Creativity Inside The Box

As Dr. de Bono states, we will be creative, at least to a degree, if we allow ourselves free reign to come up with whatever sounds unique and original. In this way we will usually come up with a few new and innovative ideas. But by staying in the box, we force our brains to acknowledge reality, and we dig down beyond the obvious. In this way, we will come up with greater numbers of ideas, and these ideas will be not only new and innovative, they will also be more likely to work within our reality.
When we venture outside the box, the lack of constraints actually can work to our detriment. If we are given permission to wander and ignore the constraints of the business, the result can be lots of ideas that span a very broad range, but that are shallow and not highly actionable.
In the past few years, TLC’s Trading Spaces has been one of the most popular reality shows in America. What was it that made the show so irresistible to viewers? Was it the creativity of the designs or the drastic nature of the makeovers? In part, yes. But if those were the only reasons, why weren’t shows such as Designing for the Sexes or Homes Across America just as popular?
What truly set Trading Spaces apart was the fact that every one of those amazing transformations was the result of creative thinking that took place inside a well-defined box:

1. The design budget was held to $1,000.
2. The timeframe in which to create the new look was limited to two days.
3. The work was done by one designer, one carpenter, and two homeowners.

Because the teams were forced to work within the constraints of budget, time, and resources, their designs were much more innovative than if they had been allowed the freedom to change the shape of the box, or ignore it altogether. Do you really think we would have seen chandeliers made of tree branches sprayed with silver paint and wrapped with Christmas tree lights if the homeowners had been given larger budgets?
MasterCard represents another example of creativity inside the box. For a good portion of the 1990s, Visa was the undisputed leader in the credit card industry, in large part due to its “And They Don’t Take American Express” campaign. The ads were designed to appeal to consumers’ desires to experience the best in life, to reach a level of achievement beyond that which most people could ever hope to enjoy – sort of a “you-are-what-you-buy” position.
MasterCard, on the other hand, had launched five different advertising campaigns within a decade, none of which had provided the brand with anything it could claim as its own. So, the company took a step back and examined the box in which it lived. Then, it created a campaign that built on the virtues of that box – the “Priceless” campaign.
Rather than positioning itself as the card that could give people the lifestyles of the rich and famous, it focused on enhancing the quality of consumers’ every day lives. The company’s 2004 annual report refers to the positioning as “the better way to pay for everything that matters.” As a result, there were 16,700,000,000 MasterCard transactions around the world in 2004, growth to which the company attributes in large part to its “Priceless” campaign.

The Framing of Strategic Innovation Challenges

Here is a paper which tries to find a solution on framing challenges in such a way that it will generate actionable ideas- those with the greatest probability to solve problems, especially as they might apply to strategic innovation.
It's written by Arthur VanGundy.

http://www.jpb.com/creative/VanGundyFrameInnov.pdf

Gary Hamel: Management innovation

This is an interview with Gary Hamel in which he explains management innovation.

What is "management innovation"?
Management innovation is innovation in management principles and processes that ultimately changes the practice of what managers do, and how they do it. It is different from operational innovation; which is about how the work of transforming inputs into outputs actually gets done.

How is it different?
Think of a company as a set of business processes that turn inputs into outputs. Business processes that turn labour and capital into services and products, for example. It is the business processes that govern the workflow. Things such as logistic systems, order processing, call centres, customer support, and manufacturing.
Surrounding the work of transforming inputs to outputs, however, is everything the managers do: pulling resources together, setting priorities, building teams, nurturing relationships, and forming partnerships. And it is innovation within this sphere that I'm interested in.

Could you give an example of management innovation in the workplace?
Toyota's lean manufacturing. At one level, you can say that lean manufacturing is predominately an operational innovation. But what sits a level or two above the operational changes is the radical management idea that there could be a positive return on investment through using the problem-solving skills of your employees.
A few decades ago, if there was an efficiency or quality problem in the business, companies sent in staff experts. They studied the system, and then rewrote the standard operating procedures. And the employees were asked to conform to those procedures.
The idea that a company would actually give its employees the responsibility for making those changes, that was just unthinkable. So, what looks like a purely operational innovation through one lens, actually turns out to stem from a radical new management principle.

