Kerri Shields
Toronto
Leading Innovation by Kerri Shields is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.
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Innovation today considers the economic, environmental, and/or social sustainability of an innovative initiative from its inception or idea generation through to its commercialization or implementation. This concept applies to many types of innovation such as products, processes, services, technologies, and business models. Companies use innovation as a means to gain competitive advantage and bring value to business stakeholders. This book introduces business innovation, from incremental innovation such as enhancing the performance of an existing product, service, or process, to radical or disruptive innovation such as one that has a significant impact on a market. Content examines how leaders foster a culture of innovation, how companies turn creativity into innovation, and how innovation transforms not only organizations, but economies as well.
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As a college professor, I have developed many courses and used creativity and innovative skills to develop projects and engaging content for students. What I have learned about innovation, is that it takes a lot of hard work and a little creativity to be innovative. I have built skills in researching, developing partnerships, networking, solving problems, and spotting opportunities to make changes and improvements. Some of my successful innovative ideas include: embedding industry certifications in courses to enable students to gain industry credentials, using open educational resources (OER) to reduce student fees, partnering with software vendors to embed current business technologies within courses to enable students to practice with current systems and prepare for the work world.
Prior to my career as a college professor, I worked in the human resource solutions industry and used creativity and innovative thinking to design corporate training modules that fit the unique needs of each client. Clients would have a need but often did not have a solution. My job was to identify the problem/need and recommend solutions, then apply creativity and innovation to implement the clients’ vision. Win-win for everyone!
I hope you find the content in this book interesting and the lessons helpful. You may find some tips for improving your personal creative thinking skills as well as learn some of the important concepts pertaining to business innovation.
I will try my best to update the book content from time to time and check that videos or resources do not become obsolete or outdated.
Sincerely,
Kerri Shields
(Note: This list of sources used is NOT in APA citation style instead the auto-footnote and media citation features of Pressbooks were utilized to cite references throughout the chapter and generate a list at the end of the chapter.)
1
After reading this chapter, you should be able to do the following:
A century ago, Thomas Edison thought deeply about what drives invention or, as we call it today, innovation. One of his famous sayings, “Genius is 1 percent inspiration and 99 percent perspiration,” stresses that innovation involves more than just great ideas. Edison knew from his own experience that the systematic hard work of trial-and-error experimentation paid off. His inventions, like the lightbulb and the phonograph, emerged through thousands of attempts as he refined the process step by step.
There are many definitions for innovation and even the innovation experts in today’s business world cannot agree on the definition of innovation. Below are definitions from 15 innovation experts.
Which do you think best defines the term “innovation”? Why?
We might give business innovation a more encompassing definition. Business Innovation is “Executing an idea that addresses a specific challenge or opportunity and achieves value for both the company and its stakeholders.” Of course, stakeholders include customers, government, partners, suppliers, shareholders/owners, lenders, society, employees (and their families), and the community.
When we think of innovation in the great big world, including the innovations of organizations, we might define Innovation in more broad terms, such as, “Creating something new that serves people’s needs or wants.”
Innovative ideas are envisioned by individuals, businesses, and governments because of the following reasons.
As commonly said in business, innovation is the only Imperative. In a world where everything changes rapidly, the field of business has been left no other option but to keep pace. Whether the innovation is about making a product more user-friendly or creating a more efficient finance model, Innovation is bound to happen.
What is the calculus of innovation? The calculus of innovation is quite simple: Knowledge drives Innovation, Innovation drives Productivity; Productivity drives Economic Growth. – William Brody
Innovation is the process of taking an idea and putting it into practice. Creativity, on the other hand, is what you do in your head to generate the idea. An innovative idea must be new, original, or improved, and must create value.
Once a business has a creative idea it must determine if the idea is feasible to implement. Can it be done? Is it affordable? Are resources available or obtainable? Will it meet the needs of the target audience? Before spending time and money researching and developing a new product or changing a business model, feasibility and risk must be assessed.
Watch the YouTube video below, “Where Good Ideas Come From” to learn about where you can find or how you can develop good ideas. Transcript for “Where Good Ideas Come From” Video [PDF–New Tab]. Closed captioning is available on YouTube.
Today, we need innovators more than at any time before. Every organization and business is feeling the impact of globalization, migration, technological and knowledge revolutions, and climate change issues. Innovation will bring added value and widen the employment base. Innovation is imperative if the quality of life in these trying circumstances is to improve. Innovation will make the world a better place for the younger generation.
We often see innovations in products and services being offered to customers, but there are many other types as well. Innovation can be classified based on the degree of innovation as well as the object of innovation.
Incremental Innovation is the concept of growing or improving a company by making a succession of small-scale improvements to existing products, services, processes, and tools. Incremental innovation focuses on improving existing offerings to align with current consumer trends and is considered a relatively low-risk approach. This approach is the most common type of innovation and has helped many companies remain competitive for decades.
A few examples:
Disruptive Innovation is the launch of a new business model, concept, product, or service that creates a new market segment and value drivers. Often, disruption comes from a new company, which eventually displaces established market leaders and products. This approach focuses on meeting consumer demands in ways that no other product or service has done before. Disruptive innovation often creates entirely new markets or a fundamental shift in how the consumers interact with the current market after the disruptive product is introduced.
Products and services are the most common objects to innovate, but there are many types of innovation and they are categorized in many ways.
Business Model Innovation is probably the most challenging of the innovation types as it will likely present an organization with major requirements for change. Often, the very capabilities or processes that have been optimized to make a company successful and profitable will become the targets for transformation. In some cases, these changes can threaten elements of the company’s identity and come into conflict with brand expectations or promises.
Whereas both product and process innovation can be incremental and moderate, business model innovation is almost always radical, risky, and transformative. When talking about business model innovation, without a doubt, names like AirBnB, Uber, or Spotify will come up. These are perfect examples of fast-moving companies that were able to disrupt age-old markets (hotel, taxi, music) by tweaking or inverting their industry’s traditional business model.
Social Innovation refers to a response to a social or environmental problem, which, once adopted, results in better solutions than existing approaches. Social innovations have a transformative impact and improve organizations, communities, regions, or systems.
Social innovation can include:
Social enterprises are businesses that pursue a social or environmental mission.
In Canada, activity at the governmental level includes the government’s launching of a Social Innovation and Social Finance Strategy to provide better support to community organizations working to tackle social challenges. The strategy includes a Co-Creation Steering Group made up of 16 leaders, practitioners, and experts from multiple fields, including the community, philanthropic, financial, and research sectors, and complemented with public consultation.
When people think of innovation, often, they’re thinking of product innovation. Product Innovation can come in three different forms. 1) The development of a new product, such as the Fitbit or Amazon’s Kindle. 2) An improvement of the performance of the existing product, such as an increase in the digital camera resolution of the iPhone 11. 3) A new feature to an existing product, such as power windows to a car.
Drivers of product innovation might be technological advancements, changes in customer requirements and demands, or outdated product design. Product innovation is generally visible to the customer and should result in a greater demand for a product.
With the growing economic importance of the services sector, service innovation is playing an ever more significant role in driving growth in today’s knowledge-intensive economy. Service Innovations ensure and enhance the utility, performance, and apparent value of an offering. Some offerings are purely service, such as getting a haircut, hiring someone to paint your house, or taking an Uber to your friend’s place. These are services you may utilize throughout your lifetime. Other service innovations may be combined with product offerings, such as purchasing groceries (products) and having them delivered to your home (service), or buying a new television (product), and purchasing the warranty (service).
Service innovations may make a product easier to enjoy, reduce the risk associated with buying a product or may make a product more compelling to buy. Service innovations may simply make your life more enjoyable. Who doesn’t enjoy a visit to the spa? According to SuperOffice, 86% of buyers will pay more for a great customer experience.
Consider a business that you have been buying from for several years and answer the following questions.
Process is the combination of facilities, skills, and technologies used to produce, deliver, and support a product or provide a service. Within these broad categories, there are countless ways process can improve. While product innovation is often visible to customers, a change in process is typically only seen and valued internally. Generally, changes in process reduce costs of production more often than they drive an increase in revenue. Of the three types of innovation, process is typically the lowest-risk.
Process Innovation can include changes in the equipment and technology used in manufacturing (including the software used in product design and development), improvement in the tools, techniques, and software solutions used to help in supply chain and delivery system, changes in the tools used to sell and maintain goods, as well as methods used for accounting and customer service.
One of the most famous and groundbreaking examples of process innovation is Henry Ford’s invention of the world’s first moving assembly line. This process change not only simplified vehicle assembly but shortened the time necessary to produce a single vehicle from 12 hours to 90 minutes.
Technological Innovation focuses specifically on technology and how to embody it successfully in many types of innovations such as products, services, processes, profit models, channels, and customer service engagement innovations. Regardless of the industry or products, technology is likely to be a pillar for businesses because many innovations stem from advances in technology. By embracing AI, machine learning, data science, and automation, businesses can innovate in each of these areas to improve internal processes and external communications. Ultimately, these advances will positively impact productivity, sales, marketing, and customer service.
Consider the following examples.
The Ten Types of Innovation Framework® is a great way to categorize innovation types. For many years, executives equated innovation with the development of new products. But creating new products is only one way to innovate, and on its own, it provides the lowest return on investment and the least competitive advantage. The Ten Types of Innovation® framework provides a way to identify new opportunities beyond products and develop viable innovations.
Systematic Inventive Thinking (SIT) is a thinking methodology where creativity takes center stage. It contains five thinking patterns that humans have used for thousands of years. It directly contradicts the principle of ‘thinking outside the box’ and uses ‘thinking inside the box’ as a guiding principle.
Most innovators and creative people use patterns and structured thinking to innovate. Agatha Christie, for example, wrote over 60 novels and has sold more books than anyone. She did it by using a familiar template in each of her books. That template helped structure her thinking in a way that made her more creative. This is the essence of a method called Systematic Inventive Thinking (SIT). With SIT, innovation follows a set of patterns that can be reapplied to any product, service, or process.
SIT helps you overcome cognitive fixedness. Cognitive Fixedness is a state of mind in which you think of an object or situation in one specific way, to the exclusion of any alternative. SIT promotes thinking of objects in various situations and uses.
The Function Follows Form Principle is a way to overcome some of the drawbacks of traditional research-led or design-based innovation. Conventionally, product innovation begins with consumer need identification that’s then translated into functions, therefore the form of the product is identified by the functions the product will be used for by consumers. Most consumers however struggle to articulate unmet needs and would have difficulty imagining a new product that never existed before. For example, people most probably would not have thought of needing a car when horses and buggies were being used for locomotion. There is a famous quote from Henry Ford, “If I had asked people what they wanted, they would have said faster horses.”
SIT applies a backward approach to innovation. Rather than starting with needs in the market, SIT would have you start by applying the five thinking patterns to existing products and services in order to ideate new products and services. After some ideas were generated you would evaluate whether or not these new innovative ideas will fill a need or want of consumers. If they will then you determine if developing these new ideas is feasible for the company (e.g., resources) and if the company can mitigate the risks involved.
Surprisingly, the majority of innovative products and services can be explained by just five patterns as listed in table 1.1 below. Check out Drew Boyd’s Pinterest page for multiple examples of each pattern.
Subtraction | Remove an essential component from a product and find a new arrangement of the existing components. | |
---|---|---|
Task Unification | Assign a component of a product an additional job, one that it wasn’t designed to do. | |
Multiplication | Take a component and copy it but change the component in some counterintuitive way. | |
Division | Take a component or the product itself and divide it along some physical or functional line and then rearrange it back into the product. | |
Attribute Dependency | The product has a correlation between two attributes of the product and its environment. |
SIT uses thinking inside the box as a guiding principle, which means using constraints to help you be more creative in solving problems. Constraints can foster innovation when they represent a motivating challenge and focus efforts on a more narrowly defined path. Having some constraints may incite big thinking, while having too many constraints may limit outcomes. Constraints may include limited time, money, or requiring results to include very specific needs.
Watch “The Power of Creative Constraints” YouTube Video below to learn more about creative constraints. Transcript for “The Power of Creative Constraints” Video [PDF–New Tab]. Closed captioning is available on YouTube.
To complete this exercise you may need to do a little research on Dolbin’s Ten Types of Innovation first. Have fun testing your memory by matching image cards with text cards to pair each type of innovation.
Note: Cards have audio (please adjust audio settings on your device as desired).
An interactive H5P element has been excluded from this version of the text. You can view it online here:
https://ecampusontario.pressbooks.pub/leadinginnovation/?p=5#h5p-1
(Note: This list of sources used is NOT in APA citation style instead the auto-footnote and media citation features of Pressbooks were utilized to cite references throughout the chapter and generate a list at the end of the chapter.)
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After reading this chapter, you should be able to do the following:
A century ago, Thomas Edison thought deeply about what drives invention or, as we call it today, innovation. One of his famous sayings, “Genius is 1 percent inspiration and 99 percent perspiration,” stresses that innovation involves more than just great ideas. Edison knew from his own experience that the systematic hard work of trial-and-error experimentation paid off. His inventions, like the lightbulb and the phonograph, emerged through thousands of attempts as he refined the process step by step ().
Thomas Edison knew breakthroughs do not come from “lightbulb” moments (pun intended). His quote captures this concept perfectly.
Not everyone considers themselves creative, but most of us do have the ability to be creative. We use our creative minds more often than we think. Whenever you solve a problem, try something new, or give advice to a friend, you are probably using creative thought.
Just like doing physical exercise to work out your body, sometimes you need to do mental exercises in order to work out your mind. Watch the video below to learn about the following eight creative thinking tips you can put into practice to help boost your creativity.
Watch the “8 Creative Thinking Exercises to Boost Your Creativity” YouTube Video below to see if there is an exercise to boost your creative thinking. Transcript for “8 Creative Thinking Exercises to Boost Your Creativity” Video [PDF–New Tab]. Closed captioning is available on YouTube.
There is a misconception that creativity is this thing that happens in the shower, a strike of lightning that you get out of nowhere, but the reality is creativity is not a moment in time, it’s a process and it takes time to develop.
If you were to generate a list of possible solutions to any given problem you may notice that the first few on the list will be similar to ideas other people may also come up with, but as you get to the bottom of the list you may find your ideas become more unique. This is because we solve problems every day in our lives and we are good at it. If I asked you how you will get to work today since your car is being repaired at the service center, you might say, “I’ll get a ride with a friend,” or “I’ll take the bus,” or “My mechanic loaned me a vehicle.” If I then asked you to think of some other ways you might get to work, I’m sure your ideas will become more novel as you provide additional possibilities. These novel ideas may not always be feasible, but while you are brainstorming new ideas, don’t judge them for feasibility, just get the ideas first (quantity), then later evaluate each idea on how well it resolves the problem or takes advantage of the opportunity.
