The 8 proven principles for managing innovation

Photo Rémi Maniak / Associate Professor at Telecom ParisTech and Researcher at Ecole Polytechnique / January 29th, 2015

The capacity to innovate is one of the main pillars supporting entrepreneurial performance. With ever faster technological waves, saturated and globalized markets, consumer versatility, upheavals in exchange mechanisms, innovation-driven competition does not leave much room to avoid the option: if you do not want to perish, you must constantly launch new and more innovative products and services and do so more often. Under these conditions, you can no longer afford to leave innovative activities to chance. Yes, it is possible to rationalize the innovation effort, moving on from managing equilibrium to handling a constant imbalance. No, this is no easy matter. It requires that we revise - and fairly extensively - our natural reflexes and current tools, without slipping into fashionable fads. The good news is that research in management has now identified the principles needed to manage innovation. Eight of these principles are described below.

1. Speed up development rates
Innovative companies somehow have it in their DNA to constantly launch new products, without waiting for some providential, ingenious idea, nor till they get themselves in trouble. It is now commonplace among corporate performance indicators to read “percentage annual revenue generated from products less than three years old.” Novelty is a target per se, and irrigates modern organizations completely.

Companies such as Gillette, 3M, Decathlon, Valeo, were perfectly aware that ‘cash cows’ that were to be preserved at all costs never last. If the next commercial winner is not made market-ready early enough, then current, acquired market positions are immediately copied by retro-engineering techniques, overtaken by a technology nobody detected, or simply forgotten by consumers shifting their choice in favor of new products …

Continuously launching new products and services is ‘the heart and lungs’ for any 21st Century company. This approach does not necessarily lead to revolutionary products, but represents the sinews of war to keep the client’s appetite going. The iPhone 5S does not differ fundamentally from the iPhone 5 model, but is a commercial success. The Renault Clio 4, with only incremental progress compared with the Clio 3, has proven to be a commercial success.

Most industries are engaged in a headlong race, constantly seeking to speed up development rates. From Google to Renault, from Airbus to Microsoft, from Michelin to Tefal, AirBnB … they are all launching new products and services. As time goes by, development costs and time-to-market have dropped significantly, while the quality in the new products has risen considerably.

This calls for adaptation of corporate organizations and associate processes. New roles (project leaders, project directors – with predominant managerial powers), new management principles (concurrent engineering), new collaborative, modelling tools (CAD), new forms of internal contracts combining functions and projects … all of these are seen as judicious ways to ensure that the various people from different trades involved in designing a new product bring their expertise together more efficiently, anticipate problems, minimize manpower investment, reduce the overall cost of the project and its “time to market” factors.

Such principles, widely disseminated in enterprise today, are given due coverage and analysis in benchmark publications, in professional trade unions, in certification and in what are known generally as ‘good practice’ circles. Apparently, repeat apparently, the wager has been won. But this focusing on development issues also carries deleterious effects.

2. Do not over-pressure development
A new and central problem starts appearing as soon as development rates take off and the corporate structures become increasingly international: the company assets begin to dwindle. In terms of available skills, even to design the same object over and over, you must a minima keep the teams updated in their fields of expertise and encourage their total commitment (even passion!) in their work. This is something difficult to ascertain when projects follow each other, are somewhat similar and occupy the entire work schedule and time horizon.

Managing the dynamics of design skills then becomes a major challenge‘feeding the call’ for new products. It turns the focus on the company’s attractiveness, since employee turnover is the sworn enemy of collective design skills; it also forces a closer look at provisional job and skills management, an old HR concept which nonetheless assumes its full weight when it comes to managing hyper-mobile development resources.

But overstressing development targets can also paralyze breakthrough innovations.

A strict implementation of ‘good practice’ in project management can lead to multiple project reviews, to a glut of procedures to be followed (assessment standards, pro-format specifications, task-oriented management) and to a transformation of the “innovative engine” into a machine designed to making more and “more of the same” things, to quote Paul Watzlawick, a Palo Alto communication theory expert and philosopher.

Today we witness a sort of bureaucratization of development projects, lying at the complete opposite side of the initial objectives of innovation management.

