The social life of ideas: From innovation to profit


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The main challenge in organizational innovation lies in its execution, and not in having more ideas. Top companies create supportive cultures that transform ideas into profitable investments.

Companies need innovation to survive. In fact, there is no shortage of clever people and smart ideas. Hence the competitive edge comes from having the best execution – from the time the idea is first identified, shepherded through the corporate maze, and into the hands of the paying customer.

And yet, in many companies, the chase for short-term profitability can become the Achilles heel of long-term business sustainability. The way to avoid this is to have a deep-rooted culture that promotes innovation and new ideas to filter up and sideways.

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The social life of ideas: From innovation to profit

  1. 1. The main challenge in organizational innovation lies in its execution, andnot in having more ideas. Top companies create supportive cultures thattransform ideas into profitable investments.The social life of ideas:fromprofitinnovation to
  2. 2. Contents A Kodak moment Blind-sided by faster horses2368 Beyond innovationCulture means business12Decoding innovative behaviours14New game, new rules
  3. 3. The social life of ideas©2012 Hay Group. All rights reserved2Despite spending some US$1.3b to developits technology each year and owning over7,600 patents, Kodak could not escape thedeath spiral.A Kodak momentJanuary 2012. Film giant Eastman Kodak stunned the world by filingfor bankruptcy protection. However, to industry analysts, this wasless of a surprise as the company had been struggling for years toadapt to an increasingly digital world.So how did an innovative and resourcefulcompany like Kodak, who, incidentally, hadinvented digital photography, buckle andlose its core business?
  4. 4. 3Mega bookstore chain, the Borders Group,bowed out to online bookstores. Finnishmobile phone giant, Nokia, also lostsignificant market share to smart phonesmanufacturers like Samsung and Apple,despite having launched the earliest one –remember the Nokia Communicator (Boxstory: The price of missing a call at Nokia,p.4)?How did these companies stumble so badly?They certainly had no lack of experiencedmanagers or novel products and services.Contrary to popular belief, innovation isnot an exceptional state of affairs, but thenorm. Furthermore, innovation alone isnot enough. Firstly, it needs to be disruptiveso as to capture market share and gaincompetitive advantage. Just as Henry Fordhad once remarked, “If I have listened to thecustomers, I will be providing them withfaster horses!”.Secondly, innovation needs to survive whatwe call the “faster horses” mindset that isprevalent in all organizations.Companies are organised to deliver productsand services to customers. Resources arechannelled to deal with daily issues likemeeting customers’ needs, keeping costs lowand earning a decent margin. The Next BigThing therefore needs to survive the self-preservation agenda of the existing powerstructures before it can even get out the doorand into the hands of paying customers.Hence, a “faster horses” mentality is whatcrushes innovations from within.Blind-sided by faster horsesKodak is not alone in its plight. A quick flip through the newspaperswill turn up a host of other giants who are faltering in the face ofrapid technological advances.
