A couple of decades ago, when economists forecasted the highest earning countries across the globe, many put their money on Japan as the leader, Germany as the runner-up, and the United States in third place for the largest GDPs in the new millennium. But now that we're seven years into the 21 st century, it's clear that those economists lost the bet: The United States' GDP is currently $12.3 trillion, exceeding the current GDPs of Japan and Germany by about $8 trillion and $10 trillion, respectively.
So what happened to make the United States' output soar above economists' predictions? According to some leading executives and management thinkers, the answer is innovation.
In fact, many argue that innovation is the most important driver of macroeconomics today. That's why a group of senior executives and business experts gathered recently in Chicago to discuss innovation, leadership, and the new economy of creativity, knowledge, and invention -- and how to focus these amorphous concepts into real business dollars. Their insights are relevant to executives from businesses large and small, global and local.
Interpreting innovation
4 Key Drivers Of Innovation - Innovation is vital to every department of the business in order for it evolve and grow. In fact, many argue that innovation is the most important driver of macroeconomics today. That's why a group of senior executives and business experts gathered recently in Chicago to discuss. Drivers of innovation Commercial vehicles of the future will be connected and communicate constantly with their immediate environment while at the same time being linked to the digital ecosystem via the cloud.
Opening the event, Gallup Chairman and CEO Jim Clifton gave an overview of the history of macroeconomics, making it clear that business leaders are playing in a much different game than they did in the past. Economic centers once formed where resources like cattle or steel were plentiful. Now, these centers emerge where innovation is happening, he said.
Everyone can probably imagine what innovation is. We've seen it in Web sites like MySpace and YouTube and in each iteration of the iPod, and we'll see it again the day a noncombustion engine relieves many nations of their dependence on oil.
- Strategies are shaped by both external and internal forces. External drivers include competition, markets, laws, taxes, customer needs and technological change. Internal drivers include profit goals, mission and office politics. The following examples illustrate several common strategic drivers.
- Who is Innovative Solutions? We are passionate software development company who works hardly to offer you the best utility software. Software engineers Dan Armano and Daniel Statescu founded Innovative Solutions in Bucharest, Romania, in 1997, specializing in developing security software and utilities for Windows.
But, often the term innovation gets confused with creativity, according to Barry Conchie, principal leadership consultant at Gallup and a speaker at the event. 'Let's be clear: Innovation and creativity are not the same thing,' Conchie said. 'Creativity may spur innovation, but there's an element of action missing there.'
The difference is that innovation actually brings ideas to life. 'You can't get innovation without a groundswell of creativity,' Conchie said. 'But you [must] turn creativity into something that has an impact beyond the conversation you had about the idea.' Innovation is more than an idea -- it takes place when great ideas actually happen and make their mark on the world.
In the past, most businesses have focused on continuous improvement of their products and services to maintain a competitive edge. But in today's economy, that's not always enough, Clifton said. As the agriculturalists of the past had to literally break new ground to expand their trade, today's businesses must come up with new ideas, rather than settle for marginally better ideas. In Clifton's words, ' Better doesn't work anymore. Different does.'
If innovation is today's hot commodity, how can business leaders harvest it? They must create conditions in which innovation can thrive in their companies. Below are the four drivers of innovation, as identified by executives and thinkers who spoke at the event.
Driver #1: Finding and fostering talent
According to Clifton, four types of people drive innovation: inventors, entrepreneurs, extreme individual achievers in their fields (such as the arts, entertainment, or sports), and super mentors. 'The theory is that where these people settle is where new economic empires will be built,' Clifton said. 'And they go where there is other talent like them.' (See 'Is the U.S. Losing its Competitive Edge?' and 'Managing Those Creative Types' in the 'See Also' area on this page.)
Marla Mayne, senior vice president of retail lending at U.S. Bank, knows the importance of hiring the right talent -- people who, based on the way they naturally think, feel, and behave, are likely to be top performers in their field. Her company was looking for sales talent, but even some of the most experienced salespeople weren't superb performers. 'One gentleman had results and more than ten years of experience. But just because your stock did well before doesn't mean it will in the future,' she said.
