Managing Innovation Program in Large Organisations

Asoke Das Sarma,

Vice President – Transformation

TCS Business Process Services

Abstract: A study conducted by reputed French Business School Insead revealed that only 14% of

the product launches are innovative in nature but they account for 56% of revenues and 86% of

profits. Clearly, Innovation is the lifeblood for any organisation looking for profitable growth.

Still, most companies focus solely on running their “performance engine“(i.e. optimising the current

products and services) and demonstrate little commitment to innovation. Some companies, who

invest in Innovation program also falter in many occasions and produce suboptimal results. The

reasons are either they are under the impression that driving large scale innovation needs big

investment or they fail to manage innovation as a program following the principles of project

management.

While fostering innovation is an ongoing activity in an organisation and is not technically a project with

clear start and end dates– but the fundamentals of project management are relevant to manage the

complex project of driving and sustaining innovation culture in an organisation. In this paper, the

author outlines that how the phases of project management i.e. Initiation, planning, execution, monitor

and control and closing can be used to successfully manage Innovation program in a company. With

practical examples drawn from successful organisations, the paper discusses how the innovation

culture can be fostered among the rank and file employees in the organisation, what metrics to

measure and control and most importantly how to bring the program back in track when the initial

enthusiasm subsides and the project loses steam.

Keywords: Innovation, Project Management, Service Innovation,

1.0 Introduction: What is Innovation?

Innovation, simply put, is the successful commercialization of a new idea. The idea could result is a

new product / service or it could be about how to produce / market / distribute the product / service

faster, cheaper or better. Thus broadly the Innovation can be of two types:

(a) Product / service Innovation – this brings new product / service in the marketplace for

consumption. Examples of this type of Innovation are Apple’s iPod /Sony’s Walkman (both

are brilliant product Innovations) or ‘No frill low cost Airline services’ by Southwest Airlines (a

service Innovation). Automated Teller Machines (ATM) is a good example of Innovative

solution which embodies perfect amalgamation of product and service innovation.

(b) Value Chain Innovation – this improves the value chain efficiency by modifying and

improving the components of value chain architecture. A value chain is a chain of activities

that a firm, operating in a specific industry, performs in order to deliver a product or service to

the market. The concept was popularized by Michael Porter in his 1985 best-seller,

Competitive Advantage: Creating and Sustaining Superior Performance.1

A Value chain consist of a set of primary activities (Inbound logistics, Operation , Outbound Logistics,

Marketing & Sales, Service) and four

support activities viz. Infrastructure ,

Human Resource Management ,

Technology and Procurement. All these

activities together enable a firm to produce

and market goods and services and thus

innovations in any of these activities will

improve the productivity of producing and

marketing the goods and services.

Examples of value chain Innovation are

using robots to improve productivity of

automobile car assesmbly or using

offshore low cost location delivery model

for delivery of Application Development &

Maintenance

Fig 1.0 : Porter’s Value Chain

(ADM) in software services industry.

Many practitioners come up with various other classifications of innovations such as marketing

innovation, business model innovation, supply side innovation, etc. but since all of these improve

some part of the value chain – in essence, they are value chain innovation.

Another school of thought is to classify the types of innvoation in terms of the nature of change and

impact. The advocates of this approach talk about two tyes of innovation – (a) incremental (b) radical

or strategic. As per them, adding a feature or two in an existing product (e.g., touch screen facility in

blackberry smart phone) or making minor improvements in a production process (say introducing

cellular cell concept instead of arranging the machines in a straight line) are examples of incremental

innovation. On the other hand, radical innovations means disruptive change leading to very high

impact such as introduction of iPhone by Apple (an example of product innovation) or invention of

Assembly line production process by Ford Motor Company (an example of process innovation).

While it is good to track the impact of innovation, unless the impact is significant, it should be

categorised as “incremental / continuous improvement” and not “innovation”.

