At the beginning of my previous book “Innovate out of Crisis” I wrote:
“Innovation makes the world go around because human needs are unlimited,
and because human creativity is an abundant, and renewable natural resource.” (01)
At the beginning of my new book “The Innovative Enterprise” I submitted that companies do not compete on the basis of innovation-projects, but on the basis of their innovation-capabilities. (02) Thusly, the leadership needs to lead the whole organization up on the learning curve of the innovation-capabilities in order to avoid being outsmarted and outinnovated by competition.
The innovation-capabilities result from the proficient deployment of the different types of resources on the different types of innovation-projects. The innovation-capabilities are based mainly on intangible resources like talents. Thusly, in my aforementioned book 4 out of the 5 strategic resources are essentially intangible resources, and that one of its chapters focuses on talents.
In this short paper, firstly I wish to clarify the term “innovation”. It is a generic term, and generic terms can mean anything or nothing. Thusly, they are difficult to manage.
Secondly, I have grouped the innovation-capabilities in 5 categories, shown hereafter in order of increasing levels of proficiency. This should help the business-leaders to assess the level of capabilities their organization has reached, and to plan what to do next. Moreover, the business-leaders can use the attitudes and the aptitudes developed as the organization progresses through the 5 categories of innovation-capabilities in order to support their program of management innovation.
This is the first of a string of short papers, which expand on some of the concepts that I present in my new book, “The Innovative Enterprise”. These essays do not replicate the models and the methods, which are explained and illustrated in this book. (02)
THE 5 CATEGORIES OF INNOVATION-CAPABILITIES
As documented by the executive surveys run by several global consultants, many companies only produce sporadic and solitary innovation-projects. Such projects tend to focus on some of the products and/or on some of the processes of the supply-chain. They are the result of ideas developed by smart engineers concerning some product-features or of ideas presented by bright marketing people who find new ways to step-up the product-benefits recognized by the customers.
Ideas are the gem of human brain, and I do not want to minimize the value of fortuitous innovations. Moreover, innovators deserve respect for their initiative and for overcoming internal resistances so as to get their ideas implemented. However, haphazard innovation-projects are predestined to yield limited results. Most importantly, sporadic and solitary innovations rarely develop and diffuse a set of core competencies that can be replicated and improved on. They may even fail to get senior management’s attention. Thusly, the original innovator may be ill equipped to keep the innovative momentum going so as to remain ahead of competition and of customers evolving requirements.
The First Category of Innovation Capabilities:
The Innovations on the Business Value-Chain
Business communications tend to be easier on the horizontal – i.e. at the same level – than on the vertical – i.e. with different hierarchical levels. And so, people tend to develop innovative ideas based on the interchanges at the same level with their usual contacts. Marketing and sales people interact with the customers; purchase and production people interact with their suppliers; R+D people interact with researchers and scientists. And so, this type of discussions brings out different perspectives, different wants and musts, and thusly they can generate practical and productive ideas.
On the horizontal, we have the supply-chain or what I call < the business value-chain >, which encompasses a string of activities that go from the suppliers/allies to the enterprise, and from the enterprise to the distributors and finally to the customers. Thusly, it is normal that most innovation-initiatives sprout on the business value-chain since this is where the interchanges are frequent and easier. Moreover, the prime partners – i.e. the important supplier/allies and customers - can provide more detailed insights on what happens at their respective part of the business value-chain. These insights are most valuable as they meaningfully complement to the knowledge that is available to the enterprise.
Authors talk about < open innovation >, and in most cases they fixate the impetus of innovation that arises on the business value-chain. I refer the reader to the abundant literature on the subject
The Second Category of Innovation Capabilities:
The Innovations on the Management Value-Chain
The < management-value-chain > goes on the vertical through the enterprise, and it encompasses of the following 5 links of managerial focus.
(1) The products or the deliverables
(2) The processes on the supply-chain
(3) The prime partners, i.e. the important customers and suppliers/allies
(4) The strategic powers or the strategic resources
(5) The business-policy, and the hierarchy of the management processes.
Please note that the business value-chain integrates the management-value-chain on the third level, the level of the prime partners.
I have put the aforementioned 5 <p> in order of increasing management-sophistication. The management-value-chain can move bottom/up, or that it can move top/down. According to executive surveys, often the impetus of innovation-projects comes from the operations management, i.e. bottom/up and not top/down. This explains why global consultants report that all too often innovation does not integrate business-strategy. I refer the reader to my aforementioned book where these executive surveys are mentioned and discussed.
< Open innovation > goes essentially on the horizontal, i.e. outside/in & inside/out. I advocate < total innovation >, which means that the organization implements the 4 vectors of communications and of innovation, namely top-down & bottom/up as well as outside/in & inside/out. Thusly, the organization builds its innovation-capabilities on the interactions among the different function and among various hierarchical levels.
The Third Category of Innovation Capabilities:
Evolutionary and Radical Innovations
After discussing the germination of innovation-projects on the business value-chain and on the management-value-chain, let me sketch the distinction between two types of innovations, namely the projects concerning respectively the evolutionary and the radical innovations.
In a nutshell, the distinction between evolutionary and radical innovations is based on the quantum leap of the value delivered by the innovation, on the sophistication of the innovation-capabilities involved, on the profile of resources-risks-rewards, and – last but not least – on the level of involvement of the senior management.
