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Putting an innovation culture into practice By Robert Angel January February 2006 Reprint 9B06TA08 To order copies or request permission to reproduce materials please contact Ivey Publishing Ivey Management Services c o Richard Ivey School of Business The University of Western Ontario London Ontario N6A 3K7 Tel 519 661 3208 Fax 519 661 3882 Email cases ivey uwo ca Copyright 2006 Ivey Management Services prohibits any form of reproduction storage or transmittal of this material without its written permission This material is not covered under authorization form CanCopy or any other reproduction rights organization Ivey Business Journal Online Ivey Business Journal Online Ivey Business Journal Online Ivey Business Journal Online Ivey Business Journal Online is published by Ivey Management Services a division of the Richard Ivey School of Business For subscription information please contact ibjonline ivey uwo ca I M P R O V I N G T H E P R A C T I C E O F M A N A G E M E NT 1 Ivey Business Journal January February 2006 Putting an innovation culture into practice Innovation is said to be the Canadian weapon of choice against low wage foreign competitors If so innovation calls for the creation of an innovation culture which does not come easily You cannot expect to manage your way to creativity however good management sets some of the preconditions for it By Robert Angel Robert Angel is president of the Gilford Group Ltd a Toronto based consulting firm that specializes in customer and marketing strategies He is also a member of TPS International Inc a strategy and performance management international consultancy He can be reached at bob angel Innovate or die With markets becoming less and less local Canadian companies are being advised to compete globally based on their ability to innovate successfully Certainly Canada needs to compensate for a large and growing labour cost handicap compared to overseas competitors The Canadian Advanced Technology Alliance said recently that looking at a pure cost Canada can t compete at the level of India or China but when you move up in the engineering class or the highly innovative manufacturing talent Canada ranks right up there However there is what the Canadian Manufacturers and Exporters Association describes as a significant gap with respect to innovation including training research and development investments in new technologies and the commercialization of new products CME sees less of a tendency to compete on the basis of new products new processes and new skills and a greater reliance on other factors such as a low Canadian dollar slower growth in labour costs and strong U S market demand Those underlying conditions are now rapidly changing Putting innovation into practice can definitely be a challenge Despite widespread uncertainty about implementing it on the part of Canadian management innovation is an overworked word Last October a search of innovation on Google returned an astonishing 338 million entries By mid December the count had climbed to 373 million Creating an innovation culture is easier said than done There is no magic bullet for creating innovations or any guarantee of a sustaining competitive advantage as a result But if an innovation culture is the goal how should a CEO change the organization s mindset How can the organization be mobilized as a team to bring new products and services to market quickly What will bring the organization together to translate product and service initiatives into sustained results This article will address these questions Innovation now for something completely different The classic definition of innovation is immense incomplete and inimitable Innovators serve their customers with products services and processes that radically shape customers perceptions and needs creating new and enduring markets Conceiving innovations requires breakthrough creativity imagination and instinct Developing them requires perceptiveness ingenuity and agility Implementing them requires co operation across the enterprise Innovation as a management concept has matured over the past decade thanks to thought leaders like Clayton Christensen Michael Porter and others who have popularized topics such as disruptive technology competitive advantage and competitive strategy Porter sees strategy as resting on unique activities choosing to perform activities differently or to perform different activities than rivals and leads to sustained competitive advantage and profitability What Is Strategy Harvard Business Review November 1996 Christensen says that 2 Ivey Business Journal January February 2006 disruptive innovations need not be a breakthrough from a technological sense but instead of sustaining the trajectory of improvement that has been established in a market it disrupts it and redefines it by bringing to the market something that is simpler Gartner Group Interview April 2004 Technology frequently is instrumental in creating innovations and bringing them to market It enables consumers and businesses to do things not previously conceivable or affordable It also can provide intelligent inventive and complex automation to mitigate high labour costs Productivity first catch the competition Being an innovator in the global marketplace requires a strategy of growth melding research with engineering on products whereas many so called productivity efforts are really strategies of shrinkage says Chris Piper Associate Professor and Faculty Director of the Ivey Operations Program at Richard Ivey School of Business Productivity is a necessary adjunct to innovation John Hagel III and John Seely Brown characterize rapid incremental improvements as innovations if they are difficult to copy As they write in Optimize magazine November 2005 that s because they require deep mastery of practices developed cumulatively in specific contexts However it would be a serious mistake to think of productivity as a proxy for innovation Productivity rarely eliminates cost gaps completely and almost never creates a competitive advantage The foregoing matrix illustrates productivity and innovation as separate factors a third factor growth without productivity improvement is at best a temporary strategy an invitation to a lower cost competitor to seize market leadership once the innovation s value has been demonstrated to a few early adopters It is all too tempting to see productivity improvement as a substitute for innovation as easier and less risky at least in the short term A Manufacturing Leadership Roundtable held at the Richard Ivey School of Business in October 2005 bears this out A cross section of Ontario industrial and product manufacturers was asked about bridging the excellence gap in manufacturing productivity and innovation The Roundtable participants concluded that creative breakthroughs are rare so it is better to focus on quality and performance improvements that can enable future innovation This raises a big question to what extent are long term competitive implications being thought through Would be global market players should heed Porter s warning that operational effectiveness is not strategy that performing similar activities better than rivals may be essential to superior performance but tends to drive companies to competitive convergence rather than uniqueness In any case productivity in Canada has its own competitive issues Labour productivity has been flat in Canada for more than two years compared to around 4 growth in the U S and much higher growth among Far East competitors Canada also lags in corporate investment often viewed as an indicator of future productivity with information and communications technology investment per worker less than half that of the U S Although Canadian business investment in machinery and equipment has picked up recently there is little evidence yet that the Canadian cost