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Innovation as a Weapon in Global Competition
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The 24/7 Innovation
THOUGHT LEADERSHIP SERIES
Innovation as a Weapon in Global Competition
By: Stephen M. Shapiro
To say the global economic environment is undergoing the Continuous innovation
most rapid change in the history of business is to state the
obvious. Unless you have been living under a rock for the Innovation has traditionally been thought of as something
past year, you know all about the market blow following separate and discrete, brought into the organization from
the September 11 terrorist attacks, the dot-bomb outside, from the laboratory. Take your most innovative,
phenomenon and the collapse of Enron. To make matters creative people and lock them in a room while they
worse, many American companies are increasingly facing develop a new process. Then tell them to implement the
resistance -- internal and external -- as they try to expand change company-wide.
globally.
But is this really the way a company should be run? A
These events, combined with an already declining global study carried out at Eckerd College in Florida challenges
economy, have left corporate executives on edge. Yes, it's the traditional models.
bad news and it's depressing. The good news?
Everyone's in the same boat. Managers who came to the Eckerd leadership course
were broken up into teams and given a problem to solve,
But now as before, the fundamentals stand: If you create a "The Hollow Square". Before being allocated to their
business that can adapt quickly and flexibly to the teams, the managers were assessed to determine
changing economic and cultural landscape, you may have whether they were "innovators" or "adapters". In general,
the silver bullet you're looking for. innovators tend to "do things differently" and are prepared
to break with rules or ignore past traditions. Adapters, on
A key to achieving this kind of quick response is learning the other hand, are focused on "doing things better", but
how to inject innovation into decision-making at all levels they tend to work within the rules and accept the status
of the organization. It won't happen by decree from the
quo.
CEO, and I'm afraid there is no shortcut. Real innovation
requires broad cultural change based on values, For this exercise they were divided into teams, of which
guidelines, and outcome-based measurement systems three are of particular interest. Each team was comprised
that give flexibility to all employees while mitigating risk for of two groups. One of the groups was designated as
the business as a whole. Done properly, a company can "planners", and its task was to work out a solution to the
stay ahead of the change curve and beat the competition problem. The second group consisted of "implementers",
while also easing its move into new markets. charged with making it work. The planners told this group
what to do in order to form a hollow square with the tools
If you aim to achieve and sustain a leadership position in a
that had been made available to them.
global marketplace that never sleeps, your company must
be a hothouse of creative thinking, flexibility and agility - In the first team, the group of planners was made up of the
twenty-four hours a day, seven days a week. "innovators" and the implementers group was made up of
ÓThe 24/7 Innovation Group 2002. All Rights Reserved.
This is a preprint of an article published in the September/October 2002 issue of The Journal of Corporate Accounting and Finance.
The final version can be found on Wiley's website http://www.interscience.Wiley.com/The 24/7 Innovation
THOUGHT LEADERSHIP SERIES
"adapters". In the second team, they were all mixed up This premise has been tested out many times over the
together. The planning group had both innovators and years. For example, George Land and Beth Jarman, gave
adapters, and so did the group of implementers. In the 1,600 five-year olds a creativity test used by NASA to
third team, however, the groups were turned upside down. select innovative engineers and scientists, and 98 percent
The planning group contained only "adapters" and the of the children scored in the "highly creative" range. These
implementing group contained only "innovators". same children were re-tested five years later and only 30
percent of the 10 year-olds were still rated "highly
Although most would dismiss the structure of the first team creative". By the age of 15, just 12 percent of them were
as unworkable, this is how most companies implement ranked in this category, while a mere 2 percent of 200,000
change. Team structure two, the cross-functional adults over the age 25 who had taken the same tests were
approach, is usually assumed to be the best alternative.
still on this level. So, it seems, creativity is not learned,
But in reality, the third option is the one that turns out to be
but rather unlearned.
most effective -- the one where the "adapters" do the
design and the "innovators" implement it. The "adapters" And yet the business world has traditionally favored
are able to come up with a design very quickly, albeit an analytical thinking over the capacity to innovate and has
imperfect one. And the creative types are then able to take seen to it that business schools produce highly trained
that design and build something from it, correcting and young men and women to think along strict parameters.
improving as they go along. Whenever a problem arises
But times have changed, and now the mission has to
they are able to solve it there and then without checking
change -- to help people unlearn their uncreative habits.
back with someone else.
The ability to innovate is much more pervasive and
Can everyone be innovative? ubiquitous than most of us imagine.
Continually competitive businesses will be built not around A word about definitions. Innovation is not the same as
a lot of heads and hands, but around a lot of hearts, invention. Invention is something to be pursued in a
around motivation, dedication and commitment to creative carefully controlled laboratory atmosphere. Invention is the
process of discovering things that have never been
thinking. Successful innovation is continuous, and that
discovered before. Innovation is different. In the business
very continuity enables companies to keep pace.
Executives recognize that their company loses ground world, innovation is the discovery of new ways of creating
when the pace of change outside the company is greater value. Not everyone can be an inventor, but everyone can
than the pace of change within. be innovative.
A popular myth is that some people are born creative, and Stimulating employees
some are not. There is, in this view of the world, a creative
Innovation is a must, because (to the great frustration of
type of personality - Michelangelo, Mozart or Tolstoy, for
some) the environment in which companies operate is
example - and then there are the rest of us. But this is
totally wrong. It's all a matter of degree. We all have the highly unpredictable. Customers today are perplexingly
potential to be innovative - perhaps not quite as much as fickle and demanding, and they want us to do things that
Mozart, but innovative nonetheless. our detailed binders of workflows are not able to handle.
How can we satisfy them when the policy book does not
provide the answer?
