IndustryWeek posed a few questions to Peter P. Roosen and Tatsuya Nakagawa, authors of Overcoming Inventoritis: The Silent Killer of Innovation
Q: How can a company know if they are suffering from Inventoritis, which you define as a condition in which management falls in love with their products and often acts in reliance on the assumed fact that the product is great.
A: A good starting point would be to look at the ratio of up front marketing investment relative to engineering investment. Engineer turned marketing consultant Ralph Grabowski introduced this metric in 1992 and calls it the M/E ratio. The main component of the marketing investment is the often undervalued discipline of "front-end marketing" that includes conducting market research, gathering competitive intelligence, building the business model and analyzing the payback. Marketing investment for the purposes of the M/E ratio does not include sales and promotion expenses.
Grabowski found that the most successful companies had ratios greater than 1.0, spending more in front-end marketing than in engineering. Failures often had ratios well below that. For example Xerox had a ratio of 0.1 while Digital and Wang, that were impacted by the advent of the personal computer, had ratios of 0.004 and 0.001 respectively. Dell and Intuit had ratios of 1.5 based on his comparison. Grabowski found that companies with low ratios tended to have inwardly focused engineering cultures.
To help develop a clearer picture of where an organization stands relative to its inventoritis issues, a careful examination should be made of the budgeting processes, reward and incentive systems, human resources policies and activities, training programs, innovation recognition systems and strategic planning methodologies. How roles and responsibilities are defined and titles assigned also gives great insight into what extent a company is experiencing a collective inventoritis condition.
Q: There has been considerable interest in the "disruptive technology" idea, where companies become apparently blind-sided by new technologies undercutting their existing business, usually first coming onto the market as an inferior product at a lower price point. How can a company successfully manage an encroaching disruptive technology to its advantage rather than getting destroyed by it?
A: Looking at a new potentially disruptive technology from inventoritis-free vantage point allows a company to consider such emerging technologies as part of the overall strategy. For example, traditional integrated steel makers were faced with the threat presented by minimill technologies that produced lower cost steel shapes from scrap steel rather than from raw iron ore that requires much larger and more expensive plants. Similarly, Kodak faced the same problem when digital camera technology was coming along threatening to turn its traditional main business of photographic films and papers to ashes. Both managed well in the face of these developments.
In the steel-making case, the minimills became the saviors rather than the destroyers of the gigantic integrated mills. By leaving the lower end products like rebar and structural steel shapes to the minimills that could produce them from scrap at a profit (where the big mills lost money), the integrated producers were able to focus their efforts on converting iron ore directly into the high margin and high volume sheet steel used to make cars, cans and appliances. The owners of the integrated steel mills were handsomely rewarded during this shift over the past 25 years.
By streamlining the huge mainly U.S. integrated mills, companies like U.S. Steel remained globally competitive rather than getting knocked out of the business. Meanwhile, the minimills have grown into larger operations themselves based on recycling scrap steel into progressively higher end products. Both types of producers have a place in the market because the scrap steel used by the minimills needs to come from someplace, namely the discarded cars, cans and appliances. In effect, the entire U.S. steel industry has become more efficient and profitable as a result of the minimill technology having come along.
Kodak's response was a little more complicated, but boils down to similarly having been able to properly address the impending changes from a balanced, inventoritis-free perspective. Kodak remains a global player today in spite of digital camera technology having swept the world.
Q: How does the Toyota Production System weed out Inventoritis?
A: Toyota's system is a consistent set of processes and principles applied over a long period of time. These "lean" methods serve to reduce inventoritis and its downsides.
One aspect of the Toyota Production System is the idea of eliminating and not just reducing waste. In the traditional U.S. manufacturing system, the production line has slack built into it so that there is extra time and production line materials and resources available to ensure that the line stays running. In the Toyota system, there generally is not. There is obviously little or no tolerance for the waste that comes from people infected with inventoritis being able to influence the innovation process.
Toyota also has a very good knowledge management system. There are systems at the company for constructively gathering feedback from anyone and everyone throughout the organization, processing the information and applying it to the manufacturing process. Part of this stems from Toyota's deep respect for its people, one of the main pillars of the Toyota Production System.
Q: What qualities did 3M leaderships possess to instill innovation as a core company competency?
A: William McKnight was 3M's inspirational leader from 1929 to 1966. He is well known to company insiders for having created a corporate culture that encourages employee initiative, innovation and risk-taking while discouraging management from telling employees with authority how they must do their jobs or being destructively critical when they make mistakes. The culture McKnight instilled remains a core part of the company's traditions.
3M has a "bootlegging" policy that allows up to 15% of a researcher's time to be used on a project of his or her own choosing. Art Fry, inventor of the ubiquitous Post-It Notes sticky sheets, used the policy to help develop the product that became a new form of communication. The Post-It products became viral and remain big sellers for 3M.
Q: What are some ways companies can overcome Inventoritis? (Note: In the book there are 12 Ways to Overcome Inventoritis)
A: The first way is to assume your product or idea is terrible. This can be quite liberating. Making the assumption is not the same as not believing in what you are doing and it is not about being negative. On the contrary, it is about changing the frame of reference to give due consideration to the real operating conditions. Consider the advantage of having accurate maps and a compass to navigate from one place to another rather than a ball of string and a vague idea. Making the assumption prevents people and companies from squandering resources on dead leads or irrelevant excursions. Eliminating the tendency to rely on untested assumptions can be done by simply assuming a product or idea is a terrible one and then taking steps toward making it better.
Another way is to build a solid leadership bridge between marketing, engineering and sales. A greater fusion of engineering and marketing leadership will benefit companies where innovation and products are an important part of the business. It seems the normal or traditional practice is to isolate sales from engineering and not have them meet until at the very top. The CEO by default ends up having to lead the marketing strategy although that individual might not have sufficient grounding in each of these two areas to do so effectively. This does not need to be the case and Microsoft has established solid leadership of the marketing strategy without having leadership default to the CEO.
Microsoft was the world's top R&D spender in 2004, and in 2006 placed about 17% of its $44 billion revenue into the area. In January 2000, Bill Gates stepped down as CEO and took on a new role for himself as 'Chief Software Architect,' a role he has remained in until June 2006. Microsoft has two other uniquely defined roles, that of 'Chief Technical Officer' (CTO) and the other being 'Chief Research and Strategy Officer.' No other company has this arrangement of officers, although the CTO role has become more common in recent years, mainly among companies working in high-tech fields. Microsoft has top leaders from within its industry filling these roles. There could not be a clearer indication of the importance placed by Microsoft on having great leadership and solid bridging between strategy, research activities and the development of its product offerings.
Peter P. Roosen and Tatsuya Nakagawa are authors of Overcoming Inventoritis: The Silent Killer of Innovation.