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Over the last thirty years, the importance of innovation as a core driver of business value has increased to the point where few CEOs would disagree. Unfortunately, most companies are not able to innovate in financially meaningful ways. And for those companies that appear to have “cracked the nut,” like Motorola, Sony and even GM, usually end up regressing after a period of time. This raises the following questions:

• Why is innovation elusive and difficult to sustain over time?
• How can we make innovation systematic and sustainable?

Over the many years of providing innovation consulting and building innovation capability in companies across industries and geographies, we have observed that organizations go through the same cycle of hope and despair. This cycle begins when a firm’s leadership realizes that there is an emerging earnings growth gap which requires them to make growth a strategic business imperative. These leaders often progress by paying millions of dollars in consulting fees to identify new areas for growth and by building an innovation organization to drive that growth. In a very short time, consultants use proven innovation concepts like platforms, pipelines and partners to develop a common language within small groups of people in the organization. These teams master techniques for idea management, prototyping and project management to drive concepts to commercialization. Eventually the innovation management process generates some innovation breakthroughs that begin to fill the growth gap. However, all too frequently, the unlearning process of innovation management then begins.

While there is no single cause for this institutional unlearning, several reoccurring themes emerge:

• Innovation strategy moves from the exploration and discovery of adjacencies and white spaces to more disciplined execution and launch which decreases the organizational tolerance for those individuals still wishing to diverge or “look outside the box”
• The strategic planning and budgeting process takes over and demands predictable outcomes and timelines instead of managing options and contingency plans to deal with the uncertainty and ambiguity of What’s Next and What If?
• Six Sigma and Lean processes begin to dominate as efforts are put in place to increase consistency of offerings and decrease waste in development and manufacturing processes at the expense of experimentation and learning
• Significant profits are generated as company processes and organizations are streamlined and focused on what works today reinforcing pressure from shareholders to stay the path and not deviate from the core business

The result of all this is that Innovation Management often becomes a nice-to-have and not a must-have capability and, as a result, it begins to wither and die. The total sum of investments made in getting innovation started is often wasted as initiatives stagnate. This waste is in the hundreds of millions of dollars and is clearly unacceptable.

So how do companies create a sustainable innovation capability that can proactively and consistently drive organic growth and profitability? The answer is to make this capability more ubiquitous across organizations and a requirement for all managers, not unlike training and standards programs in accounting, marketing, strategy or operations. To take this one step further, we see the need for the creation of a globally recognized innovation management certification similar to the Chartered Financial Analyst (CFA) in finance and Project Management Professional (PMP) in operations.

We believe that Innovation Management has emerged as a new management discipline not so different than the management discipline of Information Technology (1960 – 1980) and Quality Management (1970 – 1990). These two disciplines became management disciplines because each:

• Provided an opportunity to create significant competitive advantage and company value
• Had an emerging body of knowledge, experience and best practices
• Had an emerging profession with more standardized core competencies and certifications
• Provided an opportunity for Executive Leadership Roles

This is the case for Innovation Management. The time for clear innovation standards and certifications has arrived and the Center for Innovation, Excellence and Leadership has begun the process to champion this effort through an innovation management standards board composed of leaders from corporations, academia, government organizations and innovation consultancies. This board is creating innovation management standards governing three key competencies to make innovation real in organizations.

Specifically these competencies focus on:

• Where and When to innovate?
• How and With Whom to innovate?
• How to Drive Disciplined Execution and finish what you start?

Missing any of these competencies or not being able to develop this capability across individuals, teams and organizations will result in failure or at best mediocre innovation results.

The certification program will create a larger pool of individuals with the relevant skills to make innovation real and make it easier for companies to recruit and hire for this specific, specialized skill set. The standards will create a common language and frameworks around innovation across companies and industries. This combination will drive rapid growth of innovation experts and managers who can cross-fertilize ideas across industries to drive even more valuable innovations. We expect industry organizations and economic development agencies to support this initiative as the benefits are clearly at the national and international level.

Many business people live in a contradiction when it comes to understanding an important aspect of business and technical innovation in Japan and Korea. On one hand, they marvel at the business success stories found in corporations like Honda or Sony. On the other hand, they denigrate or even dismiss those same successes by calling them names. These achievements are often put down as “copycats”—products and services very similar to those originally created by innovation departments in western corporations.

Clearly, these Asian companies are delivering high impact innovations to the world that others cannot replicate. More importantly, they are wowing customers and capturing significant value. Instead of dismissing these achievements as “copycats,” we propose to adopt another way to describe this success—a way that helps us to learn from success instead of ignoring it.

