Metamorphosis: Transforming Your Company With Innovation
By Kim Weaver Spurr

A plastic toy bucket of green slime sits on a table in Barry Bayus' office. The oozy gunk was one of the products General Motors' Design and Technology Fusion Group used to brainstorm and create "The Goo Gripper," an innovative new cup holder that may - or may not - ever make it to market. But whether it's a hit sensation is not entirely the point.

Bayus, area chair of UNC Kenan-Flagler's marketing faculty, is doing research on new product development funded by a UNC technology grant. He says General Motors (GM) is an example of an organizational culture where today creativity and innovation are not only allowed but encouraged, where new ideas are embraced and valued. 3M, Apple, Corning, Microsoft and IBM are companies often associated with the label of longtime innovators.

"You have to put together a culture of processes that makes innovation intrinsic," said Bayus. "People will more readily give you a suggestion if they know that management will act on it in some way. It's about people believing they make a difference."

So why innovate? Why does it matter whether yours is an innovative organization or not? Does it really have an impact on the bottom line, or is it just the latest corporate fad?

"To generate revenues and grow, innovation is the only real answer. Creativity and innovation are drastically important for the future," said management professor Dick Blackburn, who co-teaches a product design and development course with Bayus. "Some organizations are so shell-shocked by what's happening in the economy that they are cutting costs and minimizing risks. That might be appropriate - for the short term."

In the 1920s, the list of companies that comprised the S&P 500 changed little from year to year, with annual turnover of 1 to 2 percent. Today, that turnover rate has increased to about 10 percent. The majority of large companies are mired in saturated markets with few significant growth opportunities. If that's not a motivator for the need to innovate, what is, asks management professor Stuart L. Hart who is co-director of the Center for Sustainable Enterprise. The base of the economic pyramid - which comprises two-thirds of the world's population - is where enterprising companies will find markets that are completely unsaturated, he said.

Hart founded an innovation lab at UNC Kenan-Flagler. Known as the Base of the Pyramid Co-Laboratory, the consortium assists in jump-starting business model innovation at the base of the economic pyramid.

"You have to build innovation into your strategy, or it won't happen. It will get driven out," added Hart.

Enter GM again. The company is devoting $1 billion to Autonomy, an ambitious project to create a hydrogen-powered car within a decade. With Autonomy, it's not just about component innovation, it's about architectural innovation, a new concept of mobility created from the ground up.

"How can you possibly imagine making an engine with a costly fuel cell?" Hart said. "But GM is developing a fuel cell like a skateboard, so that the fuel cell becomes the car chassis, radically simplifying the design of the vehicle. This will greatly reduce the number of components used to make the car, thereby reducing supply-chain and production costs."

And while it might be difficult to bring a fuel-cell car to the U.S. marketplace, where there's already a set-in-stone, gas-and-oil infrastructure, what about tapping into a market like China, where such an infrastructure doesn't exist?

It takes guts to be radically innovative; but if GM doesn't seize the opportunity, another company will, Hart said.

"Somebody will be looking at ways to do it differently that will fundamentally change the ground rules," he said.

Innovation: What does it mean?

Innovation is quite separate from creativity, although organizations need to encourage both, said Peter Smith, an operations and marketing professor who teaches executives about managing innovation and strategic change and launching new products. "Creativity is the human process that yields new ideas, scientific discoveries and new forms of artistic expression. We can't force it to happen; we can just create an environment where it's more likely to happen. Creativity is somewhat accidental and low-yield; but it does come, and then the job is to innovate," Smith said. "Innovation is the process of producing something useful from creativity. It takes creativity to the next level."

You have to be prepared for a different way of operating if you think about innovation, Smith said. You have to embrace uncertainty rather than ward it off.

"How do you get people to believe creativity is useful and to get comfortable with it? You have to create an environment where risk-taking is encouraged," Smith said. "We show people that there are analytical tools like simulation and probability analysis that they can use to get over the fear barrier. We teach people how to frame problems and to understand uncertainty."