Doing daily creative warm-up exercises may help you become a more flexible thinker in your job and help you approach work challenges with less fear and a more playful attitude.
Creative thinking and problem-solving are essential parts of the design process to turn ideas into innovation and break the barriers against creativity. One of the successful methods used in creative thinking is the SCAMPER technique. While there are different creative thinking and problem-solving techniques such as reversed brainstorming, Hurson’s thinking model, the Six Hats of critical thinking, and Lego Serious Play, SCAMPER is considered one of the easiest and most direct methods. The SCAMPER technique is based very simply on the idea that what is new is actually a modification of existing old things around us.
What does the SCAMPER acronym stand for?
Click on the information icon beside each of the letters below to learn more about SCAMPER.
Transcript for “SCAMPER” H5P [PDF–New Tab].
An interactive H5P element has been excluded from this version of the text. You can view it online here:
https://ecampusontario.pressbooks.pub/leadinginnovation/?p=38#h5p-4
Creativity exercises offer many benefits for individuals, groups, or companies who use them, including the following:
Team creativity is based on having open debates, and a free flow of ideas. For that to happen, trust must exist among team members. Where trust is lacking–so will creativity. Below are some ideas on how to enhance creativity and collaboration in teams, as well as some threats to team creativity.
When teams are working creatively during an ideation session there is a common pattern that occurs. At first, many ideas are shared that are not very unique, then ideas wane, then a spark of inspiration hits the team which drives momentum again but this time with unique ideas which may provide companies with new paths to increasing revenue, market share, and more. This pattern is known as the shape of ideation and you will read more about this below.
Social Loafing: This is the tendency for group members to slack off. These members may think their ideas are dispensable or may see other members working hard, and believe they do not need to contribute.
Conformity: Members may conform due to the desire to be liked. If they believe their teammates will be critical of their suggestions, they will be more likely to agree rather than disagree.
Production Blocking: This can occur when members cannot express their ideas because others are expressing their own. When working alone, individuals can work without interruption of thought, whereas when working in a group, members may forget their ideas or may not get time to speak.
Performance Matching: When working in a team for an excessive amount of time, members will start to develop the same tendencies. Members that achieve higher ideals than the group may “lower their standards”, whereas members that work at a slower pace may “raise the bar”. Overall, the team will plateau and may find it more difficult to generate unique ideas over time.
What happens in our thinking process when we are given a problem to solve in a specific amount of time? As described by Stefan Mumaw in the LinkedIn Learning, Creativity Boot Camp course, if we graphed this ideation process for a group trying to solve a problem or take advantage of an opportunity, we would see a graph that at first has many ideas, but after a short period of time the group feels they have exhausted all the good ideas, and the ideas stall. What happens next, someone offers a different, silly, or absurd idea, then more ideas come from that idea and the tide has turned. The best ideas often come after this turn in the graph. This is known as the shape of ideation because it consistently reveals itself this way.
A common problem experienced during creative collaboration is interpreting what team members mean when they explain abstract concepts. This is a fun, and quite enlightening, game of interpretation that addresses this issue. You may even find yourself using it as a party game outside of work!
You’ll need strips of paper with phrases or actions written out on them, something like “singing in the rain” or “Mother Earth.” Everyone starts with their own phrase and, to the best of their ability, draws it out on the first page of their notebook. After 30 seconds, everyone passes their notebook to the person on their left. That person then has 30 seconds to interpret the drawing and write down what they think it is on the next page in the notebook. The next person draws what the last person wrote. The notebook gets passed again and again until it makes it back to the original owner. Once each notebook is back where it started, the owner of the notebook shows each page to the group to see how the original phrase got interpreted down the line.
This exercise really demonstrates how meaning can get misconstrued and the importance of explaining things with other people’s sensibilities taken into account.
Below is a list of some of the things that can be barriers to personal, team, and organizational creativity.
Creativity fuels innovation. Creativity is a thought process, while innovation is an action. For a business to survive it needs both. Some of the top reasons businesses nurture creativity and innovation include:
Eight creative thinking tips you can try any time. Schedule creative free time, Set a timer, Think quantity over quality, Become an “Idea Machine,” Switch up your routine, Look at something familiar through a new lens, Read more often, Freewrite more often.
An interactive H5P element has been excluded from this version of the text. You can view it online here:
https://ecampusontario.pressbooks.pub/leadinginnovation/?p=38#h5p-5
(Note: This list of sources used is NOT in APA citation style instead the auto-footnote and media citation features of Pressbooks were utilized to cite references throughout the chapter and generate a list at the end of the chapter.)
3
After reading this chapter, you should be able to do the following:
Service innovations take place across all industries and around the world. Of course, this involves service firms, but product-based companies can also develop service innovations. A service innovation changes the way customers are served to create value for customers and revenue for the company. Through a new service innovation, a company may increase its revenue due to existing customers spending more, improved positive company image, referrals, etc.
This sector accounts for 75% of Canadian jobs and 78% of the country’s GDP. The sector includes the following sectors; transportation, economic, health care, construction, banking, communication, retail, tourism, and government. As a vital part of the Canadian economy, the most popular sector is retail with some big franchise names including Walmart and Future Shop. In recent years, the financial services, real estate, and communications industries have grown exponentially, especially in the business hubs of Vancouver, Montreal, and Toronto.
The nature of services and the pace of change have shifted dramatically in recent years, and mastering the traditional aspects of service delivery will no longer be enough. To seize the opportunities, companies must learn to tap the potential for service innovation made possible by four evolving trends.
An interesting thing about service innovations is that they are often combined with other types of innovations. For example, if you are a customer of Tim Hortons then you may have used their loyalty program. When you place a product order you gain points and when you get enough points you can use those points to purchase a product. The app is a service innovation for customers as it improves the customer experience and adds value to their transactions. The app is also a technological innovation as well as a process innovation for the company. When customers use the points program it changes the payment process for staff and the technology integrates with the payment system which allows the company to gather data about consumer purchases and preferences.
Airbnb’s business is primarily based on service innovation. The creative entrepreneurial innovation allows people to travel and stay at different hosts connecting them in advance. Airbnb is giving tough competition to the hotels in the hospitality industry, thus disrupting the industry, and forcing the existing way of doing things to evolve and the existing companies to innovate to keep up.
Netflix produced a series of disruptive innovations that revolutionized how people get their daily dose of entertainment at cheap prices.
Need a snack on the go? Forgot your toothbrush or charger? It’s not a problem at Grab, a line of taxis in Singapore that offers in-car convenience stores. The simple solution shows that innovative ideas don’t need to be flashy as long as they meet customers’ needs. Providing items to customers when they need them most solves a major pain point.
Many companies start their service innovation journey at the wrong end. They look at their existing services and try to find ways to improve them. For a more promising approach through service innovation, they should begin by asking the following questions.
In order to create break-thru innovations, a company must do more than just add an element or a single attribute to an existing service or product. Unfortunately, most of the customer surveys businesses use today are trying to do just that, evaluate customer satisfaction based on current attributes. When you ask a customer what they want from their car mechanic they might say, “to pay less,” or “to know my car is repaired and safe to drive, peace of mind,” or “to be quick and save me time by getting me back on the road again.” In order to successfully innovate, a business must have a very clear and systematic understanding of what they do and how the customer benefits from it. For example, if the bank offers a drive-through ATM, which is an attribute, the benefit to the customer might be that the bank helps them to save time. If the bank stays open until 10 p.m. they are meeting the customer’s need for convenient hours of service. There is often more than one relationship between the attributes and the benefits. For example, a drive-through ATM may not only offer time savings but also safety, or it increases personal mobility and freedom for handicapped customers who cannot walk to the bank. When you meet with customers to find out what they really want it is helpful to take notes, ask questions, and separate attributes from benefits. If an attribute is not a benefit to customers then you may need to consider removing it. Customers will often not pay more for attributes that do not bring them benefits, as from the customers’ perspective this would not be of value. The formula for customer value can be written as: (Total Customer Benefits – Total Customer Costs) = Customer Value, or (B – C = CV)
If you were to purchase a pair of new running shoes, which attributes would bring you benefits that you consider of value?
Product and service benefits are the features that are most important to the customer. More often than not these are conceptual and change according to the individual shopper or customer segment. Different types of customers will find different attributes valuable. Some may like the no-tie laces (maybe they have problems with dexterity), while others may be more enticed to buy because of the recycled soles (maybe they have a concern for the environment). A company will segment its customers and devise promotions to emphasize the benefits that may be of value to specific target groups. For example, a senior may like the extra cushioning and water repellent attributes, and they may also hope to find arch support. A business can create a customer segment for seniors (e.g., over 60) and survey these customers or potential customers to determine which attributes would bring benefits of value to that customer segment, then design products and services to provide those benefits. Offering products or services customers do not need or want will mean the innovation will probably not be successful.
Now imagine that this same company also offers three services with the purchase of this running shoe: 1) As a customer of the company you can join a loyalty program to collect points and when you have a certain number of points you will receive a discount on your next purchase. 2) This company also offers a running club for customers, in which customers join the group and go running with other avid runners each week. 3) There is a warranty for one year that covers any product defects or issues such as not fitting well or sole wearing out too quickly and they will repair the shoe for free.
Which of the above service attributes would be a benefit to you? Which brings you added value? Which of these services would you consider of no benefit or value to you? Why? Can you think of someone else who might enjoy the benefit of these services?
First, you need to understand the customer roles – user, buyer, payer. The user, buyer, and payer may not always be the same customer. When you go to the store and buy groceries, you are the user, the buyer, and the payer because you will use the groceries and you selected the store to shop at and you used your credit card to pay. Now imagine that you are buying groceries for your grandmother who asked you to purchase a few items on a list at a grocery store, and she gave you her credit card to pay for the items. In this scenario, she is the user and the payer, and you are the buyer as you selected the grocery store to shop at. If she had sent you to a specific grocery store then she would also be the buyer and you are just the lovable delivery person.
If you attend a marketing convention out of town as approved by your manager, the payer of the hotel room is your employer, the user of the hotel room is you, and the buyer of the hotel room is the marketing association since it determined where the conference would be and which hotels would hold rooms for convention attendees.
Another example; if you work in the procurement department at a hospital, your job would be to buy the materials needed by surgeons to conduct surgeries. The surgeons are the users, and the payer is the hospital department that Accounting charges when the invoice is paid.
A deep understanding of the three roles is crucial for innovation success. The user, needs the right materials, in the right place, at the right time. They need the materials to do the job they are supposed to do. The buyer requires a catalogue of all the materials the supplier provides, the prices, and the uses of each product or service. They need to know about warranties, inventory in and out, repair or replacement options, time for delivery, etc. They must also understand the needs of the users and communicate with them. The payer needs to know what was ordered and if the full order was delivered and which department is paying for the order. They also need to know the budget maximum and communicate this information to the buyer.
When a business tries to understand the customer’s needs they must be specific–they must understand the user’s needs, the buyer’s needs, and the payer’s needs since they might be quite different. When a company defines a new service innovation the best innovations are those that simultaneously improve the job to be done for the user, the buyer, and the payer.
Organizations must align service innovations with the company mission, vision, values and goals as well as with customer expectations. The Customer Star framework (below) helps executives and entrepreneurs align their decisions and actions around what customers really want.
Companies need to align service innovations with the company’s mission, vision, values, and goals to retain existing customers and obtain new customers. Sharing with customers the company mission, vision, values, and goals will help set customer expectations around product and service offerings and attract customers that want the company offerings. There is not much sense in offering a sauna at a fitness center if the customers would not use it or if the mission of the fitness center is to offer a quick workout at a low price. Adding a sauna might be expensive and there would be considerations around safety and hygiene, so not a cheap innovation to implement. Adding a sauna would probably not bring the benefits the fitness center customers would want; therefore, they would not pay extra to use it, so the company may lose money on this innovation. If the fitness center is a place that promotes luxury and various spa treatments as service offerings after a workout, then a sauna may be right in line with the company’s mission and vision, and it would bring added value to the customer segment that frequents the fitness center.
To confirm this assumption, the fitness center would need to conduct research through customer surveys or focus groups, for example, in order to gather customer feedback. Psychographics are all about understanding customers’ lifestyles, values, beliefs, and optimizing marketing to demonstrate to customers how the company can fulfill these psychographic variables by providing the benefits sought thus providing customers value.
The fitness center would also conduct a competitive analysis to see if saunas are offered at competitor locations in the area. The company would examine costs and expected returns on investment as well as internal and external strengths and weaknesses, opportunities, and threats (SWOT). The company might conduct a PEST analysis as well to determine if this innovative idea for a new service offering will be successful. After the research is complete and the results analyzed the company management team would decide if this new service innovation is feasible.
Key areas of customer service have evolved, including the emergence of analytics, personalization, and employee engagement. Companies that thrive in an era of rapidly evolving customer expectations need to align their initiatives accordingly. It’s about going beyond short-term goals to building a self-sustaining customer-centric organization. The companies below are not only part of the service industry — they are also shaping its future. By extension, these and other companies like them are changing the way we live our lives.
The service industry entails a vast variety of services ranging from food delivery to digital investing tools. Still, these companies all share something in common. They’re innovating existing services and transforming the country’s economy in the process.
The Customer Star framework created by Stefan Michel helps executives and entrepreneurs align their decisions and actions around what customers really want. In order to successfully implement any service innovation, a firm must make choices in regard to each point of the customer star. Those choices must then align and support each other. When you apply the Customer Star Framework you can begin with any of its points. Service innovations may fail when the eight dimensions of the customer star are not in alignment.
When using the Customer Star Framework to check service innovation alignment, a company must ask the following questions about the eight dimensions.
For example, if you operate a 4-star resort then you need to be sure that your products are of high quality, your employees understand how to provide excellent customer service, and the services you offer at the resort are what your target customers want, thus, will pay for. If you put a fast-food restaurant in a prestigious, high-class resort, the customers may frown upon it, as they want fine dining and they have expensive tastes. You may need to go back and determine your resort’s positioning dimension. If you position the company as prestigious then you need the other dimensions to align with that in order to obtain and retain the customers in the segment you are seeking. Some brands that are thought of as prestige or luxury brands include Apple, BMW, Gucci, Ritz-Carlton, Tiffany, Rolex, and Cartier. If your resort is to be considered a luxury or prestige resort then you would want to align the eight dimensions accordingly, otherwise, your service innovation may fail to meet customer needs and expectations. On the other hand, if you operate a resort that is considered a fair price, economy class resort, then you would position your resort that way in your marketing efforts and you would serve the needs of the customer segment who would be spending their money in this type of resort.
