Part 2 of 3 - Building a Systemic Innovation Capability

Interview - Rowan Gibson of "Innovation to the Core"

I had the opportunity to interview Rowan Gibson, co-author of "Innovation to the Core" about the book and about creating a systemic innovation capability inside organizations.

Rowan Gibson is a global business strategist, a bestselling author and an expert on radical innovation. In addition to "Innovation to the Core, Rowan is author of "Rethinking The Future", and a keynote speaker at large international conferences, corporate management events and executive summits.

We have split this in-depth interview into three parts. Here is the second part of the interview:


3. Innovation demand in an organization is equal in importance to innovation supply, but why don't most companies see that?

Again, it's because they are usually too focused on the front end. So they work hard to push up the supply of ideas, launching initiatives like online suggestion boxes, open innovation programs, creative competitions, and perhaps some kind of reward and recognition system. But they fail to create the necessary demand for innovation, meaning the natural, reflexive pull for new ideas within and across the businesses. Failure to drive and manage the demand side of innovation is often where the whole initiative falls flat.

I often ask companies a simple set of questions to gauge the level of innovation demand inside their organizations. For example, Do the executives who run your company's core businesses demonstrate genuine interest in radical, new ideas by redeploying adequate resources behind them? Are they held personally responsible for the performance of their unit's innovation pipeline? Do they spend a significant percentage of their time mentoring innovation projects?

One of the dilemmas today is that, in most organizations, the pressure to innovate is not very real and tangible to senior managers. If you are running one of the company's business units, for example, what is real and tangible to you is the pressure to meet the numbers - to improve operational performance - and you know you are being monitored on a monthly, weekly, daily, or even minute-by-minute basis. But there is usually no similar pressure that is holding you directly accountable for innovation performance. So your natural bias is to worry a lot more about efficiency, and short-term earnings, and monthly variances from budget, than about the innovation performance of your business unit.

The challenge, therefore, is to create a whole set of pressure points on the demand side that will make leaders as sensitive and responsive to the need to innovate as they are to the need to make the numbers. For example, companies can give senior managers unreasonably high growth targets that call for innovative ways to dramatically outperform the average; they can force their senior managers to allocate a portion of their budget to fostering innovation projects; and they can link a sizeable part of executive compensation directly to innovation performance. These are the kinds of measures GE has taken to drive innovation demand across the organization, and it has produced impressive results because GE is a company where managers are fanatic about achieving their goals.


4. Since the book was published, have you come across other organizations that you think are doing systemic innovation really well?

When we were writing the book, we devoted quite a lot of ink to companies like Whirlpool, P&G, IBM, GE, Shell, W.L. Gore, and Cemex. These are all excellent examples. Since then, of course, I've been working with all sorts of other organizations to embed innovation as a systemic capability. They include pharmaceuticals giants like Bayer and Roche: tech champions like Microsoft and Nokia: financial services leaders like Generali Group; massive consulting firms like Accenture; manufacturing companies like Rexam, top automobile brands like Volkswagen; trend-setting retailers like Ahold and Metro; home appliance makers like Philips and Haier; even heavy engineering firms like Debswana diamond mining. For the last half-year, I've also been very busy with Mars - the global manufacturer of chocolate, pet food and other food products - and I've seen a lot of progress there, too.

What really satisfies me is to see companies like these gradually institutionalizing and managing innovation as a discipline. So some of them are setting up innovation directors, innovation boards, business unit innovation officers, and innovation ambassadors. They are introducing comprehensive new metrics to measure their innovation performance. They are building new processes to produce and nurture a continuous stream of innovation opportunities from inside and outside the organization, as well as robust innovation pipelines for taking ideas from mind to market. They are giving their people new tools - including the "Four Lenses" methodology and web-based innovation platforms - that open up the innovation process to everyone. They are training literally thousands of their employees to use these skills and tools, and setting up incentive schemes and reward ceremonies to encourage them to innovate every day. They are hardwiring all their HR systems - pay, spot awards, the long-term incentive plan, the balanced score card objectives - into the company's innovation strategy. They are creating new cultural mechanisms, such as a discretionary time allowance, to foster and support innovators throughout their ranks. They are building dedicated innovation spaces where their people can ideate together. And they are working hard to make innovation a tangible corporate value, rather than just an aspiration.

There are few other companies, too - ones that I have not yet personally worked with - that I would point to as good examples of systemic innovation. They include Best Buy and McDonald's in the USA, and Tata in India. In fact, there's a rapidly growing list of organizations around the world that seem to be gaining traction with the innovation management challenge, and what they demonstrate is that large companies really can tackle innovation successfully in a broad-based and highly systemic way.


5. People often talk about not having time to innovate. How can people find the time for themselves or their employees?

This is such an important issue. When we asked more than five hundred senior and midlevel managers in large U.S. companies to identify the biggest barriers to innovation in their respective organizations, one of the most common responses was "lack of time." Most of us are struggling simply to get through the day, and it's almost impossible to think creatively, reflect on new strategic insights and innovate in a focused manner when you're running from one meeting to the next, making loads of phone calls, writing a thousand emails and frantically trying to work through all the other tasks on your to-do list. So companies need to think seriously about freeing up more time, energy, and brainpower across the organization to devote to innovation and growth.

The fact is, none of us are going to "find" time for innovation. We are going to have to "make" time for it by driving a wedge into our agendas and turning innovation it one of our strategic priorities. In the book we say that carving out time for employees to imagine and experiment and develop their own ideas is the "first commandment of innovation". For some companies, a discretionary time allowance seems to work quite successfully. Well-known examples would be 3M, Gore and Google, where employees can spend a percentage of their time on pet projects. Other organizations take a number of people out of their day jobs for a certain period - say, a few weeks or months - and let them concentrate on generating new insights and ideas as members of dedicated innovation teams. Here, I'm thinking of companies like Whirlpool and Cemex. In addition, Whirlpool also has a formal training program where people are given time to learn the principles, skills, and tools of innovation in the same way as they learnt Six Sigma. Then there's the example of Shell, where the time allowance actually comes after a person or team has submitted an idea, and these people are given one or two months, rising to perhaps a whole year, to design some small-scale, low-cost experiments to test the validity of their new business concepts.

The other thing to remember, as I have been emphasizing all along, is that creating bandwidth for innovation is not just about the front end. It also has to do with freeing up top management time for the back end of innovation - time to devote to steering innovation activities, reviewing ongoing innovation projects, setting priorities, allocating resources, mentoring innovators and embedding innovation as a core competence. And making innovation stick requires a significant number of people - outside of R&D and new product development - who officially work on a full- or part-time basis on innovation activities. One global company has already appointed 1,200 part-time innovation mentors along with 50 full-time innovation consultants, who coach and support would-be innovators throughout the organization, helping them push their ideas forward.


Related Articles

• Part 1 of 3 - Building a Systemic Innovation Capability
  
• Part 3 of 3 - Building a Systemic Innovation Capability (coming March 18, 2010)
  
• "Innovation to the Core" Book Review and Innovation Summary

Don't miss an article - Subscribe to our RSS feed and join our Continuous Innovation group!

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Braden Kelley is the editor of Blogging Innovation and founder of Business Strategy Innovation, a consultancy focusing on innovation and marketing strategy. Braden is also @innovate on Twitter.

Part 1 of 3 - Building a Systemic Innovation Capability

Interview - Rowan Gibson of "Innovation to the Core"

I had the opportunity to interview Rowan Gibson, co-author of "Innovation to the Core" about the book and about creating a systemic innovation capability inside organizations.

Rowan Gibson is a global business strategist, a bestselling author and an expert on radical innovation. In addition to "Innovation to the Core", Rowan is author of "Rethinking The Future", and a keynote speaker at large international conferences, corporate management events and executive summits.

We have split this in-depth interview into three parts. Here is the first part of the interview:


1. When it comes to innovation, what is the biggest challenge that you see organizations facing?

The biggest challenge is not generating new ideas and opportunities. It's how to make innovation a deeply embedded capability. What usually happens is that companies focus most of their efforts on the front end of innovation - so they launch some kind of ideation initiative with a lot of hoopla and they get a whole bunch of ideas. But then they hit a wall because there is no back end - there is no organizational system for effectively screening ideas, aligning them with the business strategy, allocating seed funding and management resources, and guiding a mixed portfolio of opportunities through the pipeline toward commercialization. So, invariably, what we find is that the whole innovation effort eventually withers. And all those enthusiastic innovators inside and outside the company become cynical and discouraged as they watch their ideas go nowhere.

