Peter Drucker once said, “Above all, innovation is work rather than genius. It requires knowledge. It often requires ingenuity. And it requires focus.”
Can innovation be managed like a business process? Does “managing” innovation limit creativity, thus stifling innovative ideas? Samuel Palmisano, the former CEO of IBM, said, “We treat innovation as if it were magical, not subject to guidance or nurturing much less planning. If we study history, however, we know that’s simply untrue. There are times, places, and conditions under which innovation flourishes.”
Although there is a natural contradiction between creativity and the process of capturing value from it, it is possible. Many of the world’s leading innovative companies have been able to strike the right balance between fostering creativity and effectively managing innovation.
PwC’s Global Innovation 1000 study lists Apple, Alphabet, 3M, Tesla Motors, and Amazon in the top five spots. Interestingly, Apple and Google (or Alphabet, the umbrella company formed after corporate restructuring at Google) have maintained their top spots since 2010. It may be logical to conclude that these companies spend large sums of money on R&D, but data proves otherwise. Surprisingly, the 10 most innovative companies have performed better than the top 10 R&D spenders for seven consecutive years. What are they doing differently? They focus their innovation efforts on their capabilities.
Before 1997, Apple was floundering because it was trying to do everything, from volume manufacturing to cutting-edge hardware development. Later, the company began to focus on the capabilities that differentiated it from its competitors, such as intuitive user interfaces, sleek product design, exceptional consumer experience, and iconic branding. Apple sold its factories and stopped investing in raw technology development. Instead, it set up a program to build on the innovations of others and add value by contributing to factors such as design, integration, and branding.
James Brian Quinn, Buchanan Professor of Management at Amos Tuck Graduate School of Business, reports the results of his two-and-a-half-year study on large, innovative firms in the paper, “Innovation and Corporate Strategy: Managed Chaos.” He describes ways in which innovative firms combine “strategic planning concepts with some novel organizational and motivational approaches” and concludes that “innovative companies seem to evolve a sophisticated approach to “managed chaos,” which recognizes the realities of how major technological innovations evolve and harnesses this process to corporate needs.”
Cognizant’s innovation journey is an interesting read. The result of this journey has been that their Managed Innovation framework has been successful in generating 134,232 ideas from 55,383 empowered employees and implementing 19,172 innovations for over 400 clients. In 2012, their innovations generated a value of $548 million through savings.
Why manage innovation?
The three pillars of innovation (Competency, Strategy, and Management) underscore the importance of “managing” innovation. The innovation competency of an organization is determined by its set of capabilities. To align innovation to strategy, managers need to be able to allocate resources efficiently. Management is the most significant pillar because the most competent firm with the right share of resources still needs to manage innovation properly to benefit from its innovations.
Professor Tim Kastelle developed the three horizons model to help organizations deploy resources efficiently. He suggests a 70/20/10 division—70% focus on bettering existing processes and products, 20% focus on seeking adjacencies, and 10% focus on exploring fresh markets.
Google employs a 70/20/10 breakup, where most of their innovation resources are engaged in bettering existing projects. The three horizons model describes three time frames:
- Horizon 1 (H1) innovations: involve bettering current operations
- Horizon 2 (H2) innovations: involve extending current competencies into new and related markets
- Horizon 3 (H3) innovations: could change the nature of the industry
How can successful firms manage innovation?
Good management is needed to determine the right split of resources based on the situation. Most of the innovation in H1 is incremental, whereas most of the innovation in H3 is radical. Thus, entirely different sets of skills are required to innovate in each case. Kastelle suggests thinking of innovation as a portfolio to help decide how to deploy resources.
There are no set rules to be followed to become a great innovator. In fact, the top innovative companies differ from each other immensely and their advice can be at odds with each other. Xerox PARC and IBM Research focus on innovations arising out of basic research.
Procter & Gamble’s Connect+ Develop platform is designed to collect innovative ideas from experts around the world. The company hopes to get a breakthrough innovation by harnessing the collective power of brilliant minds.
Apple centers its efforts on sustaining innovation. It rarely invents something new; instead, it improves on existing products to such an extent that they appear to be altogether new. Similarly, Toyota manufactures better cars than its competitors. Both Apple and Toyota successfully adapt breakthrough innovations for the market.
Google uses a version of the 15%/20% rule, wherein employees are required to spend a fixed amount of their time in office on projects that are not related to their job roles. This has helped the company come up with disruptive ideas that nobody had even thought of before, like autonomous cars and Google Maps. Companies with many slender purses than Google hope to draw the same set of benefits from initiatives like innovation labs, hackathons, and “innovation days.”
Researchers who studied innovation practices in the Slovak Republic concluded that “management in the company is important in the field of innovation processes management.” A similar study on innovation management in Romania’s companies arrives at the same conclusion. The efficacy of all the major blocks of innovation such as choosing the area of focus, generating ideas, evaluating, shortlisting and executing can be improved by creating a rigid framework for management. Thus, innovation can and should be managed just like any other business process.