The first step in this learning process is to change our vocabulary so we can frame these successes appreciatively. Our research on innovation breakthroughs reveals that companies like Honda and Sony have adopted an innovation strategy that targets an intermediary solution between today’s business and technical realities and a perfect future business and technical solution. This strategy, which may appear incremental, is often sufficient to create a breakthrough solution that can “wow” customers and create barriers to entry. We call this strategy blended innovation.

In contrast, many western companies still look to innovation mainly to supply radical innovations to differentiate and to drive organic growth. But this approach does not suit today’s realities. These breakthrough innovations require significant new knowledge, experimentation, resources and time—all of which are now scarce. The outcomes of radical innovations are often not clear and the timelines hard to predict. Patience from senior executives for uncertainty is lacking, as well as protection of these initiatives between leadership successions. Finally, while we are waiting on breakthrough innovations in the west, blended innovations from eastern companies are taking market share and building brand equity.

Let us look at two salient examples of how blended innovation can work: Hybrid electric/gas cars, and lithium ion liquid/solid batteries. In the former case, the ideal solution is a car powered solely by electricity. In the case of lithium ion liquid/solid batteries, the ideal solution is a solid-state battery for cell phones that does not leak.

Hybrid electric/gas cars. GE, Ford and BMW have been working for years to replace the combustion engine with a 100% electric engine powered either by batteries or fuel cells. The mindset in these companies was to continue optimizing the combustion engine while developing the very challenging electric vehicle.

In the meantime, both Honda and Toyota decided to pursue development through an intermediate step. They realized: 1) gas-powered cars already had infrastructure for refueling and 2) batteries were far from being able to deliver the power and energy expected from a car by the market. But they did realize that a partial battery solution was useful because it provided significant increase in kilometers per liter compared to gas combustion engines. It is this blend of current technology and innovations in the Toyota Prius that has “wowed” the world while 100% commercial electric cars are still just dreams on a drawing board.

Battery solution for cell phones. In order to replace liquid electrolyte lithium ion batteries, Motorola, 3M and Bell Labs worked in the early 90s to make a solid polymer electrolyte battery. The goal of this work was to make a shapeable and flexible solid state rechargeable battery for cell phones and the general battery market. In contrast, Sony and Toshiba decided to take an intermediate step. Their solution was a gel—a gel being a kind of a liquid which nonetheless possessed all the desired characteristics of a solid. The liquid characteristic allowed the batteries to have higher power compared to a true solid-state electrolyte battery while the almost solid construction prevented the batteries from leaking. As a result, while the Americans worked on a true solid-state solution, the Japanese were able to launch their intermediate products to market. Profits from these programs soon allowed them to launch solid-state electrolyte batteries ahead of the American competition.

In creating innovative products and services, dreaming big is good. What may be better is to keep funding those dreams with a halfway solution between today’s realities and an ideal future solution. This solution is blended innovation, a way to find sustained competitive advantage through incremental steps. This approach to innovation may be well suited for fast-followers but also for corporations that do have a rich tradition of doing difficult and long-term innovation development.

All business models are not alike. Unfortunately, many executives look at their own firm’s business model as a given—as the natural, the best, or perhaps even only way to make money in a given industry. But, in reality, there are many, many business models that executives have to choose from. Understanding that there are many instead of one or two models can bring people to a new view of how they do business: that firms can be very creative in the way the can configure their entire business. So, in addition to innovation in products, services and processes, companies need to explore business model innovation — an often untapped resource for creating real value.

What is Business Model Innovation?

Business model innovation is a combination of changes that a company makes around the industry, enterprise, and revenue model. While these three components of the business model are discrete and unique, they may be interrelated.

1. The Industry Model — Change the Industry

Industry model innovation is defined as moving into new white space, new gray space, or moving to redefine the industry value chain. Examples of these include:

• White Space: Google creating a totally new industry
• Horizontal: Virgin moving from airlines to music to cell phones to space travel
• Redefine Value Chain: Dell turning computer manufacturing from offering a few mass‐produced models to a wide range of customizable units

2. The Enterprise Model — Change the Value Chain

Enterprise model innovation focuses on redefining the internal and external boundaries of your organization to create a new business model. This includes moving up or down the value chain, leveraging a network of partners or outsourcing non‐ core activities.

In some cases, this requires migrating up the value chain like Samsung with chips for cell phones or moving down the value chain like Apple with virtual (iTunes) and physical storefronts.

Another option is for companies to find ways to leverage a network of partners that increases the effectiveness and efficiency of production, offering, distribution and sales. illy has created a network of partners who help with coffee selection and collection while Enterprise has a network of insurance companies and car dealerships who help with sales and referrals.

Finally, some companies have Enterprise value chain focusing on their core competency and outsourcing non key activities and assets. This is a move to focus on your core competency. A123 in the US, a recently IPOed battery company has decided to focus on the materials for making batteries while developing downstream partnerships for manufacturing with Chinese companies, and select partnerships with Motorola for cell phones, Black & Decker for power tools and GM for cars.

