Continuous Innovation

Driving Growth
Through
Continuous
Business
Innovation
This operational strategy can
help you develop offerings
that customers really want.

Companies are always looking for new
ways to jump-start business growth.
The key may lie in continuous business
innovation, an operational strategy
that leverages core competencies to introduce
new products and services. Many
companies focus on new product development,
but that is only one component. Dell,
for example, is well known for how it leverages
its supply chain structure and
processes for competitive advantage.
How does continuous business innovation
drive value? A company’s total value
comprises the strategic value (current brand
and product positioning) plus its economic
value (the foreseeable ability to generate
profit). While it is well understood how to
improve a company’s economic value, it is
less apparent how to drive strategic value.
Continuous business innovation provides
a guidepost for companies to continually
evaluate their position in the overall market
lifecycle and identify new ways to redefine
products and markets, functional capabilities,
and business models.
But how can a company judge if it’s
excelling at continuous business innovation?
How does it know when and where to
innovate? In our experience, three actions
are key: create continuous context, foster a
culture of innovation, and establish innovation
capabilities.
Create Continuous Context
The objective of creating continuous context
is to develop a growth strategy based on
novel business and operating models. Each
of the three “C’s” plays an important role.
Create. Develop new options. Focus on
creating new value in addition to mining
existing value. When you focus on current
markets or products, reframe the old problems
in a new way to inspire new solutions.
The classic example is the 3M “Post-it®”
note. Problems with permanent glue
opened up one employee’s eyes to the
potential of temporary adhesives—and created
a whole new market around sticky,
removable note paper.
Continuous. Build a renewal strategy.
Even if the organization finds temporary
success, it needs to continually monitor
and evaluate all possibilities to avoid an
inevitable path of decline. Always seek to
understand the market lifecycle because it
reflects future customer requirements and
technical possibilities. This will help you
determine how best to focus innovation
investments today, while anticipating where
you will focus investments tomorrow. In
the case of WiFi, users were satisfied with
the initial version of wireless connectivity at
the early adopter stage of its lifecycle.
However, improvements in technology and
usability were necessary if wireless connectivity
was to experience wider user
adoption and move ahead to the early
majority stage.
Context. Challenge conventional wisdom.
The specific path of the best innovations is
not always anticipated. Question existing
internal assumptions regarding what the
customer’s current and future needs are
and how your organization can best meet those needs. For example, in the Internet
equipment industry, routers and switches
are now commodities. Cisco, a market
leader, is bundling its technology offerings
to move customer needs from point products
to solutions that enable an entire
network configuration.
The lifecycle curve can serve as a key tool in
developing the “3C” strategy (see Figure 1).
Within a given market category, a company’s
position on the curve helps determine
which growth drivers, or critical areas of
focus, can propel it to success further down
the lifecycle. As product categories reach
maturity, the lifecycle curve can also provide
guidance on how to reframe the innovation
context and focus on early lifecycle
opportunities. Businesses that do not take
account of their lifecycle position will not
outpace the competition.
Figure 2 illustrates effective innovation
strategies for each stage of the market lifecycle.
“Innovation focus” describes the
direction of innovation activity most relevant
for a given position on the lifecycle.
“Reframing approach” describes how a
company should evolve its view of the context
within the three C’s to stay ahead,
nimble, and relevant.
Consumer products giant P&G knows
how to put the 3C strategy to good use—as
its transformation of Iams® pet food
demonstrates. After acquiring Iams in
1999, P&G took what was known as a premium
pet food and transformed it into a
fast-growing sub-category and spring board
for new products and services. Not satisfied
with merely riding on Iams’s existing
success formula, P&G leveraged its superior
distribution capabilities to immediately
increase Iams’ presence in retail outlets by
nearly 50%. The company then focused its
innovation efforts on developing foods that
would lengthen a pets’ lifetime. By highlighting
Iams’ health benefits, P&G
transformed the brand into one that
addresses customers’ fears about their pets’
mortality.
P&G’s strategy yielded powerful results: a
fast-growing, newer, health-conscious dog
food subcategory of a mature dog food market
lifecycle, and the doubling of global sales
to $1.6 billion. In addition, P&G now has
credible options to expand offerings under
the Iams brand to include health services
and insurance for pets. If P&G had entered
these markets directly, it would not have
been able to leverage its extraordinary operating
effectiveness and channel capabilities.
P&G did more than simply move pet
food up the lifecycle maturity curve.
Management understood the lifecycle position
of the pet food market and figured out
how to best reframe the product and explore
other early lifecycle opportunities.
