Five Ways to Make Your Company More Innovative

How do you create a company that unleashes and capitalizes on innovation? HBS faculty experts in culture, customers, creativity, marketing, and the DNA of innovators offer up ideas. From HBS Alumni Bulletin.
by Garry Emmons, Julia Hanna & Roger Thompson

In a hypercompetitive global economy, creativity has never been more important for success . But how do you create a company that unleashes and capitalizes on innovation? For answers, writers at the HBS Alumni Bulletin turned to five HBS faculty experts in culture, customers, creativity, marketing, and the DNA of innovators. What they have to say might surprise you.

Clayton Christensen

Can people learn to be more innovative?

I don't want to overstate the case. I think about 40 percent of people just are not going to be good at innovating regardless of what they do. And 5 percent are born with the instinct. There are things that they do and ways that they think that are intuitive. The rest of us could learn what these innovators do if somebody would just crawl inside their brains and codify what to them is intuitive.

In a sense, that was our hope with The Innovator's DNA, that we could articulate how innovative people think. So over a period of years, we interviewed hundreds of innovators and almost 5,000 executives to identify ways of thinking that distinguish innovative people from typical executives. What we found is that innovators "think different," to borrow a slogan from Apple. And thinking differently leads them to act differently. From our research, consistent patterns emerged that led us to identify five primary discovery skills that underlie innovation: associating, observing, quetioning, networking, and experimenting.

First and foremost, innovators are good at associational thinking, or simply associating. They make connections between seemingly unrelated problems and ideas and synthesize new ideas. I would frame associational thinking by asking this question: Has somebody else in the world solved a problem like this before? It turns out that most problems have been solved before by somebody in a different environment. Associating that other experience to what's going on in my world may make me look brilliant, but in reality my brilliance was in seeing that this had been solved elsewhere.

Observing and questioning go hand in glove. Innovators observe things, then question why. If you want to be an innovative person, when you see things, you have to pay attention and then wonder why.

A good illustration of observing and questioning is Scott Cook (MBA 1976) and QuickBooks. By observing and questioning, he developed an important insight into why the owners of small businesses typically wait until the last minute to update their books and file tax forms. Most people would say they are just lazy or undisciplined. But Cook observed what was happening and asked why. And the owners replied, "Every minute I spend doing my taxes or my books, I'm not with a customer. So bookkeeping is the last thing I want to do." For Cook, that produced an insight that led to the development of QuickBooks, which greatly simplifies small-business accounting.

Networking is a skill that innovators use to identify and develop ideas by spending time with a diverse group of people with different backgrounds and experiences. By engaging with others, innovators increase the probability that they are going to gain useful insights.

Finally, innovators are constantly experimenting. The critical insight here is that for whatever reason, when God created the world, he made data only available about the past. As teachers at HBS, we're trained to nail students to the wall if they ever make an assertion in class discussion that is not backed up with data and evidence in the case. So our students come out of here with this elevated respect for data-driven, fact-based, analytical decision-making.

The problem is that data are only available about the past. If you're trying to be innovative, and you have this data-driven mindset, you can't go forward. So experimenting essentially says, "I don't want to wait until somebody provides data. I need to get out there and create data."

Collectively, these five discovery skills constitute what we call the innovator's DNA, the code for creating innovative business ideas. By mastering these discovery skills, you can learn to act differently and think differently, and by doing so increase your prospects for developing innovative products and services.

Rosabeth Moss Kanter

How Do You Create a Culture of Innovation?

Have you noticed the courage buried in the word encourage? To create a culture in which innovation flourishes takes courage. Determined innovators persist despite setbacks. But companies shouldn't count on people succeeding despite the odds; they should shift the odds. Here are three ways to do that.

Put innovation at the heart of strategy, and tout it in every message. Think of innovation strategy as a pyramid: big bets at the top, a few projects in development in the middle, and a broad base of continuous improvements, incremental contributions, and early-stage new ideas at the bottom. For example, Verizon placed big bets on Google's Android for smartphones and on fiber-optics for landlines, and now seeks new ways that wireless networks could run everything, including cars and refrigerators. It has projects in development with GM's OnStar and in cloud computing. In addition, Verizon CEO Lowell McAdam sees small "pots of gold" everywhere in the business, even in the traditional landline side, preaching process innovations to technicians.

Define jobs around innovation. Make it a job prerequisite. Consider 3M's move to become one of the first companies to tell professionals that they could spend 15 percent of their time on projects of their own choosing. Now many high-tech companies know that they can't get the best talent without providing this kind of flexibility. And some of those self-selected, self-organized projects might even result in a blockbuster product or line of business. For 3M, it was the Post-it note.

