The social life of ideas: From innovation to profit

The social life of ideas: From innovation to profit

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  The main challengein organizational innovation lies in its execution, and not in having more ideas. Top companies create supportive cultures that transform ideas into profitable investments. The social life of ideas: from profit innovation to
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  Contents A Kodakmoment Blind-sided by faster horses 2 3 6 8 Beyond innovation Culture means business 12Decoding innovative behaviours 14New game, new rules
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  The social lifeof ideas ©2012 Hay Group. All rights reserved 2 Despite spending some US$1.3b to develop its technology each year and owning over 7,600 patents, Kodak could not escape the death spiral. A Kodak moment January 2012. Film giant Eastman Kodak stunned the world by filing for bankruptcy protection. However, to industry analysts, this was less of a surprise as the company had been struggling for years to adapt to an increasingly digital world. So how did an innovative and resourceful company like Kodak, who, incidentally, had invented digital photography, buckle and lose its core business?
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  3 Mega bookstore chain,the Borders Group, bowed out to online bookstores. Finnish mobile phone giant, Nokia, also lost significant market share to smart phones manufacturers like Samsung and Apple, despite having launched the earliest one – remember the Nokia Communicator (Box story: The price of missing a call at Nokia, p.4)? How did these companies stumble so badly? They certainly had no lack of experienced managers or novel products and services. Contrary to popular belief, innovation is not an exceptional state of affairs, but the norm. Furthermore, innovation alone is not enough. Firstly, it needs to be disruptive so as to capture market share and gain competitive advantage. Just as Henry Ford had once remarked, “If I have listened to the customers, I will be providing them with faster horses!”. Secondly, innovation needs to survive what we call the “faster horses” mindset that is prevalent in all organizations. Companies are organised to deliver products and services to customers. Resources are channelled to deal with daily issues like meeting customers’ needs, keeping costs low and earning a decent margin. The Next Big Thing therefore needs to survive the self- preservation agenda of the existing power structures before it can even get out the door and into the hands of paying customers. Hence, a “faster horses” mentality is what crushes innovations from within. Blind-sided by faster horses Kodak is not alone in its plight. A quick flip through the newspapers will turn up a host of other giants who are faltering in the face of rapid technological advances.
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  The social lifeof ideas ©2012 Hay Group. All rights reserved 4 The price of missing a call at Nokia In the 1990s, Nokia, the mobile phone company, took the world by storm with its sleek mobile phone. Nokia’s strategy of investing in product development had paid off as it overtook Motorola to become the leading mobile phone maker in 1998. Over 40 million Nokia mobile phones were sold in that year alone. Nokia had no shortage of good ideas, supported by an enviable R&D budget, spending US$40 billion in the past ten years. This is nearly four times what Apple spent in the same period. In fact, as early as 1996, the company unveiled its first smartphone, the Nokia 9000 or the Communicator, which would email, fax and surf the web. According to Jorma Ollila who stepped down as CEO in 2006, Nokia was“about five years ahead”of the competition. Furthermore, more than seven years before Apple launched the iPhone, Nokia researchers were already working on a prototype with a large colour touch- screen with a single button. They also secretly developed a tablet computer with wireless connection and touch screen. In 2006, Nokia’s smartphone and basic-phone operations were merged. Alastair Curtis, Nokia’s chief designer from 2006 to 2009, noticed that more time was spent on office politics than doing productive work. The convoluted structure that made it impossible for the team to deliver“a coherent, consistent (end-user) experience”. Hence, its R&D efforts were scuttled by internal rivalries and operations where operations were dislocated from the R&D efforts. Instead of nurturing these ground-breaking products for market launch, the company focused its efforts on at least two abandoned operating systems (remember Meego and Symbian?) and a pile of patents worth $6 billion. The result was apparent in 2010 when Nokia’s smart-phone market share plummeted to eight per cent and its shares lost almost half their value. Currently, Nokia is undergoing large-scale downsizing. To pull itself out of its downward spiral, the company needs to look within and remove the barriers that hamper its success. 1 “Nokia loses mobile lead amid bad call on phones”, The Wall Street Journal, 20-22 July 2012. 2 “Charting the Rise of Nokia”, BBC News, 23 August, 2001 . (http://news.bbc.co.uk/2/hi/business/1505703.stm) 3 “Nokia Corporation History”, Funding universe, (http://www.fundinguniverse.com/company-histories/nokia-corporation-history/)
