Strategic Innovation at Deloitte - The "Apple" of Services Innovation

Accounting and Innovation - Isn't that an Oxymoron?

Rick Rayson, Managing Partner, Orange County, Deloitte and Touche LLP, doesn't believe so. As a matter of fact, Rick tries to convince you otherwise - even goes as far as making you believe that accounting innovation can be "sexy". Well, sort of!

I had the first-hand opportunity to meet and hear Rick speak eloquently at last week's University of California, Irvine, Paul Merage School of Business hosted Dean's Leadership Circle event. Rick was the keynote speaker, introduced by the charismatic Dean of the UCI Business School, Andy Policano. I also spent some time with Rick after the event and was able to gain some real world insights.

Rick spoke about "Strategic Innovation at Deloitte". And he brought home many key points on what drives innovation at Deloitte, and how innovation drives business. Deloitte is a worldwide organization consisting of some 147,000 employees (talent), with offices in more than 140 countries, aggregate revenues of $23.1 billion in fiscal year 2007, and serving more than 80% of the 2007 Fortune Global 500.

Deloitte's marketplace competitors include Accenture, PriceWaterhouseCoopers, KPMG, Ernst & Young, Mercer, Towers Perrin, and IBM (NYSE: IBM). IBM is one of the Top 20 Innovators of The Innovation Index.

Why is Strategic Innovation imperative at Deloitte?

It has to do with achieving Deloitte's vision:

To be the First Choice of:

* The world’s most coveted talent

* The most sought-after clients

In his speech, Rick addressed how most product companies innovate by filtering the exceptional opportunities from the utterly raw and mundane (unblocking creativity and innovation), by managing various levels of uncertainty and investment requirements towards creating new innovations while mitigating risks (process innovation), and by looking at the "horizon perspective" as created by Karl Ulrich, CIBC Professor, Wharton School of the University of Pennsylvania (six ways to find innovation).

Professional Services Innovation

According to Rick, "Professional service firms like Deloitte have enjoyed recent macro economic changes brought on by extraordinary technological and regulatory developments such as the ERP, reengineering and Y2K craze of the mid to late 90’s and the requirements of Sarbanes Oxley legislation and regulations since 2002. The question really is “What’s Next”. A key part of Deloitte's strategy is to develop new services, new ways to serve our clients and new ways to attract, develop and retain the talent we must have for this growth." This is Deloitte's Innovation and Creativity strategy to match its bold vision.

"To develop new services, new ways to serve our clients and new ways to attract, develop and retain the talent we must have for this growth"

Three Investments are paramount to Deloitte's success: New Services, New Ways to serve, New Ways to growing talent

Rick articulates and simplifies this key Deloitte strategy further and ties it back to Deloitte's vision:

Deloitte has an urgent need to innovate on two fronts:
* In our services to clients (for their often unusual or difficult problems), and
* In our internal talent management and execution (while facing a shrinking talent pool and competition to recruit and harness the best talent).

Two forces drive the need for innovation at Deloitte:
* The need to provide outstanding client service, and
* The need to maintain a pool of top talent to provide that service.

"Edge" Drives Innovation

According to Rick, Innovation at Deloitte is driven by the thousands of talented people working at the “edge” on client service engagements. Deloitte innovates by harnessing innovation that happens at the edge, bringing it back to the core, and then pushing it back out to the edge. Compare this to product companies where innovation is driven at times by the core.

Deloitte consultants continually think of new ways to help solve their clients’ business problems by leveraging thousands of experiments in the field. Innovation for Deloitte is about accelerating the process of finding and refining good ideas at the core, and then pushing them back out to the edge – speeding up the process of turning personal innovation that happens in the field into institutionalized innovation that can be systematically delivered to our clients.

Deloitte recognizes challenges to this "Edge" model. Specifically, on how to find ways to efficiently and effectively commercialize the ideas happening at the “edge.” Deloitte has created Talent Innovation centers, and Strategy, Research and Innovation Groups, Innovation Quests, and Centers of Excellence as part of the Client Innovation Services to create game changing innovations.

One of the interesting creations is the Enterprise Value Map: a tool that gives a comprehensive view of all the drivers of value in an organization. It has now morphed into a comprehensive Value Map that all Deloitte clients benefit from.

Talent Innovation

Deloitte has tried hard to create a "youthful" yet "energetic" image of a company on the move towards hiring new talent, by developing innovative approaches to the attraction, retention and development of key talent. From a different approach to career management, to dealing with generational differences, to women and diversity needs, and fostering a culture of learning and coaching - Deloitte does all of the above to harness world class talent. Deloitte consistently ranks in the 100 best places to work, and 50 best places to launch a career.

Internal Innovations driven by India Team

Deloitte started to move services in India in 2000, making it one of the first professional services firms to create an offshore India center.
The key Deloitte difference:
Not just offshoring of back-office but also client-facing functions, all delivered with high standards of quality that Deloitte is known for.
The lower cost of employing talent in India has a significant impact on ROI; at the same time, the high quality work delivered by the offshore group has a significant impact on Deloitte's growth.

The Innovation Highway

So where exactly is Deloitte on the Innovation Highway? Deloitte admits that in the past, the innovations at Deloitte were "Distributed Reactive" a condition it tactfully describes as: Innovation that happened at the edge, was chronically under-invested and usually following another’s lead. Whereas today, Deloitte Innovation is "Programmed Proactive" - where Deloitte is proactively focused on connecting the edge to the core (e.g. Innovation Quest), by challenging some norms, and realizing that it is not just a means to an end. However, Deloitte wants Creativity and Innovation to be "Culturally Ingrained" tomorrow - innovation as part of Deloitte's core DNA (processes, people, and technology), innovation as efficient and effective, and as an externally recognized differentiator. A big portion of this is removing obstacles, and finding a way to say “yes", by failing fast and forward, however learning from the experience.

I asked Rick one key question: "What innovations drive new business at Deloitte?"
Rick Rayson: "Innovation at Deloitte occurs every day with the hundreds of client service teams and thousands of professionals who create solutions for our clients. The key is to assimilate these innovations occurring at the "edge" to the entire organization to drive new services to our clients on a broad basis."

Strategic Innovations at Deloitte - From the "Edge" to the "Core" back to the "Edge" Fast - You get the picture!

Download my Creativity and Innovation eBook. 212-page collection of over 55 best practices, case studies, and insights on the current state of Creativity and Innovation in Business at Top Innovators including Apple, Google, Netflix, 3M, Frito Lay, Johnson & Johnson, Proctor & Gamble, Toyota, GE, BMW, Deloitte, Southwest, Nike, IBM, Dell and more. "Your report from the eBook and definitive guide was the primary reference that we used." Used by over 500 leading organizations including HP, Pepsi, EDS, J&J, Nokia...Learn more
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About Rick Rayson

Managing Partner Rick Rayson (Deloitte & Touch LLP) is the leader of Orange County Practice, overseeing the Deloitte U.S. Firms' subsidiaries providing audit, tax, consulting, and financial advisory services. Rick has been with Deloitte for more than 27 years. Rick is advisory partner on many of the practice's major clients, and is actively involved in the Orange County business community. He is a member of the University of California, Irvine Chief Executive Roundtable, and is on the Dean's Advisory Board for UCI's Paul Merage School of Business.

Related Stories:
Creativity And Innovation Best Practices
Made in India - Innovations in Software Operations at the Top Innovators
Introducing The Innovation Index
Top 50 Innovative Companies in the world

Originally published in 2008. Republished in 2009.

The Lifecycle of Innovation

References:
http://cilinc.net/wp-content/uploads/2008/04/innovation_cartoon1.jpg

Selected References:
Leading eBook on Creativity and Innovation in Business
Creativity and Innovation Best Practices
Creativity and Innovation Case Studies
The Innovation Index
Top 50 innovative companies in the world

Can You Learn Innovation?

