Successful Business Leadership

By Alan K Rudi

You now live and work in a knowledge-based society, which is increasingly being called the “Age of Mass Innovation”. In the article titled “Understand our Economy”, the point is made that the level of competitive intensity has never been greater as a result of globalization and more rapid technology development. The future will simply be filled with more disruption as it is very difficult to compete with low cost competitors if you do not innovate. As a consequence, employers are looking for people with certain key attributes including the ability to creatively develop opportunities (e.g., new products and processes) and solve problems.

The purpose of this article is to provide you with some insights in how you can think about a fuzzy thing called innovation, as well as provide advice on how you can be a creative person. The fact is that everyone has a brain with the ability to think and, quite frankly, you can learn to be an innovator. The following key points will be discussed:

1. What is innovation?

2. Examples of concepts and processes from innovative organizations

3. How you can learn to “think outside the box”

Innovation

Steve Jobs says “Innovation has nothing to do with how many R&D dollars you have. When Apple came up with the Mac, IBM was spending at least 100x more on R&D. It’s not about money. It’s about the people you have, how you’re led, and how much you get it…Innovation distinguishes between a leader and a follower…Sometimes when you innovate, you make mistakes. It is best to admit them quickly, and get on with improving your other innovations.”

Innovation is a learning, thinking and imagination process. It is both an art and a science. Recently, the Economist published a great article titled Something New Under the Sun: A Special Report on Innovation. It describes innovation as follows:

1. “Although the term is often used to refer to new technology, many innovations are neither new nor involve new technology.

2. The OECD, a think-tank for rich countries, says innovation can be defined as ‘new products, business processes, and organic changes that create wealth or social welfare.’

3. Richard Lyons, the chief ‘learning officer’ at Goldman Sachs, an investment bank, offers a more a more condensed version: ‘fresh thinking that creates value.”

I would simply add that the value created should be new or greater than the value achieved from existing products or processes. The dictionary, of course, defines innovation as the act of introducing something new or different. In a knowledge-based economy, new information and ideas are spread more rapidly. In a global economy, when a business creates a new product or process, it has a competitive advantage, albeit short lived. New competitors are routinely emerging from new places. The Economist goes on further to say “As the knowledge component of industries continues to grow, it will lower even further the barriers to entry in many businesses. Yet the same democratization of innovation that empowers the new firms can be used to generate much greater innovation from within established companies.”

Concepts and Processes from Innovative Organizations

Thus, wherever we go in our careers, the necessity to develop, drive, even manage innovation is a significant need for all businesses. Since innovation is a function of the skills and knowledge of people, it is crucial that you develop an innovators mind set. How can you do this?

First, to be innovative requires a failure tolerance (just not too much failure). The fact is most new products or ideas will likely fail. Historically, 1 in 7 new products succeed. With good companies, 50% of new products will succeed. Tolerating failure encourages the risk taking needed for innovation to occur. And to tolerate failure requires a leadership style from you and others that is collaborative, empathetic, communicative, learning oriented, and supportive (please see the article titled Lead in the 21^st Century). There are some additional things, though, that organizations can do to “tolerate” failure:

1. Build exit strategies into a development project. How will you know if a new development project is failing (in order exit the project quickly)?

2. Conduct a number of different market tests for a new product or service knowing that most will fail, but achieve a high degree of learning quickly. How can you fail fast and learn from it?

3. Launch 2 or more development projects with the same goal, but with different technical and/or business directions for how to achieve the goal.