That's when Mayne realized she needed to focus on hiring only what she calls 'A's' -- the very top talent in sales. Rather than having a staff of 50% A's, she asked herself how she could hire a greater percentage of top performers.
Using selection practices that identify candidates who are most like the best in their roles based on their natural talents, Mayne was able to identify and hire top talent. 'We're hiring an 'A' team, and we'll have one thousand loan officers outproducing a company with three thousand loan officers,' she said.
Mayne found out that experience doesn't matter nearly as much as talent. Now, she and her management team focus primarily on talent when selecting salespeople. 'We can teach them the business, [but] not talent,' she said.
Once you've hired these employees, how do you make the most of their talents and foster innovation? Based on Gallup research, Conchie said, employee engagement is highly related to the ability to innovate. (See graphic 'The Three Types of Employees.')
Gallup recently asked American employees to rate their workplace on four items:
- My current job brings out my most creative ideas.
- My company encourages new ideas that defy conventional wisdom.
- I have a friend at work who I share new ideas with.
- I feed off the creativity of my colleagues.
For all four items, the percentage of engaged employees who strongly agreed far outnumbered the percentage of not-engaged or actively disengaged employees who strongly agreed. Clearly, creating an environment where employees are engaged can yield a higher crop of creativity, Conchie said. (See graphics 'Innovation and Creativity at Work' and 'Workplace Friendships Encourage Creativity' below and 'Who's Driving Innovation at Your Company?' in the 'See Also' area on this page.)
Mike Morrison, dean of the University of Toyota, said that one approach to engaging employees is to 'incubate' their ideas. 'You can't wait by the phone for a breakthrough idea,' he said. 'You need knowledge, technique, and motivation. If one [element] is missing, you can't have an innovative environment.'
Morrison said that when people are relaxed, ideas begin bubbling to the surface. So at Toyota, they periodically take people out of their typical office environments and let them develop ideas in places where the pressure is off and they can brainstorm without the demands of the workplace competing for their attention. The company also provides those people with lots of information and reading material on the subject at hand, hoping to inspire them to create bigger and better ideas than those that already exist. These incubation periods yield the breakthrough ideas Toyota is looking for, Morrison said.
Driver Innovative Services
Driver #2: Managers matter
Let's not forget that creativity needs action to become innovation. Companies must do more with their employees' creativity than just acknowledging that an employee has a good idea. That's why managers matter.
Looking at the four categories of innovators, often the inventors, entrepreneurs, and high achievers would be nothing without that last category: super mentors, Clifton said. 'When it comes to innovation, mentors play a key role, because they're the people who say, 'That's a great idea. You can make a lucrative business of that,' Clifton said. Super mentors inspire their protégés and help them connect with the people who can couple action with their ideas -- as some of the best managers do.
In Mayne's case, managers were integral to U.S. Bank's success with its loan officers. Although the bank was hiring A-level loan officers, it found it wasn't able to keep them: U.S. Bank still saw a 60% turnover rate among this crucial group.
To remedy the problem, Mayne decided to assess the manager talent among her staff. It turned out that half of her regional managers were from the 'B' or 'C' pool. Once Mayne used selection tools that identified people who are most like the best managers -- increasing her regional management staff from 4 A-level managers to 25 -- she started keeping those coveted A-level loan officers. More importantly, she started seeing results. 'When you put talent in a fully loaded environment, you get performance out of people,' she said.
Now Mayne's team operates with fewer people, but its retention is up, and so are its numbers. Mayne found that loan officers who are:
- A's completed 794 more loan applications per month than B's
- A's closed 624 more loans per month than B's
- A's closed $66 million more in loans than B's
In addition, when loan offers were divided into two groups by engagement levels and compared, A's in the top half closed 8 more loans per month than A's in the bottom half. Similarly, A's in the top half closed 9 more loans per month than B's in the top half.
At U.S. Bank, hiring the right talent, then making sure that talent was engaged and led by the right managers, made for a lucrative combination.
Driver #3: Relationships matter too
Talented managers usually understand the importance of relationships. 'An emotional commitment of one person to another makes a difference. But the control a manager has to enhance or limit [an employee's] contribution to innovation is the most powerful factor,' Conchie said. 'It's important that [relationships are] cultivated from manager to manager and employee to employee. But we know that the [quality of the] relationship between a manager and an employee affects the ability to leverage that relationship. A bad relationship is a sure-fire way to kill innovation.'
