Building the Future

The Systematic Management of Innovation in the Organization

Published in Hebrew in Status - Management Thinking Magazine, Issue 170, August 2005
By Ari Manor, CEO, ZOOZ

In order to succeed in today's competitive markets, it's not enough to offer quality products at reasonable prices. The bar must be raised time after time, and you have to surprise customers, excite them and in one word - innovate. And if you seek to lead the market, one or two innovative products will not suffice - as your competitors will be quick to imitate. You must innovate time and time again, consistently and for a long time. A firm that can achieve this is bound to dictate the rules of the game and will enjoy a reputation of a true market leader, along with a rise in income and a higher profitability.

Continuous innovation is the key to marketing success. But how can it be done? How can you surprise the market time and time again? Where would all the ideas come from? How will you know to promote the best of them? How will you succeed in realizing the more complicated ones? This article aims to assist you in just that, by telling you what we've learned at ZOOZ in the course of working with dozens of Israeli firms on innovation processes.

Good Ideas Are Not Enough

The management of organizational innovation is hardly an easy task. In fact, it is a very complex feat, spanning departments and responsibilities. Innovation should support and fit the organization's strategy. It should be supported by the organization's culture, and is promoted by all functions - marketing, finance, production, logistics, advertising and sales.

Over the past ten years of helping companies innovate, we have discovered more than once that good ideas alone are not a guarantee of success. Thus, for instance, we developed dozens of promising and practical ideas for new paints that failed to realize simply because the CEO was leading a strategy of growth through M&A (rather than through new product development). The CEO did not participate in the innovation activity, and was not committed to it. This and other experiences have taught us that the commitment of the CEO and senior management is the most important factor for the success of innovation management, and that without it there is no point in dealing with innovation. Innovation is a strategic process, and therefore requires managerial attention, budgets and a high level of commitment.

Systematic Innovation

Following our experience with the paint company and many other cases, we developed a model we call "Systematic Innovation", encompassing three central layers of innovation management:
(a) Strategic Infrastructure
(b) Organizational Infrastructure
(c) The Ideas Chain

Using this model will allow you to quickly identify what your organization requires and what bottlenecks you must open in order to facilitate continuous and successful innovation. The model is presented in the above diagram and its three layers are outlined in the rest of this article.

Strategic Infrastructure - Marketing Strategy

A company lacking a well defined business and marketing strategy has little point in dealing with innovation. In order to establish a clear and sustainable advantage, you must first formulate a strategy, and only then support it with a series of relevant innovations.

For example, an organization choosing to offer the cheapest product (cost control strategy) should focus on technological innovations (i.e. Teva Pharmaceuticals), logistical innovation (i.e. FedEx), and business model innovation (i.e. direct insurance) - all in order to reduce costs. A completely different approach should be taken by a company choosing to offer the safest products (added value strategy), that would focus on technological innovations supporting safety (i.e. Volvo), and on selling or producing only safer products (i.e. Shilav baby store network).

When you don't decide where you want to go - you end up going nowhere. Therefore, when firms ask us to help their innovation processes, we begin by finding out whether they have a clear strategy. If they don't - we recommend that they formulate a marketing strategy first, either with or without our help, and only then turn to innovation.

Strategic Infrastructure - Innovation Strategy

While many companies have marketing strategy "covered", only a few have a clear strategy and policy on innovation itself. Our experience shows that there are several important questions that need to be answered before dealing with specific innovation ideas. In fact, when you discuss actual innovation, it might be too late since the people who came up with the ideas' egos are already affecting the considerations.

Here is a list of major issues and decisions concerning innovation:

• Expansion or Cannibalism: : How much room is there on the store shelves? What is the ideal size of the product basket? How does it compare with what we offer now? Do we wish to increase the number of products, or cannibalize (replace older products with new ones)?
  