  5. 5. The social life of ideas©2012 Hay Group. All rights reserved4The price of missing a call at NokiaIn the 1990s, Nokia, the mobile phone company, took the world by storm with itssleek mobile phone. Nokia’s strategy of investing in product development hadpaid off as it overtook Motorola to become the leading mobile phone maker in1998. Over 40 million Nokia mobile phones were sold in that year alone.Nokia had no shortage of good ideas, supported by an enviable R&D budget,spending US$40 billion in the past ten years. This is nearly four times what Applespent in the same period.In fact, as early as 1996, the company unveiled its first smartphone, the Nokia9000 or the Communicator, which would email, fax and surf the web. Accordingto Jorma Ollila who stepped down as CEO in 2006, Nokia was“about five yearsahead”of the competition.Furthermore, more than seven years before Apple launched the iPhone, Nokiaresearchers were already working on a prototype with a large colour touch-screen with a single button. They also secretly developed a tablet computer withwireless connection and touch screen.In 2006, Nokia’s smartphone and basic-phone operations were merged. AlastairCurtis, Nokia’s chief designer from 2006 to 2009, noticed that more time wasspent on office politics than doing productive work. The convoluted structurethat made it impossible for the team to deliver“a coherent, consistent (end-user)experience”.Hence, its R&D efforts were scuttled by internal rivalries and operations whereoperations were dislocated from the R&D efforts. Instead of nurturing theseground-breaking products for market launch, the company focused its efforts onat least two abandoned operating systems (remember Meego and Symbian?) anda pile of patents worth $6 billion.The result was apparent in 2010 when Nokia’s smart-phone market shareplummeted to eight per cent and its shares lost almost half their value. Currently,Nokia is undergoing large-scale downsizing. To pull itself out of its downwardspiral, the company needs to look within and remove the barriers that hamper itssuccess.1 “Nokia loses mobile lead amid bad call on phones”, The Wall Street Journal, 20-22 July 2012.2 “Charting the Rise of Nokia”, BBC News, 23 August, 2001 .( “Nokia Corporation History”, Funding universe,(
  6. 6. 5At the crux is how to go about incubating,nurturing and shepherding a novel idea fromdrawing board to board room.“”
  7. 7. The social life of ideas©2012 Hay Group. All rights reserved6Hence, it is no longer about having astrategy for generating more ideas orexecuting a scintillating market launch.The biggest challenge is how to ensure thatinnovations are not killed by the enemywithin; whether it is the Old Guards saying“it’ll never sell” or employees thinking “oh,they will never listen to me.”How do organizations go about incubating,nurturing and shepherding a novel idea fromdrawing board to board room. We believethat it starts with getting rid of the blindersthat restrict us to seeing only “faster horses”.Clearly, being innovative is not enough. Both Kodak and Nokiahad capable managers to run their operations professionally. Theyowned patents and had large R&D budgets to fund original ideasand product innovation. Both companies had, in fact, anticipatedthe disruptive technology and developed prototypes years before ofthe competition. Their innovation was too far ahead of the marketcycle and eventually fell victim to internal forces.Beyond innovation
  8. 8. 7Kodak’s competitor, Fujifilm, did justthat. It was ironic that faced with the samebusiness environment, Kodak behaved likea stereotypical, change-resistant Japanesecompany while Fujifilm acted like a flexibleAmerican firm.How was Fujifilm able to reinvent itself whileKodak struggled? Fujifilm also saw the digitaltsunami as early as the 1980s and developeda three-pronged strategy: squeeze what theycould out of the film business, move intodigital segment, and develop new businesslines. The changes sparked an internal powerstruggle, where the consumer film businessfought back ferociously.Chiding the nay-sayers as “lazy” and“irresponsible”, CEO Shigetaka Komoriguided Fujifilm through a painfulrestructuring, diversifying its businesses intoimaging solutions, lenses, and even skincare.“It was a painful experience,” said MrKomori. “But to see the situation as itwas, nobody could survive. So we had toreconstruct the business model.”1Fortunately for Mr Komori, the Japanesebusiness culture takes a longer view ofperformance and has a higher tolerancefor huge cash positions. As such, he wasable to set the company onto its “SecondFoundation” path.Hence, FujiFilm’s success lies in having astrong culture that supports the processof innovation and transformation. Buthow do leaders harness or even transformtheir culture so as to ensure their R&Dinvestments does not disappear into a blackhole?1 “The Last Kodak Moment”, The Economist, 14th January 2012.(
  9. 9. The social life of ideas©2012 Hay Group. All rights reserved8Culture means businessRepresenting ‘how things are done’, organizational cultures areimportant drivers of employee behaviour, particularly whenemployees must be relied upon to act on their own initiative in away that is consistent with the company’s objectives. What is the linkbetween culture and innovation.Louis Gertsner, former CEO of IBM,believed that “culture is everything”. Forhim, creating the right culture setting was thekey to the successful transformation of IBMin the 1990s.In 1993, the same year Gertsner took overas IBM CEO, IBM’s mainframe was losingmarket share to the disruptive technologydu jour – personal computers. IBM posted aUS$8 billion loss with shares trading at justUS$12.But Gertsner took the challenge head-on.He stripped the executives of their corporateuniform, broke up the large bureaucracy intosmaller business units, transformed Big Blue’sculture to focus on customer value, andrepositioned IBM as a consulting and systemintegration business.By the time Gertsner retired in 2002, sharesclimbed to US$90. IBM has also consistentlytopped Fortune’s World’s Most AdmiredCompanies in the information technologyindustry from 2006 to 2012.Hence it makes business sense to manageorganizational culture. But the task is notfor the faint-of-heart. Nor does it merelyinvolve a cosmetic sleight-of-hand. Efforts tochange organizational culture often face threesignificant obstacles.Firstly, culture is challenging as it isintangible. Secondly, changing the behaviourof one person is a hard enough task;imagine having to create a consistent setof new behaviours throughout an entireorganization. Finally, people resist change –the culture snaps back to old habits if initialchanges are not sustained.Traditionally, executives look to their HRdepartment and their tools – from rewardto training – for help. But even experiencedHR professionals get frustrated. The reasonlies in the fact that the success of culturetransformation does not depend on thenumber of tools used, but rather how deeplythe efforts penetrate.
