Vocabulary

• (in)organic growth

• deal-making

• to promote from within

• to generate ~profit, money, funds, cash growth, ideas, electricity

• to engineer (a process, meeting)

• collegial a

• productivity-driven

• business mix

• overhaul v&n

• cutting edge (comp state-of-the-art; up-to-date; sophicticated)

• cutting edge research centers

• oust v ~to oust from office

• belt-tightening (syn austerity, retrenchment)

• value stream~value stream analysis

• work-in-progress

• skunkworks

• to turn one’s back on the old ways (syn to dial back on)

• to sink money into smth (syn to invest, to tie money up in)

• to beef up (syn augment; reinforce; strengthen)

• tolerance for risk

• to have a shot at the top rungs

UNIT 7. INNOVATION MANAGEMENT

“Innovation is the specific tool of entrepreneurs, the means by which they exploit change as an opportunity for a different business or a different service. It is capable of being presented as a discipline, capable of being learned, capable of being practised. Entrepreneurs need to search purposefully for the sources of innovation, the changes and their symptoms that indicate opportunities for successful innovation. And they need to know and to apply the principles of successful innovation".

— Peter Drucker

Competencies making deductive and inductive inference developing translation skills synthesizing the contents of an extended text enriching interdisciplinary knowledge enhancing subject-specific skills describing graphic information comparing and contrasting working in team
		READING AND SPEAKING (1)

1. Differentiate between innovation and invention. What inventions of the recent past do you consider to be most essential for mankind?

2. Make a list of the most innovative a) nations; b) companies. Share your views with your peers; substantiate your opinion.

3. Answer the questions:

1. What are the typical reasons for innovating?

2. What are the benefits of good innovations?

3. What are the main stages in innovation process?

4. What are the most common measures of corporate innovativeness?

4. Comment on the following sayings.

a. “Innovation is a whim of an elite before it becomes a need of a public”. – Ludwig von Mises

b. “Every innovation occasions more harm and derangement of order by its novelty, than benefit by its abstract utility”. — Legal Maxim quotes

c. “If you’re not failing every now and again, it’s a sign you’re not doing anything very innovative”. — Woody Allen

d. “A spirit of innovation is generally the result of a selfish temper and confined views. People will not look forward to posterity, who never look backward to their ancestors”.— Edmund Burke

5. Judging by the title “Don’t laugh at gilded butterflies” decide what the text can be about

8. Scan the text and mind-map it identifying the main problem, its causes, recent trends and possible solutions

Don’t Laugh at Gilded Butterflies

Rather than chasing wonder new products, big companies should focus on making lots of small improvements

The Gillette company’s website flashes out messages to the e-visitor: “Innovation is Gillette”, it claims. There are few big companies that would not like to make a similar claim; for they think innovation is a bit like Botox – inject it in the right corporate places and improvements are bound to follow. But too many companies want one massive injection, one huge blockbuster, to last them for the foreseeable future. Unfortunately, successful innovation is rarely like that. Big companies have a big problem with innovation: blockbuster new products are fewer and further between. Truly differentiating new-product breakthroughs are becoming increasingly rare and big companies can do much better if they focus on making lots of small things better.The Oxford English Dictionary defines innovation as “making changes to something established”. Invention, by contrast, is the act of “coming upon or finding: discovery”. Whereas inventors stumble across or make new things, “innovators try to change the status quo,” says Bhaskar Chakravorti of the Monitor Group, a consulting firm, “which is why markets resist them.” Innovations frequently disrupt the way that companies do things (and may have been doing them for years)“Disruptive innovation” – simpler, cheaper and more convenient products that seriously upset the status quo – can herald the rapid downfall of well-established and successful businesses. This is because most organizations are designed to grow through “sustaining innovations” – the sort that do no more than improve on existing products for existing markets.

When they are hit by a disruptive innovation – as IBM was by the invention of the personal computer and as numerous national airlines have been by low-cost carriers – they are in danger of being blasted out of their market.

Big companies have been learning important lessons from the history of innovation.

Consider, for example, that in general they have both cut back and re-directed their R&D spending in recent years. Gone are the droves of white-coated scientists surrounded by managers in suits anxiously awaiting the next cry of “eureka”. Microsoft is a rare exception, one of a few big companies still spending big bucks on employing top scientists. This will prove to be a wise investment by Microsoft only if its scientists’ output can be turned into profitable products or services.

Indeed, the record shows that small companies have dominated the introduction of smallinventions and radical innovations – independent inventors come up with most tomorrow’s clever gizmos, often creating their own commercial ventures in process.

