10 innovation myths

The topic of innovation has risen to the top of CEOs’ agendas among Indian corporations. They enjoy a favourable innovation tsunami— a tremendous opportunity for growth through innovation. India is a mass market with a huge middle class that is hungry for consumption. India is a paradox in the sense that it is a mega market with micro customers. The per capita income in India is about $800 (Rs 32,000). Contrast this with the per capita in the US of about $30,000 (Rs 12 lakh). What this means is that Indian consumers will not be able to buy products that are currently marketed in the US and Western Europe. They will need ultra-low-cost business models. This requires and demands innovative thinking.

Creating low-cost products requires very advanced technology. Indian companies can invest in such technologies because of the potential size of the market. The Tata Nano is a great example. The Nano is targeted at the huge consumer base in India that drives two-wheelers. Even today close to 80 per cent of the vehicles sold in India are two-wheelers, which are priced between Rs 50,000-Rs 75,000. The Tata Nano, which is priced at Rs 1 lakh, is affordable to the two-wheeler segment. Though the margins on a Rs 1 lakh car are thin, Tata Motors has spent huge amounts on R&D and is willing to risk its reputation in creating the People’s Car, precisely because of the volumes involved. Once the Nano captures the Indian market, Tata Motors could easily take this product to other emerging markets and even developed markets (of course, with necessary changes to meet regulations). Needless to say, such moves would require Tata Motors to have distribution capabilities in global markets by acquiring a company like Hyundai. There is a great opportunity for Indian companies to emerge as fierce global players. If they have to succeed in closing their “innovation gap”, they had better avoid the common innovation myths and innovation barriers.

Innovation myths

Myth 1: Innovation is the CEO’s job

There is a perception among Indian companies that it is the CEO who is primarily responsible for strategy. In fact, Indian companies tend to be very hierarchical and look to the top management for direction in the area of innovation. It exemplifies a model in which the people at the top think and come up with the strategy and the people at the bottom execute that strategy. This is a flawed assumption. Innovation is a response to fundamental changes in the industry in terms of technological shifts, customer shifts, changes in demographics and in distribution channels, etc. Who understands these changes best? The CEO, who is far removed from the customer and the marketplace, or the frontline employees? No wonder, innovative companies like Google and Johnson & Johnson delegate business model innovation to the bottom of the organisational pyramid.

Myth 2: Listen to the customer

Business model innovation is unlikely to happen if a company pays very close attention to the current customer base. Imagine if Xerox had asked their customers (the Head of the Copy Centre in a Fortune 500 firm) in the early ’70s whether they needed distributed copiers. Clearly, the central copying head would have rejected the idea of personal copiers. For coming up with breakthrough products, companies must look at non-customers rather than customers. As pointed out earlier, Tata Motors’ Rs 1-lakh car is targeted at the non-consumer of automobiles in India today, namely the two-wheeler population.

Myth 3: Companies should spend a lot more time trying to generate breakthrough ideas

Many companies have attempted to alter their organisational codes to accelerate innovation. But in doing so, they have focussed mostly on creativity—generating ideas—and little on execution—converting ideas into results. In fact, in the book 10 Rules for Strategic Innovators that I co-authored with my colleague Chris Trimble, we asked hundreds of executives to rate their companies’ innovation skills on a scale of 1 to 10, where 1 represents minimal skill and 10 represents mastery. Survey participants overwhelmingly believe that their companies are far better at generating good ideas (giving this skill a score of 6) than they are at determining what to do with them (giving scores as low as 1). We think of an organisation’s capacity for innovation as the product of creativity and execution. We say “product” and not “sum,” because if either creativity or execution is zero, then capacity for innovation is also zero. Some quick math: which is more effective—lifting your creativity score from 6 to 7 or doubling your execution score from 1 to 2? Nonetheless, most companies, when hoping to improve innovation, focus on generating ideas. Managers obsess over the front-end of the innovation process. But the real leverage is in the back-end—in execution.

Myth 4: Innovation is a battle between a maverick and a corporate bureaucracy

Asked to think about the challenges of innovation, most managers think of the creative, brilliant and inspired maverick who sees the future in a different way—a rebel on a mission. This romance is deeply embedded in our business culture. The mistake lies in buying into the romance. Certain ingenious, creative and highly determined souls can doubtless overcome both the long odds facing any innovation and the organisation fighting them at every turn, but these people are rare. Corporations that truly want to build the capacity for innovation cannot simply hope for a few good mavericks to save the day on their own initiative. We need to put less emphasis on the individual hero and more on organisational excellence. Companies need to build the right organisational DNA—in terms of structure, systems, incentives, people and culture—for innovation to flourish.

Myth 5: Planning is irrelevant for innovation because so much is unknown

It was Donald Rumsfeld (former US Secretary of Defence) who remarked that “the world is full of known-knowns, known-unknowns and unknown-unknowns”. Breakthrough innovations typically happen in environments that are full of unknownunknowns. As such, 95 per cent of the business plan that is prepared on Day 1 for any new venture is wrong. Yet, precisely because of these uncertainties, planning becomes extremely critical. It is through a rigorous planning process that managers can resolve the unknowns and prepare for the future. Future is full of surprises. Planning prevents a company from being surprised by a surprise. To succeed in breakthrough innovation, it is not the person with the best business plan on Day 1 who wins but the person who can learn the fastest.