Moreover, a multiplication of the number of projects often leads to a wide variety of products and activities that proves costly (and difficult) to manage, inasmuch as platform rationalization is now the leitmotiv in every sector. Aircraft, automobiles, printers, phones and software sectors … all of them are trying to lower the marginal investment for each new project, by creating a base common to several models and maximizing the number of components or sub-systems that can be used in all the models. However, this approach is detrimental to innovation since the shared platforms freeze the model architecture and the choice of numerous components for several model generations to come. Any attempt to innovate beyond the platform constraints is often (self-) censored.

Therefore one cannot expect rationalized development to open the way to the future. Consequently, if a company wishes to survive in markets that never sleep, it has to leave room for free thinking.

3. Launch far-fetched ‘mad-hatter’ projects, fail fast, bounce back
The last decade demonstrated how important it was to launch and implement “real” projects when they brought breakthrough innovations. Taking action often proves to be the most efficient way to learn in any strategic domain, the only way to mobilize the key actors and convince them to invest, as well as the most efficient way to have potential customers reacting on the basis of a real proposal and not as a response to abstract questionnaires. On top of that, it often makes the top executives (or the investors) dream. It also tends to build up skills that can make a difference.

This logic emphasizes “pilot projects” that will explore a concept ab initio and throw light on the different ways to make them profitable.

The first iPod was launched in 2001 as a rather baroque project – developed over 6 months with very limited means – and it was not initially successful. It was through rapidly exploiting the early market signals that the real value pillars were identified: the usefulness of an association with an online music vendor (iTunes was launched only one year after the iPod), the need for significant improvement to the tactile screen feature that was to become the main pillar of Apple’s product strategy …

The first hybrid car, Toyota’s Prius 1, turned out to be a historic, commercial flop (1 billion $US losses), but it opened the way to what was to become the hybrid market that Toyota was able to augment and control, to the extent that “hybrids” became the ultra-profitable flagship of the Toyota brand round the world.

It is therefore urgent to revise the way we think of risks taking. It can prove more risky not to launch a project than to do so and bounce back rapidly if the project fails!

Entrepreneurship has undergone the same changes. Historically, entrepreneurship is based on a ballistic paradigm, whereby the resilience of the idea and the initial business plan constitute the sine qua non condition to obtain financial support and investments, the effective implementation of the idea with the business plan being yet another requisite for continued financing. Those concepts have largely been abandoned now. The concept of effectuation, which today is ultra-predominant in entrepreneurship good practice, focuses on the need for short loop reactivity compared with the initial scope envisaged. By way of an opposition to the causal model used to set an objective and to allocate the means to attain this, the effectual model presupposes that the entrepreneur will certainly not launch the “killing app” right from the outset, but will set in motion a positive dynamics inducing new allies in the venture and allowing him or her to test certain segments with an offer concept  … which considerations, taken together, lead to a rapid reassessment of the initial ambitions in the light of the new data. It is no fluke that one of the favorite maxims in Silicon Valley is “fail fast, learn hard.” Naturally, this does not preclude succeeding the first time round.

4. Build a mid-term differentiation
The combination of voluntarism and pragmatism does not only serve to test and reorient product strategy, it also serves to acquire new skills and more generally the assets that allow an entrepreneur to gain a leading edge in the market.

Firstly the gain is technological. How otherwise can you explain that Apple has (and still has today) the most ergonomic tactile capacitive technology, if we do not take into account the pre-existing product lines, each of which adds to a robust technological expertise, that ties in with user experience? Or why Toyota has (still) the best hybrid propulsion units on the market? Or why no serious competitor for Dacia-Renault has come forward in the concept area of “a real, very low-cost car” – when the first Logan was marketed more than ten years ago?

Secondly, there is a gain in terms of brand image and reputation in a given market slot. To illustrate: Withings, a pioneering company specialized in connected objects, launched its first product, a strange, connected, weighing scale. It proved to be a media success that largely contributed to the company’s later successful track-record, with a large range of other connected objects. Another example, Interbrand estimated that the Prius was the main factor contributing to the improvement of Toyota’s brand image by 50% between 2000 and 2005. This is crucial when we think about the close ties between the acceptable price of a product and the image of the brand marketing this product.

