Sustainable Innovation

John O’Hara, General Manager of the Enterprise & Partner Group at Microsoft, on what it means to be an ‘innovative business’.

Large businesses are under continual pressure to be more innovative. Innovation, we are told, generates competitive advantage, ensures companies remain at the cutting edge of product design and customer service and ensures they hire the best, most creative people in the market. But what really is innovation for most large businesses?

Firstly, innovation is often mistaken for invention. When people talk about innovation they often think about lab technicians in white coats and massive R&D budgets. On a business level, innovation is also assumed to mean companies developing brand new, cutting edge product lines or companies going through wholesale changes to their business models – for example, GEC’s move from defense to IT and telecoms under its new name Marconi in the late 1990s was seen as very ‘innovative’ at the time. But while investing heavily in R&D, adopting expensive and complicated technologies and moving into new markets may well be seen as innovative approaches to business, they are also inherently risky.

For many large businesses, real innovation is more likely to be about making day-to-day improvements in how the business operates in terms of people and process. And this in itself helps promote a culture of greater innovation within the business rather than enforcing innovation through paradigm shifts in product and service.

Recent research from the Centre for Innovation Through IT, conducted by consultancy Knowledge Partners, highlights the point that innovation can only occur within businesses if the structure of the business and the creative talent within it is organized to promote collaboration between staff and knowledge sharing. “The impact of organizational culture on innovation cannot be overstated. Strong leadership that develops a culture supporting innovation is pivotal. An environment that encourages communications and knowledge sharing across organizational boundaries is vital,” the report says.

But fostering a culture of collaboration is not always easy. The world’s biggest companies (or ‘enterprises’ to use the IT industry terminology) are, by their very nature, large. This creates a set of common problems where growth – both organic and through merger and acquisitions – creates complicated communication lines, multiplicity of IT systems and bureaucracy in decision-making across teams and geographies.

Smaller companies don’t have this problem, and where enterprises often lose out in business is where more streamlined competitors react to changing customer requirements and new business opportunities faster that enterprises’ complicated communications lines will allow.

IT, in many cases has been the problem in hampering enterprise innovation. The implementation of large-scale, expensive systems may once have been appropriate for an enterprises needs, but as time moves on and the company grows, these systems can become unwieldy, out of date, expensive to maintain and unfit for purpose in a changing business market. Just ask anyone who has had to deal with a global ERP implementation that has run out of control.

As one contributor to the CIIT report says: “IT has always been about the creation of business value… creating business value is increasingly important because in may ways we’ve been pouring concrete around the processes of our corporation through the use of IT.” This concrete is the lack of flexibility within organizations to adapt more dynamically to changing market conditions, consumer preference and business opportunities.

If you excuse the analogy, a parallel in fiction that illustrates this point can be found in Mario Puzo’s The Godfather where the Tattaglia family, hampered by its own bureaucratic system of communication, fails to react quickly enough to an opportunity to catch Sonny Corleone out in the open: “The Tattaglia Family had not streamlined itself for war; its contact still had to go all the way through the insulation layers before he finally got to the caporegime who contacted the Tattaglia chief. By that time, Sonny Corleone was safely back in the mall.”

So what have New York gangsters got to do with innovation? Well, businesses are also fighting a war – where battle lines are drawn up with sustaining innovation on one side and disruptive innovation on the other. Sustaining innovation, as cited by the CIIT report, is where companies invest in R&D to create new products or services that are better quality than what is currently in the market place. Disruptive innovation, on the other hand, brings cheaper, simpler and arguably inferior products and services to the market more quickly. Enterprises tend to have more money, more customers and higher standards to maintain, thus sustainable innovation is often brought to market by these companies. But this approach to innovation can be undermined by disruptive innovation of smaller, more agile competitors who have reacted faster to business opportunities, simplified their communications lines, shared knowledge effectively, promoted a culture of creativity and encouraged empowered teams to take independent action to secure the business win.

Regardless of the industry in which you work, the key to successful innovation and its transformation to business value, remains the same – your people. Their ability to successfully innovate on a business’s behalf is directly linked to a company’s organizational structure. Industry leaders promote a culture of openness and employee autonomy in which team work groups, information sharing and the cross-fertilization of ideas are a must, but perhaps most importantly, they actively promote a tolerance for trial and error and accept the risks when trialing new ideas and systems. Technology is then implemented to promote a culture where people are encouraged to be innovative in their jobs rather than stifling creativity and create barriers to user adoption rates by imposing large-scale, process-centric technologies designed at cutting costs and little else.

Large businesses should take a good look at their existing products, services and process and the technology that supports it and ask themselves some simple questions. Is our business geared around our people, do we allow our employees to express their creative ideas to promote innovation within our business, do we know who our talented employees are and how can we implement technology that fosters greater knowledge sharing and collaboration to make us more agile?

Large companies do not need to be disruptive to be innovative; they just need to empower their people through strategic use of technology to be more innovative in their day-to-day jobs. In the end, it is sustained innovation that offers large companies a greater chance of creating sustainable customer satisfaction and competitive advantage than pursuing the disruptive tactics of their smaller competitors.