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Building a Better Innovation Model

Forget focus groups. Sure, identifying a customer need is a great first step in the innovation process. But most customers haven’t a clue as to what, exactly, it is that they need. In fact, they may not even recognize that they’re not completely happy with what they’ve got until you give them another option.Witness H. …

Forget focus groups. Sure, identifying a customer need is a great first step in the innovation process. But most customers haven’t a clue as to what, exactly, it is that they need. In fact, they may not even recognize that they’re not completely happy with what they’ve got until you give them another option.

Witness H. J. Heinz. Neither consumer focus groups nor the company’s formidable R&D efforts were able to turn up a way to improve upon its signature tomato ketchup product, now on the market for more than 130 years. Then Heinz sent its marketing gurus into consumers’ homes with video cameras. “We found out that people were storing ketchup upside down,�VbCrLf CEO William Johnson recounted to business leaders gathered for a roundtable discussion cosponsored by Chief Executive and Accenture. “We introduced the top-down bottle and increased our business 25 percent over two years.�VbCrLf

The lesson? Most consumers are only aware of their dissatisfaction with a product or of the improvements they would be interested in at a subconscious level, said James Works, managing partner of Accenture’s George Group. “You can’t do focus groups and just ask them what they think,�VbCrLf he notes. “You have to observe and see what they do.�VbCrLf

For Cemex, observing customers led to a new value proposition. As a global producer of cement, Cemex operates in a commodity business. But the century-old company understood its construction customer base well enough to know that providing better on-time delivery and more accurate logistics would be a tremendous boon for them-and a tremendous point of differentiation for Cemex. “They built a huge network that allows them to pinpoint the exact location of every single one of their vehicles,�VbCrLf reported Works. “Being able to deliver at the right time and place was an incredibly important value-add.�VbCrLf

That innovative approach to a commodity business didn’t come about by accident. Cemex maintains an Innovation Committee responsible for coming up with creative ways the company can better serve its customers. The company is committed to generating ideas on a quarterly basis and to nurturing and executing them by assembling teams charged with making them happen. It’s the latter area where companies most frequently falter on the innovation front, noted Works. “Just having the foundation for innovation-the understanding of markets and customers that can generate new opportunities-is not enough,�VbCrLf he said. “You have to have the capability and the methods and processes to get those ideas into the marketplace. And to avoid being a one-hit wonder, you need consistent execution. Those three elements are critical ingredients of an innovative model.�VbCrLf

The Fear Factor

Even for the most well-run companies, succeeding on all three fronts can be a daunting task. “We have found that people who are really good at discovery stink at incubation,�VbCrLf noted Gina Colarelli O’Connor, an associate professor at Rensselaer Polytechnic Institute and coauthor of Radical Innovation-How Mature Firms Can Outsmart Upstarts. “And those who are good at incubation can’t stand acceleration, or developing a business proposal to where it can stand on its own.�VbCrLf

For some companies, sheer size is a barrier to the all-or-nothing mania that fuels most innovation-oriented entrepreneurial endeavors, which, after all, can falter without tarnishing a venerable brand name or disappointing legions of shareholders. At GE, for example, driving growth through innovation is a massive challenge. “When you’re as big a company as GE, delivering 8 percent organic growth per year is like creating a company the size of Nike every year,�VbCrLf noted Tom Quindlen, CEO of GE Commercial Finance Corporate Lending.

CEO Jeff Immelt recognized that GE’s relentless focus on efficiency and performance at the lower levels could breed reluctance among divisional leaders to allocate resources to unproven and potentially risky ideas. So he encouraged top executives to develop 80 “imagination breakthroughs,�VbCrLf projects inside the company intended to generate $50 million or more in revenue within three years. Immelt personally vets these ideas and tracks their progress on a monthly basis, reported Quindlen.

“At GE, pay for performance is a great part of our culture, but it also creates fear of failure,�VbCrLf he explained. “You can lose the balance between short-term focus on success and the long-term desire to grow. These projects are CEO-driven ideas that Jeff takes out of the hands of the energy guys or the health care guys and funds at a corporate level. And they only get killed if he kills them or the team kills them with him.�VbCrLf

Sealed Air also employs a central, global clearing-house for innovation. CEO Bill Hickey sees a double benefit in pursuing innovations globally rather than locally. First, it ensures that the company, rather than a specific division or geographic location, owns the effort. Second, the idea itself benefits from the input of diverse perspectives in all the eventual marketplaces for the product or offering.

“We have a global breakthrough innovation group made up of technical, marketing and development people from around the world who meet once a quarter,�VbCrLf he explained. “We avoid the not-invented-here syndrome by taking the national identity away from any innovation and making it a global initiative.�VbCrLf

Other companies supplement their internal efforts at innovation by scouring the marketplace for entrepreneurial ventures. “We look for small companies or individuals who have ideas but might not have the funds to develop them,�VbCrLf says Leigh Abrams, CEO of Drew Industries. “The majority of our really good ideas have come from buying or licensing those [ventures].�VbCrLf

At Siemens, innovative ideas often come from within but are then bumped outside of the company to germinate. Because it’s all too easy for a strong idea to get stifled by corporate politics or overshadowed by other priorities, the company’s incubation process involves transferring ideas into a new line of business within the company or a start-up venture outside of it.