ÓThe 24/7 Innovation Group 2002. All Rights Reserved.
This is a preprint of an article published in the September/October 2002 issue of The Journal of Corporate Accounting and Finance.
The final version can be found on Wiley's website http://www.interscience.Wiley.com/The 24/7 Innovation
THOUGHT LEADERSHIP SERIES
We must look elsewhere. Jazz is the perfect metaphor for Employees have to be trusted to search intelligently for
innovative business activity. This appeals to me because improvements. But they do need guidance, training, and
in my other life I love to improvise on the tenor sax. I am the tools to fulfill whatever solutions they come up with. It's
not the only one who has been struck by the not a straightforward choice between rigid structures and
appropriateness of the jazz metaphor. In 1996, John Kao allowing total anarchy. It's a question of finding the right
wrote "Jamming" which used jazz as a theme for creativity. balance of structure and freedom.
And, in "The Social Life of Information", the authors, John
Seely Brown, director of Xerox's Palo Alto Research What this leads us to is the difference between "box"
Center (PARC), and Paul Duguid describe some work thinking and "line" thinking. When people say you need to
done by two Xerox technicians trying to repair a client's get "out of the box" to be innovative, they are right, but for
the wrong reasons. The box that most people operate in is
machine.
focused on activities, computers, people, or departments
To paraphrase the authors: "The afternoon resembled a within a company. It is the lines, the interconnections and
series of alternating improvisational jazz solos, as each interdependencies between the boxes, where innovation
took over the lead, ran with it for a little while, then handed emerges. Innovative thinking comes from making
it off to his partner, all against the bass-line continuo of the connections. Connections between boxes. Connections
rumbling machine, until it finally all came together". That is between ideas. Connections between companies. Or
the way the two technicians found a solution to their connections between industries. Focusing on the lines
client's problem, a solution they would never have found frees up the organization to improve within the guidelines
by simply following the book. of the simple structure
But for me, jazz is more than just creativity. It is bringing a Strategies that have worked
company together in such a way that there is coordinated
action throughout. Just as with jazz, this requires simple How do the concepts of jazz, lines, improvisation and five-
structures that enable innovation to take place in a year-olds translate into practical business application?
harmonized and collaborative fashion. These simple Over the years I have seen many innovative companies.
structures equate to the role of process in fostering And although there is no formula for their success, here
innovation. They provide the framework for freedom inside are a few common strategies:
the structure.
Make everyone accountable: Because a few individuals at
What the jazz musician adds of his own accord is not the top cannot possibly plan all of a company's activities,
pulled out of thin air. It is based on fundamental rules give employees a set of rights, responsibilities and
about chord progression and chord structures. Likewise, rewards that make them accountable for their own actions.
what the business invents in order to improve any given Koch Industries, an oil and gas company based in Wichita,
capability has also to be founded on certain basic ground Kansas, wanted to achieve world-class safety. Rather
rules. The players in a business have to be able to than have a few safety engineers scour the company,
innovative at any minute of the day while literally "on their Koch (pronounced "coke") gave this responsibility to all
feet". Innovation in business thus is just as important as employees, with rewards both for uncovering unsafe
improvisation is to jazz. conditions and for discovering new ways to conduct
business more safely. This initiative resulted in as much
as a 50 percent improvement each year in the number and
ÓThe 24/7 Innovation Group 2002. All Rights Reserved.
This is a preprint of an article published in the September/October 2002 issue of The Journal of Corporate Accounting and Finance.
The final version can be found on Wiley's website http://www.interscience.Wiley.com/The 24/7 Innovation
THOUGHT LEADERSHIP SERIES
severity of accidents across Koch Industries. Within one them all a check averaging 15 percent of their annual
year the company had moved from middle of the pack to salary.
one of the best safety records in its industries.
Focus on your core strengths… and outsource: Another
Replace rigid processes with clear business objectives: way of using innovation to stay nimble and competitive is
Too often innovation is stifled because companies define by focusing on your differentiators, and relegating
business processes in great detail, then hand those everything else to partners who have that expertise.
designs to the line that is expected to execute them. Imagine an insurance company established only two years
Mölnlycke Health Care, one of Europe's leading ago that has already contracted 15,000 policies and is
manufacturers and suppliers of single-use medical issuing 200 new policies every week. Now imagine that
products, allowed production teams to decide how to meet the company has only two employees. This is Universal
their goals. With the responsibility for quality products Leven, a Netherlands-based subsidiary of Allianz, focused
moved to individuals on those teams, nearly 70 percent of on large, professional broker organizations. The two
the company's new products launch on time, compared employees are in charge of corporate strategy, network
with just 15 percent previously. As a result, the company expansion and product development. Everything else,
will have quadrupled its shareholder value in only five including product branding, product design, marketing and
years. all back-office operations, is outsourced.
Challenge employees to compete: When challenged by Link strategy, customers and capabilities: To be
external (or sometimes internal) organizations, groups are competitive and sustain market leadership in a changing
kept on their toes. For example, prior to being acquired by Brazilian marketplace, Multibras (appliances) embarked
RWE AG in 2000, VEW Energie AG, a German-based on an ambitious change program. This was achieved by
utility, created a new business entity responsible for focusing the business imperatives at three levels: industry,
service, maintenance and construction. But other VEW customers, and competencies. Multibras first looked at
managers were allowed to do business with competitors future discontinuities in the industry by mapping potential
offering the same services if the price was right. As a future transformations and expected changes. They did
result, the new unit worked hard to remain competitive, this through the creation of scenarios and business
and in return was able to offer services to outside imperatives. The changes were then fed into a view on
companies as well. what customers would want in the future. What are
customer expectations (current, and potential future),
Encourage employee innovations, and reward them needs and wants? This was done using current customer
accordingly: Companies are often fast to turn to outside
knowledge, direct involvement from customers (e.g.,
help, when in fact they already have the capabilities within
Whirlpool), and leveraging marketing expertise. The
their organization to do the job. Koch's pipeline business outcome helped drive the definition of the distinctive
in Minneapolis had budgeted $30 million to expand its capabilities required in the future. This effort ultimately
pipeline with external support. A team of company generated $50 million in cost reduction benefits for the
employees decided that they could do the job themselves
company, reduced time to market by 35 percent, and cut
better and cheaper, and within a couple of months they
development cost by 15 percent.
had increased the pipeline's capacity by 15 percent while
spending only just over $1 million. Koch immediately gave
ÓThe 24/7 Innovation Group 2002. All Rights Reserved.