References:
http://www.innovatingtowin.com

Selected References:
Leading eBook on Creativity and Innovation in Business
Creativity and Innovation Best Practices
Creativity and Innovation Case Studies
The Innovation Index
Top 50 innovative companies in the world

Creative Instinct Is Like Fire

"Humanity needs your energy wisely directed" - 1922 (exact)

References:
http://snuffy.lib.umn.edu/image/srch/bin/Dispatcher?mode=600&id=swhp0077

Selected references:
Leading eBook on Creativity and Innovation in Business
Creativity and Innovation Best Practices
Creativity and Innovation Case Studies
The Innovation Index
Top 50 innovative companies in the world

Blockbuster versus Netflix - Winner takes all?

Netflix (NASDAQ: NFLX), the leader of online movie rental, had revenue of $997 million and 6.31 million subscribers in 2006 (year end). Netflix revenue increased 45% in 2006, adding $309 million to the 2005 total revenue of $688 million. Netflix ended 2005 with 4.18 million subscribers (year end). An average Netflix subscriber spends about $16 for monthly subscription. Netflix added 654,000 new subscribers during the December, 2006 quarter alone. Netflix business appears to be firing on all cylinders, and is poised to repeat the performance or even surpass it in 2007. It appeared for a couple of years that Netflix will take over the movie rental business altogether. Wal-Mart (NYSE: WMT) tried the online movie rental business, launched it in a huge way, and quietly closed it down, bowing the leadership position to Netflix.

The leader of movie rentals, Blockbuster Inc. (NYSE: BBI) was nowhere to be found. Until recently. Blockbuster was once thought finished. Netflix single-handedly created the online movie rental business, a new category killer that caused total disruption in the movie rental industry. Netflix business epitomizes disruptive innovation. Netflix, the disruptor, went up against the market leader, the sustainer, Blockbuster, and carved out a huge bite of the movie rental business. Blockbuster was caught napping. Blockbuster did not know how to respond to the Netflix business model of mail-order movie rental. Blockbuster tried many models of its own by luring customers to the thousands of Blockbuster stores. However, the customers enjoyed the flexibility of renting movies online at Netflix, where they could browse the catalogs in the comfort of their own homes, read reviews, choose the movies to rent, and submit the order online. The movies arrived within a few days, by which time the customer has already viewed the previously rented movies multiple times. Customers simply shipped the movies back in a pre-paid postage return envelope. No trip to Post Office necessary. All for a monthly subscription of about $20 (which is now $17.99).

Blockbuster, the established leader of movie rental business had it made with over 5,000 stores in the U.S and over $5 billion in revenue in 2001. The movie rental business was in a status quo, with hundreds of thousands of customers going to Blockbuster stores, choosing the movies (or video games) by browsing around the stores, and renting the movies one at a time. Blockbuster required a paid membership to rent movies, and the business model was pay-per-rental. Blockbuster grew by creating local stores, and the topline revenue growth was tied to the number of new store openings. The incremental business per store was flat or tapered (Blockbuster tried selling movies and games, previously rented movies, and other movie add-ons without a tangible upside). Customers essentially paid anywhere from $2 or higher to rent out the movies. Customers were used to this model, and rivals such as Hollywood Video and local movie rental stores offered similar business models. The business model of pay-per-rental had a huge drawback: Late fees. Most customers forget to deliver the movie back within one day or two days, and ended up paying extra day charges (some even argued these late fees from time to time). Late fees were a sizable percentage of Blockbuster business; hence, there were no real plans to change the business model. Other drawbacks included not finding the movie you want to rent (it's already checked out), and the high cost of rental of a new movie. The customers quietly rented from Blockbuster, frustrated by the late fees, but content to rent (there were no viable alternatives). No one could really match the presence, the size, the selection and quality of Blockbuster. And Blockbuster was getting bigger each year, to the tune of $6 billion plus in annual revenue in 2004.

Enter Netflix

Netflix attacked the pain point of Late fees head on. Netflix introduced "No Late fees". The customers loved this. No more frustration of paying a late fee if you forget to return the movie on time. You simply return the movie when you are ready to return in a postage pre-paid envelope. And the icing on the cake: unlimited Movie rentals. Albeit up to three movies at any given time. The only limit was really the time it took for movies to ship from Netflix warehouses and arrival at your home. If you are into watching lots of movies, you can essentially time your orders so that you can end up watching fifteen or more movies each month. All for a low monthly subscription fee. Netflix essentially emulated a monthly service fee business model similar to a telephone company. And Netflix made it simple to rent online. Of course, Netflix had no stores, i.e. physical stores. Netflix was completely an online movie rental business, similar to a mail order business. Netflix also reduced the pain points of knowing which movies to rent ahead of time, without making a trip to the store. For instance, if a movie was rented out, Netflix customer simply had to put that movie on the wait list. And as soon as it became available, it was automatically shipped out. Finally, the cost per movie rental became somewhat cost-effective - especially if you watch at least half a dozen or more movies each month. When Netflix entered the movie rental business, Blockbuster and others scoffed at the whole online business. However, Netflix became hugely popular, and movie rental buffs from college dorm students to teenagers, adults to families, became Netflix loyal customers. To the tune of 6.31 million subscribers as of December, 2006. Netflix created a $1 billion movie rental business from nothing. Netflix disrupted the likes of Blockbuster, whose businesses essentially stalled or were in a free fall, became unprofitable, and even closed.

The second coming of Blockbuster

Netflix served notice. And Blockbuster business came under attack. However, Blockbuster, like a tried and tested champion, held up. Blockbuster tried many business models, eliminated late fees, introduced two for one rental, provided incentives to renters, and even introduced unlimited on-premise rentals. However, the business was spiraling down, and customers kept leaving the stores. Blockbuster even had to close stores, and put plans on opening new stores on hold. However, it did not succumb. Eventually, Blockbuster got it right. Blockbuster realized that it was in a unique position to address the customers on its given strength: store locations. However, in order to captivate the online movie renters, Blockbuster also needed to create an online business. With a twist. Blockbuster provided movie renters the best of both worlds - rent online or rent at the store, rent online and return to the store, rent at the store and return online (possibly), rent online and return online. Whereas Netflix only provided customers one service model: rent online and return online, Blockbuster now had the flexibility and delivery model to offer customers tremendous flexibility and choice. All for a monthly subscription fee which is the same as Netflix's monthly subscription. In retrospect, this innovation from Blockbuster made perfect sense. And now it was simply a matter of time before customers returned. Blockbuster became aggressive in the marketing, including the recent promotion inviting Netflix customers to rent movies on President's Day (when post offices are closed), and over the weekends. Also, asking customers to bring in their Netflix return labels for free rentals (with a membership). Blockbuster is appealing to the emotions of customers with the message that you can rent a movie on the weekend, when there's no mail or "just when the mood strikes" - providing a "freedom of choice" and not having to wait for movies as they arrive in the mail.

Blockbuster's new Total Access provides customers unlimited movie rentals, online or in the store. Blockbuster ended 2006 with 2.2 million subscribers and revenues closing in on $7 billion (to be announced next week). Importantly, in the last quarter of 2006, Blockbuster added 700,000 subscribers, beating Netflix by about 55,000 subscribers. Blockbuster's Total Access Model has the momentum. With timely promotions such as President's Day promotion, and Valentine's Day (where Blockbuster offered a list of favorite movies for the special occasion), Blockbuster is capturing the mindshare from movie renters.

Netflix answers back

Netflix Chief Executive Reed Hastings, in a Marketwatch story, told analysts after the recently concluded earnings call "that the company expects to see a modest increase in subscriber cancellations in the first quarter of 2007 as rival Blockbuster Inc. aggressively markets its new Total Access program, which enables its online customers to either return DVDs through the mail or exchange them at stores for free in-store movie rentals."

Hastings believes though that "Blockbuster's impact on its subscriber base should decrease in the second quarter." He added that Netflix observed a similar pattern in 2005, when Blockbuster cut its monthly subscription price and heavily marketed that move. In that case, Blockbuster "had already captured in [the first quarter of 2005] the few consumers most likely to switch," Hastings said.

