Quick takes

Citation

Gorrell, C. (2005), "Quick takes", Strategy & Leadership, Vol. 33 No. 1. https://doi.org/10.1108/sl.2005.26133aae.001

Quick takes

Catherine GorrellPresident of Formac, Inc., a Dallas-based strategy consulting organization (formac@mindspring.com), and a Contributing Editor of Strategy & Leadership.

These brief summaries highlight the key points and action steps in the feature articles in this issue of Strategy & Leadership.

4 Why the best and brightest approaches don’t solve the innovation dilemmaSteve Denning

The need to innovate is universally perceived as the key to organizational survival, but it’s not enough for companies to merely get better (via sustaining innovations). They have to get different – not just at their periphery through extensions of existing businesses, but in their core, through a commitment to disruptive growth. But, the inability of most large organizations to undertake disruptive innovation and achieve sustained resilience in the marketplace is apparent. The failure rate of mature companies attempting to grow by entering new businesses is estimated to be over 90 percent, perhaps even as high as 99 percent.

This article examines leading many theories of innovation that are offered to solve the paradox of innovation management so as to allow disruptive innovation to thrive:

• •

  Create a safe environment for innovation: protect genuine innovators and their disruptive-change ideas from the hostile dynamics of the organization. Flaws to this approach include: it does not address innovations that require organization-wide change (key example: IBM); it’s doubtful they would get the resources required for success; and their innovative practices won’t be adopted by the rest of the organization.

• •

  Fund many innovation projects to generate lots of new ideas, one of which will lead to the bold change that corporations need. Problems with this approach include the fact that research shows that more resources will not resolve innovation problems.

• •

  Use data-driven strategic innovation: statistical techniques may generate potentially provocative correlations, which become the crucible for some innovation. But data-driven techniques will only be a component to achieving business-busting ideas.

• •

  Use open source innovation: complement in-house R&D with externally sourced innovations. Though this process is valuable and can help change corporate R&D culture, it is not the whole solution.

• •

  Create a chief innovation officer – but can this person actually get truly disruptive innovation adopted by the top management hierarchy?

• •

  Consolidate an idea from outside the company: bring good ideas into the company and scale up the market. Problem: what made the idea successful in a pioneering organization cannot always be recreated in the recipient organization.

• •

  License the innovation and let another company aggressively develop and market it. But licensing innovation can be a dangerous strategy unless you have an accurate vision of your future (key example: Motorola’s license of digital telephone technology to Nokia).

To successfully innovate, corporate leaders need to persuade their organization that continual transformation is their best hope for the future. It is only then that leaders/companies will grasp both the true nature of the paradox of innovation, and also how it can be solved.

12 Strategic frontiers: the starting-point for innovative growthJ. Douglas Bate and Robert E. Johnston Jr

Outside the current business model of each company there is a space that CEOs can use to provide future direction for their companies – a “strategic frontier” where the new growth potential for the organization will be found. It might be a new market, a new technology, or new business model.

As a first step, the CEO should commit to the identification and exploration of the company’s strategic frontiers. By defining the frontier, the CEO and the senior management team clearly communicate their commitment to finding a distinctly different corporate business model. This “difference from today” provides the power of strategic frontiers allowing new opportunities to become more visible.

When the best strategic frontier is not obvious, as the second step, the CEO initiates a project to identify options. The search begins inside the company, but the richest sources of opportunities are external (processes explained).

The third step explores the strategic frontiers for innovation opportunities using creative wisdom, not conventional wisdom. Southwest Airlines used creative wisdom to create a uniquely successful business model. Exploring and understanding a strategic frontier uses a five-phased process:

1. 1.

   Staging – create a corporate reconnaissance team.

2. 2.

   Aligning – give them a working environment during the frontier exploration that is creative, future-oriented, and marketplace-focused.

3. 3.

   Exploring – recognize that most of the work of this team takes place outside the organization; that is where the catalysts (new perspectives, new information, and new operating models) for innovative ideas lie. The focus must be the pursuit and understanding of value (customer value, market dynamics, and business model innovation based value).

4. 4.

   Creating – the goal of this frontier team is to identify a portfolio of innovative new business opportunities that exist on the strategic frontier. The opportunities will include both shorter-term and longer-term opportunities, smaller opportunities and larger ones, as well as lower-risk opportunities and riskier ones.

5. 5.

   Mapping – in this final phase, the team will create a strategic roadmap outlining key events, trends, market discontinuities, and milestones to move the company into its new strategic future.

19 Interview with Henry Chesbrough: innovating innovationRobert J. Allio

Henry Chesbrough is the author of the provocative book, Open Innovation: The New Imperative for Creating and Profiting from Technology (Harvard Business School Press, 2003). Some interview highlights:

What are the problems with the traditional closed model of investing in R&D to produce innovation?

It produces research for research sake, and this contributes to results that lack any clear path to market. There is widespread dissatisfaction with the return on R&D investment. And, although this dissatisfaction is not new, today’s shorter product life cycle conflicts with the long lead-time for R&D. Therefore the problem is getting worse.

What are the key elements of the alternative, open innovation model?

This model posits that great inventions can come from both inside and outside the company. Regarding seeking external sources to innovatively solve a problem or offer new ideas, there’s a growing number of intermediaries that will seek out external technologies for client firms or will help spin out some of their clients’ technologies for a fee.

How can I foster innovation in my company?

Apply a diagnostic first. To what extent has your business model been stagnant over the past ten years? Ask how many new brands have been launched? Summarize the major recent developments in your industry. Then track where those developments came from – an established competitor or from outside the industry?