But big companies have shifted their efforts. They have been forced by competition to focus on innovation as part of normal corporate activity. Rather than trying to make money from science, companies have turned R&D into an “internal, bureaucratically driven process”. Innovation by big companies has become a matter of incremental improvements within the process that constitute daily operations.

In some industries, cutbacks in R&D reflect changes in the way that new products travel down the “invention pipeline”. These days there is less money going into venture capital, and a new method of outsourcing R&D is on the increase. More and more of it is being shifted to cheaper locations “offshore” – in India and Russia, for example.

Companies need to resist the feeling that it is not worth getting out of bed for anything other than a potential blockbuster. Product cycles are getting shorter and shorter across the board because innovations are more rapidly copied by competitors, pushing down margins and transforming today’s consumer sensation into tomorrow’s commonplace commodity. Firms have to innovate continuously and incrementally these days to lift products out of the slough of commoditization.

Another factor to take into account is the fragmentation of markets. Once-uniform mass markets are breaking up into countless niches in which everything has to be customized for a small group of consumers. Looking for blockbusters in such a world is a daunting task.

Today no innovation is an island. Each needs to take account of the network of products into which it is launched.

Companies that fail to come up with big new headline-hitting blockbusters should not despair. There are plenty of other, albeit less glamorous, areas where innovation can take place. Management thinkers have identified at least three. Good companies are using IT “to reinvent their business processes from top to bottom”.

Reinventing, or simply trying to improve, business processes can offer surprising benefits to firms that do it well. The software that runs many business processes has become an important competitive weapon. Some business processes have even been awarded patents. These are controversial and, because they may stifle rather than encourage the spread of new ideas, are probably not in the wider public interest.

Nevertheless, there is no doubt that, patented or not, “operational innovation” can add to shareholder value. In an article in the April issue of the Harvard Business Review, Mr. Hammer, who was once a professor of computer science at MIT asks why so few companies have followed the examples of Dell, Toyota and Wall-Mart, three of the greatest creators of value in recent times. None of them has come up with a string of revolutionary new products. Where they have been creative is in their business processes.

Companies are being encouraged to embrace other forms of innovation too. In a recent issue of the MIT Sloan Management Review, Christopher Trimble and Vijay Govindarajan, two academics from Darmouth College’s Tuck School of Business, recommend that they try a little “strategic innovation”. The authors point to examples such as Southwest Airlines, a low-cost American regional carrier, and Tetra Pak, a Swedish company whose packaging products are handled at least once a day by most citizens of the western world. Such companies succeed, they say, “through innovative strategies alone, without much innovation in either underlying technologies or the products and services sold to customers.”

Tetra Pak’s strategic innovation involved moving from the production of packages for its customers to the design of packaging solutions for them. Instead of delivering ready-made containers, the company increasingly provides machinery for its customers to make their own packages: the fishing rod, not the fish.

But customers can then use only Tetra Pak’s own aseptic materials to make their containers. This strips out all sorts of transport and inventory costs from the production process, for both Tetra Pak and its customers. It also makes it very difficult for the customer to switch suppliers.

In his recent book, “How to Grow When Markets Don’t” (Warner Books, 2003), Mr Slywotzky and his co-author Richard Wise recommended another form of innovation. “A handful of far-sighted companies”, they claim, have shifted their focus from product innovation to what they call “demand innovation” which means earning profits not by meeting existing demand in a new way but by “discovering new forms of demand” and adapting to meet them.

In his latest book, “The Innovator’s solution”, published last year, Clayton Christensen, a Harvard Business School professor, argued that established companies should try to become disruptive innovator themselves.

There are, says Mr Christensen, things that managers can do to make such innovations more likely to happen within their organizations. For example, projects with potential should be rapidly hived off into independent business units, away from the smothering influence of status quo. The ultimate outcome of any one disruptive innovation may still be unpredictable; the process from which it emerges is not.

In the end, though, no single innovation conveys lasting advantage. Innovation and, yes, invention too, have to take place continually and systematically.