The very fact that Blockbuster added more subscribers than Netflix's in the latest quarter has to make Netflix rethink their strategy. Netflix recently introduced the long-awaited plan to offer movie and TV downloads over the Internet. "Our accomplishments during the year -- strong subscriber growth, continued improvement in the customer experience, and increased profitability -- together with the recent launch of the first generation of our online video option, leave us better positioned than ever to achieve our long-term objective of being the movie rental leader," Hastings said in a press release.

Winner Takes All?

Who will be crowned the winner of movie rentals? Would it be Blockbuster whose stock price has appreciated more than 80% in 2006, and importantly, has finally figured out the appropriate formula: Blockbuster Total Access. Or would it be Netflix, who has found time and again to improve upon its business model, and has shown ability to innovate with the recently announced online movie downloads? What about Apple (NASDAQ: AAPL) with the iTunes Movie download service available to the millions of iPod owners and iTunes subscribers alike. Apple recently added 150 movie titles from Lions Gates (movies including "Saw", "Basic Instinct", "Dirty Dancing - Havana Nights") to the iTunes store, and is poised to grow the online movie business. Wal-Mart has re-entered the online movie rental business as well offering its own version of online movie downloads in partnership with the major movie studios and powered by HP (NYSE: HP). Finally, Amazon.com (NASDAQ: AMZN) has also recently expanded the Unbox online movie download service. Amazon.com and TiVo Inc. (NASDAQ: TIVO) recently announced "Amazon Unbox on TiVo," a soon-to-be-launched service feature that will provide TiVo subscribers with the ability to rent and purchase movies and television shows from leading studios and networks. There is also the DVDPlay rental kiosk service available at the local grocery stores through a station similar to a vending machine and providing DVD rentals for less than $1.30. And then there are all the cable operators and satellite TV operators coming up with various options to rent movies as well. The entire movie rental industry has many players vying for the top spot. If the online movie download business takes off, it can cause yet another disruption in the movie rental industry - in the same vein as what Netflix did earlier. It's only a matter of time before Blockbuster will offer its own online movie download service as well. Why not? Offer the customers all the choices, simplify the business model, and make it extremely easy for customers to rent a movie through any of the available mediums: in the store, online through mail, online through immediate download or directly through cable or satellite. Perhaps Blockbuster is in the best position to address this changing market of movie renters and movie rentals worth $25 billion dollar annually and growing. Perhaps no one player is.

References:

Blockbuster Press Releases, Quarterly and Annual Earnings reports
Netflix Press Releases, Quarterly and Annual Earnings reports
Marketwatch
Top Ten Innovations for 02-14-07
The Innovation Index

Disclaimer: I invest in the stocks comprising The Innovation Index, beginning in 2007.

How can Dell turnaround Dell, beat HP and become the number one computer company?

Dell Inc. (NASDAQ: DELL) is one of the Top 20 Innovators of The Innovation Index. Dell has seen its market cap go down by about 20% in the last thirteen months, in large part due to average quarterly and annual top-line revenue growth, reduced profits, and losing the number one position as the world’s top supplier of new computers to Hewlett-Packard (HP) (NYSE: HPQ). Michael Dell, the founder, founding CEO and chairman of Dell Inc., took over the CEO roll of Dell again. Dell made Dell the number one computer company in the world. Now, Dell has perhaps the toughest act of his career: Turnaround Dell, beat HP, and make Dell the number one computer company in the world – again!

How can Dell turnaround Dell?

Dell has to go back to basics. What made Dell the number one computer company in the first place? Computers. Dell computers, laptops and servers were considered the best in the industry. And Dell became the household name when it came to buying computers. Dell was the perceived high quality brand. Dell must focus on the core business: Computers. Rather than creating average computers and discounting the computers to gain market share, Dell needs to design a new line of computers that appeal to the masses, business, government and IT.

For example, why can’t Dell design a computer only for school students? A specific computer made for the students in K-12 market, and college students? Not just a computer marketed to the schools – rather a computer that is designed with the need of students in mind from the inside out. This must include educational software, computer design that integrates needs of students (for instance, a scientific calculator on the keyboard), and online services that students are most likely to use. Dell = education computers for students.

Dell has to appeal to the teenager market. Teenagers are the high growth market, and they have money to spend – albeit they spend it on cool music and toys such as iPod. Dell must create a computer that appeals to the teenagers. Dell has to make Dell computers cool again. Dell should take a page out of Apple’s cool design and function. Dell = cool computers for teenagers.

Dell should also think about the market of women shoppers. There are many professional women buying computers, single households led by women who are looking to buy computers for themselves and kids, women in schools and colleges, and women in non-profits and government. What can Dell do to appeal to this largely ignored market? Can Dell create specialized computers that appeal to the needs of women at large? What would that line of computers look like? Dell = appealing computers for women.

When I go online to buy Dell computer, I can only buy one computer at a time or more than one computer of the same type on my own. Why is this so? What if I am looking to buy a laptop for me, a computer for my child, and a computer for my wife? Does Dell provide such a home bundle that I can readily choose. How about a Dell Home Bundle? Dell Home Bundle can include combinations of computers and laptops pre-packaged for various needs of the home, including home networks, wireless, entertainment center, etc. All I have to do is go online at Dell.com and choose Home Bundle. And I am provided various options all at once. Dell = Home Bundle.

Dell must make the business computers and servers the best in the business. Even a small business owner is looking for the very best at a reasonable price. Dell quality must become the standard in the industry. Dell performance must be second to none. Dell service should be topnotch. Dell must equate to the best investment there is when it comes to buying computers for business. First, Dell must make their computers the best there is in terms of quality, performance, service and price; second, Dell must market their computers to the business as the best there is and create this indelible brand perception; finally, Dell must provide a replacement program for old computers at businesses. Dell = Best Business computers.

How can Dell beat HP?

Dell became the number one computer company in the world with the Dell Direct business model. Consumers and small businesses went to Dell.com and easily configured the computer that they were looking for, and purchased it online. Dell promptly made this computer, and shipped it to you within a week. Larger businesses are also able to configure and buy their computers online; they also have the option of a dedicated account manager. The beauty of Dell Direct model was that there were no middle men – no margins, no distribution to worry about, and cutting-edge products. The Dell Direct model made sense during the Internet boom years and when the model was new and not easily imitable by Dell rivals such as HP. However, Direct model cannot be the *only* business model for buying computers.

If HP can sell computers online and also through retail channels, why can’t Dell do the same? Dell has to go retail – not just as an extension of the Dell Direct model, but as a completely new business. Consumers and businesses of today are researching and shopping online, researching online and buying retail, researching retail and buying online, researching retail and buying retail. Dell predominantly provides only one choice. Dell must find ways to open up the retail channel, and create computers specifically for the retail market. Dell can also provide kiosks at retail stores so that customers can simply configure computers at the retailers, and take immediate delivery at the store, buy a computer readily available at the retailer, or have it shipped to their homes or business. When Dell offers customers ready options where they can buy computers both online as well as in retail stores with the same ease as buying online, Dell would begin to grow the overall computer business and retake the lead from HP. This could easily take a year or two before Dell establishes itself as the premier Direct and retail computer brand.

How can Dell become the number one computer company in the world?

Customers outside the U.S. are used to buying computers through distributors, resellers, local companies who assemble computers, retail stores and through a lot of hand holding. The last point is very important: hand holding. Customers need advice on what is the best computer that meets their needs, and want to try out that computer in a store before they purchase it. There is even some negotiation involved. Customers need some help setting it up at their homes or business. The key insight: only a small segment of customers buy computers direct outside the U.S. The majority of the market does not buy direct. If this is the case, Dell must reinvent itself if it were to become a truly global player. Dell cannot sell only through Direct model outside the U.S. at least to emerging countries such as India, China, Russia, and Brazil. Dell should rather leverage the Dell brand and sell through the normal channels that the customers of these countries are acquainted with. HP’s market share grew in large part due to the worldwide shipments outside the U.S. HP has established retail, reseller and distribution channels worldwide. Dell must quickly do the same. And once the Dell brand is established in the country, Dell can then begin to introduce the Direct model. But Dell cannot, must not lead with the Direct model.

