When 500 executives were recently asked to name the biggest barriers to innovation in their companies, their most common answers were “short-term focus” and “lack of resources.” Executives recognize the need to innovate, the survey found, but the pressure they feel to meet quarterly earnings targets often means less funding for innovation, and that can weaken the prospects for long-term growth.
If you find yourself in this “innovation dilemma,” best-selling business author Gary Hamel says there’s a solution: Change your way of thinking. While it’s true that you can’t compete unless you innovate, says Hamel, it’s wrong to believe that innovation requires lavish spending. Based on his analysis of innovation leaders, he claims that you can achieve both profits and increased creativity simply by raising the yield on your innovation investments.
Innovating Boldly on the Cheap
In a recent issue of Harvard Business Review, Hamel and his partner Gary Getz outlined five strategies that they say can boost your company’s innovation efficiency.
1. Free your innovators. Many companies still view innovation as the province of specialized departments, like R&D or product development. But this fails to take advantage of the creativity of other employees, these experts say. The cheapest way to get more ideas into the innovation pipeline: Expect and ask for innovation from everyone.
At Cemex, the Mexican cement maker, nine days are devoted every year to harvesting employee ideas. Each Innovation Day focuses on a particular business or function, and hundreds of employees are invited to submit ideas around a chosen theme. A similar approach works well at W.L. Gore, where every associate can allocate 10 percent of his or her time to dreaming up new applications for the company’s unique textiles
2. Look outside. No matter how creative your employees are, there’s more innovation potential outside your company than in it, say these experts. To capitalize on this external talent, some companies license products from other firms or join research consortia. But you can also get valuable ideas, for not much money, by tapping into the creativity of your customers.
Epic Games and Digital Extremes, the creator of popular computer games, has enrolled thousands of its customers in a virtual development network. To fuel the flames of innovation, the company provides more than 100 hours of free, downloadable video training on its Web site and offers prizes of up to $1 million for designs that lead to new weapons, characters, and action settings for its games.
3. Get radical. A good guide for your innovation investments is to ask: Are we investing enough in ideas with the power to make a real difference to our competitiveness? While there’s nothing wrong with new ideas that produce incremental improvement, say these experts, it’s the radical ideas that yield the biggest innovation payoffs.
Radical innovation doesn’t have to be risky or expensive, however. A good example: Starbucks debit card. Though the idea was radical (prepayment for coffee?), the technology to implement it was well proven, it could easily be tested in a few stores before rollout, and the payback was enormous. Starbucks booked more than $60 million in prepayments in the first two months after the card’s rollout, and nearly 30 million cards have been sold since.
4. Experiment. While it’s true that innovation requires ongoing experimentation, there are ways to keep costs down, say these experts. First, don’t try to test everything at once. Identify those ideas that are critical to the success of a product – market access and acceptance, for example, or technical feasibility – then design a few small-scale experiments to generate learning around them.
Another way to improve efficiency is to set up a corporate-level review mechanism to track the progress of experiments across your company. At Cemex, for example, a top-level Innovation Committee meets monthly to review the firm’s portfolio of new projects across all operating units. This helps to ensure that good ideas don’t get overlooked and that promising experiments don’t get terminated under the pressure of short-term goals.
5. Stick with it. Big shifts in innovation priorities, and start-again, stop-again investment programs can undermine innovation productivity. When it comes to creativity, say these experts, consistency counts. If you don’t have funding for long-term projects, then commit to a relatively small number of medium-term innovation goals, or try a graduated approach, increasing investments in stages as you learn. This is the way GM chose to test its new fuel-cell technologies, venturing first into non-automotive applications, where the initial financial risks were small.
For every innovation project, you should always establish clear checkpoints along the way to evaluate how you’re doing. This will help you make more timely decisions about when to move in a different direction, if necessary, when to increase or reduce investments, or when to pull the plug.
The most competitive companies are those that do more with less. But it’s not enough to scrimp and save, say these experts. You have to produce more growth per dollar of innovation investment. “To become a growth champion, your company must augment, compound, and multiply,” they say. You have to parlay your existing resources into radical, growth-generating innovation.
For more information, see “Funding Growth in an Age of Austerity” in Harvard Business Review, July-August 2004. To purchase a reprint (#R0407E), call 617-783-7500 or order online at [email protected].