If we reflect on the strategy of successful companies: Microsoft, 3M, Dell, Ikea, General Electric, Charles Schwab, Sony, Gillette, Nokia, Amazon.com, each one is from a sector, each offers a different product / service … But they all have something in common: innovation.
The question to ask is: how did a company like Hewlett Packard, born in a garage, become a company that has a turnover of 49,000 million dollars? How did a Finnish company initially dedicated to the paper and chemical sector Nokia manage to be one of the most important telecommunications companies in the world? They have managed to be world leaders by innovating.
It is important to note that when this text talks about innovation, it is not talking about innovation in a strict sense of product / service, but about innovation in a much broader sense that encompasses all business concepts: strategy, processes, products / services…
In other words, the concept of innovation goes far beyond the concept of developing new products with such famous cases as Chupa Chups or 3M's Post It, but rather innovation in business concepts.
Citing the model developed by Gary Hamel in "Leading the Evolution", a business concept comprises four main components: "Customer Relationship", "Key Strategy", "Strategic Resources" and "Value Connections". Thus, an innovative company is one that totally or partially redefines some of these key concepts.
Examples of innovation in business concepts, in this case "customer relationship", are companies like Dell or ING Direct, which have found a way to get closer to their customers and reduce costs by redefining the distribution chain.
But it must be taken into account that innovation is a cause for success and not that large companies innovate. It is common to hear comments like “I don't have a budget for innovation. Our company is small for that. This is a big mistake, it must be taken into account that innovation is not only for large companies, since these companies have started small and have reached where they are, among other things, due to their innovative culture.
The case of Dell is a clear example of an SME that has become a multinational thanks to the Internet. It has managed to get ahead of its competitors by using the Internet to redefine the distribution chain. Its results: in just over thirteen years, the company's sales have grown from 1,200 million pesetas to 5 billion pesetas.
There are small companies that are innovating and trying to be the leaders of tomorrow, the Microsoft and the General Electrics in 20 years. In this sense, we have companies like the Spanish DS2, a small innovative company that is in the business of transmitting data using the electrical network (systems called PLC Power Line Communications) innovating and being together with large companies such as Cisco, Endesa, Electricite de France, etc.
But everything is not pretty. Innovation is bittersweet. It is true that you can talk about a multitude of success stories based on innovation, but at the same time you can see at least 10 failure cases for each success story.
Innovating has a certain risk and this will increase depending on how disruptive the innovation is. If you are simply looking for small improvements compared to what already exists, the risks will be lower. If you are trying to reinvent a sector, the risks will be greater but also the results obtained will be much lower. In this way we observe that there is usually a balance between risks and results obtained.
In addition, the human aspect appears. All of us feel comfortable with what we know and what has worked for us to get where we have come.
For this reason, we must " learn to unlearn ". It is very difficult for people to redefine the organization's strategy, forgetting the beliefs that have got us where we are.
This also leads companies that are leaders to lose their leadership due to not continuing to innovate. Typical cases of this were that of IBM or Motorola that allowed competitors to enter markets that were typically theirs. From these cases it is shown that innovation is not a one-off event, but must be continuous in order to remain in leadership.
So, do you mean it is better not to innovate?
Today, innovating is not a choice but an obligation of the market. Today, no one can doubt that innovation is ESSENTIAL to be competitive.
If you do not innovate, in the end you compete in markets in which the offer is basically the same and in which the differentiation has to be based on price instead of on the value proposition made to customers, with which each time margins are smaller.
It must not be forgotten that even if operational excellence is pursued, and achieved, will give an extra margin, our competitors can follow the same path, reaching similar levels of excellence in their operations and thus continue to fight on the margins.
Therefore, a company based on operational excellence is sitting in a chair waiting for competitors to arrive with new ideas based on reengineering, information systems, benchmarking, process management, or any other technique that manages to bring them to the levels of operational excellence that our organization has.
So it seems clear that if it is not innovated, it is simply a race towards operational excellence that sooner or later we will lose, or at most we will tie. The solution: don't compete in losing wars. Innovate and seek strategic positions with significant entry barriers.
But another question is , how can you get an organization to innovate?
Possibly, that is the great challenge. The idea is not that one day someone "lights up the light bulb", but that there is a system to innovate.
To quote the guru Peter Drucker "innovation can be managed systematically if you know where and how to look"
The analogy of innovation with jazz is very interesting. In jazz, although there is an important component of spontaneity, the musicians follow a basic structure. In innovation the same thing happens, in the end there may be great ideas created by people or teams, but there must be a structure for this to occur.
A typical case of an organization focused on innovation is 3M. In the case of 3M, the statement of intent is clear:
“The 3M culture encourages creativity and gives employees the freedom to take risks and try new ideas. With no limits to imagination and no barriers to cooperation, one good idea quickly leads to another. "
We will continue talking about the mechanisms that lead to innovation in subsequent articles.
Conclusion: Most of us are already clear that we have to innovate, that innovation is no longer an added value but that it has become the only way to competitiveness.