Business challenges and customer dissatisfaction are often due to problems, for which the company is NOT responsible, and to solve them, managers will need to think beyond the firm. Organizations may need to partner with external firms to solve problems stemming from the external environment, they may need to adapt processes to meet new government regulations, or they may need to change their business model in order to remain relevant with changing social trends and customer buying behaviours. There are eight dimensions to the customer star and not all dimensions are equally important in any given setting.
For example, many international students who wish to attend college or university in Canada are told by recruiters from their home country that they can come to Canada and work at the same time they attend school. When the students arrive they find that it is very difficult to be successful in their studies when they are working 30, 40, 60 hours per week. Many need the income to pay the bills, they may not have a place to stay, or even understand how much living in Canada costs. Students end up failing many courses due to a lack of time to commit to schoolwork, becoming depressed, and some end up spending far more money than they budgeted for on college course fees when they have to retake courses they failed. While this may not be an issue directly related to the specific Canadian college they attend, it is probably an issue the Canadian colleges and universities need to address with the recruiting agencies in foreign countries. What might the colleges do to improve this situation? The colleges might implement an orientation course that all international students must take before they arrive in Canada or before they enroll and pay fees at a Canadian institution. This would set the expectations for students before they spend their money as well as acclimatize students to Canadian culture and Canadian college expectations. Can you think of other possible solutions?
Another example might be a retailer who is always out of stock with specific items. Customers may become upset or dissatisfied with the retailer when the items are not in stock. This problem may be an internal issue pertaining to incorrect ordering, but what if the issue is with the supplier? The retailer will have to decide if they need to switch suppliers, but what if they are locked into a contract, what then? During COVID many products were in short supply, including bicycles, toilet paper, hand sanitizer, refrigerators, and kayaks. Production shutdowns sent the price of lumber sky-high. Months spent quarantining led homeowners to spend more time outdoors, some taking on more do-it-yourself (DIY) renovation projects. And the fear of the unknown led to hoarding and stockpiling.
Nearly two years after the pandemic began, the global supply chain mostly stabilized, but there was still one industry where shortages continue to abound: semiconductor chip manufacturing and the auto industry was one of the hardest hit. A semiconductor chip, also called a microchip, serves as the “brain” of modern electronics. With every new model, cars and trucks feature bigger infotainment systems and a host of other high-tech car safety features. Each of these technology-packed features relies on semiconductor chips. Building semiconductor chips is an extremely complex, expensive, and time-consuming process. For that reason, there are only a handful of chip manufacturers in the world, and all of those manufacturers were currently operating at full capacity.
You may have found it hard to visit your favourite retailer, see a doctor, or get into a restaurant during COVID. This was not the organization’s fault or problem, but a larger national and global problem. The retailers, restaurants, and other service companies must abide by government health regulations and they took the health safety actions they were told to take. Some retailers and restaurants began offering services such as pickup, delivery, and online ordering with pickup in the parking lot. You could order groceries and pull up to the grocer’s location and the staff would load your groceries into the trunk of your vehicle. Some companies already had those services in place which made it easier and quicker for them to adapt to COVID health regulations. These were some of the service solutions retailers came up with while they were NOT allowed to serve customers in-store or in-person or were restricted on the number of patrons they could have in the physical store at one time.
A service innovation changes the way customers are served to create value for customers and revenue for the company.
An interactive H5P element has been excluded from this version of the text. You can view it online here:
https://ecampusontario.pressbooks.pub/leadinginnovation/?p=40#h5p-6
(Note: This list of sources used is NOT in APA citation style instead the auto-footnote and media citation features of Pressbooks were utilized to cite references throughout the chapter and generate a list at the end of the chapter.)
4
After reading this chapter, you should be able to do the following:
Process innovation is probably the least attractive form of innovation. It is the combination of facilities, skills, and technologies used to produce, deliver, and support a product or provide a service. There are many ways business processes can be designed or improved. Process innovation can include changes in the equipment and technology used in manufacturing (including the software used in product design and development), improvement in the tools, techniques, and software solutions used to help in the supply chain and delivery system, changes in the tools used to sell and maintain goods, as well as methods used for accounting and customer service.
Good business processes enable companies to satisfy both customers and employees. Good business processes can drive reliable and consistent results and support company growth. A business process is a sequence of steps progressing toward a business goal. This sequence of steps can be clearly depicted using a flowchart and may also be referred to as a business method. Developing and implementing business processes can help a company improve efficiency, consistency, and quality. It can also reduce costs and risks. Business processes occur at all organizational levels and some are visible to customers, while others are not.
Often processes are documented and taught to employees. Employees are expected to follow the business processes as the processes support the company brand, function, mission/vision/values/goals, and service objectives. A great example of a company using processes to streamline operations and maintain consistency and quality is McDonald’s fast-food restaurant. McDonald’s operating processes would include taking orders, making food, and serving it to the customers. The processes for making fries, burgers, and pies are each documented and employees are trained on these processes. Machines are used to cook and warm food and timers are used to enable employees to cook each hamburger or Egg McMuffin exactly the same way each time for every customer.
A simple business process might include the steps an employee follows to take a pizza order over the phone or the steps a college registrar’s office takes to enroll a student in a course. More complex processes might include the steps required to purchase new medical equipment for a hospital, the steps a furniture company follows to manufacture their most popular desk or the steps an executive chef takes to prepare a dinner for six customers.
New employees have a good chance of job success once they learn the business processes. Processes in the kitchen at a restaurant might utilize ingredients, utensils, cooking equipment, recipes, etc. Processes in an office might utilize computers, software, office space, people, documents, etc. Processes in a paper factory might utilize people, machines, safety equipment and procedures, raw materials such as pulp/paper, etc. Most big companies have hundreds of interconnected business processes. Knowing how to design, manage, and improve business processes gives companies the power to manage and grow the business.
Good business processes can improve customer satisfaction while missing or badly designed processes can have a negative effect on customer satisfaction. Assume you are a student at a college and you wish to add another course to your schedule, which includes paying additional fees. If there is a good process in place, all employees and computer systems you interact with consistently guide you in the same direction in order for you to complete the process of adding and paying for an additional course. If the process is not clearly designed or it is missing, then employees will be confused and may have their own personal way of doing tasks and systems may not be designed for self-service tasks that enable you to add a course to your timetable.
A good business process meets the following requirements.
Why do bad business processes exist?
Since processes are interrelated, each process should consider its relationships with other processes. Good business processes always need to be looking forward and require periodic review and revision to keep up with changes in the internal and external business environments. If a company experiences massive growth, will the processes still be effective and efficient? If a process is good at supporting 20 customers, does it still work when supporting 200 customers? Some processes cannot be changed significantly due to a lack of availability of technology and tools. Maybe the steps in the process are not the problem, perhaps the company tools and technology need to be improved. Companies need to ensure their processes are built for both present demand and future growth; that processes are scalable.
Lack of a good process can lead to inconsistency, time loss, employee frustration, customer frustration and dissatisfaction, lost revenue, etc. So you can see why it is important to have good processes in place and ensure staff understands these processes and apply them consistently. Without a good business process company growth and success are difficult to achieve.
Not only is it important to have processes but it is also equally important that these processes be effective and efficient in reaching the goal. If the goal is to add a course to your college timetable, then the process and procedures you follow to do that should help you obtain that goal (effective) and should do it in a timely and user-friendly way (efficient). When processes are created with these things in mind, they increase employee effectiveness and efficiency, maintain consistency and quality, and improve customer satisfaction. Customers continue to shop with a business because of reliability in product or service quality, price, design, etc. Employees become good at their jobs because they follow the business process they were given. Once good processes are established at one business location, the organization can adopt the same processes at multiple locations (just like McDonald’s does).
Business Process Requirements
Does the following Amazon.com Seller process meet the following business requirements for processes?
Amazon.com Seller: Print a packing slip process
Use Manage Orders to print a packing slip for each individual order. To print a packing slip for an order:
You can reprint a packing slip for an order using these steps at any time.
The Cow Path Theoryis a theory that many organizations have processes they have been following for years and may not notice that these existing processes may no longer be efficient or effective. New employees follow the processes they are told to follow and often without questioning them because new employees don’t want to make a fuss or they feel the process must be right because someone in the company developed it and everyone has been following it for years. Existing employees may continue to follow the old, outdated processes because they are used to them and don’t wish to put in the effort to learn something new, or they don’t feel it is their job to question the processes that have been in place for many years.
Basically, when leaders follow the cow path they are just doing things the way they have always been done without making changes to it. But there are exceptions to this rule. Just because something has always been done a certain way doesn’t mean that it can’t be improved upon or even replaced with something better. Think about how many times you’ve ordered a pizza. It’s not like the process of ordering one has changed much in recent years, but it is now more efficient and effective than ever before. A problem with “cow paths” is that they are so common that no one notices them. The more common something is, the less likely it is that anyone will notice when it’s being done wrong. This means that people who are in a position to change things have little incentive to do so. Cow paths are the result of an unhealthy work environment, where there is no accountability for poor results, and where people are rewarded for failure. Cow paths are usually difficult to detect because they tend to be systemic and non-discriminatory. “Don’t pave the cow path” often refers specifically to businesses that create their own way of doing things in order to innovate and improve on what has been done before.
The first step in improving any process is setting a goal, then the next step is measuring your progress toward that goal. If there is an existing process in place then you must ask the following questions. Is the business process currently effective in achieving the goal it was designed to do? Is the original goal still the goal to achieve now? Is the original goal efficient? If the answer to any of these questions is “no” then there may be an opportunity to improve the business process.
Watch the “Business Process Improvement Tutorial for Beginners” YouTube video below for an introduction to business process improvement. Transcript for “Business Process Improvement Tutorial for Beginners” Video [PDF–New Tab]. Closed captioning is available on YouTube.
Before a process can be improved it must be measured so the company will know if the changes have made a difference. For instance, you will want to know if the changes in results were due to something you did, or something else, or just pure chance? There is a 50/50 chance that this year will be better than last year even if you make no changes.
Most process improvements have one or more of the following goals: improve quality, decrease lead time (the time between the initiation and completion of a production process), or decrease costs. Should each goal be measured? Which goal should get priority? It is difficult to achieve all three goals at the same time. For example, if a company reduces costs, that may also reduce quality or something else that is important. If time is reduced, that may increase costs. A company can reduce costs by reducing quality, while higher quality products may take a longer time to produce.
Never try to measure just one number without context. For example, if sales revenue has gone up, that seems good, but what else is happening? Was there a sale, were employees reducing prices so they could sell more and gain higher commissions or has something else affected revenue? If customer complaints have increased, at first this seems bad, but what if employees have just gotten better at listening to customers and reporting complaints, or maybe you implemented an online complaint process that has resulted in customers being able to submit complaints more easily and this has contributed to the rise in complaints. So never measure just one number.
If you find out that your school’s student satisfaction score is 5% worse than another school you must question what “worse” really means, and whether or not 5% is really significant. Maybe your school is better at other things and worse at one thing. Maybe it is just that this year your school was under construction and that affected student satisfaction negatively, but usually your school has much higher scores. Take measurements as a starting point to asking the question “why?” (Why are these numbers as they are?) This will help you understand the causes of the lower numbers or scores so you can begin to take action.
Given how process improvements deliver a range of organizational benefits from better communication to increased profitability, it’s essential to know how to implement a process improvement plan. Listed below are the steps to do so.
Once a company improves a process, the reality is that it must review the process again in the future. Business goals, market forces, and new technologies evolve, making established processes and procedures inefficient or obsolete. Rather than execute a big project whenever a change is required, most organizations adopt an approach of small, iterative, improvements that happen routinely over time.
The tools and techniques most commonly used in process improvement are:
The most commonly used business process diagramming tools are Business Process Modeling Notation (BPMN), Data Flow Diagram (DFD), and the Unified Modeling Language (UML). BPMN (Business Process Modeling Notation) is a graphical method of representing business processes within a business process diagram. BPMN diagrams help the whole team see the flow of the process. For example, the process improvement team may be a cross-functional team consisting of various stakeholders, such as technical personnel who manage Information technology, managers responsible for the process as well as managers of other departments who may be affected by the process change, employees who apply the process, and possibly users (customers, clients, students).
Review the example below of a partial BPMN diagram for a Fast Food Restaurant, Customer Order Process.
The BPMN above diagrams the process for the current way the customer order process happens (current state). There are many ways to create this diagram and before starting to diagram the business analyst must first gather information from the stakeholders who implemented, manage, and use the process so as to gain an understanding of who does what, when things get done, how things get done, what is necessary to do and when one step depends upon another (triggers). Once that information has been gathered and analyzed, the business analyst diagrams the process and then gains confirmation and approval from the stakeholders that the diagram does indeed reflect what is currently happening.
After diagramming and gaining an understanding of the current state of the process (the way things are done), the business analyst will analyze the process to determine if improvements could be made. They will question the stakeholders on pain points, what works, what doesn’t and ask them to share their goals for improvements. The business analyst will then diagram a future state process (what the process will be after the improvements are implemented) and again, gain approval for the proposed changes. Then the changes are implemented, first on a small scale or in one location only, to ensure all works as planned. Maybe a few adjustments are made, then the new process is implemented fully.
In the example above you see the partial process you see is diagrammed in a pool called “Fast Food Restaurant Customer Order Process” Each role gets its own lane (swimlane) and each role is an actor (person or system that is part of the process). The customer can be diagrammed in their own pool or within the company pool. If we follow the process flow we see that the process begins with the customer (start symbol), then the customer makes a decision (Xor gateway) to either use the drive-thru or go into the restaurant to eat. After that, the order is placed with the corresponding actor (employee) who then enters the order into the enterprise resource system (ERP) and collects the payment from the customer. The order and the payment details are sent to the ERP (diagrammed in its own lane (swimlane)). After that, the process flow comes back together (convergent gateway) and the customer waits for their meal (timer). What do you think the next step would be? That’s sort of a trick question because many things are happening while the customer waits. There are actually quite a few more steps because the kitchen staff would need to prepare the meal, a staff member would get the drinks/fries, a staff member would package the meal, and a staff member would deliver the order to the customer either at the drive-thru or front counter. These tasks may be done by the same staff member or several staff members. You see there are lots of things to think about when diagramming a business process. Learning how to diagram processes is a course in itself, but don’t let that stop you from giving it a try. Check out the chapter exercises below for some ideas.
Process improvement is so important to business success that a number of methodologies have developed over time to address this key concept. Listed below are some of the most common process improvement models.
