Eight critical ingredients for successful corporate innovation

By Jeffrey Baumgartner

Over the past few years, I have talked to a lot of people about their firms' innovation structure, I have advised a number of them on how to improve that structure, I have written extensively on innovation in this journal and have had the pleasure of corresponding with a number of readers on the topic of organizational innovation. As a result, I have seen a lot of innovation plans, initiatives and strategies. And I have learned a few things.

Irrespective of what kind of organization yours is, there are eight ingredients that are essential to any innovation system if it is to succeed. In addition, there are a couple of optional ingredients that make a big difference to the level of success. Let's look at the eight essentials first.
1. Top management buy-in

If senior management does not buy into your innovation process, no one else will. Obvious and simple, yet widely ignored. In many companies, the CEO talks the talk about innovation but demonstrates an aversion to any kind of change. Of course you cannot have innovation without change. So, employees quickly figure out that innovation is a slogan rather than an action and focus their efforts elsewhere.

On the other hand, when the CEO truly champions innovation, personally launches the initiative, demonstrates a real interest in the results of your innovation strategy and implements innovative ideas -- it quickly becomes clear that the CEO's firm is an innovative one and employees act accordingly.

The exception to this rule exists in large companies with relatively autonomous business units. If the senior manager of such a unit takes the lead with innovation, then the business unit can often succeed in its innovation initiative irrespective of the CEO’s actions. But of course, in such a scenario, the business unit is effectively a business in its own right.
2. Budget

Budget is intimately connected with the first ingredient. One of the most effective ways for senior management to buy into innovation is for them to allot budget for the initiative. This makes it clear that innovation is not just a slogan, but an investment for which a return is expected. Moreover, middle managers keen to get a portion of the budget will devote time resources to innovation initiatives in order to get a piece of the budget.
3. Communication

This is a bit of a no-brainer, really. If no one knows about your innovation initiative, no one can participate. Hence, once your initiative is ready to launch, it is critical that people know about it, what it is meant to accomplish and how they should participate.

The main recipients of your communications strategy should, of course, be participating employees in your organization. Nevertheless, an effective innovation communications strategy should also target investors, customers, business partners and the general public. The more all concerned understand that innovation is a critical component of your firm's identity, the more it becomes the case.
4. Rewards

Complementing communications is a rewards scheme for participating in your innovation activities. Rewards should be relatively small and recognize participation rather than good ideas. Rewarding innovation is a complex issue.
5. Dedicated innovation people

In many firms, once the CEO decides that innovation is important, an announcement is made and managers are expected to manage their own innovation initiatives. However, because innovation is not each manager's priority, initiatives are unlikely to be very effective. They will be designed to appease quickly top management rather than achieve results. A much better approach, of course, is to assign an individual, individuals or a team the mandate of managing your organization's innovation strategy.

When a manager's job description is exclusively to manage an innovation strategy, she is far more likely to design and implement a well thought out plan. Moreover, she has a substantial stake in the initiative's success and so can be expected to continue to invest in the initiative over the long term.
6. Collaborative innovation tools

Small companies in a single location can probably get by without collaborative innovation tools. In a small organization, people can readily meet with each other in the office in order to share and develop ideas. But medium and large enterprises need collaborative tools in order to facilitate the collaborative generation, development and evaluation of creative ideas across the entire enterprise.

Some organizations get by without a purpose built idea management system. Usually, however, they use e-mail, shared documents or a simple in-house database tool for sharing ideas. While such tools enable some collaborative idea development, they tend to be labor intensive and fail to exploit fully the creative potential of employees.

In this ingredient, I have not included personal creativity and innovation tools such as mind mapping tools and the like as these are very much a matter of personal preference. Some people find mind-mapping software to be a great creativity aid. Others feel it is an unnecessary gadget that gets in the way of creative thinking.