Recognize innovation in every part of the company. To build a culture of agility, creativity, and innovation, Gillette developed an innovation fair in which every unit could show off its most promising new concepts. I was privileged to judge the first one with the then CEO, where we gave an award to the legal department for its ethics program, featuring a takeoff on "get out of jail free" cards from the board game Monopoly. This wasn't a blockbuster like the new shaving systems for women, but it showed that everyone has a role to play in a culture of innovation.

To go from idea to successful innovation requires a great deal of support and collaboration. When people are surrounded by constant communication and encouragement, they can find the courage to try, fail, redo, and try again.

Carliss Baldwin

How can companies tap their customers for innovative ideas?

Firms have a tendency to look at their navels. The first thing I would say to managers is that there is as much creativity and knowledge among your customers as you could ever hope to generate within your own boundaries. Accept the reality that they collectively know more than you do about whatever it is your company makes, that technology has almost completely democratized the design process, and that these user-innovators, thanks to the Internet, can go through an iterative process much more quickly and cheaply than was true in the past.

So, how do you encourage customer-driven innovation and capture some of that value?

First, consider the question of intellectual property (IP). Divide your knowledge cleanly between those pieces you want to protect-the component on which you'll build the value-capturing part of your business-and the knowledge that you're going to put into the public domain. Let your users go to town on the open parts of the system, but be aware it's a delicate balance. The last thing you want to do is foster competition down the line, as IBM did when it let the IP of essential components slip out of its own hands and into the grasp of Microsoft and Intel.

Finding those people who have the will and desire to innovate in your system can be like looking for needles in a haystack, but that's where crowdsourcing comes in-defining a challenge and offering an incentive, whether in status or money, can get people to self-select as resources to you. You may even want to hire some of them. So this strategy can play into talent acquisition in addition to generating new product ideas.

Sometimes a community of users will form independently of the company. That can be tricky, because they will not want to be controlled, and they will want to criticize your product. The best policy is probably to foster both the community building and the criticism. It takes a great deal of courage and leadership to embrace this model where you enable and encourage users through various challenges and allow the community the degree of autonomy it needs to be healthy.

So, in a nutshell: Split your IP. Have a distinct strategy for the open and closed parts, with special attention paid to the open parts. Create a center that will attract users to your space and get the user-innovators to self-identify. Beyond that, foster a space where a community can collaborate and criticize both your work and their own work. That's how to get the most out of your customers in the 21st century.

John Gourville

How do you successfully market an innovative product?

The idea that we rail against in class is that product development just throws a new product over the wall to marketing and expects them to go sell it. For the last 50 years, innovation theorist Everett Rogers told us that the difference between a successful product and an unsuccessful product has to do with how the product is designed-the physical attributes of the product. And he came up with five factors:

Relative advantage: Is it better than what it's replacing?
Compatibility: Is it compatible with the way people currently do things?
Complexity: Is it too complex to use?
Trialability: Can you try it in small doses?
Observability: Can you watch other people use it?

All of those things are inherent in the product itself. Rogers's research found that 75 percent of the variance between products that succeed and products that don't succeed has to do with those five factors. Once you have those things, if they are all pointing in the right direction, it's a lot easier to market the product.

Relative advantage is the starting point. It's a necessary but not sufficient condition. You have to be better than what you're replacing on some dimension. How can marketing get involved? Well, if you think about relative advantage, you can achieve it several ways. You can provide more benefits for the same cost, the same benefits for less cost, or a lot more benefits for slightly more cost. Each of those has a different behavioral feel for the consumer. So, even thinking about what features you put into a product affects how easy it will be to market.

There's always this idea of feature creep that leads to adding bells and whistles. But every time you add bells and whistles, chances are you're also adding costs. The ideal situation is one with the same cost and much higher benefits. And so, part of what marketing does is ask, "What's absolutely necessary to make this product attractive to consumers? Do we have to add all these bells and whistles? Or do consumers just basically want something that gets the job done?" My colleague Clay Christensen has this idea that people hire products to do a job. It's that exact sort of thing. You don't need to add features that really aren't delivering on the job that consumers are hiring the product to do. So relative advantage is something you can play around with.

The other big question is, how much behavior change do you embed in the product? People resist change. They like the way they do things now, for the most part. They might wish a familiar product was cheaper or faster, but they've gotten used to the way things currently work. And so, if you don't take behavioral change into account, you're going to miss out on a big piece of the equation. It's not how economists would perceive it, weighing the costs and benefits. It's actually how much are you asking people to change, and are they willing to do it?