Michael Dell is a visionary, innovator and a creative leader, focused on execution and results. He made Dell the number one computer company in the world. Dell is on a mission to turnaround Dell, beat HP and make Dell the number one computer company in the world – again! If I were a betting man, I would definitely bet on Dell. If Dell is indeed successful in making Dell the number one computer company in the world again, Dell will forever be enshrined in the Hall of Fame of Visionary leaders of both 20th and 21st centuries.

References

The Innovation Index

The Innovation Index Weekly Report for the week ending 01-31-07

Yahoo! Inc. (NASDAQ: YHOO) continues to lead The Top 20 Innovators in stock performance of The Innovation Index, with 11% gain for the year.



The Innovation Index was flat for the week ending January 31, 2007, and is up 4% in 2007. S & P 500 lost 1% last week. NASDAQ is up 2%, whereas S & P 500 and the Dow Jones Index are each up 1% in 2007. It was another tough week for the Top 20 Innovators – 12 innovators declined last week, only 4 gained some ground, and 4 stayed even.

The Innovation Index closed at 71.86 on January 31, 2007, up 2.48 points from the closing price of 69.38 on December 29, 2006.

Weekly Advances

eBay Inc. (NASDAQ: EBAY) led all Innovators with 8% gain in just one week, and is now up 8% for the year. eBay had a solid quarter, showed strength in the core auction business, and is reaping the benefits of innovations introduced in 2006. eBay is perhaps the dark horse of 2007. Hewlett-Packard (NYSE: HPQ) and IBM - (NYSE: IBM) each gained 2% for the week. Intel Corporation (NYSE: INTC) was up 1% for the week. I posted a story on Intel – The Innovator of the week touting Intel’s recently announced breakthrough innovation. There were no significant gains from other innovators last week.

Weekly Declines

3M Company (NYSE: MMM) dropped 7% last week owing to quarterly results that missed the analyst estimates, and the future outlook that did not really excite the analysts either. 3M is now down 5% for the year. However, this is still early in the year. Look for the seasoned innovator 3M to bounce back before the middle of the year. Microsoft Corporation (NASDAQ: MSFT) hot on the heels of the huge launch of Windows Vista was still down 1% for the week. The investors shrugged off the launch, and are perhaps looking at Microsoft to deliver on the promise of Vista - money, money, money. The key question: how many existing Windows customers will convert to Vista? We will be sure to watch when Microsoft announces next quarter's revenues, in particular existing customers who are moving to Vista.

Yearly Winners

Yahoo! (NASDAQ: YHOO) is leading the top 20 innovators with 11% stock performance gain for the year. Google (NASDAQ: GOOG) is next with 9% gains for the year; however, as I write this weekly report, Google is down in the last couple of days as the investors reacted less favorably to Google's latest quarterly results. eBay and Target Corporation (NYSE: TGT) are both tied with 8% gains for the year. Look who is on the rise again: Hewlett-Packard (NYSE: HPQ) has almost quietly notched gains of 5% for the year already. HP was tied as The Top Innovator of 2006, and had a huge gain of 45% last year. HP is back again with 5% gain in the first month of the year.

I posted The Innovation Index Annual Report earlier in the year that included three Chapters:

Chapter One - Total Innovation Activity at The Top 20 Innovators
Chapter Two - The Top Innovator - The Innovator of Innovators
Chapter Three - The Innovation Insights and Roundup

About The Innovation Index

The Innovation Index introduced in December, 2006 is a weighted stock price index of the top 20 Innovators in North America.

The Innovation Index has returned 119% over the last five years. This assumes an investment in each stock of The Innovation Index (buying each stock). An average of $100 invested in The Innovation Index on December 31, 2001 returned $219 as of December 29, 2006. By comparison, $100 invested in each of S & P 500, NASDAQ and Dow Jones Index returned $124. The Innovation Index beats the S & P 500, NASDAQ and Dow Jones Index by 77% over the last five years.

The Normalized Innovation Index is even more impressive, and has returned 174% over the last five years. This assumes equal investment in each stock of The Innovation Index.

The alphabetical list of the top 20 Innovators of The Innovation Index along with their stock ticker symbols are presented below:

3M Company - (NYSE: MMM)
Amazon.com, Inc. - (NASDAQ: AMZN)
America Movile - (NYSE: AMX)
Apple Inc. - (NASDAQ: AAPL)
Cisco Systems, Inc. - (NASDAQ: CSCO)
Dell Inc. - (NASDAQ: DELL)
eBay Inc. - (NASDAQ: EBAY)
General Electric Co. - (NYSE: GE)
Google Inc. - (NASDAQ: GOOG)
Hewlett-Packard Co. - (NYSE: HPQ)
Intel Corporation - (NYSE: INTC)
International Business Machines Corp. - (NYSE: IBM)
Microsoft Corporation - (NASDAQ: MSFT)
Research In Motion Limited - (NASDAQ: RIMM)
Southwest Airlines Co. - (NYSE: LUV)
Starbucks Corporation - (NASDAQ: SBUX)
Target Corp. - (NYSE: TGT)
The Proctor & Gamble Company - (NYSE: PG)
Wal-Mart Stores, Inc. - (NYSE: WMT)
Yahoo! Inc. - (NASDAQ: YHOO)

The Innovation Index will analyze the positions and standings of the top 20 Innovators at the end of each year. For 2007, there will be no further changes in The Innovation Index.

References:

The Innovation Index
The Innovation Index Annual Report – Chapter One
The Innovation Index Annual Report – Chapter Two
The Innovation Index Annual Report – Chapter Three

Disclaimer: I invest in the stocks comprising The Innovation Index, beginning in 2007.

Top Ten Creative Leadership Traits

Creative leaders continually meet new challenges, and recognize and pursue new opportunities through bold innovations.

What are the top ten characteristics and traits of Creative Leaders?

1. Great at generating many ideas – innovative, game changing and even commonplace.
2. Always looking to experiment with good ideas. Sometimes, trying out a few times.
3. Unwavering belief in their creativity and innovation, coupled with originality in thinking.
4. Smart and bright with a positive self-image. More often, they are not born geniuses.
5. Passionate, expressive and sensitive to their teams, colleagues and surroundings.
6. Demonstrate superior judgment, and do not make quick decisions (although have a gut feel).
7. Non-conformists and independent, requiring less social approval than most people.
8. Innate ability to understand and solve the problem, and manage the consequences.
9. Born dreamers with strong imagination; however, manage to keep things in perspective.
10. Create and launch game changing products meeting a high level of quality and design.

Which creative leaders demonstrate these qualities among the top 20 Innovators of The Innovation Index?

Steve Jobs, co-founder and CEO of Apple, Inc., immediately comes to mind with market leading innovations including iPod, iMac and soon to be launched iPhone.

Larry Page and Sergey Brin, founders of Google, developed the innovative search technology that provides relevant answers which went on to become the world’s largest search engine.

Jeff Bezos, founder and CEO of Amazon.com, made the world’s largest online bookstore and the most popular online retail site.

Pierre Omidyar, founder and chairman of eBay, changed the face of Internet commerce in 1995 when he launched eBay which went on to become the world’s largest marketplace.

A.G. Lafley, CEO of Proctor & Gamble, states: “Great leaders create conditions that get people organized to attack problems. They help others learn how to think, how to exercise judgment and how to take action.” (at a Kellogg event)

Michael Dell, founder and chairman of Dell, who always thought big, and made Dell the number one computer company, and is on a mission to connect the next billion people all over the world.

Jim Donald, president and CEO of Starbucks, who is fanatical about communicating using his Treo, replies to every email, returns calls at 6 a.m., and always stays close to the customers.

How about Steve Ballmer, CEO, and Bill Gates, founder and chairman of Microsoft, who made Microsoft the world's largest software company.

Every CEO and founder of the Top 20 Innovators on The Innovation Index is a Creative Leader.
As Sam Walton, founder of Wal-Mart, once said:

“I have always been driven to buck the system, to innovate, to take things beyond where they've been.”