“We have a group in California that screens new technology, incubates it to a seed stage, and then launches a new company or business line to pursue it,�VbCrLf explained Paul Camuti, CEO of Siemens Corporate Research. “We’ll start a company up and venture fund it to build an instrument, and then they have our business as a channel.�VbCrLf

Even Heinz, which devotes considerable resources to internal R&D, finds it advantageous to develop ideas externally. “We actually fired some employees, set them up in their own labs on retainer, and said, ��Go invent’,�VbCrLf reported Johnson. “Some of our best inventions have come from people who no longer work for us.�VbCrLf

 Most CEOs describe a culture that encourages risk-taking coupled with a system and disciplined processes to nurture ideas and shepherd them through development as the ideal environment for innovation. But several business leaders also extolled the virtues of passionate individual inventors able to look at an established product or marketplace in a fresh, new way.

“Teams are fine, but I’d rather have one superstar than 40 teams,�VbCrLf noted Abrams. “If you have a bunch of mediocre people on a team, you get a mediocre result. You can talk about teams and processes all you want, but it’s usually one or two very smart guys who come up with the great products. You have to make sure that they’re not afraid to fail and, most important, you have to ��incent’ them. Remove fear, get the right person and let him make as much money as he wants.�VbCrLf

Kill or Be Killed

Identifying potential opportunities and putting hefty resources behind them takes courage. But knowing when to pull the plug on an innovation initiative is just as critical-and that job usually falls to the CEO. “You have to fail fast,�VbCrLf noted Johnson. “You’ve got to identify quickly whether you’ve made a mistake so that you can move on and not drain resources that might better be applied somewhere else. Ultimately, those decisions are made at the top.�VbCrLf

Often, despite the sophisticated tools available for predicting consumer interest, such tough calls are made by gut feeling. No consumer test is foolproof, asserted Johnson. “We test with consumers all the time. One of the problems you have in tinkering with an iconic product like Heinz is that you end up with New Coke if you aren’t careful,�VbCrLf he noted. “Consumers said New Coke was a great idea and that launch damn near killed the company.�VbCrLf

At the same time, ideas-and even the process of generating them-can also be killed too quickly. Motorola faced such an innovation quandary in the early 2000s. When the company’s history of introducing leading-edge technology led it into operational disarray, a new leadership team came in and shut down R&D activity that had spiraled out of control, reported Kathy Paladino, president, enterprise mobility business. “But the engineers came to the new leadership and said, ��You’re killing us, and you’re killing our company,’�VbCrLf she recounted. “We had to step back and figure out how to employ the platforms and operational metrics we had learned to appreciate and also re-embrace that culture of firsts. And now we’re seeing 75 percent of our revenues come out of new products.�VbCrLf

Investing in innovation initiatives while also rigorously vetting those initiatives as they develop is a tricky balance to strike. Ultimately, it’s knowing when to invest in an idea, when to cut your losses, and how to execute on the innovations you pursue that yields the big payoff: organic growth and value creation. So how can companies connect people and their ideas with processes that will consistently vet, refine and develop those ideas effectively?

“There is no GPS for this,�VbCrLf answered Johnson. “There is no right way or wrong way, and there’s no map, which means you have to continue to explore and push the boundaries of the organization and of your people. You have to be prepared to accept less than stellar results sometimes. Otherwise, you aren’t going to innovate. It just won’t happen.�VbCrLf

 WHO’S WHO

Leigh J. Abrams is president, CEO and director of Drew Industries, a manufacturer and marketer of recreational vehicles based in White Plains, N.Y.

Paul Camuti is president and CEO of Siemens Corporate Research, a research and innovation center of Siemens AG based in Princeton, N.J.

Gina Colarelli O’Connor, Ph.D., is associate professor of marketing at Rensselaer Polytechnic Institute and director of the executive MBA program at the Lally School of Management and Technology, based in Hartford, Conn.

Dan Chow is managing partner, fast innovation practice, at George Group/Accenture, a global management consulting, technology services and outsourcing company.

J. P. Donlon is editor-in-chief of Chief Executive magazine, based in Montvale, N.J.

William V. Hickey is CEO of Sealed Air, a global provider of packaging solutions based in Elmwood Park, N.J.

William R. Johnson is chairman, president and CEO of H.J. Heinz, a global food company based in Pittsburgh, Pa.

Edward M. Kopko is chairman, president and CEO of Butler International based in Ft. Lauderdale, Fla., and chairman, CEO and publisher of Chief Executive magazine.

Kathy Paladino is president of enterprise mobility business at Motorola, a global communications company based in Holts – ville, N.Y.

Tom Quindlen is president and CEO of GE Commercial Finance Corporate Lending, a provider of commercial lending solutions based in Norwalk, Conn.

Richard Thompson is CEO of GO7 Brands, a management consulting firm based in Secaucus, N.J.

Richard C. Vie is chairman, president and CEO of Chicago-based Unitrin, a provider of life, health and property and casualty insurance and financing services.

James Works is managing partner of George Group/Accenture.

About Jennifer Pellet

As editor-at-large at Chief Executive magazine, Jennifer Pellet writes feature stories and CEO roundtable coverage and also edits various sections of the publication.