The big idea

Irish companies spend billions of euro every year on research and development - but are they actually discovering anything new?, asks Carissa Casey

Innvation may be the buzzword du jour, but there's nothing particularly new about it. Since humankind first developed the ability to think, innovation has propelled us from cave-dwelling hunter-gathers to Blackberry-wielding sophisticates of a global online community.

If necessity is the mother of invention, time, according to Francis Bacon, is the greatest innovator. "He that will not apply new remedies must expect new evils," he wrote some 500 years ago. We either innovate or we go the way of dinosaurs.

For something that has been practised so successfully for the last few millennia, there is still an aura of mystery about how to innovate.

In business terms, managers often excel at paying lip service to the need for innovation, demanding "blue sky" or "out of the box" thinking. But such clichés often mask a basic lack of knowledge about the subject. And as Francis Bacon also memorably said, knowledge is power.

There is a wealth of academic studies on successful business innovation. The good news is bulging research and development budgets are not required.

"New knowledge" - of the type developed in research labs - is just one of seven types of business innovation identified by Prof Peter Drucker of Claremont University in California.

He describes these mostly technical innovations as the "superstars of entrepreneurship; they get all the publicity and the money."

"Like most superstars, they can be temperamental, capricious and hard to direct," he warns.

According to Drucker, there are another six types of innovation, open to all companies regardless of size or market sector, derived from new opportunities, process needs, industry challenges or market changes.

Ryanair, for example, identified a demand for cheap travel and a business model for providing it. The company cut out the middle man by promoting its online booking service. When other airlines cancelled orders for new planes in the aftermath of 9/11, Ryanair did the opposite, buying new stock at discounted rates. In the aviation industry none of this is rocket science, but Ryanair and its chief executive Michael O'Leary is a prime example of a successful innovator.

O'Leary is also widely acknowledged as one of the country's leading entrepreneurs - innovation and entrepreneurship are inextricably linked.

However, Drucker claims there is little evidence to support the concept of an "entrepreneurial personality" - someone with a specific list of traits that will enable them to do well in business. "What all the successful entrepreneurs who I have met have in common is not a certain kind of personality but a commitment to the systematic process of innovation," he says.

"Innovation is the means by which the entrepreneur either creates new wealth-producing resources or endows existing resources with enhanced potential for creating wealth."

A survey by Enterprise Ireland's Innovation Management Initiative throws up some shocking statistics when it comes to the innovation mindset among small to medium-sized enterprises (SMEs) in Ireland. While there were positive signs, some 70 per cent of respondents did no research into market trends, despite the fact that this is a key resource for successful innovation and an early warning system for dinosaurs that the ice-age may be nigh.

Sean McNulty of Innovator, which conducted the research, believes that the biggest problem within SMEs, particularly those run by owner/managers, is a lack of focus. "We don't understand how our customers value our service and products. We think we do but we don't go and listen to our customers and observe them," he says.

"Owner-founders tend to come from a capability background, they have a technical skill.

"They add on the business skills required for running a company. Then they get a customer. We're always working from capability to business model and then a customer at the end," he says.

"We need to change that, we need to look at the trends out there and look at customer needs. Then we can work back to capability. Spend less and focus more, that's the message. Stop being busy fools," says McNulty.

This is a point well made by another of Ireland's leading entrepreneurs, Sean Quinn of the Quinn Group, a man as media-shy as O'Leary is publicity-hungry, proving that success is less about personality traits and more about a mindset.

Quinn recently spoke publicly for the first time in 10 years about his approach to business. "We came from a very simple background and we try to make business always simple. We don't believe in too much fuss. We have never had a feasibility study done in our lives," he said.

"I don't use a mobile phone . . . I live a very simple life . . . It gives my brain, in my view, much more time to do what it's best at doing."

Since its foundation in 1973 as a small quary in Co Fermanagh, the Quinn Group has been consistently innovative, entering new markets and developing new products, to become a global giant employing more than 6,500 people.

According to Quinn, much of his success is based on helping people realise their own potential. "If we haven't got people to do it, we acquire them," he said. Experts agree, and there are plenty of case studies to prove, that innovation starts at the top. An innovative middle-manager will get nowhere if the people in the boardroom believe that all is perfect within a company and will remain so indefinitely. But a brilliant managing director, spouting new ideas from dawn to dusk, is not the required role model either.