2.0 Why Should Organizations focus on Innovation and why they don’t?

MyFab is a French furniture manufacturer that has revolutionised the furniture industry by a simple

innovative concept. Instead of building large inventories of furniture as per contemporary design as is

the normal practice in this industry, MyFab uploads a catalogue of potential design in the internet,

asks customers to vote and then produce the most popular ones. It accepts orders on the internet and

ships furniture directly to customers. The social and engagement aspects of voting make the

customers feel important and attract them to the website – the low price that MyFab can offer, thanks

to its simplified supply chain and low inventory, make them buy. As a result, through this simple

innovation, MyFab which started only 5 years back, grew manifold and now sells products in four

countries including United States.3

A study conducted by reputed French Business School Insead almost a decade back4 revealed that in

a year, only 14% of the product launches include innovation but they account for 56% of revenue and

86% of the profit. Clearly, innovation is the only silver bullet for organizations looking for profitable

growth. Louise Gerstner, former CEO of IBM, puts it in this way “In almost every industry,

globalization is leading to overcapacity, which is leading to commoditization and/or price deflation.

Success, therefore, will go to the fittest – not necessarily to the biggest. Innovation in process – how

things get done in an enterprise – will be as important as innovation in the products – a company

sells.” 5

Besides from macroeconomic point of view, the ‘for–profit’ organisations can add value to society in

two ways and both of these involve innovations6:

1. The companies can improve productivity of existing work processes and thus enable

production of more good and services using less and less resources ( both human effort and

other natural resources). The human society as a whole cannot consume more than it

produces. Thus higher the productivity (i.e. production per person per day), the more is the

consumption potential and likely increase in human living standards.

2. The companies invent and popularise new products and services that meet previously

unfulfilled needs. Thus product innovations such as railroads to aircrafts, from telephone to

cellular phones or coronary bypass surgery to non-invasive laparoscopic treatments helps to

revolutionize human lifestyles.

Thus organizations need to focus on innovation both from benevolent and selfish point of view. The

former is needed for improving the life style and living standards of the society while the latter is

needed just for their survival.

In spite of this, there are handful of organisations which are truly innovative. There are hundreds of

computer hardware and software companies for every Apple and there are hundreds of consumer

product companies for every P&G. But why?

Some time back, a leading consultant firm commissioned a survey to find answer to this question and

covered 500+ senior and middle managers in large US companies to identify the biggest barrier to

innovation. Most of the response were “short term focus of the management” and “lack of time and

resources for the company” .7. In this view, innovation is highly dependent on investment and senior

management’s presumed obsession with near term earnings limits a company’s innovation

productivity. But this assumption is flawed – it is possible to drive significant innovation without

massive investments and we will discuss how to do that in this article.

3.0 How to drive and manage innovation Program in large organization?

There is an inherent inertia in workgroups and organizations not to go for radical innovation – both for

product and process innovations alike. Pursuing innovation is inherently risky and it makes much

more sense for successful companies to spend time in enhancing the existing “cash cow’ products or

services or tweak and improve already proven works processes and business models than to venture

into the uncharted territory of innovation.

In addition, the larger the organization grows in size, it tends to become more bureaucratic in nature

with its associated rules and regulations that govern it employee behaviours and work practices.

While this may be necessary to manage the organization and optimises it performance – it surely

hinders employee creativity and innovation. Without innovation, a successful organisation of today

cannot guarantee its success tomorrow. While optimisation can ensure today’s revenue and profit,

only cutting edge innovation can guarantee tomorrow’s revenue and profit. The very successful and

profitable buggy whip manufactures witnessed their revenue streams vanished in the course of a

decade as automobiles gained popularity in the United States in the first decade of last century7.

So what does a large company need to do to remain innovative while simultaneously maintaining

consistent focus in preserving the current cash flow by managing today’s business profitably? To

manage this fine balance of working for the future while protecting the present, an organisation needs

to adopt the project management approach to manage Innovation program. The five phase of project

management are initiation, planning, execution, monitoring and control and closing. A deployment

wave / cycle in an on-going innovation program in a company can be aligned to these five phases as

indicated below.

