Innovation Vanguard Firms Show the Way to Beating the Downturn

By: Robert Tucker

Could the current economic downturn actually be sparking an upturn in innovation? I see subtle signs of that happening. Anemic corporate growth, the bursting of the bubble economy, and the merger hangover are creating a unique, one-time opportunity for those of us who are advocates for and practitioners of systematic innovation.

Of course, many of you may be experiencing a different reality — innovation being moved to the back-burner because of the slow economy. But investors today still demand growth — only now it cannot come from Tyco-esque acquisitions binges. Wall Street has wizened up. According to a Business Week analysis, battered investors now realize that most big mergers of the late 1990s lost shareholder value big time.

McKinsey did a study looking at deals made by 116 companies over an 11-year period. Only 23 per cent of the acquisitions earned back their cost of capital. Could it be that innovation, almost by default, will become the solution to slow growth? I think so.

In a three-year study of “innovation vanguard firms”, my research team and I were allowed behind the scenes inside companies such as BMW, Herman Miller, Whirlpool, Appleton Paper, Medtronic and others. We sought permission to study their innovation processes. In these companies, innovation is very much a front-burner priority.

The CEO of Whirlpool recognized that their future depended upon innovation and then proceeded to put the resources and systems into place to embed innovation across the organization. The innovation czar at Borg-Warner told us that before they launched an innovation initiative, most people there would have laughed at the apparent oxymoron “innovation process”. But then they, as well as a growing number of other firms, began to realise, “Hey, we’ve got a process for everything else, why not innovation?”

Organic growth will be more critical than ever in the next three to five years and take my word for it, it won’t come from further cost-cutting. Here are five principles that “innovation vanguard firms” subscribe to:

1. Innovation must be approached as a discipline. You get better at it with practice. Teach people how to think through their ideas and how to know which ones are in alignment with the business goals. Show people how to champion and sell their ideas, and where to go for coaching and encouragement.

2. Innovation must be approached comprehensively. Don’t let it be confined to one department or an elite group of star performers; everyone else will take a “that’s not my job” attitude. Instead, innovation must encompass new products, services, processes, strategies, business models, distribution channels and markets. Work with your HR department to insure that innovation performance is part of every job description, and every manager’s evaluation.

3. Innovation must include an organized, systematic and continual search for new opportunities. You must promote a deeper understanding of social, demographic and technological changes in a continual search for tomorrow’s possibilities. Royal Dutch Shell’s chemical division in Houston has a group of trend-spotters who fan out across the globe looking for disruptive technologies, employees with wacky ideas, and obscure conferences to attend. Simply attending your industry’s annual trade association convention is essential — but it’s not enough. How are you and your organization “mining the future”?

4. Innovation must involve everyone in the organization. Companies that invest in building an innovation capability devise “idea management” systems to capture ideas from the rank and file, middle managers as well as senior management. At EDS and Bristol-Meyers-Squibb, their system feeds good ideas from the field regardless of where the employee is physically located.

5. Innovation must be customer-centered. Harvard’s Clay Christensen is right: you can’t always rely on current customers to tell you how to invest in the future. But too many organizations have an opposite problem; they seldom listen to the “voice of the customer”. Innovation vanguard companies are listening in many new and unconventional ways.

By thinking through these seemingly discrete issues, these firms have developed what might be called a strategy for innovation, one that guides them in good times and bad, and one that can conceivably survive changes in leadership.

By Robert Tucker