If you enjoyed reading this Creativity best practice, I recommend the complete list of Creativity Innovation Best Practices.

References:
eCornell: Leading through Creativity

How much Creativity is enough?

How much creativity is enough? Is there an optimal level of creativity for a person to have? Is it possible to be “too creative?” Is it true, or a myth, that creative people can be difficult to manage?

Creativity generates Ideas. Ideas generate Innovations. Innovations generate New Products. New Products make company successful in the long term. A company can never have too much creativity. Creativity can give rise to new products that may fail. However, without creativity, there are no new products. Creativity and Innovation define the future of any business. The day creativity is thought to be enough, the company stops innovating, stops creating great new products, becomes complacent and eventually ceases to exist.

Too much creativity or optimal level of creativity depends on the company, its culture and its individuals. Creativity in a corporate environment needs to be channelled to produce great products. Employing creative individuals in specific business units such as marketing, desktop publishing, web business, advertising or new product development makes business sense. An optimal level of creativity can be achieved within the organization as a whole, where the appropriate guidelines and frameworks are in place for creative individuals and their ideas, and to convert such creativity into viable business solutions. If the individual is employed in a role that requires creativity, there cannot be too much of it – however a defined structure that sets boundaries, such as market needs, financial constraints, resource availability, project checklist and milestones, etc. can drive measurable, sustainable and innovative results. When the business risks grow, a methodical framework or business process needs to be implemented to translate creative ideas into viable business enterprises.

An experienced manager knows how to manage creativity and creative individuals without coming in the way of generating new ideas. Creative individuals have the innate ability to visualize the end product; however, at times this is also coupled with the complexity to execute on a plan to get there. The key is to provide the creative individuals a platform to be creative, and lead their ideas into markets. Surrounding creative individuals with the appropriate infrastructure and resources to convert their ideas into workable solutions can be very rewarding and profitable. On the contrary, leaving them to their own devices can potentially result in chaos, delayed delivery, under delivery on commitments, overspending and incomplete end results.

Creative individuals can tend to be independent, expressive and passionate. Their mindset stems from the cultural differences between highly creative and operational organizational norms. For example, creative individuals thrive on generating ideas, and asking the "what if" questions. Some managers may prefer efficiency to unproven ideas and rhetorical questions. A manager can nurture their entrepreneurial spirit, and yet manage them well in group settings and staff meetings. There is also the possibility of expansive dialogs and debates, especially when a manager rejects an idea or two from a creative individual. This is perhaps the most challenging aspect of managing a creative individual: how to say "No" to certain ideas that may make compelling sense to the individual?

Creativity is paramount to the success of any business. Creativity drives Ideas. Ideas drive Innovations. Innovations drive New Products and Markets. Creativity And Innovation drive business.

If you enjoyed reading this Creativity best practice, I recommend the complete list of Creativity Innovation Best Practices.

References:

eCornell: Leading Through Creativity

Is Innovation Cyclical?

Cycles of Innovation

Thomas A. Stewart, editor of Harvard Business Review, and Rosabeth Moss Kanter, professor of Harvard Business School, declare that innovation is cyclical at most companies in "The Great Wheel of Innovation" and "Innovation: The Classic Traps." As a matter of fact Kanter asserts that "innovation gets rediscovered as a growth enabler every half dozen years." Can companies afford an innovation cycle that repeats every six years? We know from such great innovators as 3M, Apple, and Toyota that innovation is not a one-off experiment, rather a sustainable process that must be always on. Why then companies often fail to sustain innovation?

Selected references:
Leading eBook on Creativity and Innovation in Business
Creativity and Innovation Best Practices
Creativity and Innovation Case Studies
The Innovation Index
Top 50 innovative companies in the world

Cause And Effect

What causes the cycle of innovation? Stewart talks about the erosion of “institutional memory” as one of the primary drivers of the innovation cycle. Erosion happens due to change in labor markets, 20% voluntary turnovers and intra-company movement of individuals and associated memories. The key challenge companies have is creating processes in place to preserve the memories, the knowledge acquired, the insights gained on not only what worked well in the past, but also what did not work well, so that mistakes are not repeated on planned innovations. When companies push to find new ways, old mistakes repeat, thereby creating the long cycle of innovation. Stewart refers this as the great paradox of innovation - it's not about creating new innovations, rather repeatable processes that define how to create innovations.

Avoiding The Innovation Cycle

Kanter stresses that grand declarations of innovation are often followed by mediocre execution that produces anemic results. Kanter echoes on “four major waves of innovation enthusiasm” she's observed, and describes the four “classic mistakes companies make in innovation strategy, process, structure, and skills assessment.” These four mistakes need to be overcome if companies want to maintain their innovative output and become lasting companies. We had earlier talked about six ways to find innovation, and processes to unblock creativity and innovation. Some of Kanter’s proposed views draw similar insights.

Common Innovation Blunders

Kanter gives many real world examples of common blunders that companies make as they try to build new innovations:

1. “A typical strategic blunder is when managers set their hurdles too high or limit the scope of their innovation efforts.” Case in point: Quaker Oats was making minor tweaks to its product formulas in the 1990s that it missed larger opportunities in distribution.
2. “When managers strangle innovation efforts with the same rigid planning, budgeting, and reviewing approaches they use in their existing businesses--thereby discouraging people from adapting as circumstances warrant.” When a company builds too many systems and processes to create efficiencies, innovation suffers.
3. “Companies must be careful how they structure fledgling entities alongside existing ones to avoid a clash of cultures and agendas.” Another example Kanter provides is when Arrow Electronics tried to create an online venture.
4. “Companies commonly undervalue and underinvest in the human side of innovation--for instance, promoting individuals out of innovation teams long before their efforts can pay off.” Again, we had discussed a lack of reward and recognition system for innovators in particular.

Innovation At Your Business

What are your views on creativity and innovation at your business? Do you have defined processes in place to create sustainable innovations? For instance, top innovators such as Google who “allow their brightest minds time to experiment” while keeping a tremendous focus on “simplicity and the customer,” and Proctor and Gamble, whose “connect and develop model calls for 50% of products to come from outside” and where “design and innovation execs are part of the org chart.” Share your insights on whether innovation is cyclical at your business.

Selected references:
Leading eBook on Creativity and Innovation in Business
Creativity and Innovation Best Practices
Creativity and Innovation Case Studies
The Innovation Index
Top 50 innovative companies in the world

If you enjoyed reading this Innovation best practice, I recommend the complete list of Creativity Innovation Best Practices.

References:

Harvard Business Review
BusinessWeek

Six Ways to Find Innovation

How do you find Innovation? Can you find innovation blind-folded or using the same lens? Can you even look for Innovation? Or it just happens.

Innovation is coupled in some ways to imagination where every time you see something, you open your eyes to endless possibilities. Literally. According to Chuck Palus and David Horth, authors of The Leader's Edge: Six Creative Competencies for Navigating Complex Challenges, you need to “see with new eyes” in order to find innovation. We had discussed earlier on how leadership can drive innovation inside your business. We naturally fall into a habit of looking at things around us with the same eyes, analyzing it with the same logic and creating the same perceptions. It is easy to get used to this routine. Most managers act the same way. According to the authors, most managers “act on what they expect to see”, take shortcuts, do not spend enough time analyzing information and making a sound judgment. It’s as if the managers are walking around blind-folded since they have already created built-in perceptions of what they see.

Selected references:
Leading eBook on Creativity and Innovation in Business
Creativity and Innovation Best Practices
Creativity and Innovation Case Studies
The Innovation Index
Top 50 innovative companies in the world

Why is this so? We are after all living in the world of action. People get rewarded to get things done fast. And managers are no different. According to the authors, managers spend ninety percent of their time solving the problem, and only ten percent thinking about it. There is too much focus on getting the problem resolved quickly and moving on to the next problem. Perhaps this happens because of the sheer pace of work, multiple competing projects, approaching deadlines, and focus on quarterly results. The result: the problems are half-solved or worse yet, wrongly solved. The authors assert that "Complex problems — even really wicked ones — often begin to crack and shift when you spend more of your time looking at the problem."

