Innovate or die

Innovation is no magic bullet. In the highly competitive, globalised business environment of the 21st century, it is not about coming up with just one great product or idea. If a business wants to survive, then new ideas and continuous improvement need to be hardwired to its foundations. Richard Willsher reports

Take three well-known brands: Google, Virgin Atlantic and Apple. They regularly grab the headlines in the business pages and also other parts of the media and, yet, it can easily be argued that these phenomenally successful businesses in very different fields did not start out by doing anything very different from their competitors. Google offered a search engine, but then so did Yahoo, AltaVista and many others. Virgin Atlantic flew passengers across the Atlantic in direct competition with many established carriers. Apple produced computers, and so did plenty of other companies.

What links the three of them is how they went one or more steps further than their competitors, and how they introduced new ideas and concepts that enabled them to vault over their competitors and take market share. Google’s search engine was based on innovative search technology. Virgin Atlantic offered a range of new benefits that others had not thought of (see box below) and Apple continued to occupy the technological and moral high ground as well as, more recently, moving into mobile entertainment with the iPod. Significantly, the iPod was a direction that was new for Apple and it developed a technology that raised the bar well above the then existing offerings, and forced competitors to follow.

All three have continued to innovate since their early days. They have established their reputations by coming up with exciting new things to attract and engender loyalty in their customers. This is not only part of their culture, it is a key characteristic that defines their brands.

So innovation has to do not only with what a business does but the way it does it. In his book, Eating the Big Fish, Adam Morgan explains and illustrates the concepts surrounding challenger brands. He cites Apple and Virgin Atlantic among the most famous challengers. These and others share key characteristics, such as occupying a position of thought leadership, challenging the bigger fish in their market - the larger, richer and/or more established brands like Microsoft or British Airways. Challengers are also slightly quirky, out of left-field, as compared with their bigger mainstream rivals. This, of course, points to continuous innovation in the way that they present and manage their public image.

Ongoing improvement is key to the Japanese management concept of kaizen. This established a method to reach down into every aspect of how a business is organised, particularly in manufacturing, so that every process and job and behaviour is subject to continuous scrutiny. This might mean, among other things, doing something better, faster, with less waste, more cleanly, to produce better quality or to aid the overall teamwork in the enterprise. Kaizen has become woven into the fabric of businesses that are leaders in their markets. And it points to a definition of innovation as being both what the customer sees and also what lies beneath the surface of a product in the way its producer operates its business.

But the need for innovation is more serious than an exercise in management theory or in branding and marketing. At a presentation to businesspeople in Milwaukee, Wisconsin, in March this year, the management guru, Tom Peters, starkly set out the reason why it matters to US businesses in the context of the increasing competitive threat posed by China. “The only way we’re going to survive is to innovate our way out of the box,” he said. “We’re down to one idea, which is innovation.” The thrust of innovation is not merely ideas, it is putting those ideas into action, getting innovative things done. As Jean-Philippe Deschamps, professor of technology and innovation and management at the IMD business school in Switzerland, put it: “It is companies that innovate, not academics.”

And Professor Deschamps points out that some businesses are better at it than others. In the automotive sector, he refers to Ford and General Motors being in a “dismal state” as compared with Toyota, whose work in developing hybrid, fuel-efficient engines has been massively successful. In retailing he compares Marks & Spencer’s traditional offering with highly successful and innovative players such as Zara and H&M. In aviation, the success of the low-cost carriers such as Easyjet and Ryanair stands out against the long-established flag carriers that are weighed down with institutionalised practices and are having to play catch-up in the cheap flight environment. In financial services, on-line banking and insurance providers have threatened the market shares of the high street banks and large insurance companies, forcing them to consolidate or develop on-line channels in response.

When it comes to how companies innovate, Professor Deschamps points to people as the vital ingredient. Especially so in businesses with rigid, institutionalised structures where employees are forced to adopt silo mentalities, caring only about their own narrowly defined part of the operation. This, he says, is particularly prevalent in large financial institutions. This view is shared by Tom Peters, who advocates “loathing systems”. “Treat every enterprise system, every established procedure, as guilty until proved innocent…”

In order to do this, people need to be brought in from outside the business who are, by nature, predisposed to challenging the established order, who bring with them experience from other environments and who do not match the classic profile of existing employees. These people are likely to introduce change and a new way of doing things. Also significant is the extent to which major firms in industries such as pharmaceuticals, medical technology, IT and telecoms often innovate by contracting out their research to smaller, fleet-of-foot firms or acquiring either ideas or businesses that can bring them new products or capabilities. They accept that they cannot produce the sort of innovation they need by themselves, or they may simply redefine themselves as conduits to market rather than, say, researchers into ground-breaking drugs or software.

The end result of accepting the need for continuous innovation is that the size, shape and rationale of traditional businesses have to change and/or be restyled and/or be presented in a different way. The bottom line is that the greatest risk facing businesses is that of not innovating fast enough or radically enough. Standing still is not an option; it is a matter of innovating to survive.

Richard Willsher is a financial and business writer with a background in investment banking.