So, businesses have to look all along their value chain and ask themselves: Should I make this, collaborate with another company, or outsource it? Do these choices change the game and create sustained value for us.

3. The Financial Model

Business model innovation around the financial model is making investments in new ways and using different pricing models. There are many pricing models to consider, in fact there are over 22 pricing models which can be bucketed into five categories. These pricing categories include strategies that lock‐in customers like that used by Brita that give away water jugs but require customer to buy refillable carbon filters for a high price. Alternatively, companies like Costco play a low pricing game based on economy of scales and eBay is able to add new product categories because of economy of scope.

Other pricing models are based on product leadership like the iPod and iPhone for Apple and pricing at premiums and negotiating a fraction of the downstream fees from wireless service providers like Cingular. The price and the manner in which revenues are gathered should optimize the strategy. The possibilities are many in creating a revenue model, but you have to think carefully about what suits your needs best right now.

What does this mean for you?

Figuring out business model innovation can seem overwhelming at first glance because of all the variables you need to consider. But choosing these variables becomes easier when you ask yourself some basic questions about your product or service offerings. Those questions are:

• Are there white or gray spaces that we can move into?
• What is your offering and to whom is this offering for?
• What should you Make, Collaborate or Outsource?
• How will you make money?

Answering these questions provides a starting point of assessments that help to narrow your choices. And the truly innovative company will evaluate their business model on a regular basis, testing the industry and challenging itself to maximize value in every possible aspect of the business.

What Business Sectors are in Need of Innovative Thinkers?

As the world creeps out of the worst financial crisis in decades, company leaders must avoid falling back into bad business habits that preceded it. One of these habits is a lack of attention to innovation. Innovation, from the old way of thinking, is mainly needed in times of crisis or perhaps in an industry that is reaching maturity. But earth‐shaking change for companies can now happen almost overnight. Nobody has the luxury to wait for an obvious signal to start innovating. Why? Because if you’ve seen that signal, it probably means that somebody else has taken advantage of a new opportunity and has already left your company behind. To survive, companies themselves have to become forces of change. Innovation is the means to become that kind of force.

Innovation is critical for all business sectors and independent of the stage of maturity of the industry. That is because no industry— at any stage of industry evolution—is immune to change. Companies that embrace innovation are more nimble and flexible than their competition and are more able to adjust with prevailing market conditions to capture a disproportionate share of profit.

As an example, let’s look at the cell phone industry. Just recently, many observers had felt that the cell phones had matured and that the major players—Nokia, Motorola and Samsung— would just fight each other for a few points of market share. However, Apple’s iPhone changed the game with innovations in business model and product platform. In just three years, the iPhone would garner more profits than the market leader with only 5% of the market share. Typically, innovative thinking in mature industries is around the business model: the value chain and pricing model.

Innovation can also play a big role in markets that were assumed to be very resistant to change. We have seen companies in resource and commodity industries focused on low cost and high volume, such as cement and steel, separate themselves from other companies through innovation. This has happened in Mexico with CEMEX’s innovations that increase demand for consumption. In Korea, Posco has taken advantage of technology innovations for manufacturing. In addition, we have seen a few companies in the highly unattractive airline industry make a disproportionate amount of profit. Ryan Air and Southwest Airlines refused to play bigger competitors in relying on the traditional hub‐and‐spoke approach to managing passenger traffic. Southwest’s point‐to‐point innovation lowered costs and opened markets in ways that traditional companies had not even contemplated.

Companies in growth industries often do not fight for market share but focus on growing as quickly as possible. We are seeing this with social networks like Facebook, MySpace and Orkut. In order to grow rapidly, these companies have to maintain their innovative efforts to find new ways to access more customers while continuing to offer great customer experiences to ensure brand loyalty. You cannot rely on doing what you did yesterday to stay on the fast growth trajectory. This is what happened to Yahoo, whose complacence weakened its dominant space on the internet—a weakness exploited by Google.

If somebody wanted to write a history of innovation in the new economy, we could look at tremendous developments in alternate energy solutions, medical diagnostics and the next generation digital world called the “cloud.” These industries are in start‐up mode and the players have to be experimenting with both the product and the market to find a fit. The good news is that start‐ups inherently attract innovative thinkers.

The recent financial crisis may have misled some people about innovation. Some may feel that the last crisis was caused by too much innovation in the financial industry. I do not believe that was the case. Innovation was not the culprit: the failure was due to bad choices as well as poor management and oversight. The financial industry needs to innovate so that we can continue to have efficient financial instruments and markets that provide liquidity to those who can grow value and then repay those loans for a fair return.