3.1 Initiation Phase:

In many organisation, the Innovation process starts with idea collection drive. The management thinks

that the first step of the process is to collect ideas from individual employees. So the organisation

unleashes creativity among its employees and put the “suggestion scheme” on steroids for few days/

weeks or months. The implicit assumption is that in an idea collection exercise, the more the merrier

and creativity of the employees is the recipe for innovation. Unfortunately, both the assumptions are

wrong.

Creativity is coming up with new ideas and innovation is the art of delighting the customers using

these ideas and thus making money (for a for profit organisation) from them. So creativity, albeit the

starting point of Innovation, may not necessary lead to ground breaking or even useful innovation.

Besides, the more is always not merrier or useful when it comes to idea generation exercise. A

company looking for innovation, in product or in the processes, will be better off with a rather smaller

set of useful, relevant and implementable ideas than a larger number of unrelated ideas, however

brilliant they might be.

So how does an organisation generate useful and relevant ideas from its employees? The answer lies

in defining the strategic objectives of the organisation, link its innovation effort to its strategic

objectives and communicate this linkage clearly and widely to the employees of the organisation.

The leading organizations like 3M, Whirlpool, Google and IBM take special effort to align their Innovation strategy with the business strategy and ensure that any idea generation exercise focus on generating ideas aligned to their business strategy. IBM uses Innovation Jam

TM Method to capture the

ideas from his employees, partners and others. Since 2001, IBM has used jams to involve its more than 300,000 employees around the world in far-reaching exploration and problem-solving During IBM's 2006 Innovation Jam

TM - the largest IBM online brainstorming session ever held - IBM brought

together more than 150,000 people from 104 countries and 67 companies. But before launching the Jam exercise, IBM senior management and innovation team identified few key themes around which the ideas was sought. As a result, many of the ideas given by the participants are relevant to IBM’s strategic directions and the company could launch 10 new IBM businesses were with seed investment totalling $100 million

7.

3.2 Planning:

Planning phase is extremely critical in the Innovation Program of an organization. Typically an end to

end Innovation cycle includes the following phases:

i. Idea Generation

ii. Idea Assessment and Prioritization

iii. Feasibility test and Concept Development

iv. Launch and Commercialization

The above four stages are iterative in nature and multiple cycles / waves may run in parallel in

different divisions and geographies in a large organisation. But for a particular unit, the four phases

must be clearly defined in terms of time line although the last phase, (i.e. commercialization) may get

extended depending on the product / services in scope.

3.2.1 Idea Generation

In this phase, the organization must decide who all to include in the Idea Generation exercise. While

traditionally, only the employees of the company were typically employed in idea generation,

companies are increasingly realising the value of including a larger ecosystem in the idea generation

exercise. One example of this shift is P & G , whose CEO Alan Laffley insisted ( in 2002) that 50% of

P & G’s new product ideas must come from outsiders, This was a sharp departure from P & G’s prior

practices which had been deeply insular and mistrusting of the outside world.8

Thanks to the powerful new capabilities that internet provides for online collaboration , a broad range

of companies including Lego, Electrolux , Shell, Dell , BMW , Kraft etc., have set up on line data

gathering systems that invite people to share their ideas ( which may include new product

suggestions and business concepts) over internet. A survey done by Bearing Point – the reputed

business consultancy firm revealed that business partners and customers are the most significant

source of innovation ideas after internal employees and they provide more and better ideas as

compared to internal sales or internal R & D functions of an organisation. 9

3.2.2 Idea Assessment and Prioritization

In this phase, the organisation must also decide the idea assessment methodology and filtration

criteria. It is important to acknowledge every idea but it is more important to decide which one to kill

and which want to sponsor. For this, the idea selection board needs a set of criteria – which should be

used along with their gut feel to shortlist the smaller set promising ideas from the larger laundry list.