An interactive H5P element has been excluded from this version of the text. You can view it online here:
https://ecampusontario.pressbooks.pub/leadinginnovation/?p=42#h5p-7
(Note: This list of sources used is NOT in APA citation style instead the auto-footnote and media citation features of Pressbooks were utilized to cite references throughout the chapter and generate a list at the end of the chapter.)
5
After reading this chapter, you should be able to do the following:
What is meant by sustainable innovation? Sustainability is the capacity to endure in a relatively ongoing way. Sustainable innovation means that companies seek out ways in which to sustain continuous innovation/improvement for company growth, competitive advantage, increased market share, etc. The right company structure can help make innovation a sustainable practice. Organizations cannot afford to put resources (time, people, money) into innovating only to have these innovations fail. Companies structure for innovation to help sustain, or maintain, ongoing innovation in an effort to stay competitive in their markets. Allocating resources appropriately, ensuring feasibility, and reporting a return on investment are important steps in creating a sustainable innovative business environment.
The term sustainability is also used to refer to environmental sustainability. Environmental sustainability focuses on acting in a way that ensures future generations have the natural resources available to live an equal, if not better, way of life as current generations. Many innovations today are focused on solving environmental issues. The Sustainable Development Goals (SDGs) of the United Nations are broad and ambitious, calling on all countries – be they upper, middle, or low income – to make tangible improvements to the lives of their citizens. The goals (shown below) encompass social, environmental, and economic aspects.
Our world has grown increasingly complex, and it’s no longer enough for individual organizations, companies, or even governments to apply superficial fixes of their own making to chronic problems. Solutions that are not inclusive or do not consider root causes are by definition short-sighted. Short-sighted solutions may not continue to work over time. Societal issues like poverty, social inequality, racial injustice, and food insecurity, to name a few, require a new kind of collaboration between the business, the nonprofit, and the government sectors.
Sustainability and innovation go hand in hand. One thing that the green building movement is achieving is that it’s challenging our community, architects, engineers, building owners, lenders, appraisers, and others, to think differently from their predecessors, or even from themselves. In less than a decade, the green building movement changed the entire building industry and manufacturing industry for construction products and equipment. With the increased demand for green and healthy materials, efficient equipment, and fixtures, green buildings became cost-effective and achievable.
The Ivey Innovation Learning Lab is a new approach to learning that builds unique insights from leading academic thinking and peer-to-peer dialogue with fellow leaders. Participants come from business, government, and academia. The Lab consortium knows that the way in which people live and work is being profoundly disrupted. The knowledge and tools of the past will not necessarily help navigate the future, nor solve the urgent and complex challenges facing society and business.
Watch the “Shaping the Future of Innovation”, Ivey Business School YouTube video below to learn about the Ivey Centre for Building Sustainable innovations. Transcript for “Shaping the Future of Innovation” Video [PDF–New Tab]. Closed captioning is available on YouTube.
Eco-friendly Biofuel. Through sustainable innovation, companies can invent and offer novel products or services that directly contribute to achieving sustainability. For example, Bio-bean, a British startup, developed an eco-friendly biofuel made from coffee waste to help power London’s double-decker buses. Bio-bean also upcycles spent coffee grounds into eco-friendly products such as coffee logs and coffee pellets—alternatives to carbon-heavy fuels such as coal briquettes and imported wood logs. Bio-bean is using material previously considered waste, contributing to a circular economy while generating approximately $10 million (USD) in annual revenue in 2020.
Fairly-sourced Smartphones. Sustainable innovation is not only about inventing novel products or services. Firms can also innovate sustainably while offering existing products or services when they change their processes. Process changes can occur in many areas, e.g. design, production, marketing, and even HR. For example, Fairphone, a Dutch social enterprise, offers consumers fairly-sourced smartphones. Unlike bio-bean, which created novel products (i.e., logs and pellets made out of coffee waste), Fairphone products do not have any new technical features. Instead, Fairphone dramatically changed the smartphone production process to make it more responsible and sustainable. They use recycled and responsibly mined materials and provide their workers with fair wages and good labor conditions. Because approximately 80% of the emissions of a smartphone come from its production, Fairphone designs its phones to last. They have a modular design which makes repairs and upgrades easier, thereby significantly reducing e-waste.
Smog Vacuum Cleaner. Daan Roosegaarde is the mastermind behind the world’s first smog vacuum cleaner. The Smog Free Tower measures almost 23 feet high (7 meters) and sucks in polluted air, cleaning it through a process of ionization before releasing it again. At its peak performance, the tower cleans 30,000 m3 of air per hour. Thanks to Roosegaarde’s design, you can even wear rings made from the compressed smog particles collected from the tower. By buying and wearing a Smog Free Ring, you’re contributing to over 10,700 square feet (1000 square meters) of clean air. The project has garnered a lot of attention since its inception, winning multiple awards. Recent tower campaigns have been launched in South Korea, China, the Netherlands, Mexico, and Poland.
Solar Glass. Solar glass could change the way we create homes and commercial buildings. Researchers at the University of Michigan are developing solar glass, a sustainable engineering project that has generated a lot of buzz in recent years. Just as the name implies, solar glass would be able to capture and store solar energy. According to the research team, 5 to 7 billion square meters of usable window space exists, enough to power a full 40% of US energy needs using solar glass.
Edible Cutlery. A green alternative to plastic cutlery, Bakey’s edible alternative comes in three different flavors—plain, savory, and sweet. They’re 100% natural and will biodegrade if not consumed.
Water Capture. Some innovations are the result of using nature as a design mentor (biomimicry), for example, recent advancements in fog catchers or netting systems in arid climates help communities capture water from the morning fog and were modeled on an understanding of how the texture on the Namibian Desert Beetle’s forewings captures moisture so efficiently. The Biomimicry Institute provides learning journals that can help designers create a strong foundation for further learning. They have also created an amazing website called “Ask Nature”.
Both traditional and sustainable innovation involves developing new products, services, or processes. Three core features set sustainable innovation apart.
The Institute for Manufacturing at the University of Cambridge crafted a chart of increasingly complex approaches to sustainability for designers.
Sustainable design continues to evolve with new technology and understanding. Architects and designers are thinking into the future and creating buildings based on a broader concept of sustainability; one that embraces more than improved energy performance. With building design having a profound impact on the environment, its occupants, and the economy, architects and designers have a unique ability to impart real positive change.
Modern society has become very good at creating linear systems of production, the take-make-waste process. In these systems, we extract raw materials and put them through a process of manufacturing that includes intensive material and energy input as well as a lot of transportation from one manufacturing plant to another. This is considered the upstream phase because it occurs on the way to the user. Consumers then use the products until they become obsolete which can mean everything from being no longer in style to breaking, to requiring replacement upgrades. Much of this obsolescence is actually built into the design in order to generate profits for companies, but this is a narrow way of thinking about long-term business success. Finally, once a user is done with a product, they discard it. This end-of-life phase is considered the downstream phase. This linear system results in significant damage to the natural systems that support us. So, design for sustainability involves transforming linear thinking into cyclical thinking. In nature, there is no such thing as waste. Cyclical thinking is not merely recycling. It’s designing products to be easily disassembled in combination with designing new take-back systems and infrastructure that make it easier and less expensive for companies to collect the materials they will use in one generation of products in order to manufacture the next generation of products. This regenerative approach to design has taken many forms over the last several decades as we move towards establishing a circular economy.
An interactive H5P element has been excluded from this version of the text. You can view it online here:
https://ecampusontario.pressbooks.pub/leadinginnovation/?p=44#h5p-9
(Note: This list of sources used is NOT in APA citation style instead the auto-footnote and media citation features of Pressbooks were utilized to cite references throughout the chapter and generate a list at the end of the chapter.)
6
After reading this chapter, you should be able to do the following:
Innovation strategy is about mapping an organization’s mission, vision, and value proposition for defined customer markets. It sets boundaries to innovation performance expectations by simplifying and structuring the innovation work to achieve the best possible outcome. For a business to thrive in today’s world of intensified competition it is critical that innovation initiatives are aligned with corporate strategy. For this to happen, senior management needs to take a leadership role in implementing innovation initiatives. In order to align innovation with strategy, leaders need to review and analyze how well the company is meeting its strategic objectives. Leaders need to attend to the current needs of the company and its present performance, optimize current business, and build within its core. This might include taking current products to new markets, adding new models to refresh existing product lines, or improving margins on best-selling products/services. That takes care of current needs, but what about the future? Thinking about the future means developing entirely new avenues for growth that are often outside the current business, building beyond its core. Activities here might include, launching products or services that are unprecedented in the company or perhaps even unprecedented in the market. For example, Amazon continually innovates its core retail business, such as launching AmazonBasics, their private labeled line of essential products. But, at the same time, they are also exploring well beyond their core. The Amazon Echo is a good example of this. Taking them into the consumer Internet of things (IoT) and artificial intelligence (AI) arenas, and pretty far from their original retail business.
Watch the Innovation Strategy YouTube video by Kuczmarski below to learn more about innovation strategy. You may be surprised to learn that many companies do not have an innovation strategy because they have not taken the time to figure out what strategic role they are trying to fill by pursuing new innovations. Learn about the four key components of an innovation strategy: 1) What is the Innovation vision? 2) What is the financial revenue gap the company is trying to fill? 3) How to screen one new idea from the next? 4) What is the investment level the company is willing to make toward innovation? Transcript for “Innovation Strategy” Video [PDF–New Tab]. Closed captioning is available on YouTube.
Every organization is nothing more than a series of processes. How a product is designed, is a process. How it’s manufactured is another process. How it’s shipped around the world, is yet another process. If a company can make its processes work faster, cheaper, and/or at higher quality, that amounts to higher profits and increasingly happy customers. Many companies come up with great ideas simply by taking ideas from one aspect of the business and applying it to another. Often creativity is simply a mix of disciplines. Companies create cross-departmental teams or teams that mix employees with customers or partners and experts in the field or various fields in order to get a wide variety of ideas from various stakeholder perspectives. During brainstorming sessions, it is important to let everyone know that no idea is bad and all innovation comes with some risks. Of course, once a plan is put together, ways to mitigate risk will also be considered.
Develop a rough strategy. What needs to happen before the next thing can happen? Let the team get a little wild with it. Which paths are not obvious? It is acceptable if the map has some forking roads–follow each of them to see where they lead and choose a specific route later. Are there skills or resources the team already possesses that can help execute the innovation vision? Consider who can help the team put ideas into action. Realizing that the team may lack certain expertise can feel like hitting a dead end, but consultants or other experts can be approached. Trouble-shoot with the team.
Create a prototype and run a pilot (test-run) implementation to show others that implementing this innovation is possible. Try it on a small scale first to see how it works. Gather input from others and make adjustments as needed. Refine and get the details right. Bring in others to help finalize the innovative concept and put it into action. Partners should contribute in ways the team cannot.
After the team has refined drafts and prototypes, it’s time to get this innovation out to the world. Consider how the company will release this new product, process, service, business model, etc. Does the company have a way to build hype and anticipation? What tools and channels will be used to share it? Who does the company want to see/use it? Plan the rollout strategy and then execute. If that plan starts to look too complicated, simplify. Getting the company’s innovation out to the world as something tangible or experiential is ultimately proof-positive of the company’s ability to be creative and competitive.
Watch the Innovation Process YouTube video by Kuczmarski below to learn more about how the innovation Process should be systematic and predictable. The first step of the process is doing market research, the second step is solution generation, the third step is business case development (figure out how to monetize the innovation), the fourth step is to scale up (get ready for launch), and the last step is to launch the innovation in the marketplace. Transcript for “Innovation Process” Video [PDF–New Tab]. Closed captioning is available on YouTube.
The Ansoff Matrix is a strategic planning tool that organizations use to plan and analyze strategies for growth. Each strategy for growth carries a different level of potential risk. Each strategy is determined by focusing on whether the products are new or existing and whether the market is new or existing. Each quadrant corresponds to a different product-market strategy.
When a company seeks to grow using its existing offerings in its existing markets, the company is pursuing a market penetration strategy. An example of this would be the introduction of the Kindle Fire. It was a new generation of products in a category where Amazon had already established the original Kindle line.
When a company seeks to grow using its existing offerings in a market that the company is not currently in, the company is pursuing a market development strategy. This is actually how Amazon began, by developing the market for online book sales. Others were already doing this, simply not with the scale or scope envisioned by Bezos.
When a company seeks to grow using new offerings in its existing markets, the company is pursuing a product development strategy. This is where AmazonBasics would fall.
Finally, when a company seeks to grow by presenting new offerings in a market the company is not currently in, the company is pursuing a diversification strategy. This is the highest risk option, as it requires both product and market development. This is where Amazon web services would be placed. Other companies were already providing these services in a variety of ways, but it was both a new market and a new service for Amazon to address.
Below are some examples from Indeed of how a company might achieve each of the four growth strategies.
1. A business may achieve market penetration by:
Increasing their promotional efforts
Decreasing their pricing
Running sales and specials to get new customers
Merging with or acquiring a competing business in the same market
Making product improvements to appeal more to consumers
Refining their distribution process
2. With market development, a business may:
Establish different segments of its customer base
Appeal to foreign markets
Expand its customer base to include a different part of the market previously not used, such as expanding from B2C to B2B
Partner with another company to offer an additional product or to increase distribution
Buy the rights from a company to produce and sell their product
Use budget dollars to research what the market needs and develop products that will fill a void in their customers’ lives
3. As part of their product development plan, a business may:
Partner with another company to offer an additional product or to increase distribution
Buy the rights from a company to produce and sell their product
Use budget dollars to research what the market needs and develop products that will fill a void in their customers’ lives
4. There are two types of diversification:
Related diversification: Related diversification is when a company’s new offerings complement the products they already produce or at least exist in the same sphere. For example, a company that builds computers may then make a device that hides computer cords from sight.
Unrelated diversification: Unrelated diversification is when a company’s new offerings are outside of its known capabilities. For example, if a company has been making notepads and pens for 10 years but then decides to delve into producing reusable water bottles.
The pace and impacts of technology have grown tremendously since the Ansoff matrix was first devised so an expanded matrix was created. The expanded Ansoff matrix delineates new growth strategies beyond market development to market innovation and beyond product development to product innovation. It also gives us advanced diversification, where we are combining both development and innovation, and outright industry disruption where we are innovating deeply on both market and offering. Amazon’s original launch of the Kindle ebook and store qualifies as an industry disruption. Whereas, subsequent incremental Kindle launches do not. The Echo represents product innovation in a market that is new to Amazon, so it would land in advanced diversification.