In an economy that is growing more global and interdependent, making sure we all embrace innovation is good for everybody. Take the financial industry, for example. If the global distaste for recent financial blunders has the effect of blunting innovation efforts in the industry, we all will suffer. Following the recent recession, we all need financial markets to be safe and liquid. In other words, we need innovative methods to find how we can do both. Being too safe or too carefree won’t provide solutions to make the world prosperous. We could make similar arguments concerning many other sectors: health care; water conservation, farming, transportation, etc. etc. Innovation, in the end, is a global priority.

What is the difference between a leader and a manager?

Figuring out the distinction between leaders and managers might seem like an academic question to some, but getting the answer right has tremendous, real-world impact. In my last article, I discussed the fact that companies at every stage of their development require innovation, which I define as “finding new ways to create and capture new value.” This article makes a complementary point: that it is only leaders that can truly guide that innovation. The scarcity of true leaders combined with their irreplaceable contributions to the health and growth of a company explain why they command impressive salaries and bonuses.

People often confuse this distinction because managers in big companies run business units with hundreds if not thousands of people working under them. With so many people answering to managers, it’s easy to mistake them for leaders. What might help make the difference clear is to use a metaphor from the game of soccer.

Visualize a world-class soccer player running down the field with the ball, turning left and right, dribbling past players. Observe how often the player looks down to make sure that the ball is on his feet versus how often he is taking in the big picture: looking around at his competitors, his partners, the environment and the field. Running, dribbling and keeping the ball on his feet is necessary but routine: the great soccer players rarely look down at the ball. The Ronaldos and Beckhams of the world see what other players cannot — the “what if?” and “what’s next?” options ahead. Quickly and efficiently, for example, they can ask assess emerging situations: “What if I held the ball a second longer and then lured the opponent to slow down, thus giving me an opening to sprint past him?” This kind of vision creates the next big scoring opportunity.

The same can be said for leaders who have figured out the necessary but routine processes of getting every-day tasks done in a business. While it is true that the leaders have many quotidian duties that are similar to managers, they are far more adept at seeing and imagining the field of play ahead of them. In contrast, managers spend most of their time watching the ball on their feet and do a good job of not losing the ball; however, they do not necessarily create new (scoring) opportunities. Leaders, on the other hand, have put systems in place to manage the day-to-day to avoid losing track of the ball. This gives them a significant amount of their time to look around for opportunities. The ability to look ahead and act in a timely manner to create new value is the hallmark of a company run by good leaders at any and every stage of a company’s evolution. Let’s look at some examples from two very different industries: communications and airlines.

In communications, Motorola had leaders such as ROBERT GALVIN in the 1970s and 80s that created an entirely new industry from the innovation of the cell phone. In the 1990s JORMA ORLLILLA at Nokia has made his mark not principally through path-breaking technologies, but by being an excellent fast-follower, making the company a stand-out at growth. In the last decade, Steve Jobs at Apple has not made his mark in creating new industries, but rather in transforming existing ones to create new value. The iPhone and the iPod marked great innovations in industries – the cell phone and music industries – that were decades old.

Looking back in history, the US airline industry featured some similar stand-out leaders in companies at every stage of industry evolution. In the 1930s, Juan Trippe, the founding CEO of Pan American Airways, combined his shrewd lobbying skills and his relationships with airplane manufacturers to create a monopoly on international airline travel featuring service from the US to China – a feat that would have been impossible in the 1920s. Pat Patterson of United Airlines fueled tremendous growth of his company with innovative management techniques, such as locating its corporate, operations and maintenance headquarters in optimal geographic locations across the US in the late 1940s. And Herb Keller of Southwest Airlines in the 1970s helped to transform the model of an airline by offering and maintaining intra-state, point-to-point service at a lower cost than any of his established competitors.

All leaders have managerial skills and competences; however, not all managers have leadership skills. For this reason, there are many more managers than leaders. Managers typically have to deliver on a clearly defined planned based on an agreed allocated resources. Their decisions are mainly driven by timelines and data. As a result, managers optimize their performance by delivering on-time and on-budget. Leaders are managers with a huge difference: the additional ability to drive and lead innovation!

How Can We Encourage Employees to Think More Innovatively?

There are many barriers to thinking more innovatively. The trick is to overcome or compensate for those barriers. But this is not easy. In fact, these barriers are hard to overcome because they often become deeply embedded in what might be called, “the way things are normally done.” Innovating means doing things that are, in fact, not normal or out of character for an organization. This is challenging for many at best and scary and intimidating at worst. But if we see that what is “normal,” is, in fact, just one out of many viable ways of doing things, then innovation ceases to be intimidating; indeed, innovative thinking becomes invigorating, exciting and profitable.

