About the Author
Tony Davila is a faculty member of Stanford's Graduate School of Business. Building on his doctoral work at the Harvard Business School, he works with both large industrial companies and Silicon Valley startups to design management control and performance measurement systems that drive innovation. He has been published in Harvard Business Review, Research Policy, and other leading journals.
Marc J. Epstein has been a visiting professor and Hansjoerg Wyss visiting scholar at Harvard Business School and a distinguished research professor at Rice University's Jones Graduate School of Management. He has been a senior consultant to leading corporations and governments for over twenty-five years, specializing in strategy implementation, innovation, governance, accountability, and performance metrics. Epstein has also served as a professor at Stanford Business School and INSEAD.
Robert Shelton is managing director of Navigant Consulting's Innovation practice. His client list is a "who's who" of innovative Fortune 500s, including leaders in the electronics, energy, health care, automotive, consumer goods, software, and aerospace industries. Shelton has served as vice president and managing director with Arthur D. Little and as managing director of the Technology and Innovation Management practice at SRI International (formerly Stanford Research Institute). His work has been referenced in media ranging from The Wall Street Journal to CNN Financial News.
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MAKING INNOVATION WORK: HOWTO MANAGE IT, MEASURE IT, AND PROFIT FROM IT
Much that is held as common wisdom regarding how successful innovation is managed is wrong. It seems that somewhere along the line, the correct set of rules of innovation have been misplaced, distorted, or simply misinterpreted. This is not to say that organizations are not innovativeobviously many are. But how and why these companies are innovative is very different than what many managers think.
This book challenges the prevalent misconceptions about innovation, and lays out the tools and processes necessary for an organization to harness and execute innovation.
The following chapters show that, contrary to popular belief:
Innovation does not require a revolution inside companies. What it does require is thoughtful construction of solid management processes and an organization that can get things done.
Innovation is not alchemy, with mystifying transformations. It's much more like the basic blocking and tackling of other key business functions.
Innovation is not primarily about creativity and having a "creative culture." Many companies find that coming up with good-to-great ideas is the easy part; the hard stuff is selecting the right ideas and implementing them.
Nor is it solely about processes and stage-gate tools. These do count, but tools and processes alone are not effectivethey must be coupled with an organization, metrics, and rewards that can make things happen.
Innovation does not focus exclusively on cool new technology. Developing new business models and new strategies are every bit as importantsometimes more.
Innovation is not something that every company needs in large quantities. Innovation must match the opportunity and the competencies of the organizationsometimes, with good timing, a little goes a long way.
Making Innovation Work provides three new, important perspectives for senior managers:
Innovation, like many business functions, is a management process that requires specific tools, rules and disciplineit is not mysterious. Execution is simple once it is clear how the pieces fit together. Company executives typically complain that they cannot get innovation accomplished in their organizations. Making Innovation Work presents an integrated framework, formal processes and tools that all managers can use to create top- and bottom-line growth from innovation. The book describes how to use these standard management tools (such as strategy, organizational design and structure, management systems, performance evaluation, people, and rewards) to dramatically increase the payoffs from innovation investments.
Innovation requires measurement and incentives to deliver sustained, high yields. Remember the saying, "You can't manage what you can't measure"? That certainly holds true for innovation, but many managers have only paid lip service to this crucial aspect. Many companies measure the wrong things and provide incentives for behavior that corrodes the systems and processes that support innovation. Making Innovation Work shows how to use metrics and incentives to manage every facet of innovation from creating the ideas, through selecting and forming the prototype innovations, and all the way through to commercialization. The book has metrics and incentives that can be used by companies of all sizes, complexities, and in all types of industry.
Companies can use innovation to redefine an industry by employing combinations of business model innovation and technology innovation. This book shows how to integrate changes in the existing business model and technology to redefine the competitive environment of an industrythe way Apple Computers did with the sequential introduction of iPod (a technology change) and iTunes (a business model change). Most companies are significantly better at one or the other, but few have a truly integrated capability for both significant business model and technology innovation. Making Innovation Work presents a unique framework that allows management to harness the power of both business model innovation and technology innovation and by combining them, create competitive advantage, grow, and significantly affect the direction of the industry.
The truth is that there is not much that is truly new about innovation. The basics have not changed for centuries. However, we have become smarter about managing innovation. By analyzing what has worked really well and what has not, Making Innovation Work provides new insights into how to execute innovation. It breaks things into manageable pieces that can be applied in any company.
Two ideas shape the foundations of this book:
Innovation is a necessary ingredient for sustained successit protects your tangible and intangible assets against the erosion of the market.
Innovation is an integral part of the business, and as such it has to be managedit is not a "nice-to-have" element or something that occurs on its own.
Innovation is imperative to grow your top and bottom lines. Innovation produces changes that are essential to survival of the company.
Innovation is not about secret formulas; it is about good management. The book identifies the seven Innovation Rules of good innovation management:
Strong leadership that defines the innovation strategy designs innovation portfolios, and encourages truly significant value creation.
Innovation is an integral part of the company's business mentality.
Innovation is matched to the company business strategy including selection of the innovation strategy (Play-to-Win or Play-Notto-Lose).
Balance creativity and value capture so that the company generates successful new ideas and gets the maximum return on its investment.
Neutralize organizational antibodies that kill off good ideas because they are different from the norm.
Innovation networks inside and outside the organization because networks, not individuals, are the basic building blocks of innovation.
Correct metrics and rewards to make innovation manageable and to produce the right behavior.
We have spent our lives working on innovation. This book is the result of years of research in the field as well as through surveys grounded on a thorough analysis of the academic and practical literature and extensive experience working with companies to enhance the value they create from innovation. Specifically, we have identified what companies need to do to become more innovative and to improve performance in innovationand we understand why some companies fail at innovation. As part of our analysis, we examined the practices of leading companies in a range of industries through extensive surveying and numerous company interactions. In addition, we have talked with and helped senior managers in the companies in a variety of contexts and deeply researched their management practices.
Corporate CEOs that we've interacted with repeatedly mention their dissatisfaction with the innovation in their organizations. In some cases, incremental innovation crowds out larger innovations, leading to an unbalanced portfolio that rewards short-term at the expense of long-term survival. Sometimes these managers blame bureaucracy; in other instances, culture is the identified culprit. However, they all perceive selected elements of their organizations as working against the kind of innovation that is necessary to compete today. Some managers have even given up on their organization; they feel that their only hope is to buy innovation outside the organization and leverage their market power to generate value. For many, that could be a fatal mistake.
There is no silver bullet for innovation, no one formula or structure for innovation that will work for every organization. However, our research has shown that there are clear ways in which companies can improve their innovation results, create value, and grow.
Because the "how" of innovation is all-important in determining results, this book does what books focused on innovation strategy cannotMaking Innovation Work provides the context, framework, tools, and operating guidelines to actually make innovation happen better in your organization. And it provides the approaches to tailor innovation to a company's particular situation, business strategy, culture, technological acumen, and appetite for risk.
Making Innovation Work goes beyond ideas and inspiration to offer practical, tested advice on how to create value from the innovation investment on the level of day-to-day processes, as well as at the strategic level. It describes how to maximize your company's value by integrating the different types of innovationincremental, semi-radical, and radicaland creating a balanced portfolio of innovations. And the book covers the entire chain of innovation tools from A through Z, so it is possible to troubleshoot your company's situation and identify what needs to be improved to maximize value for your company's particular situation and need.
Objective of This Book
Where is your company?
Evaluating the innovation state of your company
Assessing the options going forward
How to design an innovation strate...