Innovation takes place even in conventional industries. If a company concludes that there’s no more opportunity for innovation, I suspect that they’ve become a captive to their current business model, and they’ve lost sight of the activities at the periphery of their industry.

25 Discovering significant and viable new businesses: have faith in strategic planning basicsAndrew Campbell

When the core businesses start to slow down managers turn their attention to new businesses. However, despite investing considerable resources in the search for new growth, most fail, often because the companies are erroneously following “current wisdom”: try harder, invest in more projects, and take more risks.

Research was collected from: shadowing managers responsible for developing new businesses; surveying corporate venturing units; and assembling a database of more than 50 significant success stories. All research avenues pointed to the same conclusion – managers need to assess opportunities more strategically and concentrate on only a few.

Six rules for assessing growth opportunities:

1. 1.

   Continue to invest in the core business. The real cost of investing in new businesses may be distraction from the core, rather than money lost from a failed venture. So give first priority to the core. Consider new businesses only when the challenges in the core do not demand the full attention of top management.

2. 2.

   Don’t be seduced by sexy markets, but recognize rare games. To create value, managers should be focusing on markets where they have an advantage, and bring some special resource or competence to the game, rather than jump into markets that are growing rapidly but will likely attract many rivals.

3. 3.

   Look for advantage, don’t play the numbers game. Invest in opportunities only when the company has a significant advantage. Sometimes this may mean no new initiatives or only two or three. Screen ideas for the very best, and then focus on making them work.

4. 4.

   Be humble about current skills. Learning costs have upset many plans; therefore the new company needs a 30 percent advantage.

5. 5.

   Focus on people as much as potential. Search for entrepreneurial managers who are capable leading a new business. There three issues when selecting projects to support – management, management and management.

6. 6.

   Be driven by the opportunities that fit. Be realistic and strategic about ambitions. Explore potential rather than fill a growth gap via stretch goals.

32  Technology brokering and innovation: linking strategy, practice, and peopleAndrew Hargadon

There is a tested way to grow through innovation that dramatically betters the odds of success–a recombinant innovation strategy termed technology brokering. By recombining existing technology companies can produce disruptive innovation.

The technology brokering innovation strategy has three parts:

1. 1.

   rather than chasing wholly new ideas, focus on recombining ideas from other industries in new ways;

2. 2.

   rather than insulating the scientists and engineers from the operating divisions, let them draw from these divisions; and

3. 3.

   rather than extolling individual geniuses, create strong social networks both in and outside the innovator groups.

These practices have sparked many of the technological revolutions of the past century and, equally important, produced a steady stream of growth opportunities for existing businesses.

Technology brokering works because it aligns three interdependent factors: a firm’s innovation strategy, its work practices, and its people:

1. 1.

   To pursue a strategy of recombinant innovation, technology brokers must strive to be the first to see how existing technologies in one market could be used to create breakthrough innovations in another. To do so, these firms must span multiple, otherwise disconnected industries and markets.

2. 2.

   The work practices that support technology brokering are designed not to invent the future, but to discover, synthesize and deliver new and valuable combinations of existing technologies.

3. 3.

   Focus the roles, responsibilities, and reward structures of the people engaged in the innovation process on creating new combinations of ideas – by collectively pooling their knowledge and experience rather than individually pursuing novel inventions or discoveries.

Companies that innovate routinely by creating new combinations of existing ideas – like IDEO and Procter & Gamble – have aligned their innovation strategies with the appropriate work practices and the right people.

37 Metrics for innovation: guidelines for developing a customized suite of innovation metricsAmy Muller, Liisa Välikangas, and Paul Merlyn

The development of innovative capabilities is the only means by which companies can sustain a competitive advantage. But sustaining innovation requires tools with which to diagnose impediments to the innovation processes and to evaluate the innovative capability of potential acquisition targets.

This article offers managers both general principles in the development of innovation metrics as well as sample specific metrics that they can begin to use immediately.

Framework

A metrics framework combines three views on innovation, each with inputs and output:

• •

  Resource view: this addresses the allocation of resources to balance between tactical and strategic investment. The ratio of inputs to outputs provides a measure of return on innovation investment.

• •

  Capability view: assesses the extent to which the company’s competencies, culture, and conditions support the conversion of innovation resources into opportunities for business renewal.

• •

  Leadership view: assesses the degree to which the leadership supports innovation.

• •

  Innovations processes are an additional element. The processes interlink the resource view and the capability view.

Guidelines

1. 1.

   The optimal selection of metrics and the optimal value or “sweet spot” of any particular metric will vary from company to company. Clearly, one size does not fit all.

2. 2.

   No single metric can convey full meaning in isolation. Just as with the analysis of a company’s financials, the analyst must look at several metrics in order to develop a comprehensive view of the company’s innovation capability. Managers need to be mindful of unintended consequences that can result from over-emphasizing the importance of any one metric.

3. 3.

   Build a comprehensive set of metrics.

4. 4.

   Assess existing metrics.

5. 5.

   Avoid complex metrics.

6. 6.

   Select a manageable set of metrics (eight to ten), and measure them diligently, disseminating the values as widely as possible.

7. 7.

   Include at least one or two customer-driven metrics.

8. 8.

   Reconcile metrics with existing methodologies.

Specific guidelines for selecting metrics are offered for both beginning companies and veterans, with samples. And for those needing speedy implementation, two examples of suites of metrics are offered in exhibits.