The real challenge, therefore, is to turn innovation from a buzzword into a systemic and widely distributed capability. It has to be woven into the everyday fabric of the company just like any other organizational capability, such as quality, or supply chain management, or customer service. In other words, for innovation to really work, and to be sustainable, it has to become a way of life for the organization. Yet how many companies have actually achieved that? The sad truth is this: most organizations today still have absolutely no model, no practical notion, of what the back end of innovation actually looks like. If you asked them to build a corporate innovation system that seamlessly integrates leadership commitment, infrastructure, processes, tools, talent development, cultural mechanisms and values, they wouldn't even know where to start. That's the challenge Innovation to the Core was meant to address.


2. Why is it so important that organizations build a foundation of insights before generating ideas?

OK, let's go back to the front end of innovation. If you're going to do this properly, what you're really looking for is not just a lot of ideas. Senior managers often complain that most of the ideas they get from their employees and customers are not very good ones. So after they open up the innovation process to everyone, everywhere, they find themselves wasting valuable management time sorting through a heap of garbage to find a few interesting submissions. That's because, frankly, they don't really understand how the innovation process actually works.

Try to look at it this way: before you start building a house, you have to gather the right materials and lay a solid foundation, right? Remember the story of the three little pigs? If you build a house from the wrong materials it can easily be blown down, so it's useless. Then there's the Bible story of the house built on sand rather than rock. It makes a similar point: if you don't have the right foundation - regardless of the quality of the building materials - the house is equally useless. So it is with new ideas and opportunities. In a sense, they need to be built from the right "materials" and they need a solid "foundation", otherwise they won't be very good. What I'm getting at here is that there is actually a front end to the front end of innovation. Before you start ideating, you need a set of really novel strategic insights. These are like the raw material out of which exciting innovation breakthroughs are built. If you ask people to innovate in a game-changing way without first building a foundation of novel strategic insights, you find that it's mostly a waste of time. You get a lot of ideas that are either not new at all, or so crazy that they're way out in space.

So how do you develop those all-important insights? I teach companies a methodology for doing that in a systematic way - it's called "The Four Lenses of Innovation". The fact is that in order to discover new ideas and opportunities of any real value, people need to stretch their thinking beyond the conventional. They need to develop fresh perspectives. So the "Four Lenses" represent four specific types of perspectives, or ways of looking at the world, that innovators typically use to come to their breakthrough discoveries. They are (1) Challenging orthodoxies, (2) Harnessing trends, (3) Leveraging resources in new ways, and (4) Understanding unmet needs. By using these lenses, or these particular angles of view, it's possible to systematically look through the familiar and spot the unseen. That's how you discover those deep insights that others have overlooked or ignored.

Once you have gathered a collection of really inspiring insights, you can then do your ideation work. You start thinking about what kinds of ideas and opportunities could be built on these unexamined dogma, unexploited trends, underutilized resources, and unvoiced customer needs. And what that gives you is not just a high quantity of ideas but also a high quality. Rather than just pulling ideas out of the air, you generate opportunities that are grounded. They are based on real industry orthodoxies that deserved to be challenged, real discontinuities that could potentially reshape the business landscape, real competencies and assets that could be leveraged to create opportunities beyond the boundaries of the existing business, and real customer needs that have not yet been addressed. So you inspire ideas that are connected to the real world; they are not in some crazy, unbounded creative space. They are founded on realities - things you can test and validate.

Now imagine that instead of merely inviting everyone, everywhere to "go forth and innovate", you actually gave them access to these powerful strategic insights via a web-based tool, and you taught them how to ideate effectively. Can you see how that would dramatically enhance their innovation performance? That's what I'm currently doing with all kinds of organizations around the world.


Related Articles

• Part 2 of 3 - Building a Systemic Innovation Capability
  
• Part 3 of 3 - Building a Systemic Innovation Capability (coming March 18, 2010)
  
• "Innovation to the Core" Book Review and Innovation Summary

Don't miss an article - Subscribe to our RSS feed and join our Continuous Innovation group!

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Braden Kelley is the editor of Blogging Innovation and founder of Business Strategy Innovation, a consultancy focusing on innovation and marketing strategy. Braden is also @innovate on Twitter.

Book Review - "Innovation to the Core"

by Braden Kelley

A few weeks ago I received "Innovation to the Core" by Rowan Gibson and Peter Skarzynski (with an introuction by Gary Hamel) in the mail. "Innovation to the Core" weighs in at 295 pages, but it is an easy, and pleasant read. The book is full of a lot of great material, and the influence of Gary Hamel is evident in several of the chapters.

Rowan Gibson travels the world giving speeches and conducting innovation workshops, and Peter Skarzynski is the CEO of innovation strategy consultancy - Strategos (which is now owned by UTEK).

The book starts with a premise that I agree with, which is that too many companies view innovation as a specialized activity to be handled by specialists - in much the same way that people viewed the quality movement in its early days. Now of course companies endeavor to embed quality throughout the entire organization and seek to make it a core competency. The same thing now needs to happen with innovation in organizations that want to be able to both sustain themselves and win in the long term:


"Despite the gargantuan nature of the challenge, building a deep, systemic capability for innovation is now the inescapable imperative for every company - as important to an organization's success and survival as the quality movement was in its day."


To create the preconditions for systemic innovation you have to:

1. Create time and space for reflection, ideation, and experimentation


2. Maximize the diversity of thinking


3. Foster connection and conversation ("combinational chemistry")

Before reading this book, I've been trying to convince people that insights are more important than ideas and that the quality of a company's insights and execution are what will differentiate the winners from the losers in today's marketplace. This insights conversation has always been difficult because people always want to jump to the ideas - thinking that the idea is king.

It was refreshing to see that the authors of "Innovation to the Core" also feel that successful and sustainable innovation starts with the insight, and so Chapter 3 is all about building a foundation of novel strategic insights predicated on "Four Lenses of Innovation":

1. Challenging Orthodoxies


2. Harnessing Discontinuities


3. Leveraging Competencies and Strategic Assets


4. Understanding Unarticulated Needs

There are additional ways to generate insights to build sustainable innovation on, but these are a good starting point, and Chapter 3 by itself makes a purchase of this book worthwhile.

Once you identify the insights you are going to build on, then you can get on with producing a torrent of new product or service ideas and even attempt to innovate across the business model. One other key distinction that the book makes is that innovation doesn't have to be risky, and that when you look at your innovation portfolio, you should have a balance of ideas with differing levels of potential impact on the industry.

Timing is incredibly important to successful innovation too - both in terms of determining when to ask the right questions but also when to ramp up the level of investment in an idea. Ramp up the financial investment too soon and you may doom the project to failure from accumulating losses and progress that can't be accelerated by greater financial commitment. But, ramp up the financial investment too late and someone else may beat you to the market. The key is to identify which barriers to successful development can be accelerated by increased spending, and which can't.

I also liked how the authors of this book allocated some of this book to the importance of the demand side of the innovation equation. Companies that focus only on generating a greater number of innovation ideas without creating the conditions that increase the desire and capabilities of managers to develop an increasing number of innovation ideas, will face a higher chance of innovation failure over the long term.

Taken all together I found "Innovation to the Core" to be an interesting and important read for any manager looking to gain a deeper understanding of what's required for creating systemic innovation. The book was worth the time investment.


Related Articles:

• Part 1 of 3 - Building a Systemic Innovation Capability
  
• Part 2 of 3 - Building a Systemic Innovation Capability
  
• Part 3 of 3 - Building a Systemic Innovation Capability (coming March 18, 2010)

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Braden Kelley is the editor of Blogging Innovation and founder of Business Strategy Innovation, a consultancy focusing on innovation and marketing strategy. Braden is also @innovate on Twitter.

Escaping the Internet Commodity Trap

by Rowan Gibson

The Internet is like a black hole that relentlessly sucks in, digitizes and democratizes content of every kind. While that may be generally good news for consumers (hey, look at all the great stuff we can now get for free), it has turned out to be unbelievably bad news for the content providers. Ask anyone in the print media business, or the music business, or the movie business. For at least the last decade, industries that primarily produce content have been struggling hard to find a viable new financial model in a world where internet users (particularly the young generation) don't expect to pay for anything they read, listen to, or watch. As one popular mantra puts it: "Content is no longer king". The fact is, content distribution is now king. Power has shifted to the content aggregators - think Google, YouTube, Digg.com or iTunes - and to new media platforms like Amazon's Kindle reader or the Apple iPad. So how exactly are content providers supposed to make money in an era of rampant digital commoditization? The only option they have left is to innovate like never before; to reinvent their industry business models before they become obsolete.