How do you encourage management innovation in a firm?
In a big company you can't change what managers do in any direct way. You can only change it by changing the processes that govern their work.
Look at domestic appliance firm Whirlpool. The company has trained thousands of people to be innovators; they have many great new ideas. The challenge for the company is that the people running the core brands, like Kitchen Aid, Whirlpool, and other international brands; those people really are not very interested in this innovation.

Why is that?
They do not want to put engineering or marketing resources behind these new ideas. It is easier for them to crank one more dollar of earnings out of doing exactly what they are already doing.
Whirlpool acknowledged that while it had created a supply of innovative ideas, it had not created a corresponding demand from the senior executives to nurture those ideas.
So the organisation implemented a number of measures to remedy the situation. For a start it earmarked 15 per cent of its capital budget for projects that were truly innovative.
What effect did that have? It sent a very clear message to individual managers: if you do not bring us innovative projects then we will starve you of capital.
Wall Street, the City, the financial markets, these hold Whirlpool to certain standards for growth, for margins, and other metrics. So why shouldn't the organisation apply metrics to its managers to encourage them to develop innovative management practices.

How important is management innovation?
If you look at a hundred year period of industrial history, and typically it is management innovation that has allowed organisations to reach new performance thresholds -- more than any other kind of innovation.
The challenge is instilling management innovation into organisations. Often, the technology you need to do new things is there long before you change the management processes in a way that allows you to use that technology.

So management innovation lags behind technology innovation?
Look at something like Open Source development. It is made possible by communication technology, collaborative technology. Technology has made it easy for people to collaborate. Yet much of the technology used, such as the internet or Lotus notes, has been around for sometime.
The technology is available, yet, in many companies, it has done little to change the way power and information is distributed.
Most companies are exploiting the web in ways that build on existing practice, moving more information to the centre, for example. They celebrate the fact that we have the global, digital dashboard. Now an organisation can tell how many widgets it sold in Pyongyang the previous day.

Organisations use the new technology to reinforce the old management habits?
Yes. But eventually a company like Google, or an organisation like the Open Source movement, breaks those habits and through management innovation uses the technology to allow things to be done in a different way.

In your research, looking back through management history, what important management innovations have you identified?
Brand management is a good example. By 1929, Proctor and Gamble was already codifying its brand management knowledge. It recognised that, as you moved into a mass consumer society, the mere ability to produce a product and distribute it, would become less and less important to the consumer.
Before this simply making something that was 99.9 per cent pure, was a manufacturing marvel in itself. What Proctor and Gamble could see was that, increasingly, competition would encompass more than the physical attributes of the product, and the ability to deliver it, but it would include intangible aspects as well.
What used to be brand management has today mushroomed into corporate image consultants, managing IP, and a host of other things. But the whole thread of how to create value out of non-physical, intangible things starts with Proctor and Gamble. They were the pioneers. Although I suspect Unilever might have something to say about that.

I understand you are opening a management innovation lab?
The management innovation lab is an experiment in itself. For the sake of simplicity, there are two hypotheses. The first is that we can invent a methodology that will allow us to be much more purposeful about management innovation, and that will allow us to dramatically accelerate the evolution of management itself.
The second hypothesis is that we can help organisations learn how to experiment with new management principles and processes in ways that won't disrupt current success. In the same way that companies experiment with a new product, or with a new technology in a lab, we can bring that same experimental mindset to management itself.
Will there be a physical lab?The London Business School has given us a dedicated space. It is a setting that is built to encourage management innovation, to encourage the creative questions, to encourage learning from other disciplines, to allow really close experimental partnerships between what I would call scholar inventors, and progressive organisations.

How Companies Turn Customers' Big Ideas into Innovations

The most effective product development and commercialization processes encourage dynamic communication and idea sharing among engineers, marketers, and customers.

From Thomas Edison to Steve Jobs, the conventional view of product development has always portrayed the inventor as the hero. In fact, the inventor is only part of the process. Edison himself hinted as much when he described the inventor as being a “specialist in high-pressure stimulation of the public imagination.”


“Strongly engineering-driven companies don't always appreciate the emotional attachment people have to products,” says Wharton’s George Day.

The truth is, most successful product innovation requires imaginative insights and incisive action from heroes in the lab and in marketing. Indeed, whether it was wizards in Menlo Park or Xerox PARC who came up with the concepts, the most effective product development and commercialization processes have always been based on a dynamic and complex exchange of ideas and interests among engineers, marketing experts, and, most importantly, the end-consumer.