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  5 At the cruxis how to go about incubating, nurturing and shepherding a novel idea from drawing board to board room.“ ”
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  The social lifeof ideas ©2012 Hay Group. All rights reserved 6 Hence, it is no longer about having a strategy for generating more ideas or executing a scintillating market launch. The biggest challenge is how to ensure that innovations are not killed by the enemy within; whether it is the Old Guards saying “it’ll never sell” or employees thinking “oh, they will never listen to me.” How do organizations go about incubating, nurturing and shepherding a novel idea from drawing board to board room. We believe that it starts with getting rid of the blinders that restrict us to seeing only “faster horses”. Clearly, being innovative is not enough. Both Kodak and Nokia had capable managers to run their operations professionally. They owned patents and had large R&D budgets to fund original ideas and product innovation. Both companies had, in fact, anticipated the disruptive technology and developed prototypes years before of the competition. Their innovation was too far ahead of the market cycle and eventually fell victim to internal forces. Beyond innovation
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  7 Kodak’s competitor, Fujifilm,did just that. It was ironic that faced with the same business environment, Kodak behaved like a stereotypical, change-resistant Japanese company while Fujifilm acted like a flexible American firm. How was Fujifilm able to reinvent itself while Kodak struggled? Fujifilm also saw the digital tsunami as early as the 1980s and developed a three-pronged strategy: squeeze what they could out of the film business, move into digital segment, and develop new business lines. The changes sparked an internal power struggle, where the consumer film business fought back ferociously. Chiding the nay-sayers as “lazy” and “irresponsible”, CEO Shigetaka Komori guided Fujifilm through a painful restructuring, diversifying its businesses into imaging solutions, lenses, and even skincare. “It was a painful experience,” said Mr Komori. “But to see the situation as it was, nobody could survive. So we had to reconstruct the business model.”1 Fortunately for Mr Komori, the Japanese business culture takes a longer view of performance and has a higher tolerance for huge cash positions. As such, he was able to set the company onto its “Second Foundation” path. Hence, FujiFilm’s success lies in having a strong culture that supports the process of innovation and transformation. But how do leaders harness or even transform their culture so as to ensure their R&D investments does not disappear into a black hole? 1 “The Last Kodak Moment”, The Economist, 14th January 2012. (http://www.economist.com/node/21542796)
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  The social lifeof ideas ©2012 Hay Group. All rights reserved 8 Culture means business Representing ‘how things are done’, organizational cultures are important drivers of employee behaviour, particularly when employees must be relied upon to act on their own initiative in a way that is consistent with the company’s objectives. What is the link between culture and innovation. Louis Gertsner, former CEO of IBM, believed that “culture is everything”. For him, creating the right culture setting was the key to the successful transformation of IBM in the 1990s. In 1993, the same year Gertsner took over as IBM CEO, IBM’s mainframe was losing market share to the disruptive technology du jour – personal computers. IBM posted a US$8 billion loss with shares trading at just US$12. But Gertsner took the challenge head-on. He stripped the executives of their corporate uniform, broke up the large bureaucracy into smaller business units, transformed Big Blue’s culture to focus on customer value, and repositioned IBM as a consulting and system integration business. By the time Gertsner retired in 2002, shares climbed to US$90. IBM has also consistently topped Fortune’s World’s Most Admired Companies in the information technology industry from 2006 to 2012. Hence it makes business sense to manage organizational culture. But the task is not for the faint-of-heart. Nor does it merely involve a cosmetic sleight-of-hand. Efforts to change organizational culture often face three significant obstacles. Firstly, culture is challenging as it is intangible. Secondly, changing the behaviour of one person is a hard enough task; imagine having to create a consistent set of new behaviours throughout an entire organization. Finally, people resist change – the culture snaps back to old habits if initial changes are not sustained. Traditionally, executives look to their HR department and their tools – from reward to training – for help. But even experienced HR professionals get frustrated. The reason lies in the fact that the success of culture transformation does not depend on the number of tools used, but rather how deeply the efforts penetrate.
