Sustaining the “Innovative Index”: An Intrapreneurial perspective

Ashwin Bhatia (BE-IIT, MMS-NMIMS)

Mentor: IIM-Ahmedabad (CIIE)

Abstract

Innovation is the cornerstone of a firm’s success and never more has managing innovation been so crucial than now, with increased competition, diminishing loyalty and convergence of technology. While first-generation Entrepreneurs will always contribute towards economic growth through new product development and adding economic value, the ‘Innovative Index’ of such entrepreneurial ventures gradually declines as the firm transforms into a mega-corp. One of the major reasons for this inability to sustain innovativeness and value creation is the way companies look at their employees and manage innovation. It is a Catch 22 situation where the very attribute that lead to the firm taking birth, innovativeness, is now seen as a threat! This paper challenges the age-old premise that an employee needs to always toe the corporate line, that an employee thinking out of the box is tantamount to disturbing the very fabric organizations are dependent on and worse, that an employee contemplating entrepreneurship is sacrilegious. For centuries corporates have struggled to deal with these ‘innovators’, looked down upon such ‘intrapreneurs’ as a threat to the work culture, treated them with disdain and often reacted by purging them. History, however, is testimony to the fact that the world and its economies are much grateful to these innovators. It is therefore imperative and of utmost importance to not just acknowledge the need for such innovators but also nurture them. This paper will review many of these cases, analyse what-if scenarios and study trends in managing Intrapreneurship. While leading companies have realized the great value of tapping these sources of innovation within their own personnel, many have struggled with managing this talent pool. This paper studies the misgivings manifested within top management, attempts to clear myths and present a workable blueprint that is practical, customizable and implementable. Finally, it presents metrics and tools to evaluate the efficacy of such models, continually keep raising the performance and ultimately deliver a sustainable competitive advantage through sustained innovation.

Objectives

The human race wouldn’t have come this far if it wasn’t for that one single ability to ‘innovate’. Whether to merely survive or to flourish, innovation has been the cornerstone of mankind’s success and we have naturally carried this trait into the corporate world for economic as well as social benefit. Hence while we seek ways to foster innovation within economic context, we really need to explore deeper into the history behind innovation to identify the key ‘drivers’ of innovation and study how these have evolved/changed over time. Various innovation indices from a range of contexts will be evaluated to derive a common pool of drivers that promote innovation. Finally, recommendations will be presented to produce entrepreneurs who not only have the ability to innovate but also sustain it.

The nexus between Entrepreneurship and Innovation

“Innovation is the specific instrument of entrepreneurship” 1. Whether it was James Watt’s steam engine or Graham Bell’s telephone, every “first” commercially successful product has been rooted in innovation. And it isn’t only so for products but equally true for services like hospitality and medical services. In his widely acclaimed book ,Peter F. Drucker elucidates the underlying emphasis on innovation for economic and social profit. Although every mega-corporate today traces its origins to an ‘innovation-seeking’ entrepreneur, several of these very corporates eventually begin working in a prohibitive environment, stifling creativity and resulting in stagnation of innovation. Ultimately this is akin to sounding the death knell for the corporate. To study what firms need to do to avoid such a scenario, we need to look at what Innovation is.

We need to clarify here the basic difference between Invention and Innovation. Both require a great deal of vision, creativity, ingenuity and conviction. But whereas invention primarily confines these traits in the domain of theoretical studies and experiments to give birth to a new knowledge, innovation is the ability to apply this invention and put it to good use. An entrepreneur need not be an inventor, but he surely needs to be a good innovator. In fact, the more he can innovate and apply a new invention to a number of applications, the more successful he becomes.

To make an innovation hugely successful, three criteria need to be fulfilled. Firstly, there must be a proven marketplace of opportunities for the innovation. Like all marketing success stories, there must be an existing need or a gap that this innovation plugs. The bigger the gap, the more attractive the opportunity. This falls mostly within the purview of the marketer and while there is both need and proved strategies for innovation within this field, for the purpose of this paper, we shall not dwell on this criteria as there are numerous papers that have dealt with these specifically.

Secondly, there must be strategic competencies that will enable the innovation to be made available as well as to sustain it in times to come.

It may be related to technical competencies such as research and development (Novartis) or production technologies (Toyota Motors) or may be in business practices such as supply chain management (Dell Inc.) or the use of information technology (IBM Global Services). Innovations here may be incremental, breakthrough or transformational. These innovations need key technical skills that can be inherently available or trained for. We shall look at the many ways to sustain innovativeness later in the paper.

Thirdly, there must be a latent desire, an entrepreneurial will to pursue the innovation that has a market place of opportunities and for which competencies exist. Though monetary gains are often drivers for will and “primary motivators”, it is other attitudinal traits that combine to influence the willingness and capability to pursue the innovation.