The difficulty of thinking innovatively in a company might be made clear by comparing the way adults approach getting through their daily lives to the ways many kindergarten children approach day‐to‐day activities. With all the real pressures and demands of daily life, many adults search for the most efficient ways to do things. This efficiency becomes inscribed in our life as “habits” and they help us to avoid chaos and exhaustion, like always paying the bills on a certain day of the week.

Most kids don’t have the litany of pressures faced by adults. Their prolonged childhood (compared to other animals) with a relative lack of responsibility gives them the chance to explore their world in a much more open‐ended way. When placed in front of a pile of blocks, a kid’s relatively unstructured mind could devise many ways to use those blocks, many of them surprising. Those blocks could be buildings, trees, or people – but why not pretend “currency,” playing pieces of another game, or elements of an abstract mosaic?

In contrast, adults working in a business have some great pressures to be quick and efficient. If they’re paid to make a tower out of those blocks, the best way to receive recognition is to make those towers bigger, sturdier, and faster. This is great, but what if there was a market for decorations that could be exploited with those same blocks but nobody sees it because they’re too busy making towers? This is the juncture where being too efficient becomes, ironically, unproductive.

One way management can attend to fostering innovation and long‐term productivity is to create (or set aside) the time and space for themselves and their teams to experiment and learn – relaxing a bit from efficient habits. This can allow employees to ask “what if?” and “what’s next?” for their company as well as their industry. The time could be in the form of setting down a rule that 5% to 10% of an employee’s time must be dedicated to innovation. The space where this could be accomplished could be found between a company’s “silos” – the bastions of habit and efficiency. In these areas, people from different business units and functions can come together and exchange ideas. That can happen in a variety of venues: through brown‐bag lunches, seminars, or innovation forums.

But we have to remember that efficiency of the old ways must continue to prop up the organization at the same time that new innovative paths are being explored. Employees have to be responsible and not see innovative initiatives as a free pass to do anything. They still need to be committed to their day job and deliver at the highest level while thinking about what they can do to the change the game in their current role. Some suggestions to think more innovatively would be to: (a) talk and listen to your customers, suppliers, colleagues and even competitors; (b) document your insights and “a‐has”; and, (c) speak with other like‐mind people and ask them for help coming up with ideas and review them afterwards.

Coming up with a way to make innovation acceptable in long‐standing businesses explains the rise of a new term used to make innovation more understandable: the corporate “sandbox.” This is the place for serious play, a place where innovative thinking is fostered and encouraged by acting differently – unconstrained within the limits of the overall corporate strategy. The innovative options can be immense, but they still follow a discernible direction. A famous instance of this is Google’s productivity stemming from its strategy to make the entire world’s information easily accessible to individuals.

Lastly, leaders have to tolerate failures and employees have to take risks. We need to create a culture of learning similar to that seen in kindergarten – or, in a research lab. In either place, kids or scientists learn by experimenting, by trial and error. They are passionate, patient and persistent. Out of ten tries (experiments), they may both find one success. But neither the kid nor the scientist would say that they had nine failures. Instead, they say that they had nine learnings that allowed them to get the one success.

In general, to think innovatively and act differently consists of three major steps: asking “what if?” and “what’s next?” around your current situation; listening (not talking) to a diverse group of people; and, experimenting to learn.

Uniting Innovative Approaches with Sustainability Practices

Although widely used, the concept of innovation is often misused. The same could be said with the concept of sustainability. For our definition of greenovations, we combined our description of business innovation with a synthesized concept of sustainability as articulated by a number of leading global organizations:

Greenovations create and capture new value by meeting the needs of the present without compromising the ability of future generations to meet their needs.

With this definition in hand, we have conducted extensive research on all types of businesses, initiatives, projects and technologies to identify the best examples of truly sustainable, green innovations — concepts that make money and improve the environmental equation.

One important characteristic that connects all these examples of innovation together, as well as the specific companies and organizations that are featured in these cases, is that these stories are about greenovations in the here and now. In contrast, there are many books that have made compelling arguments about how to link the markets and environmentalism in the future. Paul Hawken’s Natural Capitalism, for example, made a splash by positing that of all the capital existing in the world, “natural capital” is the most undervalued. Governments could address this imbalance with a combination of incentives for good environmental behavior and taxes for bad. Although we heartily applaud his contention that natural capital makes “life possible and worth living on this planet,” waiting for governments to become the prime impetus to push this kind of change in attitude may take longer than the planet can itself sustain.

For those of us more impatient to see business in sync with the needs of the environment, these examples of greenovations demonstrate that we don’t have to wait for huge changes in the world’s laws or in political movements or philosophy to make the planet greener and make money while doing it. In other words, one message underneath these stories is that it’s time to stop debating about whether we can or should make money off greenovations; instead, it’s time to get busy.