A relationship with customers matters too. In the new economy, improving a business model is more complicated than assembling a piece of hardware on an assembly line. To move forward -- to develop the most creative ideas, and most importantly, enact them -- a company must understand the needs of its customers, and that takes a good relationship. 'In order to stay ahead of the game, you have to think of a way to connect with customers that makes you different,' Conchie said.
Driver #4: Keeping the right leaders
If leaders are so important in driving innovation -- both in terms of thought leadership and fostering creativity in the people they lead -- what happens when they step down? Often, retiring CEOs choose their successors based on instinct or on an assumed company lineage, Conchie said. He shared an example of a manufacturing company that was facing the imminent departure of its CEO. To continue its growth, the company needed a leader with the right kind of talent. But as Conchie said, 'The CEO already had a point of view. He was picking the people he admired, not people who could replace him. But you shouldn't think about succession planning without thinking about the loss of talent when the CEO leaves.'
As the company set out to evaluate the performance of its key candidates, it learned that those who would typically be considered for the position didn't match the talent profile needed to succeed as CEO. When they assessed potential candidates for their drive to execute and their management, relationship, and direction talents, a different group stood out. Operating on these data, the company chose a successor whose talent profile projected success -- and it worked. In just four years, the company grew to $1.1 billion, and its stock price doubled.
To select the right leaders, Conchie said, companies must ask three key questions:
- How objective is your company's assessment of current performance and leadership talent potential?
- Is your company's succession management focused on lining up individuals for positions, increasing overall leadership capability, or both?
- Is leadership team talent assessed or measured as a precursor to all leadership hiring decisions?
When companies begin asking these important questions, they can begin a formalized process for hiring leaders who are more likely to succeed. And when a in the 'See Also' area on this page.)
What happens without innovation?
In today's fast-paced marketplace, if a company keeps offering the same product, a rival can easily race past with a better one. And yet another competitor will blow them both out of the water when it invents something altogether different and better -- something innovative. To remain competitive, companies must consider how to find and keep visionary leaders and how to foster innovation and creativity in their employees, the executives and experts at the event agreed.
On the global stage, innovation could mean the difference between the United States keeping a tight grasp on economic leadership or eventually slipping behind countries like China and India, as some economists have predicted. But, those fast-growing countries also face the same challenge.
'Right now, does China have innovation, or does it just make the lowest cost products?' Clifton asked. 'If it's bankrupt in terms of innovation, its economy is just as likely to be a bubble as the dot-coms.'
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Organisations across all verticals are eager to innovate various facets of their corporation. This clearly demonstrates that a reactive, GFC-triggered focus on cost savings is increasingly complemented with more proactive initiatives aiming towards top line growth.We define innovation generically as “a novel contribution that produces value.” This definition leaves it open where the novel contribution actually comes from, i.e., bottom-up or top-down, from within or from outside the organization, via idea engineering or as a result of an Eureka moment.
Following a short classification of different types of innovation, this paper has the aim to better understand the three main drivers of innovation, i.e., problems, constraints and opportunities. Each of these leads to different requirements for Business Process Management (BPM) and Enterprise Architecture (EA).
Depending on the type of innovation, four main forms of innovation can be distinguished (Figure 1).
Product innovation has been the classical and nowadays reasonably well understood centre of attention. Product development processes and various product-marketing methods (e.g., morphological box) have facilitated the structured design of innovative products. Economies of scale are built into this type of innovation by reusing existing architectures and processes when designing new products (‘design for (existing) processes’).
Service Innovation has grown in popularity due to the comprehensive digitalisation efforts in industries such as government, retail, finance or entertainment. While many lessons can be learnt when services are regarded as products, the close involvement of customers, the ease of global service distribution, service delivery via mobile channels and the long tail in the service development process provide unique challenges and opportunities.
Process Innovation has been a mainstream BPM activity since Thomas Davenport published his book nearly 20 years ago. However, the assumptions of Davenport, and Michael Hammer, with regards to large-scale process renewals have been the exception. Far more popular have been incremental, analytical and reactive process re-design activities with a strong focus on process analytics (e.g., Six Sigma).