What does all this have to do with Innovation?

Palus and Horth believe that Innovation happens when you begin slowing down (what did you say?), and when you put the brakes on the way you normally see and perceive, analyze and understand.

Here are the Six Ways to Find Innovation:

Stand in different places

Switch roles. This is the only way to learn and understand what is out there or in there. If you are the manager, become an employee. If you are in Sales, become a customer. If you are the product manager, become the product or the user. Try to adapt the mindset of who you want to do business with. Change your perspective. This bit of role playing will allow you to find new innovative ways to look at the same problem, and find a solution that you never thought existed before.

Use the lenses of other domains

Are you selling high tech gear? Well what if your buyer was shopping for groceries? How would you sell to that buyer? Are you looking to create that next big innovation in chemistry? What if you were to use this innovation in sports? Learn about something other than your domain knowledge. Try to apply this knowledge to your problem. Say you are trying to market an application to the CEO of a company, and are not able to determine the appropriate message, the punch line. What if a Kid were to buy your product? How would you explain to the Kid? The key is to use a different lens outside your domain and arrive at a solution. If you don’t know how to use a different lens, find someone in the company who can. Or create a group to do this.

Ask powerful questions

Questions are not just for the devil’s advocate and to create doubts. There is no such thing as a silly question. Question everything about what you are trying to accomplish. Start with why, what, how, when, what if, so what, where and so on. Ask broader or narrower Questions. Ask the question of a metaphor. Ask opposite questions and inside-out Questions. Ask precedence and consequence Questions. Ask ridiculous questions, and don’t forget to ask the “Real” question. Ask about object rules and action rules (Shank). Question the merits and even ask how you can make the innovation worse or fail. The more questions you ask and the more answers you try to find, the more innovative ways you would come across in trying to find a way to create a new product or solve a problem.

Foster new knowledge

New knowledge not only comes from your own domain, but when you are out there doing something else. Go attend a trade show of an unrelated business. This will open up your mind to how businesses are creating products for other markets. You may find an application of this in your market. Spend a week with your customer. Understand the problems your customer faces on a day to day basis; not just for your product, but everywhere else. Gain new insights on how your customer does their business with their customers. Check out what your key competitor is doing outside their place of business, what they are doing to promote and market their products. Do Offsites with your creative teams, and focus on learning something totally unrelated to what you are doing. Use the Offsites to create some group thought. The creative team should spend time in new places to gain new viewpoints, and which in turn will generate new ideas.

Create a visual verbal journal

A picture says a thousand words. A journal to put down your thoughts visually will allow you to think about your ideas from various angles, and create clarity of thought. Wherever possible, doodle. Do drawings of processes, tasks, relationships. Connect the dots or let them flow from one to another. Create a habit to write down key ideas, however unrelated, and try to associate these with real world scenarios. Create more pictures (don’t worry about whether they are pieces of art). Imagine the customer you are trying to sell visually. What would be they thinking out loud or saying out loud? Write short catchy phrases describing their actions and thoughts. At times you may be going on different tangents from your visual thoughts, but it is possible that one of the new tangents holds that all important idea to generate new innovation. And at times, the visuals may create even further complexity. Perhaps it is best to let go of that visual, and start a new one. Wherever possible, try to associate visuals with concise thoughts or ideas.

Change the pace of attention

How do you lead groups to find and create innovation? The key is to slow them down and try to get the group to focus on a few key ideas initially. Try to brainstorm on these ideas using creativity techniques such as free association, locksmiths, SCAMPER, or Question Breakdown. Ask the group to bring their own ideas, however silly they may appear on the surface, and evaluate each idea and brainstorm. Give rankings to each idea by having everyone vote. If the group is pressed for time, and is moving fast through the thought process, make it a practice of slowing them down. Ask more questions. Try to change the topic to have the group momentarily think of something else. Bring them back. Try to rephrase what you are trying to do. What you are trying is create is that moment of intuition or magic moment wherein group members can come up with an idea that everyone says “wow, let us explore that.” Use group forums or N-Gates to channel the group creativity into a new idea or innovation.

Are you ready to find innovation inside your business? Remember to slow things down, view the world with a set of new eyes, follow the six steps above, and unblock creativity and innovation within your organization.

If you enjoyed reading this Creativity best practice, I recommend the complete list of Creativity Innovation Best Practices.

Selected references:
Leading eBook on Creativity and Innovation in Business
Creativity and Innovation Best Practices
Creativity and Innovation Case Studies
The Innovation Index
Top 50 innovative companies in the world

References:

CCL – Center for Creative Leadership. CCL e-Newsletter, October 2006: Needed: A New Way to See.

Leading Creatively: Acting Sensibly and Meaningfully in a Complex World by Charles J. Palus and David M. Horth (CCL & Jossey-Bass, August 2001).

Co-Creation driving Innovation

What does Doritos chips, Starwood hotels and Timex watches have in common? According to Gerhard Gschwandtner, Editor and Founder of Selling Power, they are all engaging their customers to co-create. In the latest issue of Selling Power, Gschwandtner talks about the role of co-creation driving innovation in mainstream businesses.

What is Co-Creation?

Gschwandtner summarizes: "Information (online) technology has empowered consumers to share ideas, documents, images, and movies across the forever- expanding digital world. The Internet allows businesses to engage customers in a creative workshop experience." This online engagement with the customers that creates new innovative solutions is Co-Creation.

Selected references:
Leading eBook on Creativity and Innovation in Business
Creativity and Innovation Best Practices
Creativity and Innovation Case Studies
The Innovation Index
Top 50 innovative companies in the world

Doritos and The Super Bowl

What is Doritos doing to co-create with the customers? How about a "story about eating your first Doritos chips or what life is like for the spices on the surface of the chip"? Consumers are invited to submit their 30-second homemade videos on stories about Doritos. Talk about whetting consumers' appetite for Doritos with the growing appetite of homemade videos - it appears that Doritos has created the perfect match. And the best part is the grand prize: the top video will be aired as a commercial during next year's Super Bowl (2007). Five finalists will also be awarded $10,000 each. Doritos wins by rallying hundreds of thousands of consumers to create playful videos about its chips, creating the consumer buzz around Doritos at time of the Super Bowl, and finally showcasing the advertisement in front of about a hundred million people watching the Super Bowl. Co-Creation in motion.

Aloft at Starwood

The next time you want to go to a great hotel, how about just logging online and typing in: www.virtualaloft.com. No need to leave home. Welcome to Aloft Hotel, the new futuristic hotel from Starwood. The virtual hotel invites guests to tour the hotel and get a 360 degree view, walk around the lobby, check into a room, swim in the pool, and even watch a sunset on the rooftop terrace. Starwood has taken the concept of co-creation to the next level (literally) by creating the first virtual hotel online, and simultaneously encouraging the customers to provide feedback and engage with the designers and architects who are building the real hotel.

The real hotel will not open until 2008 - plenty of time for Starwood to gather all the customer inputs and creating something that customers really crave for. What a great concept? For instance, at their website, the designers heard one question a few times on "why there wasn't a door in the bathroom." They immediately responded that "there will be a sliding door in the real hotel" and explained why it was missing in the first place. Co-Creation at work.

Timex and The Future of Time

Timex, as part of its 150th Anniversary celebration, and to demonstrate an ongoing commitment to design and innovation, conducted a global design competition: Timex2154: The Future of Time (2004+150 years=2154). Designers from more than 72 countries explored and visualized personal and portable timekeeping 150 years into the future and submitted 640 entries. An assembled world-class design team evaluated the entries in three categories: wrist-based, wearable, and conceptual, and chose the winners. Timex could not have done this alone (if they would have tried to design a futuristic watch). Instead, they were able to obtain 640 creative ideas from some of the world's best designers in a timely manner. Further, Timex created a leadership position as a Watch company by creating such a campaign and getting the inputs from some of the best designers. Co-Creation driving innovation.

