How to Build Innovative Companies

What was once central to Cos – price, quality, digitized analytical knowledge work – fast being shipped off to lower-paid, highly trained ees offshore What is unfolding is

commoditization of knowledge

Increasingly, new core competence is creativity (right-brain stuff) Means of differentiating

products in commoditized marketplace

How to Build Innovative Companies New forms of innovation based on

intimate understanding of consumer culture – ability to determine what people want even before they can articulate it See ‘The Dangers of Being Customer-Led,’

from Hamel and Prahalad, “Seeing the Future First,” Fortune, 9/5/94

Are b-schools on top of all this change? Stanford is starting a ‘D-school’ – a design school where managers can learn dynamics of innovation

How to Build Innovative Companies 3M succeeds by interpreting what customers really

want 3M’s hottest product today is ultrathin plastic film on

virtually every flat-screen display – film enhances image clarity and brightness Therefore screen doesn’t need as much power, which means

portable devices can get by w/ smaller rechargeable batteries

Masking tape – 3M’s first hit – came out of similar inquiry In 1925, 3M sandpaper engineer was visiting auto-body shop

where workers were complaining about difficulty of painting two-tone car wo/ colors running together

Engineer went back to lab and figured out how to put sticky backing on paper

Latest iteration of 3M’s optical film is privacy filter – allows light to pass through straight to viewer, but keeps anyone w/ side view of screen from seeing anything but black display

How to Build Innovative Companies In 2001 Arthur Lafley, P&G CEO, established new

exec post: VP for design, innovation, and strategy Quadrupled design staff, hiring designers who had worked

at other cos and in other industries Dispatched designers to work directly w/ R&D

staffers to help conceive new products Changed P&G’s entire innovation process, making it

consumer-centric rather than driven by new technology Started hiring different kinds of consultants Holy Grail of innovation: unmet, unarticulated needs

of consumers Established ‘innovation gym’ – place to train mngrs

in new design thinking Created Design Board – non-P&Gers who provide

independent perspectives on products, brand extensions, and marketing

How to Build Innovative Companies Before P&G started paying attention to design, it

concerned itself primarily w/ how functional product was

Now, functionality not enough – “We want to identify customer desires, rather than needs. What gives you the ‘wow’.”

Using designers is part of P&G’s commitment to identifying unarticulated wants that it can transform into products

Before Lafley became CEO, P&G essentially brought in designers at end of development process to improve product or upgrade packaging cosmetically Now, designers work w/ R&D staff from beginning, helping

to conceive products See Business Week, “The Best Products of 2006”

How to Build Innovative Companies GE’s Imelt pushing to change corporate structure to

spur creativity Newly created position of chief marketing officer in charge of

generating innovation and creativity Methodology of new design strategy

Start w/ observation Try out lots of ideas fast by making models or videos

(prototyping) Placing potential new product within emotional story that

connects w/ consumers increases chances of success Build organizational process that does these things all the

time Lessons from P&G and GE

Change mngrs: hire more anthropologists and social psychologists and fewer engineers

Change incentives: link bonuses to new ideas, customer satisfaction, top-line revenue

How to Build Innovative Companies

Organizational design creates core competence in innovationwhich creates competitive advantage – hard to imitate?

How to Build Innovative Companies