gap is shrinking Nor have recent energy price increases that raise transportation costs appeared Innovation and a Strategy of Growth Cost Reduction Market Growth HL HL innovationproductivity temporary leadership Cost Reduction Market Growth HL HL innovationproductivity temporary leadership 3 Ivey Business Journal January February 2006 to have had a noticeable proximity to the U S market benefit for Canada Mexico looks set to be the greater beneficiary The experience of an automotive parts company in western Ontario is a good example Polymer Industries is relocating some manufacturing processes to Mexico John Bell CEO of Polymer Technologies Inc says that the move is for cost savings and competitive survival He adds that locating close to a customer still can be a reason to be in Canada and access to engineering skills is perhaps another However Bell says the skills advantages are in danger of eroding and points to the more than 500 000 engineers graduating in China and India each year There is clearly an urgency in creating an innovation culture Culture change mobilizing the organization There is no guarantee that an innovation culture will lead to innovation but it certainly is a prerequisite The Ivey Manufacturing Leadership Roundtable identified a culture of innovation as the central strategic requirement for Canadian companies today see sidebar Leadership and Innovation What constitutes an innovation culture The Roundtable participants pointed to actions such as sharing of ideas in a team holding annual innovation education boot camps using measurement to change behaviour and making front line supervisors better coaches of their teams These are useful steps but not comprehensive enough for building an innovation culture A more organized view of innovation culture implementation is clearly needed The Continuum approach described here has been developed over several years Its origins are in behavioral approaches to understanding customers in large service industries such as financial services banks especially The organization progressively moves itself across the Continuum to higher levels of achievement with the goal of lifting performance at each level Three levels of performance culture are depicted foundation advanced and breakthrough At the foundation level a hierarchical and risk focused organization typically concentrates on transactions selling more products or services and keeping costs in check Foundation organizations often try to improve performance by working harder developing sales skills and targeting selected customers more systematically They often let go staff who fall short of performance goals set for them or for the organization This approach can work at least for a while many foundation organizations have reported steadily improving financial and operating results for extended periods However they also build up considerable stress at all levels in the organization and raise serious long term questions about both business purpose and sustainability The majority of Canadian organizations are in the foundation level or else in transit to advanced At the advanced level an organization is typically integrating organizational silos so that individual departments can work with each other for productivity improvements and greater flexibility of response More operating decisions are being pushed down to the front The Innovation Culture Continuum ManagementManagement InformationInformation CustomersCustomers OperationsOperations StrategyStrategy Foundation Departmental Silos Integration across the Enterprise Productivity Improvement Segmented but still Product Based Growth and Performance Advanced Self directed Virtual Teams Learning development of front line supervisory skills to improve employee engagement and retention co operative and creative business practices organization wide self actualization these all lead to a shared knowledge and learning organization A recurring theme is also managing overwhelming workloads so that all important issues are addressed promptly rather than deferred because people are too busy The breakthrough level embraces Total Performance Scorecard concepts developed by my colleague Dr Hubert Rampersad The Total Performance Scorecard approach has been described in the article Sustaining profitable customer relationships requires real leadership Ivey Business Journal November December 2004 It is being used by senior executives and staff in several major organizations around the world for sustained improvement in key performance metrics both financial and non financial by aligning individual and organizational performance and vice versa Breakthrough also calls for robust data management Especially collection and analysis require a suitable platform that can link detailed results measurement to strategic and tactical decision making supported by a proper business case see also sidebar The Role of Leadership and Innovation How can the gap be bridged by productivity and innovation In October 2005 80 managers from the Ontario manufacturing sector met for an Access Insight Manufacturing Leadership Roundtable at Ivey School of Business to discuss this question Interestingly there was more talk of productivity than innovation This raises the question as to whether productivity is enough to bridge the gap or indeed whether innovation is enough Culture is a huge issue for the participants getting a real performance and innovation culture addressing the middle management crisis and obtaining more employee engagement were flagged as critical needs across the organization Leading by example from the top was mentioned frequently in the context of the CEO needing to instill an innovation mindset across the enterprise and have it followed consistently However the message from the participants is quite clear few of them can point to sustained results experiencing instead among other things mixed leadership messages employee dissatisfaction and a continuing struggle to come close to performance goals consistently An innovation culture has proved very hard to articulate harder to achieve and even harder to sustain Source The Access Group and Ivey School of Business 5 Ivey Business Journal January February 2006 Technology in Innovation Many organizations have installed a Balanced Scorecard process often using a commercial software tool Many are finding the results are underwhelming Generally the best results for the effort are being achieved by organizations moving into the breakthrough level The implementation of innovation culture change often starts with a readiness assessment that examines multiple cultural and strategic components This yields valuable insights about the organization often at variance with the organization s existing view of itself Putting innovation into practice Several companies are now in breakthrough territory especially in how they work with their customers They are now targeting customer needs as well as customer profitability through an understanding of customer behavioral factors In other areas there is more work to be done The management and strategy elements particularly require self directed and self motivated teams to carry out groundwork to define required changes in behaviour and expected results and to bring staff to a sufficient comfort level Our research indicates that progression on the Continuum reduces resistance to new ideas and improves results both financial and non financial and so is a necessary first step Innovation realization is still somewhat anecdotal but there are good early indications that it becomes more achievable and sustainable as barriers to innovation are removed The Role of Technology in Innovation Information technology can be a powerful innovation and change enabler when used to foster adaptive processes However a surprising number of Manufacturing Leadership Roundtable participants see IT as having failed to take on the role