Finding smarter ways to bridge the innovation gap

Companies need to learn how to leverage innovation to out-innovate their competitors

Mon, Sep 16, 2013, 01:00

Innovation is an essential element for business development and success, but many innovations fail. The key reasons for such failures, according to Prof Oliver Gassmann – a world leader in the area of open innovation – include overengineering, poor timing and inadequate business models.

By learning to avoid such failures, companies can learn how to successfully leverage innovation which will enable them to out-innovate their competitors, he says.

Key factors
The key success factors for innovation on the other hand include an open culture, adequate processes and instruments and a clear focus, according to Prof Gassmann. Excellence is achieved by not only addressing new products based on new technologies, but also by business model innovation.

“Companies also have to rethink and revolutionise their industry and market by creative imitation as 90 per cent of all business model revolutions are in fact recombinations of existing ideas, concepts and technologies,” he remarks.

Prof Gassmann delivered the InterTradeIreland 2013 innovation lecture at UCD and UCC earlier this month on the topic of “Secrets of Innovation and the €100 Million Question”.

Professor of technology and innovation management at the University of St Gallen, Switzerland, since 2002, Gassmann has for the last 10 years also consulted with several Dax (German Stock Index) companies on their growth and innovation strategies.

He has published over 300 publications and several books on innovation, including Profiting from Innovation in China in December 2012. In 2009, he was identified as one of the top 50 ranking researchers by the International Association for Management Technology.

Having conducted extensive research into the success factors of innovation, Prof Gassmann believes that companies can benefit from learning the dos and don’ts of innovation.

One common downfall is overengineering, ie the designing of a product to be more complicated than is necessary for its application, eg a family car that can drive at 300kmh. This is a common issue for university start-ups and spin-offs, he explains.

Another reason for the failure of an innovation is the development of “Me Too” products, for example radio-frequency identification (RFID) technology over the last decade. Technical weakness, the wrong timing, inadequate distribution channels and bad communication about the product are other common causes of failure.

He comments: “You can avoid all of these mistakes by forecasting how much the world will have changed three years from now when your innovation is on the market. Typically 80 per cent of factors in innovation are manageable factors within the company and only 20 per cent are external, eg environmental issues, regulations and price deterioration.”

‘Fuzzy front end’
One of the vital stages of development in any product, according to Prof Gassmann, is the “fuzzy front end” at the start of innovation where you do not really know where you need to go or understand what your customer needs.

He points to the example of BMW, who say you should not have to ask your customers what they want, you should understand your customers better than they understand themselves and give them something they do not expect to get so they are very satisfied with it.

“The idea is to learn exactly what your customers need in an interactive way. Design a prototype reasonably quick and dirty, show it to the customer and ask for their feedback. Then move on to a second cycle. Leave the sequential linear innovation process because innovation is not linear, it works in cycles.”

Although his research to date has not involved Ireland, Prof Gassmann notes that the economy has a lot of creative start-ups, but the structure and discipline needed to push a project or idea through to the end is sometimes missing. For these companies, he advises the use of a stage gate management process in which a project is divided into stages separated by gates. At each gate, the continuation of the project is decided based on the information available at the time including the business case, risk analysis and availability of necessary resources.

“The Irish local economy appears to be fragmented with a lot of SMEs as in other places in Europe. Too often, SMEs try to reinvent the wheel. They also tend to rely on their own resources instead of opening up innovation to external partners, and this is especially relevant in times of scarce resources.

“These companies should open up the innovation process to include their customers, suppliers and non-suppliers and look outside their own industry.”

Over the course of his own research, Prof Gassmann and his institute have looked at hundreds of business models spanning the last 50 years. They made the fascinating discovery that 90 per cent of all business model innovations are recombinations of existing ideas, concepts and technologies and that there are 55 basic patterns that all business models are built upon.

Take the extremely successful razor blade pattern, for instance. Apple iTunes is based on the razor blade pattern which was developed by Gillette in 1904 when it began selling its razors cheaply and earning money from the blades.

Nestlé used the same model when it introduced the Nespresso coffee machine range in 1986 which is today one of the corporation’s biggest revenue streams. It sells the machines comparatively cheaply at a low margin and sells the coffee at three times the price of normal coffee per kilo.

“All of these companies are repeating the same razor blade pattern with totally different products. Nintendo in 2006, Amazon Kindle in 2007, the Apple iPod and iPhone. HP use the same model for their inkjet systems, high margins on their ink cartridges and very low or even negative margins on the printers. What this shows is that you don’t have to reinvent the wheel to succeed in innovation,” Prof Gassmann points out.

Getting ahead: Top tips for success
1 Understand your customers’ needs, both explicit and hidden, ie the requirements your customers do not even know they have.

2 Intensive preparation before the project begins.

3 Front-end loading. Robust planning and design at the front end of the project when the ability to influence changes in design is relatively high and the cost to make changes low.

4 Fail early in order to succeed sooner – aim for many failures at the beginning when it is cheaper to fail.

5 Work with teams instead of single “Einsteins”.

6 Only start an innovation project when you have sufficient resources in place.

7 Do not start more than two R&D development projects per person in parallel.

8 Create an atmosphere to attract the best talents through challenging projects, an attractive development environment, etc.

9 Use the NABC approach for idea selection – need, approach, benefits, and competition – the fundamentals that define a project’s value proposition.

10 Separate the innovative process between the early creative phase and structured late phase.

11 Freeze the specifications at one point of no return.

12 Think of life cycle, cost and profit issues.

13 Use the right innovation process, ie a structured stage gate process for known stable markets and an agile iterative process for unknown dynamic markets.

14 Balance the magical triangle of project goals – quality, cost and time.

15 Avoid the vicious circle in project management of time delay. This leads to quality problems which leads to changes, unscheduled work, capacity bottlenecks and back again to time delays.

16 Focus your innovation action on a vital few sweet spots, where for little input at little cost, you can have a big impact on the customer.

17 Open up the innovation process outside the team and the company.

18 Have an after-action review meeting to check assumptions made at the beginning of the project (double-loop learning).

Lessons learned: Global innovation stories
General Electric
Every manager of every business unit has to present three ideas a year. This is a good start towards developing an innovation culture that Prof Gassmann recommends to companies.

No hierarchy in strategic importance in creative areas, ie get rid of all the bosses on the team or integrate them into the team.

Keep the outside view, watch what is happening outside the company.

Proctor & Gamble
More than 50 per cent of new products have to come from outside the company.

Six non-R&D persons work for six months with six R&D teams in the development of six products.

Always check the potential of a negative experiment. Even if it does not work out, there may be something positive that can be taken out of it.