The two criteria that are normally used for this filtering are (a) potential – which is expressed as NPV

of estimated future revenue net of cost or NPV of future cost savings and (b) ease of realisation –

which are measured using multiple criteria such as investment required , lead time , requirement of

change management etc. However, it is important to address another criteria as a toll gate during the

screening, i.e. alignment to organisation’s strategy. Any idea which is not fitting to the overall broad

organisation’s strategy should not be pursued, however attractive it might appear on the surface.

3.2.3 Concept Development and Feasibility test

Once the ideas have been shortlisted, the actual task of concept development begins. The

organisation must have a meticulous plan for concept development and feasibility test as this phase is

the heart of any innovation life cycle. The plan must provision for resources, identify teams, list out the

support required and expected time lines. The plan must also detail the pilot implementation plan and

the criteria to determine if the pilot is successful or not.

3.2.4 Launch and Commercialization

Only a handful of projects will go the final phase of launch and commercialization. The launch phases for an innovative product / service is very important as many an otherwise brilliant product may fail due to insufficient planning and inept handling of launch process. Typically, the following steps must be planned in detail for the launch process

10:

1. Launch Plan Development

2. PR/Communications Planning

3. Campaign/Promotions Planning

4. Distribution Planning/Channel Management:

5. PR/Communications/Promotions Execution:

6. Evaluation and Tracking of new product / service performance

3.3 Execution

Needless to say that execution is the most important phase in the innovation life cycle. This phase makes the difference between leaders and laggards in the organization. Sometime back, a survey was conducted in the United States where senior managers of medium to large organisations were asked to rate themselves in their innovation effort and success. Each manager was asked to rate their organisation’s performance in a ten point scale (1 being lowest and 10 being highest) on two parameters (a) ability to generate breakthrough ideas and (b) breakthrough execution. The result was revealing albeit not altogether unexpected. The average score on the first parameter i.e. performance on breakthrough ideas was 6 while the average score on breakthrough innovation was as low as 1

11 .This shows the importance of execution in the Innovation Life Cycle.

In order to ensure superior execution, the organizations must create three distinct roles in the innovation ecosystem. They are: (a) innovation genius (b) innovation facilitators and (c) innovation sponsors. These three roles have distinct responsibilities in the innovation process and only when they work in unison, breakthrough innovation happens. The innovation genius are the employees who generate breakthrough ideas and take up projects to convert these ideas into useful product and services. The facilitators are managers who are passionate about innovation, and searches for useful ideas and innovative employees across the organization and then guides / mentors those employees to make successful products and services. The innovation sponsors are senior leaders who will release resources and commit investments on the projects which converts the raw ideas to winning products and services.

In addition, every organization must adhere to three fundamental rules for successful execution as

outlined below:

3.3.1 Have separate team(s) for managing innovation project

Many a time, companies make the common mistake to let the existing BAU (Business As usual)

management team to own the innovation project. They expect that the existing operations manager

spend as much time perfecting the production process of the new product as they spend in producing

the current cash cow or Sales people will spend as much energy to sell the new product as they

spend in promoting existing product. This approach is a sure shot recipe for failure.

The existing operation manager is expected to focus more on the current product which is the main source of existing revenue and will only spend time on the new product only after the needs of existing product is adequately addressed. Similarly, the sales people will naturally spend more time in promoting existing products as they are easier to sell. So the only option is to form a separate team to look into the project of converting the new idea to a successful commercial product or service. However, this team needs to have a good working relationship with the existing BAU team so that it can leverage the assets, customer relationships and core competencies from the BAU team.

11

3.3.2 Leverage Ignorance Management more than knowledge management

Knowledge management (KM), as per Wikipedia, comprises a range of strategies and practices

used in an organization to identify, create, represent, distribute, and enable adoption of insights and

experiences. Technology, especially internet technologies are used to efficiently capture and

distribute Knowledge among the employees of the organization.

