Mind the innovation gap

By Nigel Montgomery

No company is capable of stimulating and capitalising on innovation on its own. Each must close the gap between itself, its customers and its partners, making every effort to collaborate effectively. That was the underlying theme at IBM’s recent Business Leaders Conference.

IBM CEO and event host Sam Palmisano mentioned leading innovator Procter & Gamble (P&G) as an example. There, he said, more than half of P&G’s new products result from collaboration with its customers. Collaboration is therefore clearly a basic ingredient of competitive innovation.

In fact, innovation emerged as the top theme from the 765 interviews IBM recently conducted for its 2006 CEO study. In the 2004 study, the big story was renewed attention on, and investment in, increasing the ‘top line’ after several years of cost cutting. Then, innovation was just one consideration. Today, it has become the principal tenant of the ‘mental real estate’ of CEOs.

Palmisano repeatedly drove this point home with additional examples that prove we live in a world where differentiation is no longer vertical, it’s horizontal. It’s about with whom we effectively collaborate.

BP’s approach: doing well by doing good

One of the most insightful speakers, Lord Browne, group CEO of global energy giant BP, urged that the starting point must be to establish purpose, and that management must ensure consistent re-alignment to that purpose. Purpose is the overall goal – the reason for existing – not the tactics employed to get there.

Here is some more food for thought and guidance provided by Lord Browne:

If you do things with one focus only, what else haven’t you done?
Do not bother asking questions when the answer is obviously no. The answer will not change simply because you ask the question. In other words, do not lose the plot and begin knee-jerk reactions to challenges;
Determine the purpose and then unfold it to a level that attaches to every individual.

Many companies focus on generating money for shareholders or alternatively proving that the company is upholding corporate social responsibility. Lord Browne suggested that doing one or the other on its own was insufficient as a primary purpose. Companies must do both.

"A successful business must realise that it is part of society. Innovation is the upfront response to change." BP is a case in point. The company is a pioneer in the exploration of alternative fuels, recognising that society has to respond to the threat of global warming and that it can play a major part in that change.

High-tech imperative: stop pushing

Howard Stringer, chairman and CEO of Sony, commented that innovation has the power to change companies and individuals, while all the speakers agreed that the world of invent, create and push was gone for good.

An example of the globalisation that is already well underway, particularly in the high-tech industry, is Sony’s long-awaited PlayStation 3 games machine. The PS3 contains processing power that, not so long ago, would have been considered a super-computer. This processing power will not sit with data centers at major corporations – it’ll be available to ten-year-olds in homes around the world. Each will be instantly connectable to the internet, the ultimate collaboration vehicle.

Embarking on a global program to become increasingly innovative is not a quick process either. Kunio Nakamura, president of Japanese electronics giant Matsushita (better known by its principal brand, Panasonic), said that his company is currently only half-way through its plan after five years – although, going by its figures, it looks ahead of that plan, with profits of $3.4bn generated by its 335,000 employees worldwide.

Nakamura said that Matsushita adheres to some strict guiding principles. The company considers itself a public entity, with responsibility to the public at large. Customers always come first and, more radically, each day the company starts afresh, he said. In other words, it is in a constant state of renewal, stimulating a culture of innovation. This social responsibility theme was reiterated with every successful company presenting its case.

One point that became clear from the outset of the event was that for innovation to flourish, it must be led from the top. Cisco CEO John Chambers commented that a sled only goes as fast as the lead dog. Palmisano, gesturing to his own senior management in the room, asserted that another requirement of successful innovation is the "lowering of the centre of gravity". This means decentralising decision-making and empowering the individual, but senior management needs to have the courage to let go.

Every speaker at the conference emphasised that they’re no longer fighting to be the best – they’re fighting to be unique. It’s a sombre message, but one which must have been music to Palmisano’s ears, having just launched a half-billion-dollar advertising campaign with The Kinks’ 1966 B-side ‘I’m Not Like Everybody Else’ as its anthem. Trust me – the tune is one you’ll find yourself singing in an unguarded moment.

Nigel Montgomery is director of European research at analyst group AMR Research. He can be contacted at nmontgomery@amrresearch.com