4. Then write down and discuss what was learned from a failure and how it will be incorporated for success.

Second, recognize that industries and markets go thru patterns of change in order to understand where a particular industry is in its evolution. This pattern generally can be described as invention followed by a triggering that leads to growth in investment and competitors to create the market, then failure or consolidation as a market evolves and matures. But also recognize that new innovations or changes can occur any time during a market’s evolution (these changes can be new, disruptive or mostly incremental). In a knowledge-based, technology driven world, this pattern is more rapid, random and chaotic for both new and existing industries so it is important to understand the drivers (past, present and future) of industry change. It is in this understanding where new ideas and opportunities can emerge. For example,

1. In the late 1800’s the automobile was invented but they were customized and very expensive, so only the wealthy could afford a car. Henry Ford then created the assembly line and offered the Model T in 1908, black only. After that, over 100 new firms entered the automobile industry creating new models, colors, etc. It was a period of intense competition. Most of these businesses failed or merged into larger competitors (e.g., “General” Motors). By 1960, there were 15 worldwide competitors, but as globalization expanded, new competitors emerged from other countries as their automotive markets developed (e.g., Toyota). Today, there are 44 worldwide manufacturers with the top 15 providing 82% of production. And in 20 years, the auto industry is expected to have 50% or more of a vehicle with electronic digital content plus new, lower cost competitors from China and India.

2. The internet was first operational as a large scale system in 1983, designed by the Federal Government for communications in case of war. Then the first commercial applications began in 1988. The Mosaic browser was introduced in 1993, and a year later there was a growing public interest in what previously was a technical or academic usage. Then commercial application took-off in the Internet boom. Everyone and everything had to be on the internet as people realized the potential for lower costs and greater communications. Significant new investments were made by businesses and venture capitalists, about 2500 new businesses were formed from 1995-2000 (contributing significantly to economic growth). But then an over investment occurred as more computers, software and networks were built than businesses or people could use. In December 2000, Cisco Systems observed that orders began to drop precipitously and the 2001 recession began along with the dotcom bust. Most of these new Internet businesses no longer exist, but the Internet still developed into a key part of our daily life. It has been a true “transformational technology” like electricity or the automobile. As of September 2007, there are 1.2 billion Internet users, which is only one-sixth of the world population.

Third, innovation can occur not just in technology developed in the design of products or services, but also in the business models and/or processes to produce goods and services. Dell computers are a good example. Michael Dell created a new business model by selling computers direct to buyers, first via telemarketing and then over the Internet. His company also then combined direct selling with just-in-time manufacturing production processes. Dell did not invent either of these two ideas, but they did master them in how the ideas were applied and were able to significantly lower their costs.

Fourth, to be innovative mostly requires that you have a deep understanding of your customers, better than your competitors, in order to generate viable ideas. To get this understanding does not necessarily mean more traditional market research (though research is important). There are many ways to think differently about customers to gain innovative ideas. Here are a few:

• Clayton Christensen, in his book Seeing What’s Next: Using the Theories of Innovation to Predict Industry Change, identifies three different ways to think about customers. Non-customers of your product – lack ability, income or access to purchase your product. Personal computers have come down a lot in price over the years, but they still are not affordable in many parts of the world or even for children. Thus the idea of a “$100 PC” without all the hardware and software capability we know. What could you do? Develop a different product targeted to the non-customer and create a new market for yourself. Undershot customers – they purchase your goods but are frustrated with its limitations. First we bought mobile phones and Personal Digital Assistants (PDAs). But we were frustrated carrying multiple devices, so they became combined into “smart phones”. What could you do? Radical or incremental upgrades to your product. Overshot customers – they stop paying for incremental performance improvements in a product because they increasingly are not worth the performance gain. What could you do? Downgrade or simplify a product.

• Involve your customers directly in generating ideas and/or in actually developing a new product. Electronic Arts, the game maker, provides programming tools to customers, posts their ideas and modifications online for comments, and implements their creations into the games. General Electric identifies the few customers who are leaders in their industry and then brings them together to discuss directions of the customers industry, technology developments in general, and new ideas. In other words, listen in-depth with a few really smart people. Staples holds a contest for customers to come up with product ideas. BMW has posted a design toolkit on its website to let customers develop their specific suggestions, and then invites a selected few to meet with engineers to go in more depth.

• If and when you’ve achieved “success” in a market, change the definition of the market. Think about the difference between a “realized” market (all those that actually buy a product) versus the “potential” market (those that buy today plus those that could buy). Some companies have a practice that when a certain level of market share or growth is reached, they change the market definition to include things like more potential usage of a product per customer (e.g., 1, 2 or 3 computers at home?) or further refinement of segments that can lead to new product definitions.

