Finding the Essence of Innovation

By Samuel Greengard  |  Posted 06-29-2009

Finding the Essence of Innovation

Amid a dizzying array of management philosophies\ and business strategies, one thing stands out in the daily scramble to create viable products and services: Above all, success centers on a company's ability to innovate.

Equifax CIO Robert Webb understands the concept well. "The ability to transform ideas into viable policies, practices and programs is what ultimately leads to a competitive advantage and generates profitable growth," he says.

At Equifax, innovation falls between science and religion. In recent years, the $1.9 billion credit reporting behemoth has established itself as an industry leader with an array of products and services. The company has built a formal system for developing and incubating ideas, introduced a process that encourages experimentation, and constructed a pipeline for transforming promising ideas into actual business and IT initiatives. "We view innovation as the engine that drives our existence," Webb explains.

Lofty words. Nevertheless, Webb and many other CIOs understand that innovation is a tricky and elusive concept. Great ideas inexplicably flounder, mundane ideas flourish, and there's no simple and consistent way to understand what works. Further adding to the challenge: IT continues to evolve and change at a mind-bending pace--and IT departments must serve a dual role of helping solve business challenges but also facilitating incremental process improvements through hardware, software and systems.

At the eye of the storm, perhaps only one thing is clear: IT innovation isn't a destination, it's an ongoing journey. A 2007 Boston Consulting Group study found that 46 percent of senior executives from 2,468 firms were dissatisfied with the results and return on investment from innovation initiatives.

The upshot? "Ultimately, it's great to be creative and inventive," says Scott Anthony, author of The Silver Lining: An Innovation Playbook for Uncertain Times and president of Innosight, a consulting firm that focuses on innovation. "But unless an organization can transform ideas and concepts into something that has a material impact, the ideas really don't matter."

How do successful organizations and CIOs grapple with innovation? How do ideas evolve into business and IT improvements that lead to bottom-line gains? And how can an enterprise move past the hype and put innovation to work?

There are no easy answers. As Andrew McAfee, associate professor at Harvard Business School and author of the forthcoming book Enterprise 2.0, observes: "You have to fully understand the business drivers in order to plug in the right IT systems and build a foundation for innovation."

Rethinking Thinking

Rethinking Thinking

One thing that makes innovation so difficult is that there's no simple template for achieving it. Different industries, business models and cultures create an infinite number of potential approaches. What works at Google isn't necessarily going to succeed at Wal-Mart. Worse, says Anthony, "Vendors are always ready and willing to sell you the next great version of software. But innovation isn't a result of technology. It's the result of people using technology to facilitate change."

Further complicating matters is that many organizations and CIOs lack a basic understanding of how innovation unfolds. Creativity is not innovation. Brilliant ideas and cool technologies aren't necessarily the ticket to competitive gain.

"It doesn't always come down to the usual suspects," McAfee says. "It's not always the case that a company needs to do something faster or cut costs by x percent. It's sometimes as simple as providing convenience, simplicity or accessibility. In many cases, it's about giving people something they seek."

In fact, a common misunderstanding is that structure stifles innovation. Although initiatives such as Total Quality Management (TQM) and Six Sigma reduce variability, increase predictability and sometimes leave little space for innovation, says Kartik Hosanagar, assistant professor of information and operations management at the University of Pennsylvania's Wharton School, structure and innovation aren't mutually exclusive concepts. The actual innovation process should encompass metrics and formal data, but it can't be limited to these alone. What's more, the process should tap into project management techniques and take on a formal structure.

Few are more aware of this than Webb of Equifax, where focus groups, interviews and other feedback tools gauge the pulse of the customer base and detect changes in the marketplace. He also makes sure that employees carve out time for introducing, discussing and vetting ideas. More than 100 individuals from various functions--spread across a wide swath of geographies--participate in highly focused sessions on idea development. These "entrepreneurial teams" take "green-shoot ideas and build businesses out of them," Webb says.

The result: new lines of business--along with IT systems that enhance defined processes. For example, a couple of years ago, Equifax introduced a service that combines credit verification with appraisals and title insurance processing.

Adapting IT systems was one of the simplest parts of the project because the innovation process pointed to specific systems and software. "This was an idea that came directly out of brainstorming sessions," Webb says. "Employees communicated a need, and we pursued it."

Beyond Chaos

Beyond Chaos

The first step to IT playing an integral role in the innovation process is to understand its role within the overall organization. Most importantly, it's necessary to connect to overarching strategic goals and have both a vision and a view of how IT supports business processes. Harvard's McAfee says that an organization must balance an outside-in perspective that's focused on technology and how it can affect an enterprise with an inside-out view that taps into the organization's business model and strategic focus.

The right balance is essential. A problem with outsourcing, McAfee says, is that over time it's easy to lose sight of the core strategic vision. On the other hand, organizations that are too internally focused can lose sight of today's fast-changing technology landscape.

"You may not understand the nuances and opportunities," he notes. "A Digg-type application that allows bookmarking and voting or a Twitter-like application that provides a mechanism for sharing and building on ideas quickly can fall between the cracks."

Success requires a culture that accepts risk, manages failure and puts an organization's cognitive surplus to work. "Even the busiest of us on our busiest week have some downtime and spare time to think," McAfee points out.

Moreover, says the Wharton School's Hosanagar, employees can't feel as if they're on the chopping block if they make a mistake. Equifax's Webb agrees. "The idea is to celebrate the learning that results from failure," he says. "The goal is to do lots of prototyping, lots of piloting and experimenting. If something doesn't work, we move on." These "fast kills," as McAfee puts it, help maximize resources while minimizing costs.

Anthony's takeaway: Innovation is a lot more predictable than executives generally believe. But it requires a distinct discipline. Yes, it's about nurturing creativity, but it's also about connecting dots and creating processes that transform ideas into improvements.

When an enterprise gets it right, everything from incremental improvements to a radical revamping of technology and the business is possible. Only then, says Anthony, "are people able to solve problems and confront challenges in a highly effective way while building a competitive advantage for the organization."

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