Pearson on Excellence: Product and process innovation—Getting back to moving forward

Innovation isn’t the only path to prosperity. However, a growing number of companies have come to think that innovation’s risks outweigh its benefits. Thus they’ve opted to retain their “safe” business models and also focus more on product line extensions than real breakthroughs.

This “more of the same” approach is somewhat understandable, given recent years’ economic travails. But timidity can also be dangerous. Innovative enterprises may be taking a chance. But they’re also raising their potential to dominate and prosper in new and existing markets. Companies that stick to more of the same rarely get ahead.

So how can companies be innovators without exposing themselves to unacceptable levels of risk? Two imperatives come to mind. The first is acknowledging that innovation is as much about processes and business models as it is about products and services. Out-of-the-box thinking in supply chain management is a great example. Re-conceptualizing third-party relationships, launching collaborative design and manufacturing initiatives, and developing flexible capacity and flexible pricing programs can be just as rewarding as creating breakthrough products. Unfortunately, a recent Accenture survey of 519 vice presidents, directors, and managers at large U.S., U.K., and French firms reveals that investing in new process and business models has fallen by more than 10 percent in the last three years.

The other catalyst is a formal, holistic innovation program. According to the aforementioned survey, nearly half of companies with this method are very satisfied with their idea generation capabilities, while less than one quarter are similarly pleased with their informal approaches. In addition, companies with formal innovation approaches are almost twice as likely to be very satisfied with the returns or profits that innovation spawns.

Accenture also has observed that “very satisfied innovators” are big fans of speed and flexibility. Both of these have become more essential as product life cycles shrink and consumers become more demanding, capricious and well informed. Speed and flexibility speak directly to the importance of supply chain (i.e., process and business model) innovation. Breakthroughs such as developing rapid sense-and-respond capabilities and designing variable (rather than fixed) cost structures are all about speed and flexibility.

Survey results confirm that successful innovators also use advanced risk management practices to identify future opportunities and consistently evaluate their innovation portfolios. Innovation-centric risk management is about identifying the most opportune moves and quantifying the value of entire portfolios by “category of initiative.”

A final tenet is thinking more broadly about how innovation happens. New models, processes, and products are great. But to ensure ongoing revenue streams, innovations also should emphasize customized consumer experiences and services. The supply chain’s ability to segment and support customers is obviously key. Nearly 90 percent of survey respondents stated that personalization is a major part of their company’s innovation strategy.

Technology is obviously central to innovators’ development of customized experiences and services. One example is social media—an increasingly core source of the Big Data companies need to understand and connect with customers.

Unfortunately, less than one third of innovation survey respondents currently invest in social media. Equally important is integrating Big Data with analytics. Without the latter, companies have little chance to leverage the huge quantities of potentially valuable information they’ve gathered. Successful innovators use analytics to identify their most profitable customers; discover the real drivers of financial success; identify and prioritize innovation options; right price new products and services; and optimize cross selling and post sale support.

The most noteworthy takeaways from the Accenture survey may be twofold: Two thirds of executive respondents believe that innovation is a “Top 5” priority, and an equal number note that their organization is extremely dependent on innovation for its long-term success. Yet barely half have upped their funding of innovation initiatives in recent years. Given this contradiction, it shouldn’t be surprising that a majority have opted to pursue product line extensions rather than develop totally new products or services.

But here’s the crux: Only one third of respondents believe their company has a well-defined innovation strategy: one that focuses as much on processes and business models as products and services; one that positions speed and flexibility as key innovation contributors and outcomes; one that leverages advanced risk-management practices to make smart, balanced decisions. Perhaps if more companies had these innovation strategies in place, unsatisfactory returns would be far less common.