CHAPTER ONE
How to turn your company into an ideas factory
There are many ways companies innovate. But all the most innovative companies have management systems to maintain their creative edge.
One example is MBD Energy. In partnership with James Cook University (JCU), MBD Energy is trialling the use of algae to capture and recycle carbon dioxide from coal-fired power stations and other major industrial emitters. The carbon dioxide abatement solution may also have massive potential spin-offs for the biofuel, animal food and health products industries, and because it’s a one-off, it could go global. “We’re using exactly the same science that created the world’s fossil fuels many millions of years ago when algae flourished in response to a profusion of atmospheric carbon dioxide from volcanic eruptions. But, instead of taking millennia, we’ve managed to crunch our process into just 48 hours,” says Andrew Lawson, Managing Director.
Another example is Warrnambool-based Tasweld Engineering, on the cusp of creating new markets with its revolutionary RAM, or Rotated Arc Mixer. The small business developed this in collaboration with the CSIRO, Australia’s science body. The RAM is an industrial mixer with the ability to mix thick viscous fluids such as paints, foods, cosmetics or explosives. It’s the only one of its kind in the world. Conventional mixing technologies, such as static mixers, can clog and develop material build-up. This can result in production downtimes. But the RAM, which works with two cylinders, one inside the other, mixes materials without clogging or destroying ingredients. “Once we get a commercial sized mixer in place and have the product trials and proven it, then we can go to market with a proven product,’’ says Tasweld Engineering director Richard Parkinson. “It’s a matter of proving the technology in a full-sized industrial environment rather than a laboratory.”
In Queensland, vegetation management business Technigro has developed the DriftProof Sprayer which features a patented shield that contains all of the spray droplets, ensuring the pesticides and herbicides remain on target, not out in the air. Technigro employs a chief innovation officer and a full-time R&D manager.
In his book Where Good Ideas Come From, Steven Johnson says good ideas rarely come from a “Eureka” moment. Most of them take years to evolve, starting out as a hunch and often colliding with other hunches. He says the increasing connectivity now with the Internet might help facilitate more collisions and lead to greater innovation. Watch this space.
What is clear however is that these systems need to be made part of a company’s strategy and in each of these previously cited examples, systems have been created. It’s a way of staying ahead of the pack. Indeed, innovation is the life-blood of any company. Once written off, Apple, for example, restored innovation to its proper place and is now one of the world’s biggest companies. Different companies have different approaches.
Another strategy is to encourage entrepreneurialism and creative collaboration. Award-winning advertising agency Clemenger BBDO, for example, has employees who are film directors and artists or who run businesses designing laptop covers, selling bottled water and fashion labels. Clemenger BBDO managing director Peter Biggs says: “If you’re going to attract creative people, you have to give them outlets for their creativity. It creates more ideas and more cross-fertilization.” Biggs also has a policy of taking ideas from everyone. He recalls one time when a receptionist provided an idea. All ideas are tested. He freely admits providing ideas that never made the cut. That is part of his management culture.
Wesfarmers director Charles Macek says managers can get a lot of innovative ideas from the rank and file, simply because they interact with customers more and pick up what the market wants. “The best ideas come from the shop floor, they come from the bottom up,’’ Macek says. “People who are interacting with customers and dealing with the realities of whatever the business is will always be the source of innovation.”
These different techniques all have certain things in common. They all have open cultures, and they are close to their customers. They have management systems that encourage innovation, systems that recognise it might take years to cultivate new skills and build a product pipeline. These companies also recognise that they need funds to create dedicated innovation teams and sufficient capital to rethink strategies. Innovation needs to be managed. Most importantly, the company needs strategic clarity.
Cultures of Innovation
3M is one company whose success is attributable to strategic clarity and an internal culture of innovation. Take the case for example of Spencer Silver. In 1968, Silver started working at 3M as a senior chemist. His job was to try and create a better adhesive for 3M’s tape measure. What he discovered instead was a glue that was still sticky but which came apart more easily because the contact are for adhesion was so small. The result: a glue that could be reused again and again. But how could this be used? Silver was a chemist, he was no marketing specialist. He struggled to come up with ideas and kept presenting it around 3M.
It was then that he ran into another 3M scientist, Arthur Fry. Now Fry sang in a church choir and to keep track of the hymns, he would stick a piece of paper in the hymn book. The trouble is these kept falling out. Seeing what Silver had produced gave Fry an idea: stick the glue on pieces of paper and put the hymn book. It worked a treat.