  (i) Examples: Some firms constantly expand their product basket (3M has over 60K products), others upgrade existing ones (Microsoft), and others upgrade in Western countries and market the previous generation in the Third World (Gillette).
  
  (ii) Israeli example: A bank we consulted came to the conclusion that bank clerks are capable of advising on 4 savings programs and provide information on 4 others. This means that the size of the "shelf" is 8 savings programs. Therefore, it was decided to focus on developing more attractive programs to replace existing ones. At the same time, it was suggested to examine innovation ideas for distribution channels so that customers may receive information and order savings programs through ATMs and through the bank's website.
  
  
• Level of Innovation: How innovative do we wish to be? New to the firm? To the country? To the world? Should we focus on product evolution or revolution? How does it fit our strategy? What is the desired innovation mix? What budget should be allocated to each type of innovation?
  
  (i) Examples: Some firms choose a "me too" strategy by copying others (the Chinese are famous for it), while others revolutionize every time (Boeing, Gillette), and focus on patents and breakthrough innovation (3M).
  
  (ii) Israeli example: The Israel Aerospace Industry set up an innovation committee that only deals with revolutionary ideas. Upgraded ideas are transferred to relevant R&D teams, but do not win managerial attention.
  
  
• Innovation Goals: What are the company's goals for innovation? What are we measured on? How? Is it the number of products per quarter? What percentage of income should be received through innovation? What is the expected innovation ROI?
  
  (i) Example: Some firms set a goal of a new product each day (Rubbermaid before the Curver purchase), while others aim at 25% of income from new products (again...3M).
  
  (ii) Israeli example: Kapro set itself a goal similar to that of 3M - attaining 25% of income from new products. It has achieved this goal for 8 years running, jumping from 2M$ annual income to over 10M$.
  
  
• Idea Screening: What should be considered a good idea? What are the screening criteria? Is it time and cost to market? Minimal expected income? Minimal profitability? Strategic fit? Regulation and standards? PR benefit? Level of novelty of the idea?
  
  (i) Israeli example: after helping Bagir develop hundreds of ideas for innovations in suits, we reached the screening phase. We set clear criteria for screening, and divided ideas into two types: relatively easy to implement, and more complex ones - requiring 12-24 months of development. Screening the complex ideas was stricter, and only those with anticipated high income and profitability were sent to development.
  
  

Organizationl Infrastructure

The management of innovation demands constant effort and securing the help of managers and entire departments. Innovation's biggest foe inside the organization is the daily sweeping race to put out fires. Other frequently found enemies are cynicism, fear of change and personal interests. Therefore, you must invest considerable resources in nurturing the innovation spirit within the organization.

Here are issues that demand attention and care if you wish to have an innovative organization:

• Commitment of senior managemnt: Is the CEO taking part in innovation discussions? Is management itself measured on innovation results? Do senior mangers spend at least 20% of their time on innovation? Do employees get a clear and consistent message that innovation is a major organizational value? Was innovation given an appropriate budget, and does it reflect real commitment?
  
  
• Supporting organizational structure: Is there an Innovation Manager or VP? His/her job is to manage the innovation committee, and to promote ideas along the idea chain, including external screening with customers and working with various development teams. Does the innovation committee convene regularly at least once a month? Its job is to screen ideas, assist in implementing promising ones, and determine the innovation policy. Is there an idea bank, and does everyone know to whom and how to propose new ideas?
  
  
• Incentives: Are there incentives for innovation activity? In addition to encouraging ideas for cost reductions or marketing innovations, you may promote ideas for improved cooperation and knowledge sharing between various departments and business units. Incentives may take many forms: promotion, monetary reward, weekend hotel getaways, as well as respect and recognition - outstanding employee certificate, special mention in company newsletter, a personal letter from the CEO, patent registration on the name of the employee who invented it, etc.
  