In many ways, “greenovation” amplifies the message of Daniel Esty’s influential Green to Gold, which offers a very useful argument to business executives on how to green their businesses by integrating environmentally beneficial processes and products into their strategy. Strategy always comes first, Esty reminds us, because it blazes the path to sustaining profits. Green turns to gold when environmentalism is folded into that strategy. We wholeheartedly agree that all businesses cannot forget profit, no matter how philanthropic some of their goals may be.

In our research, we open Esty’s lens on profitable green businesses geographically and economically, including many businesses and organizations of varying sizes from all over the globe. We also devote some attention to businesses whose goal is to transform the lives of people at the bottom of the economic pyramid — Grameen Danone in Bangladesh being one of the most striking instances. In examples such as these, we implicitly agree with Jack Hollander’s main argument in The Real Environmental Crisis, which critiques the implicit contradiction held by many people between environmental goals and making money. Far from contradictory, it is affluent societies, he argues, that have the luxury to devote resources to environmental preservation and conservation. The US’s Endangered Species Act is a prime example of an initiative that would find little support in impoverished countries whose populations are focused mainly on their own survival — unless, as has been demonstrated by many countries, such programs are integrated into tourism and sustainable development programs.

Many disagreeing with Hollander would contend that making money in a capitalistic system is inherently un-environmental because capitalism’s need to grow continually cannot be sustained. But, we suggest that if capitalistic businesses grow from a foundation of sustainable practices, then capitalism’s drain on limited resources can be limited — as long as we’re innovating in a green way.

Editor’s Note: This article is an introduction to the IXL Center’s upcoming book Greenovate! Companies Innovating to Create a More Sustainable World by Dr. Hitendra Patel, Ronald S. Jonash and Tyler McNally. The book features more than fifty of the best products, services or initiatives that simultaneously provide real value to customers, companies, and / or shareholders and improve the environment. For more information on the book, please email us at books@ixl-center.com.

Portfolios of Innovation and Apple

As a business competing in dynamic markets, your company faces threats and opportunities in an economic landscape that is constantly in flux. To meet, understand, survive, and exploit these changes, leaders have to orient their innovation efforts around the question “where to innovate?” Answering this correctly ensures that investments in time and money will lead to growth in new business landscapes as they emerge; getting the wrong answers means losing opportunities and wasting very precious time and resources.

Most everybody uses strategy to focus on the most attractive markets and offerings, but leaders and winners use innovation to build much more robust portfolios which include new growth options that will enable them to achieve their targets as things inevitable change over time. These are the Fields of Play that companies must map out for themselves to win in innovation. They use innovation, of course, to reinvent their core offerings. But they also use innovation to exploit adjacencies and they use innovation to explore new frontiers: the exciting new markets sometimes called as the white space, the blue ocean beyond.

They also use innovation to help them to decide where to place their bets on the best and most likely future scenarios, where to invest in options for a variety of other potential future developments and where to buy insurance if the market changes in ways that are unfavorable to the company. These are key aspects of their investment strategy and growth strategy going forward.

Because they are realistic about the many uncertain futures facing them, good leaders are very interested in portfolios, not just one winning thing. Instead of a blockbuster product, they’re looking for growth platforms. These can be understood as growth engines that can adapt to multiple futures, giving them an adaptability that really has the legs to cross multiple terrains – not just things that will meet this quarter’s or this year’s earnings targets, but things that will continue to drive growth into the future.

Coming to grips with uncertainty and multiple futures means that winners and leaders in innovation must think and act differently. They think beyond just improved performance or features of products and services; in addition, they think about growth and innovation breakthroughs and platforms and solutions with clear and compelling value. Steve Jobs and Apple provide examples of a leader and a company that have found the innovation premium that can be derived from thinking and acting differently in order to create a portfolio of platforms.

The Apple iPod is an example of the creation of an innovation portfolio with legs. In 1999, Napster demonstrated the attractiveness of downloading music on- line. The only problem with this was that most of that music was pirated. In contrast, the introduction of the iPod in 2001 along with its sister-store iTunes was a way to satisfy consumers as well as music producers who had felt extremely threatened by free downloading of their intellectual property.

It’s very important to note that iTunes and the iPod were the only think on the horizon of Apple’s future. Steve Jobs and his colleagues were wondering “what can we explore with iPod and iTunes that goes beyond simple music purchases?” What Apple was really doing was building an “i” platform: it was about personal customization of media and communications. This was a potentially huge new consumer landscape that Apple could exploit first through this new platform. This went far beyond simply coming up with the iPod mini and other enhancements to the iPod. The real stroke of genius was going from the iPod, to the iPhone and most recently to the iPad.