This is a preprint of an article published in the September/October 2002 issue of The Journal of Corporate Accounting and Finance.
The final version can be found on Wiley's website http://www.interscience.Wiley.com/The 24/7 Innovation
THOUGHT LEADERSHIP SERIES
S curves, each of which increase the company's capacity
Creating a culture of innovation for change:
This all sounds impressive, but unfortunately your 1. Leadership-Driven Capacity
company's culture may be light-years away from that of
the companies cited above. And, typically, organizations At this early stage, progress is invariably based on the
are not comprised of five-year-olds with an infinite supply tenacity and leadership of a single individual, someone
of creativity, energy, and flexibility. They are more likely who gets the bit between his or her teeth about an
opportunity for improvement. By taking responsibility for it,
composed of adults with long histories, territories to
the individual drives the change. This top-down approach
protect, and boxed-in thinking. This makes any kind of
change difficult, and culture change particularly difficult. requires the individual to create such a sense of urgency
As someone once said, "The only one who likes change is about the initiative that he or she prevents it from falling
a wet baby." into what is all too common - a debilitating series of fits
and starts. If there is no compelling need to change,
Structural changes alone are not sufficient for an change is unlikely to happen.
organization to become innovative throughout. Changes
2. Structural-Driven Capacity
must be made in virtually all parts of the organization, from
the management style to the measurement systems.
Ramming home a new change program without At this stage the responsibility for change no longer rests
with an individual. To some extent, it has been taken over
preparation would be a bit like dropping a high-powered
by the organization. Mechanisms have been put in place
engine into a Volkswagen Beetle without altering the
to enable employees across the business both to
transmission, the drive train, the suspension and so forth.
implement change and to drive it. Typically, such
It can be done, but chances are the finished product won't
work very well. mechanisms include various performance measures,
organizational structures and lines of communication. This
often includes a move towards a process orientation.
It is important to recognize that even the greatest
enthusiast has finite limits to the amount of change that he Process improvements in one area eventually help to build
or she can tolerate. Since each company is made up of a up the organization's over-all ability to improve. The better
unique bunch of individuals, and each company's capacity a company becomes in one area, the more skilled it
becomes at getting better in other areas.
for change is unique. Any company's plans have to take
these limitations into account. The timing of the change,
the approach to it, and the people who lead it will all vary 3. Organic Capacity
depending on each company's circumstances. There are
By this stage, the capacity for change has become built
no templates here.
into the organization, and it is often being driven from the
bottom, with employees seeing it as an integral part of
In my experience, culture change goes through three
their jobs. This comes about partly because companies
waves as it moves toward a true culture of innovation.
that reach this level have focused specifically on
Each wave starts at a modest level, then builds up to a
developing change competencies in their employees.
plateau. It then rests for a while (as if to take a breath) They have reached the idyllic stage where innovation is an
before gathering enough momentum to go to the next
integral part of the company culture.
level. Successful companies move through three waves of
ÓThe 24/7 Innovation Group 2002. All Rights Reserved.
This is a preprint of an article published in the September/October 2002 issue of The Journal of Corporate Accounting and Finance.
The final version can be found on Wiley's website http://www.interscience.Wiley.com/The 24/7 Innovation
THOUGHT LEADERSHIP SERIES
The path through these three waves will take years but the core engineering to a focus on smart products via
payoff can be great. Once completed, a company can selective purchases of automation, and technology
avoid the continuous gut-wrenching change programs that businesses. One of the ways this is achieved is by only
have plagued organizations for so long. Change will allowing the strongest, most profitable, highest-growth
happen much more continuously and pervasively areas of business to dominate, while others that are
throughout the business. withering on the vine are lopped off. Invensys acquires
and disposes of new operations as needed. And more
The impact on global companies importantly, its business model allows each of the
countries to operate somewhat independently, enabling
Due to the relative homogeneity of the United States, them to make decisions that meet local needs. In their
many American companies are structured in a more
industries, Invensys leads in the area of global diversity,
centralized and standardized manner. Control is driven
with over 50 percent of their business coming from sales
from the center of the organization, with strong corporate outside of their home region.
governance. But this model has caused heartburn for
many companies trying to expand overseas. I have ABB, the Swiss-based technology and engineering
worked with a number European companies over the past company, is renowned for its ability to create a powerful
few years. Their approach to organization models is quite global structure. ABB serves customers in power
different. transmission and distribution; automation; oil, gas, and
petrochemicals; building technologies; and in financial
With their varying cultures, economies and (until recently)
services (this last group is in the process of being sold at
currencies across Europe and the world, non-American the time of writing). The ABB Group is comprised of 800-
companies typically use a more decentralized structure. 900 companies operating in 142 countries, and employs
This enables businesses in each country to get close to 170,000 people. ABB's historical strengths lie in its
the customers and markets and design propositions and
decentralized management philosophy. This enabled
ways of working that meet local needs. And while market
local businesses to tailor offerings to the needs of the local
turmoil can mean sharp swings in profitability, much can market and respond quickly to changing market
still be learned from these global companies. conditions. Throughout the 90's ABB was the poster-child
for how to create and run a global business.
