Indian Management Studies Journal

Managing Innovation for Competitive Advantage : An Integrated Approach Model

Gajendra Singh* Rajesh Sharma** Shailender Singh***

* Department of Business Management. HNB Garhwal University.

Srinagar. Garhwal (Uttaranchal)

** Institute of Clinical Research. New Delhi *** PSMS. Punjabi University. Patiala
Since the beginning of industrialization, management experts have stressed on the importance of innovation for gaining competitive advantage. In-depth knowledge has been acquired in the areas of functional and strategic management and the importance of gaining competitive advantage has been universally accepted. World's best companies have built their competitive strength by being constantly innovative. 3M, Sony, BMW, General Motors and several others are actual practitioners of management focusing on innovation. In spite of proven effectiveness of innovation and its growing importance for developing competitive advantage, it is still not considered an integral part of management. Innovation is still considered as something, which happens by chance. Time has come when it should become a standard part of business process. This article raise the issues related to importance of innovation for gaining competitive advantage, the need to practice managed innovation, and a model to manage the innovation process.

In a fast changing world, where even the defInition of change has changed, corporations have little option but to innovate. Still, a majority of the organizations have left innovation to the elite group of scientists and the R & D departments. The last century saw the birth of organizations that were good at optimization and mass production. But, in this era of global competition, optimization can no longer save one from retrogression. One important factor relevant for growth of fIrms is

that the difference between levels of technological strengths of different fIrms has diminished to a great extent. It makes it difficult for ftrms to come out with a technically superior product whose features cannot be replicated by others; therefore, continual innovation becomes an important tool to stay ahead in the race. There are numerous examples that highlight the importance of constant innovation : 1. Xerox, which claims to be a document company but missed to widen its focus from copiers to printers. That change in the market was a fundamental change in its core business. 2 Coca-Cola has been late to every new beverage trend for the last 10 years. It was late in benefIting from the bottled water boom. It was late to new age drinks like Red Bull and sports drinks. All these products that they missed to catch on are all non-carbonated. These facts are crucial considering that this is the fastest growing segment globally. 3. Sun Microsystems, which makes high margin, proprietary software, could not anticipate that it's toughest competitor will be Linux and open source, which is built by volunteers. It shows that even the world's most renowned organizations are not always well equipped to handle change, which require them to be innovative themselves. Companies often make mistake of identifying themselves by their activities rather than their capabilities. If Coca-Cola considers itself as a soft-drinks company, it will miss the opportunity to produce and sell mineral water, which it can do very well. It is important for a company to be constantly aware of its fluid environment and think beyond its products as its competency. Some of the world's best management companies have taken to innovation managemenfas an effective tool for staying ahead in the competition.

The Principles of management advanced by Fredrick Winslow Taylor have left overly strong impressions on managers. His concepts of optimization were most suitable for .the industrial age but in this time of saturated markets where further penetration is getting tougher by the day, companies have to innovate or die. According to Peter Drucker, innovation is not restricted to high tech companies only, but is equally important for low tech, established businesses. Worthwhile innovation is not a matter of chance, it requires well designed, organised and rational work for results. Though Peter Drucker recognized the importance of innovation long back, it is still considered as something that takes place by chance only. Majority of the companies does not give it the kind of importance that they will give to functional areas like marketing or fmance. But, those who excel in their

fields have always given strong emphasis on constant innovation. The following examples will highlight this point clearly : At Johnson & Johnson, autonomous operating units are encouraged to innovate. Failures are not considered as incompetency. At Rubbermaid, 30% of its sales are derived from products that are less than 5 years old Hewlett-Packard motivates its researchers to spend 10% of their time on their favourite projects Merck systematically budget resources for high risk projects with a potential for high pay-out General Electric work on joint projects with its customers for developing new products. These companies have made conscious efforts to systematically manage their innovations. They foster an environment where people can be creative and constructive with an aim to stay abreast of the entire external environment. But all companies do not believe in same way about innovation. Innovation takes place in different ways in different companies. Broadly, innovation can be divided into three categories -

