Saturday, 2 February 2013

Innovating To grow:ideas as capital

Innovate or die is a growth mantra according to Kanter.Innovation or knowledge derivable is a source of competitive advantage.We view in this article innovation from the entrepreneurial perspective.
The entrepreneur is one who inaugurates innovation,finances and drives the effort to transform an idea into goods and/or services. Start-ups are products of innovation;the entrepreneur having spotted a gap in existing offerings decides to develop a product or service as the case may be,to satisfy the needs in the gap so identified.Schumpeter describes actions such as these as those of the 'Man of Action' or 'Mann der Tat'.The Man of Action does not accept reality as it is .Reality is in creating a demand where non exists,or where one exists,increasing the use of a product through the creation of more uses;making more people want it.

The product/service category which aptly demonstrates this is the IT industry;driven by the arrival of the internet in what is seen as a game changing invention for mankind in all its ramifications.It is one invention which led to the creation of trading and marketing platforms such as Ebay,Amazon,Dell and many others.
For start-ups to grow they must innovate;enabled by learning within the organization and driven by the entrepreneur or CEO.The entrepreneur or CEO is a growth enabler.Growth is spurred by either new product introductions or service offers,either in consumer goods or technology related businesses.This also applies to BtoB.It is however in technology related activities that we have witnessed the explosion in innovation especially in this 21st century.We can rightly for the moment describe the era as the century of innovation.

We enunciate sources and route of innovation in the firm,but first ,sources.We enumerate six sources of innovation amongst others namely:

Consumer products:  through improvements to products due to technological obsolesce,planned or unplanned .
Process innovation:   this is service related
Information technology: this is related to new or existing markets.
New product development :this is targeted towards new markets or geographic locations,new distribution or market channels such as vending machines and self-service outlets.
Financial innovations: this is related to new or existing MBO's derivatives,arbitrage opportunities.

There are several routes to innovation as enunciated below:
Organic innovation: internally growth led with in-house capabilities developed and driven by an 'enabler'.
In-organic innovation:growth through mergers and buy-outs,MBOs,patented acquisitions by the firm from specialized R&D centres.
Distribution/Channel marketing: for example vending machines,online shopping,self-service outlets such as gasoline stations,airline ticketing and check-ins.

Changing competitive landscape brought on by pressure on trade margins through price cutting for example,non-branded products and substitute products.
Changing economic conditions,trends such as economic down turns,demographic changes in the working population,migration of market segments,fragmentation of markets.
Changing social trends and cultures.
Changes in regulatory environment by public authorities in response to societal or health needs.
Consumer shifts in taste,habits and behaviour.
Competitive activity of dominant player(s) or market leader.
Strategic goal of dominance in one's market or geographic market/area.

It is counter-intuitive to state that start-ups striving for growth through innovation must develop a framework of knowledge acquisition in the firm.The entrepreneur must nurture a culture of innovation in the organization ;embedding this within the strategic planning circle.Kenneth Klopp,founder and principal,"The North Face" in his article 'Building your company's innovation strategy',instituted an innovation framework that served the company's growth aspirations;which led to the development of ground breaking products such as the geodesic tent for back packers and the gore-tex water proof breathable clothing.In his five step framework for innovation he suggests:
(a) Develop long range planning framework involving key personnel in R&D(in-house as well as bought in ideas),manufacturing,marketing,product development and finance.
(b) Create culture that rewards risk not punish it
(c) House R&D close to marketing department;close interactions between the two departments help to meet real needs and reduce lead time between product development and speed to market.
(d) Establish a corporate innovation mantra to embody the firm's goals that strive for real differentiation; creating a balance between the pull and push of incremental and break-through ideas.In the last decade,Apple for instance  came to be recognized for its phenomenal growth through its ground breaking innovations under Steve Jobs,co-founder of Apple.Apple's growth has been driven by a combination of innovations in hardware and software;in tweaks and improvements.But more importantly,Jobs had the track record of innovation which allowed him draw people in to his ideas.
(e) Commit to forge strategic partnerships with key suppliers/outside ideas sources.This way ideas bought in could complement,where necessary in-house resources.Having said this,every growth seeking firm in addition to Klopp's five step framework must create a structure to actualize the tenets of the mantra with necessary organizational leadership from top management.
It is not a coincidence that start-ups have been responsible for the huge explosions in innovative activities in the last 20 to 30 years ,accounting for more than 50% of new product and service introductions.It is to their credit that the lessons of innovation have been imbibed by larger firms.It has also led to the establishment of ideas and design boutiques;servicing and complementing in-house capabilities of R&D of large corporations.

Start-ups unable to set up in-house R&D's can use such ideas centres and acquire intellectual property rights for their inventions.Creating an innovation driven atmosphere in the firm is about creating a knowledge legacy which in turn fuels ideas creation.It is about the firm in a continual self-renewal mode in all processes of product and service delivery.Firms with such legacies are those that withstand the vagaries of economic shifts and teutonic changes in consumer tastes and habits and demographics.
The literature on innovation holds the view that in the knowledge driven company,inventing  is not a specialized activity nor is it the sole province of R&D, marketing, or strategic planning for that matter.It should be a way of behaviour;indeed it should be a way of being in which every one is a knowledge worker.That is to say every one should be an entrepreneur in house.The growth seeking entrepreneur must nurture corporate entrepreneurship in the firm for the innovation culture to thrive and its fruits harvested for profitability in a sustainable way.