Yet few companies are good at managing this exchange, particularly when it comes to capturing and incorporating customer insights into product design, according to product innovation experts at Booz Allen Hamilton and the Wharton School of the University of Pennsylvania. While it’s difficult to measure the cost of such missed opportunities, these experts say that this failure to incorporate the customer’s perspective often seriously limits the potential financial and competitive value of corporate innovation.

The Doom Loop
Many executives are aware that their companies need to improve how they manage innovation: In a Booz Allen survey of European senior executives (mostly CEOs, chief technology officers, and vice presidents of engineering and product development) completed in October 2004, nearly half of all respondents said they were dissatisfied with their company’s innovation performance. Specifically, 48 percent were unhappy with their company’s ratio of innovation hits to misses, and 51 percent were dissatisfied with how their company identifies new service and product categories. And they weren’t unclear about how to solve the problem: Out of a list of 12 potential steps their companies could take to improve their innovation practices, executives ranked understanding their customers better as the most important step to increase the value of innovation created in the product development process.

So why haven’t they done it already? Institutional barriers are perhaps the biggest reason. Often, engineers are tucked away so far within a company that they don’t see firsthand what customers really need. Kevin Dehoff, a vice president at Booz Allen based in New York, whose work includes providing advice about product development, says engineers often become so focused on solving technical problems that they overlook the ways in which the customer actually defines value.


“Companies may lose their innovative edge because, after many years at the helm, senior executives lose interest in the products they’re selling.”

George Day, a professor of marketing at Wharton, also sees this overconcentration on technology as one of the most common sources of trouble. “I think the biggest problems occur when you get strongly engineering-driven companies that don’t really appreciate the emotional attachment people have to products or their emotional reactions to them, and think it’s all about very specific product attributes,” he says.

The risk such companies face is getting caught in a development dynamic where innovation is driven not by a focus on what the customer values and is willing to pay for, but on solving an engineering problem. This dynamic leads to an internally focused development cycle Dehoff has nicknamed “the doom loop.” In this iterative process, satisfying the customer becomes a secondary concern. Dehoff says genuinely valuable innovation is generated through a different dynamic: “understanding, engagement, and participation of direct customers coming together with some kind of a technology improvement.”

Levers for Innovation
Discovering customer insights about products, and then incorporating those insights into product development, requires a number of initiatives at a variety of levels — personal, interdepartmental, and strategic. Although no two companies innovate in exactly the same way, successful companies often share a number of characteristics, according to Booz Allen and Wharton experts:

1. Employees use the product. It might sound elementary, but being a consumer of your own product is an important way to stay close to the customer. Many companies go wrong simply because after a number of years at the helm, successful senior executives lose interest in what they sell, according to Leslie H. Moeller, a Cleveland-based vice president of Booz Allen. “I once had a client who didn’t like the products produced by the division he ran. When they had product tastings, he wouldn’t taste them,” he recalls. “How can you lead an organization if that’s how you feel?”

One company that does seem to get it right, according to Moeller, is Harley-Davidson of Milwaukee, Wisconsin. Many company executives are great fans of the famous “hog,” and frequently attend rallies with other Harley motorcycle enthusiasts. Such involvement creates real empathy with the customer, Moeller says, and often provides executives with a clearer vision about both what the customer wants most and what kinds of improvements they would like to see.

2. Successful innovators conduct vigorous market research of customer needs. Computerized design and improvements in supply-chain dynamics have shortened product development cycle times to levels that were unheard of just a generation ago, tempting many companies to try to take shortcuts with their market research to stay ahead of the competition. “When you have such pressures, very often companies skip the marketing research,” warns Wharton marketing professor Yoram “Jerry” Wind. “But that can be a huge mistake.”

Booz Allen and Wharton experts agree that the most successful innovators still spend a great deal of time trying to understand their customers’ needs, in spite of those pressures. Procter & Gamble, the Cincinnati, Ohio, personal care giant, not only conducts focus groups but also undertakes what are essentially anthropological expeditions to see how consumers are actually using their products in the home. Similar stories can be found in the business-to-business world: CLAAS KGaA, a manufacturer of agricultural equipment based in Harsewinkel, Germany, maintains practice centers in each of its major markets. These are model farms where farmers test new equipment and company employees can observe close at hand what they like and how they use the new machinery.