Why does the alignment between business strategy and innovation break down? Below are five reasons misalignment might occur.
How can companies avoid these breakdowns?
In order to ensure that strategic alignment is occurring across all innovation projects, organizations must constantly work to do the following:
To spot opportunities for innovation, managers and employees first need to understand the company and how it works. Whether you are the CEO or an employee working the front line (directly with customers/clients), you can spot opportunities for improvement by learning about the company’s problems and goals. This may mean reviewing company policies and values/mission/vision, talking with other department managers and employees, gathering customer feedback as well as spotting trends in customer complaints. Ask yourself if there are processes that take a long time, and if so, could they be automated for improvement? Are employees or customers complaining about specific systems, communication, or processes, and do these need to be given more thought in how they could be made more efficient and/or effective? Also, consider what works well and can be replicated in other areas? It is important to understand who the company’s target customers are and always be thinking about how the company can better help them. Focus groups, mystery shoppers, buyer personas, and observing the customer journey from the pre-sale stage to the sale stage and into the after-sale stage can help companies better understand customer needs and wants. Identify what is working well and what is not working well, and consider how things might be improved.
These seven sources of innovative opportunity were listed by Peter Drucker in his book “Innovation and Entrepreneurship. If you are unaware, Peter Drucker is considered one of the truly great management consultants. He wrote 39 books and is considered a seminal thinker in the field of management.
The marketplace is the number one area to look for opportunities. A good manager should be constantly studying the market by conducting environmental scans (e.g. PEST, competitive analysis, trends, SWOT). Is a particular product or service in greater or lesser demand than anticipated? Why? For example: If a competitor is having unexpected success in a particular market segment, management must find out why this is happening. They must ask themselves what it would mean to their company if they exploited the same opportunity. They must consider what has to happen to convert this opportunity into a success?
One of the best places to look for incongruity is through the customers’ voices. Their complaints and unmet wants are all the hints a company needs to determine if there is a discrepancy between what is and what should be. Identifying incongruity is a key to developing wildly successful businesses, but it’s tricky. Facebook is a company that got it right. Prior to the social network’s prolific rise, Myspace was the dominant player, but it had its downfalls. Facebook wisely noted what Myspace was versus what it should be and then built a better platform. The end result is that many people don’t even remember Myspace, but most of the world knows and uses Facebook.
Process need involves identifying the company’s process weak spots and correcting or redesigning them. This source of innovation comes from the company’s existing capabilities and ways of doing business. An example might be a restaurant that identifies that people wait too long for their entrees and so decides to hire another chef to speed up creation times. Essentially, a company will want to look for all weak links and eliminate them.
The industry and the market are in continual flux. Regulations change and some product lines expand while others shrink. Firms should continually be on the watch for this. One example is deregulation. When a previously regulated industry becomes open there is historical precedence for companies that enter early to be very successful. Other things to watch out for are the convergence of multiple technologies and structural problems that occur from time to time (often immediately following an industry boom).
We continually see changes occur in populations, income levels, human capital (education), and age ranges. Smart firms are constantly paying attention to this. When it comes to the baby boomers, businesses have been following them as they got older. At present they are one of the largest as well as the most affluent demographic groups, with high levels of disposable income. Combining demographic data with segmentation and targeting is a powerful method of accurately meeting a target market’s desires.
Over time populations and people change. The way they view life changes, where they take their meaning from, and how they feel about things change over time and smart companies must pay attention to this in order to capitalize (and avoid becoming forgotten, a relic of ages past). For example, a principle called “down aging” refers to people who look at 50 as being the new 40. Industries have responded to this, most notably in the cosmetic and personal care industry which provides plenty of solutions to help these people look younger. Full industries are creeping up that make people feel younger. Have you spotted any lately?
As the speed of the technological revolution increases, there will be an ever-increasing number of opportunities that open up. The internet has been the most notable one in the last couple of decades but there have been a plethora of other industries and opportunities pop up as a result of this technological revolution. New knowledge is about more than just technology though, it’s about finding better ways of doing things and improving processes. Companies should look to this new knowledge for ways to make incremental improvements. Intel does this continuously, and it’s a major part of why they’re the leading processor manufacturer today. Constantly paying attention to the latest in both academic research as well as investing heavily in its own R&D, the company has managed to find continual sources of innovation, driving its success.
Innovation is all about coming up with new things that create value for your customers, and the organization. There are many types of innovation, although when we hear about a company innovating we often hear about new products or services. The most common innovation types include product, service, and process. The real problem with innovation is that people think too incrementally and often too exclusively about products and services and do not consider the many targets for innovation that are all around us. There are many ways for companies to innovate to remain competitive in their industries. There are many reasons companies innovate, some of which include reducing costs, increasing profits, staying ahead of the competition, attracting talent, creating a leadership image, attracting investors/funding, and more.
The Ten Types of Innovation® framework captures the entire innovation ecosystem, from essential organizational structures and processes to critical aspects of the product or service being introduced. Doblin’s Ten Types of Innovation® analyzes 10 key areas to consider when you are innovating:
Watch this 3-minute video by MindTools explaining Dolbin’s 10 Types of Innovation®. Transcript for “Dolbin’s 10 Types of Innovation® Video [PDF–New Tab]. Closed captioning is available on YouTube.
Doblin’s 10 Types of Innovation® analyzes 10 key areas to consider when you are innovating:
An interactive H5P element has been excluded from this version of the text. You can view it online here:
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7
After reading this chapter, you should be able to do the following:
Design thinking encourages organizations to focus on the people they’re creating for and leads to human-centered products, services, and internal processes. The core of design thinking is getting actionable and knowing your questions. It’s about simple mindset shifts or ways of asking questions differently—a new way to look at problems. Watch this brief introduction to design thinking from IDEO U. Transcript for “What is Design Thinking?” Video [PDF–New Tab]. Closed captioning is available on YouTube.
As the world is changing at an accelerated rate, organizations look for solutions to grow with their customers or users, to do new things in better ways to improve their practices, retain and grow their customers, and expand their business. Innovation is a must for these organizations. Design thinking is one of several approaches to innovation and is a process for creative problem-solving. Design thinking has a human-centered core. It encourages organizations to focus on the people they are creating for, which leads to better products, services, and internal processes. The design thinking framework helps inspire creative thinking and strategies that lead designers to create user-friendly products that help solve a particular problem.
There are five stages to the design thinking process which include empathizing, defining, ideating, prototyping, and testing. They are not always completed in a linear fashion. They can be done in any order, and then redone as needed. Different stages might spark new ideas or showcase new findings in the user journey that will inspire new iterations of phases that have already been completed.
Imagine what the customer might be thinking or feeling, what needs they may have, and what their desires are. Observe the customer, interview the customer, and put yourself in the customer’s shoes. How do they want this product to work? As designers (or design thinkers), we should always do our best to leave our own assumptions and experiences behind when making observations. Our life experiences create assumptions within us, which we use to explain and make sense of the world around us. However, this very process affects our ability to empathize in a real way with the people we observe. Since completely letting go of our assumptions is impossible, we should continuously and consciously remind ourselves to assume a beginner’s mindset. It’s helpful if you often remind yourself never to judge what you observe, but to question everything—even if you think you know the answer—and to really listen to what others are saying.
Designers will analyze their observations completed throughout the empathy stage, and work on synthesizing that information. Forming a problem statement that is succinct is an important part of this phase that ensures a human-centered approach by focusing on the end-user. A problem statement is important to a Design Thinking project because it will guide you and your team and provide a focus on the specific needs that you have uncovered. A good problem statement should thus have the following traits. It should be human-centered, broad enough for creative freedom, and narrow enough to make it manageable.
The solution-finding stage is where the team comes together to brainstorm creative solutions to solve the defined problem(s). When facilitated in a successful way, Ideation is an exciting process. The goal is to generate a large number of ideas — ideas that potentially inspire newer, better ideas — that the team can then evaluate and reduce into the best, most practical, and innovative ones.
Ideation Will Help You:
In Ideation sessions, it’s important to create the right type of environment to help create a creative work culture with a curious, courageous, and concentrated atmosphere. Instead of using a boardroom with the CEO sitting at the head of the table, Design Thinking and Ideation sessions require a space in which everyone is equal. There are hundreds of ideation methods used to spark innovative ideas. Some methods are merely renamed or slightly adapted versions of more foundational techniques. Here you’ll get a brief overview of some of the best methods:
Without testing a new idea, designers would have a tough time actually solving the problem comprehensively. At this stage, small-scale, inexpensive versions of the product are required. This sets the stage for decision-making conversations around what works and what doesn’t. Prototypes can be sketches, models, or digital renders of an idea. These scaled-down prototypes can then be used in order to observe, record, judge, and measure user performance levels based on specific elements, or the users’ general behaviour, interactions, and reactions to the overall design. For instance, when developing software, a design team may produce a number of paper prototypes that the user can gradually work through in order to demonstrate to the design team or evaluators how they may tackle certain tasks or problems. When developing tangible devices, such as the computer mouse, designers may use a number of different materials to enable them to test the basic technology underlying the product. With advances in 3D printing technology, producing prototypes is now often a more instant and low-cost process, and as a result, this has allowed designers to provide stakeholders with accurate and testable/useable replica models before settling upon a particular design.
Gather feedback from real users. Because design thinking is iterative, many designers roll out multiple prototypes to test different change factors within their idea. Designers should expect to go through a series of changes, edits, and refinements during the testing stage. It is not uncommon for the testing phase to “restart” some other design thinking processes such as ideation or additional testing or an entirely fresh approach. In order to achieve the best learning results from each test, here are some areas of a test that you should take into consideration:
Watch the YouTube video below for an explanation of the five stages of the Design Thinking process. Transcript for “5 Stages of Design thinking Process” Video [PDF–New Tab]. Closed captioning is available on YouTube.
Can you think of a few products you enjoy using that most probably were created using the design thinking methodology? Here are a few examples: shoelaces that don’t need to be tied (great for kids), velcro closures instead of buttons or laces (great for anyone, but specifically for seniors that may have difficulty with buttons or laces), and what about gel pads that are placed inside shoes (great for anyone with sore feet or people that stand for long hours in the workplace).
IDEO, lists 11 of their favorite products and services created with design thinking:
As mentioned above, a prototype is a mini design of the actual product. It can be a sketch, a low-quality, or a high-quality copy depicting what the real product will look like. It is important for companies to prototype fast and often in order to produce innovations at the right times–when customers demand them and before competitors beat them to market. The main benefit of prototyping is that it results in a faster and more effective design cycle (accelerated development). Because prototypes allow companies to test their design in the “real-world” environment, it is easier to identify potential problems and prevent costly mistakes down the road (better products).
3Dprinting is an inexpensive way to make a prototype. Today 3D printing, or additive processing for manufacturing, has become a standard. In previous years many manufacturers, automakers, jewelry makers, sculptures, etc., were using a subtractive processing method. With subtractive manufacturing, there is much waste. Think about sculpting a statue out of a tree, you would whittle away the parts of the tree you don’t want to make the statue appear. With additive manufacturing, there is little waste because the statue would be built layer upon layer from the ground up in the exact shape and design you specify.
Watch this YouTube video from Mashable, “What is 3D Printing and How It Works?”, to learn more about the 3D Printing process. Transcript for “What is 3D Printing and How Does it Work? Video [PDF–New Tab]. Closed captioning is available on YouTube.
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8
After reading this chapter, you should be able to do the following:
Product Innovation can come in three different forms. 1) The development of a new product, such as the Fitbit or Amazon’s Kindle. New product development may be considered radical innovation as it can be a game-changer in the market. 2) An improvement of the performance of the existing product, such as an increase in the digital camera resolution of the iPhone 11. 3) A new feature to an existing product, such as power windows to a car.
Incremental innovation, the less risky and most frequently seen, is the improvement of existing products. An example of this is the development of the first Walkman, a personal music player released by Sony in 1979. It combined an audio cassette player and headphones. As the story goes the Sony chairman wanted a way to listen to his opera music on a long international flight. His request was sent to a Sony designer who prototyped something by working with an existing Sony product, a bulky tape player popular with journalists. But the designer modified it to be a playback-only version that could be used with headphones. He rigged up a prototype in time for the chairman’s next flight and the Sony Walkman was born. This wasn’t a technological breakthrough, but compared to previous products it was a breakthrough in imagination in incremental product innovation.
Radical innovation is the creation of a whole new product. This category is riskier than incremental innovation and can disrupt entire markets. One famous example is the launch of the Apple iPod. It not only served as an improvement to portable music players but also made digital music more popular and introduced access to the Apple App Store. It disrupted the music industry and created a whole new ecosystem. Today’s product managers are like mini CEOs of their products. They own the decisions about what gets built and influence aspects of how it’s launched. But the product managers aren’t the actual CEOs and they don’t have direct authority over most of the things required for product innovation. They arm themselves with the vision and influence and focus on leading teams with the company’s strategy in hand. Product leaders innovate by leveraging collaboration, bringing together the best people and ideas, and setting the stage for innovation.
Product innovation aids companies in doing the following:
Where should the responsibility for innovation lie? Companies need to create an organizational structure to drive innovation; there are many variations and approaches. A product innovator must recognize the company’s innovative business structure and its inherent roadblocks and then determine how to overcome them. The most common approaches companies use for innovation include components of design thinking, rapid prototyping, lean innovation, and open innovation. Design thinking is a process that brings together what is desirable from a human point of view with what is technologically feasible, and economically viable. The design thinking process starts with a deep understanding and empathy about the customers’ needs. Then, it goes through the steps of defining the problem, ideating the solutions, prototyping the ideas, and testing the ideas. IBM developed an internal framework for innovation, naming it IBM Design Thinking.
New product development teams often consist of top management, specialists from sales and marketing, research and development, manufacturing, and finance. This team will conduct market research and gather customer and employee feedback to consider when formulating ideas for new products. The team will also look at the feasibility of ideas and resources available as well as risks. This group considers and plans new and improved products in seven different phases, as shown below:
The most innovative organizations rely on systems of individuals and teams working across functions in their organizations. Innovation isn’t the work of only scientists, engineers, or marketers; it’s the work of an entire business and its leadership.
Watch the YouTube video below, “Product Development Process: 7 Essential Stages”, to learn more about each stage in the new product development process.[/footnote] Transcript for “Product Development Process: 7 Essential Stages” Video [PDF–New Tab]. Closed captioning is available on YouTube.