Diversity drives Innovation

Gschwandtner compares the past and the present of customer innovations: "In the past, customers have been limited to communicating their wants and needs in surveys and focus groups; today, brands deploy existing technologies to map their customer’s imagination. Brands no longer view consumers as targets with a wallet, but as co-creators of exciting and profitable solutions." This is a tremendous shift. Rather than simply aiming customers for profits with obsolete products, now you are learning from them in real-time and creating better products that will in turn create profitable customers. And today's customer who is digitally engaged and enjoys personal service would not have it any other way. Gschwandtner aptly quotes the term "Diversity drives Innovation" from the book The Medici Effect by Frans Johansson to demonstrate the effect of Co-Creation.

Bottomline

As Co-Creation demonstrates tangible results, more mainstream businesses will experiment and adopt it - not just technology companies. The best side effect of Co-Creation is it brings you that much closer to your customers and creates a positive business environment. The business should not become overzealous about deploying Co-Creation. It has to make observations and decisions based on sampling size and customer type on whether to go all out with customer inputs or experiment.

Selected references:
Leading eBook on Creativity and Innovation in Business
Creativity and Innovation Best Practices
Creativity and Innovation Case Studies
The Innovation Index
Top 50 innovative companies in the world

If you enjoyed reading this Creativity best practice, I recommend the complete list of Creativity Innovation Best Practices.

Acknowledgements:

Gerhard Gschwandtner - Selling Power - October Issue
Doritos
Starwood – Aloft Hotel
Timex

Blocking Creativity and Innovation

Is your organization Blocking or Stifling Creativity? How do you harness Creativity and produce new Innovation in your organization?

As organizations grow, they setup structures that inherently block creativity.

Systems and Processes

Have your heard of organizational efficiency? Bottomline? Operational excellence? Larger organizations setup systems and processes to become leaner and more efficient, and become focused internally. However, when the systems and processes become an end goal, creativity that drives new innovations and competitive spirit becomes non-existent over a period of time. Hence, organizations must build new processes such as identifying and isolating key creative teams from the rest of the organizations, and stimulating them towards driving innovation.

Selected references:
Leading eBook on Creativity and Innovation in Business
Creativity and Innovation Best Practices
Creativity and Innovation Case Studies
The Innovation Index
Top 50 innovative companies in the world

Reward and Recognition Systems

Who do you reward and recognize at your organization? The operational excellence team, the sales team or the innovation team? Do you even have rewards and recognition systems in place? If you are frequently associated with rewarding behaviors like "going with the flow" and where behaviors like "questioning status quo" are ignored or even reprimanded, creativity will suffer. In order to create the best creative output from employees and teams, organizations must put formal rewards and recognition systems for the innovators and creativity contributors. Recognition and rewards could be in the form of a company-wide announcement of the contributions of your most innovative employees, press releases recognizing and introducing their innovations, providing the innovators paid vacations and combining them with trade shows where they can meet customers, salary bonuses, and more.

Organizational Culture

What stories do you hear in the cafeteria? Are the stories about the next big innovation that someone is working on, a new marketing campaign that is creating great returns or a product that was launched last year and became hugely successful? Or are the stories (or lack thereof) about improving profit margins, increasing productivity and becoming an efficient organization? An organization's culture is built on stories and legends. How many of these stories are known and recognized by the external world? An organization where creativity was not celebrated historically rarely has a vibrant creative environment. However, organizations where most talked about stories revolve around creativity, inspire others to follow suit, building a culture of creativity.

Creative ideas must make business sense. For instance, asking questions on whether you have the means to convert an idea into innovation, the associated costs of doing this, how many customers will use this new innovation, and the revenue potential. Most successful organizations achieve a balance between creativity and operational excellence.

Here are nine processes that you can create at your organization to unblock Creativity and drive Innovation:

• Open communication within and between departments, and across all management layers.
• Hiring of people with diverse backgrounds and experience, and avoiding "cloning."
• Encouraging employees to find new ways to do their daily work, and empowering them to make decisions.
• Creating an organization that extends out to customers, suppliers, partners, and environment.
• Stimulating research activities and providing employees some free time to experiment.
• Allowing employees to take measured risks (with small costs), and seizing opportunities.
• Creating processes to evaluate any idea on merit, regardless of where it is coming from.
• Identifying and separating the creative from operational functions in the organization.
• Using group creativity techniques frequently to promote team building and generate new ideas.

Selected references:
Leading eBook on Creativity and Innovation in Business
Creativity and Innovation Best Practices
Creativity and Innovation Case Studies
The Innovation Index
Top 50 innovative companies in the world

If you enjoyed reading this Creativity best practice, I recommend the complete list of Creativity Innovation Best Practices.

Acknowledgements:

eCornell. Leading through Creativity Certification Training.

Can Leadership create Innovation?

In a story on "Connecting the Dots between Innovation and Leadership" published by Knowledge@Wharton, Wharton management professor Michael Useem asked an important question at the roundtable: "How are Innovation and Leadership linked?", "How do we lead in a way that generates Innovation?" The panelists were asked to describe a single factor that is critical to innovation.

Selected references:
Leading eBook on Creativity and Innovation in Business
Creativity and Innovation Best Practices
Creativity and Innovation Case Studies
The Innovation Index
Top 50 innovative companies in the world

Here were the ten answers by the panelists on what drives Innovation at their companies:

1. Marketing

According to C. Robert Henrikson, chairman and CEO of global insurer MetLife, the focus is on marketing. According to Henrikson, Innovation happens because of true marketing, not merely sales support; for example, executives beyond the sales team, such as lawyers and financial officers, need to meet with customers regularly. "All parts of the organization must have a sense of the customers' business to anticipate their needs and reach out with innovative ideas," he said. Henrikson observed that most insurance companies have no marketing and are simply followers of innovation established by competitors. He further emphasized that: "I can't wake up and say, 'It's good to be a fast follower.' You have to get out in front of consumer behavior. That is what will be the differentiator in our industry."

2. Size

Alex Gorsky, head of Pharma North America and CEO of Novartis North America, indicated that "It's really important not to confuse size with true innovation. Research shows big is not necessarily better." Gorsky noted that all the mergers have made drug companies big in size, but not big on innovation. Rather, the smaller biotech companies or divisions are causing real innovations according to Gorsky.

3. Culture

According to Seth Waugh, CEO of Deutsche Bank Americas, culture is a critical factor in promoting innovation. Business leaders stimulate innovation by offering incentives to workers, creating an environment, and setting expectations. Waugh noted: "You must have people with that hunger to always learn, who are always open and who think about things in a different way. You always have to reinvent yourself tomorrow."

4. Technology

Retired partner and managing director at Goldman Sachs, Connie K. Duckworth talked about the important role of technology driving innovation. "The advent of desktop information technology transformed the financial services industry on Wall Street in the 1980s and 1990s," she noted. Duckworth observed that "new computer technology allowed companies to analyze the role of risk and to track risk in financial services, which changed the dynamics of the business."

5. Passion

Patricia Danzon, Wharton professor of health care systems and a consummate researcher on pharmaceutical industry mergers, identified passion as critical to innovation. Although passion is difficult to quantify, Danzon elaborated that passion may be linked to workers who have a stake in the business, either financially or in small firms where there is clear authority and little bureaucracy. Danzon stated, "So much innovation in the pharmaceutical industry is coming from the small firms ... and it seems to come from the passion and the involvement of being master of your own destiny."

6. Active Participation

Jeffrey Katz, CEO of Sherwood Equities, a New York City developer, and a major investor in Times Square, said business leaders must remain open and receptive to what comes their way in the form of new deals in order to capitalize on opportunities, and then seize these opportunities. He observed that "the marketplace, at least in New York, is extremely [fast-changing]. Unless you are sensitized and able to react right away, you will be reading about a deal next week rather than doing it."

7. Hard Work

Peter Linneman, Wharton finance professor and founding chairman of Wharton's real estate department, had a more real world perspective. He said there is no magic "Aha!" moment in most innovation. According to Linneman, "It's just all hard work -- showing up everyday in the morning, studying plans, walking around seeing what other people are doing. If you wait for 'eureka,' you are never going to have innovation."