Business Model Innovation is maybe the most significant of all four types of innovation. Osterwalder’s popular Business Model Canvas is a comprehensive summary of the variables that exist when reflecting on new business models covering amongst others business partners, resources, cost structures and revenue streams (Osterwalder, Pigneur 2010). This canvas also shows the tight coupling of these four types of innovation. New products and services will often require, at least in parts, process innovation and might provide opportunities for new business models. Dell and Amazon are good examples, where new processes, not new products, have inserted innovation into the traditional business models of organisations selling books or computers. This demonstrates the transformational power of designing innovative processes (and related services) in markets with matured products.
Depending on the scale of an innovation, core, adjacent and transformational innovation can be differentiated (Nagij, Tuff 2012) (Figure 2). Core (aka transactional) innovations lead to minor changes of products/processes/assets and hardly open up any new markets or customer groups. On the opposite side, transformational innovation leads to substantial changes, in most cases entire new products/processes/services and new markets/customers. Adjacent innovations are medium-scale innovations in between core and transformational innovations.
Innovative Drivers Greer Sc
Core innovations tend to be singular innovations, e.g. simple product or process innovations. The more an innovation combines multiple types of interrelated innovations, the higher is the likelihood that an innovation will be adjacent or even transformational in nature.
Innovation management can be regarded as an essential dynamic (transformational) capability of an organization. In this respect, it is similar to project/program management or change management. Like all business transformations, innovation initiatives need to be embedded in a strategic context, i.e. there needs to be a sense of urgency. These possible drivers for innovation can be classified into three categories, problems, constraints and opportunities.
Problem-Driven InnovationInnovation driven by a problem (e.g., a bottleneck, an unsatisfactory processing time, high costs of service delivery) is the classical case where a novel, value-add contribution is sought in reaction to an identified issue. In process terms, we could call this the classical process improvement scenario. An identified concern with the status quo is described in so-called as-is models, it is located in the Enterprise Architecture and a set of well-defined analyses techniques (e.g., lean management, Six Sigma, theory of constraints) are deployed by qualified business analysts. Various facilitation techniques, common practices as materialised in reference models (e.g., SCOR) and brainstorming-like facilitation techniques are then used to develop a to-be scenario that (hopefully) eradicates the problem.
Problem-driven innovation can be characterized as reactive and reliant on the problem to manifest and to be perceived. If the problems to be addressed outweigh the organisational capacity to respond, the focus will be on fire fighting leaving little room for considering proactive innovation. Problem-driven innovation tends to be transactional (process) innovation as new products, services or even business models are typically not derived from an attempt to fix an issue.
Examples for problem-driven innovation are:
- using electronic signatures to avoid paper consumption in administrative processes (problem: lack of sustainability);
- implementing a problem management database to deal with recurring incidents (knowledge management problem);
- outsourcing the IT helpdesk to an external provider (process/financial problem).
Problem-driven, core innovation is well-understood within the BPM and EA community and at least in the phases of problem definition and analysis, not so much in the generation of an appropriate response, well supported by a wide range of well-documented methods, tools and techniques. Problem or issue registers are used to characterize (e.g., severity, owner, milestone) and monitor the problem resolution.
Successful problem-driven innovation ultimately overcomes the problem and its impact can be measured by the extent to which this problem caused issues. However, in most cases it can be expected that involved stakeholders will be rather relieved than excited about the impact this innovation will have on their organisation.
Constraint-Driven InnovationInnovation driven by a constraint describes cases in which boundaries exist within the context of an organization that limit the ability to undertake “regular” routines. Instead, a constraint within the context ‘forces’ the organization to identify and adopt novel ways of running its business processes, or sparks novel product or service designs. These constraints can me macro-economic developments (e.g., changes in the exchange rate making export or import more difficult) or company-internal development (e.g., budget cuts). Unlike problems, constraints cannot be eliminated, but an organization has to adopt to these constraints.