While KM, is very relevant and useful to optimise performance of existing processes or incrementally

improve existing product and services, they are hardly effective and useful to bring in disruptive

changes in the system. The organisations, driving innovation, must realise this and should focus on

leveraging what some pundits call as “Ignorance Management”. Ignorance Management has been

described by John Israilidis, Russell Lock, and Louise Cooke of Loughborough University as: “ s a

process of discovering, exploring, and realising, recognising and managing ignorance outside and

inside the organisation through an appropriate management process to meet current and future

demands, design better policy and modify actions in order to achieve organisational objectives and

sustain competitive advantage."

In a nutshell, it is important for the organisations to realise that adoption of best practice cannot result

in Breakthrough Innovation – they need to look out for “Next Practices”. To do that, the innovation

teams must practice the art of selective forgetting. As per Vijay Govindarajan of Tuck Business

School, the teams dedicated for Innovation must forget to look at the existing customers, current

value proposition, and the end to end value chain architecture.11

3.3.3 Have tolerance for failure in the execution cycle

“Innovation is generally an untidy process,” says Gary Pint, retired Sr. VP of 3M, worlds one of the

most innovative companies.” A majority of new ideas fail, but people shouldn’t fear for their jobs when that happens. We estimate that 61percent of our formal, new product programs never make it, when this happens, the important thing is not to punish the people involved.”

12

Little wonder that 3M is one of the most innovative companies in the world. The moot point is that just like one must kiss a lot of frogs to get the prince, the companies must do lot of trial and error to strike the blockbuster innovation. So, failure is part of the process and organizations must create ample cushion to absorb such failures. In fact, truly innovative organisations encourage failures (they call it fail faster) and not censure it so that the lessons from these failures can be quickly learnt and leveraged in the subsequent innovation cycle. For example, in Tata Innovista, the annual contest for innovation in the 80 billion US$ Tata Group, the chairman facilitates the failed promising projects and awards them under the category “Dare to try”.

13 3.4 Monitoring & Control Many a time, the organizations start Innovation initiative with lot of fanfare, as it is fashionable to pursue innovation, but the organisational enthusiasm on Innovation comes down rapidly as the program fails to achieve quick results. Also management starts to doubt efficacy of the program and such management vacillations directly affect the employee morale. To address this, it is important to develop a list of critical measure and track them month on month basis during the lifetime of innovation program. (The duration of the program should not be finite but deployment should be done in multiple waves with each wave having finite duration). The common metrics to track in different phases are indicated below: Idea Generation Number of ideas per 1000 employees % of ideas aligned to strategic themes (as a % of total ideas) Participant’s satisfaction index % drop / increase of ideas as compared to last half year / cycle Idea Assessment High potential ideas as a % of total ideas And prioritization. Feasible ideas as a % of total ideas % increase/ drop in high potential / feasible ideas Ratio of product ideas to process improvement related ideas Concept Development Investment required for concept development & feasibility test Duration for concept development ROI / potential revenue from the developed concepts % success in feasibility test Launch & Time take to reach X (say 100) m US$ of sales Commercialization Time taken taken to garner x % of market share Margin of the new product as compared to existing product Customer Feedback on the new product (qualitative)

The above list of metrics are illustrative and not exhaustive. In his book, “the Innovation Master Plan”, Langdon Morris, the co-founder and partner in InnovationLabs LLC, a leading innovation consultancy firm, outlines 92 metrics that can be used to measure the Innovation program

