Using Innovation to Dominate Markets

Using Innovation to Dominate Markets

Whether yours is a company of 5,000, 500 or 5, you can become an innovator.

Innovation involves risk, but it’s a lot less risky than doing nothing. The illusion of permanence is not only an obstacle to happiness, it is dangerous for business. In today’s business world, the game is played too fast. To win, you must go beyond continuous improvement to continuous innovation. If you want to transform your organization into a competitor in today’s marketplace, here are 5 critical points you need to understand about innovation:

  1. Innovation requires an organization-wide focus on strategy.
  2. Collaboration is essential.
  3. To keep up, you must harness your ecosystem.
  4. To beat ‘em, experiment and test… experiment more.
  5. Innovation requires investment.

Saturated in Corporate Strategy.

The outdated model of one-size-fits-all, top-down strategic deployment is ineffective. To avoid becoming obsolete, companies must successfully communicate their strategy throughout the organization so each department can determine the most valuable deployment of the strategy at their level.

In 2010, Roger Martin, Dean of the Rotman School of Management at the University of Toronto and strategic advisor to Proctor & Gamble (P&G), proposed that choices should “cascade from the top to the bottom” of a company, much like the flow of white water rapids. In this choice cascade, “each set of rapids is a point in the corporation where choices could be made with each upstream choice affecting the choice immediately downstream.” In Martin’s approach, each tier of the organization is required to interpret the role and function of the company’s strategy at their level.  Instead of the old “waterfall” effect where information rains down from the top to pound the rocks below, the rapids analogy of the cascade necessitates continuous communication.

While Martin used the metaphor of white water rapids, I prefer to take the practice a step further to create a more fluid and responsive process like the circulatory system. Ideas are pumped through the corporate body, depositing oxygen and nutrients (strategy, information, ideas, guidelines) and then return to the heart of the company to be recirculated with fresh oxygen and new nutrients after corporate-wide feedback is used to dispose of waste products (all the concepts and ideas that were incompatible). Using this metaphor, the company communication is clearly a method to disseminate and receive information rather than a one-way broadcast channel. This way the entire company is saturated in the corporate strategy.

Collaborate or Die

Collaboration is paramount to successfully implement a circulatory communication system. Unfortunately, collaboration, cooperation and compromise are often confused, to the detriment of everyone involved. While cooperation requires an amenable demeanor and compromise requires flexibility, collaboration is a process where the number one priority is creating the most effective outcome. Unlike cooperation, it emphasizes responsiveness and usefulness over acquiescence. While compromise means scrapping ideas to make everyone equally happy (or unhappy), collaboration sets aside ego and insists that only the best elements survive. The ability to collaborate effectively is a sorely needed and rare skill. It is also the most transformative skill for rapid and successful innovation.

Understanding this, Toyota built their communication infrastructure around Microsoft Office 365 solely to create a collaboration platform. This enables employees to communicate seamlessly, regardless of location or device. To ensure a better product, Toyota created its entire production system based on collaboration and detailed the process in Seeds of Collaboration: Seeking the Essence of the Toyota Collaboration System. The book itself emphasizes the kind of collaboration that keeps Toyota ahead of the competition and allows them to saturate their strategy corporate-wide.

Harness Your Ecosystem

The idea of going beyond company walls for inspiration is not new. Nine of the top company brands use crowdsourcing to generate ideas for innovation including McDonald’s, Apple, Coca-Cola and Toyota. If it feels daunting, Edward Boze (authority on crowdsourcing, collaboration and innovation) recommends that companies start small by giving challenges to their “internal crowd” before moving forward with large, comprehensive external strategies. Boze notes that many companies overlook the wisdom of their internal “crowd.” Rather than neglecting your built-in crowd – employees – use your circulatory collaboration system to master crowdsourcing techniques with your internal ecosystem before expanding outward.

Once you’ve harnessed your in-house intellectual capital, expand outward to the ecosystem sitting on your doorstep. Customers love to provide input and they stay loyal when they feel they have a personal investment in your brand. Campaigns like PepsiCo’s Lay’s Do Us a Flavor contest use the external crowd to generate new products ideas. As a byproduct, these campaigns boost sales, generate excitement and enhance brand recognition and loyalty. Even when a product fails (the 2014 Lay’s Cappuccino flavor was a bust), consumers continue to support the brand because the idea came from the crowd.

This same positive PR effect happened when Toyota crowdsourced for innovation with their 2011 “Ideas for Good” campaign. As they asked consumers “how they would use any one of five Toyota technologies to create a new innovation outside of the auto industry” based on humanitarian goals, not only did Toyota leverage into new markets, the “Greater Good” focus of the campaign counteracted negative publicity from the 2010 recall crisis.

In both cases, the consumer crowd drove innovation using their creativity. Let the ecosystem of your consumer-base do the heavy lifting and sorting through innovative ideas to identify the concepts with the greatest demand. Replace bureaucratic hierarchies with the wisdom of the crowd. In doing so, you’ll innovate faster and create additional customer loyalty as a byproduct.