One British company, Invensys, is a large, global
electronics and engineering firm that was created by the These types of structures have enabled these and other
merger of BTR and Siebe in 1999. At that time it operated companies to quickly enter new markets or even new
globally through four divisions -- Software Services,
businesses. However, anyone who has followed these two
Controls, Power Systems, and Intelligent Automation. And
companies knows that the past two years have been
within those divisions there were approximately 30 product difficult for them and a number of other companies in their
groups, each of which operated in the countries of its sector. I contend one reason (but certainly not the only
choosing. Profit and loss accountability is at the product one) is that these companies did a great job of focusing on
group level, giving a fair amount of autonomy and
the "boxes". Lots of little boxes (in contrast to one big box
supporting the decentralized philosophy of the company.
typically used by American companies). They created
powerful, localized businesses. The problem is, they did
This "small business within a business" approach has
not focus on the lines. There was little synergy across the
enabled Invensys to reconfigure its portfolio from hard-
operating units within the company. Because of this,
ÓThe 24/7 Innovation Group 2002. All Rights Reserved.
This is a preprint of an article published in the September/October 2002 issue of The Journal of Corporate Accounting and Finance.
The final version can be found on Wiley's website http://www.interscience.Wiley.com/The 24/7 Innovation
THOUGHT LEADERSHIP SERIES
doing business internally with other operating units can be But potentially most important is the company's use of
more difficult and expensive than buying product from "internal markets", which brings the price system of the
external competitors. free market inside the organization. This is done by
applying internally the prices and services that employees
One company I am familiar with believes that nearly 50 actually use in their daily work. Koch allows any two units
percent of business transactions that could have been
within the organization to account for an internal
conducted internally across operating units, were sourced
transaction at the prices they would seek in the open
externally from competitors. This is not helped by the fact market, even if these prices differ (of course done in
that it is not unusual for these companies to have dozens conformance with Generally Accepted Accounting
or even hundreds of different ERP systems. Unfortunately, Procedures. The important point is that this ensures that
each ERP system does not talk to the others, and typically
units are rewarded appropriately for co-operating with
has different number schemes for customers, suppliers,
each other. The company reckons that up to 50 percent of
parts and products. This makes any level of collaboration its profit comes from such initiatives. These approaches
as difficult as if each business were speaking a different have helped the company grow 200-fold over three
language. decades, and helped it expand into new business areas
previously not considered.
The Koch example
What's the bottom line?
Earlier I referred briefly to Koch Industries' innovative
safety program. This is a customer-focused innovative
So, what is the key for global companies trying to compete
organization that believes deeply in the tenets of the free in today's difficult, volatile environment? It is creating a
market. The company is the second-largest privately held culture of innovation where decision-making is pushed to
firm in the United States and would rank 21st on the the lowest levels of the organization. This then needs to
Fortune 500 if it were public. Koch is a conglomerate with
be balanced with a set of simple structures, rules, and
a wide range of interests. But it is not so much what the
measures that enable coordination throughout the
company does that is interesting as the original way it company.
does it. Koch Industries operates as a network of
employee-entrepreneurs who work within a framework of A one-size-fits-all structure will hamper the efforts of
appropriate incentives and decision-making powers. American companies to truly compete globally. It is rarely
Anyone brought in specially to do a job within the group is smart to try to export Los Angeles to Paris. But adopting a
immediately given the authority to spend money and to culture of flexibility through pervasive innovation, based on
move people when and where he or she chooses. market and cultural realities, can lead to changes that suit
the business environment. It is never quick and easy, it is
Koch Industries is a highly entrepreneurial company that never painless, but failure to face up to the challenge will
does also connects the dots. A clear mission, set of almost surely mean losing advantage in the marketplace,
values, and culture are shared throughout the and ultimately seeing the more creative competition take
organization. Decision-making is decentralized as far as
away business.
possible, and based on the best local knowledge and
information, while knowledge is shared across the
company.
ÓThe 24/7 Innovation Group 2002. All Rights Reserved.
This is a preprint of an article published in the September/October 2002 issue of The Journal of Corporate Accounting and Finance.
The final version can be found on Wiley's website http://www.interscience.Wiley.com/The 24/7 Innovation
THOUGHT LEADERSHIP SERIES
About the author
Stephen Shapiro is the author of 24/7 Innovation: A
Blueprint for Surviving and Thriving in an Age of Change
(McGraw-Hill, 2002, ISBN: 0-07-137626-7, $29.95) and
founder of The 24/7 Innovation Group. Previously, he
spent 15 years at Accenture. During his last three years,
he was based in London and led the firm's European
Process Excellence practice. In 1996, he was one of the
founders and directors of Accenture's Global Process
Excellence practice. And he was one of the leaders of the
firm's reengineering practice from its inception in 1992.
Shapiro has advised many of the world's leading
organizations, from BMW WilliamsF1, ABB and UPS to
Lucent and Xerox. He has also collaborated with other
thought leaders including Michael Hammer and Peter
Keen, and is recognized as one of today's most influential
consultants in the area of process and innovation. Articles
by Shapiro have appeared in over two-dozen newspapers
and magazines, and he was recently quoted in The New
York Times. For more information, go to
www.24-7Innovation.com.
ÓThe 24/7 Innovation Group 2002. All Rights Reserved.
This is a preprint of an article published in the September/October 2002 issue of The Journal of Corporate Accounting and Finance.
