By Jake Pearce
Friday 1st August 2003
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But rock stars come and go, and it's easy to dismiss the current obsession with business innovation and creativity as mere fads - especially since so much of it seems well intentioned hot air, or worse, management speak. Getting beyond the rhetoric and nailing what innovation means in New Zealand will be critical if we're serious about turning the feel goods into real goods. New Zealand has to decide what 'style' of innovation is best suited to procure a better future.
In a previous column I wrote about innovation having four styles or levels of complexity ("The innovation reader II", May 2001). My argument this time around is that the styles can be applied at the product level (say, a better mouse trap), a company level (Apple is more innovative than Microsoft) and at a country level. British design in general is far more innovative than that of Japan, which is better known for its refinement. Every culture has a set of key values, ideas and working practices that make it more suited to one type of innovation - the key is knowing what suits your country best. We'll shed more light on what innovation means for New Zealand if we can identify which level of innovation suits our culture.
First the levels. The way I see it, the four styles of innovation are all legitimate, all wealth creators and all applicable in New Zealand, though two are better than the others. The first level of innovation and the most basic is repositioning; rebranding or improving what already exists. When health tonic Lucozade was repackaged in a plastic bottle during the 1980s, sales quadrupled from $US40m in 1983 to $US160m in 1988. A more sophisticated and riskier option is to extend an existing brand into new lines. Virgin, Nike, Levi's and Gucci have successfully stretched their brands across an enormous range of products. The graph below shows Nike has not only increased its historical line, shoes, but also diversified its apparel portfolio.
You could say these first two levels don't qualify as innovation in a strict sense but for companies (and countries) with more conservative cultures, these innovations are the right fit. Such companies typically rely on others to do the costly pioneering work and then refine or extend the idea. Or the risks can be offset by market research. A good example is Heinz Watties, which has an internal discipline of offering consumers new foods only after years of pioneering work by other companies and brands. Its successful "Bit on the Side" sauce range, now a $2.3 million brand at retail, is a great example. Heinz Watties' philosophy: let the others take the risk and expense of educating the consumer. But once the company does wade into the market it can turn new niche products such as chilli into mainstream. The point here is that this style of innovation suits the Heinz-Wattie's low-risk culture.
True product innovation is at levels three and four: reinvention and creation. This is where life gets riskier, but also more rewarding. Reinvention is giving a new role to existing categories. The Dyson vacuum cleaner reinvented the vacuum cleaner category - turning a household appliance into a functionally superior fashion accessory. Companies such as Apple, Virgin, and European mobile phone operator Orange all reinvented their categories, by revolutionising the product capabilities or redefining how they were used. By contrast, the Walkman, Viagra and Red Bull didn't just redefine but created entirely new categories - walking stereos, erectile dysfunction drugs and energy drinks. A host of copycats followed, but, as so often happens, the pioneer dominates the category.
Again, the key difference between level three and four is the size of risk and reward. Drug discovery is hugely expensive - an industry average puts the price at somewhere near $US800 million. Then you still have to educate a market to believe that your product fills a need. Moreover, these innovations fulfil latent needs, the sort that you can't pick up through market research. Ask music lovers if they want a stereo they can carry and they would likely say no. But when Sony showed them the Walkman they said "aha!" in the millions.
What kind of innovation suits New Zealand Inc? Is there an innovation style that's unsuitable? New Zealand has been great at improving existing things - the Hamilton jet (better specialist boat), Orca (better sportswear), Brittan's bike (faster), F&P's dual dish drawer (more functional), Team New Zealand 2000 (faster, cheaper). Save for a handful of scientific breakthroughs and sporting achievements, New Zealand cannot lay claim to the type and range of new products originated in countries such as the US, Britain, Russia or even Sweden. We're not rigorous enough, intellectual enough or professional enough. Simon Fraser, head of the Victoria University's design school, describes our number eight wire culture as "ad hocism" - a culture of improvisation born from farming pragmatism.
Our improvisation sounds a lot like levels one or two of innovation. However, many conditions exist in New Zealand to force us up to levels three and four. For one thing, we have to. Levels one and two are easy and present logical choices for companies. But they also suit organisations with large, established brands where incremental changes generate significant spin-offs. Given that New Zealand has few large companies and global brands, incremental improvements are unlikely to get us up that OECD table.
Another factor forcing change is the curious mix of population and environment down under. Like the US of the early 20th century, New Zealand and Australia are becoming melting pots of ideas and practices. And like the west coast of America back then, distance to market is less of a problem, as is access to capital. Indeed, talk to older American visitors and they'll make comparisons with California of the 1950s - Australasia to them feels free, open, exciting and optimistic.
A third factor in our favour is the tenor of the times. A study by Wired magazine and Merrill Lynch found that most high-performing US employees would prefer to stay with one employer all their lives. The reason they don't is loss of opportunity and cessation of learning. Referring to the study, author Thomas Stewart (see sidebar) says constant learning and the thrill of innovation are key factors in keeping staff loyal. In other words, the smart people want to be involved in innovation. Call it zeitgeist, call it nothing more than good staff retention policy, innovation is hot.
So, what kind of innovation are we up for? Are we a nation of improvisers or will the new Kiwi pioneers be true innovators? I, for one, believe New Zealand has the cultural maturity to produce level four innovation.
Got the right environment for innovation?
Level three and four innovations are much harder than they sound. Ask any inventor. But they're not impossible. Summarising the large pile of writings on innovation, author Thomas Stewart reckons there are five methods for creating an innovation process.
1. Build a business case. Innovation needs to be sold - to shareholders and senior management as a method of delivering greater return on investment, and to employees who need to be rewarded for their ideas. For the latter PriceWaterhouseCoopers in 1999 created 150 $US100,000 innovation prizes for American employees with winning ideas. It was $US1.5 million well spent since it created 700 ideas.
2. Do an innovation audit. What happens to ideas in your company? Why not track the fortunes of an idea to discover just how it gets buried, forgotten, overlooked torpedoed, messed up or, hopefully, employed. And what mechanisms exist to generate ideas?
3. Throw an innovation party. Borg-Warner, a US automotive parts manufacturer, holds innovation summits - two-day gatherings designed to solve specific design or manufacturing problems. The CIA regularly sets up staff to go "fancy dress", pretending to be the enemy in an attempt to flush out problems. DuPont forces project team leaders to invite at least three brainy outsiders to shoot holes in their research projects.
4. Design a process. Find a method that's unique to you to create, reward, nurture, test and develop great ideas. A feature of the process, says Stewart, must be that its non-linear approach allows for serendipity.
5. Keep at it. A formal process will encourage the flow of more ideas but 3M has taken the idea a bit further. The company is so large it's possible that ideas rejected by one lab or manager have the chance to be accepted elsewhere, if the inventor is pushy enough to try.
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