Never has there been a better time to unleash innovation in your organisation. There is a perfect storm that offers: an unprecedented amount of talented and entrepreneurial young people; accessible technology- many of it for free; and a colliding of ground-breaking knowledge which gives us a clear route forward; and customers who are accessible, around the world, because they are only a few clicks away from ordering.

There are two types of innovation:

  1. Gemba Kaizen innovation (innovation at the workface is a daily activity) which focuses on improving internal processes as a daily activity.
  2. Blue ocean innovation where an organisation moves away from the cut throat, dog eat dog bloody red oceans of competition to the clear, calm and rewarding waters.

This working guide will penetrate into the great work of Jeffery Liker, The Toyota Way, Masaaki Imai author of Kaizen and his follow-up book Gemba Kaizen, and show you how you can move towards Toyota’s amazing achievement of 10 innovations per employee per year worldwide.

The working guide will also go into the brilliant work of W. Chan Kim and Renee Mauborgne authors of Blue Ocean Strategy, and their follow-up book, Blue Ocean Shift. 

The great paradigm shifters, Peter Drucker, Tom Peters, Jack Welch, Gary Hamel have also talked, for some time, about the significance of innovation and how to increase your odds of success. The key lessons are extracted and listed for easy absorption.

A major change of culture requires an understanding of the psychology of selling and leading change. John Kotter’s eight step “selling and leading change” process have been further enhanced with Zaffron and Logan’s Three Laws of Performance that offers a more in-depth look at the psychology of change.

 

Peter Drucker’s Lessons on Innovation

I have split Drucker’s work on innovation into Embracing abandonment, finding your blue ocean, and the process to becoming an innovative organization.

Embracing abandonment

The first step in a growth policy is not to decide where and how to grow. It is to decide what to abandon

I consider abandonment as one of the most important gifts bestowed on us by Peter Drucker. It is unusual that such a profound concept should have been left unnourished by so many writers who followed in his footsteps. Amongst the overgrown and chaotic jumble within an organization Drucker saw a clear pathway to freedom, innovation and productivity through the adoption of regular and systematic abandonment.  Drucker knew more than anyone, that human beings never like to admit a mistake or own up to failure. To avoid facing the truth we hope circumstances will somehow conspire to make a ‘silk purse out of a sow’s ear’.

Drucker said: “The first step in a growth policy is not to decide where and how to grow. It is to decide what to abandon. In order to grow, a business must have a systematic policy to get rid of the outgrown, the obsolete, and the unproductive.”

He also said: “Don’t tell me what you’re doing, tell me what you’ve stopped doing.”

He saw abandonment as fundamental as breathing, a natural passing of old to new. Examples of abandonment he talked about included

  • Cash cows of the past (which were no longer generating the income to justify their continued existence)
  • Rectifying recruitment mistakes (no matter how good your recruitment process is, you will make mistakes and these staff need to be told they need to move on)
  • Unsuccessful projects
  • Systems that are not delivering
  • Processes that we have maintained only because we did it last month, last quarter, last year.

Innovation often means giving up the very skills you are proudest of.  Searching for the potential of opportunity in an organization’s vulnerabilities is likely to be resented by its most accomplished people as a direct attack on their position, pride and power.  E.g.  Kodak invented the digital camera and gave the invention away as it was attacking there core film business.  Digital cameras went on to destroy the organization.

 

Drucker’s Advice on Kaizen

Enterprises need to build in day-to-day management for entrepreneurial activities that run in parallel.

  1. Organised abandonment of products, services, processes, markets and distribution channels that are no longer an optimal allocation of resources.
  2. Organise for systematic continuing improvement.
  3. Organise for systematic and continuous exploitation of successful products.
  4. Organise systematic innovation to create a different tomorrow that makes obsolete even the most successful products of today.

He loved everything Japanese; in fact, it was a passion, a safe haven for him. The rise in importance of the Japanese business methodologies would have brought a smile to his face. One of the most important Japanese principles is Kaizen. The introduction to staff that every day they should look to perform something better, to innovate, to eliminate unnecessary steps, to question the past and to assume everything can be improved. You just have to find the way. Toyota is famous for their commitment to Kaizen.

Drucker believed that management should invest the necessary mental horse power to find better solutions. The solutions should be relentlessly discussed with all teams affected “that every brain in the game” was used. Once a solution is found it should be implemented in three pilots (Drucker loved doing things in threes) to ensure the benefits would meet expectations.

