as innovative, they also make all of their own machines, tools, molds and many of their own materials. Vertical integration offers them a major advantage; competitors find it much harder to copy your products if they also have to figure out how you make them.

Combine this one with the other four and it’s one way to sustain a business over the long term.  But is a company with these characteristics innovative?

2. Keep Horizons Narrow

Hermann Simon, the German management expert says “If you stick to a market that is unlikely to disappear, focusing and optimizing and perfecting over decades, you become the best at this market. Then it is unlikely that anyone will beat you.”  The company discussed in the article, PWM, is the acknowledged leader in the production and sale of digital signs for gas stations and gas stations only. They have no interest in working with any other kind of retail outlet, even if it is a minor deviation from their core. This relentless focus allows them to concentrate on their primary skill set, making the best and most innovative signs and looking for ways to expand into other innovations for gas stations.

But it’s also possible that “Sometimes it is good if you stick to your core competence, and then one day if you have patience, there is a topic where you can suddenly jump on” – Christopher Mennekes, CEO of Aloys Mennekes

Aloys Mennekes company is an 80-year-old firm that makes standard plugs and sockets, just standard plugs and sockets, but an opportunity arose that they could not resist. Their charging apparatus design has been chosen by the European Commission as the standard for electric vehicles. Others can copy their design, but they are the leaders.

Patience as an enabler for innovation!  Who knew?

3. Go Global Fast. Go Global Hard

If a company becomes an expert in a narrow market, globalization is the best way to grow.  Few small to mid-size American companies have an international presence because our domestic market provides plenty of opportunities.  However, as globalization becomes imperative for all businesses, these German companies have already developed this expertise. Practice makes perfect and the Europeans have had a lot of it.

4. Go The Extra Mile For Customers

Drucker said, “The purpose of business is to create and keep customers”. Focus on the value created for customers and understand that their success is the company’s success. Build products and processes to deliver, as Tom Peters says, “The WOW!”  (Think Zappo’s) One of the standard practices the German companies do is to procure components and materials locally.  If manufacturing is outsourced to Asia or Latin American, local procurement can be difficult or impossible. And if you cannot procure locally, your time to react to a customer request extends to the point of being non-competitive.

5. Run Your Business As If You Expect It to Live Forever

The point here may seem obvious, but consider the difference between many European companies and many American companies. Here in the US, the focus has become the short-term results and the delivery of value to the shareholders. In Germany, the focus continues to be on delivery of value to customers and to employees. The CEOs of these German companies cited two keys – responsibility and leadership. When people know that your focus is on them, regardless of their stake in your company, they will provide you with the loyalty that will ensure the revenue stream that will allow you to continue to grow and innovate.

 

Looking at these German companies reminds us that innovative companies may exist anywhere in the world. Examples of some of these companies are on the next page.

Global Innovation

The previous examples about Germany remind us that the innovation imperative is not confined to American companies. The #16 company on Forbes’ Most Innovative Companies List is  Jeronimo Martins , a Portuguese grocery chain.

Jeronimo  is the dominant player in Portugal and Poland and is focused not only on selling groceries but also on being a responsible corporate citizen. In the words of their CEO, Pedro Soares dos Santos, “We believe in making a difference by creating value in a sustainable and socially responsible manner. “ Marta Maria, the Chief Human Resources Officer, adds: “ We seek passionate, highly motivated people, available to learn and innovate.”

Jeronimo Martins logo

The company believes in developing innovative processes and technologies, ensuring that customer preferences are met, and hiring and developing the best and most motivated employees. By upping the talent pool, they work to ensure that they maintain their market leadership, and to be the place that people want to work.

Water-Gen  is another interesting company based in Tel Aviv.  It developed a process to provide water for the military….out of the air. The company recognized that soldiers need water and that it is hard to transport large quantities of water over long distances, especially in the desert. So  Water-Gen  developed technologies to condense water from the air. Given the growing water supply crisis in the American West, this company could provide a solution.

Watergen logo

 

Braskem  is a Brazilian chemical company that has developed a process for making plastic out of sugarcane, not petroleum. This is not only more sustainable (there is no shortage of sugarcane, especially in Brazil) but generates fewer greenhouse gases in its production. Consider the use of this plastic for water bottles and other food containers in light of the current concerns about BPA and the fact that most plastic never degrades.  Braskem sees innovation not just as a competitive issue, but as the key to their long-term sustainability as a company.

Braskem logo

From their corporate website:

 

The goal is to meet our Clients’ needs and, through their experience and knowledge, to propose new solutions that add quality to the end products those Clients deliver to society.

Braskem’s strategic management of innovation is further bolstered by open innovation, working through partnerships that enable advanced networking with trends and opportunities as well as encouraging new and ideas and innovations. Partnerships with research centers, the scientific community and universities play a leading role in this context. By joining forces, the company is spearheading advanced research to develop products made with renewable raw materials that are commercially viable for Clients and society in general.

 

Braskem  is not afraid to recognize that innovation can be both incremental and disruptive, as long as it benefits both their customers and the world at large, they will pursue it.

Finally, lessons on innovation from the world’s oldest corporation Stora Enso (Links to an external site.)Links to an external site.. In a new article from HBR, their business process innovation is discussed in detail.

How the World’s Oldest Company Reinvented Itself.pdf Preview the document

What we see with global innovators, as with any innovative company, are firms that look at ways to best serve the customers and markets in which they operate regardless of where that is.  We’re learning that business innovation depends on many factors and it can be found in organizations anywhere whether it’s called:

Innovation

Innovacion

חדשנות

inovação

革新