A Peek Behind the Curtain: How Do Successful Companies Innovate?

 A Peek Behind the Curtain: How Do Successful Companies Innovate?
By Gail Stout Perry

The topic of innovation can be daunting, filled with vague terminology and mysterious processes. How does an organization innovate? How does one create a culture of innovation? And how does one guard against — or create — disruptive innovation? And what does all of the above even mean?

Steve Jobs said it best in a 1996 interview for Wired magazine:

Creativity is just connecting things. When you ask creative people how they did something, they feel a little guilty because they really didnt do it, they just saw something. It seemed obvious to themthey were able to connect experiences theyve had and synthesize new things.

Think of some of the best-known innovators. Thomas Edison is known for inventing the light bulb, when in reality, he merely bought a patent, hired someone to design a better filament and popularized the usage of light bulbs. In other words, he connected some things that already existed and figured out how to monetize the idea.

Henry Ford is known for creating the moving assembly line. Ford had a strategic goal to drive down costs by standardizing his assembly process. He took many ideas from the gun manufacturing industry, but when he visited a meat processing plant and saw pigs being moved down a ‘disassembly’ line, he realized he could do the same thing in reverse to further streamline the assembly of automobiles. One idea built upon other ideas.

Edison and Ford are examples of incremental innovation, which simply means to take something that exists and make it better.

So what does the term disruptive innovation mean? Many people associate this with the mysteries of a skunkworks operation. The truth is, all innovations are incremental: one idea combined with another idea to create something better. The term disruptive innovation applies when the idea ends up disrupting the way things are done in an industry or changes consumer behavior. And actually, Edison and Ford are remembered because their incremental innovations became disruptive.

A modern example of disruptive innovation is Uber. Uber used incremental innovation to solve a problem. Taxis are not always available when one needs a ride as many of the folks in Houston, Dallas and Austin have experienced. People and organizations in those areas do have cars for hire (the first Uber drivers were actually taxi drivers), so that left one strategic problem to solve: how to connect the rider with the driver — how to “hail a ride” remotely. Smart phones, it turned out, were the key. Uber was born by creating an app that connects drivers with people who need rides.

Why is this considered disruptive? Because Uber has disrupted the taxi industry by changing consumer behavior. Taxi revenues are falling fast and many taxi companies have chosen to fight by appealing to city hall and to the courts. But New York City’s Yellow Cab has figured out how to innovate. They have created their own app that allows one to hail a driver and enjoy the same seamless consumer experience as Uber. Yellow Cab has the strategic advantage of already having a huge network of trained and trusted drivers. So they one-upped Uber by innovating their own processes to deliver the same customer value proposition as Uber, plus a safe experience with a known brand. This is incremental innovation in response to disruptive innovation.

Innovation, incremental innovation, disruptive innovation — it is not really that mysterious, after all.

What is mystifying is how organizations continue to innovate.

Much has been written on the topic of how organizations implement an innovation process. The crux of an innovation process is that once an idea is generated, there is a system by which that idea is captured, vetted, selected, tested and put into production. And there are stage gates along the way, to decide whether an idea should proceed to the next step or if the organization should move on to the next idea in the pipeline.

Creating a standardized process to manage innovations from idea to execution (and monetization) is pretty straightforward and well documented. Having a process in place encourages an open sharing environment, which empowers staff to contribute their insight and provides a safe way to test ideas (fail early and fail fast).

The truly difficult part is figuring out how to generate the ideas in the first place. This is often referred to as “creating a culture of innovation.” The organization must create the right environment for staff to think of new ideas —how to increase production, lower costs, improve a product or service, and so on.

Ideation itself does not follow a standard process. Ideation occurs when the human brain makes unexpected, new connections. There are three things necessary to create the right organizational conditions to spark new ideas for innovation.

  1. A Relaxed Mind

Some companies, such as Google, create off-duty creative thinking time by setting aside a number of hours per week for employees to work on anything they want as long as it is related to the company. But very few businesses can afford this luxury.

For most companies, ideas occur when employees are actually away from the office, during their personal time. If they are thinking about the business while their mind is wandering, they may make creative connections involving the business. And if their brain is going to work on solving business problems while they are away from the office, that must indicate they’re passionately engaged in the business and enjoy thinking about work.

