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The business world keeps getting more Darwinian, with weak companies perishing--fast--and strong ones getting richer. Bad news for small business? Hardly. The innovative small business has a bright future before it--just look at Netscape, Tom's of Maine, Yahoo! and thousands more tough-minded, forward-thinking companies that have held their own and prospered, mainly because they never stop to rest on their laurels. For them, innovation is a way of life--and a proven path to prosperity.
Is your company innovative? If not, you're likely headed for trouble. But the good news is there are proven ways to instill a drive to innovate in any business's culture and up the odds that innovations will bring success your way. So says Christopher Meyer, managing principal of the Menlo Park, California, office of Integral Inc., a consulting group that has helped jump-start innovation in many Silicon Valley companies. Meyer is also author of Relentless Growth (The Free Press), a handbook designed to help you put innovation strategies to work in your business. Here he shares the secrets of innovation in an exclusive Entrepreneur interview.
Entrepreneur: As good as innovation sounds, won't most launches of new products or services fail to meet expectations?
Christopher Meyer: My first answer: Of course, but so what? The roaring success of many venture capitalists over the past 10 years did not happen because every company they backed was successful but rather that enough of them were.
By definition, not every idea turns out to be as good as it sounds, particularly in the eyes of consumers. The key is to launch enough initiatives to find the truly good ones and weed out those that aren't working as soon as possible. Remember New Coke? Coca-Cola put their most talented people on that project and stumbled; yet they recovered quite quickly by creating Classic Coke.
Another answer: You can increase your odds of success by the degree of innovation risk you take. Most of the money earned from new products and services comes from derivatives that extend existing products or services. For example, Kellogg's Frosted Flakes are sugared corn flakes. If you swing for the fence with every innovation, the chances you'll succeed at each are low. In contrast, if you start with proven products [and attempt to extend and build upon them in innovative ways], the likelihood of achieving success is enhanced.
The implication behind the question reflects a greater problem--that people's expectations are out of whack. This is compounded by the stories that applaud the successes but ignore the failures that made them possible. Our most heroic inventors, such as Edison, achieved success by running out of failures. He experimented with more than 150 filaments before finding one that enabled him to create a commercially successful light bulb.
Entrepreneur: You say that acquisition--of new products or whole companies--won't succeed as a substitute for an innovative strategy. Why?
Meyer: If you can't innovate on your own, the chances of successfully sustaining innovation in a product or company you've purchased are slim. Look what Novell did to WordPerfect. In a short time after the acquisition, they destroyed the company and lost billions in market valuation. [Eventually, Novell sold off the shell that was left to Corel.] Learn how to innovate yourself before you delude yourself into thinking you can just buy it. As the Novell experience underscores, a successful product can quickly deteriorate if not managed well.
Entrepreneur: You say that for innovation to succeed as a business strategy, everybody in the company has to be committed to it. Why?
Meyer: People frequently overemphasize the importance of the original concept behind a successful new product or service [without crediting the real reason for a product or service's success]. Take Gillette's Sensor razor. They added flexible blades to their Trac II product. What made the Sensor a dramatic success story was its global launch. Rather than rolling out the product in the United States and then staging later launches in Asia and Europe, Gillette launched the product everywhere at the same time. This required synchronizing local advertising, packaging and manufacturing capabilities, as well as legal and distribution requirements. If key players from these functions had not been involved from the start, the chances of pulling off a successful global launch would have been slim. So Gillette got all the key players involved early, and the result was a terrific success. What did a global launch get Gillette? It put the competition far behind as Gillette racked up market share gains everywhere at once, leaving competitors with little time to react.
Entrepreneur: While that might have worked for razor blades, does this concept have wide applicability?
Meyer: Let's look at this same issue from a different perspective. Daily business operation takes existing knowledge and applies it over and over again, with the goal of minimizing defects. Slogans like "Do it right the first time" work in this realm. Since we're applying existing knowledge, such as how to make a Big Mac, it's relatively easy to break the task into crisply defined pieces and assign them to separate groups. Purchasing will get the ingredients and packaging and deliver them to the restaurants, corporate "cooks" will define how to assemble the standard product, and restaurants will do the work of cooking the product and serving the customer.
That model doesn't apply to innovation, which is about creating new knowledge that will later be applied in operations. As such, the interdependencies between elements and how they should be grouped or separated is not known until the innovation is nearly complete. Case in point: Design engineers all too frequently create products that may work very well but are nearly impossible to assemble.
More broadly, if all the parties are not involved throughout, opportunities to increase customer value, reduce cost and improve quality will not be seen or taken. This is the heart of the movement in manufacturing called "Design for Manufacturing and Assembly," which is gaining popularity in many of the most innovative businesses as they try to ensure viability in the marketplace for their innovations.
Entrepreneur: Is a system needed for successful commercial innovation? Can true innovation flourish within a system?
Meyer: If your question is really can you create a system for invention, then my answer is you certainly can create the conditions and improve the odds, but when invention will occur cannot be scheduled or planned for, if it comes at all. However, if that core invention does come your way, you'll surely need a system to seize the commercial value in the invention. Xerox invented the computer mouse and the GUI, but Steve Jobs of Apple extracted the commercial value.
