In-Depth

Best Practices: Innovation

Innovation: What's in a word? The definition varies from person to person, but there are a few sure-fire ways to make sure a project ends with celebration rather than frustration.

• By Fred Bayles
• December 01, 2006

When the brain trust at SourceCode Technology Holdings Inc. gathers to discuss possible new products based on .NET and other Microsoft platforms, the word "innovation" is rarely heard.

"We don't sit there and repeat overused clichés like 'adaptive' and 'innovative,'" says Jeff Shuey, the global alliance director for the Redmond, Wash., workflow developer and Gold Certified Partner. "We're more likely to say, 'Wouldn't it be cool if we could do this or that with a product?'"

Dipping into a simpler, more direct argot seems to be working. SourceCode has seen tremendous growth over the past decade by taking Microsoft foundation systems from Visual Studio to Office and building out a range of customized products for various industries. That approach helped the company earn the distinction of being named this year's Microsoft Information Worker Solutions Technology Innovation Partner of the Year.

Yet as Shuey excitedly discusses past success and future plans, he hardly ever uses the word that has become the Holy Grail among business technology executives. Instead of attributing his company's success to innovation, he likens the strategy to a good jazz combo riffing on an idea.
"It's more like us improvising off a Microsoft melody," he says.

Facing Innovation Frustration
"Innovation" has arguably become the biggest buzzword of recent years among businesses large and small. A Boston Consulting Group (BCG) survey of 1,000 corporate executives earlier this year found that 72 percent ranked innovation among their top three strategic priorities. And, by the same percentage, executives said they planned to boost innovation-related spending this year; 41 percent estimated that the increase would be 10 percent or more.

But while the majority of those surveyed said they value innovation, nearly half were unhappy with the results of their initiatives. Some 44 percent expressed dissatisfaction with the return on their investment on innovation projects; just 52 percent viewed their own innovative capabilities as superior to those of their competitors.

James Andrew, a BCG senior vice president who oversees the firm's worldwide innovation process, says the results point to a paradox in the field.

"A vast majority of companies are spending more and more money on innovation every year, but they aren't satisfied with the result -- or worse, they don't know if they're satisfied," Andrew says. "Many companies don't like what they see in financial returns. But there are other companies that can't even get their arms around what their financial returns should be."

This last point came through loud and clear in the BCG survey. Many executives who wholeheartedly support the concept of innovation admitted that they aren't really clear on how to measure its progress. Nearly two-thirds of respondents said they use the less-than-specific metrics of time-to-market, new-product sales or return on investment to track how their innovation initiatives are working.

And many companies don't evaluate the success of their innovation initiatives at all -- which Andrew calls a mistake: "Not measuring is like driving without your headlights in the dark; you can't see where you're going or even if you're still on the right road."

Andrew and other innovation gurus say the dissatisfaction and confusion over innovation efforts point to a chief obstacle when it comes to developing a plan: Everybody has a different definition of innovation -- and a different answer to the question "What does innovation mean for our organization?"

Just as in the parable of several blind men "seeing" an elephant in different ways based on which part of the animal they each touch, managers gathered around a conference table may have entirely different ideas about their organization's innovation priorities. For one, it might be research and development of new products. For another, it might be overhauling service delivery or production techniques. For a third, it might be undertaking an ambitious upgrade of IT systems to enable other kinds of innovation. And they might each be right. But the fear of being wrong, or of focusing on the wrong priority, can often stifle creative notions.

Defining the Elephant
In fact, Andrew sees this lack of clarity as a key problem. "Innovation has become perhaps the most overused business word in the English language," he says. "If you can't define it, you won't know what it is if you even have it." His own definition of the term: A process that uses new knowledge to generate a payback.

Simple? Maybe. It depends how you define "payback."

Of course, the desired result could be just an increase in revenues. But Andrew cites other potential benefits, noting that innovation can:

• Strengthen your company's internal operations.
• Generate new information about your business that leads to other successes.
• Enhance your brand.
• Revitalize your company's public image and reputation.
  

For many companies, the biggest challenge is figuring out exactly what kind of innovation is needed to achieve their ultimate goals.

Howard Diamond, the president and CEO of ePartners Inc., a Gold Certified Partner with headquarters in Seattle and Dallas, says that too often people and their companies get bogged down in the search for an ideal outcome rather than viewing innovation as an organic process of mistakes and corrections.

"They waste time trying to find the right innovation," he says. "That's a mistake. When you innovate in the wrong ways it's self-correcting. You get that feedback quickly from the market and from your people. The search for perfect innovation is much less important than to simply be innovating -- all the time."

Diamond points to an example of a program at another company he once headed. The grain of the idea was to tap into the entire staff's creativity with a "Stop Doing Stupid Things" campaign. Under the initial plan, employees would be encouraged to identify and suggest solutions for problems and inefficiencies in the company's day-to-day operations. But the campaign's bluntness was challenged by the company's human resources team.

"The HR people said we couldn't do it because the employees would be insulted," Diamond recalls. "They said it implied that people were doing stupid things."

So Diamond had an innovative thought of his own. He renamed the campaign "Stop Howard from Doing Stupid Things."