The Economist, April 22^nd, 2004

7. Explain the following.

1. innovators try to change the status quo

2. to travel down the “invention pipeline”

3. product cycles are getting shorter and shorter across the board

4. venture capital

5. to transform today’s consumer sensation into tomorrow’s commonplace commodity

6. to lift products out of the slough of commoditization

7. once-uniform mass-market

8. to reinvent business process from top to bottom

9. operational innovations can add to shareholders’ value

READING AND SPEAKING (2)

8. Read the article, sum up the key points and give the message.

Get Creative

The Knowledge Economy as we know it is being eclipsed by something knew – call it the Creative Economy. Even as policymakers and pundits wring their hands over the outsourcing of engineering, software writing, accounting and myriad other high-tech, high-end service jobs – not to mention the move of manufacturing to Asia – U.S. companies are evolving to the next level of economic activity.

What was once central to corporations – price, quality, and much of the left-brain, digitized analytical work associated with knowledge – is fast being shipped off to lower-paid, highly trained Chinese and Indians, as well as Hungarians, Czechs, and Russians. Increasingly, the new core competence is creativity – the right-brain stuff that smart companies are now harnessing to generate top-line growth. The game is changing. It isn’t just about math and science anymore. It’s about creativity, imagination, and, above all, innovation.

What is unfolding is the commoditization of knowledge. The new forms of innovation driving it forward are based on an intimate understanding of consumer culture – the ability to determine what people want even before they can articulate it. The “unmet, unarticulated” needs of consumers are fast becoming the Holy Grail of innovation. Working in what is still the largest consumer market in the world gives U.S. companies a huge edge. So does being able to think outside the box.

For managers, the biggest challenge may be making the leap from their Six Sigma process skills to new ways of thinking. For corporations, transforming themselves will require new sets of values and organizational principles. Have you heard of design strategy? It's probably the Next Big Thing after Six Sigma. How about consumer-centric innovation? It may be the most powerful way to raise a company's innovation success rate. Teaching elephants to dance is never easy, but that's the task ahead if you want your company to prosper.

There is, in fact, a whole new generation of innovation gurus. They are not the superstars of theۥ90s who focused on what might be called macro-innovation – the impact of big, unexpected new technologies on companies. The new gurus focus more on micro-innovation – teaching companies how to connect with their customers’ emotions, linking research and development labs to consumer needs, recalibrating employee incentives to emphasize creativity, constructing maps showing opportunities for innovation. When creative mojo gets going, it can explode into innovation.

Think out-of-the-box consumer experiences, and you get the idea of paradigm shifting. The evolution of the economy toward creativity has been underway for some time. Steve Jobs, of course, has turned Apple into the paradigm of the creative corporation. Companies throughout the world are deconstructing Apple’s success in design and innovation, and learning the lessons.

Today all kinds of blue-chip CEOs are signing on to creativity. A.G.Lafley, P&G’s CEO, and Jeffrey R.Immelt, GE’s CEO are at the corner of the new movement. Lafley started it when he took over in 2000, but Immelt’s conversion to creativity when he became chief executive in 2001 is giving creativity more momentum. Because of GE’s size and scope, when it moves, the economy moves with it. The vocabulary of business may be changing as well. It’s hard to imagine former GE boss Jack Welch saying: “Creativity and imagination applied in a business context is innovation,” as Immelt recently did. Or “we’re measuring GE’s top leaders on how imaginative they are. Imaginative leaders are the ones who have the courage to fund new ideas, and lead people to take more educated risks,” as he added. That’s a sea change from rewarding GE managers for a career of floating from operation to operation, massaging the process for incremental improvements.

When the history of the transition from Knowledge Economy to the Creativity Economy is written, these two will probably get much of the credit.

To understand why the creativity movement is becoming so important, you need to go back to its roots at P&G. By harnessing the power of design, P&G has transformed itself from a stagnant brand manager into a model of innovation efficiency that outperforms industry rivals.

Before Lafley, P&G’s volume growth was basically flat. The company cared more about how its products functioned than it did about how customers felt about them.

Lafley turned to design. In 2001 he established a new executive post: vice-president for design, innovation, and strategy, naming Claudia B.Kotchka to fill it. She and Lafley knew they couldn’t change P&G’s culture without fresh eyes from the outside. So they made a major decision: Even as P&G began laying off thousands of top executives, middle managers, scientists, and others, it quadrupled its design staff. For the first time it hired a legion of designers who had worked at other companies and in other industries.

In a second crucial decision, Kotchka dispatched designers to work directly with R&D staffers to help to conceive new products. This changed P&G’s entire innovation process, making it consumer-centric rather than driven by new technology. To open up the company further, P&G started hiring different kinds of consultants.

To build a design infrastructure, Lafley also established what he calls his innovation “gym,” a place to train managers in the new design thinking. And he created a Design Board of non-P&Gers who provide an independent perspective on products, brand extensions, and marketing.

