 "Link innovation")
Often companies lack innovation as a core capability to help bring ideas as unique solutions for their markets. Investing only in blockbuster ideas is a poor strategy for innovation. Why? Small ideas that could generate big profits don't get the air time, and the intrapreneur innovator (your top talent) walks out the door with that idea and competes against you in a few years. For example, at Time, Inc, the managers only wanted to keep building the next People magazine. The result was plummeting revenue and subscriber base. Only after smaller but creative ideas were used did they start to reverse the profit trend line.
Another poor strategy is to subject all ideas to the same performance engine criteria for incubation, evaluation, and experimentation. Not all ideas will generate the strict financial ROI targets within the time frame headquarters has set for capital expenditure policy. This typical trap leads to old ideas retrofitted in the current system, which results in only incremental changes to product and service offerings.
Remember, every product line and business unit may be at a different point on its S-Curve. The process and the investment mind-set must be aligned to where each business is on this curve in order to ensure that no small or big ideas get dropped or left for the rivals to find.
Innovation at McDonald's
McDonald's feeds over 50 million customers at over 30,000 restaurants around the world every day. Getting the basics right is critical, but focusing only on the core capability is not sufficient enough. McDonald's went through a business downturn from the 1990s through the early 2000s. Revenues were slowing, competitors were growing, and people were buzzing about new, fast-casual dining options that were more upscale than McDonald's, threatening parts of its business. In response, McDonald's tried many things: buying Boston Market and Chipotle, with new kitchen systems designed to custom cook orders and different menu items. Nothing seemed to gain traction.
In 2003, a new CEO and chairman was appointed from within. The turnaround began by focusing on the five basics: People, Products, Place, Price, and Promotion. The '5 Ps' became the instrument of transformation for a few years. According to the VP of human resources (HR) at that time, Steve Russell, "It caused us to understand that the customer is key - it all has to center on the customer." This is in contrast to an earlier emphasis on operation, distribution, and cost. Today those things continue to be crucial, but only in the context of the customer experience.
Around 2005, the company started to focus on growth through innovation. By listening to customers closely, a huge bank of ideas began to flow among the corporate offices, internal departments, and restaurants. An innovation strategy called 'Think Big, Start Small, Scale Fast' was launched, a concept credited to Mats Lederhausen, managing director of McDonald's Ventures and leader in the company's strategy office.
Since 75 per cent of the restaurants are owner-operated franchisees in the United States, the challenge was to bring the owner-operators into the innovation process in a disciplined way, without killing their entrepreneurial spirit.
How did McDonald's do it? It secured CEO-led sponsorship for a new Innovation Center, established an Innovation Council, and implemented a Strategic Innovation Process. The center, a giant warehouse with several model kitchens, solicits ideas from around the world and puts them into a restaurant-like "studio" setting. When a product is changed, often the kitchen equipment needs to change to support it. All testing now occurs in the center. Once the product is tested, the company partners with nearby restaurants to test the innovation. About 50 to 100 restaurants are used for fast prototyping of any new product or service offering. This enables McDonald's company to test the menu, the operating platform, and all the systems that need to align with the change.
The Innovation Council is made up of owner-operators, staff members at various levels, suppliers, and even company outsiders who are just smart people who love to think about the future. The primary job of the council is to challenge the status quo, remove the old mind-set, and prompt strong desires to study customers' unmet needs before customers themselves define it.
In the United States, 13,000 restaurants now use the innovation process to expedite near-term launches of new products, such as spicy chicken or new breakfast menu items.
McDonald's innovation strategy was designed for fast product innovations and customer centricity. Instead of focusing on internal efficiencies. The company decided to find innovations linked to their market growth strategy. It did this by carefully listening to both current and emerging needs of various customer segments across the globe. By centralizing an innovation process and resources, McDonald's was able to quickly test new innovations and bring them out to markets faster than ever before.
Case study: Whirlpool
Whirlpool's innovation journey started in 1999 with its emphasis on embedding innovation as a core competency for everyone in the company. Leaders were committed to building a culture of innovation as the clear differentiator in their sector.
At the center of Whirlpool's initiative were three innovation boards (I-boards) made up of senior leaders at the regional business levels of North America, Latin America, and Europe. Their primary role was to embed innovation in their respective units by setting financial goals, allocating resources, and reviewing processes and new ideas for further funding. The process included training and developing 600 I-mentors around the world, the innovation equivalent of black belts in Six Sigma initiatives. I-mentors were trained on innovation tools and were equipped with the knowledge and skills to facilitate innovation-related meetings and workshops. The I-boards funded big projects as well as many nascent ideas that might never have been supported.
The process of embedding innovation involved training over 22,000 employees to look for "market and in-job innovations." Employees were encouraged to find fresh new ideas in their daily jobs for things like systems changes, organizational design, customer marketing, delivery, core processes, enabling processes, partnerships, alliances, and product performance. As a result, the pipeline of ideas grew from $350 million in 2006 to over $3 billion by 2009.
For Whirlpool, unlike McDonald's, the innovation strategy was more about building intrapreneurship and making innovation a core capability with the culture.
Re-printed with permission. Copyright Wiley.
All rights reserved.
All rights reserved.
INNOVATION ENGINE
AUTHOR: Jatin Desai
PUBLISHER: Wiley
Price: Rs 599
ISBN: 9781118355039
| Meet the author |
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Co-Founder & former CEO, The DeSai Group
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