#187 from R&D Innovator Volume 4, Number 11          November 1995

Does Your Organization Practice Strategic Innovation?
by Bob Krinsky and Dan Kamas                                             

IdeaScope Associates is a strategic innovation consulting firm with offices in San Francisco, California and Cambridge, Massachusetts.  Bob Krinsky and Dan Kamas are, respectively, partner and associate in the San Francisco office (phone 415-292-2380).                                             

"Innovation", like "quality," has become an overused, catchall buzzword of the 90’s.  In most cases, the word is used to mean "we're trying something new" or "we're trying to take our thinking out of the box.”  Although this widespread spirit of experimentation is laudable, the meaning of innovation has, unfortunately, become diluted and, in many cases, meaningless, as a result.                                                                   

A scan of annual reports from the Fortune 100 companies provides an interesting perspective on this.  While virtually all of these organizations extol their commitment to "innovation" and creative pursuit of "new opportunities," only 19 managed to produce revenue gains in excess of 15 percent and only 14 in excess of 20 percent.  In fact, 50% of the Fortune 100 experienced losses or revenue gains of less than 5 percent.  So, despite a nearly universal commitment to innovation, it appears that only a few companies are doing it right.                                            

IdeaScope Associates' work over the past decade with many Fortune 100 companies has led to the conclusion that the key factor that separates successful companies from mediocre performers is the extent to which these organizations have a disciplined approach to the practice of innovation and identification of new business opportunities.  Successful companies are those that are dedicated to the practice and implementation of strategic innovation, the type of approach that yields quantum leaps into new markets, not incremental steps within existing industries.                                                                                                                                    

Strategic innovation is the process of creating new industries, opening new markets, and inventing new categories.  It’s the business of envisioning your future and innovating your way there.  R&D has to play a critical role.                                                           

How committed is your organization to the practice of strategic innovation?  Six important things to look for are:  industry foresight, customer insight, an enabling process, future-driven culture, growth-motivated senior management, and corporate chameleons.  We’ll address each of these.

Industry Foresight

•  How sophisticated is management's understanding of its markets and industry?

•  Do the key players possess an in-depth understanding of what their future will look like; not only in the 3-5 year time frame, but 5-10 years into the future? 

•  Does management share a corporate strategic vision that is compelling and competitively distinctive?                                                                                          

Most companies use traditional tools, such as market research, forecasting and competitor analysis, which use the past and present to try to predict the future.  Industry foresight, by contrast, seeks to leverage emerging trends, industry expertise and informed speculation into a view of the future that yields new opportunities.

Consider companies that are driving the fastest-growing segments within their industries: Ford in sport-utility vehicles; DSS and RCA in direct television; Motorola in pagers and wireless telephones.  Industry foresight enabled them to understand the potential of these segments before competitors and helped them develop future-directed products.  The opportunity is to emulate those organizations that are presently laying the groundwork for tomorrow's growth; companies that will dominate future industries such as digital photography, "smart" paper, and nutraceuticals, new families of beverages.

Customer Insight                                                            

•  How creative is your understanding your customers and consumers? 

•  Do you develop products and services around the articulated and unarticulated needs of
customers? 

•  Is the notion of "customer intimacy" built into all aspects of product development, R&D and marketing? 

Traditional consumer research methods only identify articulated customer behaviors and needs.  Innovative companies, however, strive for customer insights, the underlying customer motivations that reveal unarticulated needs and drive ground-breaking new products.

Partnering with Samsonite, we used a series of projective techniques to gain insight into why luggage is rarely thrown away.  It was revealed that people view their luggage as a much more than a durable container.  Many consumers have a strong emotional connection to their luggage.  It is a treasure chest chock full of fond memories, travel adventures and other life journeys away from home. 

Another example: as a way of gathering insights, one R&D team designing new automobiles studied people grocery shopping, then followed them to the parking lot to observe the kinds of cars that they drove.  Both the luggage and auto examples provided insights with implications across many facets of the respective businesses.  Customer insights such as these provided R&D teams with valuable direction in new product design and development.

An Enabling Process                                                      

•  Is there a process in place to enable the organization to successfully practice strategic innovation? 

•  Does your company commit dedicated resources to the practice of strategic innovation? 

Commitment to these goals is important, but successful organizations must have an organized process that creates high levels of alignment around future opportunities, a critical enabler of strategic innovation.                                              

Our work with a Fortune 100 materials company resulted in a corporate-wide process dedicated to the practice of strategic innovation.  It harnesses talent and thinking from all departments and levels of the company to consider the future aggressively and to exploit growth opportunities preemptively.  Commitment to this effort is so strong that it’s co-sponsored by the corporate directors of R&D and marketing.                                                                

Future-Driven Culture                                                    

•  Is the culture of your organization directed toward the future?

•  Do managers think aggressively about how to build and embrace capabilities that they don’t currently possess?

•  Does your organization support innovation at all levels of the organization?

•  Do managers aggressively challenge assumptions and boundaries of their current business?

The physical environment can also reveal a great deal about your organization’s culture.  Hewlett-Packard's worldwide strategy of open cubicle spaces for all employees encourages the type of collaboration and sharing that makes innovation possible.  Companies should use environment to their advantage, creating the right mix of openness and efficiency to foster innovative thinking and creativity.              

Growth-Motivated Senior Management                                       

•  What do Johnson & Johnson, 3M, Motorola and Hewlett-Packard have in common? 

They are all decentralized organizations in which senior managers are actively involved in the pursuit of strategic innovation and new business opportunities.   They see themselves as integral members of the teams that are working to create the future.  Rubbermaid even goes so far as to link executive compensation to managers' abilities to innovate and create new markets and opportunities.    

Organizations should also consider the track record of senior management.  Look for careers that show a history of strategic innovation and growth rather than a path of cost-cutting and restructuring.

Corporate Chameleons

•  Does your company have a proven ability to reinvent itself to meet the changing demands of markets and consumers?

•  What percentage of current revenues are driven by products or services less than five years old?

•  Does your company have an explicit goal of achieving a specified percentage of future revenue growth from product lines that don’t yet exist?

Successful companies have the proven ability to evolve over time, shaping their strategic and operating principles to drive future opportunities.  Consider Hewlett-Packard's heritage in test and measurement equipment, their shift to hand-held calculators, and their present dominance in laser printers.  Black and Decker successfully expanded from the garage to the kitchen.  Banana Republic recast itself from the "safari wear" of the 1980s to the stylish look of their clothes today.

Change is certain, and those companies that can flex their organizational muscles in adaptive and responsive ways will be the market leaders of the future.

Carefully considering these six factors and embracing a growth-driven direction offers you, in R&D, the opportunity to direct effectively the efforts of your organization.  It competitively positions your company in the marketplace and sends a clear signal to your employees, stockholders and analysts that your organization is committed to leading your industry and defining, rather than following, the future.