Jeff Immelt inherited one of America’s most successful companies. GE’s incredible process culture, which brought so much to the bottom line in the ۥ90s, was no longer enough to maintain its leadership in the 21^stcentury. Like Lafley, Immelt needed to create an innovation culture quickly. One of his major goals was to raise GE’s average organic growth to 8% from the 5% of the past decade. The skills Jack Welch prized – cost-cutting, efficiency, the continual improvement of operations – couldn’t deliver that.

Immelt launched a series of what he calls Imagination breakthrough projects, investing more than $5 billion in 80 initiatives that take GE into new markets, product areas, and industries. He told his managers to connect with consumers, learn to take risks, and place big bets. GE is already reaping major benefits from previous bold moves. Its latest quarterly profit surge of 24% is due in part to reframing the idea of power generation. The company expanded it from gas turbines to wind and solar, which paid off.

Also like Lafley, Immelt is pushing to change the corporate structure to spur creativity. He’s bringing in many of the same design and innovation gurus Lafley uses so effectively. And GE being GE, has its new acronym, CENCOR (calibrate, explore, create, organize, and realize) for its innovation process. Call it CENCOR, creativity, or imagination, GE is doing it.

What is the methodology of the new design strategy that Lafley, Immelt, and others are adopting? The basics are simple. They start with observation – going out and directly seeing customers shop at malls, families in restaurants, or patients being treated in hospitals. Trying out lots of ideas fast by making models or videos (prototyping) is the next step. This lets managers visualize concepts, make decisions on which to improve and which to discard, and launch products faster.

The final ingredient in design strategy is building an organizational process that does things all the time. This kind of change can be wrenching for a company, but the payoffs are enormous.

The new gurus have emerged from the depths of the late ۥ90s meltdown and the shock of Asian competition to show CEOs a path beyond the Knowledge Economy to an even higher-value-added business model. They say they have found a way to play a high-margin game in a low-priced world, a means of differentiating products in a commoditized marketplace and methodology for staying ahead of Asian rivals. They are the keepers of creativity in a world awash in technology, the champions of innovation in a globe drowning in commodities.

There is a lot of talk about America becoming a 97-pound weakling. But the naysayers don’t get the strength inherent in a truly Creative Economy. This revolution has barely begun, and building creative, innovative companies is the great task ahead.

BusinessWeek, August 8/15, 2005

9. Answer the questions.

1. What is the core of the Creative Economy?

2. What is the main distinction of modern innovation gurus from the superstars of the '90-s?

3. What companies and personalities are named to be at the corner of the new innovation movement? What changes did Jeff R. Immelt and A.G.Lafley make in their respective corporate cultures to spur creativity?

4. What are the basics of the new design strategy pursued by Immelt and Lafley?

5. What accounts for the ever-growing importance of innovation in the modern world?

10. Explain the following.

• Knowledge Economy

• to generate top-line growth

• the Holy Grail of innovation

• commoditization of knowledge

• to think out of the box

• the late ۥ90 meltdown

• organic growth

• blue-chip CEOs

• to play a high-margin game in a low-priced world

• to differentiate products in a commoditized marketplace

READING AND SPEAKING (3)

11. Read the text and decide whether the author shares the views expressed in the previous article.

A Dark Art No More

Like management methods before it, innovation is turning from an art into a science

“WHAT matters gets measured.” That is one of the basic tenets of corporate strategy taught at business schools. As driving growth through innovation is today at the top of corporate agendas you would expect to find managers treating it like a science. After all, manufacturing philosophies such as “total-quality management” (a process of continuous improvement) and “Six Sigma” (which uses statistical methods to eliminate variations and defects) were quantified and widely deployed a long time ago, often with good results.

Yet innovation remains a frustratingly fuzzy notion. Many bosses think it is essentially a creative process. Some anoint “chief innovation officers”, bring in consultancies or set up secret “skunk works” to tease out the ideas they fear their own bureaucracy might squash.

Jorma Ollila, non-executive chairman of both Nokia and Royal Dutch/Shell, argues that it is a mistake to measure innovation by the number of patents issued by a company or the extent to which new technologies are introduced. He suggests that the most fertile area of innovation today can be found in management.

One reason why bosses might not want to be too obsessive about creativity is that generating ideas is the easy part. Exploiting them has always been harder. As Thomas Edison, one of America's greatest inventors, put it, genius is 1% inspiration and 99% perspiration. But many managers are reluctant to take the same hard-nosed approach they use in other parts of their business and apply it to fragile creative types.

