IMT GHAZIABAD

INNOVATION
Based on Research Papers

12/21/2011

Executive Summary
Innovation is the core business competency of the 21st century. In order to not only compete and grow but to survive in a global economy, businesses must innovate. To date innovation has been approached in a piecemeal fashion often linked solely to the New Product Development (NPD) process. But, now organizations follow a new comprehensive approach to managing innovation within business and introduces the Integrated Innovation Framework an all encompassing approach to innovation management beyond new product development. This is relevant to all businesses irrespective of size or sector. The sources of innovation are many and varied but they need to be collated, coordinated and managed as a source of valuable information and are core to the future of an innovative business. A successful innovation culture embraces all aspects of a business and should be managed as effectively and efficiently as any other core business process. To that end, successful innovation companies operate an Innovation Hub where all ideas and innovations are collated and coordinated. Creative processes and analysis can be used to stimulate new ideas in four basic areas: Business Innovation new business or supply chain models, for example Product or service Innovation new or modified products or ways of providing a service Market Innovation opening a new market or creating a new customer base Process Innovation improving or changing internal processes

Research has indicated that one of the most important factors in installing an innovation culture within any company is having leaders and teams with ability and commitment. Senior managers need to understand the strategic direction and how innovation can help. They also need to be able to motivate others. The decision to pursue innovation inevitably leads to managerial choices in support of the policy, not only in terms of finance but also in organizational and personnel terms. The extent of the change effort needed depends on the starting position of the organization and the particular emphasis will vary because of the diversity in values, norms, attitudes and responsiveness to change in organizations. For companies to innovate more effectively, cultural capabilities are critical with leadership effectiveness to engender confidence in employee minds and hearts. Employees need to know they can take risks to be creative, experiment, think outside the box, and be rewarded for demonstrating innovation thinking. They need to believe they are encouraged to be life-long learners, and enabled to continually learn and improve work products or services. Through this research, we aim to study and interpret how various organizations are managing innovation and how it has benefited them. We will analyze the pros and cons of adopting innovation practices and the various ways in which they are implemented.

Analysis
APPLE Think Different One cannot talk about innovation without mentioning Apple Inc. Apple Computer was formed in April 1976 by 25-year-old Steve Wozniak and 21-yearold Steve Jobs both college dropouts. After selling a van for some extra start-up cash, the two set up shop in the Jobs family garage at 2066 Crist Drive in Los Altos, California, to start building computers. The ideas and early innovation techniques that emerged from this location would set the foundation for building one of the most important and globally effective technology companies the world has ever seen. In fact, some diehard Apple fans come from all over the globe just to pose for pictures in front of this now-famous garage. Apple Computer stands out from similar companies with their unconventional business ideas that constantly redefine the standards for product, marketing, and industry innovation techniques. The company has become well-known through their commitment to challenge the so-called possibilities of the computer industry. Their goal is to improve the user-friendliness of their products and to encourage an open-minded approach when developing new technologies and services. Apple innovates through: Creativity and Innovation Innovation Process Innovation in Products Innovation in Business Model Innovation in Customer Experience Innovation and Leadership Steve Jobs Innovation can be broken down into three subset areas: product, business process, and business model innovation. Product innovation does exactly as its name suggests; enhances features of current products and services. A prime example of this is Apples iPod and its devastating effects on its competitors (i.e.: The Sony Walkman). Business process innovation involves reengineering business processes by building entirely new markets to meet untapped customer needs as explained by Kim and Mauborgnes Blue Ocean Strategy. Business model innovation involves introducing an entirely new value proposition to the market. A prime example of business model innovation is the combination of Apples iPod and iTunes media store. The significance of these products cannot be understated, as they produced the first sustainable music-downloading business model of its kind. Apple leverages a combination of Top-Down and Bottom-Up innovation strategy to create new innovations: Management & organization driven, highly structured and process oriented. Customer driven, spontaneous and with deep understanding of customer need.

