A recent study by Andy Cosh and Joanne Jin Zhang of the UK Innovation Research centre set out to examine how companies were using open innovation. The report makes a thought-provoking comparison of the innovation styles of companies. It indicates that those companies that are active in open innovation in both giving and receiving ideas achieve higher rates of innovation and of revenue growth.
A survey was sent to 12,000 UK companies and 1202 responded. The authors categorised the respondents as falling into one of three categories which had similar behaviours and practices:
- Traditional companies made no external knowledge transfers and had few formal collaborations with other organisations in search of innovation.
- Hunting-cultivating firms engaged in external sourcing of knowledge and had formal collaborations but made no external transfers.
- Ambidextrous companies were defined as those that had engaged in hunting and cultivating but also transferred knowledge and technology externally. They are typically very engaged in partnering and collaboration.
Companies that serve local markets tend to traditional in their approach whereas national and international companies (whatever their size) show greater openness and ambidexterity. Traditional companies tended to have lower growth ambitions than hunter-cultivators or ambidextrous companies.
The ambidextrous firms had a higher percentage of employees with first or higher science or engineering degrees and a higher % of staff engaged in R&D. However, the hunting-cultivating firms spent the highest % of revenue on R&D. Despite this, it was the ambidextrous firms who introduced the most innovations. Furthermore although the hunting-cultivating firms grew significantly faster than the traditional firms, the ambidextrous types showed even faster growth. The researchers found no association between the choice of open innovation style and the size or age of the companies (although there were clear differences between sectors).
There is a detailed review of outbound open innovation activities. Firms engaged in external transfers for both financial and non-financial reasons – enhancing reputation was a frequently cited motive. Different kinds of revenue sources were favoured by different size firms – larger firms preferred out-licensing, smaller firms preferred R&D contracts while micro-firms gained most external revenue from spinouts.
There are many detailed results and conclusions in this report. The clearest is that companies that choose an open style to internal and external exchange of information, ideas and technologies achieve the highest rates of product innovation and growth.
Sustainability is now accepted as good corporate practice. It has taken a while but we have all come to understand that the planet is a valuable resource that should be treated with care. It is now recognised that we need to design sustainability into our products from the start, not just add it on as an afterthought. So how can we do this? Here are some fine recent examples of product and service innovations that incorporate sustainability.
- Replenish. Most household cleaners consist of a disposable plastic bottle, a detergent and a lot of water. Shipping a product which is 90% water through retail stores does not make a lot of sense. Replenish is an innovative reusable cleaning product. You simply buy a detergent refill and add water.
- Shwopping. Marks and Spencer launched a project which aims to reduce the volume of clothes that are thrown away to landfill, whilst supporting the charity Oxfam. Customers can bring unwanted pieces of clothing and place them in bins known as ‘Shwop Drops’. The clothes are then given to Oxfam to re-use, recycle or re-sell. In the last year some 4 million items have been Shwopped in over 400 M&S and Oxfam stores. This has helped Oxfam raise £2.3 million for its many good causes.
- Newlife Paints. What do you do with your unfinished tins of paint? The average household in the UK has 17 tins of partly used paint. These tins typically reside in the garage until they are eventually taken to the tip and then into landfill. Chemist, Keith Harrison, decided to do something about this environmental nightmare by creating Newlife Paints which collects and recycles tins of paint – repackaging them and selling them in a range of 32 colours.
Sustainability is more than just recycling. It is about creative design in products and processes that encourage and reward good behaviour by consumers. And the consumers seem to like it.
With thanks to Chris Sherwin of Seymourpowell for pointing out these examples.
If you want to innovate with a process or a service then try focusing on this word – rearrange. Describe your current process as a series of steps. Draw them out as a block diagram. Now try moving the blocks around and see where this leads.
Ray Kroc delivered a major innovation with the concept of fast food at MacDonald’s. The process steps for a conventional restaurant are something like this:
- Customer selects choice from menu
- Waiter takes order from customer to kitchen
- Kitchen prepares food.
- Waiter delivers food to customer
- Customer consumes food
- Waiter presents bill
- Customer pays
Kroc rearranged this process. The fast food model at MacDonald’s is:
- Kitchen prepares food in advance
- Waiter takes order and presents bill
- Customer pays
- Waiter delivers food to customer
- Customer consumes food
On-line check-in for flights is another example. Previously we went to the airport and stood in line to check in for our flight. Now the order is rearranged; we check in on-line at home and then go to the airport. By getting the customer to check himself in, time is saved and the process is improved.
Every process in your business should be examined and the question asked, ‘How could we rearrange this?’ Make a list of who does what tasks when. Then play around with possibilities. What if we did this stage earlier or later or not at all? What if we got the customer to do this part and a supplier to do that part?