Despite difficulties trying to define it, the innovation process is steadily becoming a practical science to be measured, taught and managed.

All managers can be taught how to nurture innovation, but there is no one-size-fits-all strategy. Bosses have to appraise the strengths and weaknesses of their firms honestly and continuously to take account of rapidly evolving competitive threats.

For a start the debate over creativity versus execution should be put to rest: firms need to do both. But that does not mean they have to do it all themselves. On the contrary, the double act is best managed with a loose and open approach during the wild and woolly idea-generation phase, and a tighter, more concentrated one to turn ideas into products or services.

P&G is a good example of an inward-looking firm that has embraced creativity and openness with some success.

On the flip side, a firm known for emphasising execution over creativity is GE.GE's strength is not in breakthrough inventions but in a highly structured process that involves a mix of management training, increased exposure to outside ideas. The company’s focus on the practical application of new ideas, rather than invention itself, goes all the way back to its founder, Edison. Indeed, he commercialised but did not invent the light bulb. The acceptance of failure is an integral part of the effort, as long as it is “fast failing.”

In fact, the more ideas a firm comes up with, the more important it is for bosses to decide early on which of them to kill off. This is to avoid heading down countless and costly dead ends.

That is why failing fast and learning from those failures is so important for companies.

Turf wars are often an obstacle to fast failing. Employees in one part of a company sometimes reject ideas and advice from a different part.

Even if firms can overcome the stigma of failure, how exactly are bosses to know which potential innovations to kill? Mr Christensen, author of “The Innovator's Dilemma”, says it can require unlearning some of the things that managers often accept as golden rules. The chief one is the belief in listening and responding to the needs of your best customers.

This seemingly sensible strategy can be a dangerous siren song, Mr. Christensen argues. His influential book shows how even successful firms can get into trouble by trying to please their best customers. Because there may be only a handful of highly profitable, high-end buyers who want and can afford more features and better performance, firms can invest heavily in trying to deliver what this elite group wants even though the resulting products may end up beyond the reach of the majority of their customers.

That, argues Mr Christensen, allows upstarts to enter the market and offer inferior (although perfectly adequate) technologies and products at much cheaper prices and push incumbents into ever smaller niches—and ultimately out of business altogether. He cautions this “disruptive” innovation is not the same thing as “radical” or “breakthrough” innovation, although the notions are often conflated.

Mr Christensen's alternative innovation strategies include watching out for new technologies or new business models which are designed to attract customers who may not be using your product today because it too expensive or too complicated.

He also thinks it is better to make things simpler and easier for the bottom and middle of the market, as personal computers did, rather than add needless bells and whistles for the handful of top customers who can afford and demand them. And he says companies should act decisively to co-opt or pre-empt disruptive ideas themselves, even if it threatens their core businesses in the short run.

The Economist, October 11th, 2007

12. Using the context infer the meaning of the following expressions.

costly dead ends, turf wars, a dangerous siren song, to add bells and whistles

13. Explain the following.

1. innovation remains a frustratingly fuzzy notion

2. to tease out ideas

3. to squash ideas

4. the most fertile area of innovations

5. to take hard-nosed approach

6. to nurture innovation

7. one-size-fits-all strategy

8. to take account of rapidly evolving competitive threats

9. wild and wooly idea-generation phase

10. the debate should be put to rest

11. an inward-looking firm

12. fast failing

13. to overcome the stigma of failing

14. to commercialise an idea

15. to push incumbents into smaller niches

16. to co-opt and pre-empt disruptive ideas

14. Agree or disagree with the following statements.

• “A lot of innovation is anti-Six Sigma. You want a lot of variance.”

• “Creativity is maybe 2% of the innovation process. It's a vanishingly small component, and it's the part you can acquire from outside the firm.”

• “Innovation is a loser's game, as we know most initiatives fail. But the truly innovative companies know how to deal with losing.”

• “It is no longer appropriate to speak of discontinuous (radical, disruptive) innovation and continuous (incremental) innovation. To do so implies that one comes out of thin air and the other has less value. Disruptive innovation is an oxymoron. Innovation is always continuous, a never-ending sequence of problems to be solved."

15. Think of examples of the companies that were too short-sighted to view change as an opportunity – not a threat, and went bust

READING AND SPEAKING (4)

16. Read the article and get ready to speak on the benefits of the open approach to innovation and the risks that companies hiring freelancer researchers are exposed to.