“Here’s to the crazy ones. The misfits. The rebels. The troublemakers. The round pegs in the square holes. The ones who see things differently. They’re not fond of rules. And they have no respect for the status quo. You can praise them, disagree with them, quote them, glorify or vilify them. About the only thing you can’t do is ignore them. Because they change things. They push the human race forward. While some see them as the crazy ones, we see genius. Because the people who are crazy enough to think they can change the world, are the ones who do.”
– Apple Computer advert, 1997
These words capture the essence of the spirit that is at the core of Apple Computer. Even though Apple has been through some tough times and financially challenging moments during its lifecycle as a business, it has always held at its core the spirit of innovation, of creating value by challenging the status quo and doing things differently. Over time this spirit has paid huge dividends. In 2005 and 2006 Apple was identified as the world’s most innovative company through research conducted by Boston Consulting Group, pipping other innovative organisations such as Google, 3M and Toyota at the post. Apple’s efforts have resulted in revenue growth of 37% over a five-year period and net profit growth of 185% per annum over the same time.
What if you could grow your top line by 37% and your profits by 185% over a five-year period? Over and above the financial returns, Apple has delivered a wonderful experience to customers through innovation. You would struggle to find someone who does not love the simplicity, usability and beauty of the iPod or the MacBook.
With the increasing rates of change and the continued opening up of global markets, there is no doubt that innovation is playing an increasingly important role in value creation and success in business. The question is how do business owners and CEOs embrace this concept in a meaningful and practical way in order to drive growth and profit? Can smaller business with little or no research and development budget develop innovative new products and services that will differentiate them in a highly competitive market space? To explore how competitive advantage can be attained through innovation, you need to examine the different types of innovation and different opportunities for innovation within an organisation’s sphere of activities. Understanding this can enable a business owner to look at their organisation with new eyes as they try to identify new opportunities to innovate.
Types of Innovation
Creating value through innovation can happen in many different ways. Traditionally, new ideas have been classified as product innovations, process innovation or business model innovation. In recent times two additional types of innovation come to the fore: branding innovation, where an organisation differentiates itself or its offerings by building a unique brand; and management innovation, where managers use a range of new and different practices to enhance the performance of people working under them.
Innovations can also be classified as radical or incremental. Radical innovations are ideas that are different or new, ideas that break away from what was done in the past. Incremental innovations are improvements and adjustments to current products, services, processes, business models, brands or management practices.
1) Product innovation focuses on the creation of new products or services, or on improving the features of a current product or service. This type of innovation has conventionally garnered the most attention. It’s driven by R&D departments looking for new products or seeking to improve current products to make them more appealing and user friendly. The Kreepy Krauly is one of South Africa’s true radical product innovations, a product that when introduced, completely transformed the pool care industry in SA and ultimately went global. On the other hand the Gillette razor has been through a long series of incremental product innovations. The razor started off with two simple blades; over time the company has systematically improved the product from the Sensor, to the Mach 3, to the M3 Power to the latest version called the Fusion which has five blades on the front, one on the back and battery power to produce micro pulses for additional comfort.
2) Process innovation is the creation or improvement of a process by which a product or service is produced or delivered. Effective process innovations have the effect of stripping out costs, increasing efficiency and improving the customer experience. Henry Ford engineered one of the major process innovations of the 20th century when he created an assembly line for the manufacture of cars. Before Ford, cars were built by groups of two to three people who worked on a car from start to finish. Ford created a moving assembly line with many individuals doing repetitive tasks. This reduced the assembly time for a car from 12,5 hours to 2 hours and 40 minutes.
More recently we have seen a number of successful process innovations, many of which have been enabled by the web and other computer technologies. Michael Dell of Dell Computers created a process where customers configure their own computer and pay for it at the time of ordering; on receipt of payment the company orders all the parts from suppliers who send the parts as they are required on the production line, meaning that the company does not store any inventory. The computer is delivered to the customer 10 days after the order is placed. This process has huge financial benefits for the company: it gets its money before it builds the product; it does not incur the cost of storing inventory; and as both the manufacturer and retailer, the company is able to extract the entire margin from the sale of the product.
In South Africa we have seen Ster-Kinekor reduce the pain and uncertainty of buying movie tickets by introducing process innovations such as Ticketline, online ticket buying and touchscreen service at cinemas.
3) Business model innovation is the creation of new business models or the successful change in an element of a business model that substantially enhances a company’s ongoing performance in delivering benefits to customers and shareholders. Business model innovation usually results in fairly large-scale change and disruption. Google and eBay are two of the most significant business model innovations to have come to the fore in the past 10 years. Both these companies emerged from the Internet bust as stainable businesses and have since gone from strength to strength, proving that it is possible to make a profit as a dotcom company. In South Africa, Outsurance changed the business model for short-term insurance, allowing customers to interact directly with the company and rewarding them for not claiming.
4) Branding innovation is the creation of value within a business through the development of a powerful brand. Not yet recognised by many as a distinct type of innovation, in practice, branding innovation can have a significant impact. Richard Branson’s Virgin was ranked among the most innovative companies in the world in a Boston Consulting Group survey, yet Virgin is nothing more than a brand. Virgin unashamedly copies products, processes and business models from other companies, but it delivers them to the customer in a unique, distinct way under the umbrella of a powerful, recognisable brand.
In South Africa, Kulula.com has claimed a significant chunk of the domestic airline market by being highly innovative in the development of its brand. Kulula.com copied the business models of Ryan Air, Southwest and Jetblue, and its bright green branding, idiosyncratic adverts and humorous approach has set it apart as an innovative and recognisable brand that has disrupted the South African airline industry.