Myth 6: Innovation and discipline are oxymorons

Creativity requires total freedom and no controls. However, innovation is different from creativity. Innovation is commercialisation of creativity. Innovation requires very strong discipline. It is true that the kind of short-term financial controls that are required in a mature business would not make sense in an innovative venture. That does not mean innovation will flourish under chaos. Innovation requires “disciplined chaos.”

Myth 7: There are generalisable principles that companies can use to drive innovation performance

Nothing can be farther from the truth. Innovation is a very broad term that includes different types of innovations such as continuous process improvements, new product introductions, adjacency moves and business model innovation. Not all innovations are equal. Each requires a profoundly different managerial approach. As such, using uniform principles to drive innovation agenda is a recipe for disaster.

Myth 8: Innovation requires new products

Sure, new products can be used to generate business model innovations but it is not required. In fact, one can engage in business model innovation by taking an existing product to market differently (as Dell Computer did when it innovated the Direct-to-Customer model) or by fundamentally changing the manufacturing architecture of an existing product. Companies need to think beyond products if they have to fully exploit their organisation’s innovation potential.

Myth 9: Innovation requires technological breakthroughs

While new technologies might be the basis for breakthrough innovations, it is not a prerequisite. Innovation is not an R&D function. Apple’s iPod is a good example. Everyone would agree that iPod is a breakthrough innovation, yet Apple did not introduce any new technologies. The iPod is a handheld hard drive, a technology that was well-known and well-established at the time iPod was launched.

Myth 10: Innovation should take place through “skunk works” far away from established business

Innovative efforts should not be isolated from the established business. Else, they will not be able to leverage critical assets from the established business: existing customer relationships, distribution channels, supply networks, brands, manufacturing capacity and expertise in a variety of technologies. In fact, the real challenge for large companies is to transform their efficiency DNA into an innovation DNA, instead of spinning out the innovative new venture either as a “skunk work” or as a separate company.

Innovation barriers

Based on extensive discussions and interviews with hundreds of executives in Fortune 500 corporations, I have identified five barriers that prevent large and established companies from engaging in breakthrough innovations. Indian companies will do well to overcome these barriers.

Barrier 1: Too much focus on current operations

Leaders tend to over-focus on short-term and operational improvements in the current businesses. There are two problems with this mindset: first, excessive focus on operational issues leaves very little time for strategy, which is really about innovation and growth in the future; second, the management processes and the organisational DNA that support efficiency in current corporations actually hurts innovation. By organisational DNA, I mean things like performance measurement systems, incentives, culture, capabilities and the like. For instance, performance measurement systems that are appropriate for operational excellence in stable environments are highly dysfunctional for innovative ventures that operate in uncertain environments. We need ambidextrous leaders who can simultaneously manage the paradox of efficiency and innovation.

Barrier 2: Lack of a “tolerance for failure” culture

Innovation necessarily implies taking risks. As the company grows larger, managers need to take “bigger bets” in order to move the needle. Risk also implies the chance for failure. How many organisations reward managers for failure? Little wonder why innovation becomes difficult under these circumstances. It is true that 95 per cent of the business plan written on day 1 for a breakthrough idea is wrong since there are enormous unknowns at that stage. Therefore, it is not the person with the best business plan on day 1 who wins but rather the person who can learn the fastest. Understanding what did not work, learning from it and adjusting the business plan should be viewed as a good thing, not a failure. This is what I mean by a “tolerance for failure” culture, which is sorely lacking in many large corporations.

Barrier 3: Not embedding innovation as an organisational capability

Innovations cannot happen purely by accident. Neither should innovations be created only by the Chief Executive Officer. Companies must embed innovation as an organisational capability. By that I mean two things; first, innovation should be viewed as an important responsibility for every employee in the organisation; second, companies should have a well-understood innovation process, i.e., an innovation playbook that lays out a structure that is conducive to producing innovations that are predictable, reliable and repeatable.

Barrier 4: Too much of a silo mentality

Companies practise decentralisation, which at one level is a very sound concept, but there is also a dark side to too much decentralisation. It tends to create silos across functions, across business units and across geographies. For breakthrough innovation to happen, companies must break down the silos since such innovations usually lie in the white spaces between business units. Unfortunately, too many large corporations suffer from problems caused by silos. The key is to transform management practice so that companies can harness talent across business units and coordinate activities of multiple business units to bring about breakthrough innovations.

Barrier5: Lack of a global mindset

Innovation requires companies to develop a truly global mindset. This implies companies must understand the differences across cultures and across countries and engage in business model innovation locally to satisfy the unique needs of customers in a particular country. Unfortunately, many American corporations are too US-centric and tend to export their products to emerging markets and try to adapt them locally. This approach is unlikely to work, because customers in emerging markets are fundamentally different from customers in developed markets and therefore require fundamentally different products and services. Indian companies must cultivate a global mindset if they are to realise their dream of becoming globally-dominant players.

(The author is the Earl C. Daum 1924 Professor of International Business at the Tuck School of Business at Dartmouth College and Professor in Residence and Chief Innovation Consultant at General Electric. He works with CEOs and top management teams of global Fortune 200 corporations to discuss, challenge and escalate their thinking about strategy.)