  10. 10. 9This begs the question: what aspects ofour company’s culture block our efforts ofdeveloping an environment that is conducivefor innovation? If we can identify them, thenwe have starting point for transformation.The stumbling blocks could be legacy (e.g.Kodak and film), success (e.g. “our phonesare selling very well; why do we need to sellsmartphones?”) or structure (e.g. no linkbetween research and marketing).Which brings us to the question, how dowe achieve any lasting change? We believethat companies need to bring back theirsymbols and stories into general circulation.Some powerful examples from our CulturalTransformation Framework (Figure 1, p.11)include:•  Stories like “the CEO stayed at a crummy$100-a-night hotel in New York to savemoney during the global financial crisis”•  Actions like Haier’s CEO who pulleddefective refrigerators off assembly linesand taking a sledgehammer to them infront of employees to demonstrate theimportance of quality•  Artefacts like Google’s company statement,which starts with “Google is not aconventional company, and we don’tintend to become one”•  Aspirations like Infosys, who believe thatbuilding tomorrow’s enterprise will require“continuous innovation” and “continuouslearning”Making lasting change
  11. 11. The social life of ideas©2012 Hay Group. All rights reserved10Furthermore, to make the changes stick,leaders have to actively promote the desiredculture and behaviours. Otherwise, as weall have experienced, a default and oftenapathetic one (e.g. “don’t rock the boat”)would grow to take its place. Accidentalorganizational cultures can be hazardous to acompany’s health!Different, even opposing, values are notuncommon especially in complex, globalorganizations. Hence we believe that apowerful place to start is by asking, “Whatare the stories and symbols that willencourage, and not kill, innovative ideas?”Once we have ascertained our symbols, wecan start fostering and encouraging the kindsof behaviours that enforces the spirit ofinnovation from within.
