Innovation is the name of the game

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Wanted: CEOs from India

: Innovation is the key idea that is shaping corporate life, helping leaders conceive unimagined strategic options.

Innovation enables you to see potential acquisitions through a different lens, looking at them not just from a cost perspective, but also as a means of accelerating profitable top-line revenue growth and enhancing capabilities. For example, the innovation capabilities of P&G were enhanced by its acquisition of Gillette, specifically in the areas of electronics, electromechanics, and power storage.

Innovation also provides an edge in being able to enter new markets faster and deeper.

Innovation puts companies on the offensive. Consider how Colgate and P&G, effective serial innovators, have pushed Unilever out of the U.S. oral-care market.

Peter Drucker once said that the purpose of a business enterprise is “to create a customer.” Nokia became number one in India by using innovation to create 200 million customers. Through observing the unique needs of Indian consumers, particularly in rural villages where most of the popula- tion resides, it segmented them in new ways and put new features on handsets relevant to their unique needs. In the process, it created an entirely new value chain at prices that give the company its desired gross margin.

Innovation, thus, creates customers by attracting new users and building stronger loyalty among current ones. That’s a lot in itself, but the value of innovation goes well beyond that. By putting innovation at the center of strategy, from top to bottom, you can improve the numbers; at the same time, you will discover a much better way of doing things—more productive, and more responsive.

A culture of innovation is fundamentally different from one that emphasises mergers and acquisitions or cost cutting, both in theory and practice. For one thing, innovation leaders have an entirely different set of skills, temperament, and psychology. The M&A leader is a deal maker and transactionally oriented. Once one deal is done, he moves to the next. The innovation leader, while perhaps not a creative genius, is effective at evoking the skills of others needed to build an innovation culture. Innovation leaders are comfortable with uncertainty and have an open mind; they are receptive to ideas from very different disciplines.

The idea of innovation has become encrusted by myth. One myth is that it is all about new products. That is not necessarily so. New products are, of course, important but not the entire picture. When innovation is at the center of a company’s way of doing things, it finds ways to innovate not just in products, but also in functions, logistics, business models, and processes.

A process like Dell’s supply chain management; a tool like the monetisation of eyeballs at Google; a method like Toyota’s Global Production System; a practice like Wal-Mart’s inventory management; a mathematical understanding like the one that fostered the market in credit derivatives; or even a concept like Starbuck’s re-imagining of the coffee shop—these are all game-changing innovations. So was Alfred Sloan’s corporate structure that made GM the world’s leading car company for decades, as was P&G’s brand management model.

Another myth is that innovation is for geniuses like Chester Floyd Carlson or Leonardo da Vinci: throw some money at the oddballs in the R&D labs and hope something comes out. The notion that innovation occurs only when a lone genius or small team beaver away in the metaphorical garage leads to a destructive sense of resignation; it is fatal to the creation of an innovative enterprise.

Of course, geniuses exist and, of course, they can contribute bottom-line-bending inventions. But companies that wait for “Eureka!” moments may well die waiting. And remember, while da Vinci designed a flying machine, it could not be built with the technology available at the time.

Reprinted by permission of