The final version can be found on Wiley's website http://www.interscience.Wiley.com/
THOUGHT LEADERSHIP SERIES
Innovation as a Weapon in Global Competition
By: Stephen M. Shapiro
To say the global economic environment is undergoing the Continuous innovation
most rapid change in the history of business is to state the
obvious. Unless you have been living under a rock for the Innovation has traditionally been thought of as something
past year, you know all about the market blow following separate and discrete, brought into the organization from
the September 11 terrorist attacks, the dot-bomb outside, from the laboratory. Take your most innovative,
phenomenon and the collapse of Enron. To make matters creative people and lock them in a room while they
worse, many American companies are increasingly facing develop a new process. Then tell them to implement the
resistance -- internal and external -- as they try to expand change company-wide.
globally.
But is this really the way a company should be run? A
These events, combined with an already declining global study carried out at Eckerd College in Florida challenges
economy, have left corporate executives on edge. Yes, it's the traditional models.
bad news and it's depressing. The good news?
Everyone's in the same boat. Managers who came to the Eckerd leadership course
were broken up into teams and given a problem to solve,
But now as before, the fundamentals stand: If you create a "The Hollow Square". Before being allocated to their
business that can adapt quickly and flexibly to the teams, the managers were assessed to determine
changing economic and cultural landscape, you may have whether they were "innovators" or "adapters". In general,
the silver bullet you're looking for. innovators tend to "do things differently" and are prepared
to break with rules or ignore past traditions. Adapters, on
A key to achieving this kind of quick response is learning the other hand, are focused on "doing things better", but
how to inject innovation into decision-making at all levels they tend to work within the rules and accept the status
of the organization. It won't happen by decree from the
quo.
CEO, and I'm afraid there is no shortcut. Real innovation
requires broad cultural change based on values, For this exercise they were divided into teams, of which
guidelines, and outcome-based measurement systems three are of particular interest. Each team was comprised
that give flexibility to all employees while mitigating risk for of two groups. One of the groups was designated as
the business as a whole. Done properly, a company can "planners", and its task was to work out a solution to the
stay ahead of the change curve and beat the competition problem. The second group consisted of "implementers",
while also easing its move into new markets. charged with making it work. The planners told this group
what to do in order to form a hollow square with the tools
If you aim to achieve and sustain a leadership position in a
that had been made available to them.
global marketplace that never sleeps, your company must
be a hothouse of creative thinking, flexibility and agility - In the first team, the group of planners was made up of the
twenty-four hours a day, seven days a week. "innovators" and the implementers group was made up of
ÓThe 24/7 Innovation Group 2002. All Rights Reserved.
This is a preprint of an article published in the September/October 2002 issue of The Journal of Corporate Accounting and Finance.
The final version can be found on Wiley's website http://www.interscience.Wiley.com/The 24/7 Innovation
THOUGHT LEADERSHIP SERIES
"adapters". In the second team, they were all mixed up This premise has been tested out many times over the
together. The planning group had both innovators and years. For example, George Land and Beth Jarman, gave
adapters, and so did the group of implementers. In the 1,600 five-year olds a creativity test used by NASA to
third team, however, the groups were turned upside down. select innovative engineers and scientists, and 98 percent
The planning group contained only "adapters" and the of the children scored in the "highly creative" range. These
implementing group contained only "innovators". same children were re-tested five years later and only 30
percent of the 10 year-olds were still rated "highly
Although most would dismiss the structure of the first team creative". By the age of 15, just 12 percent of them were
as unworkable, this is how most companies implement ranked in this category, while a mere 2 percent of 200,000
change. Team structure two, the cross-functional adults over the age 25 who had taken the same tests were
approach, is usually assumed to be the best alternative.
still on this level. So, it seems, creativity is not learned,
But in reality, the third option is the one that turns out to be
but rather unlearned.
most effective -- the one where the "adapters" do the
design and the "innovators" implement it. The "adapters" And yet the business world has traditionally favored
are able to come up with a design very quickly, albeit an analytical thinking over the capacity to innovate and has
imperfect one. And the creative types are then able to take seen to it that business schools produce highly trained
that design and build something from it, correcting and young men and women to think along strict parameters.
improving as they go along. Whenever a problem arises
But times have changed, and now the mission has to
they are able to solve it there and then without checking
change -- to help people unlearn their uncreative habits.
back with someone else.
The ability to innovate is much more pervasive and
Can everyone be innovative? ubiquitous than most of us imagine.
Continually competitive businesses will be built not around A word about definitions. Innovation is not the same as
a lot of heads and hands, but around a lot of hearts, invention. Invention is something to be pursued in a
around motivation, dedication and commitment to creative carefully controlled laboratory atmosphere. Invention is the
process of discovering things that have never been
thinking. Successful innovation is continuous, and that
discovered before. Innovation is different. In the business
very continuity enables companies to keep pace.
Executives recognize that their company loses ground world, innovation is the discovery of new ways of creating
when the pace of change outside the company is greater value. Not everyone can be an inventor, but everyone can
than the pace of change within. be innovative.
A popular myth is that some people are born creative, and Stimulating employees
some are not. There is, in this view of the world, a creative
Innovation is a must, because (to the great frustration of
type of personality - Michelangelo, Mozart or Tolstoy, for
some) the environment in which companies operate is
example - and then there are the rest of us. But this is
totally wrong. It's all a matter of degree. We all have the highly unpredictable. Customers today are perplexingly
potential to be innovative - perhaps not quite as much as fickle and demanding, and they want us to do things that
Mozart, but innovative nonetheless. our detailed binders of workflows are not able to handle.
How can we satisfy them when the policy book does not
provide the answer?
ÓThe 24/7 Innovation Group 2002. All Rights Reserved.