We should bear in mind that every enterprise has the products of its assets and, vice versa, the assets of its products. Consequently, each really innovative product launch revitalizes the assets and opens the way to possible new offers. From a theoretical point of view, this runs counter to our former strategic thinking. Michael Porter’s over-exposed and over-used theories have made us more familiar with the necessity to isolate oneself from novelty and competition by erecting barriers round stable business areas. Porter, one could say, made a stance in favor of immobility rather than movement: his idea of competition was more attrition warfare than maneuver warfare.

If we refer to the Porter paradigm, it would be absurd to invest and cannibalize assets and products. Whereas in the new competitive arena, it is not absurd: it is, actually, necessary. Naturally, there can be no question of launching new products or services in all directions. Innovation is a costly affair and calls for a degree of mental hygiene to optimize the cost-value ratio.

5. Smartly orient the exploratory phase
Let us be realistic – an exploratory project has very little chance of becoming directly a market-ready product. In this respect, the level of productivity when exploring market possibilities is extremely low, except when we rationalize the orientation of projects and the accumulation of knowledge produced by each project.

A first challenge consists of correctly framing innovative initiatives. Each project that Google launches, however strange it may seem, is in line with the corporate strategy mission statement which is to “organize the world’s information and make it universally accessible and useful to all.” Each successful project re-articulates naturally with the rest of the organization. Intelligent framing can also be seen in the generative concept. If you assign scientists with the task of meeting the specifications including reference to “connected objects” or “big data”, it is not highly significant … and indeed tends to limit the accumulative factor that accrues from inter-project research. A contrario, when framed, for example, as a search for “services to make meals more sociable,” or for “products to assist dependent persons in everyday life,” they are sufficiently well-defined to enable us to move rapidly, find original solutions and gain expertise in the target concepts.

Another reflex that one could usefully acquire is to fight the trend to “always do better.” Companies have a tendency to want to satisfy their most demanding customers and hence start racing for continued product improvements, thereby reproducing the mainstream use of their products. This introduced a major bias in the search for innovation. Today, however, two concepts enable entrepreneurs to by-pass this bias.

The first concept is that of disruptive innovation, largely popularized in the years 2000. It points to the fact that it is possible and indeed often relevant to innovate “bottom up,” refusing the race for more sophisticated technologies for the purpose of winning over less demanding clients who accept to pay less for a “degraded” performance. The Dacia Logan car is a perfect example of such an orientation, succeeding as it did to catalyze the overall performance level of the Renault Automobile Group, with a line of products largely based on this principle.

The second, instructive concept, somewhat similar to the first, is called Blue Ocean. Competitors who converge towards similar, almost identical products, all tend to optimize the same attributes (range or autonomy, price, weight, power …). This leads to what is termed a Red Ocean, with sharks circling in the same market and eating each other. A Blue Ocean search takes you away from the product and allows you to swim alone, by sacrificing some attributes and focusing on other, original features.

To illustrate this, we can recall that when the iPhone was launched, the predominant purchasing criterion was duration of the battery charge (the standard at the time was one week). The first iPhone batteries lasted for less than a day, while other features had been developed (ergonomics, model and service evolution through apps) that made it a hit.

6. Encourage and valorize unexpected opportunities
A project such as the Google Car cannot be managed in the same way as the development of, say, a new operating system. Implementing ‘institutionalized’ project management principles calls for a precise definition of the product, its finalities and the means needed to produce it – at the earliest stage possible, in order to maximize the quality-cost-delivery performance factors. These principles prove simple and relevant for familiar objects and uses, but would be suicidal if applied to a ‘mad-hatter’ project. The idea now is to allow the team to rapidly explore a varied set of scenarios, to acquire and build up new skills, to test original partnerships. At a time when the word ‘serendipity’ is fashionable, it is urgent to really apply it to innovative project management, by encouraging and valorizing unforeseen opportunities, making the most of discoveries that come along the way, modifying the product marking hypotheses, its functionalities and, if need be, questioning the strategic stance that underpins the entire operation.