It is when there is a confluence of all these three per-requisites that the innovation truly takes off. This is the “Innovation Sweet Spot”.

pict1This Innovation “sweet spot” is not constant; rather it is dynamic, a function of time and context. Marketplace opportunities keep changing, never more than today with demand volatility, new substitutions, new needs and disruptive innovation. Similarly, competencies may become obsolete or redundant over time. As a result, entrepreneurs will need to continuously remain on guard monitoring the all three factors to ensure the sweet spot remains sizeable. This means devising strategies for ‘sustaining’ innovation become a pressing need in the present context.

A Brief History of Innovation

Going as far back as the Greek and the Egyptians, two of most powerful ancient civilizations, their superiority originated in their ability to innovate in two broad domains: designing (weapons, monuments, etc) and administration (man management, supply chain management). In fact the word Logistics has its origins in the Greek word Logistika, the designation of the army chief whose sole responsibility was to ensure the right supplies at the right place at the right time for the Greek army to relentlessly hunt down its enemies. In essence, two main sources of innovation were product and process innovation. Throughout history, it is primarily these two types of innovation that have propelled businesses and provided competitive advantage. From Henry Ford’s model-T, to the innocuous vaccination drops to the awe-inspiring flight of the Wright Brothers, history is replete with stories of how innovations in product and process gave birth to new business one after the other. The two world wars and subsequent industrialization across the globe acted as a booster as businesses scampered to innovate in every aspect of business in their one-upmanship and race to be the best. This led to businesses breaking down every aspect of the way organizations function. Let’s bring in here Micheal Porter’s “Value Chain model”4.

Back to the drawing board: Rethinking the Value Chain

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Tertiary Activity: INNOVATION

Given the context and period in which Porter proposed the famous Value Chain model, ‘value’ was central to the scheme of things. It was value that drove products and services to flow. In essence value drove the supply chain. While this still holds true, we need to look at the model closely to provide us a road map for seeking innovation. For example, inbound logistics is not just a source of adding value, but also a potential area to innovate in, be it Quality control or material development or transportation. Of course, just as when using the Value Chain model, we need to apply it differently to different industries. But eventually, every activity in the chain, be it primary or secondary, will need to be a target for innovation. For example, there can be innovation in the way we source material (reverse bidding), innovations in the way we manufacture (Flexible Manufacturing Systems for mass customization), the way we distribute goods (outsourcing to 3rd party logistic firms), and the way we service (on-line). Every single innovation then adds value. So, we are essentially looking at the Value chain not just from the viewpoint of reducing cost or increasing efficiency to add value, but seeking out innovation to add value in a much more powerful manner. Companies like Toyota and Dell, realized that while breakthrough innovation is highly rewarding, we need to look at ways to continuously improve with incremental innovation. In fact, just as the secondary activities applied to all primary activities, we need to look at “Innovation” as a ‘tertiary activity’ that applies over the entire value chain! Businesses which will perform this vital ‘tertiary activity’ better than others, that is innovate better, will eventually sustain their competitive advantage. But since innovation is a personnel specific deliverable, how does a company nurture/train/motivate its employees to continuously innovate? And more so across all functions of the organization ?

Intrapreneurs: the hidden innovators

When an entrepreneur gives birth to a business, it is his ability to innovate that provides growth and an edge to succeed. However, when the business grows, and decisions become de-centralised, in order to manage ‘chaos’, he resorts to systems and rules which employees must adhere to, in order that the organization functions predictably. It is an irony, then, that this stifling of freedom to create and innovate becomes a reason for the business’s downfall. It is thus of utmost importance that the ‘entrepreneurial spirit’ of the founder remain in his employees.

Gifford Pinchot, who coined the term ‘Intrapreneur’ explains “Intrapreneurs are the “dreamers who do.”5. in their seminal work on fostering innovation through intrapreuring, Gifford and Elizabeth Pinchot elaborately laid out the reason why companies must not suffocate creativity and out of the box thinking, but instead look out for such innovators, who have a willingness to dream of a new way to do things. Eventually, each small innovation will have a snow ball effect and add up to a substantial advantage for the business. No company inspires in this field more than 3M Inc. Listed briefly below are the seven pillars of innovation at 3M :

1- Top down commitment

2- Actively maintain corporate culture

3- Technology is all pervasive and all encompassing

4- Networking

5- Reward systems

6- Quantify efforts

7- Customer centric research

Prof Dr Holger Ernst outlined the types of corporate culture (bringing in the need for entrepreneurial skills in employees) and its impact on financial innovation performance7, as below:

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This model is corroborated with the BP model for Corporate Entrepreneurship wherein four pillars identified are:

– Boundaries

– Space

– Direction

– Support

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This model addresses the anxiety of corporate leaders with regard to providing freedom to employees, especially in the post-Enron era. When the idea of giving space to intrapreneurs was first highlighted, several eyebrows were raised. The fears were largely alleviated with the intrapreneurial framework provided by Brickinshaw. Such a framework gives enough space and freedom to the employee to be creative while outlining a legal boundary within which to work. It also provides for managerial support and direction to ensure innovations are aligned to corporate vision and goals. It is best described by Birkinshaw “I give my people the canvas and the paints they have to use [direction, boundaries]. After that, it’s up to them to decide what they paint and how [space]. As long as they stay on the canvas, and use only the paints I give them, I am happy.”

