The Hindu Business Line : Think new, everytime

Innovation is a pattern of thinking that challenges the status quo at all levels. As companies try to keep pace with rapid changes in technology, new markets and unstable business environments, innovation should be systematic, continual and built into the organisation's DNA.

Most of us have heard of Mark Shuttleworth; the 27-year-old South African entrepreneur, who recently paid $20 million for a ride into space. But how many of us know that what funded that ride was an innovative idea? An innovative idea that enabled Shuttleworth to grab 40 per cent market share from a huge global competitor, VeriSign, and finally sell his digital certification company to it for $575 million.

It was also an innovative idea that made the credit card business what it is today. In traditional banking, a creditworthy customer was someone who had considerable assets, had a good job and a good credit repayment record. A senior executive at Citibank asked why all this mattered. After all, if the bill gets paid, what does it matter how good the customer's credit record is? Instead of viewing bad debts as something to be avoided at all costs, Citibank began referring to it is as `cost of service'. This breakthrough transformed the credit card business. Millions of people who would have a difficult time getting a conventional loan from a bank can borrow thousands on their cards — at premium interest rates for the bank. A great deal of business focus today is on quality and process improvement.

But these don't make a Mark Shuttleworth out of you. As Joseph Juran, the quality guru himself says, improvements can take you only so far. For real change and transformation, quantum jumps need to take place. Innovation is the medium that creates those quantum jumps. Typically, most organisations go through a four-stage process in the journey towards innovation. Initially, they begin with problem solving or dealing with crises that seem to keep erupting. Next, in a bid to move towards greater proactivity and to cut costs, they move into TQM and other quality improvement processes. At this point, they find that this is not enough.

The competition is as tough as ever and TQM is not the differentiator in the market that they had hoped for, nor does it give them the kind of results they wanted. At this point, they begin looking around and begin benchmarking competitors or top performers in other areas of business. They try to benchmark each function in the company against an industry-best. But many companies find that returns are still not as large as hoped for. At this stage, some companies begin to look for a large, quantum idea that can fetch them immense market benefits and/or cost savings. They try to find a radical new way of doing things. Clayton Christensen calls these radical quantum ideas `Disruptive Technologies'. A disruptive technology is a radical change that forces everyone else to toe your line. Disruptive technologies topple industry leaders. As Wolfgang Grulke says in `Lessons in Radical Innovation', radical innovations always:

Break the mould: The present situation cannot grasp the new idea. Typical reactions are `it can't be done', or `they're crazy, they don't understand market conditions'. It's only when the radical innovation succeeds do the laggers begin to 'get it'.

Give significantly better returns: Typical returns on radical innovations are in the vicinity of 60-70 per cent per annum versus 10-20 per cent returns on incremental growth. For example, a very large manufacturing company in India has recently made a quantum breakthrough that will net them about Rs 50 crore in savings.

Establish the future norm: After a radical innovation is introduced, the market can never be the same again. It is the change that often topples industry leaders.

What prevents radical innovation

What prevents radical innovation from being the norm rather than the exception? As Grulke says, reaching the pinnacle of innovation is not about more effort or more capital investment. It's about quality of thinking and about bold follow-through for new projects. Many companies are in the `Shopping Paradigm' where they shop for solutions off the shelf. They go to the same `top' consultants and buy the same consulting solutions. They buy the same ERP products whether SAP or Baan or whatever, talk the same language and then wonder why they aren't able to differentiate. True differentiation can only come through radical innovation. Creating and taking that bold step that not just throws competition out of gear, but throws it off the road.

Roberta Goizueta shook his executives out of a Pepsi-centric 0.1 per cent growth pattern into a quantum one simply by asking and following through on an innovative question. "What is Coke's share in an average American's daily fluid intake, and how do we increase that share?"

The competition wasn't Pepsi. It was milk, tea, coffee, water, fruit juices; any fluid that can be ingested. The result was a fantastic shooting up in sales. Since then, this has become to be called the `Expanding the pond' concept. The concept is now no more innovative. If someone has done it before, innovation is over.