Sir Allen McClay is chairman of Almac, a company he founded following the successful flotation of his other start-up, the pharmaceutical giant Galen. Almac employs 2,000 people across the globe, doing cutting-edge research for most of the world's blue-chip pharmaceutical companies. Despite the big research budgets involved, Allen is a pragmatist about what innovation entails. "It's as much about low cunning to me," he says, part tongue in cheek.

"Innovation should include every person, practice and policy in a company. It's about channeling the inspiration and creativity of the people you have. We have very gifted, very technical minds working here. It's about trying to get them to see how that investment in innovation flows through to the bottom line. It's not about wonderful esoteric stuff that looks great in a science journal. For me it has to have practicality, to flow through to the bottom line, not flow down the drain," he says.

He admits that it's hard to put the "innovation" recipe down on paper. "It's about creating the right atmosphere, about hiring the best people, giving them autonomy and it's about the communication and interaction between people. But nothing annoys me more than someone setting up a steering committee. I'd abolish them completely. If you want you could create a task force with the ability to identify creative projects that matter," he says.

Creating a culture of innovation within a company is critical to success, according to Rosabeth Moss Kanter, a professor of business administration at Harvard Business School. She cites the example of a fabric company with a long-standing problem with yard breakage during production, which was reflected in the price of the fabric and represented a competitive disadvantage. Senior management searched endlessly for new materials to resolve the problem. A new executive joined the company and held a meeting with factory workers on innovation.

Afterwards a veteran worker approached him suggesting a simple solution for ending the yard breakage. The solution worked. The employee first had the idea 32 years previously.

"The potential for premium prices and high margins lures many executives to seek blockbuster innovations - the next iPod, Viagra or a Toyota production system," says Moss Kanter. "Along the way they expend enormous resources, though big hits are rare and unpredictable. Meanwhile, in seeking the killer app, managers reject opportunities that at first glance appear too small, and people who aren't involved in big projects may feel marginalised," she says.

As with the case of the fabric company, smart, simple and extremely cost-effective solutions often come from the ground up.

"Workers have an enormous amount of information and many are bursting to get those ideas through, but the workplace has to be set up to let those ideas come through," says Lucy Fallon Byrne of the National Centre for Partnership and Performance, which is charged with the task of creating the workplace of the future in Ireland.

"The systems of communications and relationships you have can be set up to be naturally innovative. If you get employees engaged, open up opportunities for them to give new ideas, you create a much better platform for innovation. It's more common sense than anything else," she says.

For a handful of companies, innovation comes down to a choice of "do or die". For nearly a century, the ship-builders Harland & Wolff designed and constructed huge ocean-going vessels, at its peak employing some 30,000 workers.

As dinosaurs go, it was one of the most cumbersome. As the market moved away from big vessels and Japanese shipyards began to hoover up what projects were out there, Harland & Wolff carried on regardless, relying on government handouts to keep going.

By January 2003, when the present chief executive Robert Cooper took over, the obituaries were already written. Much to everyone's surprise it has survived, is profitable for the first time in decades and employs close to 400 people. "Innovation is always a funny thing to talk about. From my context, innovation has largely been about using what you have - whether that's facilities, machinery or people and their skills - in a different way," says Cooper.

"We're a big heavy industry but we sat and looked at what we had and what other products could we use that for. A prime example was a building a wind-farm. If someone had said five years ago Harland & Wolff would be working on wind-farms you would have been laughed at, but it was a perfect match. When you're at the very bottom and you've got to take it forward, you're prepared to listen to everything," says Cooper.

The company now builds bridges, wave generators, oil rig modules and a host of other products ideally suited to its facilities.

"There's a much greater realisation that we have to build what the customer wants. We're a flatter, leaner and more flexible organisation," he says.

SEVEN SOURCES OF INNOVATION

1 Unexpected occurrences: Many business people resent these. The German scientist who synthesised Novocaine wanted doctors to use it in surgical procedures.

They didn't - but dentists were delighted with it, much to the scientist's disgust.

2 Incongruities: Growing market but falling profit margins in the 1950s steel industry were solved by the creation of "minimills".

3 Process needs: Advertising completely transformed the newspaper industry.

4 Industry and market changes: Deregulation in the telecoms industry resulted in a wealth of opportunities for smart and innovative start-ups.

5 Demographic changes: Spawning the Ryanair generation.

6 Changes in perception: Despite being healthier than ever before, collective hypochondria means that the healthcare industry in the US is one of the fastest growing.

7 New knowledge: Although the technical knowledge was available in 1918, the first operation digital computer did not appear until 1946.

Source: Innovation and Entrepreneurship by Peter F Drucker