Fry then realised the glue had applications beyond hymn books – it could be used as an adhesive note. But how to manufacture it? Engineers at 3M told him such a machine didn’t exist. So Fry went home and built it himself. To get the support of senior management, he then sent samples of the notes to senior executives. They were intrigued and ordered more samples. Soon they were ordering so much of it that Fry’s machine could not keep up. Thus the Yellow Post-it note was born.
This was an invention made possible by 3M’s culture of innovation, or what it calls its “permitted bootlegging policy”. According to 3M: “To foster creativity, 3M encourages technical staff members to spend up to 15 percent of their time on projects of their own choosing. Also known as the ‘bootlegging’ policy, the 15 percent rule has been the catalyst for some of 3M’s most famous products, such as Scotch Tape and — of course — Post-it® Notes.”
Innovation does not just produce cool new products. You don’t have to produce an iPad or new search engine to be innovative. The Chicago-based consultancy Doblinsays there are several signs of innovative companies, and products don’t even get a mention. As the 3M example shows, companies that innovate have management systems and business models that encourage innovation. According to the Doblin Group, these companies have management systems that monitor performance of existing products; enable processes to develop new ways of service; and novel approaches to branding and customer experience.
Doblin research has an important finding: innovation requires management techniques and systems. Managers need to have skills around this. They need to learn how generate ideas and how to select them. They should know how to manage intellectual property and commercialisation; when it is time to patent an idea or when it would be more suitable to keep it a trade secret; and how to avoid common pitfalls that allow international competitors to legally steal ideas. They should also learn: how to license technology and develop licence agreements; source funding; develop technology transfer arrangements; create confidentiality agreements with employees; conduct rapid prototyping; feed market information into the development work; incorporate innovation into business strategy; develop a business plan around it; and break down strategy to prepare for action.
Other skills include: managing sustainability and international best practice; systematically identifying market opportunities; positioning the venture to attract interest from VCs and bank;, fine-tuning their R&D to focus on what’s more likely to succeed; determining ways to increase speed to market and reduce the risk of regulatory issues; learning how to take advantage of university funded research products; and learning how to assemble and manage the right teams.
Deloitte chief strategy officer Gerhard Vorster says companies can only really be innovative when it’s made part of their strategy. Deloitte has a target for its managers: 30 per cent of the firm’s revenue streams must come from new or substantially-new services and offerings every three years. Why every three years? Because competitors are quick to copy.
“We are a billion dollar business and that means we are looking for this rolling $300 million of new and substantially different things that need to come out,’’ Vorster says. “That drives a lot of behaviours.
“Looking for growth and outperforming your competitors in a mature market is difficult. For your people, it’s important that they feel they are part of an organisation where ideas are accepted, where ideas are encouraged, where ideas are given a chance.”
As businesses move back from the brink of the financial crisis, underlying challenges of generating innovation and growth must be tackled anew. Traditionally, management was largely about re-engineering, continuous improvement, outsourcing, offshoring, and cost-cutting to keep the company lean and profitable. Now the focus is shifting increasingly to external factors, such as importing innovative management techniques, identifying and staying ahead of the trends, and catching the next wave when it crests. Creating management systems that turn the organisation into an ideas factory is the new model.
How do organisations achieve this? First, they have to look at the level of staff engagement. Engaged employees are more likely to innovate.
Employee engagement is one of those topics that gets lots of attention. Despite this, Australian managers seem to have a lot of trouble with it. According to a Gallup Poll of 47,000 workers in 100 countries, only a dismal 18 per cent of Australians say they love their work. This compares with 23 per cent of British and New Zealand workers reporting they are engaged; one in five Canadians claiming they’re happy with their work; and 28 per cent of workers in the US experiencing high rates of job satisfaction. When it comes to worker engagement, Australians are way below the global average of 27 per cent. Nonetheless, the most disturbing part about this survey is that most employees, regardless of where they may be, are not engaged.
So where does that leave Australian innovation?
Policymakers say Australia’s affluence is in a consignment of iron ore headed for China. They believe such good fortune must come at the expense of manufacturing. Someone should remind them that reducing a country’s economic base is dangerous — in the 1990s, England embraced financial services while its manufacturing sector declined. Look at it now.