“Procter & Gamble conducts anthropological expeditions to see how consumers actually use their products in the home.”

The strongest innovators don’t overlook former customers, either. Although it is natural to want to hear positive feedback from satisfied customers, Day says companies need to be more aggressive in seeking out the unhappy customer. Indeed, it is well known that dissatisfied customers and former customers are often great sources for useful information for both modest and major product innovations. But most companies don’t pay as much attention as they should to what they can learn from discontented customers.

In new markets, local partners can also be an important source of insights. That’s especially true in developing countries, where it’s harder to purchase market research, Booz Allen experts note. For example, Alexander Kandybin, a vice president at Booz Allen based in New York, says that sales of confectionary and tobacco products increased in many emerging markets once the brands’ owners understood that although most consumers couldn’t afford to buy packs of cigarettes or bags of candies, they could and would buy individual pieces. “It’s really hard to understand even such simple things unless you develop those [local] relationships,” he advises.

3. The engineers stay close to the market. It might seem reasonable that a company with strong R&D roots could afford to overlook the smaller ebbs and flows of customer needs and related market opportunities, and just concentrate on creating exciting new products, but this strategy isn’t efficient. In fact, Booz Allen consultants say that it’s an extremely risky — and expensive — way to operate.

“These companies end up introducing a lot of technology-driven projects and seeing what sticks,” Kandybin says. It’s not that a market-blind strategy never works, according to Kandybin; it is just that being tuned in to the market has much more potential. “If a company’s engineers don’t understand the market from the standpoint of consumer needs, they are usually much less successful at creating markets, even if they have good technology,” he explains.


“European companies plan to significantly increase R&D activity in Eastern Europe and Asia by 2007, according to a Booz Allen survey.”

Kandybin contrasts the successes of Bose, the Framingham, Massachusetts, sound system company, with that of Apple Computer of Cupertino, California. Both companies are technology-driven. Apple, with its exceptional focus on customer insight, has been able to invent great products with great technology, which Bose does too. Apple, however, also creates vast new markets. Witness the way it has transformed the music industry with its hugely popular iPod. Interestingly, Bose has a new sound system specifically made for use with the iPod, and it has dramatically raised its marketing and brand identity push in the last few years.

How do companies maintain both a consumer and a technical focus? The use of cross-functional teams in product development is one way smart firms try to close the gap between technical know-how and customer understanding. At Hewlett-Packard, for instance, the company requires “everybody on the team to go together to a prospective customer and hear the customer themselves,” says Wharton’s George Day.

4. Companies perform R&D around the world. What do you do if your customer is on the other side of the world from the markets you are used to serving? Historically, U.S. companies would often introduce a product domestically first and then introduce the same product with minor modifications into other markets, according to Jerry Wind. Today, they no longer have that luxury. Many companies must introduce a new product simultaneously in many markets, he says, creating huge difficulties for product and service-system designers.

One emerging strategy to address this issue in a global context is to build more research and development operations nearer to companies’ newest markets. Booz Allen’s European innovation survey, for instance, estimates that European companies will increase their research and development expenditures in Eastern Europe and Asia from 16 percent to 31 percent by 2007, largely to get closer to those new customers.

Although labor cost savings are often seen by the media as the driving force behind such cross-border moves, Thomas Goldbrunner, a Booz Allen Hamilton principal based in Munich, Germany, says Booz Allen’s survey of innovation practices found that access to customers’ knowledge was actually a much more important motivator for expansion. Executives surveyed rated “access to customer know-how in new markets” as much more important (3.02 out of a possible 4) than factor cost advantages (2.46 out of 4) or greater proximity to a place of production (2.25 out of 4).

5. Innovative companies seek understanding of customer behavior and motivations. There’s more to incorporating customer insights than simply listening to customers more closely. Often, the best innovators not only understand customer behavior but the reasons behind that behavior. “It’s not just what they do, but why they do it,” Kandybin explains.

Although close observation of customer behavior can lead to incremental gains, Kandybin says, understanding people’s deeper motivations — not just what they need, but why they need it — is where the biggest opportunities for innovation are generally found. “The difference in deep understanding of what and why is the difference between understanding existing needs versus not-yet-realized needs,” he explains. “And meeting not-realized needs is a lot more powerful than meeting existing needs.”