I remember talking to Kevin Kelly, co-founder of Wired magazine, back in 1995 about the future of the Web. He told me he viewed the Internet as a "planetary-sized copying machine" and added that "trying to stop copying on the Net is impossible." Indeed, within a week of my latest book "Innovation to the Core" being published in Chinese, there were at least two websites in China offering a digital version of the book for illegal download. Consumers clearly win - why buy the physical book when you can get the digital file for free? But in terms of book sales and royalties, the author (i.e. me!) and the publishers lose out entirely.

That's why the book publishing industry is feverishly exploring a variety of new business models. One option is to sell eBooks direct to customers, cutting out middlemen like distributors and retailers, and building a community around the books and authors. Since eBooks have a relatively low price tag, the hope is that consumers will be willing to pay for the genuine article (a la iTunes) rather than download an illegal copy, especially if it comes with social-media-enabled tools that help them discuss and share the book with others. Another option is to make the eBook itself a richer multimedia experience (with audio, video, hyperlinks and so forth) rather than just a text-based medium. Instead of embedding all of these media in a single digital file (which would still be relatively easy to copy and distribute illegally), publishers could give consumers a code when they purchase the book that offers exclusive access to a dynamic, integrated online application environment.

A similar challenge faces today's music business. Over the last decade, music labels, retailers, and the artists themselves have seen their revenues fall off a cliff in an era when teenagers can - and do - get all the music they want for free. Last year, 95% of music downloads were still from illegal file-sharing sites. And although Apple is now the world's biggest music retailer, its iTunes store has never been a massive revenue producer. Instead, it simply serves as a provider of low-cost content for the iPod, helping to drive sales of Apple's premium-priced music player. So far, the latest trend - cloud-based, streaming music sites like Spotify, Rhapsody and Pandora - has not been very helpful to the music industry either. Until now, these sites have employed a free-to-users, ad-supported model which doesn't generate much money for the labels or the artists. As an example, it's estimated that a million plays of Lady Gaga's popular song "Poker Face" on Spotify only earned her a paltry $167.

Frankly, I'm not too worried about the artists because most of them make their money these days on concert revenue and merchandising, not on the sale of recordings. And since people go to live concerts to hear artists performing songs they already know, it's actually in the artists' interests to have their music distributed as widely as possible, even if it's for free, in order to generate a lot of fans. Yet what about the music labels? How can they possibly compete against free downloads? Only by finding innovative new ways to add value. That's what MusicDNA is all about. It's a new digital file format that contains not just music but additional content such as lyrics, images and interesting info like interviews, tour schedules, or updates to the artists' social network pages. Anyone who downloads the file illegally would miss out on all these extras. So MusicDNA offers hope that the industry can open up new revenue streams. It may also point the way forward for Hollywood studios as they look for ways to battle illegal movie downloads.

Another victim of the Internet commodity trap has been the traditional news media industry. According to a new survey by the Pew Internet and American Life Project, more Americans now get their news from the Internet than from newspapers, and three-fourths say they primarily learn of news via updates on social media sites like Twitter. So as readers (closely followed by advertisers) make a mass exodus from print to digital media, 'The Press' as we know it seems to be going the way of the dinosaur. In the face of mounting bankruptcies, mass layoffs and plunging advertising sales, some publishers have already thrown in the towel. As an example, McGraw-Hill recently signaled their despair by selling off BusinessWeek at the bargain basement price of less than $5 million.

So is there any hope for this ailing industry? Some think it might still be possible to go back to the old 'paid content' model. Rupert Murdoch, illustrious media mogul of News Corporation, has been making headlines over the last year with his plans to erect a pay wall around his media. And, if it works, others will almost certainly follow. An analogy could be the advent of cable TV in the 1960s and 1970s. At first, very few believed that anyone would be willing to actually pay for TV shows and movies after spending decades watching them for free. But today the average household in North America pays about $50 a month for Pay-TV, so why shouldn't the same principle work for the Internet? There is also new hope on the horizon in the form of emerging digital media platforms like Kindle and Apple iPad, that promise to bring fresh revenues to the news industry by charging readers to access publications in an exciting new way.

Gordon Crovitz, former publisher of the Wall Street Journal, has co-founded a company called Journalism Online to help newspapers find new payment models. These range from micropayments - where readers pay for individual stories - to "freemium" models like the one used by the Financial Times, where readers can view 10 free pages every 30 days.

One of Rupert Murdoch's properties, The Wall Street Journal already charges readers US$119 a year for an online subscription. The WSJ is also experimenting with a new kind of media mix that takes it beyond the written word. Last September, its Digital Group rolled out News Hub, a twice-daily video news series. In January The Wall Street Journal Network delivered a record 5.5 million streams, with about a million or so views being generated by News Hub. This February the group launched Digits, a video series focused on technology which streams live each weekday, and plans are now in the works for several other original live series.

As whole industries see their traditional business models sucked into the Internet commodity trap, their only hope of escape has become radical innovation. For content providers of every stripe, success and survival in the future will be based on the ability to fundamentally rethink, re-imagine and reinvent themselves by innovating around who they serve, what they provide, how they provide it, how they make money, and how they differentiate from the rest. Stewart Brand's maxim may have famously stated that "information wants to be free", which is at the heart of utopian Internet democracy, but the cold reality is that every business has to make money. That means that whether you produce books, newspapers, magazines, music, movies or TV shows, somebody somewhere has to pay somehow. Figuring out who that could be - and how the financial model would work - is one the greatest business battles of our age.


Related Articles - "Content is No Longer King" - Part 1 - Part 2 - by Stephen Shapiro


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Rowan Gibson is widely recognized as one of the world's leading experts on enterprise innovation. He is co-author of the bestseller "Innovation to the Core" and a much in-demand public speaker around the globe. On Twitter he is @RowanGibson.

Building Up Innovation Capital

by Rowan Gibson

As usual it was Peter Drucker, the godfather of modern management, who said it first. Right back there in 1966 (!), in his landmark book "The Effective Executive", Drucker argued that companies would need to build a new kind of organizational capital as the industrial economy gave way to the knowledge economy. His famous proclamation was that, in future, brainpower would be a more valuable asset for wealth creation than factories and financial clout. All of which came true, of course. But that was not the end of it. Now, over four decades later, we are once again challenged to rethink organizational capital as we make the transition from a knowledge economy to an innovation economy. And that creates a new agenda for every single company.

For most of the last century, as well as the previous one, we looked at companies as if they were comprised of only two kinds of capital: financial and structural. Financial capital obviously refers to a company's balance sheet. Structural capital is the value of its physical assets - its networks, facilities, warehouses, plants, inventory, and so on. Thus, if we had gone back and spoken to the super-rich industrialists and financiers of the late 19th and early 20th century - such as Vanderbilt, Rockefeller, Carnegie, and Morgan - they would have told us that this was the only way to measure the worth of an enterprise. Move forward a few decades and the same would have been true if you had talked to great business builders like Henry Ford, Alfred P. Sloan, Thomas Watson Sr., or any of their corporate accountants. What counted back then was the tangible stuff that is easy to quantify and monetize on a financial statement.

In the 1980s and 1990s, that began to change. In large part because the stock market value of companies was beginning to get out of all proportion to the "book value" of their physical assets. Microsoft, for example, had an almost 8-to-1 ratio of market value to physical assets value. And when Philip Morris bought Kraft in 1988 for $12.9 billion, the "hard assets" of the firm were calculated to be worth only $1.3 billion. That means Philip Morris was paying a full $11.6 billion - or 89.9% of the transaction price - for "other stuff" that wasn't even on the balance sheet: intangible stuff like brand equity, marketing capability, and so on.

British futurologist Hugh Macdonald coined the phrase "intellectual capital" to describe these intangible assets. He defined it as "knowledge that exists in an organization that can be used to create differential advantage." And in a seminal article in Fortune magazine in 1991, Thomas Stewart wrote that "every company depends increasingly on knowledge - patents, processes, management skills, technologies, information about customers and suppliers, and old-fashioned experience. Added together this knowledge is intellectual capital."