A report by UTS business school’s professor Roy Green — part of a study by the London School of Economics — found that Australian manufacturing managers were at best mediocre, significantly lagging behind the US, Japan, Germany, Canada and Sweden. Chinese and Indian factory managers were a lot better. Australian managers were particularly bad at managing people and innovation.
Professor Green says Australian manufacturers need to work smarter, focusing on niches and developing clusters. Some manufacturers — such as medical implant company Cochlear and cutting tool maker Anca, which exports 95 per cent of its products — are good examples of companies that have built niches and strong global markets. Australia, however, has few manufacturing clusters, most are just clumps. Research by Swinburne University sociologist professor Michael Gilding compared biotech clusters in the US with the Parkville precinct. Whereas the US companies had extensive connections with each other, our biotechs were fragmented. The same applies to other precincts, such as the IT sector in Clayton and Ryde. It’s very Australian: pioneers exploring opportunities in an empty space. Professor Gilding writes that “making the cluster viable is an immense challenge, calling for imaginative and finely-directed public policy measures.”
This contrasts sharply with Italy’s manufacturing sector. For example, the small city of Modena specialises in high-performance cars (Ferrari, Lamborghini, Maserati. Montebelluna), produces 65 per cent of the world’s ski boots and is home to Rollerblade skates. In the province of Modena, the industrial centre Sassuolo is the home of 150 tile manufacturers, producing 60 per cent of all tiles traded internationally.
The only globally successful cluster in Australia is the wine industry, with intense competition among almost 2000 companies, combined with collaboration through industry associations.
So companies need to work smarter. They need to manage their workforce better to develop more innovation. Professor Michael Gilding’s work and the Modena examples together show that innovation thrives within communities of innovation. And they need to collaborate with other companies and industries. Professor Michael Gilding’s work, and the work of cultural studies professor Stuart Cunningham in his book Hidden Innovation, show that creative innovation tends to emerge not in discrete policy portfolios or precinct environments, but where a diversity of cultural, service and manufacturing enterprises (and people) converge. Innovation thrives in like-minded communities. Deloitte chief strategy officer Gerhard Vorster also says innovation tends to come from collaboration, and that smaller companies need to target larger companies for collaboration.
Innovation from the ground up
“For your people,” says Vorster, “it’s important that they feel they are part of an organisation where ideas are accepted, where ideas are encouraged, where ideas are given a chance.”
Edward De Bono, the master of lateral thinking, has argued that every company needs an ideas officer. The first step, he says, is to have a hit-list on people’s computers or notice boards. Staff are then asked for new ideas, whether it’s marketing, whether it’s product, whether it’s service, whether it’s finance and these ideas go on the hit-list.
The challenge for Australian companies is to develop systems that allow ideas to percolate up. Management has to be accessible and seen around the company, and to be in constant conversation with employees to find out what is on their minds. Do they have ideas for improving the business, or ways to promote a better workplace? What do they want to accomplish professionally? We all have to ensure we are offering learning and development opportunities on the job, and challenges to promote growth. An anonymous survey is also a good way to find out about what’s on employees’ minds, but shouldn’t be substituted for one-on-one face time. That will engage employees.
One good Australian model is retail chain Bakers Delight, with 90 per cent of its ideas coming from franchisees. These franchisees are essentially on the frontline because they deal with customers all the time. Bakers Delight has a system where area managers talk to bakeries every week. Every area manager is in contact with 25 bakeries, checking to see everything is working well and seeking their ideas. In addition, Bakers Delight holds regular forums where franchisees can raise ideas. Every franchisee would attend eight or 10 of these a year.
One Australian company has a key performance indicator that requires a certain amount of future revenue for the business to come from products that do not exist today. In their performance appraisals, staff are questioned and evaluated along these lines. That creates a culture of constant innovation.
Encouraging employees to give ideas also means being open to accepting that there will be times when they will criticise the company.
Other companies turn to technology to facilitate ideas. It is not that difficult. At Borrego Solar Systems, a California-based company that installs solar power systems, management created an internal contest, the Innovation Challenge. The company’s 50 employees were invited to submit ideas which were then posted on its Intranet. Employees were then asked to vote for the best ideas using free online survey tools. The winner was offered $500 in cash.
The initial uptake was low but, as with all companies, the pattern was the same. Once people started seeing that the ideas were being implemented they were encouraged and they came up with more ideas. Borrego now runs the internal contest every quarter.
