Marketing management on: Innovation

Executive SummaryIntroduction

Innovation is the development of new customer value through solutions that meet new needs, unarticulated needs, or old customer and market needs in new ways. This is accomplished through different or more effective products, processes, services, technologies, or ideas that are readily available to markets, governments, and society. Innovation differs from invention in that innovation refers to the use of a better and, as a result, novel idea or method, whereas invention refers more directly to the creation of the idea or method itself. Innovation differs from improvement in that innovation refers to the notion of doing something different (Lat. innovare: “to change”) rather than doing the same thing better.

Innovation has been identified as the last competitive advantage available to organizations in a turbulent and hyper-competitive global market. Therefore, a number of key drivers are needed to encourage and foster innovation in organizations.In this report, we adopt NESTA’s definition of innovation as “change associated with the creation and adaptation of ideas that are new-to-world, new to nation/region, new-to-industry or new-to-firm”. This is an intentionally broad definition of innovation, which goes beyond the traditional view of innovation often restricted to technological and product development or R&D environments. The NESTA definition encompasses all sectors and includes new services, business models and processes.

Body

Chosen MNC: Toyota

Necessity of Innovation:

Strategy for InnovationA clear and articulated strategy for innovation must be developed and accepted to encourage innovation across the organisation. Strategy development first requires an understanding of the business and its environment, and should involve stakeholder input to ensure buy-in across the organisation. Innovative companies have a clear vision and core values that encourage the pursuit of organisational objectives, including innovation initiatives.

2. Innovation Leadership throughout the Organisation

Commitment and support from top management is the cornerstone of successful innovation. Management influence is necessary to overcome the barriers to successful change, which innovators often encounter. Identifying “champions” in the organisation to drive the innovation agenda can make a significant difference to innovation diffusion and adoption. Innovation champions can also provide the leadership required to stimulate innovation throughout the organisation. Effective change management will ensure that improvements will be easily implemented. When top management is pro-active and becomes a catalyst for change, the organisation has a better opportunity to adopt an innovative culture.

3. Culture and PeopleEstablishing a culture that is conducive to innovation requires building a work environment where trust, open communication and teamwork are the norm. A team is capable of significant achievements because individual abilities can be pooled towards achieving a common objective. The use of cross-functional teams helps break down the barriers by transcending the existing organisational structure. An environment that encourages participation, learning and fun allows new ideas to be generated and improvements implemented. Harnessing the creativity of the workforce forms a critical component of an innovative culture. Therefore, professional development of employees should include skills development in creativity tools and techniques. Other characteristics of an innovative culture include, tolerance of ambiguity, challenging the status quo, asking “Why?” and not being afraid to speak your mind.

4. Tolerance of RiskThe innovation process generally has an element of risk since any change involves uncertainty. Some organisations are risk averse and usually struggle to become innovative. Organisations that incorporate a higher level of risk tolerance in their business processes are more successful in adopting an innovative climate. The downside of risk is failure. However, “failure is not built on success: success is built on failure”. Sagacious or calculated risk taking is therefore the preferred option, because this implies that outcomes, consequences and contingencies have been considered in advance.

5. Open CommunicationThe existence of free and open communication channels is favourable to innovation because it provides the opportunity for ideas and information to be relayed throughout the organisation. It is also important that, in addition to vertical communication, an organisation maintains lateral relationships between functional areas to break down any silos. Collaborative information technology solutions, such as Microsoft Sharepoint or Lotus Notes, encourage information sharing throughout the organisation and provide a repository for knowledge and ideas.

6. Flexible Operating Structures

Establishing adaptive organisational structures, which are characterized as flat, organic and cross-functional, is a key characteristic of innovative organisations. For example, 3M is a large global company that operates small autonomous cross-functional business units to encourage innovation and participation. In an organic structure job definitions are flexible, and both vertical and lateral communication flows exist. Power and authority are generally shared across team members.

7. New Ideas and Opportunities The continuous flow and capture of new ideas provides organisations with a source of new products and services, product improvements, and novel processes that contribute to the organisation’s survival and growth. Creativity is therefore an important key driver of innovation by providing new ideas and new ways to solve organisational problems. Organisations also need to adopt a formalideas management process to capture, develop, evaluate, protect and implement ideas and suggestions, which form the foundation of new opportunities that satisfy needs and wants in the market.