Apple has built an Innovation Factory one that harnesses unbridled creativity from its people, stimulating bold & enterprising new ideas, and launching successful, profitable new innovations, time and again! Apple leverages its diverse ecosystem of employees, customers, suppliers, partners & global networks, proven innovation process, and a winning culture that doesn't accept second place - to seize the new opportunities in the marketplace and grow its business exponentially. The following figure shows Apple's Leadership in Innovation

Some Takeaways from Apples Innovation Strategies are: Build Products that are cool, intuitive, simple to use and provide the most amazing experience. Take calculated risks and boldly enter new markets. E.g. iPod, iPhone Change the playing field by creating new business models. E.g. iTunes capture the changing landscape and ecosystem of the markets and buyers. Grow the market share with buyers as they grow and their needs grow o kids, teenagers, young adults, adults, parents etc. Provide multiple products / touch points to buyers so they can buy and subscribe to more products all glued through iTunes. Creativity begins with asking questions Innovation happens when you find answers No questions, no answer and more questions, better answer. Apples innovation culture is closely coupled with that of its leadership. Steve Jobs is an American businessman and inventor. He is the co-founder and current chief executive officer of Apple Inc.

Described as obsessive, impulsive, and overly critical, Steve Jobs truly knows what he wants, and cultivates his ideas into realities. His management style is reflective of his aggressive and demanding personality. His interest for computer technology began at an early age as he frequented after-school lectures at the Hewlett-Packard Company where he was eventually hired as a summer employee. He worked various jobs in the computer field prior to founding Apple with Steve Wozinak. He was eager and excited for new products and technologies that shape our social environment. His innovative creativity has led to constant evolution of apple products and their integration into popular culture. Some Innovation Secrets of Steve Jobs: Do what you love Put a dent in the universe Kick-start your brain Sell dreams, not products. Say no to 1000 things. Create insanely different experiences. Master the message Steve Jobs Quotes Sometimes when you innovate, you make mistakes. It is best to admit them quickly, and get on with improving your other innovations. He believed that the ability to learn quickly from mistakes is what creates a competitive advantage over others in your chosen field. Acknowledging and accepting mistakes quickly enable you to move on from conceptual ideas which fail. Knowing which ideas to stick with and improve is an instinctual gift of great innovators. Stay hungry, Stay foolish

Google Google began in January 1996 as a research project by Larry Page and Sergey Brin when they were both PhD students at Stanford University in California. According to the HBR Article, Reverse Engineering Googles Innovation Machine, some of Googles key innovative practices are : Category-killing search engine massive, scalable IT infrastructure technology explicitly architected for innovation well-considered organizational and cultural strategy

How Google does it? Practice Strategic patience Google believes in being patient for success, when investing in other areas. Googles mission to organize the worlds information and make it universally accessible and useful is so broad as to be imperial, yet Google clearly takes it seriously. Beyond its core search and advertising capabilities, the company has embarked on ventures involving online productivity, blogging, radio and television advertising, online payments, social networks, mobile phone operating systems, and many more information domains. What information management tools the company hasnt developed it has acquired: Picasa for photo management; YouTube for online videos; Double-click for web ads; Keyhole for satellite photos (now Google Earth); Urchin for web analytics (now Google Analytics). What makes strategic patience work for Google are the companys clarity of purpose and attention to detail. CEO Eric Schmidt has estimated that it will take 300 years to achieve the mission of organizing the worlds information. Exploit an Infrastructure Built to Build The investment in infrastructure allows the company to guarantee specified service levels and subsecond response times. It also allows Google to rapidly develop and roll out new services of its own or its partners devising. The main attributes of Googles infrastructure are these: o Scalability - when Google needs more data centers, the proprietary operating system makes them easy to add. And the company can move data around the world seamlessly to meet changing user demand. o An Accelerated PLC Including Customers in efficient alpha and beta testing. o Support for 3rd party vendors - Indeed, Googles flexible infrastructure acts as an innovation hub where third parties can share access and create new applications that incorporate elements of Google functionality.

Rule your own Ecosystem Google can control the evolution of its ecosystem and claim a disproportionate percentage of the value created within it. Because every transaction is performed through the Google platform, the company has perfect, continuous awareness of, and access to, by-product information and is the hub of all germinal revenue streams. Theres no need for Google to do market surveys and statistical analyses to forecast trends in the ecosystem; the information is already in Googles database.