This is a preprint of an article published in the September/October 2002 issue of The Journal of Corporate Accounting and Finance.
The final version can be found on Wiley's website http://www.interscience.Wiley.com/The 24/7 Innovation
THOUGHT LEADERSHIP SERIES
We must look elsewhere. Jazz is the perfect metaphor for Employees have to be trusted to search intelligently for
innovative business activity. This appeals to me because improvements. But they do need guidance, training, and
in my other life I love to improvise on the tenor sax. I am the tools to fulfill whatever solutions they come up with. It's
not the only one who has been struck by the not a straightforward choice between rigid structures and
appropriateness of the jazz metaphor. In 1996, John Kao allowing total anarchy. It's a question of finding the right
wrote "Jamming" which used jazz as a theme for creativity. balance of structure and freedom.
And, in "The Social Life of Information", the authors, John
Seely Brown, director of Xerox's Palo Alto Research What this leads us to is the difference between "box"
Center (PARC), and Paul Duguid describe some work thinking and "line" thinking. When people say you need to
done by two Xerox technicians trying to repair a client's get "out of the box" to be innovative, they are right, but for
the wrong reasons. The box that most people operate in is
machine.
focused on activities, computers, people, or departments
To paraphrase the authors: "The afternoon resembled a within a company. It is the lines, the interconnections and
series of alternating improvisational jazz solos, as each interdependencies between the boxes, where innovation
took over the lead, ran with it for a little while, then handed emerges. Innovative thinking comes from making
it off to his partner, all against the bass-line continuo of the connections. Connections between boxes. Connections
rumbling machine, until it finally all came together". That is between ideas. Connections between companies. Or
the way the two technicians found a solution to their connections between industries. Focusing on the lines
client's problem, a solution they would never have found frees up the organization to improve within the guidelines
by simply following the book. of the simple structure
But for me, jazz is more than just creativity. It is bringing a Strategies that have worked
company together in such a way that there is coordinated
action throughout. Just as with jazz, this requires simple How do the concepts of jazz, lines, improvisation and five-
structures that enable innovation to take place in a year-olds translate into practical business application?
harmonized and collaborative fashion. These simple Over the years I have seen many innovative companies.
structures equate to the role of process in fostering And although there is no formula for their success, here
innovation. They provide the framework for freedom inside are a few common strategies:
the structure.
Make everyone accountable: Because a few individuals at
What the jazz musician adds of his own accord is not the top cannot possibly plan all of a company's activities,
pulled out of thin air. It is based on fundamental rules give employees a set of rights, responsibilities and
about chord progression and chord structures. Likewise, rewards that make them accountable for their own actions.
what the business invents in order to improve any given Koch Industries, an oil and gas company based in Wichita,
capability has also to be founded on certain basic ground Kansas, wanted to achieve world-class safety. Rather
rules. The players in a business have to be able to than have a few safety engineers scour the company,
innovative at any minute of the day while literally "on their Koch (pronounced "coke") gave this responsibility to all
feet". Innovation in business thus is just as important as employees, with rewards both for uncovering unsafe
improvisation is to jazz. conditions and for discovering new ways to conduct
business more safely. This initiative resulted in as much
as a 50 percent improvement each year in the number and
ÓThe 24/7 Innovation Group 2002. All Rights Reserved.
This is a preprint of an article published in the September/October 2002 issue of The Journal of Corporate Accounting and Finance.
The final version can be found on Wiley's website http://www.interscience.Wiley.com/The 24/7 Innovation
THOUGHT LEADERSHIP SERIES
severity of accidents across Koch Industries. Within one them all a check averaging 15 percent of their annual
year the company had moved from middle of the pack to salary.
one of the best safety records in its industries.
Focus on your core strengths… and outsource: Another
Replace rigid processes with clear business objectives: way of using innovation to stay nimble and competitive is
Too often innovation is stifled because companies define by focusing on your differentiators, and relegating
business processes in great detail, then hand those everything else to partners who have that expertise.
designs to the line that is expected to execute them. Imagine an insurance company established only two years
Mölnlycke Health Care, one of Europe's leading ago that has already contracted 15,000 policies and is
manufacturers and suppliers of single-use medical issuing 200 new policies every week. Now imagine that
products, allowed production teams to decide how to meet the company has only two employees. This is Universal
their goals. With the responsibility for quality products Leven, a Netherlands-based subsidiary of Allianz, focused
moved to individuals on those teams, nearly 70 percent of on large, professional broker organizations. The two
the company's new products launch on time, compared employees are in charge of corporate strategy, network
with just 15 percent previously. As a result, the company expansion and product development. Everything else,
will have quadrupled its shareholder value in only five including product branding, product design, marketing and
years. all back-office operations, is outsourced.
Challenge employees to compete: When challenged by Link strategy, customers and capabilities: To be
external (or sometimes internal) organizations, groups are competitive and sustain market leadership in a changing
kept on their toes. For example, prior to being acquired by Brazilian marketplace, Multibras (appliances) embarked
RWE AG in 2000, VEW Energie AG, a German-based on an ambitious change program. This was achieved by
utility, created a new business entity responsible for focusing the business imperatives at three levels: industry,
service, maintenance and construction. But other VEW customers, and competencies. Multibras first looked at
managers were allowed to do business with competitors future discontinuities in the industry by mapping potential
offering the same services if the price was right. As a future transformations and expected changes. They did
result, the new unit worked hard to remain competitive, this through the creation of scenarios and business
and in return was able to offer services to outside imperatives. The changes were then fed into a view on
companies as well. what customers would want in the future. What are
customer expectations (current, and potential future),
Encourage employee innovations, and reward them needs and wants? This was done using current customer
accordingly: Companies are often fast to turn to outside
knowledge, direct involvement from customers (e.g.,
help, when in fact they already have the capabilities within
Whirlpool), and leveraging marketing expertise. The
their organization to do the job. Koch's pipeline business outcome helped drive the definition of the distinctive
in Minneapolis had budgeted $30 million to expand its capabilities required in the future. This effort ultimately
pipeline with external support. A team of company generated $50 million in cost reduction benefits for the
employees decided that they could do the job themselves
company, reduced time to market by 35 percent, and cut
better and cheaper, and within a couple of months they
development cost by 15 percent.
had increased the pipeline's capacity by 15 percent while
spending only just over $1 million. Koch immediately gave
ÓThe 24/7 Innovation Group 2002. All Rights Reserved.