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  9 This begs thequestion: what aspects of our company’s culture block our efforts of developing an environment that is conducive for innovation? If we can identify them, then we have starting point for transformation. The stumbling blocks could be legacy (e.g. Kodak and film), success (e.g. “our phones are selling very well; why do we need to sell smartphones?”) or structure (e.g. no link between research and marketing). Which brings us to the question, how do we achieve any lasting change? We believe that companies need to bring back their symbols and stories into general circulation. Some powerful examples from our Cultural Transformation Framework (Figure 1, p.11) include: •  Stories like “the CEO stayed at a crummy $100-a-night hotel in New York to save money during the global financial crisis” •  Actions like Haier’s CEO who pulled defective refrigerators off assembly lines and taking a sledgehammer to them in front of employees to demonstrate the importance of quality •  Artefacts like Google’s company statement, which starts with “Google is not a conventional company, and we don’t intend to become one” •  Aspirations like Infosys, who believe that building tomorrow’s enterprise will require “continuous innovation” and “continuous learning” Making lasting change
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  The social lifeof ideas ©2012 Hay Group. All rights reserved 10 Furthermore, to make the changes stick, leaders have to actively promote the desired culture and behaviours. Otherwise, as we all have experienced, a default and often apathetic one (e.g. “don’t rock the boat”) would grow to take its place. Accidental organizational cultures can be hazardous to a company’s health! Different, even opposing, values are not uncommon especially in complex, global organizations. Hence we believe that a powerful place to start is by asking, “What are the stories and symbols that will encourage, and not kill, innovative ideas?” Once we have ascertained our symbols, we can start fostering and encouraging the kinds of behaviours that enforces the spirit of innovation from within.
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  11 Figure 1: HayGroup’s Cultural transformation framework Inspiration, history, purpose, mental models of founders and leaders Dominant individuals and leaders’motives and values Relationships and networks Dominant country environment Shared purpose and values Organizational messeges and reinforcements Actions and behaviours Short and long term engagement and results Guided by Aspiration Strategy and goals Leaders’posture and role modelling Organization structure design Management systems Brand Symbols and artifacts Driven by Leaders’ behaviors Employees’engagement and behaviors Delivered by The key is to identify and focus on the relevant catalysts for cultural change
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  The social lifeof ideas ©2012 Hay Group. All rights reserved 12 Hay Group’s Best Companies of Leadership 2011 study shows a significant gap between top and average companies in their innovation practices (Figure 2). Furthermore, even though employees spend much time discussing customers’ future needs – a necessary premise for innovation – not enough is being done in terms of commitment and resources to turn good ideas successfully into profitable business. For instance, many organizations in Asia do not put their money where their mouths are; instead they prioritise short-term profits over innovation. Figure 2: Decoding behaviours that promote innovation Decoding innovative behaviours Having the right culture means having a corresponding set of behaviours. What are these behaviours and what do they look like in action? Asia Top 10 Rest of Asia Global Top 20 61% 47% 94% 71% 53% 65% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% My company runs unprofitable projects to try new things My company is willing to postpone short term profits in order to invest in innovation In my company, negative feedback and performance difficulties are treated as opportunities to learn and grow 77% 56% 95% 81% 56% 90% Employees spend much time discussing customers future needs Source: Hay Group Best Companies for leadership 2011
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  13 By way ofexplaining Figure 2, let us look at Google. At Google, the hierarchy is kept deliberately flat. A relaxed and inclusive work environment is created to provide the time and space for employees to mingle and exchange their ideas freely. Professional pride ensures ideas are thought through before they make their circuit within the company. Good ideas are quickly put to trial. Those that failed to make the mark, like Google’s mobile phone, Nexus One, and Google Wave, a web application for real-time communication and collaboration, are decisively shelved after careful evaluation. All these experimentations are carried out in a psychologically safety environment that greatly empowers and energises the employees to think about what their users will need in the future. It has enabled Google to launch great ideas continually, like the highly successful Google Map and Street View. When it comes to jumping through hoops, Google has a relatively high tolerance for mistakes, viewing it as a necessary condition of innovation. When asked how the company knew they were being innovative enough, a Google senior staffer told us, “we get worried when we don’t make enough mistakes.” Certainly this attitude is not for every company but it illustrates the importance of the culture and mindset for innovation to thrive.