Though constraints mean restrictions they can be an inspirational source for innovation as they put pressure on an organization. Organizations with constraints have the potential to be more innovative than those without if they convert the need to adopt into a constructive and successful innovation process. As a response the concept of reverse innovation (aka trickle-up innovation) has emerged (Govindarajan, Trimble 2012). In these cases organizations are going overseas in a search for constraints that they cannot find at home. Once the innovation took place overseas, they bring this innovation back into their home country.
Examples for constraint-driven innovation are
- the development of the mobile banking system M-PESA that was successfully deployed in Kenia as an innovative response to the limited access to banking infrastructure (constraint);
- the virtual store of TESCO in South Korea, an innovation that facilitates retail shopping for time-constrained customers at public transport hubs using a solution consisting of smart phones, QR-scanning and home-delivery logistics;
- the sophistication of cheque processing systems in the Brazilian banking system, a response to the previous hyper-inflation (constraint) that enforced fast processing of financial transactions (F. Montes-Negret, R. Listfield 1996).
Constraint-driven innovation demands a context-aware organization that understands its environmental setting and internal operations (Rosemann et al., 2008). Context-aware organizations do not only understand what context matters, but also how it matters to their organizational systems, Enterprise Architecture and business processes. In other words, they are able to relate elements in the context (such as stability of the financial system, geographical dispersion of markets, weather patterns etc.) to elements in their organizational systems (technical architecture, product and service models, processes, workforce, etc.) and thus have an understanding of impacts, barriers – and potential solutions.
Opportunity-Driven InnovationInnovation driven by an opportunity describes cases in which innovations are borne not out of necessity but out of the realization of a possibility. Here an understanding emerges that some advancement within or outside the organization can lead to the emergence and development of an innovation. Unlike the reactive forms of problem and constraint-driven innovation, opportunity-driven innovation is proactive and in many cases an option and not a necessity.
This form of innovation requires translating the affordances of specific technological opportunities (e.g., social media, mobile application, RFID) or other opportunities (e.g., usage-based pricing, commercialisation of idle resources) into capabilities. Social media, for example, provides the capability to broadcast and to democratize information and processes (“everyone participates”). These capabilities need to be studied in terms of their relevance or even disruptive potential for an organization (see social media activities of organizations such as Burberry or Best Buy).
Examples for opportunity-driven innovation are
- the Kaching application of the Commonwealth Bank of Australia which allows users to transfer funds from their smartphones within their Facebook network improving the convenience of its services for retail banking customers;
- Curtis Kimbell, owner of Creme Brulee Cart in San Francisco, who uses Twitter to make his very own sales process more location sensitive by tweeting his current location to his nearly 22,000 followers;
- electronic collars on cattle monitored via satellite allow to control straying cattle by sending a mild electric shock when they leave the defined perimeter, a showcase example for emerging national broadband networks.
These innovations rely on the creativity to convert new capabilities (e.g., the ability to inform 1,000s of ‘followers’) into a value proposition for the own organisation (e.g., a cost effective way to inform potential clients about the proximity of a mobile sales cart). Opportunity-driven innovation occurs when an organisation understands how to capitalize on such emerging affordances. The more the opportunity matures, the more risk-averse organizations will start to adopt it. As such, opportunity-driven is in comparison with problem-driven or constraint-driven innovation the type of innovation with the highest potential for disruption.
Opportunity-driven innovation is characterized by the attributes of innovation capability and innovation latency. Innovation capability refers to the potential of emerging technologies to spark innovation in an organization on basis of their affordances. The question is what new capability is provided by a technology that could yield novel ways of working, products or service models in an organization. A typical example is the capability of mobile technologies to provide location-based information – which can provide the ‘ability to locate’ to organizations. Whether or not this potential is realized then is a question of innovation latency (Fig. 3) – the time required by organizations to identify the innovation capability of an emerging technology (data latency), the time required to analyse the innovation potential originating from that capability (analysis latency) and finally the time required to reach a decision about capitalizing on that innovation potential (decision latency).
The Preparedness of BPM and EA for the Demand to InnovateThe truth (or better, our interpretation of it) is that Business Process Management and Enterprise Architecture support innovation and innovation processes quite poorly. The main reason for this is that available tools, methods and techniques concentrate on the design, analysis and execution, not on the act of innovating processes and systems. For example, there is, to the best of our knowledge, not a single BPM tool that proactively guides its users on how to improve a process.