This is a preprint of an article published in the September/October 2002 issue of The Journal of Corporate Accounting and Finance.
The final version can be found on Wiley's website http://www.interscience.Wiley.com/The 24/7 Innovation
THOUGHT LEADERSHIP SERIES
S curves, each of which increase the company's capacity
Creating a culture of innovation for change:
This all sounds impressive, but unfortunately your 1. Leadership-Driven Capacity
company's culture may be light-years away from that of
the companies cited above. And, typically, organizations At this early stage, progress is invariably based on the
are not comprised of five-year-olds with an infinite supply tenacity and leadership of a single individual, someone
of creativity, energy, and flexibility. They are more likely who gets the bit between his or her teeth about an
opportunity for improvement. By taking responsibility for it,
composed of adults with long histories, territories to
the individual drives the change. This top-down approach
protect, and boxed-in thinking. This makes any kind of
change difficult, and culture change particularly difficult. requires the individual to create such a sense of urgency
As someone once said, "The only one who likes change is about the initiative that he or she prevents it from falling
a wet baby." into what is all too common - a debilitating series of fits
and starts. If there is no compelling need to change,
Structural changes alone are not sufficient for an change is unlikely to happen.
organization to become innovative throughout. Changes
2. Structural-Driven Capacity
must be made in virtually all parts of the organization, from
the management style to the measurement systems.
Ramming home a new change program without At this stage the responsibility for change no longer rests
with an individual. To some extent, it has been taken over
preparation would be a bit like dropping a high-powered
by the organization. Mechanisms have been put in place
engine into a Volkswagen Beetle without altering the
to enable employees across the business both to
transmission, the drive train, the suspension and so forth.
implement change and to drive it. Typically, such
It can be done, but chances are the finished product won't
work very well. mechanisms include various performance measures,
organizational structures and lines of communication. This
often includes a move towards a process orientation.
It is important to recognize that even the greatest
enthusiast has finite limits to the amount of change that he Process improvements in one area eventually help to build
or she can tolerate. Since each company is made up of a up the organization's over-all ability to improve. The better
unique bunch of individuals, and each company's capacity a company becomes in one area, the more skilled it
becomes at getting better in other areas.
for change is unique. Any company's plans have to take
these limitations into account. The timing of the change,
the approach to it, and the people who lead it will all vary 3. Organic Capacity
depending on each company's circumstances. There are
By this stage, the capacity for change has become built
no templates here.
into the organization, and it is often being driven from the
bottom, with employees seeing it as an integral part of
In my experience, culture change goes through three
their jobs. This comes about partly because companies
waves as it moves toward a true culture of innovation.
that reach this level have focused specifically on
Each wave starts at a modest level, then builds up to a
developing change competencies in their employees.
plateau. It then rests for a while (as if to take a breath) They have reached the idyllic stage where innovation is an
before gathering enough momentum to go to the next
integral part of the company culture.
level. Successful companies move through three waves of
ÓThe 24/7 Innovation Group 2002. All Rights Reserved.
This is a preprint of an article published in the September/October 2002 issue of The Journal of Corporate Accounting and Finance.
The final version can be found on Wiley's website http://www.interscience.Wiley.com/The 24/7 Innovation
THOUGHT LEADERSHIP SERIES
The path through these three waves will take years but the core engineering to a focus on smart products via
payoff can be great. Once completed, a company can selective purchases of automation, and technology
avoid the continuous gut-wrenching change programs that businesses. One of the ways this is achieved is by only
have plagued organizations for so long. Change will allowing the strongest, most profitable, highest-growth
happen much more continuously and pervasively areas of business to dominate, while others that are
throughout the business. withering on the vine are lopped off. Invensys acquires
and disposes of new operations as needed. And more
The impact on global companies importantly, its business model allows each of the
countries to operate somewhat independently, enabling
Due to the relative homogeneity of the United States, them to make decisions that meet local needs. In their
many American companies are structured in a more
industries, Invensys leads in the area of global diversity,
centralized and standardized manner. Control is driven
with over 50 percent of their business coming from sales
from the center of the organization, with strong corporate outside of their home region.
governance. But this model has caused heartburn for
many companies trying to expand overseas. I have ABB, the Swiss-based technology and engineering
worked with a number European companies over the past company, is renowned for its ability to create a powerful
few years. Their approach to organization models is quite global structure. ABB serves customers in power
different. transmission and distribution; automation; oil, gas, and
petrochemicals; building technologies; and in financial
With their varying cultures, economies and (until recently)
services (this last group is in the process of being sold at
currencies across Europe and the world, non-American the time of writing). The ABB Group is comprised of 800-
companies typically use a more decentralized structure. 900 companies operating in 142 countries, and employs
This enables businesses in each country to get close to 170,000 people. ABB's historical strengths lie in its
the customers and markets and design propositions and
decentralized management philosophy. This enabled
ways of working that meet local needs. And while market
local businesses to tailor offerings to the needs of the local
turmoil can mean sharp swings in profitability, much can market and respond quickly to changing market
still be learned from these global companies. conditions. Throughout the 90's ABB was the poster-child
for how to create and run a global business.
