We constantly hear that companies must innovate or die. In the UK, of the 100 companies that made up the FTSE 100 in 1984, only 24 remain today. And there’s little doubt that the message has got through. Innovation is on the mind of any self-respecting CEO. Twenty- eight per cent of US business schools use the word, or a derivative thereof, in their mission statement while 43 per cent of US businesses have a ‘chief innovation officer’. Amazon used the word ‘innovation’ 3,190 times on its investor relations site alone.
It would be easy to get the impression that somehow, merely shoehorning this magic word into your job title or company description will make a difference. Recently, for example, there has been a trend whereby design agencies disappear one day and reappear the next as ‘innovation’ agencies. We’re sure this is good (if transient) marketing, and it may even be motivational for the staff of these firms. However, it has also continued the long-running devaluation of the currency of that most overused word.
Even before innovation was bandied around to this degree, we found it awkward. It is simultaneously too broad and too narrow to describe the sorts of changes that we think are important for business. It’s too broad because innovation could mean any change — no matter how small. Adding a company Twitter feed may — for many — be innovation but it’s unlikely to add much value unless it comes with a corresponding change in attitude. And it’s too narrow because there is a kind of stigma around what happens when innovation initiatives fail and, frankly, around the sort of people who are involved in failed innovation initiatives.
Say the word ‘innovator’ and the mind naturally drifts to the likes of Einstein and Edison. Say the phrase ‘innovation manager’ and the image conjured up is of a middle-aged middle manager not in the prime of their career and who spends too much time at conferences. The innovation office, all too often, is the one next to the door.
We need to rid ourselves of these associations and hype so that we can focus on the types of innovation that really transform businesses. From our experience, the more extreme types of innovation can be very hard for businesses to execute effectively. For staff who are used to one thing, a sudden and complete change of tack is a real challenge. And so it is likely to be resisted.
We’ll call these major changes ‘revolutionary innovations’, ‘revolutionary businesses’ or just ‘revolutions’, as opposed to ‘normal businesses’ or ‘normal innovations’.
This is not a derogatory distinction. The world of business is built by day-to-day or ‘normal’ business managers; inventing the trains is one thing, getting them to run on time is what makes them useful. However, to find the next ‘big thing’ means looking outside the toolset of ‘normal’ management.
2.1 Defining ‘normal’ innovation
It’s worth looking, briefly, at some of the huge range of activities that make up normal innovation:
- Improving existing business processes
- Fine-tuning an existing process — the improved efficiencies that businesses need to find year in, year out. This could include anything from improving the quality of materials or boosting morale on the production line to finding a new way to take products to market, or incentivising sales teams.
- More radical approaches to cost saving — like moving your factories to Taipei, or adopting lean approaches like agile or Six Sigma.
- Creating a whole new way to get things done — the way CAD changed manufacturing processes or desktop publishing changed newspaper production.
- Taking existing products to new markets
Whether it’s selling into a new market (e.g. starting to export your product to the States) or to a new demographic (e.g. selling Diet Coke to men through the Coke Zero brand), the ability to rethink proposition, marketing and application can be hugely demanding.
- Marketing products in new ways
- Using a content- or social media-driven marketing approach to offer a wider appeal.
- Creating multiple price tiers and product configurations.
- Adding new promotional packages — free trials etc.
- Reconfiguring freemium models
The list goes on…
2.2 So what’s revolutionary, then?
That’s when we try to think up entirely new products for existing markets (e.g. Peppa Pig toys are sold to the same markets as Peppa Pig cartoon content), or when we try to find new products for new markets (such as when Starbucks convinced a nation of tea lovers that they couldn’t do without their daily latte, or when Apple decided it would enter the music business).
Just because something is revolutionary for your business doesn’t mean it has never been done before. But it does mean that it is new territory for you and those around you.
And what we know for sure is that while existing teams can often deliver ‘normal’ innovation — especially of the incremental kind — they struggle to deliver on ‘revolutionary’ invention. The teams at the coalface when it comes to operating today’s products are almost always the best placed to find efficiencies and make recommendations for making those products better. In their book The Idea-Driven Organization, Alan Robinson and Dean Schroeder argue that 80 per cent of the value that is delivered in terms of operational improvement comes from grass-roots ideas. However, and maybe because of how close they are to today’s operations, these teams often struggle to find the next product that may take the market by storm.
2.3 Why is this?
By necessity, the individuals involved in everyday (‘normal’) business are relentlessly focused on repeatability. Goals in these teams can be expressed in terms of results, so if a team is producing ten units per person per hour, a good performance is to make 11, a bad performance is to make nine. In addition, the teams must be motivated by quality of output and consistency. Managers have a relatively well-understood yardstick for performance, and staff can judge their own performance reasonably well. Targets in this arena are based on results and, thus, staff can easily be incentivised to keep output and quality high.
The ‘normal’ business is what Govindarajan and Trimble call the ‘performance engine’5 and a constant stream of ‘normal’ innovations can be made more likely by providing staff with autonomy, knowledge and space to make improvements. For example, companies might rotate staff through various roles to broaden their experience, could incentivise performance-improving initiatives, hold all-staff meetings to surface appropriate ideas or add a measure to incentives around the improvement of quality.
