Thinking Big For Innovation And Growth

June 1, 2007
Businesses that actively pursue innovation generate more growth and profits than those that do not.

This first part of a two-part series on finding innovation presents five ways of thinking big for finding ideas and opportunities for innovation and growth. Part two Acting Small For Innovation And Growth presents four ways of "acting small" and managing the details for innovation. Depending on the task you are trying to accomplish, switch wearing these two hats to be more innovative and get the best results and performance.

Today, a sale was lost to a low-cost foreign supplier. The cost of materials went up. A broken machine stopped production. So many things, so little time. What should a manufacturer do? By stepping back and thinking about the big picture of your business, you will see areas ripe for innovation.

Businesses that actively pursue innovation generate more growth and profits than those that do not. Plus they usually enjoy higher brand awareness and appeal.

Innovation is about introducing something new or doing something in a new way. The goal of innovation is to take an idea from concept to commercialization and improve business performance. An innovation can be a new product, a new process, or a new way of doing business.

"Thinking big" means looking at the big picture of your business. Look above and beyond your existing products, customers and competitors. Start with the global economy. Narrow it down to where you can reach and fit in. To get a better end result, aim high at this stage. Think about high-level objectives, strategies and collaboration. Don't worry about the details now.

Innovation can come from anywhere or anyone inside or outside an organization. The main ingredients of successful innovation are a fresh perspective, a diverse source of ideas and an open environment.

Understand The Trends And Drivers In Your Industry

The pace of innovation around the world is increasing and is driven by five major trends:

  • Increasing global competition -- Free trade, capital mobility, labor mobility and global knowledge enable companies large and small to compete in markets anywhere and everywhere. Your competitors could be anyone from anywhere.
  • Increasing advances in technologies -- are providing endless opportunities for new types of products and services. The development of some technologies is increasingly rapid or complex and requires the resources of more than one organization.
  • Changing and diverse market needs -- Demographics, politics, cultures and society are changing in different ways in each local region. More people around the world can afford to buy new and better things. Consumers want to have choice and control, to interact with others, and to express their individuality.
  • Increasing volatility of natural resources -- Changing supply and demand of energy and raw materials affects their prices. Companies must assess their exposure and minimize their risks.
  • Increasing environmental concerns -- Changes in the Earth's air, land and seas are driven by natural effects and increasingly by the effects of man and industry. People want more environmentally friendly products and sustainable business practices.

Plus there are specific trends and drivers that affect each industry. These often relate to or stem from the major trends. Conduct a competitive analysis of your industry to identify the players, products, technologies and factors that affect your business. Standard elements of a competitive analysis are:

  • Industry characteristics, trends and driving forces.
  • Industry competitive forces: Competitor rivalry, new entrants, substitute products, supplier power, and buyer power.
  • Key factors for competitive success.
  • Industry prospects and attractiveness.
  • Situation and market analysis: External threats and opportunities.
  • Competitor analysis and response: Positions in the industry and market. Internal strengths and weaknesses.
  • Competitive strategies to best compete now and in the future.
  • Scenario analysis of possible competitive moves and outcomes.

Control The Way You Earn Your Profit

Profit can be measured by dollars per item, per hour, per customer, per transaction, or by some other parameter (the "denominator"). Change the way you do business and get more control over this parameter and how you earn your profit.

  • Be aware of the beliefs and principles in your industry that are barriers to innovation.
  • Develop a recurring revenue stream.
  • Change your sales mix among pre-sales service, products, maintenance and after-sales service.
  • Offer lower-priced products that provide higher asset turnover.
  • Offer higher-priced products that have higher profit margins.
  • Change your cost structure by shifting fixed costs to variable costs or by shifting your costs to another supplier.

Case Study --- New Strategy Based On Innovation Lifts Boeing

Prior to 2005, $55 billion Chicago-based aerospace giant Boeing was losing ground to European rival Airbus as it suffered from management instability and complacency. Its aircraft designs and technologies were outdated. Its products were not what customers wanted.

Now, the market for Boeing's planes has improved and its innovative designs and processes have put the company back on top of its industry. Its engineers are incorporating many new technologies and process. Its new 787 Dreamliner aircraft is a technological marvel.

Boeing's competitive strategy applies the latest technical advances to create new ways for airlines to earn revenues, to reduce the cost of owning and operating airplanes and to make flying more enjoyable for passengers.