8. Of course, 92 is a very

large number – no organization can use so many metrics to measure the performance of any program (the data collection effort will be too high and also interpretation will take too much time). Besides the the metrics which are important for one organisation may not be relevant for another. So the program manager must identify some 10-15 metrics through which the program health can be judged and corrective action taken when the performance is slipping 3.5 Closing an wave of Innovation program Like perfection, the goal to be a more innovative organization is a never ending journey with no finish line. But while Innovation program is an on-going initiative, the actual deployment in an organisation is best done by running multiple waves with clear start and end date with typical duration varying between 9 to 18 months. So each wave must be closed following the best practices of project management methodology and documenting the lessons learnt. This experience must be re-used to design and execute the next wave. It is also important to celebrate success (and smart failures) so that the rank and file employees are motivated to take up innovative projects in the next wave of implementation. 4.0 Conclusion: Many companies emphasize on recruiting bright and highly qualified fresher from prestigious business and engineering schools with the hope that these employees can make the company truly innovative. Others go for experienced professional with successful track record on innovation and think that on-boarding these “heroes” will unleash innovative spirit in the company. Both are equally wrong. While some individuals may be more innovative than others, their individual brilliance is grossly inadequate to fight and win against the organisational inertia to maintain status quo. This is especially true in a large organization. Besides, when the employee strength crosses the threshold of 1000, the statistical law of large numbers starts to catch up and the majority of employees tends to be ‘mediocre’ or ‘ordinary’ and not truly innovative. So to make a company truly innovative, the company management must work on building the processes and propagating the values which foster innovation

14. In this article, I have mainly

discussed the processes (which is the way of doing things) that helps in making an organization innovative. I have also linked the processes to the five stages of project management and discussed the key points in each phase which will help to make a large organization truly innovative. However, the organizational values which encourages innovation are equally important to create an environment that is conducive to innovation. Only when the values are aligned and processes are seamless, a large organization can bring in disruptive innovation in products / processes that will ultimately enrich the human society and ensure sustainable development.

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References:

1. Michael E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance, The

Free Press, New York, 1985

2. Thomas McGraw , Prophet of innovation: Joseph Schumpeter and Creative destruction,

President & Fellows of Harvard College, USA , 2007

3. Karan Girotra and Serguei Netessine. “ How to Build Risk into Your Business Model” , HBR, May

2011

4. W. Chan Kim and Renée Mauborgne, Insead Innovation Program lectures , 2004

5. Louis V Gerstner. Who Says Elephants Can’t Dance. Harper Business , 2002

6. Vijay Govindarajan, Chris Trimble , 10 Rules for Strategic Innovators, Harvard Business School

Press, USA, 2005

7. http://www-03.ibm.com/ibm/history/ibm100/us/en/icons/innovationjam

8. Langdon Morris, The innovation Master Plan, Innovation Academy, 2011

9. Bearing point webinar on “ Innovating Innovation” by Charles De Monchy , Partner , Business

Innovation

10. SCHNEIDER/BOSTON UNIVERSITY-NEW PRODUCT LAUNCH REPORT, 2001

11. Vijay Govindarajan, Chris Trimble , Reverse Innovation, Harvard Business School Press, USA,

2012

12. http://www-03.ibm.com/ibm/history/ibm100/us/en/icons/innovationjam

13. A Century of Innovation, the 3M Story

14. Google search on “ Tata Innovista”

15. The Innovator’s Dilemma, Clayton M. Christensen.

About the Author:

Asoke Das Sarma

Asoke Das Sarma is the Vice President of Business of Process Transformation function in TCS BPS

Operations. In a career spanning more than 2 decades , he has worked in the multiple functions

such as operations , sales, marketing , corporate strategy , quality and consulting across multiple

industries such as construction , machine tools , metals , software development and BPO. Before

joining TCS, he has worked in Larsen & Toubro, Sandvik Asia, Tata Steel and IBM Global Services.

Asoke is an engineering graduated from Jadavpur University and holds a post graduate diploma in

Business Management from Indian Institute of Management, Calcutta. He is a certified Six Sigma

Black Belt (from ASQ, USA) and a certified Project Management Professional (PMP) from PMI, USA.

Asoke has published several articles in various management journals and is a frequent speaker in

Nasscom, IITs and various management and engineering schools. His first book titled “: Lean

Principles and Applications in BPO” is due to get published in July, 2013.