This is quote surprising as the ground-breaking book by Michael Hammer postulated fundamental “Business Process Reengineering.” However, the author himself also admitted that the book itself provided limited guidance on how to actually come up with the improved process design.
Working with many organizations, we have found that most repertoires of BPM and EA knowledge and techniques are skewed towards analytical approaches’ and internal foci as evidenced in a good track record in Lean, in Six Sigma or EA frameworks. As a consequence, organizations have achieved highest levels of maturity in core, problem-driven innovation. The reactive and often incremental nature of these innovations, however, also meant that most re-designs hardly lead to entire new, disruptive product, service, process or even business model innovations. A fact that may explain the rather limited credibility of many BPM and EA initiatives.
Being able to also make contributions to the corporate ‘innovation as a service offering’, BPM and EA professionals need to broaden their toolbox. To be innovation-ready, it will not be sufficient to have a team undergo Six Sigma Black Belt training alone. Techniques that allow correlating processes and entire Enterprise Architectures with contextual factors are important to capitalize on the potential of constraint-based innovation potential. Opportunity-driven innovation demands capability-based planning approaches and a more abstract, innovation pattern based approach.
The increasing interest in innovation, however, provides also a tremendous opportunity for the BPM and EA professionals as there be a high demand to shape an innovation process that reduces existing innovation latencies. Defined as disciplined imagination, the challenge in these types of processes will be to get the balance between well-defined transactional activities (e.g., crafting the business case) and the required freedom for creative, disruptive and lateral thinking right. Shaping effective innovation processes will demand all the typical BPM/EA activities such as resolving appropriate process ownership, identifying involved data and systems. Enterprise Architects will be asked to extend existing architectures that are classically concentrated on capturing the operational (transactional) capabilities of a firm with a stronger focus on the dynamic (transformational) capabilities, and need to address how these are best embedded in the overall architecture.
Some Final WordsInnovation closely correlates with ambition. If key stakeholders and decision authorities are not committed, or pressured, to develop and deliver innovations that truly excite (rather than meet expectations), the innovation process can shape up like Sisyphus trying to bring that big boulder up the mountain only to see it rolling back down over and over. An organization not only needs to commit to becoming innovative, but it needs to embed innovation as an ambition – an objective, a goal, a performance indicator and a measure. Thus, successful innovation will require a ‘sense of urgency’ and capitalizing on problems, constraints and opportunities that inspire innovation. The effective innovation process itself will rely on a supportive organizational culture and methods, architectures, systems and tools that appropriately facilitate this process.
Business Process Management and enterprise Architecture are two essential disciplines that can provide the required discipline and holistic view to innovation. However, this requires substantial extensions of current methodologies and frameworks, and a higher appetite to provide a proactive, transformational service to the organization.
AcknowledgmentsThis paper and the underlying research have been influenced by discussions and ongoing work within the Information Systems School at Queensland University of Technology, most notably with my colleagues Dr. Jan Recker, Woolworths Chair for Retail Innovation and Dr. Alexander Dreiling, Brisbane Airport Corporation Chair for Airport Innovation.
References
- Osterwalder, A., and Y. Pigneur, Business Model Generation. Wiley 2010.
- Nagji, B., and G. Tuff, Managing Your Innovation Portfolio, Harvard Business Review, , 2005. 3(4): p. 1-5.
- Rosemann, M., Recker, J., and C. Flender, Contextualization of Business Processes. International Journal of Business Process Integration and Management, Vol. 3, No. 1, pp. 47-60.
- Montes-Negret, F., and R. Listfield, Brasil’s Efficient Banking System: A Legacy of High Inflation. The World Bank, Financial Sector Development Department, Policy Research Working Paper 1680, November 1996.
- Birkinshaw, J., C. Bouquet, and J.-L. Barsoux, The 5 Myths of Innovation. MIT Sloan Management Review, 2011. 52(2): p. 53-50.
- Govindarajan, V., and C. Trimble: Innovation. Create far from home, win everywhere. Harvard Business Review Press. Boston 2012.
© Prof. Michael Rosemann, QUT, Brisbane, Australia