“The essential ingredients to improve product innovation are simple human assets: humility and curiosity.”

Again, this is not an insight that’s new for companies. Yet, it is still the exceptional company that capitalizes on this particular opportunity to innovate. Kandybin cites Starbucks as one company that has a superb record for anticipating customers’ unarticulated desires to create new and better experiences. “Coffee was a commodity and consumption was declining until Starbucks came up with a different concept, meeting a previously unrealized need,” he says.

As a result of its close attention to all the aspects of the customer’s coffee experience, the Seattle-based company has almost single-handedly invented specialty coffees as a major category in the U.S. market, encouraged consumers to trade up to a more upscale (and therefore more expensive) product, and made the coffeehouse not just a fixture on college campuses or in urban neighborhoods, but a vital new public gathering place that’s evident throughout mainstream American life.

How does a company get to that level of understanding of its customers and its market opportunities? Kandybin cites several important resources — multiple sources of market data, heavy users of the product on staff, and extremely close relationships with customers. He says combining these management practices is one reason McDonald’s has been able to stay at the top of the fast-food business for so long, he says. “If you look at the trends, very often they are the trendsetters in the fast-food industry.… They understand not just what one particular customer of McDonald’s wants, but why they want it,” he says.

Gaining that level of insight can be difficult, but it isn’t impossible. Day says there are at least 30 techniques market researchers use to find out more about their customers. From metaphor elicitation exercises that seek to discover customers’ underlying psychological associations with the product, to conjoint analysis — a technique whereby customers are asked to select between baskets of product attributes and that helps the company determine which are the most important to customers — today’s market researchers have a powerful set of tools at their disposal.

Opening the Aperture
Ultimately, Wharton professors and Booz Allen consultants agree that the world is too complex, and markets change too rapidly, to attempt to introduce a new offering without a great deal of understanding about the customer’s needs and preferences — those that can be discerned today, and those they imagine will develop tomorrow. Companies need “to really open up the aperture and think about understanding customers’ requirements, with the broadest and most expansive view of what’s possible,” Dehoff says.

From modifying the structure of the development teams, to refining lines of communication within the company, to increasing the volume and thoughtfulness of the market research, tactics for improving closeness with customers are not in short supply. What is needed is commitment and more innovative approaches to the process of innovation.

In the final analysis, the essential ingredients to improve product innovation may be simple human assets: humility and curiosity — humility in thinking that the company may not understand everything about the value of their product in the marketplace, and the curiosity to always want to learn more about customer needs. As Booz Allen’s Les Moeller observes, “The value of consumer insight and empathy … consciously and unconsciously informs the decisions that get made.”

Value Innovation

Here is an interesting presentation about the relation between value innovation and the survival of companies, given by associated professor Iakovou from the Aristotle University of Thessaloniki.

Conclusion of the paper:

It's not the strongest of species that will servive, nor the most intelligent, but the master of change.

Value Innovation: a strategic roadmap for high growth

One huge blockbuster or lots of small improvements

The Economist has a good article supporting the argument that a big innovation is getting more and more difficult - instead small improvements can knock competitors off their pedestal. My conclusion is that big companies should explore which enterprises and actors are really contributing to the innovative ideas and revenues of the business. The main goal is to search for a tool or methodology which allows you to give insight in this network of actors and enterprises that will strengthen the innovative power of that company. There is already a trend going on where big companies are looking for strategic alliances instead off doing the complete innovation process themselves. The role of venture capitalists in this is evident.

The article from The Economist:

Rather than chasing wonder new products, big companies should focus on making lots of small improvements

THE Gillette company's website flashes out a message to the e-visitor: "Innovation is Gillette", it claims. There are few big companies that would not like to make a similar claim; for they think innovation is a bit like Botox-inject it in the right corporate places and improvements are bound to follow. But too many companies want one massive injection, one huge blockbuster, to last them for the foreseeable future. Unfortunately, successful innovation is rarely like that.
The latest manifestation of Gillette's innovative skill will appear in stores in North America next month. The global leader in men's "grooming products" is rolling out a successor to its popular three-bladed Mach3 range. It will not, as comedians had long anticipated, be a four-bladed version (Schick-Wilkinson Sword reached that landmark first, in September 2003, and Gillette has taken it to court for its pains). Rather, it will be the world's first vibrating "wet shave" blade. The battery-powered M3Power is designed to bounce around on your skin to give (yes, you guessed it) "a smoother, more comfortable shave".