There are different factors that influence the success of new product development. For instance, the entire team needs to be competent and committed to the success of the product. The product designer will be responsible for utility and usability, but there are a number of factors that are beyond the control of the designer. An effective new product development (NPD) function is supported by the right tools and the right business culture; it depends on teamwork underpinned by organizational knowledge and strong strategic direction from above. But it is also characterized by systems and processes that are agile, adaptable, and repeatable. Businesses should carefully consider how they can develop the precise mix of culture, people, and digital infrastructure to meet these demands in the most efficient and competitive way possible.
The following eight factors will influence the success of new product development.
The support of top management is essential, without it the project will not get the resources and financial budget to implement the development phases. The design team must learn to convince top management to support the project, or the entire project collapses. Creating a culture that values innovation and encourages it at every level has been found in countless studies to be one of the key indicators of success in this area. The focus, resources, and respect that your organization channels towards NPD will reflect the priority it is given in the minds of those who can influence its direction the most. Steve Jobs, for example, based the leadership culture of the Apple Company on brand fanaticism and radical customer devotion and propelled the organization into a new and unprecedented era of innovation.
Market orientation analysis should guide the team on how to meet the needs and wants of customers. Investopedia defines market orientation as follows: “Market orientation is a company philosophy focused on discovering and meeting the needs and desires of its customers through its product mix.” It seems reasonable to suggest that while a design team does not have control over company philosophy it should be in a good position to influence this. Conducting user research and where appropriate market research – two fundamentals of developing high-quality user experiences; will enable the discovery of customer/user needs and how to meet them.
Ensure the technology being used to introduce the product to the market is compatible with the market. It is imperative to use a technology the market can resonate with. For instance, a multi-million dollar software or hardware requirement may make the product inaccessible to small consumers.
The company should ensure data and information are accessible to all. A digital document management system can act as a repository of information vital for the success of new product development (NPD) initiatives. It can give teams a firm grasp of project progress, deliverables, and dependencies. It can facilitate easy access to the documentation they need to complete tasks. It can allow different teams to work on and suggest changes to those documents. It can give overall governance of a project to a nominated individual, who can use its publishing and curation tools to keep projects well managed and on track. Good knowledge sharing capabilities reduce mistakes, increase the speed of delivery of goals, and build closer more aligned teams.
The responsibility for drafting and implementing strategies is a shared goal between the development, design, and management teams. These parties should coordinate their activities to ensure there is uniformity in their decisions. Having clear processes for design and development is essential. While these may be tailored to fit specific circumstances – a methodology for working that is clearly understood and agreed to by all members of the product development team is highly likely to produce better results than those created with no formal process.
Responsibility for new product development strategies is likely to be shared between design, product management, and development. This means that the design team will have some input into the strategies chosen and will be able to influence these strategies with their user research to guide the strategy to fit the needs of their users. It is probably fair to say that product management will normally have the final say on a strategic direction but designers have plenty of room to negotiate with product managers to ensure better outcomes.
Speed to market is a critical factor in success. If the new product development process takes five years but a competitor’s process takes only two years – it is likely that no matter how good the team’s designs are; they will have been eclipsed by the time they get to market. Refining the design process to maximize speed whilst protecting the user experience is a delicate balancing act. Designing for a great user experience is within the design team’s control, however, the development process speed is much less likely to be within the design team’s control and their ability to influence that speed may be minimal.
Having clear processes for design and development is essential. While these may be tailored to fit specific circumstances – a methodology for working that is clearly understood and agreed to by all members of the product development team is highly likely to produce better results than those created with no formal process. The design team will, normally, have some input into these processes and be able to negotiate modifications to processes when they fail to produce optimal results. There is little control for the design team over the way other teams execute these processes. Failure in execution, from other teams, is one of the few areas where it is reasonable to say that failure was completely outside of the design team’s control.
New product development normally brings together teams of diverse people from all across an enterprise. It is strongly suggested that these diverse teams tend to be highly creative and more successful than teams of a more standardized nature. The way teams work together is a critical factor in their success and designers operating as part of such a team have their part to play in this. Professionalism and leadership can be displayed by any member of a team (including those without official leadership and management roles) and while the design team cannot bear any responsibility for the actions of others within a team – they bear complete responsibility for their own actions. As Michael Jordan, the world-famous athlete and basketball superstar says; “Talent wins games, but teamwork and intelligence wins championships.”
When a company works to combine multiple types of innovations, they often produce powerful results. Top innovators (those repeatedly launching successful offerings) integrate twice as many types of innovation as the average innovators.
Let’s look at how Nike combines the Ten Types of innovation to delight customers and stay ahead of the competition.
“A Product Performance company at its core, Nike has made leading sportswear and equipment for decades. In 1985 they made a remarkable innovation, by signing then-rookie basketball star Michael Jordan to endorse the Nike brand. This trend of sports star endorsements continues strongly today, to help the likes of Nike and Adidas maintain market dominance.
In 1990, Niketown was launched – a Channel innovation, to present ‘retail as theatre’. The flagship stores cost millions and were clearly never going to produce a return on investment by selling goods in-store. Instead, the initiative was funded by the advertising budget; the stores could do more to build Brand innovation than any ad campaign.
In recent times Nike has launched Nike+, a leading Product System that is integrated into the sportswear range and allows runners and athletes to track their movements. It also integrated with Apple products in a Network innovation. These steps alone touch on half of the ten types, and as a result, Nike is consistently one of the leading brand names in the world.”
Let’s look at how Method combines the Ten Types of innovation to delight customers and stay ahead of the competition.
The product Method is a non-toxic line of natural home care products. The various offerings are sold in more than 40,000 retailers worldwide, including Target, Whole Foods, and Kroger. Method’s cleaning bottles are made from 100% post-consumer recycled plastic while the company itself is a “Cradle to Cradle” endorsed company; more than 60 of its products are certified with the C2C stamp of environmentally friendly approval. Internally, Method practices what it preaches: it offsets its carbon emissions, works within a LEED-certified sustainable office, and does not test its products on animals.
The company Method combined five types of innovation in the following way:
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9
After reading this chapter, you should be able to do the following:
In today’s rapidly transforming business world, it seems the only constant is change. Companies that cannot keep up with the pace of change and adapt to disruptive innovation often find themselves struggling. There are quite a few companies that failed to innovate and were either forced to declare bankruptcy, merge with another organization, or fell from the top of the Fortune 500 companies rankings– 88% of the Fortune 500 firms that existed in 1955 are gone.
Every new ground-breaking product and service, in the end, will become obsolete, commoditized, and outcompeted by new and better solutions, products, and companies. This may be best epitomized by Kodak, Blockbuster, Polaroid, Pan Am, Sears, Compaq, Nokia, Yahoo, and Blackberry. To secure healthy revenue streams and long-term survival, organizations need to have a balanced portfolio of innovation projects covering horizons of time short-term (core), mid-term (adjacent), and long-term (transformational) initiatives.
A well-balanced innovation portfolio has a mix of high-risk game-changers and low-risk incremental innovations. Portfolio balancing is a technique used by the world’s best innovators to analyze the long- and short-term risks of innovation projects in their pipeline. No organization can afford to risk its business on one big idea. Likewise, developing a bunch of small, incremental projects won’t deliver a big win either.
The Innovation Ambition Matrix, as featured in the Harvard Business Review (May 2012), is a classic model that helps companies decide how to fund different growth initiatives. Few organizations think about the best level of innovation to target, and even fewer manage to achieve it. According to Nagji and Tuff, the best approach to innovation is to think in terms of managing an integrated, balanced ’portfolio’ of innovation initiatives which are divided into three types: Core, Adjacent, and Transformational.
A general rule that many companies follow is to have 70% of the investments in core innovations, 20% in adjacent innovations, and only 10% in transformative innovations. In terms of value creation potential, however, the ratios are inverted: core innovation efforts typically contribute 10% of the long-term cumulative return on innovation investment, adjacent initiatives contribute 20%, and transformational projects yield a huge 70%. The right balance of innovation investment will vary from company to company according to particular factors like age of the company, its competitive position in the market, and characteristics of the industry served (e.g. number of suppliers, market growth, regulatory patterns, etc). Most companies tend to be heavily oriented toward just core innovation and while this is understandable in terms of avoiding the greater risks and uncertainties associated with adjacent and transformational initiatives, the result will be a steady, long-term decline in business and attractiveness to customers if a company never tries some adjacent or transformational projects.
For many companies, innovation is a sprawling collection of initiatives, energetic but uncoordinated, and managed with fluctuating strategies. For steady, above-average returns, firms need a balanced innovation portfolio and the ability to approach it as an integrated whole. The ideal balance will differ from industry to industry and company to company, but one thing is constant: Companies must execute at all three levels of ambition and manage total innovation deliberately and closely. In particular, they must develop the unique capacities needed for transformational innovation. This means finding the talent required for breakthrough efforts and ensuring enough separation from the core business; creating an appropriate (and often very different) funding structure; departing from a pipeline management approach, and using noneconomic and internal metrics to assess early efforts.
There are many risks associated with innovation such as the loss of money, the loss of time, the loss of company reputation/image, and the loss of potential. The loss of potential means that if a company invests money, time, and other resources into developing a new innovation that fails in the marketplace, those resources allocated to that failed innovation could have been allocated to other areas of the company or a different innovation project; therefore, there is a loss of potential on what could have been done with those resources. Not every innovative idea can be brought to fruition due to the limited resources needed to make it so, therefore, companies must select the best ideas to pursue and mitigate risks as best they can. Using metrics to compare and track performance and progress on innovation projects is a good way to monitor return on investment.
The list below provides a few reasons that companies should use innovation metrics.
Input metrics measure how well the company is gauging input and effort into the innovation project. These metrics measure things like the number of ideas generated by each employee, time spent by senior management on innovation activities, and the percent of capital allocated to innovation projects.
Development metrics gauge the company’s progress, process, and pipeline of innovations. These metrics measure things like the amount of R&D spend on each phase of development, the number of projects in the pipeline, and time spent on each phase of idea management.
Output metrics measure the end or results of the company’s efforts. These metrics measure things like the number of products launched on an annual basis, the number of patents awarded, and the percentage of revenue from new offerings.
Metrics offer guideposts for improvements and progress, they calibrate the company’s efforts and show a clear path for remedy. Companies can determine from metrics what is working and what is not working and how to modify the project from start to finish.
The list below provides a few common flaws with using measurements.
Watch this YouTube video “Innovation QuickWin: Innovation Metrics” to learn about the major metrics that companies need to set to monitor and track innovation success. Transcript for “Innovation Quickwin: Innovation Metrics” Video [PDF–New Tab]. Closed captioning is available on YouTube.
Innovation creates change, whether that is a new process or technology being implemented in the workplace or a new radical product being developed that creates change within the organization. There will always be employees and other stakeholders that are resistant to change and this may hinder or put up roadblocks for the innovation project to succeed.
Ten reasons people resist change include the following:
Watch this YouTube video “Ten Reasons Why People Resist Change in the Workplace” to learn more about why employees resist change and how companies can reduce this resistance. Transcript for “Ten Reasons Why People Resist Change in the Workplace” Video [PDF–New Tab]. Closed captioning is available on YouTube.
An important component of innovation project success is to build the right team. Companies must select, hire, collaborate with, and outsource the right talent (people), some key points to remember are listed below.
When the right talent for an innovation project is not available within the company, training to advance internal candidates may be an option. If training is not available, too costly, or will take too long, then companies might consider outsourcing parts of the project development to experts in the field, for example, small companies that focus on a niche area. Another option would be for the company to hire the talent they need, but if this is a one-time need or a need that occurs seldom, hiring a full-time employee may be too costly, therefore, not feasible. It may be feasible though to hire a contract worker who can work on-site for the time frame needed with no long-term expectations of becoming a company employee.
It may be that the company could benefit from an innovation management contractor. These companies guide the innovation project, train internal managers, help manage the project, and bring their expertise and experience to the company for a fee and a determined length of time.
The Government of Canada is encouraging greater partnerships among Canadian businesses, universities, and colleges to drive innovation and encourage the adoption of new processes and technologies that help Canadian businesses prepare to compete and win in the global marketplace. Businesses can get a list of financing programs, expertise, facilities, and more to support their innovation projects at the Government of Canada Innovation Funding and Support website.
Collaboration with customers, consultants, competitors, and employees may be something that will help the company meet its innovation goals. These projects are often referred to as co-creation projects and sometimes referred to as open innovation projects. Some well-known innovation consulting firms include IDEO, Innosight, frog, Board of Innovation, and there are many others. The expertise of each firm may vary as well as the services they offer, but companies can hire a consulting firm that specializes in innovation to help guide and support them through their innovation initiatives.
Open innovation is a business management model for innovation that promotes collaboration with people and organizations outside the company. In this sense, open innovation challenges are a true cultural break from the company silo mentality and the secrecy traditionally associated with the corporate R&D culture. This innovation model becomes viable when the company acknowledges that there are many bright professionals and greater knowledge outside the organization. It is at this very moment that the opportunity to attract those external individuals and/or companies becomes more real. Companies implement open innovation practices in different ways, such as alliances between companies, research chairs in universities, crowdsourcing competitions, and innovation ecosystems.
Below is an example of how Starbucks collaborated with Spotify to offer customers of both businesses an innovative music ecosystem.
Co-branding Campaign: First-of-Its-Kind Music Ecosystem
Starbucks scaled up a premium coffee shop experience into a massive global brand, using music to create an ambiance around its coffee. Spotify, a music streaming platform, has powered almost 25 billion hours of listening around the world. Starbucks and Spotify forged an innovative co-branding partnership to build a “music ecosystem”, offering artists greater access to Starbucks consumers and giving Starbuck access to Spotify’s expansive discography. Through the initiative, Starbucks employees get a Spotify premium subscription, with which they can curate playlists (that patrons can access through the Starbucks Mobile App) to play throughout the day in the shop. This music ecosystem is designed to expand the coffeehouse environment that Starbucks is known for while giving artists greater exposure to Starbucks customers. The “musical-ecosystem” partnership is mutually beneficial, an opportunity for the companies to reach the other’s audience without sacrificing their brand.
Below is an example of how IKEA co-creates with customers.
Co-Create IKEA
In early 2018, Swedish furniture and home goods retailer IKEA launched ‘Co-Create IKEA’, a digital platform encouraging customers and fans to develop new products.
IKEA’s co-creation platform focuses on four specific areas:
If a suggestion for furniture or product design is successful, IKEA may license the technology or agree to invest in future products. For designers and technically talented fans, this creates a strong incentive: to gain exposure through the world’s largest furniture retailer. This approach has led to many thousands of customer suggestions. Participants are also eligible for cash rewards if their ideas work and are selected. Even more helpfully, IKEA provides resources like test labs and prototype shops to help customers develop and fine-tune their suggestions. For IKEA, co-creation helps put crowd wisdom to work in product innovation, allowing the company to harness useful design insights. This creates real market advantages for the company and contributes to a community of dedicated customers.