To Beat ‘em, EAT EM: Experiment and Test… Experiment More

Ultimately, ideas are useless unless they are turned into prototypes or pilot programs. They need to be introduced to and tested by employees and consumers. For all the flavors generated by the crowd, the Lay’s campaign would have been meaningless without moving those ideas into production. By putting the top four flavors into production and onto store shelves, Lay’s was able to experiment with new seasonings and test the reception. They learned that the flavor profiles they used for cappuccino were a bust. However they were pleasantly surprised with a new ethnic flavor palate to explore thanks to the Wasabi Ginger winner. Yet Lay’s isn’t resting on its laurels as it proceeds forward with the now yearly campaign. It continues looking for new product innovations for experimentation. It is only through this process of experiment and testing followed by further experimentation that innovation becomes a cycle.

While innovation is often thought of in products or business strategies, it should also be implemented in production systems. In Toyota’s production system, employees (from line worker to executives) observe the process and continually look for opportunities to reduce the “’overburden’ on the worker – walking, reaching and other efforts” that don’t “add value to the product.” The goal is to look for things that get in the way of the work and lengthen processing rather than focusing on waste. The key difference of the Toyota Production System from other types of process improvement programs “is that it seeks to fully understand both the problem and the solution.” The management culture is one in which precision is encouraged to find discrepancies not only of minutes but seconds. Over time, even the smallest changes to increase productivity will pad the bottom line.

This process has made Toyota’s manufacturing culture more of a science lab than production plant. All activities are observed, documented and studied to find opportunities for innovation. This worker-centric process can be applied anywhere by simply fostering an environment where every question from every employee is a good question. When new employees and low level employees feel safe to challenge assumptions and offer ideas, these alternative perspectives lead to great innovation. With today’s pace of business, survival requires surpassing mere improvement to embracing a cycle of constant innovation.

It’s all about Investment, Investment, Investment

Unfortunately there is a reluctance to take risk in both large and small companies. This fear leads to a paralysis in innovation and, ultimately, a decline in the company’s foothold. The focus on quarterly earnings outweighs the drive to pursue innovation that may temporarily disrupt profit margins. This failure to “go big” opens the door for entrepreneurs to leap in and create a permanent footing in your limited consumer base. In the technology age, companies of all sizes need to behave like entrepreneurs or they will wither and die.

I spoke with a small business owner who experienced a 50% decline in a year. Rather than looking for ways to increase business, the owner focused on ways to preserve what he had left. Despite clear trends in the market, he dug in and refused to invest time to look into possibilities to breakout of his downward cycle. Phillip Bobbitt describes Parmenide’s Fallacy as “when one tries to assess a future state of affairs by measuring it against the present as opposed to comparing it to other possible futures.” While innovation involved taking a risk, it was riskier for him to do nothing and let the trend continue.

When you ignore the need to innovate, you become obsolete, like Blockbuster who, in 2002, was still calling the Internet a “niche” market. It took six years for Blockbuster to respond to Netflix’s introduction. As Ben Mauk of the New Yorker adeptly points out, “It wasn’t just the Internet. Blockbuster was late on everything – online rentals, Redbox-style kiosks, streaming video.” Remember, nothing stays static. If you must fear, use it as motivation to innovate. If you fail to invest in innovation, you will be left by the wayside. “Blockbuster’s thirty-year story encapsulates the dangers of resting on prior models of success in a changing industrial landscape; by the time you realize your own obsolescence, it’s too late.”

Keep in mind, there are ways to invest wisely in innovation. With a little preemptive thought, you can look into other possible futures and mitigate risk by investing in things that cost little money, time and attention.

Start by investing in thought. Look around you to see what is already at hand that can help you innovate. Explore your internal and external ecosystems for opportunities to engage in conversations. This is where the circulatory collaboration system can boost your opportunities at minimal cost. Invest in big ideas and allow experimentation. Keep your risks small and manageable while being certain to evaluate and learn from each and every prototype. Even Lay’s learned something about creation when it failed to produce a realistic cappuccino flavor.

Invest in your people. Somehow this gets overlooked. Your employees are more than draft horses. By using a system like Google’s 20% philosophy, you can mine the value of your employees mental labor as well as their manual labor. Downsize the process to fit your company. Decree that all employees invest 10% of their time thinking of new ideas. Create activities, form teams to explore those ideas, and provide rewards, recognition and encouragement. It’s amazing how a small carrot is more effective than any stick and creates a byproduct of loyalty because those employees invested in the company’s success. Ultimately, be certain to get the ideas to the point of prototype or pilot. Ideas left shelved and unexplored are a waste of company time and resources. They are also demoralizing not to mention demotivating to employees who are left feeling unheard and unwilling to speak up with future innovation ideas.

Remember to invest in your external ecosystem:  manufacturers, suppliers, delivery support and customers. By strengthening each link, you create a much stronger chain that can withstand the fluctuations of demand. When Toyota was looking for new suppliers, they wanted more than superior quality and just-in-time inventory. They were willing to provide education and training to increase the value of that supplier over the long-term. If you’re stuck, look to this external ecosystem to do the heavy lifting. Use crowdsourcing to evaluate and select ideas. Seek external input to move ideas from concept to prototype. Be innovative in how you think about ways to innovate. Place constraints in time and budget on your projects and see what ideas your ecosystem can generate.

Ultimately, any innovation is better than no innovation but proper investment in sustainable innovation can determine whether a company expands or dies a slow death. When confused about how to proceed, consult an innovation expert who can teach you how to harness your in-house capital.

Pat’s recommended resources include: TED Talks on Innovation, HBR’s Top 10 on Innovation, Keith Sawyer’s blog and books, and The Connected Age’s workshops on strategy, innovation and collaboration.


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