From then on, we had three forms of capital - three basic kinds of assets - with which to measure a company's worth. But in a new, innovation-based economy, where value-creation is the new Holy Grail, the way we define, measure and manage organizational capital is again woefully incomplete. In 2001, strategy guru Gary Hamel argued that financial, structural and intellectual capital, by themselves, do not create new wealth. And I agree with his astute observation. Think about GM. If any company on earth ever had huge amounts of money, massive dealer and supplier networks, giant manufacturing plants, countless technological patents, well-oiled management processes, tons of customer information and decades of industry experience, it would have to be General Motors. Yet where is GM today? In effect, all of those assets have proven to be almost worthless in terms of creating new wealth.

Hamel's view is that the three traditional forms of capital are largely inanimate. In today's competitive era, they need to be animated or catalyzed by three new kinds of organizational capital if we want to translate them into wealth. He calls these "imagination capital", "entrepreneurial capital", and "relationship capital", all of which are different forms of human capital.

Consider the first one. Most companies would tell you that knowledge is a critical resource. Many large organizations have internal KM efforts aimed at sharing information and experience across the firm with a view to continuous improvement. But in a world where the pace of change has gone hypercritical, we're finding out that success has less and less to do with learning from the past, and more and more to do with imagining future opportunities. Knowledge has become a commodity. Let's face it, you can go online and find out almost anything with just one or two clicks. So the issue is not how much you know but how creatively you can leverage what you know. Today, the advantage increasingly goes to those firms that develop "imagination capital" - which is the capacity to dramatically reconceive what the firm is and imagine entirely new uses for its financial, structural and intellectual capital. Einstein's oft-quoted reflection that "imagination is more important than knowledge" becomes the mantra of the innovation economy.

Second, companies need to develop their "entrepreneurial capital", which means building the entrepreneurial spirit into many, many employees across the whole organization, not just in an incubator or some new venture division that exists out on the periphery of an otherwise orthodox company. It's about creating a cultural environment where the entrepreneurial spirit is everywhere; where ordinary employees can have the courage to experiment and try something new, where they can get unfettered access to the financial and human capital they need to push their ideas forward.

The third of these new kinds of capital is "relationship capital" (or what I would call "network capital"), which refers to the connections a company can make between previously isolated people, ideas, resources and domains - both across and beyond the organization. Innovation is so often about spotting the opportunities that come from recombining and blending all of these ingredients. The quality of a company's network of relationships - its ability to connect with individuals and organizations that have very different skill sets and capabilities - is becoming more and more critical to its own capacity to innovate.

Here's the sad reality: most companies don't have a clue about how to support
the development of these new forms of capital. So the challenging agenda for
organizations around the world will be to think about exactly what it takes to
build, measure, manage and exploit what amounts to their "innovation capital" - which is so essential to creating wealth in our times.

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Rowan Gibson is widely recognized as one of the world's leading experts on enterprise innovation. He is co-author of the bestseller "Innovation to the Core" and a much in-demand public speaker around the globe. On Twitter he is @RowanGibson.

Do you have a Corporate Innovation System?

by Rowan Gibson

Co-authored with Peter Skarzynski, CEO of Strategos, in close collaboration
with well-known strategy guru Gary Hamel, I believe that "Innovation to the Core" (Harvard Business School Press) is by far the most important thing I've ever done.

Lots of people have been asking me for a synopsis of the book, so here goes...

Could you describe your company's "corporate innovation system"? Ask this question inside most organizations and all you get is a blank stare. It's obvious that, in the vast majority of firms, innovation is still more buzzword than core competence.

Yet a few leading-edge players - including GE, IBM, P&G, Whirlpool, Shell, Cemex, Best Buy, and W.L. Gore - are demonstrating that large industrial organizations really can tackle the challenge of innovation successfully in a broad-based and highly systemic way.

What these companies understand is that it's entirely possible to make innovation an "all-the-time, everywhere" capability, something that becomes part of the organization's bloodstream - just like quality, for example.

Instead of ascribing innovation to a mysterious mix of happenstance, individual brilliance and the occasional bolt of lightning, the first thing we need to do is demystify the innovation process. If you want to create a high-performance "innovation engine" inside your organization, you need to recognize and address three cultural preconditions for making breakthroughs happen: creating time and space in people's lives for reflection, ideation and experimentation; maximizing the diversity of thinking that innovation requires; and fostering connection and conversation - the "combinational chemistry" that serves as a breeding ground for breakthrough ideas.

Next, you need a methodology for systematically generating novel strategic insights - these are the raw material for innovation breakthroughs. There are four specific kinds of insights that enable innovators to discover new and unexploited opportunities of real value. These are: company and industry orthodoxies that deserved to be challenged, trends and discontinuities that could potentially reshape the business landscape, competencies and assets that could be leveraged to create opportunities beyond the boundaries of the existing business, and emergent but as yet unaddressed customer needs.

Once your company has built a foundation of novel strategic insights using these four "lenses of innovation", the next step is to "crash" various insights together to see if the collision opens up new opportunities for innovation. Radical business innovations are almost always the product of "creative collision" - i.e. they are based on a combination of insights, ideas and domains that don't usually belong together. It is also imperative to examine each component of your company's (or your industry's) business model, using insights from the "four lenses" to uncover opportunities for industry reinvention.

In addition to this ongoing insight discovery and ideation work, which should engage as many minds as possible across your organization, the goal is to open up the innovation process to your extended network of customers, suppliers and partners, involving all of these constituencies in the search for new growth opportunities.

Once your company is using all these available means to improve the quantity and the quality of new ideas entering its innovation pipeline, you should make sure you are employing the right evaluative criteria at every stage of the opportunity development process, so that you avoid prematurely killing off potentially valuable ideas. The most important question to ask first, for example, is not "What's the expected ROI?", but "How BIG is this idea?" - based on the understanding that it is radical (rather than incremental) ideas that tend to deliver breakthrough performance.

It is also crucial to build mechanisms for rapidly reallocating resources behind new growth opportunities, as well as an "innovation architecture" that gives strategic coherence and consistency to your opportunity portfolio. You want to make sure your innovation pipeline is robust enough to nurture, manage and commercialize the ideas your organization decides to pursue, and that it is capable of managing growth opportunities with very different timescales and risk profiles. You are also going to need a comprehensive set of metrics (linked to management compensation) that is designed to measure innovation performance - including inputs, throughputs, and outputs.

Finally, to drive innovation to the core, you need to put the necessary systems, structures and processes in place to make innovation a self-sustaining enterprise capability and a tangible core value. This requires four interdependent and mutually reinforcing components that need to come together to institutionalize innovation: visionary leaders and organization aligned around a common vision of innovation; a disciplined approach to building innovation capabilities across the organization; a systematic approach and supporting tools to enable idea generation, pipeline and portfolio management; and a collaborative, open culture that rewards challenging the status quo.

Do all of this and your innovation outputs will soar!

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Rowan Gibson is widely recognized as one of the world's leading experts on enterprise innovation. He is co-author of the bestseller "Innovation to the Core" and a much in-demand public speaker around the globe. On Twitter he is @RowanGibson.

Will China 2.0 Out-Innovate Your Company?

by Rowan Gibson

Pick up your iPod and turn it around. Note the cool and somewhat snobby phrase that's printed on the back of the device: "Designed by Apple in California. Assembled in China." These eight words speak volumes about the Middle Kingdom's role to date in the global economic food chain. But it's already a seriously outdated paradigm. After thirty years as a lowly "workshop for the world", China is getting ready to move up the value chain. And this transition - from low-cost manufacturing to world-class innovation, design and marketing - will change the rules of competition everywhere on earth, including inside China. So forget whatever else your organization considers to be a strategic priority and ask yourself: "Are we gearing up for China 2.0?"

On a recent trip to Beijing, I was struck by how radically the focus of everyday business conversations has changed. And this has nothing to do with the global recession, which temporarily took some of the wind out of China's sails. It has much more to do with the realization that China is entering a new and quite different era in its economic development, and that companies (both local and foreign) will have to act quickly and decisively if they are going to carve out a place in it.

Until now, there were certain words that seemed to dominate all business conversations in China. Obviously, one of them was "growth", which is understandable considering that China's economy has doubled in size three times over in just the last thirty years! Another dominant word was "cost", as in low-cost, cheap, cheapest - which is a concept no nation has mastered quite like the Chinese. And still another was "export", since China's white-hot growth has been driven primarily by exploding overseas demand.

