How IT companies can stay competitive in a global market

Commentary--Gen3 Partners Sam Kogan says companies can't afford to sit around and wait for lightening bolts of innovation, long-term growth calls for reliable and consistent planning.

Commentary--We all recognize it: the light bulb that appears overhead when a character in a book or cartoon comes up with a bright new idea. "I've got a great idea!" the character says before explaining an innovation.

But companies can't afford to sit around waiting for lightning bolts of inspiration. A one-time flash of creativity might grab headlines for a day or boost sales for a quarter, but long-lasting business success requires a process of innovation that is reliable and consistent.

In today's global economy, innovation is the single most powerful competitive weapon an IT organization can wield. At the same time, it is fraught with risk. One study found that for every product success, 3000 new product ideas and 125 small projects fail. In short, innovation requires discipline across the entire organization. To move your organization in this direction, first start by discarding the light bulb paradigm of innovation. The light bulb of inspiration only works for one product at a time, and most organizations need to generate dozens or even hundreds of innovative, successful products and product enhancements every year to thrive.

Globalization is one factor that is having a tremendous impact on the way companies, especially American IT companies, innovate. For example, international companies have huge advantages over U.S. firms with lower labor costs and government subsidies. In order for U.S. companies to stay in the game they must be consistently more innovative than overseas competitors. Globalization has also lowered the playing field in terms of how information is shared, available and acted upon. Once only an elite few had the access to scientific and engineering resources for innovation. Now the world is flat and information and spreads rapidly.

The only way IT companies can stay competitive is to implement a consistent, predictable innovation strategy. This strategy is key to helping companies improve their return on innovation and helping companies determine before they commit any dollars to pursuing a new product concept how many customers will buy it and at what price. Companies can also use this strategy to determine whether a new product is technically and economically feasible, as well as how to produce it. Toward that end, here are four rules to keep in mind when applying a disciplined innovation at your organization.

Rule 1: Define and focus innovation
At GEN3 Partners, we define innovation as "significant movement along the main parameters of customer value (MPV)." In other words, innovation must deliver actual value to the customer along parameters such as cost, function, design or other criteria. The parameters of customer value are not always obvious to manufacturers, customers or (luckily for you) the competition. But once you've identified them, you are on your way to a successful product.

The most successful product innovators know that innovation isn't an end unto itself. To identify the most promising ideas, they scrutinize what each product offers customers: How much time and cost will it save? Does it significantly improve the way customers accomplish their interests? Do customers even care about improvements in such "parameters of value?"

One executive who uncovered the main parameters of customer value for his industry is Herb Kelleher of Southwest Airlines. Kelleher was a legendary chairman at the airline, and he once said that customers gave him lots of advice over the years about how to improve the airline. They named amenities like leather seats, better food selections and more attractive attendants. But when asked which of these parameters would actually drive their choice of airline, they were interested in low fares and convenient schedules. If a new product concept does not deliver value that's important to customers, it will fail in the marketplace. The most successful product innovators put their money behind concepts that create a significant increase in a main parameter of customer value--in Southwest's case, low fares and convenient schedules.

Rule 2: View innovation as an investment, not an expense
Most of us invest to secure our future, guarantee financial success and protect ourselves financially. The same principles apply to corporations. When corporations understand the need for a specific competence, they invest in it for the long term and everyone in the organization feels the need for it to succeed.

This is what General Electric did under Jack Welch's leadership when the management team recognized the strategic importance of increasing the controllability and reliability of the manufacturing process. They developed tools and methodologies like Six Sigma to guarantee their competitiveness and ensure sustainable growth. Many other companies followed their lead.

Too often, however, innovation is regarded as an expense that may--or may not--pay off for the organization. As a result, many companies allocate minimal resources to innovation--resources that are vulnerable to cuts when the organization faces temporary difficulties. If, instead, you view innovation as an investment, you take a long-term view, build capabilities, and internalize best practices so you can maximize the return on your innovation investment while minimizing risk. For many companies, this is a dramatic, philosophical shift. It empowers companies to demand and get more from their investment. Innovation is then treated just like any other part of the organization, with predictable ROI.

Rule 3: Consistently make better innovation decisions without working longer hours or spending more
So is the answer to pour more money into R&D, creative talent and brainstorming sessions? That's working harder, not smarter. Most innovation is caught in what the "product trap." Traditionally, if you want to improve your ketchup, you call in the tomato experts. To improve the performance of server, you call the network engineers.

The best innovation, however, comes instead from breaking down the barriers across products, geographies and industries. Think beyond what the product is to what it does and how it works-to the function it performs. When you view innovation from a functional perspective, you can now draw on innovation from many disciplines. For example, ketchup is a thick liquid, so innovations could come from dozens of functional areas that address how liquids flow. Not sweet enough? There are hundreds of approaches to sweetening, and the best ones have not necessarily been developed in food industries. This creative approach of reaching across various industries to solve a particular challenge enables a company to leverage existing technologies in other industries and avoid the time and commitment to re-creating the wheel, so to speak.

Also, just as U.S. companies found IT talents in India, they are discovering tremendous innovation talent outside the U.S.--in Eastern Europe or in countries like Russia. Russia for example, though not first to everyone's mind in terms of being a hotbed of innovation still has one of the world's best science and education systems. With an estimate one million researchers and scientists working R&D centers, it outnumbers every other nation. One approach that Russian's technical education systems uses that can benefit the rest of the world is how largely cross-disciplinary it is. Lacking state of the art equipment and machinery, Russian manufacturers and product developers have had to rely on "creativity"--finding and adapting scientific and other proven approaches from other industries.

This approach can easily be translated to help companies around the world by encouraging them to look for solutions to manufacturing problems from other industries and disciplines is critical to solving them. And in turn, by tapping into innovation networks abroad, organizations can reduce their cost and risk.

Rule 4: Embrace disciplined innovation across the organization
When innovation relies on a single genius, the entire organization is vulnerable. The iPod is widely regarded as a great, innovative product. But what happens if Steve Jobs decides to leave Apple? The organization is at risk, in the public's eye at the very least. To survive market and personnel changes, strong companies develop an innovation discipline that permeates the organization.

Companies that find the most success usually have an innovation champion in the corner office--a person with enough authority and respect to topple roadblocks and oblige others across the company to think in a new way. Former Procter & Gamble Chief Executive John Pepper was one of the first to understand this. He led an effort to train 6,000 engineers and scientists to think in a more innovative way. He felt that if every one of those 6,000 worked 5 percent more innovatively, the company as a whole would operate much more effectively.

Another example is Thomas Edison. Edison is best-known for a single invention, the incandescent light bulb, yet he and his team also created a research lab at Menlo Park, New Jersey that systematically churned out innovation after innovation--over 1,000 U.S. patents in all. The man who is considered America's greatest inventor knew that innovation isn't a single moment of creative genius. To be worthwhile, innovation must follow a predictable and reliable process. Having the ability to identify and predict the success of product innovations with greater success and profitability gives companies the power to lead their industry and create the most long lasting impact. Now there's a bright idea.

biography
Sam Kogan has been president and COO of Gen3 Partners since December 2003 and is in charge of the firm's daily operations.