Exercise architectural control Google has demonstrated the feasibility of tracking the performance of mashupsa testament to the strength of its infrastructure. The promise of revenues for everyone fuels these opportunistic alliances. However, during the early phases of innovation, revenues are speculative. Neither Google nor the third party building an application knows whether customers will find it useful. Given this uncertainty, third parties may prefer to innovate and test the application without first engaging in contract and revenue-sharing negotiations Customers benefit from faster access to more profuse innovations; Google benefits because it creates additional options for driving incremental traffic to its platform; the developer benefits if one of its applications creates enough value to warrant negotiations with Google to arrange a revenue-sharing deal.

Organizational Design o Budget Innovation into Job Description - One clear reason for Googles success at innovation is that the company does what many others do not: budgets for it in employee time. New ideas at Google are often generated by employees, from the bottom up, in a prescribed system of time allocation. Technical employees are required to spend 80% of their time on the core search and advertising businesses, and 20% on technical projects of their own choosing. o Eliminate friction at every turn - Googles approach to innovation is highly improvisational. Any engineer in the company has a chance to create a new product or feature. That individuals can have such influence has allowed Google not only to attract high-quality employees (including some of the worlds best computer scientists, statisticians, and economists) but also to create a large volume of new ideas and products. o Let the market choose - The emphasis in this process is not on identifying the perfect offering, but rather on creating multiple potentially useful offerings and letting the market decide which are best. o Cultivate a taste for failure and chaos Inspiration from Data A key ingredient of innovation at the company is the extensive, aggressive use of data and testing to support ideas. o Google takes an analytical, fact based approach not only to its core business of page-rank algorithms but also to making any change in its web pages and deciding what new services to offer. o Another order of analysis involves Googles use of nearly 300 prediction markets consisting of panels of employees. o Google also employs an idea management system whereby employees can e-mail ideas for new products, processes, and company improvements to a companywide suggestion box. Every employee can then comment on and rate the ideas. Creating a Culture built to build It is largely technocratic, in that individuals prosper based on the quality of their ideas and their technological acumen. Googles use of prediction markets suggests it places a high value on the intellect and opinions of employees. Likewise, giving them budgeted time for innovation shows high regard for their creativity. Google also attempts to provide plenty of intellectual stimulation, which, for a company founded on technology, can be the opportunity to learn from the best and brightest technologists.

Marissa Mayer , Vice President of Search Products and User Experience at Google stated 9 rules of innovation at Google: o Ideas come from everywhere o o o o o o o o Share as much information as you can Youre Brilliant. Were Hiring A license to pursue dreams (Googles 20% time policy) Innovation not instant perfection (get something out there, get feedback, and iterate quickly and often) Data is apolitical (use data based decision making) Creativity loves Constraints Focus on Users , not money Dont kill projects, morph them

GE - "Imagination at work" General Electric Company (NYSE: GE), or GE, is an American multinational conglomerate corporation incorporated in Schenectady, New York and headquartered in Fairfield, Connecticut, United States. The company operates through four segments: Energy, Technology Infrastructure, Capital Finance and Consumer & Industrial. It is the 19th most innovative company. The founding stakeholders are Thomas Alva Edison with J.P. Morgan from 1947 to 1931. Edison started the Edison Electric Light Company to make light bulbs and electrical equipment. Although he was a brilliant inventor, Edison failed as a manager. J.P. Morgan took over and organized the now named General Electric business. The company expanded by introducing new electrical appliances, jet planes, silly putty, and more. Jack Welch took over in 1981 and changed the General Electric system by closing or selling business sections that were failing and laying off thousands of workers to make sure they are either the number one or two business ranked in their industry. Welch made drastic changes that influenced the companys profitability.