For a company that claims to embody innovation, this is less than earth-shattering. On the innovation scale it falls closer to Brooks Brothers' new stain-proof tie than to the video-cassette recorder or the digital camera-especially since there is a suspicion that Gillette may be keener to create synergy between its razor and its batteries division (it owns the Duracell brand) than it is to usher in a genuinely new male-grooming experience.
But the launch is symptomatic of an important business trend: blockbuster new products are harder and harder to come by, and big companies can do much better if they focus on making lots of small things better. Adrian Slywotzky of Mercer Management Consulting says that, "in most industries, truly differentiating new-product breakthroughs are becoming increasingly rare." He claims, for example, that there has not been a single new dyestuff invented since 1956.
Even in relatively zippy businesses like pharmaceuticals, genuinely new products are fewer and further between. Spending on pharmaceutical R&D has doubled over the past decade, but the number of new drugs approved each year by America's Food and Drug Administration (the industry's key regulatory hurdle) has halved. Drug companies still live in the hope of finding a big winner that will keep their shareholders happy for a long time. But this focus means that many unglamorous, but potentially interesting, compounds may be bottled up in their laboratories.

The road to invention
Big companies have a big problem with innovation. This was most vividly described by Clayton Christensen, a Harvard Business School professor, in his book, "The Innovator's Dilemma" (Harvard Business School Press, 1997). Few conversations about innovation take place without reference to this influential work.
The Oxford English Dictionary defines innovation as "making changes to something established". Invention, by contrast, is the act of "coming upon or finding: discovery". Whereas inventors stumble across or make new things, "innovators try to change the status quo," says Bhaskar Chakravorti of the Monitor Group, another consulting firm, "which is why markets resist them." Innovations frequently disrupt the way that companies do things (and may have been doing them for years).
It is not just markets that resist innovation. Michael Hammer, co-author of another important business book ("Re-engineering the Corporation", HarperCollins) quotes the example of a PC-maker that set out to imitate Dell's famous "Build-to-Order" system of computer assembly. The company found that its attempts were frustrated not just by its head of manufacturing (who feared it would lead to most of his demesne, including his job, being outsourced), but also by the head of marketing, who did not want to upset his existing retail outlets. So the innovative proposal got nowhere. Dell continued to dominate the business.
Mr Christensen described how "disruptive innovation"-simpler, cheaper and more convenient products that seriously upset the status quo-can herald the rapid downfall of well-established and successful businesses. This, he argues, is because most organisations are designed to grow through "sustaining innovations"-the sort, like Gillette's vibrating razor, that do no more than improve on existing products for existing markets.
When they are hit by a disruptive innovation-as IBM was by the invention of the personal computer and as numerous national airlines have been by low-cost carriers-they are in danger of being blasted out of their market. This message found a ready audience, coming as it did just as giant businesses from banking to retailing, and from insurance to auction houses, were being told that some as-yet-unformed dotcom was about to knock them off their pedestal.