Boeing's rejuvenated product development activities are innovative in five ways:

  • Global outsourcing and collaboration -- Boeing's global network of partners is wider than ever for the 787. They all must use Catia computer-aided design software. The plane is designed at a special online site managed by Boeing. This approach for developing a new aircraft enabled Boeing to apply real technological innovation at a reasonable cost by sharing the risks with partners. Accepting ideas from outside the company was a historical barrier that managers overcame. High-level, real-time collaboration helps Boeing push more innovation into its products faster.
  • Composite materials -- The 787 is the first commercial aircraft to use composite materials for the primary aircraft structure. Composites and other lightweight materials will use 20% less fuel, reduce material corrosion, and improve passenger comfort compared with current jetliners.
  • Electric motor systems -- Leading a major systems change, Boeing replaced the pneumatic actuator systems used for mechanical controls and configuration in the 787 with electric-powered systems. Advanced electric motors are smaller, lighter, cooler, more reliable and require less maintenance than pneumatics. Boeing simplifies its designs. Airlines reduce their operating costs.
  • Open systems architecture -- Traditionally, information systems manufacturers and suppliers customized their products for each airplane type. Boeing and its partners now use an "open" systems architecture for the 787, based on industry-wide standards. Increased commonality and simpler integration make the job easier for designers and simplify maintenance, upgrades and reconfigurations for operators. Plug-and-play comes to commercial aircraft!
  • Enhanced aerodynamics -- Boeing used the latest engineering analysis and design tools to optimize the airplane's shape and increase performance, made possible by the use of new smooth composite materials. Boeing worked with engine manufacturers to integrate the airplane's aerodynamics with new engine technologies and capabilities. Airline operators benefit from better aircraft performance.

With Boeing's new strategy and culture of innovation, new technologies aboard the Dreamliner and on the factory floor contribute to the company's performance, the owner's balance sheet, and the passenger's enjoyment of flight. Innovation in the 787 program saves time and reduces costs - two things Boeing and its customers can use now. Boeing seized the opportunity by using bold strategy and leading technology as a competitive advantage.

Compete Differently In The Value Chain

The competitiveness of an industry changes over time. New players enter and exit. Competitive advantage shifts among players and along the value chain. Find competitive opportunities in the value chain by looking at:

  • Increase the activities in which you can add the most value, usually by offering either a complete proprietary product or process or a part of an open modular system.
  • Enhance product differentiation to increase prices and margins.
  • Provide more pre- or post-sales service to alter the linkages in your value chain.
  • Increase vertical integration (forward or backward) to control more of your supply chain.
  • Decrease vertical integration by shedding or outsourcing time-consuming or unprofitable activities to focus on your core activities.
  • Develop a complementary business or product that supports your main business and provides a more complete customer experience. For example, Google Mobile supports Google Search.

Look At Customers In A Different Way

The traditional ways of looking at customers, such as demographics or purchase history, are often incomplete or misleading for determining the real or future needs of your customers. By looking at customers from a different perspective, you can see new opportunities for innovation. Find customer opportunities by looking at:

  • All the jobs (tasks) customers and others are trying to do when they use a product or service. Look at them all in the right context.
  • The outcomes (results) customers want to achieve when performing these jobs in a variety of circumstances. Why do customers buy the product? Why do customers buy your product?
  • The constraints (barriers) that prevent customers from using a new product or service.
  • The buying decision process. Who influences the decision? How do the buyer's purchase criteria change during the process? When is the sale most at risk?
  • The relationship with customers. Make all customer touch points a positive experience for the customer.
  • Ask your customers directly. Use group discussion with customers. Set up customer panels. Run a Web community. Survey your customers. Work with lead users who are early adopters of new products. Ask about their needs and goals. Ask them about their problems and what they like and do not like about certain products. Do they recommend your product to others?

Case Study -- Decentralized Organization And Technical Leadership Drive Innovation At Magna International

Magna International Inc., an $11 billion Canada-based automotive parts manufacturer, has fostered a corporate culture that encourages entrepreneurial spirit and delivers technical innovations for its demanding customers.

Magna's new product innovations include the single-belt accessory drive system, power liftgate, full fold-to-floor seating for minivans, and a hydro-formed frame for pickup trucks.