In short, most of what leads to a product succeeding or failing has to do with the innate nature of the product itself, the features built into it. And if you start with a product that does well on these five factors, then life gets a lot easier.

Stefan Thomke

How can a company balance creativity and innovation with the need for process and structure?

Before the issue of balance even comes up, a company must allow sufficient time for what may be the most underrated yet most important part of the innovation process: problem definition. Consider Apple: its genius lies in the ability to get to the heart of a problem and not settle for convoluted solutions until they find, in the late Steve Jobs's words, "the key, underlying principle of the problem" and then the "beautiful, elegant solution that works."

Once the problem has been defined and the desired target established, there are two key functions in innovation: brainstorming new ideas, and deciding which of those ideas are worth pursuing. When most people hear a new idea, it's human nature to see its flaws, so during the brainstorm processing, no criticism should be allowed. I know of a manager who brings along a squirt gun to brainstorming sessions. After a few squirts, people learn to silence their critical voices. The design firm IDEO, in its brainstorming sessions, tells participants to produce, for example, 150 ideas in less than 45 minutes. The impossible time limit and quota forces them to submit whatever comes to mind, even seemingly crazy suggestions. Only after the brainstorming session has concluded does IDEO then subject the various ideas to critical voices.

Once some really solid ideas have emerged, only then should you begin "toggling," switching back and forth between creators and critics, between the idea people and the process people, to work toward Jobs's "beautiful, elegant solution." This requires companies to be astute about how they prototype and test. IDEO adheres to the "three Rs" rule: rough, rapid, and right. For example, when testing the ergonomics of a new type of telephone receiver, prototypes can be carved quickly from foam but the shapes need to be exact, to see if they'll fit when people cradle them between head and shoulder.

Innovation and process within a firm can coexist and even feed off each other, if you manage their different and sometimes opposing functions smartly. Indeed, if you want to be an innovative company, you can't have one without the other.

About the Author

Gary Emmons is Senior Associate Editor, HBS Bulletin.
Julia Hanna is Associate Editor of the HBS Alumni Bulletin.
Roger Thompson is the editor of the HBS Alumni Bulleti.
    • Anonymous
    This is a fantastic article. What books would you recommend that people read to learn more about product design and innovation?
    Thank you,
    • Anonymous
    I think first and foremost the organisation has to internally agree (at all levels) what it means by "Innovation". No point starting on an innovation drive when different parties have different understanding of what it is or no understanding at all.