Projects of < evolutionary innovation > are based to some extent on current and generally available knowledge and experiences. However, they go beyond improvements and they achieve a quantum leap in the value-added to the customers or - more broadly speaking - to all major actors on the value-chain. Let us not forget that the personnel and the suppliers/allies are partners in the innovation-project, and that they are associated in the pride and profits justified by the success.
Evolutionary innovations use mainly existent infrastructures, they can build on an existent brand capital, on the established customer capital, and on already well-established market positions. Hence, such innovation-projects should take a reasonable amount of time from inception to market-introduction. Therefore, projects of evolutionary innovation should be frequent, and they should achieve good to moderate results with moderate risks. Evolutionary innovations generally come-up on the business value-chain. Ideally, they should integrate business-strategy, and they should imply some involvement by the senior management, but in practice they are largely delegated to the operations management.
Projects of revolutionary or radical innovation do not build on an existing base of knowledge and widely known applications. They may be generated outside the traditional business value-chain. They may take a long time from inception to market introduction, and therefore they are infrequent. Last but not least, such projects can entail really large risks, but they can produce really large rewards.
Unlike evolutionary innovations, radical innovations must imperatively be developed over the 5 <p> of the management-value-chain, and they must integrate business-strategy. Moreover, the senior management must design their organization, and provide special funding as well as suitable performance evaluations.
Successful revolutionary innovations can really make a dent in the market place, and they cannot easily be followed by competition because they are largely based on proprietary knowledge and/or on a substantially original and systemic platform that opens up new markets.
Evolutionary innovation should extend in time and in space the achievements of the revolutionary innovation in terms of momentum, market penetration, and the customer-loyalty. Thusly, evolutionary innovations are essential to extend the return on the investment made on the radical innovation. The link between radical and evolutionary innovations is greatly facilitated if both are driven by strategy and fittingly supported by senior managers. (3)
The Fourth Category of Innovation Capabilities:
The Portfolio of Innovation-Projects
Companies do not compete with a single product or with a discrete innovation.
They compete with their portfolio of products, and with a portfolio of innovation-projects !
Evolutionary and radical innovations are different and they are complementary. Actually, they need each other, and the enterprise needs a good balance of both in order to sustain superior performances.
The radical innovations need some of the resources developed in the core-businesses to be able to take a big jump. The evolutionary innovations can follow the wake of the successful radical innovation, and extend the momentum and thusly contribute handsomely to the return on the investments made. The evolutionary innovations may need a successful radical innovation to raise the market presence and the share of market.
So, innovative enterprises build a portfolio of innovation-projects, which optimizes the differences as well as the synergies among the evolutionary innovation and the radical innovations.
The Fifth Category of Innovation Capabilities:
The Innovation of the Management
The increasing sophistication of the management of innovation
should lead to management-innovation.
At the beginning of this short paper, I pointed out that companies do not compete on the basis innovation-projects, but on the basis of their innovation-capabilities.
Obviously, just like plants need the right soil to grow, the innovation-capabilities need the right environment to develop and to outperform. (4) Traditional organizations that are staid and stolid resist evolutionary innovations, and they may be down right refractory to revolutionary innovations. Innovative networking enterprises are clearly advantaged by their nimble networking management-system, and thusly they are able to systematically outperform traditional organizations.
In my aforementioned book, I show how a program of management innovation helps the business-leaders to transform a traditional organization in an innovative networking enterprise. (2) Actually, reaching the fifth category of innovation-capabilities supports the program of management innovation, but it does not replace such a program that is still needed in order to establish and to run proficiently the innovation of the management.
In this section, I would like to outline some of the elements that help the management of innovations to drive the innovation of the management.
Bottom/up, the innovation-teams push the management in order to obtain the resources and the support they need. The more successes they manage to line up, and the more attention they will get.
Top/down, the senior managers become increasingly involved in the innovation-projects as they become increasingly important. And so, pressures mount inside the enterprise in order to abate the strategic and organizational constraints that hinder the development of the innovation-capabilities. Pressures also mount outside the enterprise as competitors and customers are not likely to stand still.
Progressively, the innovation-capabilities will embrace the 5 <p> of the management-value-chain, and they will syndicate the different levels, the different functions, and the different innovation-capabilities. Progressively, the open-wide interactions will advance the collective content creation by the teams that work on the assigned project. Progressively, new attitudes and aptitudes will shape an evolution of the corporate culture.
The business–policy will recognizes the value of the core competencies that support the innovation-capabilities, and it will promote accordingly the development of strategic powers or strategic resources. The business–policy will take advantage of the preferential relation developed with some of the prime partners in order to formalize close alliances that will advance the innovation-capabilities on some or on all the 5 <p> of the management-value-chain.
Sustainable success it not based on the value of sporadic innovation-projects, but on the value of the organization’s innovation-capabilities. Innovation-capabilities are not an item on the balance sheet; they are one of the intangible resources that power the innovative outperforming enterprises.
The learning curve of the innovation-capabilities is constantly steepened by technology, by global competition, and by the drive of the innovators and of their supporters.
In this short paper, I have shown how the management of innovations advances through the aforementioned 5 categories of innovation-capabilities. I have also outlined how the management of innovations should lead to the innovation of the management.
(1) Willy A. Sussland “Innovate out of Crisis” Create Space 2010
(2) Willy A. Sussland “The Innovative Enterprise – How to Transform a Traditional Organization in an Innovative Networking Enterprise” Create Space 2013
(3) V. Govindarajan & C. Trimble “The 10 Rules for Strategic Innovators” HBSP 2005
(4) G. Hamel “What Matters Now” Jossey-Bass 2012