For hundreds of years shops had the same process. The customer told the assistant what he or she wanted. The assistant fetched the goods. The customer paid for the goods and took them. Then in the 1920s Michael Cullen decided to rearrange the process. He asked, ‘Why not let the customer fetch the goods instead of the assistant.’ He created the world’s first supermarket, the King Cullen store in New Jersey.
The UK retail giant Tesco faced a challenge when it entered the Korean market. All the best retail locations were taken by the incumbent market leaders. Tesco took an innovative approach and rearranged the process. They rented space on subway walls and created virtual stores showing pictures of popular items with QR codes. Commuters waiting for their train home can select and order the goods they want using the camera on their mobile phones. When they arrive home the goods are delivered.
There is scope for innovation in every process; even such a well-established process as shopping. Take a good look at your processes. Apply the verb rearrange in an imaginative fashion. It might lead you to create an innovation as dramatic as fast food or the supermarket.
What do you do if you find yourself in a position like Kodak when an external innovation threatens to put you out of business? List your core skills then adapt or die.
Daniel Peter, who was born in 1836, was a Swiss candle-stick maker whose business started to suffer because of the new invention of oil lamps. He had a factory that could pour liquid candle wax into molds. How could he adapt these skills? He decided to make chocolate bars but he wanted to do some to differentiate his product from the competition. At that time chocolate was dark and bitter. Daniel Peter tried to develop a softer chocolate by adding milk but he found great difficulty in removing the water from the milk. His experiments ended with mildew forming on the chocolate or with a rancid product.
Eventually he heard of another man in the same town who had developed condensed milk as a baby food. That man’s name was Henri Nestlé. Using condensed milk they were able to perfect a method for the manufacture of milk chocolate. In 1879 the pair formed the Nestlé Company. Their new product proved immensely popular around the world. Daniel continued to work in the Nestlé factory until his death in 1919.
Is there an ideal length of time for a CEO to hold office? It appears that in general there is and it is around 5 years. This is the conclusion of a study carried out on 356 US companies from 2000 to 2010 by Xueming Luo, Vamsi Kanuri and Michelle Andrews of the University of Texas as reported in a recent issue of the Harvard Business Review. They measured the strengths of the firm-employee relationship and the firm-customer relationship. They found that both measures improved in the early part of a new CEO’s career. Although the employee relationship then continued to improve the customer relationship typically weakened and the company’s performance declined. They calculate the optimal tenure length for a CEO to be 4.8 years.
Why might this be? The authors postulate that one reason is that the way a CEO learns changes. Initially he or she seeks information in diverse ways, including internal and external sources. However, as they become expert they rely more on internal networks and less on customers and other external sources. They become less attuned to the market. Also over time they become more attached to the status quo. They are more likely to consolidate what they have achieved rather than drive more change or take more risks. This analysis probably does not apply to Sir Alex Ferguson at Manchester United but it may do for the CEO of your organization. If they have been there for over 5 years are they getting hungrier or more complacent?
Every man-made thing you use or see can be redesigned. Every design can be improved upon. The force and benefits of innovation can be applied to every thing, process, method or product that you can imagine.
Take the humble egg carton that we are all familiar with. It was designed 100 years ago by Joseph Coyle and it is such a good and practical design that we take it for granted. The BBC Futures section tells of a new design from Hungarian art student Eva Valicsek. She designed her egg box with an open top so that you can see the eggs. And her box comes as a flat pack for easier shipment.
That is not the only new thing made of cardboard. The BBC site also tells of a new crash helmet made of cardboard and modeled on the head of a woodpecker! This follows the story of the remarkable cardboard bicycle.
Since all of your products and services can be redesigned and improved which one do you want to start with? Maybe you cannot make your products out of cardboard but I can guarantee that you can make them better.
Any good suggestions scheme will generate a large number of ideas; millions in the case of a company like Toshiba. In addition you will have ideas coming into the funnel from idea events and other sources. Obviously not every idea can be funded, developed and implemented so many will have to be rejected. There is a tendency to accelerate this process by rejecting all outrageous ideas quickly so as to move on to the safe, steady, incremental ideas. But it is worth remembering what Einstein said, ‘“If at first an idea is not absurd, then there is no hope for it.”
Shell’s famous Gamechanger programme is designed to encourage ‘non-linear’ ideas. Employees can submit ideas that they think will result in increased revenues for Shell and the ideas are reviewed initially by a panel of their peers – not senior managers. If the idea looks promising experts review it and can immediately grant funding and skilled resource to enable the originator to build a prototype or develop a business case. One of the criteria that the evaluators have to use is this – how much would Shell lose if we rejected this proposal and it turned out to be everything that its proposer says it will? By considering the downside of missing out on a radical idea the risks and doubts are put into context.
Ideas that are rejected should be parked in a database so that they can be resurrected when input is needed. An idea that was rejected as unfeasible a year ago when oil was $50 a barrel might be compelling when oil is $200 a barrel. The old rejected ideas can later prove to be useful stimulations for new ideas.