Its strategy for fostering the entrepreneurial spirit and driving innovation is based on three factors:

  • Profit-sharing -- Each division within the multi-national firm operates as a separate "Automotive Systems Corporation" with its own profit center. A comprehensive, company-wide incentive program helps motivate all of its 72,000 employees to be creative and work smart.

    According to Magna's corporate constitution, employees receive 10% of before-tax profits in shares and cash. Senior managers, who receive salaries below industry standards, receive up to 6% of profits. And not less than 20% of after-tax profits must be distributed to shareholders. So, all employees are motivated to generate profits because they receive a percentage. And they are also required to hold shares so they look out for the long-term interests of the company.
  • Fairness, security and open communications -- Profit incentives alone won't deliver innovation. Magna encourages creative thinking and idea sharing by promoting open communications and providing a sense of security among employees. For example, to facilitate dialogue and collect ideas, each division holds monthly meetings between employees and the general manager.

    Some operations have an "employee advocate" position -- a person jointly selected by the employees and management and whom management, cannot fire, only by an employee ballot vote -- to foster communications between employees and management. The mandate is to facilitate communications, keep employees happy and bring forward new ideas.

    The workplace culture gives employees the confidence and motivation to come forward with new ideas. Having employees as stakeholders and providing an entrepreneurial environment fosters continuous innovation in many areas across the company's broad product portfolio.

    Magna's "Fair Enterprise System" philosophy is designed to keep good employees prospering within the Magna family, and the corporation prospering because of them.
  • Leveraging innovation and technology -- Magna focuses on technological leadership across all product areas to maintain its speed and flexibility in design and manufacturing and to provide innovative systems and components to its customers. It actively develops new product and process innovations that improve the form, function and cost of its customers' vehicles.

    Magna uses advanced CAD systems that enable its engineers to design, prototype and test new products quickly. Final designs are ready for factory production with less redesign and downtime.

    For example, Magna's 1,500 employee operation in Acuna, Mexico, produces 2,000 sets of seat trim covers a day in about 200 different styles of covers, where one model of vehicle may be offered with four seat designs, all available in three colors.

    Magna conducts extensive research and training, especially for an automotive supplier. The company spent $750 million on research and development in 2005 (ranking third for corporate R&D spending in Canada).

    The company will build a unique new training center near Toronto in 2007, with $50 million of support from the Government of Ontario, to develop engineering and innovations skills of working engineers. The school aims to improve the commercialization of new ideas and keep the province at the leading edge of innovation in the global vehicle industry.

Magna's decentralized organizational structure and fair employee systems motivate all employees to work smart and innovate. Combined with a continuous pursuit of technical leadership, they have enabled the company to prosper in the competitive automotive industry for 50 years.

Expand Into New Markets And Customers

Expanding your market is one of the best ways to grow a business. New market opportunities are constantly appearing for those sharp enough to see them and skilled enough to exploit them. Find market opportunities by looking at:

  • The market boundaries that define who uses or does not use a product. Create new markets or reshape existing ones. Example: Starbucks redefined who drinks coffee and why.
  • Over-served customers who think products are too complicated, too expensive or not worth the price. Move down market. This is the single biggest source of disruptive innovation and new growth. Examples are Honda (1970s), Wal-Mart and Dell.
  • Under-served customers who want more features and benefits and are willing to pay for it. Move up market. Examples: Private banking and luxury vacations.
  • Non-consumers: people who do not currently use your product but could.
  • New uses or applications for existing products.
  • New geographic regions. The two largest emerging markets are in China and India.
  • New market segments. Create new segments based on a set of common customer characteristics or circumstances. Divide large segments into viable sub-segments.

Thinking big is the "big picture hat" you wear for finding opportunities for innovation and growth. Be open to new ways of doing business. Look from a high level and set your direction. Now is the time to set your goals and set them high.

Finding opportunities for innovation and growth is hard work. There is no magic formula. But the sooner you start, the sooner you will reap the rewards, as most innovators before you have done.

The opportunities for innovation and growth in the world are unlimited. With a positive attitude, the right skills and the right motivation, any company can make the path of innovation clearer and more rewarding.

Blair Kingsland is a senior consultant with Spectrum Innovation Group. He has 25 years of experience working in business development, marketing and product design roles in the telecommunications, software and aerospace industries. Spectrum Innovation Group is a consulting firm specializing in innovation and growth. It provides insights into business trends and helps companies exploit opportunities for improving their operations and growing their business. The company is located in Toronto, Canada.

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