Entrepreneur: How do traditional businesses differ from innovative ones? Are traditional businesses doomed in the 21st century?
Meyer: In many respects, the term "traditional business" is too broad. Even the most advanced and successful firms have some traditional elements. What's more relevant is understanding which practices no longer offer as much value as they once did. Let me share three that are critical for effective innovation:
- Focusing primarily on leveraging the past into the present. This occurs when firms take their long-established business and try to milk it (and their people) with minimum renewal. Such firms are more concerned with applying what they know than discovering what they have to learn.
- Centralized command and control structure vs. a decentralized, network philosophy. To be truly innovative, employees need a great deal of freedom in how they do their work.
- Highly cost-focused vs. opportunity- and revenue-focused. Traditional cost accounting systems were designed for a world where direct labor (e.g., manufacturing) was the largest cost element. Today, it's indirect labor (e.g., sales) that's key. Furthermore, while it's easy to measure costs with a high degree of accuracy, market valuation and profitable growth are the result of going after new sources of revenue. Achieving profitable growth by reducing costs has a limited and finite life. The long-term success strategy is to keep costs under control while aggressively seeking new sources of revenue.
Entrepreneur: You propose an approach to innovation built around five elements. What are those elements?
Meyer: First, there are innovative leaders, who use "loose-tight" leadership. They provide space for new ideas via looseness and exploration. They also know when to tighten their approach, such as choosing among alternatives to move forward.
Next, there's strategic alignment. This is where executives roll up their sleeves and do much of the work. Strategic alignment has two elements: making critical choices that establish boundaries relative to customers, markets, technologies, etc., and then making sure these choices are aligned. In the NFL, the off-season trades and draft choices often determine who wins the Superbowl. The same is true for innovation--it's what occurs before the race that determines the victor.
The third element is the design and understanding of the innovation process from concept to commercialization. Since the re-engineering phenomenon, most firms are much more sensitive to the role effective process design plays in business.
The fourth element is people. Passion is at the heart of innovation, and machines don't create it. Furthermore, since innovation requires pervasive interaction throughout the entire process to transform ideas into products and services, the design of an organization plays an important role. While few excel at the use of multifunctional teams, most recognize their importance. Even more important is the effective development, renewal and integration of functional expertise on those teams. We don't [necessarily] need teams--we need teams and functions working together.
The fifth element is measurement. If knowing when to curtail a project is critical, then you'd better have a guidance system that tells you where you are. Since innovation does not always lend itself to precise measurement (for example, what is the size of a new market? How can you know if it's truly new?), a critical aspect of measuring innovation is making judgments based on sketchy data. The effective innovator measures what's important, though imprecise, and applies judgment to it.
Together, these elements create a firm's innovation culture. Culture is nothing more than the way we work. If you want to change that, then change how you address these five elements.
Entrepreneur: Is innovation integral to business?
Meyer: In a word, yes. Why? In a post-Cold War world, where economic competition has replaced ideological battles, those who don't innovate will be left behind. Just look at the number of huge companies across the world that have stumbled by relying on their past instead of creating their future: Sears, Digital Equipment and AT&T, for example.
The good news is, with notable exceptions, the United States is better positioned than many other global economies. We're far ahead in restructuring our economy away from brawn to brains. If you look at industries that are rapidly growing vs. mature ones (software vs. mining, for example), the United States is typically in the lead.
Entrepreneur: How does an entrepreneur assess the readiness of his business to innovate?
Meyer: Most people think entrepreneurs are innovative by nature, but in reality, once they have that "moment" of innovation, they often lock in on it and run it into the ground. But the successful entrepreneur is always looking for places to innovate, while being careful not to innovate everywhere. In other words, stability is the necessary partner of change.
How do you determine where to focus your innovation? Start by looking at your customers and competitors. Let the marketplace speak to you about where your business strategy and operations are weak. Then ask yourself what you can do with your capabilities that others would have a hard time duplicating. Use innovation to differentiate your products or services.
Entrepreneur: If an entrepreneur is unhappy with the level of innovation in his business, how can he improve the score?
Meyer: Start by assessing how your products or services stack up against those of your competitors. Ask yourself how frequently your firm is the one that sets a new standard in the marketplace. Then see what happens when someone raises a nonstandard approach to a problem. Is it nurtured and explored or immediately attacked? Listen for how people handle ambiguous information. Do they resist any action until all the facts are clear? If so, they're likely to be conservative about innovation because it requires stepping partway into the void. How are mistakes handled? Do people explain and quickly try to move on or is there a sense of curiosity about what they thought would happen and what actually did?
If looking outside and listening inside worries you, the place to start improving is with yourself and those you work with most directly. While there are significant differences between families and firms, people do look at their leaders as role models. If you're not being curious, why should they? If you're not looking outward, neither will they. Innovation thrives on small failures that are accompanied by active learning. Are you sending that message? When it comes to innovation in an entrepreneurial business, the entrepreneur sets the pace.
Christopher Meyer, c/o Integral Inc., (650) 463-2701, firstname.lastname@example.org