But now the game - and the conversation - is changing. There's a new set of words and phrases that I'm hearing more often in business circles in China. Like "world-class", "high performance", "global", "better" and "best". Company leaders - whether they are from local Chinese firms or foreign multinationals - are talking a lot less these days about "manufacturing in China" (been there, done that) and a lot more about "marketing, design and innovation in China" (you ain't seen nothing yet). This shift in rhetoric has incredible implications for the shape of future competition, both globally and in China's own massive home market.

However, you might argue that China still has a long way to go before the rhetoric becomes reality. And you'd be right. Take innovation, for example. In the recent International Innovation Index, produced in part by Boston Consulting Group, China was ranked as the world's 27th most innovative nation, just behind New Zealand. To put this in context, some of China's regional neighbors were at the very top end of the scale: Singapore was ranked first in the world, South Korea took the number two slot, and Japan landed in 9th place (right behind the United States). Newsweek's comment on these rankings was quite typical: "China excels at producing huge volumes of low-cost products, but Japan and South Korea are tops in innovation and high-tech goods."

It definitely won't stay that way. Consider some data that support this conclusion. For a start, the number of patent applications from Chinese companies has increased ten-fold over the last decade, and the annual growth rate is almost twelve per cent. In fact, the world's most prolific filer of international patents last year was Huawei Technologies, China's largest networking and telecoms company, which became the first Chinese enterprise to top the list. Overall, China ranked 6th among countries according to the number of patents filed, after the USA, Japan, Germany, South Korea and France. And if current growth rates continue, China will surpass them all in about a decade.

In his brilliantly researched book China Inc., journalist Ted Fishman says, "China has yet to introduce the kind of world-changing technology or consumer products that are the hallmark of advanced economies. But it will." And he continues, "The genius that has so far poured into creating great factories will soon be evident in great products and great brands that will offer the world unsurpassed quality and refinement."

That process is well underway. It's notable that in 1995 there were just three Chinese companies on the Fortune 500 list. By 2000, it was ten. By 2005, the number had jumped to eighteen, and in 2008 - a mere three years later - it had leapt to 35. Companies all over China are rising to the challenge of becoming high-performance business players, many on a global scale. Huawei, for example, is already giving Cisco a run for its money in the networking business. In 2007 the company reported annual revenues of $16 billion, and in 2008 $23.3 billion. That's a 45 per cent increase year-on- year. And over 60 percent of Huawei's revenue is generated outside China. Another Chinese champion, Haier Group, is currently the fourth-largest appliance manufacturer in the world, with global revenues in 2008 of nearly $18 billion. Sales outside China are rising by about 10% year-on-year, and the company has grabbed a significant share of the U.S. market by focusing on neglected product niches like compact refrigerators and electric wine cellars. Haier has already surpassed rival Whirlpool as the world's top refrigerator producer in terms of sales.

Gong Li, chairman of Accenture in Greater China, has a catchy way of describing the challenge of moving up the value chain. He calls it "Jumping Over The Dragon Gate", which refers to an old Chinese legend in which carps had to swim against the current and jump over a tall gate to transform themselves into dragons. As more and more Chinese companies close the performance gap with their global counterparts, Li believes they will be able to "make the jump". And Anil Gupta, co-author of the excellent new book Getting China and India Right, absolutely agrees. He warns that China will produce "fearsome global competitors at a speed that the world has not seen
before". So what exactly is your own organization doing about the rise of China 2.0? And, for that matter, what are you doing about it in your personal career? Isn't it time you started learning Mandarin?

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Rowan Gibson is widely recognized as one of the world's leading experts on enterprise innovation. He is co-author of the bestseller "Innovation to the Core" and a much in-demand public speaker around the globe. On Twitter he is @RowanGibson.

Innovating Healthcare

by Rowan Gibson

The first modern hospitals were founded in Europe and America in the 18th century. About a hundred years later, both the pharmaceutical industry and the health insurance industry began to emerge. So it's safe to say that, in much of the developed world, the healthcare business has been around for about two or three centuries. And, over time, like most other businesses, it has become bigger, better and faster. But has it actually become different in any essential ways? Not really. Yet that's about to change. In a world of hyper-accelerating change, global competition, rapidly commoditized products and services, and unprecedented patient primacy, the industry is waking up to the need to reinvent itself from top to bottom for a whole new era.

Over the last few years, I've been spending a disproportionate amount of time with healthcare people. Not because I'm sick (thankfully!). But because there's a growing recognition right across the industry that the strategies and business models of the last couple of centuries may no longer be fit for purpose. The world is simply changing so much, and so quickly, that the old ways of doing things (and they are very old) are looking increasingly archaic, perhaps even obsolete.

As regular readers of this column will know, my approach to radical rethinking and renewal is centered on a set of strategy tools called the "Four Lenses of Innovation". Briefly, they are: challenging orthodoxies, harnessing trends, leveraging resources in new ways, and addressing unmet customer needs. And if we look at what is happening in the healthcare industry around the globe, we can see numerous and very exciting examples of these four "lenses" in action. Here are just a few.

One of the stubbornly enduring orthodoxies in hospital management is the age-old notion that we all make mistakes - "to err is human". Everyone has heard horror stories of people having the wrong leg amputated, or getting an operation that was meant for the patient next door. Every year in the U.S., for example, millions of hospital patients suffer injuries - about 100,000 of them fatal! - from things like false medication, incorrect dosage, inefficient diagnostics, duplicated procedures, and so forth. Yet in healthcare, people have long accepted these medical errors as "part of the system". This is clearly an orthodoxy that must be challenged. When IBM took a good look at what was going wrong - and all too often it was stupid things like illegible handwriting, misplaced decimal points, missed drug interactions and allergies - they realized they could alleviate the problem. They offered to use IT to help hospitals manage their patient data a lot more effectively, in much the same way that companies manage their supply chains. This was the birth of IBM Life Sciences, which has grown from a 2-person unit in 2000 to a multi-billion dollar, 1500-employee business today.

Consider another orthodoxy - this time in the pharmaceutical industry. The traditional pharma model is based on drug discovery - testing thousands of compounds to see if any of them makes a measurable difference. It's a model that has essentially remained unchanged since the industry got started in the 19th century - the only difference being the scale and efficiency with which today's pharma companies can manage the compound-testing process. Today, however, a new set of players has emerged - companies like Amgen, Genentech, and Genzyme - where the business model is focused on understanding disease mechanisms (i.e., genetic diseases, immune system disorders, heart disease, cancer) and creating targeted products that address those mechanisms. Their promise is 'personalized medicine', in which the therapy can be matched to an individual's own unique genetic makeup, as opposed to big pharma's "mass medicine" model. By innovating around gene-based therapy, which is based on completely different skills and assets from conventional drug-making, this new breed of pharma companies is fundamentally changing the game. Which explains why Swiss pharma giant Roche was recently so focused on swallowing up biotech pioneer Genentech.

Now think about trends. Look at what's happening in the technology field alone - from e-health to handheld scanners, mobile information devices, telemedicine, surgical robots, remote diagnostics, "integrated digital hospitals", 24/7 access to full medical records, and the list goes on. Or consider the parallel trend "from high tech to high-touch", where design elements such as nature, color, lighting, noise reduction, and so forth, are being used by a few cutting-edge hospitals to promote what is known as a "healing environment" that treats both body and soul.

Then there are healthcare providers that leverage their resources in novel ways to create new value for customers. India's Apollo Hospital Group, for example, which is the largest healthcare provider in Asia, and the third largest in the world, uses its expertise to offer medical business process outsourcing - i.e. writing of diagnosis reports, medical coding, billing etc. - to hospitals right across America. And for many of these hospitals, Apollo take cares of radiology, X-rays, ultrasound, CTs and MRIs when it's nighttime in the U.S., taking advantage of the time difference. The company's IT-enabled services already generate tens of billions of dollars.

And what about unmet customer needs? Again, there are great examples. Like Florida Hospital, where staff did "day in the life" profiling of patients so they could better understand and address their problems and frustrations. Or California's Fresno Surgical Hospital, which has modeled itself on the Ritz Carlton hotel to offer a '5-star patient experience' - including luxury rooms, mini-bars, art on the walls, and food prepared by a Ritz-Carlton chef.

True, many of these examples are still about improving what has always been done. But as all this exciting innovation activity continues, I believe we'll soon see the healthcare industry doing things it has never done before.

