Companies dream of winning the competition by innovation. But the recipes for success are mostly in the dark. The crash is thus pre-programmed and the ambitious goals are quickly buried again. Even one-sided consulting approaches don’t shed light on this dark water: battered by the many symptoms, you will overlook the few causes and remain ineffective. A holistic approach is necessary. Read what really matters.
If you study the annual reports of companies, you will find always a positive section￼ about innovation. If one looks more closely, one usually sees￼ a moderate￼ organic growth and a (all too often leveraged,) purely capital-driven growth. The country of poets and thinkers seems out-of-balance: The thinkers and engineers think and work a lot, they￼ revolutionize nothing￼! And the poets rave and praise exactly this revolution in their annual reports. A strange and crazy mix of desire and reality. What happened there?
If you look for root causes, you will often find a fragmented specialist structure and a top management that controls only partially. Breakdowns in understanding and a systematic neglect of essential aspects determine what happens. But you don’t have to be Steve Jobs or own a special licence for innovation￼￼. A systematic and comprehensive strategic innovation management combined with a little courage and understanding of the matter is quite sufficient.￼
The obvious core of innovation
Many details and fashions mix in the discussion about innovation. Often, we don’t even talk about innovation for the customer, but about the applications of some tool that someone has heard of that should have worked somewhere under certain conditions. From the growth times of the 80’s, for example, stage-gate processes have survived into the present day. In their basic assumptions they assume an abundance of ideas and, due to financial constraints, a necessarily very strict control of expenditures and work progress. Today – in a highly saturated market economy – ideas are often rare and (thanks to central banks) money is abundant. So, you have to think carefully about the relevance of a potentially outdated best practice. Think on the damage you cause if you transfer an idea from a financially burdened business (e.g. plant engineering) to a low-investment business (e.g. IT) or vice versa.
In order not to get lost in outdated or inappropriate management fashions, you have to look at your business from a more fundamental perspective. Every best practice is at best a heuristic and (unfortunately) often only a fashion of the Zeitgeist. And as Kierkegaard said “If you marry with the spirit of the times (Zeitgeist), you will soon be a widower”.
Generally undisputed are two basic factors of innovation ￼1. Efficiency: the ability to produce results with minimal input, and 2. Skills: the ability to realize features.
- The continuous￼ optimization of efficiency provides a competitive advantage: ￼ products get cheaper compared to the competitor, you produces more in the same time and outperform the￼ competition in the market over time￼. This logic is easy to understand, easy to implement, independent of industry￼and is frequently used. In management philosophies like Toyota’s lean￼ management it is virtually built in, you can buy it and prescribe it to your employees. And if at the same time a moderate modernization of your production equipment follows the course of time,￼ even more efficiency gains are generated￼￼￼. Thats foolproof if demand is functioning. But relying solely on efficiency does not help. Because when demand vanishes, at some point the consultant comes along and can only tell a dead man how to die.
- ￼Creating significant ￼competitive advantage via skills is more challenging. Skills are linked to unique selling propositions and employees. ￼They turn into intellectual capital of the company only through knowledge and process management over time. The company uses the know-how of employees to build and deliver something unique, not copyable and valued to its customer. For this purpose, the company has to link the individual contributions of each individual to the solution of the problem, make the solution permanent and secure it in the long term. All this takes time, patience, and is highly dependent on the industry, because the skills of a chip factory and a massage parlor do (fortunately!) have not much in common.
However, a sole focus on these two factors is not sufficient. A farrier trimmed for efficiency may supply horses faster, more cost-effectively and thus generate business. However, as we know from history, this has not worked in the long term. The predecessor of the car industry disappeared from our daily life with the horse-drawn carriages. He has rarely changed into a car mechanic. It makes it all the more disconcerting that our highly efficient car industry today displays similar patterns of behaviour. It has a hard time developing new skills (electromobility, digitalization) or understanding new mobility requirements. And worse, they also let „die Freude am Fahren” and the joy on the stock market value beeing attacked by a small car manufacturer from Silicon Valley. They apparently learnt nothing from their ancestors. This brings us to the crux of the matter: The unmanaged innovation factor is behavior.
Behavior – the gist of the matter
Despite all the superficial, scientific touch of the economic sciences, one has to admit that successful business is done in a social space. We are not talking here about inanimate matter, which could be cut open, boiled or shaken until we have full understanding. We deal with people, individuals with their own dynamics, embedded in social groups with individual group dynamics, with high individual complexity, dignity, drives and behaviour. Every business model is based on (3) behaviour, both the behaviour of customers and employees. And here we are walking brittle ground. Many partial aspects are formally represented in our organizations, but both fractures and, with increasing success over time, blind spots appear. In this way, the past success of the car manufacturers blinds the way ahead. Or as the saying goes: “They painted themselves into a corner”.
The logic is again simple: Changing behaviour and resulting customer demand must be met with new skills, efficiency and adapted behavior of the organization (PULL), or a new combination must generate this demand (PUSH). With a good fit you have a Game Changer, an innovation that changes the world. And who would not like to monetize innovations in his market? For this purpose, however, many hurdles have to be overcome. They need to be made accessible to strategic control.
- It is often not enough to build up new skills. No, the organisation must serve them with the same pride as the skills of the past. It must accept them and build them into its self-image. This is inherently difficult, especially if a combustion engine engineer has no future because of the changes.
- Behavioural changes take time. Look at how many years Apple has invested in building chip design skills. You need patience and persistence to build the skill and embed it into the fabric of your organisation.
- Changes in customer behaviour are generally difficult to understand. It requires effort and proximity to the market. Already Theodore Levitt warned in 1965 of a marketing blindness effect (Marketing Myopia), in which a strong focus on product segments creates blindness to the rest of the world. If you don’t really know the needs of the market, you don’t recognize your own substitution.
- However, similar forms of myopia can be transferred to any discipline. Over time, a higher and higher level of specialization occurs and the thinking of employees and managers is limited to the field they work every day. Even the fertilization by foreign ideas no longer works, because at trade fairs you only meet your competitors’ colleagues with the same experiences. Behavioural changes need troublemakers.
It is the task of top management to steer these changes and to keep the organization alive in the long term. Managing organizational behavior is difficult and probably especially difficult if you have had a career within the organization and have seen little of the world outside.
What to do
Theron has developed methods for managing strategic initiatives based on the factors efficiency, skills and behavior. At the heart of these methods is the Theron Innovation Cube. It allows management to take stock of the current situation as well as to steer the company strategically into a successful future.
Read more in our TheronSight Creating the Future.