John (Jack) Welch, the former CEO of General Electric had shepherded a corporate entity comprised of several diverse lines of businesses that became the Most respected company in the world. according to the Financial Times. Jack was a very hands-on CEO. He was not afraid to get involved in projects and initiatives that he implemented. He encouraged the heart by stretching the goals in order to outperform the competition and wanted to hear employees by having them provide annual surveys asking questions that would determine whether GE was a great place to work. Jack tried to promote the idea of celebrating small wins. Welch took a bold risk by implementing the #1, #2 Fix, Sell or Close strategy. He wanted to focus GE on businesses that were successful, and remove the ones that were not. This was also exemplified through his Session Cs and the removal of the 10% of employees with the lowest performance in group, dubbed C-players. He only wanted the best people to make GE the best it could be. When implementing Six Sigma, he tied the initiative to the annual bonus, which has become the granting of stock options. Thus, he is using rewards to coerce the managers to adopt Six Sigma. Welch attempted to enable others to act. He did so by implementing the Work Out program where employees were expected to continuously improve the firm. Employees were faced with a choice of either following his initiatives or being eventually removed from the organization. This was most exemplified during the Six Sigma implementation, where managers had to be on board or they would be fired. Harvard Business Review published How GE is Disrupting Itself, which dives into the radical way in which GE is using what the company calls reverse innovation to rapidly accelerate growth in global and emerging markets. Co-authored by GE Chairman and CEO Jeff Immelt; GEs chief innovation consultant Vijay Govindarajan, who is Professor of International Business and director of the Center for Global Leadership at the Tuck School of Business at Dartmouth; and Chris Trimble, who is also on the faculty of Tuck and a consultant with GE; the in-depth analysis explains how GE is literally reversing its

traditional business model. Rather than follow its historical path of developing high-end products and adapting them for emerging markets, GE is developing local technologies in these regions and then distributing them globally. The disruption that is at the center of their article can strain companies because reverse innovation requires a decentralized, local-market focus that fundamentally clashes with the centralized, productfocused structure that multinationals have evolved for glocalization. For example, GEs new handheld electrocardiogram developed for India sells for around $1,000 and the portable, PC-based ultrasound that was designed for China sells for as little as $15,000. The authors note that with these kinds of products, companies like GE are establishing lower price points, and even using the innovations to cannibalize higher-margin products in rich countries which is antithetical to the glocalization model. Vijay Govindarajan, GEs chief innovation consultant, described in his GE reports post on Wednesday, the rise of emerging markets such as India and China mark a new phase of globalization. A key component of meeting this challenge is making products scalable which is all about taking locally innovated products to other emerging markets as well as to developed ones. With its launch in the US in the second quarter of this year, GE Healthcares portable electrocardiogram, the MAC 800, is just such an example of scalability in action.

1.

2. 3. 4.

Glocalisation Products traditionally are created in rich nations and repackaged for emerging ones. Centralized and product focused structure Higher-margin products Focus on developed economies

1.

2. 3. 5.

Reverse Innovation Products are created in developing countries and repackaged for developed economy. Decentralized and local-market focus Lower-margin products Focus on emerging economies

3M Innovative Technology for a changing world 3M is a $16B technology company with reach into health care, electronics, industrial, safety, consumer and office products. Most famously remembered for its' innovation solution - post it notes. 3M has more than 40 business units world-wide and offices in more than 60 countries. In 2002, the company celebrated a century of innovation since its founding. This company has been around for just over 100 years and during that period has established a clear reputation as a major innovator. Their technical competence has been built up by a long-term commitment to R&D on which they currently spend around $1bn p.a.; this has yielded them a regular position in the top 10 in US patents granted. They have launched a number of breakthrough products which have established completely new markets and they have set themselves a consistent stretch target of getting 30% of sales turnover from products launched during the past four years. The five best practices at 3M prides are: Six Sigma 3M Acceleration E-Productivity Sourcing Effectiveness Indirect Cost Control 3Ms Innovative Organization is built on the following practices: Recognition and reward Throughout the company there are various schemes which acknowledge innovative activity for example, their Innovators Award which recognizes effort rather than achievement Reinforcement of core values Innovation is respected for example, there is a hall of fame whose members are elected on the basis of their innovative achievements. Sustaining circulation Movement and combination of people from different perspectives to allow for creative combinations , a key issue in such a large and dispersed organization. Allocating slack and permission to play Allowing employees to spend a proportion of their time in curiosity-driven activities which may lead nowhere but which have sometimes given them breakthrough products. Patience Acceptance of the need for stumbling in motion as innovative ideas evolve and take shape. Breakthroughs like Post-its and Scotchgard were not overnight successes but took 2-3 years to cook before they emerged as viable prospects to put into the formal system. Acceptance of mistakes and encouragement of risk-taking A famous quote from a former CEO is often cited in this connection: Mistakes will be made, but if a person is essentially right, the mistakes he or she makes are not as serious, in the long run, as the mistakes management will make if its dictatorial and undertakes to tell those under its authority exactly how they must do their job .Management that is destructively critical when mistakes are made kills initiative, and it is essential that we have many people with initiative if we are to continue to grow.

