Innovation in all firms is essential. It allows the firm to maintain competitive advantage by evolving its products and services to better meet customer needs and grow market share. People innovate. So how does an SME manager achieve an environment of continuous innovation by staff to assure his or her firm’s future? This blog addresses the attributes needed to assure innovation. It starts by setting out a model for innovation, using the coffee-making baristas improving espresso to espresso’ at Costa as an example. It discusses planned innovation versus spontaneous innovation. And it ends by laying out the six Creative Enablers needed in all firms.
Twenty years ago when multinationals ruled the planet and everyone went to work in a big firm, most undertook planned research and development (R&D). In Philips for example, 11% of turnover was set aside for R&D. And the result was highly imperfect. By the time the product appeared it no longer met the market need. Sales teams abandoned local products and bought-in innovative product from third parties to fuel their bonuses.
Today, Samsung, Apple and HTC realise new mobile phones at a staggering new model every few months. Even disasters like the iPhone 4 and more recently the Note 7 are turned into marketing successes as the innovation machine continues relentlessly. Smaller firms too innovate with terms like ‘sprint’, ‘agile development’ and ‘scrum’ describing the development processes. Product development today is more continuous and evolutionary than the planned development of the 1980s. It’s more responsive to customer needs, based on development of existing applications rather than invention of new. And the cost of innovation is dropping fast further fuelling incremental improvement. The result is that it is more often the result of ideas from the grass roots of the firm – from the people on the ground who know the issues.
This blog centres on the innovation of products and services. The single term ‘products’ is used for both. Products are supplied though a series of processes within the firm referred to here as systems. Ultimately firms deliver products to customers through systems. Coffee making at Costa is an example.
Here the baristas make espresso. The firm realises that to stay ahead of Starbucks it needs to continually innovate. Innovation takes two forms. First there’s system innovation – changing how the existing coffee is made. Then there’s product development – changing the product itself to realise a better customer experience. Somehow the existing product needs to be evolved and the system used to produce it improved, generally in search of enhanced efficiency to support the integrity of the gross margin. The new product replaces old through assimilation and if innovation was successful, the customer prefers it and sales grow. The new system replaces old and costs reduce, pleasing the shareholders, perhaps growing wages and encouraging further investment.
But exactly who does innovation? Consider this. In Rome, a man demonstrates an unbreakable form of glass to Emperor Tiberius. Tiberius asks if anyone else knows of this secret. The man replies ‘no’. So Tiberius beheads him to prevent the new material reducing the market price for conventional glass. In those days, and indeed in the 1980s, funding and approval for innovation came from the top. Secrets about products and systems could easily be kept. Not so today. Today we recognise that the people most likely to solve today’s problems are the workers at the bottom of the pyramid. And workers are mobile so time is of the essence for the SME principal.
So in a firm, what conditions need to be present for the wealth at the bottom of the pyramid to be harnessed? What people management practices need to be there so that staff feel inclined to innovate and allow the firm to benefit from their creative talents? Unsworth and Clegg, in their article on why employees undertake creative action report six attributes.
- The first is motivation. The baristas in Costa need to espouse a level of professionalism; to want to improve both product and systems. They have a choice – to go for an easy life and do nothing or to try to evolve. The nature of the psychological contract defines the motivation.
- The second attribute is culture. The right culture has to be present. A fuller discourse on motivation and culture is given in a TimelessTime white paper at https://www.timelesstime.co.uk/white-papers/ entitled Culture Matters.
- The third is requirement. The employee must be charged with a requirement to innovate. If he or she is not required to be innovative and indeed is there is no means of assimilating their innovation into new products and systems then they will channel their efforts elsewhere.
- The fourth is responsibility. Give the employee responsibility for innovation. This means not simply taking the outputs and channelling them to other folk’s benefits but allowing the employee to finish the job and take the new product or system all the way to the customer with due credit.
- The fifth is autonomy. If employees are not empowered to suggest change and instead would metaphorically ‘lose their heads’, there will be no innovation. Dictatorial management kills ideas.
- And finally the sixth is time resources. Philips gave 11% of turnover to R&D. This was misdirected but the size of the effort was about right for such a technology-centric firm. A bit of time set aside for innovation is essential.
So how does a manager progress to innovate product and systems when there are the pressures of the day job and the business to be run?
First decide you want to innovate and if that innovation is to be planned (top down, imposed on the staff) or from the ground up, harnessing the power of staff. If planned, then the following recommendations still apply, but only to those tasked with the innovation. Then, create the right environment and attend to each of the attributes above. Make time for innovation. Give staff the chance to run with their suggestions through innovation and evaluation to implementation. Put a requirement to innovate in everyone’s Job Description and measure contribution in Performance Appraisals. Give staff the motivation – reward them for useful changes. Form teams to innovate. Target teams at both products and systems. After all, who better to evolve systems than the folk running them? And create the right culture such that everyone is inclined to try to improve product and systems. Finally, ensure that there is a means of assimilation to get innovations back to modify products and systems.
Innovation is essential in maintaining a firm’s competitive advantage. Innovation is done by people. People contribute to firms thought their relationship with the firm. That relationship is conditioned by the psychological contract. That contract dictates motivation, culture, requirement, responsibility and autonomy. It only remains for the SME principal to give a little time and innovation can flourish.
If you’d like to discuss how your firm can structure its innovation either in a planned or a bottom-up fashion and arrange the psychological contract to assure the necessary Creative Enablers, call TimelessTime.
 Unsworth K.L. and Clegg C.W. (2010), Why do employees undertake creative actions? In Journal of British Psychological Society, Volume 83, Part 1, March 2010.