In many cases it is an exception when an enthusiastic employee, against all odds, will manage to convince his bosses about his new idea. A glaring example in case is the Sony Online Entertainment System, which makes Play Station. It was initiated by a young engineer named Ken Kutarogi (later on, the President & CEO of Sony Computer Entertainment). Sony was averse to entering into video game business because it was not their core competency. Ken persisted with his efforts and fmally he got an internal sponsor. The rest is history. He succeeded despite the system. It should not be the case where innovation is to be encouraged. 1. Innovations at R & D Department This is the most commonly understood form of innovation. In many corporations, people relate it to their research division. It is often associated with technical issues and mostly new product development. This type of innovation has serious limitations. It does not utilize the potential of the whole organization, but only a fraction of that. Innovation is not related to a specific functional area; it encompasses all the activities of a business.

All the innovations are not technical in nature. Look at the way some people have used the Internet for providing creative services. Saranam.com is one such site where devotees can order offering, or perform prayer in the temple of their choice anywhere in India. Offerings are offered on their behalf from amongst 600 franchises, and are then shipped to their doorstep within seven days! This is not a technical innovation but a new concept. It is the conceptual innovation that creates new wealth, not the technology. Take the case of Kev1ar, the super strong fiber invented in 1965 by Stephanie Kwoek, a research scientist at the DuPont Experimental Station in Wilmington. It is a miraculous fiber with super qualities. Kevlar has excellent resistance to fire and will not bum even from direct contact with a propane torch. It is five times stronger than steel. DuPont had estimated an enormous potential for this super fiber because of its strength and lightness. It is a classic example of excellence in technical innovation, but it faced a great problem - there was hardly any application of it (Kevlar is now used in the production of body armour and tyres). The Wall Street Journal of October 1, 1987, reported that'Du Pont, who entered the market as long ago as 1972, still had great difficulty in selling the product. The investment had been enormous: 25 years of R&D, 700 million $ investment and 200 m$ starting-up losses. No other product had ever warranted such investments. Only during the past 2 years Du Pont had beheld some profit from its fiber. Annual sales were estimated at 300 m $, and the Journal stated that in years to come this will rise by some 10% annually. This example shows that a technological breakthrough is no guarantee for fmancial triumphs. The Kevlar Marketing manager, Wayne Smith aptly depicted the situation by saying: "Kevlar was the answer, but we did not know to what." INTEGRATED INNOVATION PROCESS MODEL SETTING OBJECTIVES 1. Link with organizational objectives 2. Ability to control and guide CONCEPT RESEARCH 1. Idea generation 2. Scouting technology 3. Trend analysis 4. Managing information ORGANIZING INNOVATIONS 1. Team building 2. Screening 3. Resource allocation 4. Monitoring MANAGING TRANSFER 1. Assign to project manager 2. Minimize risk 3. Identify top innovations

Innovations without a clear aim of end results are wastage of resources as one can see from the example of Kevlar. DuPont's objective to make a technically superior product didn't end up with proportionate profitability. The innovation objective was not analyzed to link with profit objectives. The first logical step in managing innovations is to set up clear objectives, which are linked with ultimate company objectives. They work as controlling guidelines throughout the process of innovation. Take the case of BMW where innovation is a managed function. In order to build their brand image and to meet their demanding business targets, they commit to maintain leadership in technology and the continuity of their brand. Specifically, BMW has set three controlling objectives. First, they want to have more than one Unique Selling Proposition (USP) in each of the cars they launch in future. And secondly, they plan to complete as many breakthrough innovations as possible. Third, they want to develop concept cars to convey their brand image at motor shows. Only such types of objectives can channelise innovation management towards profitable end results. 2. Concept Research Researching for ideas and technology needs a systematic, but flexible approach. The system for this purpose must bring together two contradictory objectives. First, it must have rules for systematically channeling the various innovations to a central point. But at the same time,.it must give people within the company as much freedom as possible to cultivate the most promising projects in order to get the most out of a good idea in a creative environment Concept research should cover the following areas :

Worthwhile ideas are generated in a positive conducive environment where employees feel motivated and free to express their opinion without the fear of being evaluated. It is also crucial that their ideas be judged fairly and constructively. If they are not, people will not feel motivated to seek new ideas or to share them with the team. This is detrimental as "when creativity is killed, an organization lo~s a potent competitive weapon: new ideas. It can also lose the energy and commitment of its people."