5) Management innovation is the discovery and implementation of new ways of organising, leading, coordinating and motivating employees. Management innovation has only been recognised as a concept in the last few years, but those who have taken time to examine how innovative managers get the best out of their people have come away with some very interesting insights. One of the most fascinating and innovative business leaders of the past two decades is Ricardo Semler, the CEO of Semco, a business based in Brazil. Semler took the business over from his father at the age of 21. For the first few years he consistently worked 18-hour days, including weekends, until one day he collapsed on the factory floor from exhaustion and poor health. This forced him to seriously re-evaluate the way he was managing the business. He transformed his leadership style and management practices, documenting this massive experiment in the book Maverick: the Success Story behind the World’s Most Unusual Workplace. Here are some of the innovative ideas chronicled in the book:
- Each business unit is small enough so that those involved understand everything that is going on and can influence the outcomes.
- Demonstrating trust by eliminating all symbols of corporate oppression as well as the perks of status.
- Sharing all information and eliminating secrets. He believes that you can’t expect involvement to flourish without an abundance of information being made available to all employees.
- Every six months bosses are evaluated by their subordinates and the results are posted.
- Salaries are public information unless the employee requests that they not be published.
- Employees set their own salaries. They are encouraged to consider what they think they can make elsewhere; what others with similar skills and responsibilities make in the company; what friends with similar backgrounds make; how much they need to live on.
- 23% of pre-tax profits are shared with employees. Employees vote how the pool will be split. They must vote to determine the manner of each quarterly distribution. In practice they always vote for equal dollar shares.
- Eliminating policies and rules wherever possible.
- Job rotation; 20% of managers shift jobs each year.
- Setting up workers in their own businesses as suppliers to the company.
Semco has grown from a $4 million to a $212 million business over a 24-year period and has withstood some incredibly tough economic downturns in the Brazilian economy.
Not all these way-out practices may be relevant to every organisation or team, but perhaps they serve as inspiration to drive you to question what you could do differently in running your business or leading your team; this can give employees the freedom to flourish and the incentive to really take ownership and think out the box.
The reality is that you are unlikely to be able to embrace every type of innovation in your business – it would be too risky and too radical to try to innovate in every possible way. As a business owner or leader you should consider which types of innovation are most relevant in your business and work at driving a maximum of two or three types of innovation. If you are in a fragmented industry in the early stages of development, then product innovation is likely to be important. If you are in a more mature industry where cost and speed of service are relevant, then process innovation will come to the fore. Business model innovation will be important in declining industries where you are looking to rejuvenate or radically disrupt the industry. Branding innovations are useful in industries where consumers are highly critical, while management innovations can have broader appeal in many industries in various stages of development.
There are many different definitions of innovation but the majority focus on three core elements: searching for new opportunities and ideas, building and refining a new idea, implementing the idea to create value. Innovation can be defined as the process of recognising an opportunity and turning that opportunity into a new idea that is put into widely used practice. Peter Druker was the first management thinker to recognise the importance of innovation in the value creation process within organisations. He defined innovation as “the means by which entrepreneurs exploit change as an opportunity for a different business or service.”
To build competence as an innovator, you need to constantly be on the lookout for trends and changes that could affect your industry; you need to search for opportunities that emanate from technological, societal, demographic and economic shifts. You need to translate those changes and shifts into ideas for new products, processes, businesses models or brands. You need to work hard at implementing the new idea so that its commercial value is ultimately realised.
Make Innovation Happen
Turn Innovative Thinking into Results
Many a great innovative idea has either fallen short or not even made it out of the starting blocks due to poor, or worse still, non implementation.The process below is based on an article published in the August 2006 issue of Entrepreneur, Making Strategy Work, The 4-phase Process, in an interview by Patty Vogan with Michael Canic, a business consultant and author.
We have taken Michael Canic’s 4-phase process of making strategy work and applied the logic to turning innovation into reality.
1. The Assessment Phase
The key here is that leaders create the time and environment to make innovation happen. (See Making Innovation part of the business DNA) Secondly, as the leader of your organisation, decide on where you can make innovation happen in your business (See Types of Innovation)
2. The positioning phase
The question to ask here is, “What do I want to accomplish in my commitment to innovate?” Break it down to a few simply worded sentences that capture what you wish to achieve (the end goal).
Then develop another simply worded sentence to capture what “winning” would look like. Think of the early days of Apple, when the primary goal was to create the most user-friendly operating system for personal computers.
3. The Planning Phase
The general question to ask here is, “How do I get there?” This is the phase that has to be information-driven. How do you resource the team to brainstorm the innovation and how and when is the time created?
4. The Implementation Phase
Here you must answer the question, “How do I ensure it happens?” This is the most important phase and the one where innovative plans or thinking can fail. A critical and underestimated part of any implementation is alignment – ensuring the factors that impact people (from skills, authority, resources and incentives to processes and structure) are all aligned with the key goal. It’s alignment through the eyes of the people, not just leaders, that counts. A second critical aspect of implementation is commitment building. Be sure to structure regular communications and engagement with employees. Our underlying belief is that information, input and involvement together help to build commitment.
The last part of this phase involves execution management. The leadership team should meet for a few hours every month to track and manage the implementation of the plan, and then every 90 days to recalibrate the plan. Reality changes, and the plan or elements of the plan can become irrelevant. So every three months it’s critical to question the assumptions upon which the innovation plan was built and make adjustments as necessary. Have you lost a key customer? Has a new competitor come into the market? Has a promising investor bailed out on you? What has changed the reliability of your supply chain? When a company vigorously adopts a disciplined strategic management process to ensure a positive outcome of the innovation idea, it’s much more likely to achieve the goal.