Fifth, set specific aggressive no-compromise targets for new product performance and trust in people’s ability to create solutions. Ichiro Suzuki, chief engineer of the first Lexus, said “Even if the target seems so high as to be unachievable at first glance, if you explain the necessity to all the people and insist upon it, everyone will become enthusiastic in the spirit of challenge, and will work together and achieve it.” The human mind can do great things. Necessity is the mother of invention. In Jeffrey K. Liker’s book, The Toyota Way, he describes the process to establish goals for the Lexus as follows: “The Lexus began with a thorough evaluation of the goals of the vehicle…Suzuki carefully considered the competition.

Suzuki started with focus group interviews in the US…this was not a huge survey, but rather just two groups of about a dozen people. Individuals within groups were assigned to focus on particular vehicles they owned (BMW 528e, Mercedes Benz 190e, etc.). Suzuki classified what he heard into reasons for purchase, reasons for rejection of other competitive vehicles, and the image they had of different cars. He simplified results qualitatively summarizing using terms that evoke emotion more than scientific precision.

Suzuki asked himself, what does it mean to have a high-quality product? The two characteristics he felt were most important were exceptional functional performance and an elegant appearance, not traditionally a Toyota strength. But (these characteristics) are somewhat contradictory to one another because they imply trade-offs. What Suzuki wanted was to fuse these two characteristics, so they become one and the same thing. Suzuki explained…one technique that is part of continuous improvement – ask why a problem exists five times, going to a deeper level with each ‘Why?” to get to the root cause of the problem.

This led to the two guiding goals for the Lexus program:

Cut noise, vibration, and harshness at the source

Maintain the ‘yet’ concepts, balancing without compromising on traditional auto design trade-offs.

The first one, at the source, turned out to be largely driven by the accuracy of the parts – the precision with which the parts are manufactured… Suzuki’s approach (then) was to find the most talented engineers, challenge them with the (no-compromise) goal, and ask them to try real things rather than just analyze and theorize.

As a result of Suzuki’s approach, the Lexus program took-off and accomplished exactly what he wanted – a smart design and a very smooth ride.”

Think Outside the Box

So how can you learn to think outside the box? Peter Drucker, one of the best management thinkers, said that innovation rarely comes from inspiration, but instead from analyzing 7 potential sources of innovation:

1. Unexpected outcome – simply discover what you can learn from failure

2. Incongruities – examine the differences between your assumptions and reality

3. Process needs – look to apply an existing process solution to a different problem

4. Industry and market changes – industries can shift in how they conduct business, be on the look-out for new trends. If a competitor is growing at a significantly higher rate than an industry overall, then new or emerging market conditions are potentially occurring.

5. Demographic changes – a highly reliable predictor, but one that is often overlooked. Be sure to study long term demographic trends.

6. Changes in perception – is the glass half full or half empty? You can discover new understandings by looking at things from multiple perspectives.

7. New knowledge – the typical view of the sources of innovation, but they usually take a very long time to develop.

To “think outside the box” requires imagination as you:

• Examine things from a different perspective (by having an open mind and talking with multiple people in and out of the organization)

• Explore how to do things differently (look at completely unrelated things, find who is doing something best)

• Focus on the value of developing new ideas (without ideas you can’t find solutions, spend time exploring)

• Link together different ideas to see what you can come up with (go and see for yourself)

• Listen and ask questions to get to the root or systemic cause of a problem (keep asking why and how, dig deeper, don’t look for easy answers)

• Support others new ideas (they may be on to something).

First comes thought; then organization of that thought, into ideas and plans; then transformation of those plans into reality. The beginning, as you will observe, is in your imagination. Napoleon Hill.

Great minds discuss ideas; average minds discuss events; small minds discuss people. Eleanor Roosevelt.

In the modern world of business, it is useless to be a creative original thinker unless you can also sell what you create. Management cannot be expected to recognize a good idea unless it is presented to them by a good salesman. David Ogilvy.