Innovation: Critical for Long Term Survival
Raymond Kurland

Innovation - we all talk about it, but exactly what is it and how do you go about innovating new products and processes?

I originally started to write a paper about lean design, a subject in which I have done substantial research, but in researching lean design, I came across a series of articles on innovation, which finally made some sense of the topic.

As an analyst in the CAD/CAM/PLM and product development business, I am often exposed to vendor initiatives and for the past two years or so, innovation seems to be the thrust of many of the leading vendors. At least that is what appears in the product literature and presentation material.

But, exactly what is innovation? How does an organization innovate? Can it be measured? How do you know how to recognize it? And finally, how can innovative products and processes flourish in existing organizations?

It turns out that most companies focus on matching or beating their competition. Thus their strategies often appear similar. "What ensues is a head to head competition based largely on incremental improvements in cost, quality, or both." ⁱ In the CAD arena, we have seen the software mirror this strategy.

Companies, to innovate, should not limit themselves to looking within conventional boundaries, but methodically look across these boundaries to find new territories for real value. Some examples of companies that developed innovative products and strategies include the following:

• Starbucks reinvented the coffee drinking process. It elevated the commodity nature of coffee drinking by opening chic establishments that offered not only coffee, but also a whole social environment. Price became a non-issue, with Starbucks coffee often commanding four times the price of the traditional coffee shops.
• Barnes & Noble, in a time of small bookstores, each with a limited inventory and often an unfriendly buying experience, began opening megastores with wide aisles, easy-to-browse-through books, and comfortable places to read. It reinvented the service the industry provided. Today the company is the one of the biggest bookstore chains in the US with more than 690 superstores.
• Toyota went beyond their conventional boundary when they introduced the Lexus with the quality of top European cars for one-third less cost. Their innovation included not only the car, but also a completely new delivery and service system. Buyers loved it. Last year Lexus was the best-selling luxury brand title for the sixth consecutive year, surpassing 300,000 sales for a record-breaking year; a very difficult year for the automotive industry.
• Home Depot looked beyond the traditional lumber yard and hardware stores offering not only a vast inventory, but by hiring knowledgeable sales people and running seminars teaching homeowners how to do complex home improvements. The company dramatically changed the industry by enabling homeowners to tackle bigger home improvement projects.

Are you getting the idea? You need to think outside the box to innovate. Unfortunately product developers have difficulty coming up with breakthroughs, because most are focused on the short term. Without strong short term profits companies cannot survive. More often though, product developers don't know how to develop innovations.

Of all the ideas we have seen about enabling innovation within your company, one stands out -- the lead user process. Adopted successfully by 3M, a highly innovative company, the process is based on the fact that many important products are initially thought of and pioneered by "lead users" -- companies, organization, or individuals that are well ahead of market trends. ⁱⁱ

The lead user approach differs from the traditional approaches, where product innovations often start with market research, either done with formal market research using sales input, focus groups, or traditional customer feedback requesting enhancements. Then a development team might try to brainstorm their way to new ideas.

The lead user approach instead relies upon searching out leading edge users to gather their ideas and input. The technique involves tracking down promising lead users and adapting their ideas to the business needs. In reference 2, the authors point out that, for computer systems with radical structure innovations, one-third of the innovations came from product users rather than the manufacturers that first bring them to market.

Bringing innovations to market successfully often require radical change in established organizations and processes. Companies need to provide ways for new innovations to flourish. Consider the case of Digital Equipment Corp (DEC), a highly successful company in the minicomputer business for twenty years. DEC had built its manufacturing, sales and support structure to optimize minicomputer product sales to end-users. PC makers, in contrast, had high volumes, outsourced manufacturing, and sold through retailers to consumers. IBM created a different organization for this business; DEC's organizational structure was unable to change its processes to succeed in the PC business. IBM's early success began to falter after it brought the PC business into its mainstream organization. Last year it exited the PC business, no doubt exacerbated by Dell's innovative business practices focused on direct sales to the consumer and relentless pressure on cost and concomitant price reductions.

Even when innovations are discovered and brought to the attention of product and company management, the ideas must be kept alive by discussing and using them. Turning these new ideas and concepts into real services, products, and businesses is the final challenge, particularly since such innovations require a management framework that is difficult for established companies with highly defined organizational structures. iii Companies need to rethink how they approach finding and integrating product innovations, especially since they are the fuel to drive long-term profits. If you have a dedicated six-sigma group focusing on product quality, then you surely should also aim your focus on finding and recognizing innovations.

About the Author
Raymond Kurland is President of TechniCom, Inc., a market research and analysis organization specializing in understanding, consulting, and reporting on mechanical product development software. TechniCom offers a continuing research program for software vendors and frequently consults with users considering embarking on re-evaluating their product development systems. Ray provides input for www.cad portal.com and writes commentary for that site. He is currently exploring the subjects of lean design, innovation, and how companies can profit from strategic marketing initiatives. He can be reached via email at rayk@technicom.com.

ⁱ "Creating New Market Space" by W. Chan Kim and Renee Mauborgne, Harvard Business Review on Innovation, 2001
ⁱⁱ "Creating Breakthroughs at 3M" by Hippel, Thomke, and Sonnack, Harvard Business Review, 1999
ⁱⁱⁱ "The Innovators Solution" by Clayton Christensen and Michael Raynor, Harvard Business School Press, 2003