A practical guide to managing
innovation
What does innovation mean? It used
to relate mainly to products, and that's still important. But over the last
decade or so, businesses have been putting more and more emphasis on innovating
new services and business models as well. In light of this, it’s time companies
take another look at how they manage innovation.
“Innovation is one of the least
well-managed areas in most companies,” says David Midgley, a
marketing professor at INSEAD and author of The Innovation Manual. “This
leads to wasted resources and costly mistakes. It’s not the effort that
companies put into innovation that decides success. Instead it is how firms go
about doing innovation that separates leaders from the rest.”
Most of the information about
managing innovation available today is siloed, addressing specific issues such
as technology or finance. But as the boundaries of innovation expand, more
managers will need practical knowledge and tools that transcend these
functional silos.
More
than good electronics
In addition to providing this
practical knowledge and the toolkit to go with it, The Innovation Manual
examines what is known about innovation management and asks if it still applies
today when an innovation may indeed be a product, but a product with a service
attached and driven by a totally different business model than a few years
before.
To illustrate this idea, Midgley
uses the example of the Apple iPod. Apple has sold hundreds of millions of
iPods since introducing them in 2001. But, he says, that success is not because
the iPod is an innovative product as there are many similar devices. The real
point behind the iPod is the service that allows the customer to easily
download music and the business model that allows both Apple and the music
industry to make money from those downloads.
“Apple negotiated a business model
with the music industry that allowed everybody to get what they want -- the
music industry to get their royalties, Apple to sell downloads and the iPod
itself, and the customer to be able to select the songs they want rather than
putting up with the compilations the industry offered because of its previous
business model,” Midgley says. “These are Apple’s real innovations – the rest is
just good electronics.”
No
longer simple
Back when innovation related only to
products, it was easier for companies to manage. One group of employees
designed the product and passed it on to another group who sold it. But the
broader boundaries of innovation have complicated things for company managers
responsible for delivering innovations to the marketplace.
Implementing an innovation today may
require making major organisational changes. For example, implementing an
innovative service could mean making changes to employee training programmes
and company procedures. A business model innovation entails getting everyone to
understand the new way of making money, or, if this is not possible, setting up
a new business unit.
To understand what sort of organisational
changes are required for an innovation, a manager first needs to understand
what sort of challenge the innovation is going to pose. For Midgley, there are
three categories of challenge – the customer, technology, and business model.
Understanding which category the innovation falls into is the key to
understanding what steps the company needs to take next.
“If it's a customer challenge, then
you need to orient your intelligence and services one way,” Midgley explains.
“If it's a challenge on the organisational side, then it's another way. If it's
a breakthrough in all three then you might want to think it's a big risk.”
The customer challenge addresses how
far away this innovation is going to be from the way the customer usually
thinks. For example, Nintendo designed the Wii video game console to appeal to
an entirely new customer base, namely people who wouldn’t ordinarily think of
playing electronic games.
“What's interesting in the Wii is
not the technology, which is fairly straightforward,” says Midgley, “and it’s
not the business model, because it's actually quite a traditional business
model for the gaming world. The really innovative and creative thing is making
games that appeal to the grandmothers, or to families or the people who don't
play ‘shoot-‘em-up games’ on PS3 (PlayStation 3).”
The second type, technology, asks
how much of a challenge the innovation is going to be for the organisation. The
PS3 posed a typical technology challenge for Sony because the company was
inventing a new superprocessor for their existing game console and customer
base. The business model challenge addresses how the company can get money out
of the existing value chain. This is what Apple overcame with the iPod.
The
beginning is the end
The ultimate goal of any innovation
is to create value in the minds of the customers.
Midgley identifies five key tasks
the organisation needs to do to accomplish this and provides the tools for
managers to use to accomplish the tasks.
The first task is organisational and
involves setting the direction and fixing the rules for implementation. The
second is setting up the team. Teams are key to success, so the firm needs to
select the most appropriate team for the type of innovation.
Task three involves working with
customers as co-creators. “You get much more mileage by working with the right
customers at the right time than by suddenly popping up and saying: ‘Here's our
bright and shiny new thing, how do you like it?’” Midgley says.
Once the goal has been defined, the
right team selected, and a solution defined that meets a strong customer need,
the fourth task is to make the necessary organisational changes to deliver the
solution. This is especially true for service or business model innovations.
The fifth task is to build momentum
in the market for the solution. Managers need to design and create markets for
innovations with a thorough understanding of how customers accept or reject
them, which is something companies don’t always do right.
For example, the personal digital
assistant (PDA) was a highly innovative product which flopped when it was first
introduced by Apple, Tandy and Motorola. These companies didn’t choose the
right target customer to get the market moving, nor did they understand how
these customers would get best value out of the innovation. As a result,
all three companies ended up emphasizing the wrong features of the product.
Palm then introduced essentially the
same product but, by studying how their customers would use it, the company was
able to market a feature with a strong customer appeal. In the end, their
highly successful version of the PDA sold in the millions.
By Robert Goldsmith |
http://knowledge.insead.edu/innovation/a-practical-guide-to-managing-innovation-1667
No comments:
Post a Comment