One British company, Invensys, is a large, global
electronics and engineering firm that was created by the These types of structures have enabled these and other
merger of BTR and Siebe in 1999. At that time it operated companies to quickly enter new markets or even new
globally through four divisions -- Software Services,
businesses. However, anyone who has followed these two
Controls, Power Systems, and Intelligent Automation. And
companies knows that the past two years have been
within those divisions there were approximately 30 product difficult for them and a number of other companies in their
groups, each of which operated in the countries of its sector. I contend one reason (but certainly not the only
choosing. Profit and loss accountability is at the product one) is that these companies did a great job of focusing on
group level, giving a fair amount of autonomy and
the "boxes". Lots of little boxes (in contrast to one big box
supporting the decentralized philosophy of the company.
typically used by American companies). They created
powerful, localized businesses. The problem is, they did
This "small business within a business" approach has
not focus on the lines. There was little synergy across the
enabled Invensys to reconfigure its portfolio from hard-
operating units within the company. Because of this,
ÓThe 24/7 Innovation Group 2002. All Rights Reserved.
This is a preprint of an article published in the September/October 2002 issue of The Journal of Corporate Accounting and Finance.
The final version can be found on Wiley's website http://www.interscience.Wiley.com/The 24/7 Innovation
THOUGHT LEADERSHIP SERIES
doing business internally with other operating units can be But potentially most important is the company's use of
more difficult and expensive than buying product from "internal markets", which brings the price system of the
external competitors. free market inside the organization. This is done by
applying internally the prices and services that employees
One company I am familiar with believes that nearly 50 actually use in their daily work. Koch allows any two units
percent of business transactions that could have been
within the organization to account for an internal
conducted internally across operating units, were sourced
transaction at the prices they would seek in the open
externally from competitors. This is not helped by the fact market, even if these prices differ (of course done in
that it is not unusual for these companies to have dozens conformance with Generally Accepted Accounting
or even hundreds of different ERP systems. Unfortunately, Procedures. The important point is that this ensures that
each ERP system does not talk to the others, and typically
units are rewarded appropriately for co-operating with
has different number schemes for customers, suppliers,
each other. The company reckons that up to 50 percent of
parts and products. This makes any level of collaboration its profit comes from such initiatives. These approaches
as difficult as if each business were speaking a different have helped the company grow 200-fold over three
language. decades, and helped it expand into new business areas
previously not considered.
The Koch example
What's the bottom line?
Earlier I referred briefly to Koch Industries' innovative
safety program. This is a customer-focused innovative
So, what is the key for global companies trying to compete
organization that believes deeply in the tenets of the free in today's difficult, volatile environment? It is creating a
market. The company is the second-largest privately held culture of innovation where decision-making is pushed to
firm in the United States and would rank 21st on the the lowest levels of the organization. This then needs to
Fortune 500 if it were public. Koch is a conglomerate with
be balanced with a set of simple structures, rules, and
a wide range of interests. But it is not so much what the
measures that enable coordination throughout the
company does that is interesting as the original way it company.
does it. Koch Industries operates as a network of
employee-entrepreneurs who work within a framework of A one-size-fits-all structure will hamper the efforts of
appropriate incentives and decision-making powers. American companies to truly compete globally. It is rarely
Anyone brought in specially to do a job within the group is smart to try to export Los Angeles to Paris. But adopting a
immediately given the authority to spend money and to culture of flexibility through pervasive innovation, based on
move people when and where he or she chooses. market and cultural realities, can lead to changes that suit
the business environment. It is never quick and easy, it is
Koch Industries is a highly entrepreneurial company that never painless, but failure to face up to the challenge will
does also connects the dots. A clear mission, set of almost surely mean losing advantage in the marketplace,
values, and culture are shared throughout the and ultimately seeing the more creative competition take
organization. Decision-making is decentralized as far as
away business.
possible, and based on the best local knowledge and
information, while knowledge is shared across the
company.
ÓThe 24/7 Innovation Group 2002. All Rights Reserved.
This is a preprint of an article published in the September/October 2002 issue of The Journal of Corporate Accounting and Finance.
The final version can be found on Wiley's website http://www.interscience.Wiley.com/The 24/7 Innovation
THOUGHT LEADERSHIP SERIES
About the author
Stephen Shapiro is the author of 24/7 Innovation: A
Blueprint for Surviving and Thriving in an Age of Change
(McGraw-Hill, 2002, ISBN: 0-07-137626-7, $29.95) and
founder of The 24/7 Innovation Group. Previously, he
spent 15 years at Accenture. During his last three years,
he was based in London and led the firm's European
Process Excellence practice. In 1996, he was one of the
founders and directors of Accenture's Global Process
Excellence practice. And he was one of the leaders of the
firm's reengineering practice from its inception in 1992.
Shapiro has advised many of the world's leading
organizations, from BMW WilliamsF1, ABB and UPS to
Lucent and Xerox. He has also collaborated with other
thought leaders including Michael Hammer and Peter
Keen, and is recognized as one of today's most influential
consultants in the area of process and innovation. Articles
by Shapiro have appeared in over two-dozen newspapers
and magazines, and he was recently quoted in The New
York Times. For more information, go to
www.24-7Innovation.com.
ÓThe 24/7 Innovation Group 2002. All Rights Reserved.
This is a preprint of an article published in the September/October 2002 issue of The Journal of Corporate Accounting and Finance.
The final version can be found on Wiley's website http://www.interscience.Wiley.com/