Innovative lessons
William Baumol, a professor at New York University, argues that big companies have been learning important lessons from the history of innovation. Consider, for example, that in general they have both cut back and re-directed their R&D spending in recent years. Gone are the droves of white-coated scientists surrounded by managers in suits anxiously awaiting the next cry of "eureka". Microsoft is a rare exception, one of the few big companies still spending big bucks on employing top scientists in the way pioneered by firms such as AT&T (with its Bell Laboratories) and Xerox (with its Palo Alto Research Centre, the legendary PARC).
This will prove to be a wise investment by Microsoft only if its scientists' output can be turned into profitable products or services. AT&T and Xerox, when in their heyday, managed to invent the transistor and the computer mouse (respectively); but they never made a penny out of them. Indeed, says Mr Baumol, the record shows that small companies have dominated the introduction of new inventions and radical innovations-independent inventors come up with most of tomorrow's clever gizmos, often creating their own commercial ventures in the process (see table).
But big companies have shifted their efforts. Mr Baumol reckons they have been forced by competition to focus on innovation as part of normal corporate activity. Rather than trying to make money from science, companies have turned R&D into an "internal, bureaucratically driven process". Innovation by big companies has become a matter of incremental improvements within the processes that constitute daily operations.
In some industries, cutbacks in R&D reflect changes in the way that new products travel down the "invention pipeline". During the late 1990s, for example, Cisco Systems kept itself at the cutting edge of its fast-moving high-tech business (making internet routers) by buying a long string of creative start-ups financed originally by venture capital. The company's R&D was, as it were, outsourced to California's venture capitalists, who brought together the marketing savvy of a big corporation and the innovative flair of a small one-functions that were famously divorced at AT&T and Xerox.
These days there is less money going into venture capital, and a new method of outsourcing R&D is on the increase. More and more of it is being shifted to cheaper locations "offshore"-in India and Russia, for example. One Indian firm, Wipro, employs 6,500 people in and around Bangalore doing R&D for others-including nine out of ten of the world's top telecom-equipment manufacturers.
Pharmaceutical giants continue to get their hands on new science by buying small innovative firms, particularly in biotech. Toby Stuart, a professor at the Columbia Business School in New York, thinks that this shows another change in the supply chain of invention. He says that many of the biotech firms are merely intermediating between the universities and "Big Pharma", the distributors and marketers of the fruits of academia's invention. Universities used to license their inventions to these firms direct, but small biotech companies make the process more efficient. They are well networked with the universities, in whose "business parks" they frequently locate their offices. They may not, of themselves, be very innovative.
Companies need to resist the feeling that it is not worth getting out of bed for anything other than a potential blockbuster. Product cycles are getting shorter and shorter across the board because innovations are more rapidly copied by competitors, pushing down margins and transforming today's consumer sensation into tomorrow's commonplace commodity. Firms have to innovate continuously and incrementally these days to lift products out of the slough of commoditisation. After it used innovation to create a commoditised market for fast food, McDonald's struggled before recently managing to reinvigorate its flow of innovations.