Each individual has her own tools and methods for creative thinking. Rather than demand the use of a particular personal creativity tool for all employees, firms should give employees the freedom to use the tools that work best for each person.
7. Effective evaluation system

Assuming you have in place the ingredients I have described so far, you have the recipe for generating and developing ideas. The next step is to identify those ideas which have the greatest potential to become profitable innovations.

For all but small, incremental innovations, you will probably have a multi-step evaluation process in which each step acts as a filter that removes less promising ideas.

However, it is important that your evaluation process is not a purely critical one. It is easy for evaluators to find all the weak points in an idea. But this can result in very promising ideas being rejected. So, evaluators should be asked not merely to criticize ideas, but also to provide suggestions on overcoming the problems they have identified.
8. Willingness to invest in innovative ideas

One of the consequences of an innovation strategy is the development of potentially innovative ideas. Surprisingly, many organizations invest in creativity and innovation tools, but then fail to implement the most innovative ideas they generate.

This is usually the result of excessive risk aversion, large approval committees, too much internal bureaucracy or a combination of these. Whatever is the cause, the result is a creativity program which generates ideas rather than an innovation strategy in which creative ideas are implemented in order to keep ahead of the competition and increase income.
Bonus ingredients

In addition to the essential ingredients to an innovation strategy I've described already, there are a few additional ingredients which, although not critical, are very helpful in insuring success.
9. Enthusiasm

Every now and then I talk with an innovation manager, in a prospective client firm, who is extremely enthusiastic about his or her job. What starts as a demonstration of Jenni idea management soon turns into a highly energetic, thought provoking discussion on organizational innovation in which we share ideas and get really excited about the possibilities.

I have learned that these managers are not only more likely to become clients than non-enthusiasts, but also that they are far more likely to lead successful innovation initiatives.

While enthusiasm is useful for any activity, business or otherwise, it seems particularly beneficial to innovation. Enthusiasm encourages participation in the initiative (always a challenge!), makes people feel good about their participation and tends to encourage more radical thinking. If employees know that their crazy ideas are enthusiastically welcomed, they are encouraged to push their creative thinking ever further.
10. Diversity

If your firm is full of young engineers from MIT, you doubtless employ some of the best engineers available. But when it comes to generating creative ideas, you will find that they tend to take a similar approach to problem solving. Their backgrounds will be similar, their training similar and their familiarity with each other too close.

On the other hand, if your firm employees a wide range of people with different educational backgrounds, different kinds of experience and of different cultures, your firm will have the advantage of breadth of knowledge, experience and thinking. That results in a wider range of ideas and a higher level of creativity. Assuming you have the eight essential ingredients of an innovative firm in place, those more creative ideas can become more incredible innovations.

Diversity is not essential to innovation, but it does facilitate a higher level of innovation.

So there you have it. The eight essential ingredients for an innovative enterprise. How does your firm stand? And what do you think? Have I missed an ingredient? Do you disagree? I'd love to hear from you! Please share your thoughts in the comments area below.

Jeffrey Baumgartner is the founder of Bwiti bvba, a Belgian-based company that helps organizations to become more innovative and more creative. He writes and edits Report103, a weekly newsletter on creativity, ideas, innovation and invention in business, and operates the JPB.com website.

Published on 7/3/2008

The Open Secret of Success

by James Surowiecki May 12, 2008

Keywords

Automobiles;

Toyota;

General Motors (G.M.);

Innovation;

Business;

Manufacturing;

Toyota Production System

In the current atmosphere of economic tumult, the announcement that Toyota sold a hundred and sixty thousand more cars than General Motors in the first three months of this year might seem like a minor news item. But it may very well signal the end of one of the most remarkable runs in business history. For seventy-seven years, in good times and bad, G.M. has sold more cars annually than any other company in the world. But Toyota has long been the auto industry’s most profitable and innovative firm. And this year it appears likely to become, finally, the industry’s sales leader, too.