Start-up companies generate ideas at a furious pace — teams work night and day to make a go of the business. It’s exciting and the individuals are energized to think about work all the time, identifying and solving strategic problems. However, mature companies must find ways to keep employees excited about work. The most powerful way to do that is to tie the business itself to a higher-level purpose. Instead of focusing on the bottom line, encourage employees to focus on the ways the business is making life better for customers, stakeholders, the environment or the world.

Daniel Pink, researcher and author on the topic of human motivation, has found that most employees are motivated by doing something of value — by contributing to a greater good. Jim Stengel wrote a book called Grow, which profiles companies that work toward a higher ideal and have consequently outperformed companies that don’t. Stengel states that ideals “powerfully inspire continuous innovation toward higher-order benefit.” Simply stated, employees don’t bounce out of bed excited to get to work and help the owner make a profit, but they do get energized about doing something that matters — making a difference.

So what does this look like in a practical sense? The higher purpose is typically part of the organization’s mission statement. Take Mary Kay Inc., a Dallas-based company, for example: “We believe in a larger purpose: helping others to achieve their dreams.” This mission guides their business decisions and inspires their employees. The company doesn’t exist to make money for the owners; rather, the business makes money so it can continue to invest in providing economic opportunities for others, specifically by providing career opportunities for millions of independent beauty consultants around the world. There are stories of Mary Kay Inc., choosing to stay in markets that are operating at a loss because the mission of helping to create jobs is so fundamentally important. Now that’s a reason to bounce out of bed!

  1. A Stockpile of Information.

If one is intellectually curious and is constantly learning, exploring and adding information to the memory, then the mind becomes fertile ground for making new connections. Frank Lloyd Wright is a remarkable example of how various interests and ideas connected to create something extraordinary. When he created the innovative design for Fallingwater, the breathtaking house that is integrated into a waterfall, his colleagues said the design just poured out of him in less than two hours. Architects who have studied Wright point out that this design reflects several things Wright was known to be studying at the time. He was steeped in transcendentalism, and intrigued by the new designs of European Modernists, the balconies on the Chicago Tribune Tower,and the developments in cantilever technology. Fallingwater simply blends these various ideas in a new and creative way.

People who are most creative are constantly absorbing new information — they attend learning events, read and share professional books and articles, network with people inside and outside their industries and pay attention to current events around the world. Leaders can model and encourage this behavior by talking about what they find interesting and what they’ve learned recently, and by encouraging employees to pursue learning opportunities as well as personal interests.

  1. The Spark

To generate that spark of creativity, it is possible to “seed the cloud of inspiration” with a strategic problem to solve. Uber founders Kalanick and Camp were together at a conference in Paris, carrying luggage and trying, unsuccessfully, to hail a cab in the rain. Ford wanted to find a way to make reliable cars that were affordable for most Americans.

Providing context and direction in terms of strategic organizational problems that need to be solved can help seed the cloud for innovative ideas in an organization. A strategy map is a powerful visual tool that CEOs use to identify and communicate the problems they want to address (see Figure 1). The strategy map is like a Rosetta Stone for employees to interpret what is on the CEO’s mind. Using the example in Figure 1, when employees understand that lowering cycle time is important, they start ruminating on the problem and are more likely to come forward with innovative solutions.

Figure 1: Example Strategy Map

Perry Illustration

© 1997-2016 Balanced Scorecard Institute

So, innovation (and its vague terminology and mysterious processes) demystified:

Relaxed employees feel a sense of purpose in their work, and enjoy thinking about key strategic problems they know the company wants to improve upon. Connections start firing in their well-stocked brains and they put together new ideas. There is an innovation process in place to nurture this new idea, which moves through the development pipeline. The result is incremental innovation that just might become disruptive to the industry or to consumer behavior.

In plain English: Most employees love solving problems for a company they enjoy working for. Problem solving leads to new ideas and, every now and then, a new idea can disrupt the way things are done. One CEO tells of an hourly worker who looked at him one day and asked, “Did you know this is mostly the same equipment we used when I worked in another industry? I’ve been thinking, why don’t we use our excess capacity for that?” The CEO diversified into the other industry, taking the competition by surprise, and his company achieved remarkable results. It makes one wonder, which employee has the next big idea?

Gail Stout Perry is Chief Strategy Officer of the Balanced Scorecard Institute. In addition to being a recognized expert in strategic balance scorecards, she also consults, speaks, teaches and writes on the topics of innovation, strategic planning, performance management, and strategy execution. Email: gperry@balancedscorecard.org Twitter: @gailsperry

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