Corporate Idol: Popular TV show offers lessons on creating innovative cultures
When Steve Jobs announced health concerns were forcing him to take a six-month leave from his position as CEO of Apple , it raised serious questions about the future of one of the world’s most innovative companies.
Three months later, Apple appears to be doing just fine. It has rolled out several new products and its stock price is up more than 30 percent, even as the overall market has declined.
Still, close industry observers wonder if Apple can keep ground-breaking products flowing through its development pipeline if Jobs doesn’t come back.
“We were never concerned about what would happen to Apple during a six-month leave,” Dan Frommer, senior editor for the high-tech news Web site, Silicon Alley Insider, recently wrote . “The potential for Apple to slip is several months—or years—down the line
Steve Jobs taking a leave of absence raises questions about whether Apple truly has an innovative corporate culture. ( Photograph by Matthew Yohe)
What Frommer is questioning, without exactly saying so, is whether Apple has created a corporate culture that fosters innovation—or if its success at developing game-changing products like the iPod and iPhone depends solely on a small group of creative people.
That’s a question the management team at every manufacturing company should be asking itself.
“It’s just the nature of business today that companies have to get the most out of every idea, and every product they bring to market,” notes Jim Brown, president of Tech-Clarity , an analyst firm that tracks the product life-cycle management (PLM) software market. “So it’s important to develop an environment in which they can consistently identify the best ideas and get them to market quickly.”
To make this happen, Brown says, manufacturers need to look at product development in the same light as other business processes.
“Companies have been putting together budgets and signing checks for R&D for a long time,” Brown says, “but it’s been sort of like a black box in terms of not really knowing what’s going to come out in the end. We have created standard processes for all other areas of the business—production management and supply chain management, and more—but product innovation hasn’t lent itself to being standardized.”
Software vendors—particularly those in the PLM space—claim to offer solutions that can help companies create and execute standard product development processes. But Brown warns that simply adopting new technology is not enough to create an innovative culture.
Exec support required
“It’s a change management issue,” Brown maintains. “You need executive involvement in creating processes and an organizational structure that foster innovation [and ideation for] getting new products to market quickly. Once you have that in place, you can bring in the proper technology to enforce the methodology.”
As director of innovation management and PLM strategy in the Enterprise Partner Group at Microsoft , Don Richardson is constantly involved in discussions about what it takes to create and maintain an innovative corporate culture. And he agrees that the first requirement is executive support.
“It’s also important to budget time for people to be creative. We’ve heard of companies encouraging people to set aside 10 percent of their time to work on new product ideas. That definitely requires executive-level support.”— Don Richardson, director of innovation management and PLM strategy, Microsoft
“Without executive support, many of the programs and methodologies that a company puts in place to foster innovation won’t succeed,” Richardson says. “And management has to do more than just issue a mission statement. They have to show true participation in the process by doing things like championing new product lines or new ideas.”
Richardson says management also must demonstrate a financial commitment to innovation by ensuring new product development budgets don’t get cut, even in tough economic times.
When speaking with manufacturers about creating an innovative culture, Richardson invariably invokes the name of Karl Ulrich, chairman of the Operations and Information Management Department at the University of Pennsylvania’s Wharton School of Business .
In addition to his academic work, Ulrich has consulted with numerous manufacturing companies in developing products ranging from scooters and bicycles to food products.
In a presentation at a recent Microsoft-hosted Innovation Summit , Ulrich said his research has uncovered very little relationship between the amount of money a company spends on R&D and its success at developing market-leading products.
“Apple is widely perceived as an innovative company, but they are in the median when it comes to R&D spending among high-tech companies,” Ulrich said. “That indicates there are other ways to fuel innovation than spending money.”
Ulrich outlines what he thinks is the best approach for fueling innovation in a book he co-authored called Innovation Tournaments . The book, scheduled for publication this June, offers examples of companies creating game-changing products through what Ulrich describes as American Idol -style competition.
“We’re talking about a tournament structure in which you have a large number of raw opportunities,” he explains. “You apply a series of investment and selection mechanisms to them until only the exceptional few emerge from the other side.”
On American Idol , the selection mechanisms are the votes from the judges and the viewing public; in a product development tournament, the votes typically are cast by peer review groups.
In his presentation at the Microsoft summit, Ulrich cited two well-known consumer products that emerged from this type of competitive process.
One is the cholesterol-lowering drug Zocor, on which Ulrich says pharmaceutical giant Merck has generated more than $30B in revenue from a $1B investment. The drug’s development started with a list of
Ulrich says pharmaceutical manufacturers need the inherent efficiency that innovation tournaments bring to the product development process because their high R&D costs constantly put them in the position of “trying to uncover that one piece of gold without going out of business.”
The stakes may not have been quite as high, but the rewards proved great when Oral B developed its CrossAction Pro-Health toothbrush ( at right). This product, introduced roughly five years ago, dominates shelf space in most national drug store chains. It also commands a premium price of roughly $6 compared with the $1.79 that consumers pay for generic brushes.
The CrossAction’s big selling points are bristles that have been scientifically proven to clean better than others on the market and a unique handle design that users find comfortable.
In developing this product, Oral B designers started with more than 200 pencil sketches, with roughly two dozen designs surviving the weeding-out process to be made into balsa foam models. Finally, the best five were developed into engineering prototypes that were tested by consumer panels.
Tool and touch
Microsoft has made innovation tournaments part of its own product development efforts.
Mike Steep, senior director of business development with the Microsoft Headquarters Innovation Team, says this approach evolved from a suggestion by one of the company’s senior technology fellows. The initial idea was to create a technology platform that would allow any Microsoft employee to submit ideas about new products and have those ideas screened for possible investment.
“We were debating the idea of creating a process for grassroots product development when we realized it would take more than a tool to get any grassroots ideas off the ground,” Steep recalls. “So we developed an approach that we call Tool and Touch.”
The program is managed by a group called the IDEAgency, which started out by asking leaders of the various Microsoft business groups to issue challenges seeking new products to address specific business problems or market needs.
The IDEAgency also administers an internal Web site known as IDEAExchange—the tool portion of the program—where business group leaders post YouTube-style videos describing the problems they want new products to address.
Any Microsoft employee can submit new product ideas to the site, which also has areas where employees can get help in packaging their ideas, and solicit input from the entire Microsoft community.
“There is inherent social network architecture supporting the site,” Steep says. “There are learning tools [that help with] things like how to create a business plan, and how to present ideas.”
Steep says more than 18,000 Microsoft employees visited IDEAExchange in its first 18 months online, with more than 1,200 new ideas posted.
The IDEAgency supplements the site with live innovation tournaments at various company locations. At one
At the end of those mini consulting sessions, each group delivered a 15-minute presentation to the business group that would launch the idea.
“Three were selected for full funding,” Steep recalls, “and they were given six to eight weeks to develop prototypes.” Ultimately, Streep says, one idea resulted in a program for delivering digital coupons to consumers’ cell phones, for which Procter & Gamble agreed to sign on as a partner.
Steep says the Tool and Touch program continues at Microsoft, and he anticipates future product successes, but he’s convinced it wouldn’t be possible without the formal facilitation and management support—both on the Web site and in the live sessions. Tech-Clarity’s Brown agrees.
“Social networking tools can support innovation,” he says, “but unless you have a formal process in place, your technology becomes nothing more than an electronic suggestion box.”