Calling Toyota an innovative company may, at first glance, seem a bit odd. Its vehicles are more liked than loved, and it is often attacked for being better at imitation than at invention. Fortune, which typically praises the company effusively, has labelled it “stodgy and bureaucratic.” But if Toyota doesn’t look like an innovative company it’s only because our definition of innovation—cool new products and technological breakthroughs, by Steve Jobs-like visionaries—is far too narrow. Toyota’s innovations, by contrast, have focussed on process rather than on product, on the factory floor rather than on the showroom. That has made those innovations hard to see. But it hasn’t made them any less powerful.

At the core of the company’s success is the Toyota Production System, which took shape in the years after the Second World War, when Japan was literally rebuilding itself, and capital and equipment were hard to come by. A Toyota engineer named Taiichi Ohno turned necessity into virtue, coming up with a system to get as much as possible out of every part, every machine, and every worker. The principles were simple, even obvious—do away with waste, have parts arrive precisely when workers need them, fix problems as soon as they arise. And they weren’t even entirely new—Ohno himself cited Henry Ford and American supermarkets as inspirations. But what Toyota has done, better than any other manufacturing company, is turn principle into practice. In some cases, it has done so with inventions, like the andon cord, which any worker can pull to stop the assembly line if he notices a problem, or kanban, a card system that allows workers to signal when new parts are needed. In other cases, it has done so by reorganizing factory floors and workspaces in order to allow for a freer and easier flow of parts and products. Most innovation focusses on what gets made. Toyota reinvented how things got made, which enabled it to build cars faster and with less labor than American companies.

But there’s an enigma to the Toyota Production System: although the system has been widely copied, Toyota has kept its edge over its competitors. Toyota opens its facilities to tours, and even embarked on a joint venture with G.M. designed, in part, to help G.M. improve its own production system. Over the years, more than three thousand books and articles have analyzed how the company works, and things like andon systems are now common sights on factory floors. The diffusion of Toyota’s concepts has had a real effect; the auto industry as a whole is far more productive than it used to be. So how has Toyota stayed ahead of the pack?

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The answer has a lot to do with another distinctive element of Toyota’s approach: defining innovation as an incremental process, in which the goal is not to make huge, sudden leaps but, rather, to make things better on a daily basis. (The principle is often known by its Japanese name, kaizen—continuous improvement.) Instead of trying to throw long touchdown passes, as it were, Toyota moves down the field by means of short and steady gains. And so it rejects the idea that innovation is the province of an elect few; instead, it’s taken to be an everyday task for which everyone is responsible. According to Matthew E. May, the author of a book about the company called “The Elegant Solution,” Toyota implements a million new ideas a year, and most of them come from ordinary workers. (Japanese companies get a hundred times as many suggestions from their workers as U.S. companies do.) Most of these ideas are small—making parts on a shelf easier to reach, say—and not all of them work. But cumulatively, every day, Toyota knows a little more, and does things a little better, than it did the day before.

The system doesn’t necessarily preclude missteps—in 2006, Toyota ran into a series of quality problems—and it’s possible that the focus on incremental innovation would be less well suited to businesses driven by large technological leaps. But, on the whole, the results are hard to argue with. They’re also phenomenally difficult to duplicate. In part, this is because most companies are still organized in a very top-down manner, and have a hard time handing responsibility to front-line workers. But it’s also because the fundamental ethos of kaizen—slow and steady improvement—runs counter to the way that most companies think about change. Corporations hope that the right concept will turn things around overnight. This is what you might call the crash-diet approach: starve yourself for a few days and you’ll be thin for life. The Toyota approach is more like a regular, sustained diet—less immediately dramatic but, as everyone knows, much harder to sustain. In the nineteen-nineties, a McKinsey study of companies that had put quality-improvement programs in place found that two-thirds abandoned them as failures. Toyota’s innovative methods may seem mundane, but their sheer relentlessness defeats many companies. That’s why Toyota can afford to hide in plain sight: it knows the system is easy to understand but hard to follow. ♦

ILLUSTRATION: SEYMOUR CHWAST