If organisations and their leaders readily embrace the concepts of innovation and successfully implement innovation strategies and processes, they would have made the first steps towards achieving growth and sustainability in the hyper-competitive global arena. Creativity is a skillset that, despite popular belief, can actually be learnt and nurtured within an organisation. Senior managers and leaders need to take responsibility to foster an internal culture that recognizes and supports creativity and innovation to ensure they sustain their competitive advantage in the marketplace.

Innovation in Toyota:Can the organizational structure of a company contribute to the acceleration of the innovation management in the spirit of Fast Innovation? The innovation machines Toyota, Procter & Gamble, GE, 3M, IBM, Google, Microsoft, Sony, Hewlett-Packard, DuPont, Honeywell and Whirlpool answer this question in the affirmative. In addition to an effective and efficient innovation process they have adopted an organizational structure of innovation that enables them to launch innovations faster.

In organization science we distinguish between process organisation and organisation structure. Over the last few decades the process orientation of enterprises has continuously gained priority. Accordingly, in the context of innovation management the innovation process and its optimization received maximum attention, above all also in relation to the question how innovations can be launched into the market-place more rapidly in the spirit of Fast Innovation. Due to this, the organizational structure of innovation management receded a bit into the background. Which is not justified.

The innovation machine Toyota as well as Procter & Gamble , GE, 3M, IBM, Google, Microsoft, Sony, Hewlett-Packard, DuPont, Honeywell and Whirlpool have adopted an oranizational structure of innovation that significantly facilitates Fast Innovation.

They have taken the following seven key actions in order to structure their innovation management and organization for Fast Innovation:

1. Delegation of Decisions to Innovation Teams

Despite best intentions, if all important decisions in the innovation process are made dependent on (top) management´s agreement a time delay will result.Therefore decisions need to be delegated to the innovation team in order to avoid these delays and enable Fast Innovation. The consent of (top) management is in this case only required at the milestones or gates of the innovation process. The members of the innovation team should be available to the team with 100% of their time in order to get the innovations to market as quickly as possible.

Nowadays most companies use innovation teams for innovation management. The degree to which decisions are delegated to the teams and the degree of availability of the members for the innovation teams differ, however. Big companies such as Toyota, P&G, 3M, IBM, Sony, Whirlpool and others typically have fully dedicated innovation teams with 100% availability of their members..

2. Integration of R&D into the Business Units

The organizational integration of the majority of R&D into the business units makes innovation management more effective. It fosters the collaboration with the other departments of the business unit and the orientation towards the customer (customer pull) in lieu of an exclusive focus on the technology (technology push). Furthermore it improves the preconditions for  Fast Innovation.

At the end of 2003, the innovation machine 3M restructured its innovation organization and decentralized its R&D organization along these lines. Consequently, 3M´s technicians got closer to the business and the market. 400 members of 3M´s central laboratory were assigned to the divisional labs. Simultaneously, the heads of the divisional labs who until then had a direct reporting line to the Senior Vice President, Research & Development got an exclusive direct reporting line to the divisional heads. Honeywell, too, restructured its R&D organization in a similar way at the beginning of this decade. Honeywell´s big R&D organization was broken up into four labs. Each of these labs was assigned to one of the four Honeywell divisions – Aerospace, Transportation Systems, Speciality Materials, and Automation and Control Solutions. This organizational structure of innovation management was designed to facilitate Fast Innovation.

3. Co-Location of Teams and DepartmentsAlthough we are living in a time of powerful electronic communication, the organization structure of co-located teams and co-located divisional departments maintains at least the same relevance as formerly. Co-Location fosters the integration of teams and departments and a free-flowing communication. By locating all innovation team members and relevant departments of a division in the same place, companies can make sure that everybody hears the same thing at the samte time. This way information does not get distorted. Spontaneous communication and exchange of ideas are facilitated. Co-location raises the probability that in the management of an innovation the necessities of the market-place and of the technology are simultaneously taken into consideration, and that the innovation gets to market faster.