Drucker’s Advice on finding your blue ocean

Look for opportunities as if your life depended on it.

Drucker realised the importance of innovation.  He was aware of the many barriers put in front of staff that would inhibit innovation and performance.  He was a great advocate of change, management going with ideas when not all the detail was known, being prepared to make mistakes rather than establish a feeling of paralysis.

Which of your noncustomers should you be doing business with?

Only Drucker could coin a phrase, “non customers” (Desirable potential customers), yet it gets right to the heart of the fundamental issue. Every private sector government and not-for-profit organisation is missing customers it should be servicing. This is particularly relevant in the government and not-for-profit sectors where members of the public, who should receive a service, are either unaware or too proud to ask for help. By constantly focusing on non-customers, an executive team can find these customers and look after their needs.

Today’s advanced knowledge is tomorrow’s ignorance.

Drucker saw it as very important to harness knowledge in every aspect of the organization.

Drucker’s seven sources for innovation:

  1. The unexpected- the unexpected success, the unexpected failures, unexpected outside event. These are signs that the future is happening now.
  2. The incongruity- the incompatibility between reality as it actually is and reality as it is assumed to be. Look for differences between what customers want and what the market thinks they want.
  3. Innovation based on process need- where everyone in the organisation knows that there is a missing link that needs fixing.
  4. Changes in industry or market structure. Where a small new player comes into the market and starts changing it with an ever-increasing market share.
  5. Changes in demographics- Drucker points out that changing demographics is both a highly productive and dependable innovational opportunity. E.g. the aging population.
  6. Changes in perception, mood and meaning by customers- this often leads to unexpected success or failure.
  7. New knowledge, both scientific and non-scientific- is not the most reliable or predictable source of successful innovations because there is a large time lag.

Take advantage of unexpected and unseen markets.

When a new venture does succeed, it is in a market other than the one it was originally intended to serve. Aligned with unexpected products or services, bought in large part by customers who we didn’t know existed, and used for a host of purposed besides the originally intended intentions.

Look for the future that has already happened.

Look for a major trend, a break in the pattern rather than just a variation, and anticipate its impact on consumers. Once you have seen the future, then what could or should be done is not too difficult to discover.

Prediction of future events is futile.

The task is to manage what is there and work to create what could and should be.

Four entrepreneurial strategies aimed at market leadership

  1. “First with the most” – Offers potentially the highest reward but also the riskiest one
  2. “Hitting them where they ain’t” – This is creative imitation targeting areas where the market leaders are not bothered with.
  3. “Ecological niche” – Where you create a virtual monopoly in a small niche market
  4. Changing the economic characteristics of a product, a market, or an industry – This is where the innovation is a strategy itself. E.g. Yahoo giving email addresses for free to create a customer-base for advertisers.

Separate out the budget for the future

Around 10-12 % of total funding should be assigned for the future initiatives. Unlike budget for ongoing operations it should never be reduced in hard times.

You cannot market research the truly new

The key is to have an in-house, passionate champion who pilots the new with a few chosen reliable customers who really wants the new.

Look for the unexpected market.

There is a law of nature that anything that is truly new, whether product or service or technology, finds its major market and its major application not where the innovator and entrepreneur expected, and not for the use for which the innovator has designed

Drucker’s Advice on becoming an innovative organization

Ideas are like frogs’ eggs

Of the thousands hatched, only one or two survive to maturity. They are born small, immature and shapeless. They are promise rather than fulfilment.

Successful innovators are not risk focused they are opportunity focused.

They try to define the risks they have to take and to minimise them as much as possible.

Exploiting success

List your key opportunities then list your most capable people and then allocate the best performers to the top opportunities.

Keep new products in the nursery.

Drucker was adamant that new products and services need to be protected. Away from the monthly reporting cycle regime where negativity often slips in due to progress delays or over optimistic forecasts.  The CEO should have one to one session during the month and only require financial information periodically or on an exception basis,

Drucker’s Advice on measuring innovation

Measure innovations by what they contribute to the customer.

Innovation means the creation of new value and new satisfaction to the customer.  A novelty only creates amusement.

Assess your innovation against the market.

Ask which innovations in the market were truly successful, how many of them were ours, Is our performance commensurate with our objectives, standing in the market, with our research spending? Are our innovations in area of greatest growth?  How many truly important innovations did we miss and why?