Business innovation - developing the right culture

20 November 2019

If "it's not broke, don't fix it" was true, we'd still be watching black and white television.

However, it seems the majority of Australian businesses are happy living in the past.

Only 16% of Australian businesses demonstrate a high-performance innovation culture.

How much does the culture of a business influence Innovation?

Innovation has become central to economic growth in the developed economies.

A study of the top 100 Global Innovators in 2014 showed their revenue growth outperformed the S&P 500 by nearly 100%.

As reported by The Conversation in December 2015, the Australian Innovation System Report (Office of the Chief Economist) identified high-performance innovation cultures can be defined by the extent to which innovation is part of the business strategy, and to what degree companies are customer focused as measured by:

Whether a business sources ideas for innovation from users or customers;
The importance a business places on innovation as a measure and strategy for business performance; and
A tendency to network and collaborate.

Against these measures, the report found that only 16% of Australian businesses demonstrated a high-performance innovation culture.

Alarmingly, 36% of businesses had a ‘siloed’ innovation culture, and 39% had little or no innovation culture at all.

Business innovation to keep pace with change

The pace of the changing business landscape is increasing. What was current technology or best practice can be out of date within a few years; sometimes, the cycle can be measured in months.

To maintain currency, relevancy and competitiveness requires businesses to make innovation a routine practice and not a special project. It’s becoming a core business.

Business innovation is required to not just adapt but, if possible, leapfrog the competition.

Kodak is a famous example of a highly successful organisation that failed to adapt to the transition from film photography to digital, which ultimately drove it to bankruptcy.

It isn’t the only one. Nokia dominated the mobile phone market for several years but failed to adapt to the smartphone era and is now largely irrelevant.

Innovate or perish.

What does business innovation mean?

Innovation can come in many forms.

Generally, innovation is associated with new technology, perhaps even the development of advanced technology.

However, businesses have many areas where innovation applies.

Whether it be a focus on existing products (or services) through product improvement/next-gen product development, product extension/variants, cost reduction, process improvement. Or, a move into new markets with new technology development.

In the marketing department, innovation is applicable right through the 4P stack.

Product innovation: developing the next new widget or achieving incremental improvement to maintain an edge over the competition. Customers needs are always changing, new technologies can be developed, applied or partnered with.
Price innovation: is an often-neglected innovation strategy. A good example is turning a product into a service. For example, some larger aircraft tyres are owned by the tyre manufacturers and the airline companies pay on a price per landing basis. Maintenance is also taken care of by the tyre manufacturers. This provides enormous benefits to the airline but also makes it difficult for customers to compare pricing.
Distribution innovation: The notable example is the disruption of the internet, currently decimating retail sales for some, but providing a low-cost distribution model for others. However, many manufacturers that started life selling direct to end-users have gained considerably through appointing distributors, dealers or retailers. And, there is always export. There’s nothing like getting others to sell your products through their channels.
Promotion: Again, the internet has created new sales opportunities through digital lead generation, however, there are endless promotional opportunities to explore. If your product or service is dependent on a sales team, rethinking your sales model could be a useful innovation.
Digital transformation: Digital transformation projects are now commonplace; essentially replacing manual labour-intensive business processes with digital platforms. Banks ran enormous digital transformation projects through the '80s and '90s eliminating hundreds of clerical staff, introducing ATMs, telephone banking and ultimately what we have today – internet banking. Law firms are (many already have) moving to paperless document management platforms that provide enormous efficiency through providing the ability to search past matters by keywords or phrases, combined with practice management and digital billing systems.
Factory Automation and Industry 4.0: Finding new ways to manufacture at a lower unit cost often means using automation. Factories (particularly in Australia where labour costs are among the highest in the world) replacing humans with machines is an increasing focus.

The latest trend is Industry 4.0 leveraging the Internet of Things (IoT) through connecting and communicating between factories and ultimately making decisions without human involvement.

For example, the entire supply chain can optimise processes aiming for just-in-time delivery of components by analysing product sales forecasts, without human intervention.

A combination of cyber-physical systems, the Internet of Things and the Internet of Systems make Industry 4.0 possible and the smart factory a reality.

Smart machines using AI will improve manufacturing efficiency through less waste, greater productivity, and improved inter-factory coordination.

The key driver is networking to enable the sharing of information that results in the true power of Industry 4.0.

Business Innovation isn’t just about product development; it has application to everything.

Innovate before your competition does

Innovation requires investment – that’s not a reason not to do it. Organisations need to be focused on creating the future and applying it before the competition. You can’t assume they aren’t already working on it.

Product development has been the traditional title used to describe the department dedicated to the task of product innovation, however, some organisations are adding a new C-suite title, 'Innovation director', with responsibility for not just product innovation but ensuring all parts of the organisation are being continuously evaluated in terms of opportunities for improvement.

Building a business culture that rewards Innovation

Preparing for the future requires applied innovation, or in fact, an Innovation Strategy guiding:

Evolutionary change: incremental or step change that seeks to improve the existing business (enhancing current company offering and driving costs down), or
Revolutionary change: a total re-imagining and rewiring of a business, developing new products and services for new markets.

But, how do we create an environment in which Innovation can flourish?

1. Start with your own people

It’s a fact that many of the best ideas start with your own employees.

After all, they are the people who are living and breathing the operations of your business.

They are often the best equipped to identify opportunities to improve current capabilities and processes and to assess opportunities to develop new products and/or markets.

2. Understand your core competencies

Identify the capabilities that your company and staff have today, that may be transferable tomorrow. These core competencies are unique to your organisation. They may have less to do with the products or services that you deliver now, and more to do with how you add value to what you deliver for customers.

3. Promote the environment

To get the ideas flowing, it’s important to foster an environment in which your people can feel comfortable openly sharing ideas and exploring initiatives. Try to step out of the usual business surroundings, uproot thinking around existing processes and try not to be side-tracked by the process martyrs (we’ve always done it this way/this is the way we do it).

4. Encourage collaboration.

Bring employees together from diverse backgrounds. Promote job swaps, develop cross-functional teams and encourage collaboration. Identify further collaborative opportunities with customers and members of your supply chain; with start-ups, industry incubators and accelerator programs, and traditional R&D programs.

5. Provide a systematic process to assess ideas.

Put some rigour around the assessment process to objectively weed out the more fanciful ideas from the ideas that are worth pursuing. Attach weighted measures of contribution to growth, profitability, competitive advantage and cost. Transparency through the assessment process builds trust in the process and ensures ideas are put forward with company objectives in mind.

6. Incentivise the process.

Incentivise the process to encourage management and staff to challenge convention and think more creatively in their roles. These can take the form of intrinsic rewards, such as providing people with the opportunity to work on new projects or providing greater role autonomy to inspire change. They can also be extrinsic in the form of pay incentives and profit share, prizes or public recognition. It’s important that the reward program aligns with people’s values to maximise engagement and encourage high performance.

7. Support change management through company transition.

How comfortable and confident staff feel about applying their capabilities will influence levels of innovation. Seek to develop a positive internal culture to support change in moving to a ‘new’ future state. Ensure competing pressures are managed across the existing business. Invest in training and upskilling and bring in industry expertise where required.

The performance benefits of developing an innovative culture are unlimited. An engaged, agile and flexible workforce that thrives in uncertainty and embraces a culture of discovery!

At JWPM, we provide a suite of services and professional expertise to transform existing thinking and to drive innovation through our clients’ businesses.

Find out more about our Innovation services.

JWPM Consulting