In general terms, intellectual property is any product of the human intellect that the law protects from unauthorized use by others. For some innovations, a company may require a patent or copyright to protect its intellectual property from competitors and help the company keep its competitive advantage, for a while at least.
This video explains the primary methods of protecting intellectual property (patents, copyrights, trademarks, trade secrets), including the qualifications for using them, and when an organization might opt to not protect its IP. Transcript for “Innovation Strategy: Intellectual Property” Video [PDF–New Tab]. Closed captioning is available on YouTube.
No one likes to fail and most of us try very hard not to fail, but failure is about learning, and it is absolutely necessary to learn in order to succeed at innovation. For every innovation leader out there like Google, Microsoft, or Amazon, there are hundreds of competitors that never quite make it out of the gate. For growing startups looking to establish themselves, it’s always helpful to try and understand why this happens, although, innovation failure is not something that only happens to small companies; even market leaders like Coca-Cola, Samsung, and Nintendo can still have plenty of bad days. Just check out the sad history of the Nintendo Virtual Boy. Despite the negative energy it comes with, failure has its positive side. Experiencing failure can teach you lessons that you wouldn’t have learned otherwise. Actually, some of the most successful people in the world were only able to attain success because of the lessons they learned from their previous failures.
To reduce the chance of failure companies should study their own past failures as well as those of their competitors. Learn from failure. What worked? What did not? Failure is not something to be afraid of or viewed negatively within the company–it is a learning curve from trial and error. Businesses that reflect on past failures often discover that the failures of the past brought them to the successes they now enjoy.
Here are a few tips for teams to learn from innovation project failures:
An interactive H5P element has been excluded from this version of the text. You can view it online here:
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10
After reading this chapter, you should be able to do the following:
Creating an innovative culture at work can improve employee satisfaction, team productivity, and the quality of the company’s products and services. It can also help grow brands, attract prospective employees, keep talent in the workforce, and help generate revenue. While innovation strategy varies depending on the market and business goals, some challenges are universal. For example, if an executive may be struggling to manage the company’s innovation efforts to produce the results planned for. The leader of an innovation project may be finding it hard to garner the support needed from senior management.
An innovative culture is a work environment that fosters and rewards employee creativity instead of focusing on deadlines and revenue. Tech companies often have an innovative culture since the tech industry constantly changes and generates new ideas. Key characteristics of an innovative culture include:
Watch this YouTube video “Amazon’s culture of innovation” to learn more about how Amazon creates a culture of innovation. Transcript for “Amazon’s culture of innovation” Video [PDF–New Tab]. Closed captioning is available on YouTube.
An innovative work culture encourages continuous improvements which can help the company produce improved products and services to retain existing customers and attract new customers. An innovative company also attracts investors and new talent (new employees). Innovation can improve the company’s image and make it a leader in the industry, again bringing more customers, investors, and profit. Innovative companies often have higher revenues than their competitors in the market, and they make more profit.
When companies trust, encourage and reward their employees, their employees feel more creative and create new ideas at work. This is a benefit to the company. Often innovative cultures create happier and more productive employees. Innovation can prepare a company to adapt to its industry and market and this ability to adapt can lead to a company’s longevity as it must keep up with its competition to stay relevant. When a team searches for new methodologies or processes and creates new products, it may discover a groundbreaking idea or predict a future problem it may face. Both can help the company adapt to a changing landscape. To summarize, the benefits of having an innovative work culture include the following:
It is important to create cross-departmental teams and make communicating across departments easy. When, for example, the marketing team only speaks to the marketing team this creates a recipe for groupthink. To ensure employees understand how the different parts of the company work and how they must work together to achieve progress, leaders might, for example, create a policy whereby anyone who wishes to become a business unit general manager must have worked in at least two functional areas for two or more years. The CEO of a very successful technology company requires the R&D people to spend about 10% of their time in marketing and sales and vice versa.
A great example of internal or cross-company collaboration is Starbucks. As the rise of café culture birthed hipster pop-ups and independent shops, the dominant chains began to lose ground. Keen to avoid a Kodak moment, Howard Schultz jumped to action. The Starbucks CEO invited store managers from all over the world to come together for a conference to redesign the café experience.
Designing innovation labs is one way to foster and support innovative initiatives. Some well-known organizations create innovation lab spaces where their employees can experiment and work on innovative ideas. Some companies share successful ideas from employees by supporting them in intrapreneurship initiatives which often take the form of company spin-offs or subsidiaries whereby the employee who came up with the idea often becomes a top-level manager of the new spin-off company.
Innovation Labs focus on business growth. They can either be internal to a company that has the resources and the team available to run their own internal programs, or they can be external such as a consulting firm that supports the innovation process of other businesses. Innovation labs are strategic and goal-focused and are used as tools to address specific company innovation requirements. An innovation lab is a fast, flexible and creative concept that adapts to the needs of the host organization. Innovation Labs can be set up for just a few days, run over the course of a few months, or can become an ingrained part of a company that provides a constant source of innovation.
Below is a list of a few companies with successful innovation labs.
Some successful intrapreneurship examples include:
Intrapreneurship programs are a great way to make innovation projects and ideas happen. This happened in BASF and its intrapreneurship program, Chemovator, where BOXLAB Services became the first corporate spin-off in the organization. Mischa Feig and Lisa Ruffin are the intrapreneurs behind the spin-off, which now operates as an independent startup on the market with BASF holding minority shares.
Vimeo is an exceptional example of how an Intrapreneur, Anjali Sud, transformed its companies’ business model inside out and went from being the Marketing Director to the CEO of the company. Increasing sales by 54% in a year, Anjali Sud changed the struggling online video platform to a successful SaaS business.
Back when gaming consoles were first being developed and marketed, Sony was not interested in entering this industry. It’s hard to believe this considering that today, gaming accounts for 29% of Sony’s revenue. Ken Kutaragi is the intrapreneur behind the launch of the first Sony PlayStation in December 1994 in Japan. It eventually became the first “computer entertainment platform” to ship over 100 million units, doing so in under a decade.
Leaders who build innovation into their culture may offer “free time” to employees who wish to work on innovative initiatives. Leaders want to encourage innovation in non-obvious areas. Getting employees to expand their definitions of innovation is essential, so leaders should explicitly spell out for employees distinct areas that are ripe for innovation within the company, such as product, process, or business model, and let employees know the company is seeking contributions in any of these areas.
Companies like Google, 3M, and a host of others are known for letting their employees spend 15 to 20 percent of their time each week working on creative side projects, innovations, and ideas – and it pays off. (This is how Gmail and Google Earth were created.) In addition to creating space for employees to innovate, leaders should also be prepared to reward employees for their creativity. For example, employees might be promised a certain percentage of net revenue for any employee who comes up with a new product that goes to market.
Forming partnerships with other organizations to create a new innovation is often a great idea since it will reduce the risks of innovating for each company because each partner shares in the risks. With that said, each collaborating organization will also share in the rewards. An organization that may be weak in some areas and has determined it would not be feasible to expand operations, purchase technology, or obtain patents that would be needed to develop a specific innovation, might gain the strengths needed (e.g., supply chain, manufacturing, technology, patents, trademarks, etc.) through a partner company that would share these with the innovation team. (Note that some of these concepts were discussed in the chapter on innovation risks.)
Large companies may work with smaller businesses that have a niche, expertise, technology, or specialty that the larger company does not have. Many times large organizations purchase (acquire) these smaller companies so that the larger organization can expand its innovative skillset, technologies, processes, patents/trademarks, and expertise with what the smaller company brings. For example, software and application development might not be the company’s thing so the company might consider partnering with a Python developer to launch a brand new web application that the industry has never seen.
Cisco’s acquisition strategy generally targets smaller companies that have developed innovative new products, but the key to making these acquisitions pay over the long term is the company’s ability to retain the talented engineers and managers from the acquired companies. They’ve been very successful at this, bolstered of course by the company’s increasing stock value.
The government often partners with businesses toward innovation, especially social innovation, technology innovation, and environmental innovation. Governmental organizations across the globe have launched their own innovation hubs often partnering with businesses to find innovations that will bring value to entire communities. (Note that some of these concepts were discussed in the chapter on innovation risks.)
Innovation consultants can help guide the innovative process. Companies can outsource these experts if they do not have an organizational structure for innovation or lack talent within the organization. (Note that some of these concepts were discussed in the chapter on innovation risks.)
An “open lab” can offer real benefits for organizations, for example, reinforcing corporate commitment to innovation and creativity in a physical space. Auto manufacturer, BMW, has a co-creation lab where its customers can share their ideas and become an integral part of concept vehicle development. Collaborating with customers by inviting them into innovation projects through gathering feedback to participating in development, customers have helped companies make great strides. Companies might consider co-creation partnerships with customers, universities, suppliers, start-ups, and even competitors. In early 2018, Swedish furniture and home goods retailer IKEA launched ‘Co-Create IKEA’, a digital platform encouraging customers and fans to develop new products. In 2018, Coca-Cola entered into a co-creation experiment with customers to make sure its Southeast Asia product strategy reflects the tastes of the region and its people.
“The most important goal of innovation is to gain a competitive advantage by increasing the speed and effectiveness with which your company learns—and acts on that learning. Innovation is about experimentation—failing early and often.”
Innovation strategy is about mapping an organization’s mission, vision, and value proposition for defined customer markets. It sets boundaries to innovation performance expectations by simplifying and structuring the innovation work to achieve the best possible outcome. For a business to thrive in today’s world of intensified competition it is critical that innovation initiatives are aligned with corporate strategy. (Note that additional details about innovation strategy are provided within the chapter on growth strategy.)
An innovation strategy is a clearly-defined plan of structured steps a person or team must perform to achieve the growth and future sustainability goals of an organization. An innovation strategy provides people with a framework for critical decision-making. Leaders may consider the following questions when devising a strategy:
Holding on to traditional practices just because “that’s what we’ve always done” is not a strategy for success. That rigid approach is guaranteed to fail in the face of disruption, as proven by Kodak and Blockbuster.
Leaders who want an innovative company must ensure a balanced innovation portfolio; a combination of core, adjacent, and transformative innovation initiatives. Generally, 70% of innovation investments are in core innovations, 20% in adjacent innovations, and only 10% in disruptive innovations. In terms of value creation potential, however, the ratios are inverted: core innovation efforts typically contribute 10% of the long-term cumulative return on innovation investment, adjacent initiatives contribute 20%, and transformational projects yield a huge 70%. The right balance of innovation investment will vary from company to company according to particular factors like the age of the company, its competitive position in the market, and characteristics of the industry served (e.g. number of suppliers, market growth, regulatory patterns, etc). Most companies tend to be heavily oriented toward just core innovation and whilst this is understandable in terms of avoiding the greater risks and uncertainties associated with adjacent and transformational initiatives, the result will be a steady, long-term decline in business and attractiveness to customers if a company never tries some adjacent or transformational projects. (Note that some of these concepts were discussed in the chapter on innovation risks.)
Leaders must create corporate structures that continuously nurture innovation. They should build connections to innovation within the company vision, mission, and values and ensure that company values and goals are communicated throughout the organization. It is also important for the leaders of the organization to model the behaviours they want to see in their employees and create a culture of innovation through providing training, motivation, encouragement, and support to employees. Leaders must examine new ideas with an open mind. Many ideas are in their infancy when they first appear and it may take time to refine and perfect the concept.
Leaders must continually look for opportunities and threats and examine the company’s strengths and weaknesses so as to build weaknesses into strengths, use strengths to combat threats, and take advantage of opportunities (SWOT, competitive analysis, PEST, Porter’s Five Forces, Ansoff Matrix, Innovation Matrix, etc.).
Leaders must be ready to accept risk and understand it is acceptable to fail and try again, as this is part of the innovative process. Investing in a knowledge management system will help the company make it easy to share information and ideas, track innovation progress, manage the budget, track ROI, and keep track of lessons learned from past failures so as to avoid these pitfalls in the future. An electronic system allows companies to capture the benefits of, and lessons learned from innovation.
Smaller businesses do not have much problem with the organizational structure getting in the way of innovation because most employees who have an innovative idea can speak directly with the owner of the business to get the idea reviewed and approved. Larger corporations have several types of organizational structures and some of those, such as hierarchical have many layers, so an employee may speak with their direct manager who then speaks to an area manager who then speaks to another manager, and so on. Often in these large organizations, different departments are responsible for their own profit and loss, so they essentially compete with each other for company resources which is not the best structure to support collaborative innovation or make it easy to get big ideas into the innovation pipeline.
From small businesses to large organizations like global megacorporations, companies across the globe generally rely on four different types of organizational structures in the mechanistic model: Functional, Divisional, Matrix, and Hybrid. Matrix structures combine functional structures with divisional structures in a grid arrangement that combines vertical functions (e.g., organizational roles and titles) with horizontal divisions (e.g., directors of various product lines, projects, etc.). A matrix organization decentralizes decision-making and provides teams with increased autonomy while simultaneously improving cross-functional collaboration to boost overall productivity and encourage innovative approaches to problem-solving. Hybrid is similar to matrix structures, yet allows for collaborative sharing of data and resources while preserving division-specific specializations.
While the four organizational structures above are the most common, companies around the world also use four other types of organizational structures which are more organic in nature: Process, Circular, Flat, and Network. Process structures concentrate on end-to-end workflows for specific processes. This improves adaptability and flexibility to meet changing demand and market conditions. A circular structure is intended to encourage the dissemination of information and inspiration from the center and allow different divisions to participate as components of a single whole. In flat structures, management and executive staff take a more collaborative rather than supervisory role, working and communicating closely with team members and project managers.
To ensure operations are running smoothly, many businesses follow an organizational structure that best supports their size and business goals. Having and communicating a clear organizational structure helps employees understand their roles and corresponding expectations and informs goal-setting.
Watch this YouTube video “How Apple is Organized for Innovation: The Functional Organization” to learn more about how to organize a company for innovation success. Transcript for “How Apple Is Organized for Innovation: The Functional Organization” Video [PDF–New Tab]. Closed captioning is available on YouTube.