    Second point is the organisation needs to support the process of innovation. Not everyone knows how to go about being innovative - what is innovation for one could be something else for another. Align the organisation's skills set, training and development to make this happen.
    • Achim Muellers
    So 40% are not good at innovating. That means 3 out of 5 can be. Good odds, I'd say.
    • Elvin Turner
    • Senior Consultant,
    I understand the sentiment behind Clayton's points but I think what he's really talking about is innovation leadership, not innovation per se. Innovation is a process (insights-ideas-action) and people have different strengths across that process, so to write off 40% of people as 'never able to innovate' isn't that helpful. Especially when you're trying to encourage global organisations that they REALLY CAN innovate to their respective strengths.
    • John Heinrich
    • Chief Mentor, American School of Entrepreneurship
    I suspect we would agree with Clay's figure of only 40% of businessesmen/women being capable of innovation, but as an organization we're dedicated to helping people start and run all sorts of businesses, whether they're innovative or not.
    However, since we do recommend that the business do something different, as a USP, it may not rise to the level of innovation, but just different. As long as the customers perceive different as worthwhile, who cares?
    Also, on marketing of innovative products, a point missed here is that it always takes longer and costs to market the more innovative products, unless your brand stands for innovation, as 3-M or Apple does. So, there's a market bias against too much innovation at once, unless you can afford it.
    • Jack Slavinski
    Great article. This is such a key topic in business and always will be. Creating a culture of innovation has been one of the most important critical success factors and enablers. Employees need a sense of believing that their creativity and ideas matter and can actually influence the direction of a firm. As leaders, we have to instill and support that behavior with interest, encouragement, actions and recognition that help to bring innovative suggestions to life!
    • Corey J. Tronchin
    • CEO, Professional Rockstars
    Great insight on 5 critical metrics to consider on innovation of bringing product to the table.
    Its all in essence the undefined is having the greatest return on luck and randomness in my book at the end of the day of creating the exact right products to move wisdom of crowds.
    • Dave Wisland
    • Solution Architect, Wisland Marketing LLC
    I am a practionioner and student of innovation. What struck me within Clayton's article are three things:
    1. The innovative "silent majority" - the 55% that COULD be innovative but don't have the courage or the motivation. This is where the greatest volume of creative DNA lies and the source of the greatest ROI.
    2. Our entire educational system squashes: associating, observing, questioning, networking, and experimenting at an early age by rewarding the answer irrespective of the process. A previous HBS article confirmed what I already knew: "Creativity is something that can be created and fostered if you have the right guidance and incentives. BUT I believe this must be done within a K-12 window of opportunity to most effectively incorporate it into an individual's DNA. The best corporate leaders can "see around corners" - which is a partially data-driven, creative process that the U.S. educational system increasingly discourages. From our current practices, divergent-thinking individuals like Steve Jobs are less and less likely to appear. Please let me know YOUR thoughts.
    • Dick Goold '49
    • CPA
    The emphasis seems to be in the area of production /manufacturing. WE need to lift our sights. I have seen creativity used in the military, in education (at the college level) in the registration process (this got me into the "B School"), in the change in a depreciation method which changed the entire production process, and in the management of receivables and inventory freeing up millions of dollars in cash. Each of the underlying ideas met resistance which, in turn, required further innovation. The biggest requirement is the creation of a climate of receptivity by the CEO.
    • Rod Rodriguez
    • Associate, C3TS Consulting
    To innovate is human. It is in our DNA. It is in our nature to be innovative. It is through innovation that humans became the supreme creature of the land. But fears do crush, do defeat, and do anihilate our innovative tendencies. The only obstacle to innovation that I know to exist is fear. Fear can be self-generated or it can be external. External fears can come from a boss, a co-worker, a peer, from your spouse, from circumstances, from legal constraints, from threats, from uncertainties, from parents, and from teachers (the bad ones). Innovation, having been crushed by a fear, is not easily recovered by an individual, and once the ability to innovate is lost, the older a person gets, the more difficult it is to innovate anew. However, all fears are defeatable and can be overcome. All behavior -- and innovation is one -- can be learned and can be un-learned. So, to foster innovation in a person or a group, an open and
    accepting atmosphere must exist. The motto of "no idea is bad idea" must prevail, and rejection of ideas must cease to exist. In other words, there must be a culture of unwritten rules that it is OK to try something new; and that "this wont work", or "we've always done it this way", or "that idea is crazy" are just not part of the vocabulary of the spoken or written language, or even part of the thought process. To innovate comes natural, but the older we get, the more concsious of an effort we must make to continue to innovate. We just cannot fall sleep on our laurels. Thank you for bringing the topic to our attention. It made me think!
    • Ed Harrington
    • Chairman and Facilitator,
    Amen I say to you, Clayton.

    As a leader of thousands of ideation sessions, I can say that there are definitely folks who are predisposed to being innovative, while there are others who simply don't think that way. The notion that "everybody is creative" drives me BONKERS. I know it's impolite to suggest otherwise, but my experience is that it's just not true. For several decades our company (Ideas To Go) has helped folks innovate by ascribing to the notion that some folks are way more creative than others. We find them, hone them a bit, and then set them to their innovative tasks. Can you teach the other people to be innovative? Absolutely. And you can train them to be engineers, too. Or circus acrobats. But all three cases, you will find that there are people who are more naturally inclined for the topic or task at hand. But there just doesn't seem to be this mad notion that "everyone's an engineer." And even if you could train to be one, who'd you rather have build you a
    bridge--the person with the natural talent bolstered by training, or someone who's not really good at it, but has been trained? No question in my mind.

    The same is true for innovation sessions, why feel compelled to include the "non-innovators"? They only slow down the process and their ideas will not be as good. And, btw, how fair is it to the non-innovators to expect them to sit through and participate in a session for which they are not inclined and perhaps not interested nor comfortable doing? I sure don't want to sit in on the next engineers' meeting. And a mediocre acrobat could be truly painful to watch. It is my experience that when you force non-innovators to try and innovate, they don't create new ideas, but rather focus on critiquing. This sets up a very bad dynamic for a creativity session.

    The best role for the non-innovators is to observe and play when the mood strikes. Other than that, it is plenty enough that they listen to the ideas so they can be familiar with them. Rather than training them in innovation, train them in how to handle new ideas, so they don't drown them in negativity and ruin the group dynamic.