And when innovation really infuses the company culture, possibilities open wider and wider with every new product. With the iPhone, for example, Apple did far more than revolutionize mobile telephony – they also created a whole new business model. In partnering with wireless provider AT&T, they hit upon sharing a variety of revenues: from purchasing the applications, to data revenues, to enrollment revenues that were desperately needed by AT&T at the time.

The story of the “i” innovation platform of Apple suggests questions you need to ask yourself to find the right fields of play for your own innovation efforts:

• Do I have a really good and clear definition of the fields of play and platforms that we will go after as a company?
• Do they adequately deal with both potential opportunities as well as potential threats?
• Do platforms have strong value propositions that are sustainable and differentiated?
• Do lead concepts enable you to build business with lead customers?
• Do you have winnable and sustainable business models?

Over the last thirty years, the importance of innovation as a core driver of business value has increased to the point where few CEOs would disagree. Unfortunately, most companies are not able to innovate in financially meaningful ways. And for those companies that appear to have “cracked the nut,” like Motorola, Sony and even GM, usually end up regressing after a period of time. This raises the following questions:

• Why is innovation elusive and difficult to sustain over time?
• How can we make innovation systematic and sustainable?

Over the many years of providing innovation consulting and building innovation capability in companies across industries and geographies, we have observed that organizations go through the same cycle of hope and despair. This cycle begins when a firm’s leadership realizes that there is an emerging earnings growth gap which requires them to make growth a strategic business imperative. These leaders often progress by paying millions of dollars in consulting fees to identify new areas for growth and by building an innovation organization to drive that growth. In a very short time, consultants use proven innovation concepts like platforms, pipelines and partners to develop a common language within small groups of people in the organization. These teams master techniques for idea management, prototyping and project management to drive concepts to commercialization. Eventually the innovation management process generates some innovation breakthroughs that begin to fill the growth gap. However, all too frequently, the unlearning process of innovation management then begins.

While there is no single cause for this institutional unlearning, several reoccurring themes emerge:

• Innovation strategy moves from the exploration and discovery of adjacencies and white spaces to more disciplined execution and launch which decreases the organizational tolerance for those individuals still wishing to diverge or “look outside the box”
• The strategic planning and budgeting process takes over and demands predictable outcomes and timelines instead of managing options and contingency plans to deal with the uncertainty and ambiguity of What’s Next and What If?
• Six Sigma and Lean processes begin to dominate as efforts are put in place to increase consistency of offerings and decrease waste in development and manufacturing processes at the expense of experimentation and learning
• Significant profits are generated as company processes and organizations are streamlined and focused on what works today reinforcing pressure from shareholders to stay the path and not deviate from the core business

The result of all this is that Innovation Management often becomes a nice-to-have and not a must-have capability and, as a result, it begins to wither and die. The total sum of investments made in getting innovation started is often wasted as initiatives stagnate. This waste is in the hundreds of millions of dollars and is clearly unacceptable.

So how do companies create a sustainable innovation capability that can proactively and consistently drive organic growth and profitability? The answer is to make this capability more ubiquitous across organizations and a requirement for all managers, not unlike training and standards programs in accounting, marketing, strategy or operations. To take this one step further, we see the need for the creation of a globally recognized innovation management certification similar to the Chartered Financial Analyst (CFA) in finance and Project Management Professional (PMP) in operations.

We believe that Innovation Management has emerged as a new management discipline not so different than the management discipline of Information Technology (1960 – 1980) and Quality Management (1970 – 1990). These two disciplines became management disciplines because each:

• Provided an opportunity to create significant competitive advantage and company value
• Had an emerging body of knowledge, experience and best practices
• Had an emerging profession with more standardized core competencies and certifications
• Provided an opportunity for Executive Leadership Roles

This is the case for Innovation Management. The time for clear innovation standards and certifications has arrived and the Center for Innovation, Excellence and Leadership has begun the process to champion this effort through an innovation management standards board composed of leaders from corporations, academia, government organizations and innovation consultancies. This board is creating innovation management standards governing three key competencies to make innovation real in organizations.

Specifically these competencies focus on:

• Where and When to innovate?
• How and With Whom to innovate?
• How to Drive Disciplined Execution and finish what you start?

Missing any of these competencies or not being able to develop this capability across individuals, teams and organizations will result in failure or at best mediocre innovation results.

The certification program will create a larger pool of individuals with the relevant skills to make innovation real and make it easier for companies to recruit and hire for this specific, specialized skill set. The standards will create a common language and frameworks around innovation across companies and industries. This combination will drive rapid growth of innovation experts and managers who can cross-fertilize ideas across industries to drive even more valuable innovations. We expect industry organizations and economic development agencies to support this initiative as the benefits are clearly at the national and international level.