In a sense, this conclusion — that existing teams are unlikely, by themselves, to be able to get the company doing new things or doing things in entirely new ways — is a shame. Clearly, for company leaders this would be both less risky (as it would not involve bringing in people they don’t know) and potentially less expensive.
However, as we’ll see in subsequent chapters, delivering more than incremental improvements will require a different approach; it demands new skills, new ways of managing and rewarding, and new ways of understanding success.
The next time you hear a management guru tell you that ‘everyone in the company is responsible for innovation’, ask them to explain the numerous examples of people at all levels who have to leave a business in order to create its next disruptive competitor, and the scarcity of organisations that have created a revolutionary product from a shop- floor-led approach.
2.4 The structure of business revolutions
The language we are using here to describe innovation activities is not original. In fact, we’ve borrowed ‘normal’ and ‘revolutionary’ from a highly influential American philosopher and historian of science, Thomas Kuhn, author of The Structure of Scientific Revolutions (1962), who caused many to rethink their assumptions about how the world of science really works.
For the most part,6 people have a lot of faith in scientists and in the sanctity of the scientific method. That is to say, they believe that when scientists are presented with evidence that a scientific theory is incorrect or incomplete, that they will abandon the theory. Let’s say that science tells us that emus are physically incapable of flight. One flying emu might be seen as a freak or a hoax, but once we’ve observed ten or 100 soaring through the skies, we all agree it is time to revisit the theory on emus being unable to fly.
What Kuhn did was to look back at where there had been major revolutions in scientific thinking — the notion that the earth wasn’t flat, that it wasn’t at the centre of the universe, that planets do not have circular orbits and so on — and examined what really happened. What he found was that evidence did not tend to invalidate well-established theories. Rather, faith in prevailing scientific norms was so strong that anomalous (incompatible) results would often be dismissed as erroneous or explained away by complex extensions to the existing frameworks.
Take the well-known example of the elliptical orbits of planets. At the time of Kepler, the belief that planetary orbits are circular wasn’t just popular, it wasn’t even just a scientific ‘fact’; it was a truth from the works of Aristotle, as much based on the philosopher’s convictions as it was on scientific study.
To question this belief was virtually blasphemous. And so scientists would come up with other explanations for the observations they had made of planetary motion — such as the existence of other planets which could not be seen.
This is what Kuhn refers to as ‘normal science’. During such phases, it is the (unspoken) job of the scientist to act within a well-established framework or paradigm. This is not to say that normal science is somehow wasteful or misleading. A lot of progress can be made in working in this way. After all, some coherent framework is always required to work in, and the work that scientists do still helps us to understand and — perhaps more importantly — predict the world.
Eventually, however, if evidence of anomalies continues to mount, a new framework may be proposed which will effectively oust the previous framework. Kuhn’s analysis of this sort of change is the origin of the term ‘paradigm shift’. It is what Kuhn refers to as ‘revolutionary’ science (Galileo’s heliocentricity, Kepler’s elliptical orbits, Einstein’s theory of relativity and so on). Revolutions in science are rarer occurrences which happen during periods of upheaval. They require brave pioneers, they change the context for everyone, and they require other scientists to reconsider all of the work they have been doing. Eventually, the new paradigm will be able to explain more observations, more coherently than the previous paradigm.
However, in the shorter term, it may appear to have as many holes as the old framework, since it will require a lot of ‘new’, ‘normal’ science to rewrite the science text books under the new paradigm.
We think this relatively well-understood (although still contested) theory for scientific knowledge has plenty of parallels in the worlds of business in which we operate. For our purposes, the normal activity is the day-to-day operation of the business. The revolutionary activity is when businesses want to do entirely new things.
What we have perceived (as both consultants and as employees of large and small companies alike) — and as you’ll have gathered by now — is that businesses are not very good at doing genuinely new things even when they are very good at carrying out their main business. The reasons for this bias are subtle and hard to break. So, when businesses need to change or need to do new things, they are essentially trapped between two unpalatable options: do something uncomfortable and risky, or stay where it is comfortable and run the risk of obsolescence.
The challenge is to understand the factors that encourage this fundamental weakness and look at what we can do to make the ‘unthinkable’ change acceptable just as ground-breaking scientists must discard the paradigms of the previous generation.
2.5 Only when revolutions are required
And so, in this book, we will focus on where revolutions are required and, consequently, we will more than likely help people seeking new, breakthrough products or services. Things designed to make the competition sit up and pay attention.
And what we will see is that for revolutionary innovation to succeed, it is often the deep-seated structures inside the companies themselves which will need to change. The deadlock we want to break is the one where companies know that their current proposition (their products and services) will not provide them with a long-term reason to exist, and yet they decide, for whatever reason, to stick with them anyway.
In a world where staying still is the same as going backwards, and most investors demand a steady stream of year-on-year improvements, the need to constantly enter new markets, with new technology and new value propositions, is intense.
Getting to the next proposition, especially when the current one is working, is extremely challenging and will force companies to find a different sort of leader, one who can break out of the mould of ‘innovation manager’ and break away from the skills we associate with that: predictability, a keen ability to take credit for things, a sort of gung-ho self-confidence and the ability to sell ideas to other executives.