Does every company have to innovate?
As a business professor at the McColl School, this is a standard opening question I ask every group I address. I always receive the same answer: “It depends on the business” (usually stated with a “doesn't everyone know this?” tone to the voice).
I then follow with a challenge: “Tell me a company that doesn't have to innovate, and I'll show you a company that will be crushed by its competition – or more likely by the competition it didn't see on the horizon.”
Innovation is simply the core capability of any company that wants to sustain an advantage in the marketplace. This applies all the more to successful large companies that, despite years of success, can't quite figure out why the old models don't yield big gains anymore.
They feel that they are just as innovative as they used to be, are spending more money trying to invigorate their employees than they used to spend, and yet the dollar volume of sales from products or services launched in the past five years (a standard metric for internal growth) is either decreasing or stagnant.
This is a painful and difficult problem for management to address. However, history and research have some effective suggestions. Take a look at two very different companies and their approach to this issue:
Ideas come from everyone in the company – even the finance team.
Open information on every project – every idea, every deadline.
Favor intelligence over experience.
Get a free day each week to innovate – 50 percent of new products come from this time.
Don't politic for your idea, use data – eliminate ‘I like' for real data.
Give people a vision, rules how to get there and deadlines – creativity loves constraints.
Simple to use and easy to love – the money will follow this.
Stick with it – it can take up to six years to attain a big payback.
Innovation alone is not enough – need operational excellence as well.
Be highly practical – inventions have to be something someone will buy.
SOURCE: Business Week
Everyone knows the Google story up to this point. How it proceeds and whether it has a sustainable model is yet to be seen.
Whirlpool is a bit more interesting, as it is a 95-year-old company that makes “white goods” like washers, dryers, refrigerators and dishwashers.
Yet Whirlpool's innovation engine has been nothing short of miraculous. Sales from new product ideas less than five years old were less than $30 million in 2002. Today, they're more than $1.2 billion.
So where does this leave us?
Research studies repeatedly find that a conscious effort to innovate has to be pushed from the top down, despite the fact that great ideas will flow the other way.
Successful innovation must focus on what the company has as its core capabilities. Put another way, not all innovation is good innovation. An early and unfocused “innovation team” at Whirlpool created an Internet business that let people race one another on the Internet on stationary bikes. Huh? Needless to say, it didn't draw on any of the company's capabilities and was quickly shut down.
Finally, practical results must be visible and impactful to the company. Innovation must change the status of the company in the marketplace. So yes, every company must innovate.
History suggests that those companies that innovate the most are rewarded in both the consumer marketplace and stock market.
Chuck Bamford, Ph.D., is associate professor of entrepreneurship and strategy for the McColl School of Business at Queens University of Charlotte. He specializes in entrepreneurial issues, mergers and acquisitions and corporate strategy.