To keep up with the latest developments

and not to miss out on any trends, that they

companies should scout for technology on a worldwide basis. Organizations must consider world as a reservoir of different core competencies can access through joint ventures, alliances and acquisitions. One of the classic examples of this is Swatch, which borrowed Swiss watch making skills and learnt how to make plastic watches from Lego, a. toy company in Denmark. Then it engaged designing talent of Italy to make the watches look fun and interesting. Swatch took competencies from three different parts of the world and blended them together nobody else has done. First, the ftrnls should identify their core competency of its products or serVices. Then look at competencies have. to achieve what

beyond the strengths that other companies

Bringing out a successful product requires trend analysis of information

on

consumer preferences and technological developments. For example, machines, which can deal with different batch sizes or can adapt to declining part sizes, have emerged in electronics manufacturing. It requires employees corporate landscape. at all levels to gather and feed intelligence into the system. This helps to form a clear picture of the competitive

Researching for new ideas will lead to a vast accumulation of information. All of that information may not be really pertinent, and the information needed by employees also varies at different levels. Setting up an intra organizational network to provide categorized online information for each level of management will help a lot in effective utilization of information. Sifting relevant information, making it available to the concerned employees, and making the access easy and fast will be the main job for those who manage information in organizations.

This is the major part of the innovation management,

which involves the

largest number of people and the greatest volume of resources. The portfolio of innovations generated by a company requires screening,

a clear evaluation and a specific choice of promising projects. Organizing innovations also ensures ongoing control and supervision during the management process.

ITeam BUilding~1
Team Building

Screening

~IResource Allocation ~IMonitoring

& Reporting

Figure 2 : Organizing Innovations

Innovation Control is based on Innovation Managing teams having senior management staff responsible for their portfolios. The teams exchange information for a kind of cross-functionality overviewing the individual innovations of different departments and divisions. The advantages of this strategy are obvious, since it allows focusing on the overall interests of the company as a whole.
Screening

Managing a thousand innovation projects within the individual departments all focusing on their own projects only will result in all suffering from inadequate funds and manpower. The system should allow to control and channel the resources much more efficiently. Organizations should concentrate only on projects, which have been regarded as most promising. The crucial issue is to fmd out innovation projects, which are worth being pursued and followed up, and the projects that do not have sufficient potential. There should be a prioritization process, which can allow a company to apply various levels of ranking to the individual projects. Fig. 3 describes a way to divide projects according to their level of potential for end result.
Resource Allocation

The manpower and fmancial resources provided for a project should be according to the priority given to each project. Innovation programs should be reviewed regularly-which also means that ongoing projects may be stopped or re-oriented, possibly because of a change in strategy or new insights gained into the risks and costs involved.
Monitoring

Since the priorities are different, a variable reporting process will be more effective in monitoring (see Fig. 3). Top priority projects and breakthrough innovations will be reported to the Board of Management. This is because such breakthrough innovations involve substantial expenditure and far-reaching effects, so that the Board has to make the final decision.

Level of Distinction

1
This last phase of innovation management is of particular significance. Here it is ensured that a choice of innovations in pre-development phase is offered to the responsible project managers. This comprehensive process may last several months, since the project managers must expect an increase in costs as a result of the innovations proposed. And since the project managers have to keep a close eye on their budgets, they may often take a lot of convincing. In the process of transferring innovations, the objective is to minimize the risk for the various projects. The decisions on a project should be made after weighing time, cost and quality factors against one another. Once a balance of the market and technology risk parameters has been established, the very risky projects can be aborted in good time, avoiding subsequent mistakes and problems further down the line.

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