Finding a niche
Another factor to take into account is the fragmentation of markets. Once-uniform mass markets are breaking up into countless niches in which everything has to be customised for a small group of consumers. Looking for blockbusters in such a world is a daunting task. Vijay Vishwanath, a marketing specialist with Bain, a consulting firm, says that Gillette's bouncy blade may yet end up as no more than a niche product-fine if it is profitable.
Mr Chakravorti believes that the problem lies with the marketing of new innovations. It has not, he says, caught up with the way that consumers behave today. "Executives need to rethink the way they bring innovations to market." Too many are still stuck with the strategies used to sell Kodak's first cameras almost 120 years ago, when the product was so revolutionary that the company could forget about competition for at least a decade. Today, no innovation is an island. Each needs to take account of the network of products into which it is launched.
Companies that fail to come up with big new headline-hitting blockbusters should not despair. There are plenty of other, albeit less glamorous, areas where innovation can take place. Management thinkers have identified at least three. Erik Brynjolfsson of the MIT Sloan School of Management, says that the roots of America's productivity surge lie in a "genuine revolution in how American companies are using information technology". Good companies are using IT "to reinvent their business processes from top to bottom".
Reinventing, or simply trying to improve, business processes can offer surprising benefits to firms that do it well. The software that runs many business processes has become an important competitive weapon. Some business processes have even been awarded patents. These are controversial and, because they may stifle rather than encourage the spread of new ideas, are probably not in the wider public interest. Yet Amazon obviously views its patent for one-click internet purchasing as valuable, and there are plenty of other examples, particularly in the financial-services industry.
Nevertheless, there is no doubt that, patented or not, what Mr Hammer calls "operational innovation" can add to shareholder value. In an article in the April issue of the Harvard Business Review, he asks why so few companies have followed the examples of Dell, Toyota and Wal-Mart, three of the greatest creators of value in recent times. None of them has come up with a string of revolutionary new products. Where they have been creative is in their business processes.
While superficially mundane, Wal-Mart's pioneering system of "cross-docking"-shifting goods off trucks from suppliers and straight on to trucks heading for the company's stores, without them ever hitting the ground at a distribution centre-has been fundamental to the company's ability to offer lower prices, the platform for its outstanding success. Is it not over the top, though, to glorify such a common-sense change with the title "innovation"? For sure, it does not call for a higher degree in one of the obscurer corners of science. But Wal-Mart did something no competitor had ever dreamed was feasible and that was highly innovative.
Mr Hammer, who was once a professor of computer science at MIT, believes that the best qualification for innovation is a basic training in engineering. Crucially, he says, engineers are taught that design matters; that most things are part of a system in which everything interacts; that their job is to worry about trade-offs; and that they must continually be measuring the robustness of the systems they set up. Such a frame of mind, he believes, fosters innovation. It may be no coincidence that many of the greatest corporate leaders in America, Europe and Japan, past and present, trained first as engineers.
Companies are being encouraged to embrace other forms of innovation too. In a recent issue of the MIT Sloan Management Review, Christopher Trimble and Vijay Govindarajan, two academics from Dartmouth College's Tuck School of Business, recommend that they try a little "strategic innovation". The authors point to examples such as Southwest Airlines, a low-cost American regional carrier, and Tetra Pak, a Swedish company whose packaging products are handled at least once a day by most citizens of the western world. Such companies succeed, they say, "through innovative strategies alone, without much innovation in either the underlying technologies or the products and services sold to customers."
Tetra Pak's strategic innovation involved moving from the production of packages for its customers to the design of packaging solutions for them. Instead of delivering ready-made containers, the company increasingly provides the machinery for its customers to make their own packages: the fishing rod, not the fish.
But customers can then use only Tetra Pak's own aseptic materials to make their containers. This strips out all sorts of transport and inventory costs from the production process, for both Tetra Pak and its customer. It also makes it very difficult for the customer to switch suppliers.
Southwest's innovative strategies include its bold decision to increase capacity in the immediate aftermath of September 11th 2001, and its carefully timed rolling out this May of competitively priced routes focused on Philadelphia, an important hub for the ailing US Airways, an airline lumbered with an expensive legacy (such as highly paid crews). The low-cost carrier "is coming to kill us," said US Airways chief executive David Siegel shortly before his recent resignation. And he was not exaggerating.
In his recent book, "How to Grow When Markets Don't" (Warner Books, 2003), Mr Slywotzky and his co-author Richard Wise recommended another form of innovation. "A handful of far-sighted companies", they claim, have shifted their focus from product innovation to what they call "demand innovation". They cite examples such as Air Liquide and Johnson Controls, which have earned profits not by meeting existing demand in a new way but "by discovering new forms of demand" and adapting to meet them.
The French company Air Liquide, for example, was a market leader in the supply of industrial gases. But by the early 1990s gas had become a commodity, with only price differentiating one supplier from another. As its operating income plunged, Air Liquide tried to behave like a far-sighted company: it almost doubled its R&D expenditure. However, it reaped few fruits. An ozone-based alternative to the company's environmentally unfriendly bleach for paper and pulp, for example, required customers to undertake prohibitively expensive redesigns of their mills.
The company's saviour came serendipitously in the form of a new system for manufacturing gases at small plants erected on its customers' sites. This brought it into closer contact with its customers, and led it to realise that it could sell them skills it had gained over years-in handling hazardous materials and maximising energy efficiency, for example.
After exclusively selling gas for decades, Air Liquide became a provider of chemical- and gas-management services as well. In 1991, services accounted for 7% of its revenues; today they are close to 30%. And because service margins are higher, they account for an even bigger share of profits. An ozone-based bleach could never have done half so well.

The dilemma solved?
In his latest book, "The Innovator's Solution", published late last year, Mr Christensen argued that established companies should try to become disruptive innovators themselves. He cites, for example, Charles Schwab, which turned itself from a traditional stockbroker into a leading online broker, and Intel, which reclaimed the low end of the semiconductor market with the launch of its Celeron chip.
There are, says Mr Christensen, things that managers can do to make such innovations more likely to happen within their organisations. For example, projects with potential should be rapidly hived off into independent business units, away from the smothering influence of the status quo. The ultimate outcome of any one disruptive innovation may still be unpredictable; the process from which it emerges is not.
In the end, though, "no single innovation conveys lasting advantage," says Mr Hammer. In the toys and games business today, up to 40% of all products on the market are less than one year old. Other sectors are only a little less pressured. Innovation and, yes, invention too, have to take place continually and systematically.