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Rowan Gibson is widely recognized as one of the world's leading experts on enterprise innovation. He is co-author of the bestseller "Innovation to the Core" and a much in-demand public speaker around the globe. On Twitter he is @RowanGibson.

Elevating HR to Drive Innovation

by Rowan Gibson

It's every employee's nightmare in recessionary times: finding a "pink slip" in the pay envelope, or getting a fateful phone call from HR. Over five million workers in America have had that gut-wrenching experience since the economy hit a wall in 2007. And this year the global layoff tsunami will claim millions more jobs worldwide. So I imagine that, right now, a lot of HR Directors are feeling about as popular as bird flu. But they need to take heart. Even in the midst of the worst economic woes for several decades, a new day is dawning for Human Resources. It's the day that HR finally gets the strategic recognition it deserves; the day that HR steps up from a mundane back-office function to play a center stage role.

My friend, Dave Ulrich, professor of business at the University of Michigan, has long argued that HR leaders should assume a more vital, strategic role inside their companies. Rather than merely busying themselves with everyday stuff like policies, payroll, and picnics, Ulrich says that HR professionals should be striving to build and strengthen the unique set of organizational capabilities that give a company its competitive advantage. In essence, that means developing a particular mix of resources, processes and values that makes it hard for rivals to match what the company does.

Sounds good in theory. But before the HR department starts packing boxes and moving upstairs, we should first give some serious thought to exactly which organizational capabilities today's companies should be building. Let's face it, most traditional forms of competitiveness - cost, service, technology, distribution, manufacturing, product design - can now be quite easily copied. Sure, these variables may still provide a company with a temporary head start, but over time they no longer offer the basis for a sustainable competitive advantage. So what do we have left? The answer, in a word, is radical innovation. As my colleague Gary Hamel puts it in "The Future of Management":


"In a world where strategy life cycles are shrinking, innovation is the only way a company can renew its lease on success."


What we're finding out in today's value-based economy is that radical, game-changing innovation is literally the only strategic weapon we have left, in the sense that it's the only capability that can create value for customers in a way that is difficult for competitors to imitate.

That's why innovation is now such a major strategic priority for every company on earth, not to mention national and even regional governments. But it's also where the real problem starts. Because, until now, very few organizations in either the private or the public sector have managed to turn innovation from a buzzword into a core competence - a wall-to-wall, top-to-bottom enterprise capability. Most of them wouldn’t even know where to start - or, indeed, how to sequence - the capability-building process.

As I have written before in this column, making innovation a systemic organizational capability is a complex and multifaceted challenge. It simply cannot be solved with some Band-Aid or silver bullet. Instead, it requires deep and enduring changes to leadership focus, performance metrics, organization charts, management processes, IT systems, training programs, incentive and reward structures, cultural environment and values. All of these elements need to come together and mutually reinforce each other as a system in order to institutionalize innovation. Otherwise, a company's efforts to make "all-the-time, everywhere" innovation happen will be doomed.

What companies need is not merely a pro-innovation mindset, or better brainstorming techniques, or "hot teams". The challenge is not about quickly coming up with a few new products or services to get the sales curve moving upward. It's about making innovation a new organizational way of life; something that permeates everything a company does, in every corner of its business, every single day. It's about infusing the entire lifeblood of an organization with the tools, skills, methods and processes of radical innovation.

That's the true imperative for rethinking the role of Human Resources. As soon as we recognize the strategic value and the immense organizational transition that's involved in building a corporate-wide innovation capability, HR automatically moves to center stage.

Who else but HR leaders would be capable of turning a company's strategic intent with regard to innovation into tangible everyday action? Who else could make the necessary changes to executive roles and goals, political infrastructures, recruitment strategy, broad-based training, performance appraisals, awards and incentives, employee contribution and commitment, value systems, and so on? Who else could build and foster the cultural and constitutional conditions - such as a discretionary time allowance for innovation projects, maximum diversity in the composition of innovation teams, and rampant connection and conversation across the organization - that serve as catalysts for breakthrough innovation? Who else could ensure that each employee understands the link between his or her own performance (as well as compensation) and the attainment of the company's innovation strategy? In short, who else but HR leaders could create a company where everyone, everywhere, is responsible for innovation every day—whether as an innovator, mentor, manager, or team member?

The sad reality is that too many CEOs overlook HR's potential in this regard. They still think of HR solely in terms of regulatory compliance, hiring and firing, employee comfort, compensation and benefits. Notably, Jack Welch, illustrious ex-CEO of GE and arguably one of the greatest corporate leaders of our times, sees things differently. In a recent column in BusinessWeek, he writes that "every CEO should elevate his head of HR to the same stature as the CFO." I couldn't agree more. It's time for HR to step up to the plate and take on the strategic role of innovation capability builder.

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Rowan Gibson is widely recognized as one of the world's leading experts on enterprise innovation. He is co-author of the bestseller "Innovation to the Core" and a much in-demand public speaker around the globe. On Twitter he is @RowanGibson.

Waiting for the World to Catch Up

by Rowan Gibson

My heart goes out to innovators the world over. Even at the best of times, it can be tough to find financial backing for radical new ideas. But in the midst of a once-in-acentury, out-of-control economic crisis, with corporate profits in a steep nosedive and banks unwilling to lend, the chances of getting some resources to push an idea forward are currently close to zero in many organizations. Yet it's estimated that 70 percent of today's revenue-producing products and services will be obsolete in just five years, not to mention the industry business models behind them. So if companies give innovation the thumbs-down now, exactly how and when do they intend to renew their offerings - and their core business strategies - for driving future growth?

We all know that over the last several months global demand for almost everything has fallen off a cliff. Customers across the board are cutting back, cancelling orders, or trading down to lower-cost solutions. So why, the argument goes, should companies be concerned with financing "the next big" thing when it's hard enough trying to sell the thing they've already got?

I have two answers. The first is this: if the sales curve is dropping off the bottom of the chart 'the proper response', according to Intel's CEO Paul Otellini, 'is to give customers new reasons to buy'. Despite a 90 percent drop in fourth-quarter net income last year, Intel's strategy is to keep investing in innovation during the recession. In a speech earlier this year at the Economic Club in Washington, D.C., Otellini said he plans to spend $7 billion to upgrade technology at Intel's U.S. manufacturing plants over the next two years. By beefing up his factory's production processes, Otellini aims to beat the competition by fabricating chips with 32-nanometer circuitry, as opposed to the current 45-nanometer standard. These new chips, which combine higher performance with low power consumption and price, will drive future revenues by enabling the next generation of desktop computers and laptops - and helping Intel open up important new markets.

My second answer is that companies often win big by innovating at a time when there is no demand and then waiting for the world to catch up. An example would be Nespresso, Nestlé's capsule-based coffee system. It might surprise you to find out that Nestlé bought the original patent in the 1970s, but it took three decades before Nespresso achieved mass-market appeal. Why? For one thing, there were initially some technical hurdles to overcome. But, more crucially, it's because up until a decade or so ago, most people's coffee drinking tastes were not very sophisticated. For many years, most of us were quite satisfied with a typical, filter-based machine or even granules of instant coffee. Then we fell in love with Italian Cappuccino and Espresso, and we got a Starbucks on every corner, and we discovered Latte and so on. Today, Nespresso's coffee machines and little capsules are a fixture in homes and offices all over the world. Nestlé recently announced that annual revenue for the product, which grew 30 percent in 2008, now surpasses $1.7 billion, representing a full 5 percent of the company's overall sales. It's currently the fastest growing among Nestlé's brands, and it's helping the company successfully ride out the recession. As the International Herald Tribune puts it, "the global economic downturn may be the most serious since the 1930s, but these are boom times at Nespresso."

The lesson here is that, even when the resources for innovation are extremely limited - as they may well be right now - companies should be very careful not to kill off potentially big ideas just because sales are in a slump and there is no perceptible demand at present for the "next big thing". On the contrary, it often pays to nurture these slow-burn opportunities to their proper fruition by funding them over time in small, staged increments and waiting for market conditions to improve so that the idea can take off.

Companies need to ask themselves, 'How can we commit resources to this new opportunity, yet simultaneously remain extremely tentative in terms of investment?' In the case of Nespresso, it took decades for the market penetration curve to go from horizontal to vertical. But for many other business innovations, the timeframe was dramatically shorter, meaning that demand went from zero to through-the-roof in the space of just a few years or even months.