Unlike more traditional employers, Google embraces “off-task” behaviour by dedicating 20 per cent of work time for workers to explore company-related ideas that interest them. These interests might lie outside an employee’s official work title but the 20 per cent “innovative time off” is designed to foster creativity and increase employee ownership and buy-in. This approach produced Gmail and Google news.
Innovative companies reward error
Egg company Farm Pride has a policy not to punish mistakes. Farm Pride’s chief executive Zelko Lendich says penalising employees who make mistakes discourages everyone from coming up with ideas. Creativity doesn’t always follow neat pathways. False starts and the occasional flop are part of the process. They need to be accommodated. “If an idea doesn’t work and you jump on it every time, people are going to become more reticent about giving ideas,” Lendich says. So what happens if an idea does not work at Farm Pride? The company analyses what went wrong and looks at ways to improve it.
It’s worth remembering that the age-old dictum of trial and error actually involves some error.
There are plenty of examples of companies that innovate by using failure. One example is Job Capital, a fast-growing payroll services, migration, salary packaging and contract-management business. The company’s founder Jo Burston builds businesses that start out small, flexible and scalable, that learn from their mistakes and build their market from there.
She says: “In the businesses I have, I learned to fail quickly. Whenever we build anything, we always get to a base model before we then go to the market and test fail and look at the value proposition of it, and then look at the multiple of the value proposition to the consumer.”
The large Indian conglomerate, Tata Group, gives out an annual award for the “best failed idea”. The goal is to recognise and reward failures. Without them, successes would be impossible. For Tata, failure has become a goldmine.
Then we have pharmaceutical company Eli Lilly, which hosts “failure parties” where employees come together to share their stories of failure and discuss what they learned from them. Eli Lilly assigns someone, usually a team of doctors and scientists, to retrospectively analyse every compound that has failed at any point in human clinical trials. For example, the experimental chemotherapy drug Alimta failed in several trials and Eli Lilly decided to dump it. But one of its scientists begged for two weeks to save the drug. He and a colleague then analysed blood samples and medical records and found what was wrong. Today Alimta is an approved treatment for mesothelioma, a rare type of cancer caused by exposure to asbestos, and it has been approved for treating lung cancer.
Creating the right culture
How does one create a so-called “culture of innovation”? At companies like 3M, Apple and Google, it’s part of their DNA. But how does take that to other companies?
It’s a mix of ingredients: a common language, the right people, a system of rewards and incentives and, most importantly, leadership.
Pioneering research by Hal Gregersen at INSEAD, Jeffrey Dyer at BYU, and Clayton Christensen at Harvard, that took place over six years, shows what’s required. In their December 2009 article in the Harvard Business Review, The Innovator’s DNA, they detail certain traits companies need to spur innovation and become ideas factories.
Most organisations have people who follow these behaviours — even if they aren’t immediately obvious to senior leadership. Frequently they are what software entrepreneur Donna Auguste affectionately dubs “aliens”. They don’t quite fit the establishment, and that’s exactly what you want.
The aliens are the reason why creating a culture of innovation is a big challenge for managers. Often, the creative types are the ones who can be overly aggressive, demanding, egocentric and even sometimes abusive. The creative ones can be high-maintenance and many managers would rather deal with more compliant types. At the same time, creative people tend to leave and branch out on their own. But if they provide the creative fuel that generates ideas, managers might keep them without too much pandering. For example, many companies use teams of writers with diverse perspectives to create complex scenarios of what future markets may look like. The writers try to imagine detailed opportunities and threats for their companies, partners and collaborators. An oil company that wants to explore energy opportunities in cities of the future, for example, might want to work on scenarios with writers from construction, water and utility-management companies.
There are five ways to create a culture of innovation and nurture these people:
Innovative leadership
Can companies achieve breakthrough innovation in the absence of a visionary CEO? Can innovation be embedded into the DNA of an organization, such that it repeatedly brings to market game-changing products and services?
The DNA is critical. Leaders are important, but what’s critical is the DNA. Apple post-Jobs.
Innovative organisations must embed a philosophy that innovation is expected from everyone — not just from R&D. Amazon founder and CEO Jeff Bezos claims he asks all job candidates: “‘Tell me about something that you have invented.” Their invention could be on a small-scale — say, a new product feature or a process that improves the customer experience, or even a new way to load the dishwasher. But I want to know that they will try new things.” When the CEO asks all job candidates whether they’ve ever invented anything, it sends a powerful signal that invention is expected and valued.
