On transformational innovation

Innovation is a key driver of corporate transformation that takes many forms — from new processes and products in the existing business to totally new lines of business. Every now and then, organisations face challenges that warrant both radical and gradual change. Conventional change strategies are no longer adequate for an enduring competitive advantage. Instead, the challenge for modern companies is to identify and deliver on new sources of customer value.

The ultimate test for a company that aspires to be at the forefront of international competition is to master and manage the challenge of innovation. It requires innovating new, avant-garde avenues of manufacturing and marketing to meet the mercurial and kaleidoscopic demands of the market.

Of course, there is always an element of luck and chance in innovation. But companies can create their own “luck” with good planning and preparation. Louis Pasteur famously wrote, ‘Fortune favours the prepared mind.'

Radical innovation

Companies are prone to follow certain trajectories of development through their existing competencies and also through their network of relationships with other companies. However, when the available core competencies are insufficient to cater to the needs of the market, the managerial option invariably tends to tilt towards radical innovation. But radical innovation is difficult to do. It transits companies out of their known territory into areas that they do not readily comprehend. It calls for a much higher level of creativity and out-of-the-box thinking.

It is not easy for managers to renounce the clutches of past history and the “not-invented-here” syndrome. Recourse to radical and discontinuous changes is anathema to any well-established organisational order. Problems are bound to arise when a company is required to work with a fresh and different set of partners than those that it has been collaborating with hitherto.

Conversely, new entrants in the field are not bogged down with any baggage of past practices. The revised rules of the game are not an issue for them. However, nothing prevents an existing company from reinventing itself such that it retains the advantages of prior experience besides implementing newly acquired competencies.

In order to achieve this expertise, the established companies are advised to confront and conquer three types of challenges. They are: “the Cognitive Challenge, the Political Challenge, and the Technical Challenge” (Delbridge, Gratton, and Johnson).

The cognitive challenge is to become aware of the ideas and opportunities that lie beyond the comfort zone of the company. It is quite possible that the traditional management perspective may be blinkered and suffers from bias and blind spots. In some companies, the challenge is about making better use of the data already available within the organisation. In some companies, the senior management is typically buffered from the marketplace by at least three or four layers of hierarchy. The information reaching them is often screened such that they hear only what their subordinates want them to hear.

As regards the political challenge, even if the middle management is successful in getting its employees to generate new ideas, sometimes it faces formidable difficulties in mobilising support for those ideas in the corridors of power. The issue here is not whether the ideas are commercially viable or technically feasible. The concern is whether the political climate can be effectively tackled to circumvent and defuse the critics and sceptics in the organisation. It is necessary to make the corporate environment more participative and consultative.

The technical challenge relates to the skills of the employees, the capabilities of the company and its network tie-ups. In each case, the challenge is to find ways of building or buying what is missing but warranted. The problem in developing employee skills is the size, dimension, and magnitude of the project. The objective is to trigger employees to start thinking about fresh ideas and new business models.

Securing new capabilities

Over and above the skills of employees, most corporates possess some intrinsic in-house capabilities. By definition, radical innovation implies a shift away from the traditional areas of strength into new domains that demand new capabilities. The challenge then is in securing the new capabilities — on which the success in the new domains will depend — without detracting from the core competencies of the company.

There are two generic options by which this can be achieved. Acquisition is the more common option. It involves buying out an entire company along with the necessary capabilities. While acquisition may be quick, it is equally risky. Integrating the acquired capabilities is seldom seamless; it brings with it a bandwagon of adjustment issues.

Partnership is another option. It consists of learning the necessary capabilities from a joint-venture (JV) partner. Experience has shown that JVs are not without problems. Quite often, partnerships end in acrimony, because the objectives of the two parties do not always converge and coincide.

Current trends indicate that companies often resort to outsourcing arrangements rather than doing everything in-house. Hybrid networks comprising both long-term partnerships and a few need-based, short-term associates to work with seem to be the order of the day.

Radical innovation per se is not anything new. Major upheavals in technology have occurred throughout history — for instance the Industrial Revolution — bringing with them massive and metamorphic changes across entire societies. In such a changed scenario, executives may not be able to perform in the conventional mode of management by controlling and coordinating known elements. But they will create a context in which new ideas may emerge and be taken forward.

As with other ideas of management, there is no one size that fits all in managing corporate innovation. It is the individual manager and his capability, charisma, and strength of character in dealing with men and matters that will determine success in the ultimate analysis.

(The writer, a former HR director of an auto components group, is a management consultant.)

COMMENT NOW