Nobody, for example, was crying out for eBay, iTunes, Skype, MySpace, YouTube, PayPal, or Google Earth. Yet their creators believed these ideas had huge potential and they pursued them anyway, in some cases on a ridiculously shoestring budget. The rest, of course, is business history.

Indeed, go back to the early nineties and you'll find that there was almost no demand for the Internet. Not even Bill Gates saw its potential in the early days, let alone his customers. Back then, it was almost impossible to foresee a mass-market demand for what, at the time, seemed like a grassroots IT network for university students. But a few visionaries, eventually including Gates, began to grasp that - if it was scaled up - the Internet could actually have the potential to change the world. Now, just fifteen years later, over a billion people are on the Web and we can't imagine life without it. One last story: in 1994, the fledgling cell phone industry introduced an extra data channel on mobile networks that was designed for sending technical information. They called it "Short Message Service", and it was generally met with a yawn. Who could have known back then that SMS, which at the time was essentially a by-product, would eventually become like oxygen for teenagers all over the world? Today, it actually generates more revenue for network service providers than mobile phone calls.

That's precisely my point: sometimes you just have to grind away at innovation - even when resources are very limited and there's no current demand - and wait for the world to catch up.

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Rowan Gibson is widely recognized as one of the world's leading experts on enterprise innovation. He is co-author of the bestseller "Innovation to the Core" and a much in-demand public speaker around the globe. On Twitter he is @RowanGibson.

Innovation Perspectives - Ideas are Not Enough

This is the sixth of several 'Innovation Perspectives' articles we will publish this week from multiple authors to get different perspectives on 'What is the most dangerous current misconception in innovation?'. Now, here is Rowan Gibson's perspective:

by Rowan Gibson

One of the most prevalent and dangerous misconceptions in innovation is that it's all about coming up with ideas. So when companies catch the innovation bug, their tendency is to run off and immediately launch fun initiatives like online suggestion boxes, creative competitions, open innovation programs and offsite brainstorming sessions. Of course, in themselves, these initiatives are not wrong. In fact, they can be an essential part of the process. But ideas are just the front end of innovation. Without the back end of innovation - the capacity to effectively screen ideas, align them with strategy, allocate resources to them and manage them successfully toward commercialization - all of those light bulbs and eureka moments will never add up to much.

When you ask most people to describe their company's "corporate innovation system", all you usually get is a blank stare. Sure, they may tell you they have recently been involved in some sort of idea submission scheme, but if you ask them what their company actually does with all the ideas - how many of them have so far been turned into experiments, how many are receiving more serious funding and attention, how many ventures are heading for commercialization, and how much money those ventures are expected to generate - people's answers tend to become a lot more vague. The sad truth is that most organizations have not yet developed a clear model - reflected in management practice - of what the back end of innovation actually looks like.

In my speeches, I often compare the front end of innovation to the sparkplugs in an engine - the exciting ideation part where new ideas are born from inspiration and breakthrough thinking. But I argue that literal sparkplugs would be completely useless if there were no engine around them - no mechanical system for taking those sparks of fuel and using them to propel the vehicle forward. And that's the rub. What most companies are missing today is an "innovation engine": a high performance organizational system that can continually pick up promising ideas and transform them into powerful new ways to create value and wealth.

Imagine you typed a few words into Google, pressed the search button, and nothing happened. Have you ever thought about how Google manages to deliver all those results in the blink of an eye? The reason we call it a search 'engine' is that behind Google's simple and playful user interface is an incredibly complex system comprising half a million servers, racked up in clusters at data centers all over the world, all working together to scan billions of websites at breakneck speed. Without the back end of Google - without that engine - all we would have is a lovable logo on a clean white web page. Similarly, organizations are finding out that without the back end of innovation, all they get is a lot of ideas at the front end which end up going nowhere.

How many big opportunities have been missed over the decades by companies that were presented with some radical new idea but that lacked the right system for nurturing it and turning it into a market success story? Steve Wozniak, co-founder of Apple, originally pitched his personal computer idea to Hewlett-Packard, his employer at the time. But HP had no organizational mechanism for connecting a freaky engineer and his "crazy invention" with the political and financial infrastructures of the company. There was simply nowhere for his idea to go; no way to get a small amount of experimental capital and some time to test its potential; no coaches or mentors in the organization who could help him push his idea forward; no management processes that had been set up to support his work as an innovator. So instead Wozniak decided to throw in his lot with Steve Jobs, and the two friends went off to commercialize his idea from a Palo Alto garage. The rest is history.

Could you put your hand on your heart and say that a similar scenario has never played out - or would never play out - inside your own company? If you can't, it's high time your firm started building a corporate innovation system - an organizational 'engine' that will enable your company to manage the back end of innovation as a disciplined and highly integrated business activity rather than something that is left to chance.

So how exactly do you build a corporate innovation system? It starts with building leadership commitment to innovation across the organization - not just in word but in deed. Ask yourself: do the executives who run our company's core business demonstrate genuine interest in radical, new ideas by redeploying adequate resources behind them? Are they held personally responsible and accountable for the performance of their unit's innovation pipeline? Do they spend a significant percentage of their time mentoring innovation projects? Failure to drive and manage leadership commitment to innovation is often where the whole initiative falls flat.

Second, it requires a tangible organizational infrastructure that is set up to nurture and support innovation in every nook and cranny of the company, and from the outside, too. People need to know where they can go with their ideas to find help and encouragement in developing a business plan, or in designing an experiment or prototype, or in putting the necessary financial and human resources behind their idea to move it to the next stage.

Third, the back end of innovation requires effective processes, mechanisms and tools for screening ideas, aligning them with strategy, allocating resources, managing a portfolio of experiments, turning the most promising opportunities into projects, guiding these projects through the innovation pipeline, and successfully taking them to market. It's not enough to merely adapt existing management processes and tools developed for R&D or new product development. For one reason, there are many types of innovation - such as process innovation, cost innovation, service innovation, strategy innovation, business model innovation, or management innovation - that won't fit very neatly into a typical product development process which tracks an idea from stage gate to stage gate.

If you talk to successful innovators in large companies, you usually hear a familiar story: "I succeeded despite the system." If would-be innovators can only succeed in an organization despite the system - if they have to fight their way heroically through a minefield to push their ideas forward - then by definition, innovation is not a systemic capability in that organization. Why not? Perhaps because the company has put too much focus on the front end of innovation and too little effort into building the back end - the "innovation engine" that is needed for taking ideas from mind to market.


You can check out all of the 'Innovation Perspectives' articles from the different contributing authors on 'What is the most dangerous current misconception in innovation?' by clicking the link in this sentence.

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Rowan Gibson is widely recognized as one of the world's leading experts on enterprise innovation. He is co-author of the bestseller "Innovation to the Core" and a much in-demand public speaker around the globe. On Twitter he is @RowanGibson.

Is this the end of Apple?

by Rowan Gibson

That's the bugging question that just won't go away. It seems to get asked every time Steve Jobs goes to the doctor. First it was a brush with cancer. Now it's a
mysterious "hormone imbalance" that has left Jobs looking gaunt, forced him to cancel his appearance at Macworld 2009, and put him on a six month medical leave. Once again, people are wondering if Apple has lost its core. But why exactly does the company have this sword of Damocles hanging ominously over its head? Is the destiny of one of the world's most exciting and successful companies really so precarious? If so, what does this tell us about making one "great man" the kingpin of an organization's entire innovation strategy?

Rumors around Jobs' health (and speculation about the impact his departure would have on Apple) have been circulating the Internet for months. Yet this is merely the latest episode of a recurring nightmare. The troubles began in 2004, when - out of the blue - Jobs was diagnosed with an incurable form of pancreatic cancer. He says that, up until that fateful moment, he didn't even know what a pancreas was. As it turned out, Jobs was an extremely lucky man. A biopsy revealed that the cancer was actually of a rare type that is curable with surgery. So Jobs arranged to have the
surgery, and that was that.

Well, not quite. News of this medical event released a shockwave that could be felt all the way from Palo Alto to Wall Street, and throughout Apple's global fan community. Quel horreur! What if Steve Jobs suddenly disappeared? What would happen to Apple? Last time Jobs was removed from the picture - which was during John Sculley's troubled tenure as CEO - Apple very nearly went down the toilet. And ever since his "second coming" in 1997, the company's meteoric rise from the ashes - with
innovations like iMac, iTunes, iPod, and iPhone - has been almost exclusively attributed to Jobs' individual genius. So what if the great genius was no longer around? What would become of the firm BusinessWeek labelled "the most innovative company in the world"? Would Apple's formidable innovation prowess just collapse like a house of cards? This was the question that sent a shiver down a lot of investors' spines.

