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Innovation as a Weapon in Global Competition – Part 2

August 1, 2012

Last week, we featured Stephen Shapiro’s first post in a three-part series: Innovation as a Weapon in Global Competition. He concluded part one with “Innovation is not the same as invention. Invention is something to be pursued in a carefully controlled laboratory atmosphere. Invention is the process of discovering things that have never been discovered before. Innovation is different. In the business world, innovation is the discovery of new ways of creating value. Not everyone can be an inventor, but everyone can be innovative.” In today’s blog post, we share Shapiro’s best thinking on motivating employees and strategies for creating a culture of innovation.

Stimulating employees
Innovation is a must, because (to the great frustration of some) the environment in which companies operate is highly unpredictable. Customers today are perplexingly fickle and demanding, and they want us to do things that our detailed binders of work flows are not able to handle. How can we satisfy them when the policy book does not provide the answer?

We must look elsewhere. Jazz is the perfect metaphor for innovative business activity. This appeals to me because in my other life I love to improvise on the tenor sax. I am not the only one who has been struck by the appropriateness of the jazz metaphor. In 1996, John Kao wrote “Jamming” which used jazz as a theme for creativity. And, in ”The Social Life of Information”, the authors, John Seely Brown, director of Xerox’s Palo Alto Research Center (PARC), and Paul Duguid describe some work done by two Xerox technicians trying to repair a client’s machine.

To paraphrase the authors: “The afternoon resembled a series of alternating improvisational jazz solos, as each took over the lead, ran with it for a little while, then handed it off to his partner, all against the bass-line continuo of the rumbling machine, until it finally all came together”. That is the way the two technicians found a solution to their client’s problem, a solution they would never have found by simply following the book.

But for me, jazz is more than just creativity. It is bringing a company together in such a way that there is coordinated action throughout. Just as with jazz, this requires simple structures that enable innovation to take place in a harmonized and collaborative fashion. These simple structures equate to the role of process in fostering innovation. They provide the framework for freedom inside the structure.

What the jazz musician adds of his own accord is not pulled out of thin air. It is based on fundamental rules about chord progression and chord structures. Likewise, what the business invents in order to improve any given capability has also to be founded on certain basic ground rules. The players in a business have to be able to innovate at any minute of the day while literally “on their feet”. Innovation in business thus is just as important as improvisation is to jazz. Employees have to be trusted to search intelligently for improvements. But they do need guidance, training, and the tools to fulfill whatever solutions they come up with. It’s not a straightforward choice between rigid structures and allowing total anarchy. It’s a question of finding the right balance of structure and freedom.

What this leads us to is the difference between “box” thinking and “line” thinking. When people say you need to get “out of the box” to be innovative, they are right, but for the wrong reasons. The box that most people operate in is focused on activities, computers, people, or departments within a company. It is the lines, the interconnections and  interdependencies between the boxes, where innovation emerges. Innovative thinking comes from making connections. Connections between boxes. Connections between ideas. Connections between companies. Or connections between industries. Focusing on the lines frees up the organization to improve within the guidelines of the simple structure.

Strategies that have worked
How do the concepts of jazz, lines, improvisation and five-year-olds translate into practical business application? Over the years, I have seen many innovative companies. And although there is no formula for their success, here are a few common strategies:

  • Make everyone accountable: Because a few individuals at the top cannot possibly plan all of a company’s activities, give employees a set of rights, responsibilities and rewards that make them accountable for their own actions. Koch Industries, an oil and gas company based in Wichita, Kansas, wanted to achieve world-class safety. Rather than have a few safety engineers scour the company, Koch (pronounced “coke”) gave this responsibility to all employees, with rewards both for uncovering unsafe conditions and for discovering new ways to conduct business more safely. This initiative resulted in as much as a 50 percent improvement each year in the number and severity of accidents across Koch Industries. Within one year the company had moved from middle of the pack to one of the best safety records in its industries.
  • Replace rigid processes with clear business objectives: Too often innovation is stifled because companies define business processes in great detail, then hand those designs to the line that is expected to execute them. Mölnlycke Health Care, one of Europe’s leading manufacturers and suppliers of single-use medical products, allowed production teams to decide how to meet their goals. With the responsibility for quality products moved to individuals on those teams, nearly 70 percent of the company’s new products launch on time, compared with just 15 percent previously. As a result, the company will have quadrupled its shareholder value in only five years.
  • Challenge employees to compete: When challenged by external (or sometimes internal) organizations, groups are kept on their toes. For example, prior to being acquired by RWE AG in 2000, VEW Energie AG, a German-based utility, created a new business entity responsible for service, maintenance and construction. But other VEW managers were allowed to do business with competitors offering the same services if the price was right. As a result, the new unit worked hard to remain competitive, and in return was able to offer services to outside companies as well.
  • Encourage employee innovations, and reward them accordingly: Companies are often fast to turn to outside help, when in fact they already have the capabilities within their organization to do the job. Koch’s pipeline business in Minneapolis had budgeted $30 million to expand its pipeline with external support. A team of company employees decided that they could do the job themselves better and cheaper, and within a couple of months they had increased the pipeline’s capacity by 15 percent while spending only just over $1 million. Koch immediately gave them all a check averaging 15 percent of their annual salary.
  • Focus on your core strengths… and outsource: Another way of using innovation to stay nimble and competitive is by focusing on your differentiators, and relegating everything else to partners who have that expertise. Imagine an insurance company established only two years ago that has already contracted 15,000 policies and is issuing 200 new policies every week. Now imagine that the company has only two employees. This is Universal Leven, a Netherlands-based subsidiary of Allianz, focused on large, professional broker organizations. The two employees are in charge of corporate strategy, network expansion and product development. Everything else, including product branding, product design, marketing and all back-office operations, is outsourced.
  • Link strategy, customers and capabilities: To be competitive and sustain market leadership in a changing Brazilian marketplace, Multibras (appliances) embarked on an ambitious change program. This was achieved by focusing the business imperatives at three levels: industry, customers, and competencies. Multibras first looked at future discontinuities in the industry by mapping potential future transformations and expected changes. They did this through the creation of scenarios and business imperatives. The changes were then fed into a view on what customers would want in the future. What are customer expectations (current, and potential future), needs and wants? This was done using current customer knowledge, direct involvement from customers (e.g., Whirlpool), and leveraging marketing expertise. The outcome helped drive the definition of the distinctive capabilities required in the future. This effort ultimately generated $50 million in cost reduction benefits for the company, reduced time to market by 35 percent, and cut development cost by 15 percent.

Check back next week for the final post in Shapiro’s three-part series on creating a culture of innovation.

About the author
Stephen Shapiro is the author of 24/7 Innovation: A Blueprint for Surviving and Thriving in an Age of Change and founder of The 24/7 Innovation Group. He has also collaborated with other thought leaders including Michael Hammer and Peter Keen, and is recognized as one of today’s most influential consultants in the area of process and innovation.

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