Another organization that has successfully
incorporated this approach to innovation is
Affymetrix, a leading life sciences company.
Affymetrix’s core business strategy is to
drive wide adoption of its proprietary
GeneChip® technology by a wide range of
scientific and life sciences markets. First,
the company marketed its new and lessmature
technologies to the academic and viability
of the GeneChip technology platform.
The next step was to expand the market
for its more mature technologies to clinical
diagnostics. The 2004 winner of both the
Product Development and Management
Association’s Outstanding Corporate
Innovator award and the R&D 100 award,
Affymetrix today serves multiple market
segments, each with strong potential for
commercial success.
Foster a Culture of Innovation
Once you have used continuous context
creation to define your growth strategy, you
need to motivate your organization around
that strategy. Many companies refer to this
as “fostering a culture of innovation,” but
what does that really mean? It is natural to
assume it has to do with giving individuals
the autonomy to think creatively in the
workplace. But Dell, for example, has historically
had a highly analytical,
metrics-based culture that places emphasis
on execution above all else—including creativity.
Dell’s culture thus reinforces its
core competencies of process and execution
excellence.
In our view, fostering a culture of innovation
involves more than supporting
creativity—it requires the interaction of
vision, leadership, and investment. Vision
answers the question of “where we’re going
and how we’re going to get there”—that
is, what our market lifecycle position is
today, and what position we are aiming for
tomorrow. Leadership drives the organizational
change that’s needed. Investment, in
both human and financial capital, makes
the execution of new ideas possible.
Although no “right” formula exists for
identifying people who are naturally innovative,
many can display such talent when
the right opportunity is provided. Some
characteristics to nurture are:
• Genuine concern for benefiting the
customer of the innovation, whether
external or internal
• The aptitude and desire to look for
unique and better solutions, even when
an easier solution is available
• Preference for collaboration with all
stakeholders outside their own expertise,
not just those with power or
influence
• Desire to create results and opportunities
through new approaches
• Capability for championing a larger
vision
• Ability to operate and make decisions in
the face of ambiguity and risk
• Capacity to mine failures for lessons
learned and new approaches
In some cases, entire organizations
require redesign to provide the right environment
for innovation. For example,
GlaxoSmithKline created smaller entrepreneurial
R&D units within the company and
moved responsibility for both discovery
and product development decisions into each unit. Financial rewards were based
on product development results, not just
interesting drug candidates. In place of a
large, central R&D organization with strong
portfolio control, Glaxo has created an environment
for innovation that shows
promising results.
Before you ask employees to risk their career
on innovation, your company should be prepared
to show it’s equally committed, as Apple
did with its iPod. When an outsider
approached Apple with the idea of creating
a new business model based on music
delivery, the company hired the outsider
and built a team around him to design the
product. The strongest communication of
commitment is when investment matches
vision.
Innovation does not come cheaply or
quickly. Executive leadership must prepare
for the inevitable shift of resources and the
investment of management energy. If innovation
is considered a key to future growth,
areas of the business that do not make that
measure should be divested over time.
Establish Innovation Capabilities
The final factor in creating continuous
business innovation is the organization of
innovation capabilities: people, process,
and systems. While this topic is too large to
address in depth here, suffice it to say that
organizing innovation capabilities is necessary
for moving a company from an
episodic, highly variable innovation
approach to one where innovation is a core
operational capability, driving all aspects
of the business. Consistently turning ideas
into successful commercial products and
services requires an integrated approach
to the sources of innovation productivity.
Operational processes have to be designed
for innovation. Quality-focused processes
often treat the unexpected as something
to be reduced or removed from the business.
However, innovation by its nature
often brings uncertainty into the organization.
When supported by a structured
innovation-management process, this
uncertainty has the best opportunity to contribute
true strategic value.
PRTM’s recent benchmarking survey of
services firms found that the innovationmanagement
practices of top-performing
companies have a far higher level of maturity
than those of the average company.
Industry leaders more frequently employed
process-oriented practices, such as crossfunctional
ideation teams, and more
consistently executed process around innovations
to have significant time to market
and profitability results. In addition, leaders
more often used disciplined approaches
like Voice of the Customer and applied
processes to screen and prioritize ideas for
development.
Continuous business innovation is
emerging as a core competency of mature
21st-century enterprises. We predict it will
become a best practice in driving strategic
value creation. While it is difficult to predict
the product or business model that will
win every time, this innovation blueprint
can help companies be more proactive in
determining their growth strategies and
investments