Encouraging bootlegging Giving employees a sense of empowerment and turning a blind eye to creative ways that staff come up with to get around the system acts as a counter to rigid bureaucratic procedures. Policy of hiring innovators Recruitment approach is looking for people with innovator tendencies and characteristics. Recruiting volunteers Particularly in trying to open up new fields, the involvement of customers and other outsiders as part of a development team is encouraged since it mixes perspectives. What caters innovation at 3M?

World class Technology - streaming videos to collect learnings and make them available for global access, - comprehensive lotus notes databases for collaboration and knowledge access, and - an Idea hopper which captures and helps filter ideas to move from concept to funding phases of implementation, etc. The library and information services group has as its core mission to help 3M employees worldwide create, share and use knowledge more effectively throughout the organization, so there are strong Electronic Library solutions, virtual help desks to source know-how, etc. Leadership The company has always valued innovation and this has been a consistent and key theme since their inception; their hero figures amongst previous CEOs have been strongly associated with enacting and supporting the innovation culture which characterizes the firm. Innovation Strategy Their overall innovation strategy is focused on two core themes: o Deep technological competence o Strong Product development capabilities The combination of two is called creative association, which enables them to offer a steady stream of breakthrough products and line extensions/product improvements. A number of key strategic enablers are worth flagging: o Setting stretch targets such as x% of sales from products introduced during the past y years provides a clear and consistent message and a focus for the whole organization. o Allocating resources as slack space and time in which staff can explore and play with ideas, build on chance events or combinations, etc. o Encouragement of bootlegging employees working on innovation projects in their own time and often accessing resources in a non-formal way the benevolent blind eye effect. o Provision of staged resource support for innovators who want to take an idea forward effectively different levels of internal venture capital for which people can bid (against increasingly high hurdles) this encourages intrapreneurship (internal entrepreneurial behavior) rather than people feeling they have to leave the firm to take their good ideas forward. o Pacing Plus programmes, which attempt to focus and prioritize around 30 key areas for development across the business essentially an innovation strategy.

Organization Structure They have developed a set of structures and policies to guide innovative activity from picking up signals through to implementation. Importantly they allow for parallel routes through their system so that innovations can come from close market interactions or from deep technology research in their labs or from various forms of collaboration, or from serendipitous discovery by their staff. o Formal stage-gate system - for innovations and extensions based on established products but in addition there is a clear progress route for more radical ideas, moving from an incubator stage, where they are encouraged and where development funds are available against loose targets, through to much more rigorous business plan appraisal for projects further down the line o Trial by fire To encourage innovation champions to take non-linear ideas through the system.