Procter & Gamble is a fervent supporter of Fast Innovation and of organizing for innovation via co-location. So is Google. And IBM and Sony as well, even for globally composed teams. Under IBM´s leadership e.g. the IBM-Sony-Toshiba „Cell Chip“ Team, which comprised 400 team members and was charged with developing, amongst others, the high-performance chip for Sony´s Playstation 3, was located in one place, at IBM´s Sony-Toshiba-IBM (STI) Design Centre in Austin, Texas.

4. Central Innovation Teams

The management of disruptive innovations, and the management of innovations that will result in a new category or a new market or that will cut across multiple categories often necessitates the use of central innovation teams that are not assigned to individual divisions. Such a central innovation team then reports to a manager at the corporate headquarter. As an alternative organizational structure of innovation management central innovation teams are established at the divisional level, and they will report to the head of the division, and not to to the head of an individual category, product group or brand. Such central teams are mainly utilized in cases when the motivation and ressources of individual divisions, categories, product groups or brands are insufficient in order to get the respective innovation to market with maximum effort and at maximum speed despite the daily pressure and distraction from the established operation. In such cases an organizational structure of innovation management which allocates the responsibility for getting the innovation project off the ground to a central innovation team and thus enables Fast Innovation is superior to a decentralized project organization. For a successful innovation management it is, however, important that the innovation project from its very beginning has a division, category, product group or brand assigned as its sponsor and “home” for future commercialization.

Procter & Gamble has an organization of central innovation teams at the corporate level which goes by the name Future Works. At the business unit level its central innovation teams belong to the New Business Development Organization.

5. Central Innovation Funds

The innovation projects which later will be led by central innovation teams in most cases need a special budget to get funded because the divisions shy away from making funds available given the typically high risk of such projects. Without a central innovation fund these innovations would not be launched fast, if they would get to market at all. Fast Innovation would be impossible.

P&G has established the P&G Corporate Innovation Fund (CIF) for such purposes which provides financing for the development of disruptive innovations and of new businesses. P&G´s innovative Crest Whitestrips were, for instance, seed funded by the CIF. Also GE´s CEO disposes of a central Venture Fund that is to finance so-called „Imagination Breakthroughs“, i.e. innovations with expected incremental annual sales of at least 100 million US$. When Whirlpool´s CEO decided around the turn of the century to transform his company into an innovation champion he as a first step established a central seed fund and, additionally, seed funds for each of Whirlpool´s regions in order to quickly test new ideas by means of prototypes in the spirit of Fast Innovation. Hewlett-Packard´s innovation management possesses a central innovation fund called Innovation Program Office (IPO) which has a mission similar to P&G´s Corporate Innovation Fund.  Honeywell´s innovation management, too, has a central innovation fund which they name Honeywell Growth Board. At the divisional level Honeywell funds its central innovation teams via its Venture Funds.

6. External Interface for Open Innovation

Open Innovation is a core strategy of innovation management in order to get innovations to market more rapidly and enable Fast Innovation. In order to execute Open Innovation and to channel external solutions and ideas into the company, innovation management needs an effective external interface.For this purpose P&G has established its External Business Development Organisation and its Connect & Develop Organisation. The Mission of these departments is to realize the innovation potential, which slumbers in the outside world, via the development of external networks. Not the least because of its Open Innovation P&G has dramatically increased its innovation speed. An innovation which in the past would have taken there years or more to get to market these days can be rolled-out globally within 18 months. DuPont, too, has an external interface such as P&G´s which it calls DuPont Ventures.

7. Merger & Acquisition Department

A special organizational structure of managing for Fast Innovation via Open Innovation is the M&A department which is involved in the acquisition of innovative companies. Via acquisitions an enterprise can signficantly strengthen its innovation management, and can be in the market-place with innovations much faster.

The role model for this M&A strategy of innovation management is Cisco. Since its first acquisition in 1993, Cisco up to now has acquired 126 mostly young companies. Most high-tech companies own strong M&A departments in order to accelerate their innovation activities in the spirit of Fast Innovation. So do e.g. Google, Microsoft and IBM.

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