The way in which the rejection is communicated to the originator is important. Creative people are sensitive souls. They care about their ideas. It is essential that they receive proper feedback and know that their idea was carefully considered. They need to hear the reasons for its rejection. A brusque – ‘it did not fit our criteria’ – will not do. If the rejection is handled properly they will continue to contribute ideas. If the rejection is handled badly then you may just have lost another source of future ideas.
Taken from The Innovative Leader by Paul Sloane
An Innovation in HR Policy
Evernote is a Californian company that sells a popular note-taking software package. It offers its people unmetered time off for holidays. Phil Libin, CEO, made this comment in the FT, ’Getting a job at Evernote is tough and people want to be here. If you take the attitude that being in the office isn’t a punishment then spending days outside the office is not a reward.’ Similarly the Sheffield based software company, Wandisco, gives unlimited vacations. CEO, Dave Richards, says, ‘People are very committed anyway so why do you need to restrict the amount of time they can take off?’
Limitless holiday time is a growing trend among high-tech companies including Netflix and UK based consultancy Inbucon. It is part of a culture where employees are highly engaged and committed. And in that atmosphere no-one seems to abuse the privilege.
LRN is a New York services firm that gives unlimited time off and pays expenses without vetting. It sounds wide open to abuse but Mike Slvarezza of the company says, ‘ Trust is hugely important and in working relationships and allowing people to take as much holiday as they want is part of that.’
Advocates of the system claim that staff continue to take modest amounts of holiday despite its unrestricted status. People at Wandisco take about 16 days a year. But most of these companies do not even record how much is taken so hard figures are difficult to obtain.
Could this be a big new innovation in HR policies generally? It is unlikely that it will suit larger companies and the fear of misuse will deter most HR departments. However, it does show what can be achieved when there is a high level of commitment and trust in a business. It motivates those employees who are fortunate enough to work for an employer who shows such a high level of faith.
Francisco González Bree, Academic Director for the Master of Business Innovation (MBI) course at the University of Deusto in Spain says, ‘ The term “innovation” is losing its genuine meaning because many companies are using it to convey change when the progress they are describing is no more than ordinary.’ He is right. Just as the government describes every piece of spending as an ‘investment’ so bosses talk about every change as an ‘innovation.’ We need a new word to differentiate radical innovation, finding an entirely new way to do things, from incremental innovation, which is really just improvement. How about ‘radovation’ and ‘incrovation’? Most managers and most business are good at incrovation – making improvements in current products, services, processes and methods. Most managers and most businesses are poor at radovation – implementing a completely fresh and challenging idea. Radical innovation is risky and can often threaten existing products and vested interests. It often fails leading to blame and recriminations. Yet the successful radovations are the real game changers.
Incidentally the MBI programme at Deusto which is run in conjunction with the Judge Business School in Cambridge looks a good alternative to a traditional MBA.
A recent special report in the Economist highlights a growing trend among American and European companies; they are bringing back work which was previously offshored or outsourced to cheaper locations. Offshoring means moving work and jobs outside of the country in which the company is based; outsourcing means giving work to outside companies. The process of bringing the work back is known as re-shoring. There are several reasons for this. The most obvious is that the difference in unit labour costs between developed and developing economies has diminished significantly. Wages in India and China have been rising at 10 to 20% per year over the last ten years while manufacturing pay has been mostly flat in USA and Europe. But there are other major reasons. General Electric (GE) is moving production of boilers and fridges from China to Kentucky so that manufacturing, design and development are closer together enabling the company to be more responsive to customers. Otis Elevator is moving a factory from Mexico to South Carolina to keep R&D closer to manufacturing and to reduce logistics costs.
When it comes to jobs in services such as IT many are coming back from India. Charlene Begley, CIO at GE, found that the company was losing key skills by outsourcing IT skills and it is now hiring 1100 IT engineers for a centre in Michigan. Randy Mott, CIO at General Motors (GM), believes that by outsourcing IT activities the firm was focusing on keeping things the way they were rather than trying new ways of working. He is bringing IT work back in-house to increase flexibility, speed and innovation.
It seems as though the big wave of outsourcing and off-shoring is coming to an end. There are fashions in business strategy just as in other walks of life and the outsourcing fashion is one that has had its day. If manufacturing pay is less than say 20% of the total cost of a product then moving production overseas to save costs is a dubious exercise – especially if it increases lead-times and reduces flexibility. Today’s watchword is agility. For that you need IT as a key core competence in-house and you need manufacturing to be close to design and development functions so that new products can be brought to market quickly. A good exponent of this approach is Zara, the Spanish fashion leader, which has spurned the opportunity to manufacture in the Far East in favour of fast, flexible local production in Spain, Portugal and Morocco.