Innovation – A Core Business Concept

Arun Kottolli

Definition of Business Concept

“A business concept or model is a framework for identifying how your business creates, delivers, and extracts value.”

Importance of Innovation

• In today's world of discontinuous change, there is no continuity without constant renewal.

• A survey found that more than 90% of large organizations are committed to innovation.

• Yet when managers of these companies were asked to describe their corporate innovation system, almost none of them could do it.

Reason for the Mismatch

• One explanation is: “Top management is just paying lip service to innovation and has no intention of really working hard on it”

• Another -- and far more likely -- explanation is that senior leaders do not have a clear, well-developed model of what innovation looks like as an organizational capability.

• Since they don't know what it looks like, they don't know how to describe or build it.

Management Challenges

• A mindset that most companies have a very narrow idea of innovation, usually focusing just on products and services.

• Second, most companies devote much more energy to optimizing what is there than to imagining what could be.

• Need to enlarge our view of innovation.

Enlarging Our View of Innovation

• Many managers think innovation = New products/Service

• Innovation applies to all business activities, not just end products. Innovation can be in logistics (Wal-Mart), Merchandising (Starbucks), Selling (Dell)

• Pioneers rethink the entire business concepts & build new business models from ground up.

• Today greatest amount of wealth goes to those who create new business model, create new sources of revenue based on changing technology, changing demographics and changing global demand

Rethinking Innovation

“True innovation is based on the recognition that a business concept represents a dozen or so design variables, all of which need to be constantly revisited and constantly challenged”

-- Gary Hamel

Managers have to think creatively & holistically about their entire business concept. In simple words, rethink “The way we do things around here”

Thinking Exercise

• To question & challenge current business concepts, managers need to answer:– Can they describe in any detail the current

business concept of their companies?– What is the basic value proposition?– What are the core competencies to focus on?– What choices have to be made regarding how

integrated (or not) you are as a company?– How do you define your served market?

Creating for the Future

• Many companies have R&D centers dedicated for innovation, Marketing works with R&D to develop new products– New Pentium chip or a new detergent

• This compartmentalized thinking inhibits innovation– Makes one think “I don’t have to think creatively or

profoundly” & say “I just have to do what I did yesterday”

• Innovation outside R&D is often shot down

Strategic Innovation

• Strategic innovation differs from product innovation. Companies today succeed through innovative strategies alone.

• Southwest Airlines, Dell, IBM, Ebay etc. succeeded through innovative strategies – Without much innovation in the underlying products or service

New Age companies

• Startups in Silicon valley & elsewhere have gone beyond R&D for innovation. All departments, groups have a say on innovation

• Large companies have set up incubators – to test out new ideas

• Business innovation can come from anywhere – from anyone

• Top Management acts like Editors, searching for new ideas which emerge in the organization, improving them & Implement them

Unleashing Innovation

• To encourage innovation, encourage “What could be?” type thinking (not “What should be”)

• Innovation goes beyond a specific project• It is a continuous ongoing process• Encourage “39+1 > 40” thought process (No, I am not

talking about Inventive accounting)– Spending time to think how to do a job better gives better

results than working 40 hours/Week

• Innovations need not be risky, but something that changes customer expectations & competitiveness for the better

Success Stories• Google allows employees to work on innovative

projects for 5-6 hours a week• 3M encourages employees to use office time to

develop of innovative ideas• Compaq/HP, Wal-Mart, Dell etc: Innovation in

business process• Intel, TI, Motorola, Yahoo: Product innovation• IBM’s turnaround is due to service innovation• Southwest Airlines – A classic example of service

innovation

Closing thoughts

• Only Innovation creates new wealth• Stock Markets reward only those with

successful innovation – Innovation that adds value to customers

• M&A, integrating operations and Cost Cutting has its limitations, in most cases it is just value recognition & not value creation

“Life of any business is finite. For companies to endure, the drive for efficiency must be

combined with excellence in entrepreneurship. Through the process of innovation, new businesses must emerge

before the old ones decay”