8. Internal Development

Seth Waugh observed that it is preferable to create new businesses within the company first, because a homegrown enterprise is likely to fit better in the existing corporate culture. And he noted that this has the advantage of keeping the organization flat. Henrikson also believes in internal development as the passport to innovation. Henrickson emphasized, it’s talented managers -- not necessarily acquisitions -- that drive innovation. Katz is in the build-from-within camp. In order to grow, he encourages contrarian thinking. He noted that "if a developer waits to see what the crowd is doing, it's too late."

9. Targeted Acquisitions

Waugh believes that highly targeted "rifle-shot" acquisition, when an opportunity integrates well with the parent company's overall portfolio, is a strategic approach to stay ahead of the competition. Henrikson believes otherwise. Gorsky observes, "The area where it (acquisition) does make sense is in complementary technology with new technology partners." For example, Novartis' acquisition of Chiron Corp., a biotech firm with a specialty in vaccine development and production, as an example of an acquisition that fits well with Novartis' broader strengths.

10. Agility

Katz emphasizes the importance of agility to reshape development plans. He believes agility can create new ways of efficient and effective development that can span over months and years for completion.

Some of the panelists observed that leaders remain intently fixed on customers to uncover clues to innovation, realize and achieve the need for balance in quantitative skills and people skills, possess emotional intelligence and sensitivity to multi-cultural and multi-generational issues, demonstrate persistence in sticking with a goal although with flexibility, and execute on great ideas.

Selected references:
Leading eBook on Creativity and Innovation in Business
Creativity and Innovation Best Practices
Creativity and Innovation Case Studies
The Innovation Index
Top 50 innovative companies in the world

If you enjoyed reading this Innovation best practice, I recommend the complete list of Creativity Innovation Best Practices.

Acknowledgements:

"Connecting the Dots between Innovation and Leadership", Knowledge@Wharton. Click here for the complete story.

Failures and Stumbles driving Innovation

"Failure is our most important product." R W Johnson, Jr., Former CEO, Johnson & Johnson, 1954

"Our company has, indeed, stumbled onto some of its new products. But never forget that you can only stumble if you're moving." Richard P. Carlton, Former CEO, 3M Corporation, 1950

Great wisdom shared by two great business leaders.

"Purposeful Accidents"

Jim Collins and Jerry I. Porras, authors of the bestseller "Built to Last", discuss the role of Creativity and Innovation that drives some of the successful habits of Visionary companies. They observe that "some of their (visionary companies) best moves were not by detailed strategic planning, but rather by experimentation, trial and error, opportunism, and--quite literally--accident." But they were no ordinary accidents. Rather "purposeful accidents" according to the authors.

Selected references:
Leading eBook on Creativity and Innovation in Business
Creativity and Innovation Best Practices
Creativity and Innovation Case Studies
The Innovation Index
Top 50 innovative companies in the world

Opportunistic or Planned Innovations

The authors give several examples of visionary companies including Johnson & Johnson's accidental move into Consumer Products with discovery of "Johnson's Toilet and Baby Powder" and "Band-Aid", Marriot's opportunistic step into Airport Services from providing meals in the airports to inside the airplanes, American Express's unintended evolution into Financial and Travel Services with the introduction of "American Express Travelers Cheque" and then Tourism and Travel, HP's unplanned move into computer business (when it designed its first small computer simply to add power to its line of instruments products) and more. These innovations were neither aberrations, nor they represented random luck--the authors discovered there was more to these innovations than what appeared on the surface--something bigger at work.

Darwin and the Evolutionary Progress

The authors label this type of progress by visionary companies as "evolutionary progress". Because evolutionary progress is unplanned progress, beginning with "small incremental steps or mutations, often in the form of quickly seizing unexpected opportunities that eventually grow into major--and often unanticipated--strategic shifts." Authors believe this is comparable to Darwin's theory of Evolution--species evolving by a process of undirected variation and natural selection--the survival of the fittest. Of course the difference with visionary companies being that there is a plan in place that stimulates these experiments and variations, and ultimately creates the meaningful inventions.

Johnson and Johnson - Failures to Innovations

Johnson & Johnson, one of the visionary companies in the book, has never in its 107-year history, posted a loss. It has had many failed ventures such as a foray into Kola stimulants, colored casts for children, heart valves, kidney dialysis, and ibuprofen pain relievers - the list is quite big. The failures result at J & J from the fact that the company emphasizes placing bets on many potential opportunities--most opportunities possibly fail, but the ones that do succeed, they succeed big. The bets, or the experimentation, are an essential price to pay for successful Innovation and Long-term growth. At General Electric, Jack Welch the then CEO, called this "planful opportunism"--directing a business by setting only a few clear, overarching goals and letting the people seize any opportunities they saw to further these goals.

3M - Accidents to Innovation Machine

What about 3M, quite possibly the most innovative company of our times that even CEOs of other visionary companies admire? 3M is best known for its household brands such as Post-It note, Masking tape, Scotch tape, and many more. 3M initially failed in its mining business, and eventually stumbled onto most of the successful innovations that we know 3M for, including Post-It, Masking and Scotch tape. According to the authors, "Although the invention of the Post-it note might have been somewhat accidental, the creation of the 3M environment that allowed it was anything but an accident." 3M institutionalized such mechanisms to drive Innovation as the "15 percent rule" - technical people spend up to 15 percent of their time on projects of their own choosing or initiative, "25 percent rule" - each division should produce 25 percent of annual sales from new products and services introduced in the previous five years, "Golden Step" award - given to those creating successful new business ventures originated within 3M. More mechanisms were created to stimulate internal entrepreneurship, test new ideas, create unplanned experimentation, share new ideas, develop new innovation, cross-fertilize technology, ideas and innovation, stimulate innovation via customer problems, speed product development and market introduction cycles, provide profit sharing, and promote "a small company within a big company feel" by creating small autonomous business units and product divisions - in early 1990 3M had over sixty thousand products and over forty separate product divisions.

Norton - Lessons Learned

The authors argue that whereas 3M created the mechanisms and management practices to encourage individual initiatives and experimentation, Norton was the exact opposite. 3M took the approach of "try a lot of stuff and keep what works", whereas Norton was centralized, bureaucratic and stagnant. Not only that, the authors discovered that Norton had explicit policies discouraging entrepreneurship; there were no incentives for creativity and towards looking outside for new opportunities beyond the traditional products and businesses. Norton emphasized too much planning from the top down, and made it a way of life. Norton eventually tried to innovate and expand with acquisitions, but it was too little, too late. Norton, a company that at one time was ten times the size of 3M, ceased to exist (was acquired on its way down in the nineties).

Five takeaways stimulating Innovation

The authors summarize their findings from 3M and provide five takeaways to drive Innovation at any business:

1. "Give it a try--and quick!" - Essentially echoing on having a process to try out a lot of stuff, and keeping what really works. The key here is to do something. Keep on trying something new.

2. "Accept that mistakes will be made." - Learn from the mistakes quickly, and move on. Failures are part and parcel of what creates new innovation. Don't repeat the same mistakes.

3. "Take small steps." - Experiment, but on a small scale. When something looks promising, go all out and seize the opportunity. This way one can do plenty of inexpensive experiments that create a funnel of would-be innovations.

4. "Give people the room they need." - Without entrepreneurship, there is no experiment. Without experiment there is no success or failure. People need some time and room to experiment.

5. "Mechanisms - build that ticking clock!" - How do you harness creativity and build innovation? It cannot happen simply by chance. Companies need to create practices and tangible mechanisms to experiment, try out new ideas and innovate.

Selected references:
Leading eBook on Creativity and Innovation in Business
Creativity and Innovation Best Practices
Creativity and Innovation Case Studies
The Innovation Index
Top 50 innovative companies in the world

If you enjoyed reading this Creativity and Innovation best practice, I recommend the complete list of Creativity Innovation Best Practices.

Acknowledgements:

Jim Collins and Jerry I. Porras - Built to Last - Successful Habits of Visionary Companies