Smith's definition of product innovation is marked by utility. It has to be useful to someone before it can be called a successful innovation, he said.

Marketing professor Sridhar Balasubramanian has studied "customer-centric" innovation. For consumer-oriented firms, there is a steady shift from what attributes a product should have toward "How do we make products easy and convenient to consume?" he said.

Some of his favorite examples of customer-centric innovation are:

• Procter & Gamble's (P&G's) Torengos Tortilla Chips: They are designed to make it easy to scoop up the salsa, packaged to store easily and sized to avoid double-dipping;
• P&G's Pampers Bibsters Disposable Bibs: Feed the baby, and throw them away - perfect for travel; and
• Pfizer's Listerine Oral Strips: You can't gargle from a bottle of mouthwash after a formal lunch, but you can use a dissolvable freshening strip.

"R&D engineers are much more tuned to product-centric thinking, and it takes a great deal of interfacing between marketing and engineering to make this new way of thinking happen," Balasubramanian said.

"Innovation may also be a question of timing. Do you have to get it to the market now, or do you need to develop it further?"

Creating innovation station

To build an innovative culture, you have to take risks, encourage failure and willingly embrace mistakes. Huh?

"If you fail, you've really learned something," said marketing professor Bayus. "Success may not happen the first time around."

Building a climate conducive to innovation has to start at the top, said Blackburn. He and Bayus talk about IDEO, the Silicon Valley-based design firm, in their classes. General Manager Tom Kelley describes creating this culture in his book, "The Art of Innovation: Lessons in Creativity From IDEO, America's Leading Design Firm."

"A strong leader has to build in reward systems that encourage risk-taking and creativity and to send all the right messages about the importance of innovation," Blackburn said.

You can't order an employee to be creative, rather you have to "turn them loose," he said. At the same time, you can't just turn on the creativity faucet and let it go wild. "If everybody's being creative and innovative without an overriding vision, you'll have difficulty getting high levels of performance. More is not necessarily better," he said.

There are two types of innovation, said Balasubramanian: microinnovation, where you take a very close look at improving how customers acquire, pay for, use and dispose of your products, and macroinnovation, or the view at 10,000 feet, where you look at the industry landscape and ask what the customer really wants. With macroinnovation, firms must be ready to question existing industry assumptions and value curves and shape new ones, he said.

"A good innovator uses a mixture of micro- and macroinnovation," he said.

Don't crush it like a bug

One of Blackburn's favorite exercises is to ask his Executive MBA students to describe the last creative thing they've done. The silence is deafening.

"They won't do it. They think you have to paint the Sistine Chapel to be creative," he said. "One of my favorite examples is of a student who was sweeping her driveway. Her son wanted to help her, and she didn't have an extra broom; so she made a broom out of a broken baseball bat and a fireplace brush.

"We're all inherently creative, but organizations can put us in a position where we don't express that."

A leader must create a culture where all types of information are shared up the chain of command, said management professor David Hofmann, who teaches a course on leadership and management. This includes negative information about problems occurring in the unit - for example, customer dissatisfaction, missed deadlines, production problems and other work-related issues.

Without this type of culture, both innovation and organizational learning can be short-circuited, Hofmann said.

"If negative information is suppressed, the group will be less innovative over time. A leader should encourage free expression of ideas, because it is often this negative information that helps to motivate innovation," he said. "A manager also needs to be secure in his or her role as a leader, confident enough to be open to hearing about challenges the team is facing and then respond to this information in a constructive way focused on improving team performance."

Leaders also have to be self-aware and cognizant of the signals their behavior sends, he added.

"Leaders might say they're open to feedback; but it's not just what they say, it's what they do," Hofmann said. "If the first time a leader hears negative feedback he shoots the messenger, the information will stop coming - as will opportunities for innovation."

"It's a huge responsibility, from the CEO to the brand manager," Balasubramanian added. "It's a very human reaction to not think creatively if you don't feel like you're being appreciated.

"But remember, you may need 100 ideas to come up with five good ones."