How to turn innovation, often viewed as a haphazard occurrence, into a discipline.
How will you drive growth in your company now that all the bubbles have burst?
Take, for example, acquisition, that popular strategic ploy of the late '90s. It turns out that the staggering prices paid to capture other firms often lower growth rates rather than increase them. Just 23% of acquisitions earn back their cost of capital, concludes a McKinsey study, which looked at deals made by 116 companies over an 11-year period.
Tried-and-true methods such as suggestion systems that promote cost-saving ideas and continuous-improvement task forces that look to make processes more efficient can certainly improve your bottom line. But they won't help you achieve top-line growth. Smoke-and-mirrors tactics will only fool the market for so long. The solution? Innovation.
With all the hype about innovation during the bubble years, you'd think that companies were doing a lot of it. But don't be deceived by the billions they poured into new technology. Most firms have been focused almost exclusively on incremental improvements and line extensions. Valuable as these efforts are, their benefits rarely go beyond the intermediate term. The long-term benefits that come from game-changing breakthroughs, however, require more work: unconventional methods of seeking out the unmet and unarticulated needs of customers, faster prototyping of ideas, new ways of funding ventures, and compensation systems that provide incentives to increase the revenue from new products and services.
With top-line growth opportunities ever harder to find and sustain, companies can no longer get by with a partial or episodic commitment to innovation. In a three-year study, my associates and I were allowed behind the scenes in companies like EDS, Citibank, Borg-Warner, Royal Dutch/Shell, BMW, and others for a look at what amounts to a fundamental redesign of the innovation process.
Although each company's innovation overhaul has its distinctive features, they all encourage ideas from everywhere in the organization, not just the new-product development or strategic-planning departments. Moreover, to ensure that high-potential notions don't get lost, these initiatives take a systemic approach to idea management. Let's look at three of them.
The top-line, all-enterprise approach. Appleton Papers, based in Appleton, Wisc., found itself in the unenviable position of being the world's leading producer of a product fewer and fewer customers want: carbonless paper, the kind used in forms that need to be filled out in triplicate. The company already had a suggestion program for cost-savings ideas, but it desperately needed ideas that would replace revenue. So it created the GO Process (short for "growth opportunities"), which regularly solicits ideas from everybody in the company.
"In one year we've gotten over 700 new product ideas from our 2,500 employees," says Dennis Hultgren, Appleton's vice president. One of these is a new digital paper product that has been launched in Germany. "What we've learned is that it's important to bring everybody in on [the search]."
Ideas suggested by employees are fed into nine cross-functional teams, each led by a senior manager "spoke owner," who is in charge of championing the best ideas to make sure they become out-the-door new products. The teams meet several times a month to brainstorm, and share insights gleaned from investigative visits to other companies. Once a month, each team's best ideas are presented to Appleton's executive committee, which evaluates each submission using a scorecard that gives detailed feedback to the teams about why the product idea does or doesn't fit the company's objectives or available resources.
The innovation team model. The downside of the all-enterprise system is that, if implemented without sufficient training, it can lead to a bottleneck in sifting, sorting, and reaching consensus on which of the myriad ideas suggested to pursue. The innovation team model attempts to solve this problem by creating a company wide network of people with demonstrated skills in innovation and assigning them the responsibility not only of finding new ideas but of choosing the best ones and bringing them to market as well.
At Whirlpool Corporation, of Benton Harbor, MI, growth in the late 1990s had come to a standstill. Profits were falling, the stock price was at an all-time low, and another cyclical downturn was on the horizon. Management had already tried the usual cost-cutting measures, including the decision to trim 10%of the company's 60,000 workers. But it was a breakthrough washing machine from arch-competitor Maytag that caused executives at Whirlpool to act.
The company formed a 75-person, cross-functional team and charged it with scouring every region and functional area of the firm for ideas that could jump start new revenue growth. Out of an initial 1,100 ideas, the team identified 11 to investigate further and finally decided on six to actively pursue. One of the six was a new-to-the-world appliance that makes clothes ready to wear by smoothing away wrinkles and cleaning away odors.
Another idea involved the development of a new channel to sell it newfangled kitchen appliances to time-starved Baby Boomers. Taking a cue from Tupperware's "party" distribution system, Whirlpool contracts with chefs and culinary-school grads to host cooking-class dinner parties in customers' homes. The chef brings all the food and uses Whirlpool's latest cooking appliances to prepare the meal, and takes product orders at the end of the event.
The innovation team approach gives Whirlpool a continuous, sustainable vehicle for innovation that invigorates its existing methods of discovery and idea development. "We had this internal market of people we weren't tapping into," explains Nancy Snyder, corporate vice president. "We wanted to get rid of the 'great man' theory that only one person--the CEO or people close to him--is responsible for innovation."
The innovation catalyst model. In this model, ideas don't leave the division or business unit to be developed elsewhere-at headquarters, say, or in a skunkworks or incubator. Citigroup's Citibank division uses the innovation catalyst model to drive organic growth and capitalize on synergies created by a string of acquisitions. The effort is led by the chief country officer, working with a full-time "innovation catalyst," who expedites the process.
Many of the ideas come from structured ideation sessions with clients. Members of a Citibank senior team spend a day with their counterparts from a particular client. A facilitator focuses the brainstorming on present and emerging needs, marketplace changes, and customer service issues. To ensure the flow of new-product ideas, the innovation catalysts work closely with "magnet teams," locally empowered, cross-functional groups of senior executives that regularly meet to review ideas. The catalysts don't propose new ideas; instead they help the local managers prepare a case for their ideas.
In one Asian country, the innovation catalyst model has worked so well that the magnet team meets every week to review and prioritize ideas that have been proposed. And in Citibank's Trinidad bank, the model was responsible for 30% of the total revenues during a recent year.
Idea management systems don't replace traditional departments and processes involved in new services, products, or strategies-they serve as an adjunct to them. In addition, they create broader participation by making the hunt for new growth opportunities every department's business, rather than the province of a select few. And most important of all, they provide a framework that can help your firm turn innovation into an enterprise-wide discipline-and a sustainable process that drives growth in good times and bad.
