In the present era of the business world, the term ‘innovation’ is being indiscriminately used, as it is being covered in the mainstream without describing it in specific terms. However, to harness the potential of innovation, companies need to understand that innovation is a discipline—one that can be imbibed as part and parcel of organizational culture.
Creation of breakthrough products through disruptive and sustainable innovation requires that companies should look to incorporate more forms of innovation than just around the core features of an offering.
A study by Business Today and Monitor Group, who jointly interviewed key leaders of innovative organizations, reveals that true breakthroughs are usually a set of innovative elements that work together as a holistic system and reinforce the defensibility of the new offering. A notable feature of the study reveals that every organization in the study exhibited substantial innovation around core processes. This implies that to develop, launch or operate a new offering, companies had to fundamentally alter existing ways of working, and in some cases, they developed wholly new and even patentable processes. From executing large-scale research to launching newspapers (Dainik Bhaskar) to changing ways in which education is delivered in India (Gyan Shala), these companies showed a willingness to first determine what was desirable, and then built a backend model to deliver it. It sounds simple, but this market- or consumer-centric approach is rare compared with what it should be. Paying heed to the pulse of the external world is a hallmark of companies that tend to be able to innovate repeatedly, in contrast to companies that get bogged down by a particular model and whose blind spots grow.
This is the difference between core competence–driven planning and strategy, which builds from internal capabilities outward, and innovation planning, which requires the ability to look at customer needs and market potential.
Some of the prominent areas of innovations that are seen in the corporate world and that have contributed a great deal are as follows.1
Models Business Reinventing Innovation: ‘Finance’
Innovative companies have been able to succeed by developing and defining new economic models suited to the present business environment. This enables them to create a more permeable business enterprise, that is, one that aligns incentives among stakeholders to create and capture distinct value. Such innovations are said to be the most powerful ones, and as and when these happen, they have been able to bring in a fundamental change in the competitive dynamics in the industry that brings out a complete change in the industry model itself.
For example, Moser Baer could create a disruptive change in the Indian home entertainment industry by bringing in a fundamental change on the basis of competition along with their economic model. For many years, a fragmented industry continued wherein many small players were producing high-cost VCDs and DVDs. It was ... impossible to compete with low-cost pirated discs in the industry. However, Moser Baer innovated a new business model with their singular cost position and pricing approach, and strengthened and protected it through a new model by adding a complementary new distribution approach and aggressively developed a wide content base to consolidate market share in an unprecedented manner.2
Network and alliance innovations focus on clearly defining each partner’s strengths and weaknesses; have well-designed and shared operating processes and technology; and above all, a strong governance system in place.
There are a large number of organizations that are using the networks approach to achieve important goals such as a direct source of revenue, especially in B2B arrangements, as evident in the case of ITC’s e-Choupal platform, and leverage on the technical expertise of network partners to create open innovation networks. For example, TCS has created an ‘extended co-innovation network’ which constitutes apart from employees of TATA group companies, academic institutions and other strategic partners. This network has facilitated TCS to come up with a large number of marketable innovations.
Imagination and Guts Innovation: ‘Process’
The enabling activities or the capabilities a company leverages in order to deliver its product or service are categorized into two types: enabling process innovations and core process innovations. Enabling process innovation supports the enterprise’s primary work, value delivery and workers. The research-intensive approach adopted by Dainik Bhaskar to launch its Gujarati daily provides a good example of how enabling processes can positively affect the outcome. Although most media companies rely on internal expertise to develop the content strategy for their offerings, Dainik Bhaskar used a form of ‘crowd sourcing’ to get inputs from a large number of potential consumers in order to structure the content of its new newspaper. This not only enabled the creation of a successful product but also helped in building a customer connect that subsequently resulted in high circulation.
Core processes are the capabilities inherent or consciously developed in an organization that others cannot duplicate. For product companies, this often involves their R&D, manufacturing and marketing capabilities. Core process innovation typically involves dramatic changes in ‘business as usual’. For example, Gyan Shala, a one-of-its-kind budget private school in India, has innovated significantly in its core process: pedagogy. It creates detailed teaching manuals with step-by-step instructions for each minute of each day, including answers to probable questions that students may have.
Improvement Continuous Not Change, Breakthrough Innovation: ‘Offering’
Conventional innovation teams normally introduce innovations bringing in changes to the functionality of the product/service. This helps in playing an important role to bring incremental innovation, that is, refreshing a product or service on a continuous basis that can keep customer loyalty in place by basically taking an advantage of ongoing technology advances. However, companies that aspire to conquer a new market or fundamentally reshape their position need to necessarily think bigger, unique ways.4
Product system innovation demonstrates the ways and the means in which several individual products get connected with one another to create a new and larger system, which can help in enhancing its functionality. Such innovations help in bridging the needs gap between constraints imposed by production complexity, and to help individuals fulfil their unique requirements. For example, modular offerings or systems that allow customization fall in this category of innovation. Similarly, Microsoft Office bundles a variety of specific products (Word, Excel, PowerPoint and Outlook) into an overall system that is designed to improve overall productivity in the workplace.
