Marketing

Good Vibrations 6: Update of the Innovation Process

February 17, 2015
Beeld: Rudy Moenaert

All for fast, fast for all 

A placard on one of the fifty buildings of the Google campus announces a presentation: "All for fast, fast for all." Google CEO Larry Page is the d'Artagnan of the Internet. The existing game rules are rudely turned on their head. The presenter was clear: 

"Larry Page kills incrementalism." [Free translation]

Optimists consider innovation to be the greatest business asset. Who am I to restrain their enthusiasm? Peter Drucker had posited that marketing and innovation are the only processes that count in a company. It just so happens that these are the subjects I am researching, teaching, and providing advice on. 

Of course, science must be served as well. Freek Vermeulen of the Londen Business School confirms what the Global Innovation 1000 study of Bain & Company reveals year after year :  

"Do innovative companies perform better? The findings of academic research in the matter are certainly dubious: it is very challenging to find convincing proof that companies that innovate (e.g. have more patents) also do perform better." [Free translation]   

Are you familiar with Link Wray? Probably not. Yet, had it not been for his contribution, rock music would have sounded very different. His instrumental Rumble from 1958 introduced sound distortion and the power chord. Are you unfamiliar with these concepts? You are certainly not the only one. Check out the Uncomfortable Silence passage in the legendary movie Pulp Fiction.  Important pioneers often tend to be unknown to many.  

R&D as a percentage of sales is a frequently used yardstick to express a company's power to innovate. This percentage amounts to 13.5 % at Google, 13.3 % at Microsoft, and only 2.2 % at Apple.  Apple is not a pioneer. It is a very cunning organization that launched the iPod when the infrastructure was ready for it. Many competitors subsequently ridiculed Apple publicly when the iPhone was launched much later than the competition. They are no longer laughing. Yesterday's pioneers are today's losers: 

"Based on our extensive long-term study, we have concluded that pioneers usually fail, have a small market share, and are rarely market leaders. More specifically, approximately two-thirds of the pioneers in our sample failed. On average, the pioneers achieve a market share of barely 6 percent. And a mere 9 percent of the pioneers can maintain market leadership." [Free translation]  

Lean

The innovation process itself requires updating. The process uses an archaic approach, even in high-technology sectors such as the pharmaceutical industry. Roger Perlmutter, the research director at Merck, has summarized the matter as follows: 

 "We apply 21st-century biology in our labs and then perform clinical tests that would not have been out of place in the era of Hippocrates." [Free translation] 

In The Lean Startup, Eric Ries describes a new protocol for innovation.  The notion that we must develop a concept in a linear fashion to then launch it on the market, is outdated. Ries borrows a term from the sport of basketball and argues that, at every step, we must weigh the direction in which we want to go ('pivot'). He also pleads for refraining from attempting to launch a perfect finished product on the market. Instead, we should quickly try to collect market feedback by launching earlier versions. Singularity University is still operating in that mode: 

"We change our curriculum every five minutes." [Free translation] 

Hence, the objective is to develop a Minimum Viable Footprint  to then conquer the market. This makes sense. But The Lean Startup should not become a rationale for a sloppy approach. Moreover, this method is difficult to implement in industries typified by indivisibilities or a high cost of failure. For example, you cannot launch a semi-finished drug on the market. 

Google puts lean into practice in a simple manner. It always develops a new version of Android for a specific device. Sometimes, this is a Samsung or, at other times, an HTC. The benefit? Speed. 

"You must make engineers develop it for a particular device. Otherwise, it becomes theoretical and innovation slows down. That is why we have this lead device program." 

Anthill

Google uses an internal market for ideas. Gmail was the outcome of a '20 % project'. This percentage refers to the time allocated to be used by employees for their own initiatives. Innovation is not limited to R&D in the company. Everyone in the organization is responsible for innovation. At Google, they were proud of the financial innovation concerning stock splits. At 23andMe, they publicly stated: 

"The marketing department is breaking new ground." 

From my perspective, the highlight of the fact-finding trip in California occurred in the afternoon on the first day. A visit to Tesla Motors is like a badge of honor; It gives you bragging rights at home. The visit to the production hall is the object of much anticipation. I found the organization of the production hall to be rather primitive, as if the organization was still searching for optimization among the islands of automation. 
However, nothing on this trip amazed me more than the vast offices at Tesla, in which a few hundred employees and engineers intermingled and consulted workstations as if the office was one giant cybercafe in which the SUV of the future was being designed. A birthday balloon was floating above this hustle and bustle, not so far from the office of CEO Elon Musk, the new poster boy of the post-Steve Jobs era. 

The science applicable in this case is very clear and is confirmed by my own research: the frequency of the communication between employees is determined to a large extent by the distance between the employees and the department and team to which they belong.  Recent studies regarding virtual teams confirm that distance and location remain an important element.  

Is Tesla Motors optimally organizing innovation? I do not know. Was Marissa Mayer, Yahoo's CEO, right after all when she abruptly put a stop to telecommuting? I sincerely doubt the conviction with which a great thinker such as Charles Handy obliterated Marissa Mayer's decision:

"I think she is crazy. What she did was very foolish because it fuels suspicion and distrust. You have to attract your employees, not command them back inside." 

Would Elon Musk attract or command? 

Notes

[I] Jaruzelski B., Loehr J. and Holman R. “Why culture is key”. Strategy + Business, Winter 2011.

[II] Vermeulen F., Business exposed. The naked truth about what really goes on in the world of business. Harlow: Pearson Education Limited, 2010. p. 164 – 166.

[III]

http://www.youtube.com/watch?v=MWkN3akP3cU

[IV] Jaruzelski B., Loehr J. & Holman R. "Navigating the digital future," Strategy + Business, No. 73, Winter 2013.

[V] Tellis G.J. & Golder P.N., Will and vision. How latecomers grow to dominate markets. New York, McGraw-Hill, 2002.

[VI] Herper M. “Watch the R&D Chiefs of Pfizer, Merck, and Amgen Discuss the Drug Industry's Challenges“, Forbes.com, November 14, 2013.

[VII] Ries E. The lean startup. How constant innovation creates radically successful businesses. Portfolio Penguin, 2011.

[VIII] Adner R. o.c.

[IX] Van den Bulte C. & Moenaert R.K. "The effects of R&D team co-location on communication patterns among R&D, marketing and manufacturing", Management Science, jg. 44 (11, part 2): S1 - S18 (November 1998); Moenaert R.K. & Caeldries F. "Architectural redesign, interpersonal communication and learning in R&D", Journal of Product Innovation Management, year: 13 (4): 296 - 310 (July 1996). The ultimate reference is of course the work of Tom Allen (MIT): Managing the flow of technology. Cambridge MA: MIT Press, 1984. For a more recent study, refer to e.g.: Allen T.J. & Henn G.W. The organization and architecture of innovation. Amsterdam: Butterworth - Heinemann, 2007.

[X] Cummings J.N. "Geography is alive and well in virtual teams." Communications of the ACM. jg 54 (8), 24 - 26 (2011). 

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