  (i) Israeli example: One of the firms in Strauss-Elite posts a large sign with "News on Innovation". It details suggestions made by employees alongside their name, response of corresponding manager, action taken and reasons for it. Therefore, the employee who came up with the idea gets recognition (even if the idea is disqualified), while others learn which ideas are good.
  
  
• Organizational Culture:Is it fun suggesting new ideas? Is the atmosphere open to new suggestions? Are employees encouraged to do so by peers and direct managers? Are there opportunities for learning? For discovery? For making mistakes?
  
  

The Ideas Chain

Companies that have a solid strategic and organizational infrastructure for innovation management, as described above, can build a steady chain of ideas. On the entry side of the chain, ideas are collected from various sources (employees, thinking teams and workshops, international conventions, client requests, suggestions by R&D and Marketing, etc.). Along the chain, several idea screenings occur. Ideas that made it through the screening process go to development, and if that succeeds - onto production, commercialization, and marketing. A proper chain of ideas provides the right amount of ideas in the right timing, in order to support the firm's strategy.

Following are several insights on the different stages of idea chain management:

• Idea development and collection: There are different sources for ideas, but existing products and services are a great starting point for developing new ideas. This may be done through internal workshops. At ZOOZ we use a variety of tools, including Systematic Inventive Thinking tools (appropriate for innovation ideas in products and services), and SCAMPER (for improving processes and logistics, and a faster and lighter version of NPD).
  
  
• Internal and External Idea Screening: The internal screening of ideas is an important phase, and should be done by the innovation committee - an interdisciplinary team. It should be done with a marketing and practical perspective, taking the above-mentioned criteria into consideration. This helps improve communication among participants, and their marketing and operational understanding. However, internal screening is not enough since people inside the organization tend to have a limited, and often emotional and misguided point of view on one idea or another. Therefore, external screening is required. We teach the organization to perform external screening using Concept Testing analysis.
  
  (i) Israeli example: After the innovation committee at Klil examined the results of a concept test for a new product, we decided to promote it, but at the same time members of the committee concluded that concept testing should be conducted on products already in development or commercialization, in order to better understand how to market and present them to customers.
  
  (ii) Another example: A certain product line, about which there was widespread enthusiasm in the internal screening at Shilav (for having a high profit rate, small shelf space and expected high sales volume), proved to be less promising and ahead of its time in concept tests, postponing implementation for at least another year.
  
  
• Development: Each stage along the idea chain costs roughly 10 times as much as the previous one. External screening costs 10 times as much as internal screening, and development costs yet ten times more. Therefore, it is essential to perform the right screening before using up R&D resources. When a good idea finally gets to development, it is not always easy to implement. Sometimes technological obstacles need to be overcome. When complex problems are involved, our technology consultants teach the company's engineers and technology staff a 3-day course on how to solve problems with Systematic Inventive Thinking tools. When problems are very complex and difficult, we recommend outsourcing. ZOOZ is the Israeli representative of Ideation-TRIZ, a Detroit based world leading technological thinking team. The tools they use are much more sophisticated and demand years of experience.
  
  
• Commercialization: Without effective commercialization the entire innovation process comes to a halt. Consider for example, Israeli start-ups that must employ experienced business development staff to sell their solutions, however innovative they may be, to international communication firms. Therefore, in order to turn innovation into success, it is imperative to invest in commercialization as well. When our clients seek help in this area, we assist them in various ways: workshops to sales and service staff, devising tactics for penetrating new markets, creative advertising and surprising packaging. Innovation can, and should be used at the commercialization stage as well.
  
  

The Future Is for Those Who Build It

The main message of this article is that innovation management is a complex process demanding expertise, perseverance, and meticulous planning. Peter Drucker once noted that there are two types of people in organizations - people of the present (caring for current matters) and people of the future (caring for years to come). I hope that this article will strengthen the people of the future in your organization, and their actions.

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Written by Ari Manor, CEO, ZOOZ. All rights reserved.
Any trademarks and symbol-marks mentioned in this article belong to their owners.