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  The social lifeof ideas ©2012 Hay Group. All rights reserved 14 New game, new rules Companies need innovation to survive. In fact, there is no shortage of clever people and smart ideas. Hence the competitive edge comes from having the best execution – from the time the idea is first identified, shepherded through the corporate maze, and into the hands of the paying customer. And yet, in many companies, the chase for short-term profitability can become the Achilles heel of long-term business sustainability. The way to avoid this is to have a deep-rooted culture that promotes innovation and new ideas to filter up and sideways. While many top executives admit that culture change is needed, they are often stuck with where to start. We recommend that leaders start with thinking of transformation as a journey. And the journey is not as difficult as it looks. Executives can start by listening to the stories
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  15 that are beingtold within the company and the symbols and heros that are being upheld. Are they in line with the desired culture of supporting innovation? If yes, then continue to propagate them widely and loudly. However, if the stories not congruent, then new ones will need to be found or even made. In this way, employees will know the new game rules to play by. A working environment that promotes, rather than stifles, innovation is within reach of all companies. But only when it is effectively executed will companies reap the reward of their R&D investments.
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  The social lifeof ideas ©2012 Hay Group. All rights reserved 16 Authors Andreas Raharso, Ph.D Director Global R&D Centre for strategy execution, Hay Group E| [email protected] Ms Agnes Long Research Associate E| [email protected] Global R&D centre for strategy execution Hay Group 10 Hoe Chiang Road #04-03/05 Keppel Towers Singapore 089315 W| www.haygroup.com/sg/globalrdcentre Disclaimer: The content in this report is provided solely for informational purposes. This report does not establish any client, advisory, fiduciary or professional relationship between Hay Group and you. Neither Hay Group nor any other person is, in connection with this report, engaged in rendering accounting, advisory, auditing, consulting, legal, tax or other professional services or advice. About Hay Group’s global R&D centre for strategy execution Hay Group’s global R&D centre for strategy execution researches best practices in strategy execution globally. Based in Singapore, the centre provides a unique East-West perspective for business leaders all over the world. Our research helps provide insightful advice to executives looking to build effective organizations for the future. More information can be found on www.haygroup.com/sg/ globalrdcentre. The ideas in this paper were first presented at the Strategic Management Society’s Special Conference held in Singapore (7 – 9 June 2012). The theme of this year’s special conference was “Innovation: Novel moves for a global game”.
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  Africa Cape Town Johannesburg Pretoria Asia Bangkok Beijing Hong Kong HoChi Minh City Jakarta Kuala Lumpur Mumbai New Delhi Seoul Shanghai Shenzhen Singapore Tokyo Europe Athens Barcelona Berlin Bilbao Birmingham Bratislava Bristol Brussels Bucharest Budapest Dublin Hay Group is a global management consulting firm that works with leaders to transform strategy into reality. We develop talent, organize people to be more effective and motivate them to perform at their best. Our focus is on making change hap- pen and helping people and organizations realize their potential. We have over 2600 employees working in 86 offices in 48 countries. Our clients are from the private, public and not-for-profit sectors, across every major industry. For more information please contact your local office through www.haygroup.com. Frankfurt Glasgow Helsinki Istanbul Kiev Lille Lisbon London Madrid Manchester Milan Moscow Oslo Paris Prague Rome Stockholm Strasbourg Vienna Vilnius Warsaw Zeist Zurich Middle East Dubai Tel Aviv North America Atlanta Boston Calgary Charlotte Chicago Dallas Edmonton Halifax Kansas City Los Angeles Mexico City Montreal New York Metro Ottawa Philadelphia Regina San Francisco San José (CR) Toronto Vancouver Washington DC Metro Pacific Auckland Brisbane Canberra Melbourne Perth Sydney Wellington South America Bogotá Buenos Aires Caracas Name|versionx|01Month08|Country Lima Santiago São Paulo