The result was a rousing success. Freed from the fear of coming up with a wrong idea or with something that might seem too critical, employees stuffed the virtual suggestion box with various proposals—most of which had little to do with their CEO. Diamond says the program went on to save the company $20 million over two years. Various employees were rewarded with bonuses Diamond said totaled "a couple of million" dollars.

Creating a Creative Culture
Diamond sees a moral in his story for all executives: Innovation comes from the top.

"Getting a group of senior staff commanding them to be innovative now doesn't work," he says. "It's up to the people who run companies to create environments where people believe that change and innovation can actually breed change and innovation."

At SourceCode, exactly that type of open environment nurtures creativity and innovation, Shuey says. Innovative projects rarely come out of formal meetings with PowerPoint presentation charts and graphs. Instead, they can literally start around the water cooler.

"The first phase of many of our ideas comes as conversation in hallways and elevators, often with customers or at partner sites and other seemingly random places to host an innovation discussion," Shuey says.

He also notes that about half of his team's innovative ideas involve tinkering with current products. The other half evolve out of requests from SourceCode's customers and partners.

In both cases, the next steps serve as variations of the "Field of Dreams" model: If we build it, will they actually use it?

"We'll often build it without really knowing if it is going to fly," Shuey says. "It usually does, but only after trying a couple different models."

Encouraging Contrary Thinking
Andrew suggests identifying specific areas for innovation, such as products, customer service or your company's own internal operations. Sometimes innovative solutions are readily apparent. Other times, contrary thinking is just the ticket.

Diamond offers an example of an idea that came from a midlevel manager in his former company's customer-service section. At first blush, the manager's suggestion seemed counterintuitive. Rather than relying on the usual practice of assigning low-paid entry-level employees to handle incoming customer calls, the manager suggested increasing those jobs' perceived importance by raising salaries by 25 percent. The twin goals: increasing customer satisfaction and decreasing the traditionally high turnover for those jobs.

"It sounded silly at first glance," Diamond says. "But when you thought about it, you realized the usual way of doing business, having the lowest entry-level position in the company having the most contact with customers, was silly, too."

The plan was implemented with great success. Customer service slimmed down from a department of 300 people offering varying service-quality levels to a team of about 100 highly efficient workers. "Because the people were better, they could answer questions faster and handle more calls," Diamond says. "We ended up with fewer people in the department and a dramatic increase in productivity."

7 Tips: from Idea to Reality Innovation has been the subject of scores of books, magazine articles and studies. For those who prefer the short form, here are seven factors to keep in mind: Foster innovation from the top. Your own attitude toward change has a direct bearing on how your employees view innovation. Lead by example, not by lip service. Encourage everyone to participate. Don't limit discussions to top executives—your employees could have better ideas to improve company processes. Offer bonuses based on the success of an idea to encourage both input and more careful thinking. Be clear about what you want. Uncertainty can make some people timid about offering suggestions. Make it clear what you're looking for—while maintaining an open mind about outside-the-box thinking. Remember that perfect is the enemy of good. In most cases, there isn't one true way. Your quest for improvement can involve many good ideas. Give it time. A true innovation may need some tinkering as you implement it. Missteps are fine as long as you have mechanisms to catch them and adjust your course as needed. Follow through. Don't underestimate the importance of the less-exciting but equally important process of actually implementing those great ideas. Measure your results. Companies often aren't sure how to measure the return on their investment in innovation. Financial payback is certainly one metric. But keep other gauges—such as employee and customer satisfaction—in mind as well.

During that same period, the company's customer count increased and company revenues doubled. Although Diamond acknowledges that it's hard to attribute all those gains to the innovative approach to customer service, he says those changes unquestionably contributed to the company's success.

Measuring the Results
As companies offer up more and more dollars at the altar of innovation, it becomes increasingly essential to understand whether all that spending is actually reaping any benefits—a task obviously easier said than done.

"Everybody is looking for the silver bullet—that number that will tell them everything they need to know about innovation," says Boston Consulting Group's Andrew. "It doesn't exist."

Instead, Andrew describes addressing issues in three categories of metrics to close in on how well a particular innovation effort is working:

• Output. What is this initiative generating for the company? Is it cash, or is it something less tangible, such as improved customer goodwill or improved employee morale?
• Input. What is this initiative costing you? This question includes hard cash, but there are other considerations as well. For instance, are you dedicating your best people to this project? How many hours are being devoted to the effort? What's the cost of shifting those resources away from other parts of your business?
• Performance. How well is the process going? Is it working the way you wanted or expected it to?
  

As one example, Andrew cites the case of one of his customers, a large financial service institution that was frustrated about an innovative product offered to its customers. Those who used the product loved it, but the overall response wasn't as strong as executives had hoped. A closer look revealed that the company simply hadn't done enough up front to make sure the product reached all of its customers, Andrew says. "The innovation was wonderful, but it had only gotten into a small part of the company's account base."

The anecdote points to a final problem with many innovative initiatives: lack of follow-through. Andrew says many companies expend too much effort coming up with innovative ideas and too little actually executing them. "Most companies have more issues with the realization and commercialization of an idea than the generation of that idea," Andrew says. "They have to remember that all three phases are equally important."