Beyond the initial exploration phase – with value generated by an innovative project transpiring through several associate projects – we can observe the dissemination of new forms of multi-project management. In contrast to a selection/Malthusian logic applied to a project portfolio (well-known in pharmaceuticals, for example), the management of an innovation programme enables the operators to manage several projects in the same area, complying with the dynamics identified above: organization of project complementarities, as and when the projects progress, with stress laid on a proactive and reactive attitude in respect to the launch phase hypotheses, new ‘full value’ investment control tools (which aim at reintegrating the ‘indirect values’ generated by the project, e.g., the impact of newly acquire skills …).

7. Articulate development and innovation
Undertaking mad-cap projects is not just for fun’s sake. They must be used to challenge, feed and complete more traditional product lines. The performance of an innovative organization then relies on its capacity to relate the breakthrough format innovation with the company’s core business. In this case, we refer to ambidextrous organizations, those possessing the dual possibility of handling both short term and long-range options.

Adopting structural ambidexterity is the most obvious form. An autonomous business unit is defined and launched on a suitably framed pilot programme. The key here is to give the unit the means to fully complete its assigned mission: allowing access to corporate resources and skills, a degree of autonomy in regard to institutionalized procedures, granting the right to fail the initial product/service launch. And when the programme starts to produce encouraging signs, a decision must be taken: what do we now do with this potential success story? Should we set up a spin-off company? Should we integrate it as new corporate priority?

Google’s logic, expressed in “Earn, Entice, Expand and Experiment,” is symptomatic of this kind of approach. On one hand, there are development projects centered on core activities, on the other, pilot projects (Googles Glasses, Google car …). Well oriented from the scratch, successful projects connect to the core activities, such as building a new entry data base for Google’s Adwords or a new line of the development business.

In a more industrial sector, the example of the Dacia Logan is symptomatic of an ambidextrous organization. This project was construed from the outset as a pilot project based on a concept that was both ‘mad-hat’ (to market a real car for 5000€) and modest (it was only targeting a handful of Eastern European countries); but the Renault automobile Group as a whole jumped on the initial sales success, re-associating the Dacia offer (and with this the skills of frugal engineering) to the Group activities and the brand name Renault, with the prospect of gaining international markets.

8. Learn to hunt in packs
No wonder if the notion of open innovation is so much in vogue: it has become increasingly difficult to innovate alone. Practically, what is needed is to find how to co-innovate and manage this process, with a handful of partners who choose to advance together in a potentially innovative direction. An alchemy must be found in regard to coordination and incentive modes that enable an exploration project to be carried out with the other partners, while investing sufficiently to “really” innovate.

Here again, new management principles have been affirmed: contract clauses that allow the partners to be favored in the call to tender following the exploratory phase, that increase the size of the “pork barrel” to be shared; new ways of sharing IP rights allowing the partners to rapidly exploit the results with other parties; an eco-system business plan that helps to organize the share of the investment efforts, of the profit margins, etc.

“Pack hunting” also allows the pack to build systemic innovation, thus offering a coherent world to potential customers. Intel was a pioneer of this approach. Starting from an apparently insignificant position as a component supplier, Intel succeeded in federating a network of actors (from Microsoft to Logitech), in creating new technical standards (PCI, USB, AGP), in synchronizing and making coherent giving consistence to the roadmaps of digital eco-systems, and in recreating client customer attractiveness by through the promotion promoting strongly the legibility of of the their slogan “Intel Inside” slogan. Google has clearly chosen to play this trump card today, differing from Apple who prefers to have a very strongly vertical integrated organization. Google prefers to federate networks of allies (phone, television, car assembly companies and developers) and to synchronize efforts with these companies to be able to come up with a global, experiential offer.

References

BOOKS

More on paristech review

By the author

  • The 8 proven principles for managing innovationon January 29th, 2015
  • The future of the automotive industry: who will invest in intelligent transportation systems?on February 11th, 2014
  • How a new innovation culture is reshaping the car industryon September 20th, 2012

www.paristechreview.com

This content is licensed under a Creative Commons Attribution 3.0 License
You are free to share, copy, distribute and transmit this content

Logo creative commons

5 quai Voltaire 75007 Paris, France - Email : contact@paristechreview.com / Landline : +33 1 44 50 32 89