Strategy is built on finding a sustainable competitive advantage – some aspect of your operations that grants you a long-term advantage over competitors in meeting customer needs.
But Columbia Business School professor Rita Gunther McGrath has noted in recent years that with our quicksilver economy, when companies can speedily match competitors and marketing advantages can dissolve in a blink, it has become harder and harder to sustain any advantage you might map out.
The result is that you need a constant stream of innovations so you can always maintain an edge. But most companies, Prof. McGrath said, struggle with systematizing innovation. The usual approach is the equivalent of football's pass and a prayer – the chief executive officer asks a few senior people to make sure the company innovates, and hopes for the best. Instead, she said, you need a structure for constant innovation.
But she sees far too many instances where those systems go awry. In the interview, and in an article in the Ivey Business Journal drawn from her book The End of Competitive Advantage, she outlined six signs that your innovation system is broken.
"The six work together. Any one can kill you," she said in the interview. "When you see one, you tend to see all."
1. Innovation is episodic
Usually the first indicator that innovation has become dysfunctional is that it has become an on-again, off-again process that is dependent on the whims of senior people or small groups. Instead, you need a clear governance process, with a pot of money and criteria for what is desirable innovation. Someone must be in charge, overseeing innovation, and people's career paths should not suffer for getting tied up in seeking the new, given that it can be risky. "On-again, off-again innovation is worse than doing nothing. It sends the signal to good people that these are not the kind of projects they should bet their careers on, and it wastes resources. If you want to get it right, innovation needs to be continuous, ongoing and systematic," she writes.
2. The process is invented from scratch
Prof. McGrath said she is driven crazy by the tendency of organizations to act as if they are the first to ever undertake innovation. "They invent a process as if nobody on the planet has ever innovated, which you wouldn't do for any other process," she complains. She suggests taking a course, such as the one-week program she runs on innovation. Reading books. Talking to leaders at other organizations. Trying to benefit from the wisdom – and mistakes – of other people. She hails Prescott Logan, who a few years ago was named to head General Electric's new battery business, and took time to seek advice and understand what innovative process to use, rather than follow the standard GE approach. Using lean start-up ideas, the business is quite different from original conception.
3. Resources are held hostage
Companies must invest resources if innovative products are to be successful. But Prof. McGrath said existing businesses play defence, hogging money, people and other resources. "They take the oxygen out of it," she notes. And since today's successful business may not be tomorrow's, the company falls behind. To counter this tendency, the organization needs to ensure someone outside the existing businesses is making the decisions on resources for the innovative effort – perhaps the head of planning, or strategy, or the office of the CEO. "If you allow the existing businesses to determine where people and funds will be allocated, you're not going to enable and support innovation. Rather, you're going to get more of the existing businesses," she writes.
4. Innovations are force-fitted into existing structures
If you wanted to add a customer service function to your manufacturing process, it is obvious you would need to develop new processes given the differences in approaches required. It's the same with any innovation: You require new processes, since innovation is highly unlikely to be well served by the existing organizational structure. Let the innovation determine the business model you will use.
5. Applying the same criteria to innovation
Innovations are new and uncertain, which means the criteria used to judge them can't be the same as for the existing business. That starts when they first apply for funds internally, since requiring the same bureaucratic rigmarole could kill them, and continues throughout the process. She warned that efforts are usually judged by how big they are, but with innovations you want to learn as cheaply as possible, so keep control of resources.
6. Insisting on the venture meeting its plan
She says that never in her years of studying innovation has an initiative worked out as initially planned. As well, the greatest ideas often started as something entirely different. So accept that the initial plan won't be met. Be welcoming to new, sensible twists and turns that offer promise. Accept, in her words, that "innovation is sculpting smoke."
Harvey Schachter is a Battersea, Ont.-based writer specializing in management issues. He writes Monday Morning Manager and management book reviews for the print edition of Report on Business and an online work-life column Balance. E-mail Harvey Schachter