In rejecting the limiting belief that innovation is R&D’s job alone, leaders of highly innovative companies work hard to instil “innovation is everyone’s job” as a guiding organisational principle. When Jobs returned to Apple after a 12-year hiatus, he launched the “Think Different” advertising campaign. The campaign paid tribute to a wide range of innovators with is message: “Here’s to the crazy ones. The rebels. The trouble makers… the ones who see things differently. They’re not fond of rules. And they have no respect for the status quo… they change things. They push the human race forward.” The Emmy-winning campaign was hailed as one of the most innovative of all time. What most people don’t realise, though, is that the campaign targeted Apple employees as much as its customers.
At Virgin, Richard Branson has made innovation one of six key characteristics the company evaluates when screening new employees. To get hired at Virgin, you must demonstrate a “passion for new ideas,” you must “make your creativity apparent,” and show “a track record of thinking differently”. Virgin describes its people as “honest, cheeky, questioning, amusing, disruptive, intelligent and restless.”
Visionary CEOs
Visionary CEOs have certain traits.
First, they empathise with customers. They try to work from the customer’s perspective. Apple CEO Tim Cook reportedly responds to up to one hundred customer emails a day. Amazon chief Jeff Bezos is known for forwarding emails from angry customers to his team and demanding it get fixed within hours. When those instructions are coming from the top, people in the company know exactly what they have to do. Or consider the way Apple devices like the iPod, iTunes, iPhone and iPad addressed unmet customer needs. iTunes and the iPod recognised that people wanted to personalise their choice of music. The iPhone gave people a touch screen, just like a computer, and apps that they could personalise. And the IPad was like a mobile computer without a fold-out screen. And remember, it was Apple that gave use the concept of “user-friendly”.
Secondly, truly innovative CEOs are persistent. Consider Richard Branson as an example. A high school drop out with poor reading and maths skills, he set up Virgin record shops which continually experienced cash flow problems. To pay off an overdraft, 20 year old Branson pretended to buy records for export to avoid an excise tax on sales. He was arrested and jailed for the night and only got out on bail after his mother put up her house as collateral. With rising competition and global economic problems threatening Virgin Airlines in the 1990s, Branson sold his beloved Virgin Group to Thorn EMI. That came just after Virgin had just contracted to record the Rolling Stones. A long long dream of Branson’s had been dashed. Still, the cash from the deal totalling nearly $1 billion allowed Branson to pay off debts and own the airline outright. Another example is James Dyson who spent five years and created 5127 prototypes before he could produce a workable bag-less vacuum cleaner. When manufacturers in Britain refused to market the product, he sold it through catalogues in Japan before setting up his own successful manufacturing company. In addition to vacuum cleaners, the company now also makes heaters and fans and products using its Airblade technology,
So from this chapter, we have seen 6 ways innovative companies generate ideas:
1. Innovative companies have one rule for employees: think creatively
At innovative companies everybody is expected to come up with ideas. They don’t have to be earth-shattering, it’s just about finding better ways to get things done. These sorts of companies reward and encourage employees to ask difficult questions and challenging the status quo. This is the way ideas are generated and turned into products.
2. Innovative companies have ideas executives
These are the honchos who are responsible for making sure the ideas keep coming up. They are the ones who are always keeping tabs on what’s coming up and helping employees develop ideas.
3 Innovative companies bounce ideas off customers
These sorts of companies test idea out on selected customers, usually the best and most understanding sort who have good relations with the company. They know and appreciate what the company is doing. While this means taking a risk, they trust the company enough to know they won’t be let down and if it doesn’t work, their feedback will be greatly appreciated and used to develop the product.
4. Innovative companies tolerate mistakes.
To encourage ideas, innovative companies expect employees to come up with suggestion and creative plans. Now some ideas will work, others won’t. Smart companies don’t punish mistakes, they learn from them to create a better product.
5 Innovative companies measure ideas
It’s the oldest rule of management: whatever gets measured is valued. Innovative companies have systems that assess how many ideas are turned into successful products and services. The systems also measure which part of the company they are from.
6. Innovative companies are always on the look-out for ideas.
Innovative companies are always searching for new ideas, ways to challenge the market and keep ahead of their competitors. Some of those innovations will come from employees, some might come from customers. Joint ventures can generate ideas. Other companies rely on acquisitions to bring in ideas. Creativity has many avenues.
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