Now that question is back with a vengeance. Jobs' severe weight loss over the last half year has quite understandably brought his health situation - and even his mortality - into focus again, with all the resulting question marks about Apple's future. In an effort to end speculation, Steve Jobs made a very rare move on January 5 by publishing an open letter to customers on the company's website in which he explained that he had a rare "hormone imbalance" but that it could easily be cured. Apple shares jumped 4% on the news. Just one week later, on January 14, Jobs announced that his health issues were in fact "more complex" than originally thought, and he would need to take a six month medical leave from the company. This time Apple shares dropped 10%.

Two things are highly worrying here. First, there's the worry about Steve Jobs himself. I've been a huge fan for twenty five years, and I can't imagine what the last quarter century would have been like without his impact on technology, and marketing, and lifestyle. Steve rocks! And we want him back. I sincerely wish him a speedy and full recovery.

The second worry concerns Apple. Is the health of the company really so dependent on the health of its superstar CEO? If Apple's primary mechanism for driving and sustaining innovation is one iconic and highly gifted individual, then there is reason for concern indeed. Of course, when we start to unpack what actually makes Apple so consistently creative, we find much more than a legendary guy in a black turtleneck and faded jeans introducing "insanely great" products at MacWorld. But Jobs' massive influence on every detail of what Apple does is undeniable.

What I argue in my books and my speeches is that for a company's capacity for innovation to be sustainable, it has to become a systemic capability that is widely distributed throughout the organization. It simply cannot rely on a single, charismatic leader to keep it alive. Innovation has to be woven into the everyday fabric of the company just like any other organizational capability, such as quality, or supply chain management, or customer service. It has to become a deeply embedded core competence that is resilient enough to accommodate internal or external disruptions (i.e. leadership loss or succession, changes in economic cycles), and to keep rolling on as a reliable, well-oiled engine of growth.

Ask yourself: would Toyota suddenly lose its world-class ability to manage quality if it got a new CEO? Would the Four Seasons forget how to take superb care of its guests if somebody else was at the helm of the hotel chain? Core competencies don't come and go with the changing of the guard. They become part of a company's bloodstream. They are built on a system of interdependent and mutually reinforcing components that guide everyday patterns of behavior across the entire organizational culture. They have specific mechanisms that make them self-perpetuating.

So what about Apple's innovation capability? Is it robust enough to survive the loss of its chief babysitter? Has it become a systemic capability - a core competence - that is intrinsic to the company's DNA, or has Apple's innovation power been centered solely on one "great man". Only time will tell. My hope would be that when Steve Jobs passes the leadership reins to Apple's next CEO, as he has in the interim with Tim Cook, the company's innovation system won't even miss a beat. There's no doubt that filling Jobs' giant shoes will be an immense challenge, and it's going to take ages for any new CEO to come out from under his shadow. But it's a chance for Apple to show the world that behind its great leader there truly is a great team and a great company – one that has successfully made innovation a way of life.

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Rowan Gibson is widely recognized as one of the world's leading experts on enterprise innovation. He is co-author of the bestseller "Innovation to the Core" and a much in-demand public speaker around the globe. On Twitter he is @RowanGibson.

Detroit's Decline and Fall

by Rowan Gibson

In March 2008, British Airways discontinued its decades-old daily service between London Heathrow and Detroit. Not exactly world-shattering news, you might think. But BA's decision was quite significant. They made it because passenger numbers had dwindled so pathetically low that the flights were no longer profitable. It's just one of a whole kaleidoscope of symptoms that signaled the Motor City's dismal decline. Then, Detroit's "Big Three" automakers were forced to beg for billions in bailout money to stave off bankruptcy (although Ford opted out). Yet, as far as I can see, not one of them seems to have a credible plan for long-term viability. All of which begs the burning question: How could such powerful car giants ever get in this sorry state?

Over twenty years ago, auto-industry analyst Maryann Keller wrote a book called "Rude Awakening: The Rise, Fall, and Struggle for Recovery of General Motors". It recounts hair-raising stories of GM's arrogant excesses. One story involved a sales VP attending a regional sales meeting who insisted that his hotel room have a refrigerator filled with soft drinks. Since the hotel couldn't get the fridge up the stairs, GM's local people persuaded the hotel to take out the room's window and part of the wall, then use a crane to insert the fridge through the hole! Another story involved a junior GM staffer who was assigned to stand for ages outside a hotel in a snowstorm, just so he could be there to open the door for an assistant general sales manager who was flying in from Central Office. GM even bought one of the hotel elevators and blocked it off so that this manager would have his own private elevator to use. And, as if that wasn't enough, the kitchen staff was instructed to test his glass of morning orange juice with a thermometer because Mr. Important wanted it served at a particular temperature!

This was the kind of insane stuff that continued to go on while the Japanese were stealing percentage point after percentage point of GM's U.S. market share. Fast forward to today, and we found that the five best-selling automobiles in North America in 2008 were (in this order): the Toyota Camry, the Honda Accord, the Toyota Corolla, the Honda Civic, and the Nissan Altima. And, bailout or no bailout, the prognosis for Detroit was not looking good.

It seems the Big Three have taken an excessive, heavy-handed approach to almost everything they have touched over the last few decades. Including innovation. While Toyota, for example, took a careful, staged approach to building alternative powertrains (and scored big with its hybrid technology), GM famously blew billions of dollars on its massive but so far failed forays into electric and hydrogen-powered vehicles. In the late 1980s, Ford's top brass tried to push the company's engineers to be more innovative by setting up a high level "Committee for Creativity". Yet rather than making the cultural environment more conducive to innovation, this initiative actually had the reverse effect. When engineers were brought in to report to the committee, they found that they were being judged, criticized, and ordered to work on their boss's pet projects. It became just another example of the massive hand of authority imposing itself and intimidating people. Instead of fostering or facilitating creativity, the committee was trying to command and control it. No wonder the structure was eventually scrapped.

In 1994, I had a conversation with strategy guru Gary Hamel about the state of innovation in Motor City. His gripe was that 'there has not been one fundamental strategic innovation in the automobile industry in the last 40 to 50 years that has come out of Detroit'. A couple of years later, I related this to a former top manager at one of the Big Three. At first, his response seemed to contradict Hamel's view. He said, 'Rowan, some of the most important and innovative ideas in the auto industry came out of Detroit'. But then, with a look of deep frustration and despair, he added, 'Very few of them were implemented'. The reason? People couldn't get the resources, the investment and the support they needed to make their ideas happen. As The New York Times put it last year, 'GM's biggest failing, reflected in a clear pattern over recent decades, has been its inability to strike a balance between those inside the company who pushed for innovation ahead of the curve, and the finance executives who worried more about returns on investment.'

Of course, uncontrollable external events in the U.S. economy have rapidly worsened Detroit's woes over the past couple of years. But, let's be honest, the Big Three have been hemorrhaging billions of dollars for years. In 2006 and 2007 alone, Chrysler lost over $3 billion, Ford lost over $15 billion, and GM lost over $40 billion! Nobody can blame those numbers on the U.S. economy, because it was growing briskly for six straight years from 2001 through 2007, as were the sales figures of Detroit's Japanese and German competitors. Instead, the accusing finger is increasingly being pointed at the failure - particularly of GM - to successfully innovate; to continually come up with and commercialize new ideas (and new vehicles) that create meaningful value for customers.

GM candidly admitted this for the first time in a one-page advertisement that ran a year ago in Automotive News. In this open letter, entitled "GM's Commitment to the American People", the company frankly acknowledged that it had "disappointed" and sometimes even "betrayed" U.S. consumers with its lackluster products. Instead of innovating in response to shifts in the marketplace (come on, guys, the writing has been on the wall since the 1973 oil crisis, for crying out loud!), GM has been impossibly slow at adapting its cars to changing customer needs.

If, then, it's essentially an ineptitude at innovation that has driven Detroit's once-great industry leaders down the toilet, I would argue that companies of all shapes and sizes should sit up, take note and, more importantly, take action to make innovation happen inside their own organizations.

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Rowan Gibson is widely recognized as one of the world's leading experts on enterprise innovation. He is co-author of the bestseller "Innovation to the Core" and a much in-demand public speaker around the globe. On Twitter he is @RowanGibson.