Vision, Capacity, Culture at the Tata Group

Companies require three core competencies to make innovation real: vision, to bring innovation closely in alignment with strategy; capacity, to create the systems that can ensure that innovation is sustainable over time; and, culture, to ensure that innovation is deeply embedded within and across business units. Without these three major elements, innovation efforts within a company lack focus, energy and support. With them, the sky’s the limit as we can see in the recent history of Tata Group.

Leaders Give Good Reasons to Innovate

When Ratan Tata became the Chairman of Tata Group in 1991, he had already seen for years that it was likely that India’s socialist economy would undergo significant changes.

Since 1981, Ratan had been chairman of Tata Industries, which functioned as the business think‐tank for the entire Tata Group. World history was being shaped during that time by Perestroika, Michael Gorbachev’s effort to move the USSR towards a market‐based economy. The implications of Perestroika were too great to ignore, an opinion he shared with his uncle and predecessor, Jehangir Tata. So, Ratan prepared not only for an India that would remain true to 40 years of socialism (hadn’t Cuba?), but also for a very different economic world – a world being changed by globalization, competition coming from overseas and the growth of the developing world.

Innovation Leaders Have Ambitious Targets

When Tata became chairman of the entire Tata Group in 1991, he moved quickly as socialism waned in India. His first task that year was to make Tata much more efficient and able to compete globally: he downsized the company from 250 to 80 businesses, instituted standards of conduct, leadership, and innovation while ousting managers who could not adjust to the changes.

In a few years, Tata Steel and Tata Consultancy Services became profitable thanks to that global vision. Tata Steel became one of the best low‐cost steel manufacturing firms in the world. Tata Consultancy succeeded by availing companies and organizations from outside India to highly educated and skilled Indian workers at labor rates far lower than those of developing countries. We now call this “outsourcing.”

The Nano – Tata’s Vision for Domestic Markets

With demand growing from the bottom of the economic pyramid after the liberalization of the Indian economy in 1991, Ratan Tata responded with the Indica, an inexpensive car selling for around $7,000 which was introduced in 1998 by Tata Motors. But Ratan would push for even more radical innovation, which was spurred by two events. The first was Tata Motors suffering its largest loss in revenues ever in fiscal 2000 – $110 million.iii The second occurred when Ratan saw families of five riding dangerously on two‐ or three‐ wheeled vehicles. The answer to the growth gap and the problem facing these families was the Tata Nano – a $2,000 mini car. By 2005, Tata told his engineers to break all the rules, imagine the impossible and think of an entirely different way to make a car in the next few years.

This represented a truly new business model: selling cars at a smaller margin to a huge new market. Thanks to the precedent of the Indica, going from $7,000 to $2,000 represented a far easier task than, say, leaping to $2,000 from a $15,000 or $20,000 price point. The reward for undertaking this “big, hairy, audacious goal” seemed to have paid off when the Nano was launched in April of 2009. Tata Motors received more than a total of 200,000 paid orders for the Nano: the basic model at $2,200 as well as a higher‐end model costing $3,300. Without ambitious goals like the Nano, Tata could have easily seen its revenues shrink and growth stagnatev.

Tata Motors’ recent history demonstrates the imperative of sustaining innovation over time. Despite Tata’s success in creating the Indica, Tata Motors was not at all immune to potentially disruptive revenue losses and had to create new value through a new product and business model. Creating an ambitious but still realistic vision – driven by a revenue crisis and/or the ability to satisfy an unmet need – is the first and crucial step of innovation. What is your case for change and what audacious targets are you setting to close the growth gap?

Sources:

• Andre Khoury, “Asia’s Most Powerful and Influential Men,” Business Asia, August 1, 2008 and Manjeet Kripalani, “Ratan Tata: No One’s Doubting Now,” BusinessWeek Online, July 26,
• 2004, http://www.businessweek.com/magazine/content/04_30/b3893068.htm, accessed April 8, 2010.
• Randeep Ramesh, “Profile: Ratan Tata,” The Gaurdian, March 28, 2008.
• Robyn Meredith, “The Next People’s Car,” Forbes.com, April 16, 2007.
• “What’s Next for Tata Group,”McKinsey Quarterly, October 31, 2005.
• Nick Kurczewski, “Tata Nano Launched in Mumbai,” New York Times Blog: Wheels, March 23, 2009, http://wheels.blogs.nytimes.com/2009/03/23/tata-nano-launched-in-mumbai/, accessed April 9, 2010
• Jerry Garrett, “Tata Nano Gets 203,000 Orders,” New York Times Blog: Wheels, May 5, 2009, http://wheels.blogs.nytimes.com/2009/05/05/tata-nano-gets-203000-orders/, accessed April 9, 2010.