  12. 12. 11Figure 1: Hay Group’s Cultural transformation frameworkInspiration, history,purpose, mental modelsof founders and leadersDominant individualsand leaders’motivesand valuesRelationships andnetworksDominant countryenvironmentShared purposeand valuesOrganizationalmesseges andreinforcementsActionsand behavioursShort and longterm engagementand resultsGuided byAspirationStrategy and goalsLeaders’posture androle modellingOrganization structuredesignManagement systemsBrandSymbols and artifactsDriven byLeaders’ behaviorsEmployees’engagement and behaviorsDelivered byThe key is to identify and focus onthe relevant catalysts for culturalchange
  13. 13. The social life of ideas©2012 Hay Group. All rights reserved12Hay Group’s Best Companies of Leadership2011 study shows a significant gap betweentop and average companies in theirinnovation practices (Figure 2).Furthermore, even though employees spendmuch time discussing customers’ futureneeds – a necessary premise for innovation– not enough is being done in terms ofcommitment and resources to turn goodideas successfully into profitable business.For instance, many organizations in Asia donot put their money where their mouths are;instead they prioritise short-term profits overinnovation.Figure 2: Decoding behaviours that promote innovationDecoding innovative behavioursHaving the right culture means having a corresponding set ofbehaviours. What are these behaviours and what do they look like inaction?Asia Top 10 Rest of Asia Global Top 2061%47%94%71%53%65%100%90%80%70%60%50%40%30%20%10%0%My company runs unprofitableprojects to try new thingsMy company is willing topostpone short term profits in orderto invest in innovationIn my company, negative feedbackand performance difficulties are treatedas opportunities to learn and grow77%56%95%81%56%90%Employees spend much timediscussing customers future needsSource: Hay Group Best Companies for leadership 2011
  14. 14. 13By way of explaining Figure 2, let us lookat Google. At Google, the hierarchy is keptdeliberately flat. A relaxed and inclusivework environment is created to provide thetime and space for employees to mingle andexchange their ideas freely. Professional prideensures ideas are thought through before theymake their circuit within the company.Good ideas are quickly put to trial. Thosethat failed to make the mark, like Google’smobile phone, Nexus One, and GoogleWave, a web application for real-timecommunication and collaboration, aredecisively shelved after careful evaluation.All these experimentations are carried outin a psychologically safety environmentthat greatly empowers and energises theemployees to think about what their userswill need in the future. It has enabled Googleto launch great ideas continually, like thehighly successful Google Map and StreetView.When it comes to jumping through hoops,Google has a relatively high tolerance formistakes, viewing it as a necessary conditionof innovation. When asked how thecompany knew they were being innovativeenough, a Google senior staffer told us, “weget worried when we don’t make enoughmistakes.” Certainly this attitude is notfor every company but it illustrates theimportance of the culture and mindset forinnovation to thrive.
  15. 15. The social life of ideas©2012 Hay Group. All rights reserved14New game, new rulesCompanies need innovation to survive. In fact, there is no shortageof clever people and smart ideas. Hence the competitive edge comesfrom having the best execution – from the time the idea is firstidentified, shepherded through the corporate maze, and into thehands of the paying customer.And yet, in many companies, the chasefor short-term profitability can becomethe Achilles heel of long-term businesssustainability. The way to avoid this is tohave a deep-rooted culture that promotesinnovation and new ideas to filter up andsideways.While many top executives admit that culturechange is needed, they are often stuck withwhere to start. We recommend that leadersstart with thinking of transformation as ajourney.And the journey is not as difficult as it looks.Executives can start by listening to the stories
  16. 16. 15that are being told within the company andthe symbols and heros that are being upheld.Are they in line with the desired culture ofsupporting innovation? If yes, then continueto propagate them widely and loudly.However, if the stories not congruent, thennew ones will need to be found or evenmade. In this way, employees will know thenew game rules to play by.A working environment that promotes,rather than stifles, innovation is withinreach of all companies. But only when it iseffectively executed will companies reap thereward of their R&D investments.
  17. 17. The social life of ideas©2012 Hay Group. All rights reserved16AuthorsAndreas Raharso, Ph.DDirectorGlobal R&D Centre for strategy execution, Hay GroupE| andreas.raharso@haygroup.comMs Agnes LongResearch AssociateE| agnes.long@haygroup.comGlobal R&D centre for strategy executionHay Group10 Hoe Chiang Road #04-03/05 Keppel Towers Singapore 089315W| The content in this report is provided solely for informational purposes. This report does not establish any client, advisory, fiduciary orprofessional relationship between Hay Group and you. Neither Hay Group nor any other person is, in connection with this report, engaged in renderingaccounting, advisory, auditing, consulting, legal, tax or other professional services or advice.About Hay Group’sglobal R&D centre forstrategy executionHay Group’s global R&D centre for strategyexecution researches best practices in strategyexecution globally. Based in Singapore,the centre provides a unique East-Westperspective for business leaders all over theworld. Our research helps provide insightfuladvice to executives looking to build effectiveorganizations for the future. More informationcan be found on ideas in this paper were first presented at the Strategic Management Society’s SpecialConference held in Singapore (7 – 9 June 2012). The theme of this year’s special conference was“Innovation: Novel moves for a global game”.
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