Organizing an Innovative Company

Dec. 19, 2006
You’ve probably heard the story of the lost travelers who asked for directions and were told, “You can’t get there from here.” The challenge of innovation is perhaps best expressed that way—because new and innovative products and processes often mean reversing old management controls, changing organization structures, abandoning seemingly solid financial ratios, and completely new paradigms. Without abandoning old “maps,” you just can’t get there.
Innovation is important for survival, but most established businesses face the same challenge—overcoming innovation stiflers. Myopic managers continue to drive the annual planning process through a rear-view mirror, with budgets based on last year’s financial ratios, tweaked to produce the desired profit, and at most, making token contributions to innovation through new-project allocations. But too often, mediocre execution produces poor results, and innovation groups are quietly disbanded in cost-cutting drives to protect revenue streams from existing businesses.

Today’s global market has become so competitive that innovation is now as important as sales and marketing. U.S. companies can’t generate expected margins when they approach foreign markets against competitors that often have the advantages of lower labor costs and government subsidies. They must compete on value, through technology and innovation. And too, innovations must have a sustainable advantage, because the best ideas and technologies spread rapidly around the world and quickly become commodities. Only a consistent and predictable innovation process can enable success.

The new GE

Consider GE’s predicament. The management philosophy of previous the chief executive officer, Jack Welch, was the model for the way to do business in the 1980s. But in this new century, Welch’s wisdom is out-of-date, and his fundamental assumptions no longer apply.

At GE today, Chief Executive Officer Jeff Immelt is leading a dramatic shift in thinking, and turning GE’s culture upside down. Immelt admits to having two fears: that GE will become boring, and that the top people may act like cowards. He worries that the obsession with bottom-line results will make managers shy about taking risks. So he’s on a mission to transform the process-oriented company into a creative machine, driving growth through innovation.

In pushing his new processes, Immelt is changing many of GE’s long cherished traditions and beliefs. Reversing old promote-from-within policies, outsiders are being hired in top positions. Generating new and innovative business ideas with a quantifiable and scalable process is a priority. New projects must take GE into a new line of business, geographic area or customer base, and generate incremental growth of at least $100 million.

The demands are for development of strengths in areas that are hard to measure—creativity, strategy and customer service. Compensation is tied to more than just meeting bottom-line targets; now managers must have the ability to come up with ideas, show improved customer service, generate cash growth and boost sales. They are being asked to embrace risky ventures, many of which may fail; risking failure is a badge of honor at GE today.

In the past, innovation has been viewed as a creative process that leaps from the minds of a few imaginative people. But in today’s global business environment, innovation must be developed as a reliable, measurable process that yields consistent, positive results. Here are three keys:

l  Start at the top. The “innovation champion” must be the CEO, demanding new thinking and measurable results. Every senior manager must be committed.

l  Companywide: Innovation is a process that must involve the whole company.

l  Incentives: Implement incentives for adoption of innovative behaviors, and disincentives for lack of results.

Review your own company’s business mix; if a significant percentage does not come from new products and services, you’re not innovating.

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