The process for establishing a funding source will differ depending on the company. For example, Allstate CIO, Suren Gupta, has described how a formal Innovation Council evaluates ideas and allocates funding. In other companies, if the innovation ties closely to a particular business unit, then funding may come from that group’s budget. The actual size of the budget depends on whether a company lab is building the technology itself, partnering with other organizations, or acquiring a company, product, or talent. Amazon and Google have spent millions of dollars developing parcel delivery drones. Meanwhile, companies like UPS and Daimler AG have opted to partner with—and make strategic investments in—established drone makers. This lowers both the risk and the cost of innovation while still allowing the company to develop new capabilities. Regardless of how funding is established—or the size of the budget itself—it is critical to measure how much money was spent at each stage of the process: preparation (i.e. percentage of capital budget allocated to innovation projects), development (i.e. R&D spending at each phase of development the innovation process), and results (i.e. percentage of sales from innovation projects). As with the portfolio approach to general innovation metrics, the use of financial metrics across the innovation lifecycle reduces the focus on ROI, and too much focus on ROI can cripple innovative projects in the early stages.
Measuring innovation input, progress, and output will help companies mitigate risk. It is not always easy to figure out the right mix of metrics to use to measure innovation. Some organizations measure what is easy rather than what is important. The most important function of measuring innovation is to ensure the project is moving in the right direction. Innovation metrics allow managers to see if the team is doing enough of the right kind of activities to be able to actually achieve results. Measuring innovation helps to guide resource allocation, hold the team accountable for their actions and responsibilities, and assess the effectiveness of innovation activities. (Note that some of these concepts were discussed in the chapter on innovation risks.)
Despite these challenges, businesses can measure innovation with a mixture of the following:
By committing to measuring innovation, the company can encourage employees to be more conscious of the need for creativity and fresh thinking, no matter what their day-to-day responsibilities might be. If management regularly measures the company’s innovative output and shares these measurements with employees it will help encourage staff to think about innovation accountability on a daily basis and take responsibility for finding new ways of doing things.
Not all metrics work for every company or every project. There are, however, certain types of metrics that every innovation team should pay attention to, including:
Companies need to facilitate creative ideation; they also need processes to capture the outputs of creative ideation and transform them into profitable and scalable innovations. There are many reasons why innovation projects or new products fail in the market. Usually, a failure is not related to the quality of an idea itself, but to its implementation, which means that it has internal organizational causes. Management must be aware of the company’s weaknesses and act to create a framework that encourages and strengthens innovation, which should create higher innovation successes and generate additional revenue for the company. A few reasons innovations fail are listed below.
LEGO story sourced from The Leadership Network
From the brink of bankruptcy, LEGO has grown into a highly profitable toy brand that produces a staggering 22 billion plastic bricks a year. Fuelled in part by LEGO movies, the privately held company surged ahead of its main rival, Mattel, in 2014 to become the biggest toy manufacturer in the world. Against all odds, LEGO achieved one of the biggest turnarounds in history. How did they do it?
Setting a new direction
First, LEGO restructured and hired a new CEO, Jørgen Vig Knudstorp, a process-based thinker and father of four who arrived from McKinsey & Co. in 2001 and was promoted to CEO just three years later, at just 36. Knudstorp quickly realized that the problem was not with the product, but with the company’s attempts to become more relevant in the age of video games. LEGO had “over-innovated,” spreading itself far too thin and launching so many new initiatives that the company had lost its sense of identity.
Innovation at the core
Knudstorp’s turnaround plan involved a mix of cost-cutting, philosophical revitalization, sustainable innovation, and back-to-basics simplicity. The goal was to rediscover the very essence of LEGO, innovate close to the core, and leverage their loyal and creative fan base. He set up “The Future Lab”, a secretive and highly ambitious R&D team tasked with inventing new, technologically enhanced “play experiences” for children all over the world based on detailed ethnographic studies of how children play. With The Future Lab, LEGO developed a range of low-risk, low-cost innovation practices to test ideas and cultivate expertise.
Smart Licensing
LEGO’s breakthrough with licensed intellectual property began in 1999 with an agreement to license Star Wars characters and vehicles. On the heels of the Star Wars success, LEGO smartly committed itself to obtaining licensing arrangements with established brands, including Harry Potter, Lord of the Rings, DC Comics, Marvel, and Disney. The move paid off, while royalty expenses were in the hundreds of millions, profits reached billions.
Rapid prototyping
Within its factories, LEGO has embraced a philosophy of rapid prototyping. Inspired by Google and other technology companies, they create minimum viable products to prototype and get new products to market quickly on a small scale. The Future Lab also cultivates intrapreneurship as its relationship with LEGO is more akin to an incubated start-up. By using market testing and validating their new products, The Future Lab is driving culture change to ensure that this new business model and way of working will be accepted across the organization.
Open Innovation
Lego goes a step further with consumer feedback by putting customers, suppliers, and partners in the driving seat for innovation. LEGO Ideas is a crowdsourcing platform that allows fans to design their own sets, gather support from fellow fans (you need at least 10,000 votes), and eventually get LEGO to produce your set as one of its standard lines. Examples include Back to the Future’s DeLorean and the Ghostbusters Ectomobile, which are now widely popular.
The online platform now generates hundreds of new product suggestions each year and uses subtle and powerful open innovation techniques, employing everything from social media to peer selection to entice fans into contributing new designs and ideas.
LEGO Architecture is another good example. Several years ago, a Chicago architect and Adult Fan of LEGO (AFOL) reached out to LEGO, suggesting they create official kits similar to his homemade LEGO models of iconic buildings. The idea was initially met with some resistance, but fortunately, a free-thinking Norwegian LEGO executive saw value in AFOLs and created a stealthy, shoestring plan to prove their worth to the company. They tested the LEGO architecture line in just a couple of stores in Chicago and saw that they were able to charge “grown-up prices” for kits with the same number of LEGO bricks inside. The pilot was a success and the line remains hugely popular amongst adult fans of LEGO worldwide.
Designing Products for Girls
Another example of audience diversification is LEGO Friends. In 2011, boys made up 90% of LEGO consumers and LEGO wanted to broaden its appeal to more girls. Their research showed that – while both girls and boys love the building aspect of LEGO – there is a key difference in how boys and girls tend to play with their sets. Whereas boys tend to be more compelled by a strong narrative, girls are more likely to use their sets for role-playing. After years of refinement, the company launched LEGO Friends, a new line designed specifically for girls. The line doubled sales expectations in 2012, the year it was launched, and in that year alone LEGO tripled its sales to girls.
Low-Risk Experimentation
In the past, LEGO wouldn’t have launched any “risky” products that could smear the brand’s reputation for quality. But that’s precisely why Knudstorp created Future Lab – so mistakes can be made relatively cheaply and vast amounts can be learned. For example, LEGO Universe, an online game that resembled World of Warcraft, was discontinued just over a year after its launch as they weren’t able to build a satisfactory revenue model. The experiment barely damaged LEGO’s reputation whilst providing multiple key insights and learning lessons to establish the company in the digital world.
In February 2015, LEGO launched a new game – LEGO Portal Racers – in partnership with augmented reality company Metaio. The game uses an Intel RealSense camera and depth technology to allow users to play without using their hands, instead of using head movements to steer left or right. The original idea was to have kids build their own vehicles out of bricks and scan them into the game, but it remains a digital-only experience for the time being. Like LEGO Fusion, it is a means for Future Lab to understand and experiment with new technologies.
Few businesses have mastered the digital/physical experience but LEGO’s ability to experiment quickly, cheaply and under the radar means it can continue to evolve, discover new forms of play, and delight its fans.
So what can we learn from the ups and downs of innovation at LEGO?
An interactive H5P element has been excluded from this version of the text. You can view it online here:
https://ecampusontario.pressbooks.pub/leadinginnovation/?p=54#h5p-15
(Note: This list of sources used is NOT in APA citation style instead the auto-footnote and media citation features of Pressbooks were utilized to cite references throughout the chapter and generate a list at the end of the chapter.)
1
is an inexpensive way to make a prototype. Today 3D printing, or additive processing for manufacturing, has become a standard.
is a strategic planning tool that organizations use to plan and analyze strategies for growth. Each strategy for growth carries a different level of potential risk.
Leaders who want an innovative company must ensure a balanced innovation portfolio; a combination of core, adjacent, and transformative innovation initiatives. Generally, 70% of innovation investments are in core innovations, 20% in adjacent innovations, and only 10% in disruptive innovations. In terms of value creation potential, however, the ratios are inverted: core innovation efforts typically contribute 10% of the long-term cumulative return on innovation investment, adjacent initiatives contribute 20%, and transformational projects yield a huge 70%.
is a graphical method of representing business processes within a business process diagram. BPMN diagrams help the whole team see the flow of the process.
Executing an idea that addresses a specific challenge or opportunity and achieves value for both the company and its stakeholders.
is probably the most challenging of the innovation types as it will likely present an organization with major requirements for change. Often, the very capabilities or processes that have been optimized to make a company successful and profitable will become the targets for transformation.
is a sequence of steps progressing toward a business goal. This sequence of steps can be clearly depicted using a flowchart and may also be referred to a business method.
is a state of mind in which you think of an object or situation in one specific way, to the exclusion of any alternative.
can foster innovation when they represent a motivating challenge and focus efforts on a more narrowly defined path.
is a theory that many organizations have processes they have been following for years and may not notice that these old processes may no longer be efficient or effective.
The formula for customer value can be written as: (Total Customer Benefits - Total Customer Costs) = Customer Value, or (B - C = CV)
is not merely recycling. It's designing products to be easily disassembled in combination with designing new take-back systems and infrastructure that make it easier and less expensive for companies to collect the materials they'll use in one generation of products in order to manufacture the next generation of products. This regenerative approach to design has taken many forms over the last several decades as we move towards establishing a circular economy.
is one of several approaches to innovation and is a process for creative problem-solving. Design thinking has a human-centered core. It encourages organizations to focus on the people they are creating for, which leads to better products, services, and internal processes. The design thinking framework helps inspire creative thinking and strategies that lead designers to create user-friendly products that help solve a particular problem.
is the launch of a new business model, concept, product, or service that creates a new market segment and value drivers.
is about acting in a way that ensures future generations have the natural resources available to live an equal, if not better, way of life as current generations. Many innovations today are focused on solving environmental issues. The Sustainable Development Goals (SDGs) of the Organization for Economic Cooperation aenvironmental sustainabilitynd Development (OECD) are broad and ambitious, calling on all countries – be they upper, middle, or low income – to make tangible improvements to the lives of their citizens. The goals encompass social, environmental, and economic aspects (OECD, 2021).
is a way to overcome some of the drawbacks of traditional research-led or design-based innovation.
You see objects, components, and things around you, and you can’t imagine them doing different functions than what they’re designed to do.
is the concept of growing or improving a company by making a succession of small-scale improvements to existing products, services, processes, and tools.
Creating something new that serves people's needs or wants.
as featured in the Harvard Business Review (May 2012), is a classic model that helps companies decide how to fund different growth initiatives.
focus on business growth. They can either be internal to a company that has the resources and the team available to run their own internal programs, or they can be external such as a consulting firm that supports the innovation process of other businesses. Innovation labs are strategic and goal-focused and are used as tools to address specific company innovation requirements.
should be systematic and predictable. The first step of the process is doing market research, the second step is solution generation, the third step is business case development (figure out how to monetize the innovation), the fourth step is to scale up (get it ready to be launched), and the last step is to launch the innovation in the marketplace.
is about mapping an organization’s mission, vision, and value proposition for defined customer markets. It sets boundaries to innovation performance expectations by simplifying and structuring the innovation work to achieve the best possible outcome.
is a work environment that fosters and rewards employee creativity instead of focusing on deadlines and revenue.
is any product of the human intellect that the law protects from unauthorized use by others.
The processes that plan, organize, coordinate and control all the functions of the business.
are measures of quantitative assessment commonly used for assessing, comparing, and tracking performance or production.
is a business management model for innovation that promotes collaboration with people and organizations outside the company.
The processes that constitute the core business of the organization and create the primary value stream.
is a way or method by which organizational activities are divided, organized and coordinated.
From small businesses to large organizations like global megacorporations, companies across the globe generally rely on four different types of organizational structures in the mechanistic model: Functional, Divisional, Matrix, and Hybrid.
can include changes in the equipment and technology used in manufacturing (including the software used in product design and development), improvement in the tools, techniques, and software solutions used to help in supply chain and delivery system, changes in the tools used to sell and maintain your good, as well as methods used for accounting and customer service.
can come in three different forms. 1) The development of a new product, such as the Fitbit or Amazon’s Kindle. 2) An improvement of the performance of the existing product, such as an increase in the digital camera resolution of the iPhone 11. 3) A new feature to an existing product, such as power windows to a car.
is a mini design of the actual product. It can be a sketch, a low-quality, or a high-quality copy depicting what the real product will look like. It is important for companies to prototype fast and often in order to produce innovations at the right times--when customers demand them and before competitors beat them to market.
are all about understanding customers’ lifestyles, values, beliefs, and optimizing marketing to demonstrate to customers how the company can fulfill these psychographic variables by providing the benefits sought thus providing customers value.
is the creation of a whole new product.
This type of fixedness makes it very hard to imagine two objects having a relationship that wasn’t there before.
is based very simply on the idea that what is new is actually a modification of existing old things around us.
changes the way customers are served to create value for customers and revenue for the company.
ensure and enhance the utility, performance, and apparent value of an offering. Some offerings are purely service, such as getting a haircut, hiring someone to paint your house, or taking an Uber to your friend's place. These are services you may utilize throughout your lifetime. Other service innovations may be combined with product offerings, such as purchasing groceries (products) and having them delivered to your home (service), or buying a new television (product), and purchasing the warranty (service).
If we graphed this ideation process we would see a graph that at first has many ideas, but after a short period of time the group feels they have exhausted all the good ideas, and the ideas stall. What happens next, someone offers a different, silly, or absurd idea, then more ideas come from that idea and the tide has turned. The best ideas often come after this turn in the graph.
refers to a response to a social or environmental problem, which, once adopted, results in better solutions than existing approaches. Social innovations have a transformative impact and improve organizations, communities, regions, or systems.
This makes it really hard to imagine objects having a different structure than what we’re used to.
The processes that support the core processes. They help the business create an environment where the core processes can work better. Examples include accounting and technical support.
is the capacity to endure in a relatively ongoing way.
means that companies seek out ways in which to sustain continuous innovation/improvement for company growth, competitive advantage, and increased market share, etc.
SIT is a thinking methodology where creativity takes centre stage. It contains five thinking patterns that humans have used for thousands of years. It directly contradicts the principle of ‘thinking outside the box’ and uses ‘thinking inside the box’ as a guiding principle in order to prove that creativity is not the prerogative of only a few.
focuses specifically on technology and how to embody it successfully in many types of innovations such as products, services, processes, profit models, channels, and customer service engagement innovations.