Anyone can now do it. So if you get advice like `expand the pond', it's not innovative advice. It's advice that others are also getting and implementing. To get to quantum growth, we need to stop shopping around for solutions and move to creating solutions from within.

Who innovates?

For many managers, innovation is still the job of researchers or scientists or whiz kids. They don't believe it can be practised in all departments from recruitment to purchasing to marketing, finance, and sales, to production. Innovations are also viewed as one-shot wonders. Make one innovation; shake things up a bit and then let's stop using the I-word for another decade or so.

Organisations need to learn how to make innovation as much a part of their processes in every department as much as say TQM or JIT or SEI-CMM.

Innovation should be systematic, continual and built into a company's DNA. As companies try to keep pace with rapid changes in technology, new markets, and unstable business environments, simply focusing on developing new products will not be enough.

Being the best you can be

What kind of an organisation can a constantly innovating one become? It can become what performance guru Robert Carkhuff calls an `Exemplar'. Exemplar organisations neither work harder nor think harder than other organisations.

But they do tend to think better and constantly seek quantum improvement. In every department, every area, they are totally goal directed and produce maximum results with minimum resource utilisation.

The only way exemplars can make these quantum jumps is through a process of constant and continual innovation. All managers really have four types of tasks: routine tasks, crisis management, value addition and quantum management. Routine tasks are the day-to-day tasks that need to be organised, planned for and delegated. Crisis management involves dealing with the inevitable crises that pop up in any manager's life.

A manager retains his job by virtue of handling the routine tasks and managing crises effectively. He begins to get promoted when he begins to add value to the job by making things constantly better, faster and cheaper — by focusing on improving quality and reducing cost and time. However, real growth for both the individual and organisation happens when he begins to create quantum jumps in performance.

To create an organisation-wide innovation and quantum management process, organisations should:

Start changing before they need to: The most difficult thing about changing is beginning the transition while still doing very well at a previous process or product.

Train people to distinguish between incremental and quantum ideas: In many cases, people think about a stretch goal and consider it to be quantum. A stretch goal, if it doesn't turn things upon its head is still just an incremental improvement. Quantum objectives are those considered impossible to achieve, and quantum ideas find ways to make those objectives happen.

Set in place processes to encourage innovation to happen: Ideas are rarely the problem or the challenge for organisations. The problem is converting ideas to reality. In many cases, breakthrough ideas do come through and are also approved for implementation. But in the journey from spark to implementation, middle managers, responsible for the end result, tend to dilute the breakthrough into just another incremental improvement. Very often being close to clients also interferes with idea generation and implementation, because clients are as tuned into the old as you are.

Sony is an example of a company that constantly created quantum jumps between 1950 and 1980. Its last quantum innovation was the Walkman in 1979. Since then it has made large, incremental improvements, but not quantum innovations.

An innovation is basically a pattern of thinking that challenges the status quo at all levels. For instance, a business head in a major Indian software company used an intriguing method to beat the recent IT downturn. At a time when $1 million orders were considered to be a benchmark to be aspired to by software companies in that particular domain, he turned conventional logic upside down by stating that they would no more accept orders below $1 million. The result was fantastic growth including a record order of $70 million. An order they would never have even attempted to go after earlier.

To sum up, innovation is about proactively going in for quantum jumps in any area whatsoever. Companies need to and can institutionalise a process of innovation that is suited for their particular organisational culture.

Let's face facts. The only factor that will keep India competitive on the global stage post WTO will be innovators and innovative companies that are not afraid of going for the big numbers. A number of Indian companies have already started the process of weaving innovation into the warp and weft of their culture. The payoffs have been astounding.

Recently, a focus team at a very large manufacturing company in India went through a systematic intervention process designed to spark innovation. They are now on a quantum breakthrough that promises to yield savings of not less than Rs 50 crore! Can you afford to not innovate?

Response can be sent to life@thehindu.co.in

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