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  Get Your Business in Shape to Innovate 

Vilà, Joaquim; Muñoz-Najar J. A.
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The idea that companies operate through a set of closely interrelated systems has gained wider acceptance in recent years. This concept is important for innovation on two counts: first, because innovation-critical competencies need to be managed as a set; and second, because acquiring an innovation capability requires transformational leaders who see the organization as a whole and who integrate the various innovation drivers (See Innovación como dirección de iniciativas estratégicas).

As IESE Professors Joaquim Vilà and José Antonio Muñoz-Nájar explain in the paper "El sistema de innovación: competencias organizativas y directivas para innovar" ("The Innovation System: Organizational and Managerial Competencies to Enable Innovation"), for an innovation system to become an actual, viable source of innovation, companies need to develop certain organizational and managerial competencies. These competencies relate to six areas: leadership; strategy; human resource and organizational management; key asset management; the new product and service creation process; and attitudes towards results and learning.

The System Is Key
One of the most important competencies managers must have in order to innovate is a thorough knowledge of very different areas, which can form a basis for new ideas. Managers must also foster in their subordinates the ability to adapt and be flexible. They must learn to acknowledge original thought, and must build up a certain acceptance of risk. So that employees are not afraid of mistakes and risk-taking, managers need to be able to tolerate failure.

Innovation should be based on the same strategy. The authors call for "value innovations," new business models that overturn the industry's "absolute truths." This is what Ikea did to the belief that "you can't sell cheap designer furniture." Ikea proved it was possible, as long as customers were willing to assemble the furniture themselves to save money.

In human resources, managers need to encourage their subordinates to acquire innovation-oriented aptitudes (creativity), commitment and values. But how do you encourage creativity? You do so by changing organizational practices (e.g., by including creativity in performance appraisals), so that employees get into the habit of thinking "outside the box." There are many ways of motivating and fostering employee commitment: by setting challenges, making resources available, offering freedom to act, promoting team work, developing a supportive organization and, above all, by recognizing employees' successes.

Regarding key asset management, Vilà and Muñoz-Nájar emphasize the importance of technology, knowledge and relationships along the value chain. Managers tend to forget these three factors, as they have no direct impact on the balance sheet. Taking an innovation to market (in a range of business areas, not just in R&D) requires contributions from various sources, many of which are beyond the reach of the company itself. The authors urge companies to collaborate with other institutions and to explore practices such as external support and monitoring committees. Companies must narrow their focus and learn to collaborate with outside agents.

The authors also argue that companies should look outside to increase their knowledge. The world's top chefs are a classic example: They devise new dishes in collaboration with advertising creatives and designers. Equally crucial is internal knowledge since efficient knowledge management is key to maximizing the return on the knowledge acquired by employees and by the organization as a whole.

Finally, companies should bring suppliers in on product design, since decisions made in the design phase determine 80 percent of the final cost. While maintaining close relations with suppliers can limit a company's flexibility, it can also raise the levels of innovation quality and commitment.

Product Creation Process
All the abovementioned factors affect the quality of the inputs to an operational innovation process. Good process design is important, but equally important is that innovation be recognized as a system in which a variety of factors interact.

The phases of product creation overlap. Therefore, as the process advances, it is very likely that new goals and constraints affecting earlier phases will be identified. All these phases must follow a pre-established plan so that a company can generate ideas consciously and systematically.

At the concept generation stage, there are two ways to identify the need to innovate. One is to focus on the company's own market, or market pull, by monitoring the most demanding customers or by watching the competition. Both usually reveal opportunities for change. The second way is to invest in technological development and inventions, called market push.

Encouraging other departments to participate in product development can enhance the results. However, it is not just a matter of innovating at product level; innovation must also occur at the process level through operational and management processes. For example, Angulas Aguinaga developed a process for manufacturing the surimi elvers, or baby eel, marketed as "Gula del Norte." Whenever processes are redefined, it should be done systematically, preferably by a dedicated manager with a budget and a team of his or her own. The final phase is marketing and sale. Changes in this phase tend to revolutionize traditional industries. Some companies revolutionize an industry using information technology, such as Dell did by selling PCs online.

Innovation Results
As with any good change process, every innovator must start by defining the desired results. To do so, it is important to establish specific indicators, such as the sales volume of the products launched in the last three years, their gross margin, or the number of new customers acquired thanks to these products. Another outcome, which is more difficult to measure but no less important, is what a company learns from its innovation experiences. Innovative companies understand that failures are steps along the road to success. Companies must learn to live in a context of change. They must be confident that they possess broadly based know-how in innovation-critical values, principles and practices. They must believe that their investment in building an innovation system is not only necessary but also profitable.

This article is based on:  El sistema de innovación: Competencias organizativas y directivas para innovar
Publisher:  IESE
Year:  2007
Language:  Spanish