56. Nurture a Culture of Innovation

Check out the values statement of any technology company, and you are likely to see that innovation is listed as one of the core values. But the desire for an innovative culture extends far beyond technology companies. A culture of innovation has become a requirement in today’s rapidly changing environment. After all, isn’t this the key to creating new revenue streams? Indeed it is, but few companies put meaningful effort into fostering a culture of innovation. If they did, they would undoubtedly create more innovative products and services, and also create new business value across all sectors of the business. Innovation is needed well beyond the confines of engineering, R&D, and product development teams. Increased innovation drives new business processes, new customer value, cost efficiencies, and strategies to compete and win in competitive markets.

In Chapter 40, “What Is Strategy?,” I mentioned the value of Jim Collin’s article on “Catalytic Mechanisms.” Mechanisms are simply the means to build goals and good intention into processes increasing the likelihood of success. 3M has what may be the best-known example of a catalytic mechanism for innovation. The company prides itself on creating innovative new products, and wanted to build a mechanism for fostering creativity and innovation into their culture. By encouraging employees to spend up to 15 percent of their time on new projects, innovation stays top-of-mind for every employee.

Several other companies realize the value of investing time, money, effort, and mechanisms into their culture so employees drive innovation. BrightHouse, an innovative consulting firm, offers five “Your Days” so employees can get out of the office and spend time reflecting and recharging. This is in addition to the five weeks of vacation that every employee receives. The company also brings in a constant stream of people who are experts in their field to speak to the organization. The idea is to stimulate new thinking and get fresh perspectives so employees can apply this to new projects under development. Past speakers have included Edgar Mitchell, oceanographer Robert Ballard, as well as actors, professors, and even poets.1

Here are some other ideas to encourage innovation in your company:

• Rotate employees to work in other parts of the organization for a few weeks or months. This will give them an entirely new, holistic perspective of the business and probably several new ideas they can apply to their regular job.

• Present a bi-weekly or monthly seminar program with outside experts and leaders from different areas of the company. It doesn’t have to be anything fancy; a brown bag luncheon works very well for this purpose. It shows employees that you care about their development, and the cross-functional interaction stimulates learning and new ideas for everyone.

• Establish communities of practice so employees can work together on topics they are passionate about, or a special problem or issue that is important for the company to solve. Too often problems stay in a boardroom of locked indecision when they could be quickly resolved by the people who are closer to the issue at hand.

• Encourage risk and celebrate failure. Many businesses want their employees to take well-calculated risks, but when situations don’t go as planned, no one wants to talk about it. The same mistake is then made again by other people. To encourage risk, reward the person who stuck his neck out; make sure there is plenty of dialogue about what happened and why so others learn from the experience.

Creating a culture of innovation is an effective strategy every company can learn to implement. There are many small programs that can be developed to produce big results. But it must start with the desire and commitment to improve. Creating a culture of innovation is a strategy. It requires time, effort, and resources to effectively implement programs to drive change and innovation.

Three Versus Drive Innovation and Growth

To summarize all the strategies covered so far in this chapter, I want to leave you with a final thought that may help you create and integrate your strategies. Nirmalya Kumar is a professor of marketing at London Business School. In his book, Marketing as Strategy: Understanding the CEO’s Agenda for Driving Growth and Innovation. In the following interview, Kumar explains how companies use the three Vs: valued customer, value proposition, and value network as the mechanisms to fuel innovation and drive growth.2

Kumar: Differentiate Company Marketing with Three Vs

Reece: The subtitle of your latest book (Marketing as Strategy: Understanding the CEO’s Agenda for Driving Growth and Innovation) is something everyone wants to know about. What is the CEO’s agenda for driving growth and innovation?

Kumar: There are two ways to get growth: Raise prices, which not many companies can do, [or] increase volume. The way to increase volume is to go into new countries, such as China and India, but there is a limit to this as well. The only way for true growth is to develop new products and services through innovation.

The biggest issue for a CEO is how to avoid competing on price, and how to keep prices from falling. The second issue is customer loyalty. The number of product and service choices for customers has increased dramatically, and customers have more access to information than ever before, so they can easily switch brands.

Reece: You make a strong case for changing the standard marketing focus around four Ps, to the three Vs: valued customer, value proposition, and value network. Tell us more about this concept.

Kumar: The four Ps are an essential part of marketing, but it’s not enough to differentiate products based on the four Ps. Product, price, place, and promotion can easily be copied by competition. By focusing on the three Vs, a company can sustain differentiation.

“Valued customer” is a way to segment and target customers based on perceived value. “Value proposition” is how to competitively differentiate products and services to customers. “Value network” is how you deliver the value proposition to the target customer. It’s a cross-functional orientation often referred to as the “value chain.”

For example, at Starbucks, it’s everything they do from the beginning of the value network, such as who they buy their beans from to providing a cup of coffee in the store. Wal-Mart is another example of creating a unique value network. Competitors can easily have the same products and prices as Wal-Mart, but not the business and distribution system.

Reece: How do companies develop a culture that fosters the type of radical innovation you describe, that in turn will create growth and innovation?

Kumar: This is a very difficult concept. To drive innovation, an entirely new value network is needed, and the only way I have found to do this successfully is to set up a completely different subsidiary. So you set up a different division whose only job is to maximize the value proposition. This is difficult because doing this requires using company resources, while also dealing with the constraints that keep them from making significant changes.

Reece: Hence your quote, “Let us keep all the cannibals in the family.”

Kumar: Exactly. That is why so many airlines that launch a low-cost airline are not successful. Businesses face the same challenge. It’s almost like killing the baby subsidiary even before the launch because they don’t want the baby to flourish and become successful. If you have a new subsidiary, you want it to have the “kill attitude.” Everyone needs to think, “I will do what is best for the subsidiary, even if it means killing the mother ship.” The company needs to do whatever necessary to win in the marketplace.

Reece: What is the biggest industry ripe for change based upon a unique customer differentiator?

Kumar: Any company that has not used technology and can use it to reduce costs. The pharmaceutical industry trends are moving to low-cost countries where R&D and labor are cheap. The FDA has put so many restraints on R&D that I think companies are moving R&D to countries with a large knowledge base, such as China and India, where it can be done at a much faster rate. The accounting and financial industries will also see dramatic changes. A financial analyst does not need to sit in New York City. They can be anywhere the world.

Reece: If a company is after radical innovation, what is the best way to ensure success or test a new idea?

Kumar: They should get feedback, but it’s a different kind of feedback. In a market-driving company, instead of asking customers what they want, they launch the new product. You know it’s not perfect, but you launch it and see what kinds of customers stick. Then you watch them and observe them using it and come up with improvements that way. So instead of learning through research, you learn in the marketplace. You learn by doing.

Copyright, American City Business Journals. Reprinted by permission.

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