Conclusion
Taking into account, all of the above cases, we can come to a conclusion that innovation is the fundamental source of value creation in companies and an important enabler of competitive advantage. Based on the article on Innovation Machine, by Dr. Rolf-Christian Wentz, organization structure of a company contributes to the acceleration of innovation management. He has studied various innovation machines like Toyota, Procter & Gamble, GE, 3M, IBM, Google, Microsoft, Sony, Hewlett-Packard, DuPont, Honeywell and Whirlpool , and come up with 7 key action items these companies have adopted in order to structure their innovation management. 1. Delegation of Decisions to Innovation Teams Despite best intentions, if all important decisions in the innovation process are made dependent on (top) managements agreement a time delay will result. Therefore decisions need to be delegated to the innovation team in order to avoid these delays and enable Fast Innovation. Big companies such as Toyota, P&G, 3M, IBM, Sony, Whirlpool and others typically have fully dedicated innovation teams with 100% availability of their members. 2. Integration of R&D into the Business Units The organizational integration of the majority of R&D into the business units makes innovation management more effective. It fosters the collaboration with the other departments of the business unit and the orientation towards the customer (customer pull) in lieu of an exclusive focus on the technology (technology push). At the end of 2003, the innovation machine 3M restructured its innovation organization and decentralized its R&D organization along these lines. Consequently, 3Ms technicians got closer to the business and the market. 400 members of 3Ms central laboratory were assigned to the divisional labs. Simultaneously, the heads of the divisional labs that until then had a direct reporting line to the Senior Vice President, Research & Development got an exclusive direct reporting line to the divisional heads.

3. Co-Location of Teams and Departments Co-Location fosters the integration of teams and departments and a free-flowing communication. By locating all innovation team members and relevant departments of a division in the same place, companies can make sure that everybody hears the same thing at the samte time. This way information does not get distorted. Spontaneous communication and exchange of ideas are facilitated. Under IBMs leadership e.g. the IBM-Sony-Toshiba Cell Chip Team, which comprised 400 team members and was charged with developing, amongst others, the high-performance chip for Sonys Playstation 3, was located in one place, at IBMs Sony-Toshiba-IBM (STI) Design Centre in Austin, Texas. 4. Central Innovation Teams Central teams are mainly utilized in cases when the motivation and resources of individual divisions, categories, product groups or brands are insufficient in order to get the respective innovation to market with maximum effort and at maximum speed despite the daily pressure and distraction from the established operation. Procter & Gamble has an organization of central innovation teams at the corporate level which goes by the name Future Works. At the business unit level its central innovation teams belong to the New Business Development Organization.

5. Central Innovation Funds The innovation projects which later will be led by central innovation teams in most cases need a special budget to get funded because the divisions shy away from making funds available given the typically high risk of such projects. Without a central innovation fund these innovations would not be launched fast, if they would get to market at all. GEs CEO disposes of a central Venture Fund that is to finance so-called Imagination Breakthroughs, i.e. innovations with expected incremental annual sales of at least 100 million US$. 6. External Interface for Open Innovation Open Innovation is a core strategy of innovation management in order to get innovations to market more rapidly and enable Fast Innovation. In order to execute Open Innovation and to channel external solutions and ideas into the company, innovation management needs an effective external interface. For this purpose P&G has established its External Business Development Organization and its Connect & Develop Organization. The Mission of these departments is to realize the innovation potential, which slumbers in the outside world, via the development of external networks.

7. Merger & Acquisition Department Via acquisitions an enterprise can significantly strengthen its innovation management, and can be in the market-place with innovations much faster. The role model for this M&A strategy of innovation management is Cisco. Since its first acquisition in 1993, Cisco up to now has acquired 126 mostly young companies.

References
1. Innovation and creativity in organizations: a review of the implications for training and development -Ian Roffe, Director of Centre for Enterprise, University of Wales, Lampeter, UK 2. An Integrated Approach to Managing Innovation -Project Leaders International (PLI) Ltd 3. APPLE: A Case Study Analysis -Shane R. Mittan, Project Manager, Western Michigan University 4. http://www.inspiringlifethoughts.com 5. How GE is disrupting itself(HBR) -Jeffery R.Immelt, Vijay Govindrajan, and Chris Trimble 6. Reverse Engineering Googles Innovation Machine(HBR) -Bala Iyer and Thomas H. Davenport 7. http://ia.rediff.com/money/2008/mar/11google.htm 8. The Organizational Structure of Innovation: How Toyota, Procter & Gamble , GE, 3M, IBM, Google, Microsoft, Sony, Hewlett-Packard, DuPont, Honeywell, Whirlpool - http://www.the-innovation-machine.com 9. 3M: Rethinking Innovation
-www.wileyeurope.com/college/tidd

10. Wikipedia.org