ITC e-Choupal’s recent improvements to its well-established village kiosk model of agricommodity procurement has provided a platform that offers new consumer goods partners a costeffective way to ‘plug in’ to the rural consumers. On the other hand, the resulting wide range of products help address a number of unmet needs of farmers in rural areas. This is a unique example of a product system that actually spans the offerings of multiple companies, linked to a distribution model that takes an advantage of a one proprietary channel.5
Connect Customer The Innovation: ‘Delivery’
How a company gets its product to the customer is the domain of delivery. There are three facets of delivery where innovation can yield disproportionately better results—Channel, Brand and Customer experience.
Channel innovations encompass all the ways that a company gives a customer access to its offering. Successful channel innovations use an ideal mix between retailers of all sorts, wholesalers and warehouses, distributors, call centres, catalogues, Internet and home delivery to permit customers to buy what they want, when they want it and how they want it. For example, Nike has created eye-wateringly expensive retail cathedrals called Niketown stores to use as product showcases. Brand innovations are ways that companies use their brands in novel and powerful ways. For instance, through extension to try to incite customer reaction in a new area—the way that Virgin has used its brand to enter an extremely wide range of industries such as air travel, mobile phones, music—and convey a similar value proposition to customers across each one.
Above all, it is an interaction with customers that delivers them psychological satisfaction while delivering the product that acts as a powerful source of differentiation and helps in creating a longlasting emotional bondage with the company and its products. This is called a very holistic and challenging type of innovation, as its secret lies in knowing and understanding your customers so deeply that your products and employees are able to provide a unique and long-lasting experience that delights and enriches their lives, mostly by focusing on their unfulfilled needs and deep-rooted aspirations and expectation. It, as such, helps an organization to get connected with the heart of customers and develop a long-lasting permanent mutually interdependent relationship.6
One classic global example is how Lexus managed to move from no place to the first place in customer satisfaction rating in the very first full year of their operations—an astonishing achievement up against entrenched luxury brands such as BMW, Mercedes and Porsche. They did this mostly by reinventing not the cars, but how they were sold, serviced and supported.
Help? to Do Leadership Can What
Pursuing innovation using a disciplined approach can reliably yield powerful results; it takes both courage and coordination among multiple tiers and layers of the organization to do it well. Top and senior management play a crucial role in harnessing the creative potential of its employees. They set the organizational context in which innovation must occur. They provide a set of permissions that empowers individual employees or specially commissioned teams to stretch beyond the current paradigms of how the company delivers value.
Unlike day-to-day operations, which can be reutilized, efforts around innovation require employees to think beyond the company’s current capabilities and imagine what it might require to meet consumer needs or market opportunities that cannot yet be quantified or proved using familiar techniques. To create the latitude that must be given to think in that way and avoid prematurely shutting down big ideas, most companies create some form of specialized mechanisms that are outside the normal day-to-day processes.
For example, when faced with the threat of extinction due to changes in the competitive landscape, ITC commissioned four cross-functional teams to focus on different aspects of the business model. These teams were tasked with discovering customer needs, leveraging capabilities from different parts of the organization, and synthesizing the findings to design new customer interfaces and backend procurement arrangements. The effort was branded internally as ‘Project Symphony’, to emphasize the degree of coordination across the organization that would need to be implemented. This is what led to ITC e-Choupal.
Another route is to create a shared services model, where the responsibility—and deep expertise—for innovation is embedded in a permanent unit that serves many parts of a larger company. TCS uses this model.
A third approach is when a chief executive is widely regarded as a visionary, and the organization builds on and executes his ideas. Steve Jobs at Apple can be seen as this kind of ‘benevolent dictator’; this model works as long as the ‘golden gut’ of the CEO remains infallible. However, the long-term sustainability of this approach is questionable.
One contrasting approach is that of a ‘free market’ innovation model, exemplified by a handful of companies such as Google, which allows employees to pursue ideas in which they have individual conviction during part of the work week. By institutionalizing this practice, they have found ways to capitalize on the doggedness that their workforce of engineers applies to exciting problems.
Regardless of the approach, leaders who enable innovation in their organizations are found to be doing the following:
Use context to mobilize and catalyze organizational action, whether it is a specific project mandate or an urgent competitive threat.
Establish a clear level of ambition and for the innovation effort to set the appropriate permissions about the degree of stretch that the organization is willing to make as a result of the initiative.
Commission cross-functional teams whose members do more than ‘represent the voice’ of various functional areas, but actually work as an integrative, multidisciplinary unit to cross organizational silos.
Challenge orthodoxies that the industry or the company may have developed over the years.
Refuse to accept that innovation is an accident or the result of a stroke of insight.7
1. Why is it said that the term ‘innovation’ is being used in a loose and indiscriminate way?
2. What are the key lessons that can be learnt from the innovations introduced by Dainik Bhaskar and Gyan Shala in the Indian environment?
3. Differentiate between finance innovations and process innovations, giving concrete examples.
4. Delivery innovations mainly revolve around channel, brand and customer experience.
What are the major gains that can arise through delivery innovations? Highlight giving concrete examples.
5. How can leadership channelize the creative potential of human resources to come up with innovations to derive competitive edge?
6. What has been the secret of innovative organizations?