Various other models to provide a conducive environment for innovation are being used, such as the “Wipro innovation Council”9, spontaneous teams, formal internal ventures or the Merck’s “Innovation Transfer Program”.

To compliment and foster this culture, suitable reward systems can be devised that are linked to not only idea generation but also new product development (NPD) and roll out. In fact, serial intrapreneurs can be identified and nurtured as they seamlessly move from one project to another, with the company continuously benefiting. Pinchot suggests further pointers that need to be monitored to gauge the level of motivation in employees10.

“To cope with technological, regulatory and demographic changes and remain competitive, firms must evolve and renew themselves continuously in terms of their practices, routines, capabilities and activities. Although new ideas may come from

outside the organization, those that aim to renew themselves through entrepreneurial activity must also gather ideas from within. They must understand what factors lead employees to propose and sell new ideas to their superiors. Furthermore, proponents of entrepreneurial ideas may be interested in knowing why only some ideas get accepted and what factors increase that likelihood.”.

Innovation Indices

Several indices could be designed to measure and monitor Innovativeness of an organization. Just as no one size fits all, no one particular Innovation Index measurement tool will suit all businesses. Proposed below are two that are equally effective but wok on differing business models. While the first one is structured and built around the more recently accepted radical categorization of innovation into four broad areas (“Breaking Away”-Jane Stevenson & Bilal Kaafarani12 ), the second looks at organizations in a more traditional way as a chain of activities (Porter’s Value Chain). Businesses can choose whichever system they relate to more.

In their groundbreaking work “Breaking Away”, Stevenson and Kaafarani highlighted four key types of Innovation:

1- Transformational Innovation: This is the once in a while, disruptive and path breaking innovation that shakes up the businesses and society. These are radical in nature and are fueled by a deep curiosity and need to think out of the box. It changes the way society functions in its most potent form. In its wake, it gives birth to a wave of other innovations. Eventually we became dependent on it and that is what makes it so disruptive too. Such Innovations provide leap-frog moments for any business.

2- Category Innovation: This is less potent than Transformational innovation and in fact often takes root in the transformational innovation itself. Hence it is more evolutionary in nature and is customer need driven and market oriented. It is application focused. It does however provide a platform to mushroom innovation in the marketplace and operations.

3- Marketplace Innovation: This builds upon the category innovation and seeks new opportunities in the market place to apply the innovation. It is driven by competitive markets needs and is in a way semi-incremental in terms of being on the fringes of features and benefits innovation. Its importance however is high since it keeps category innovation sustaining.

4- Operational Innovation: Finally, this is more about the way we function, the way we operate our businesses. It entails innovation in quality, efficiency, cost saving, distribution, etc.

Since an organization will need all the four types of Innovations, in varying degrees of importance, a Balanced Scorecard model for Innovation Index (I-index) can be used. The metrics used to measure these can be arrived at by the top management team suiting their priority areas and focus. Like any balanced scorecard model, the following will be the structure of the evaluation:

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The second model for evaluating Innovation Index of a business is by measuring the impact of the ‘tertiary activity’, innovation, on the primary and secondary activities. Again, the exact metric to be used will need to depend upon the nature of business, industry and most importantly the drivers of innovation for that firm. Every business has a unique set of drivers and the first step in arriving at the Innovation Index (I-index) is figuring out what the drivers are. Typically, for example, consumer goods industry have a very high need to innovate in its NPD and marketing. Thus R& D and marketing will need to lead the innovation bandwagon while others too will follow. IT firms, on the other hand will need to focus on Human Resources as their key asset and need to innovate in the ways to attract and retain the best talent while also providing training that continuously provides them with the latest competencies. Thus training & HR will be key drivers here. The Porter’s Value chain can be used as the reference point to begin this exercise. Each activity is given a particular weight and metrics are identified to measure innovation in each. The table below is an example, where HR & Manufacturing are the key drivers. The weights should be as a percentage of 100, so that the TOTAL value of the BASE YEAR/timeline is 100. Every period subsequently (monthly/ annually, etc) will be measured as an improvement or falling back with respect to the previous period measure.

PRIMARY ACTIVITIES

Weight
(% out of 100)

Metric

Weighted Score
(M x W)

Base Year /
Month

Next
Year/ Month

H R Management

  • Metric 1
  • Metric 2
  • Metric 3
R & D/Technology
Infrastructure /Admin
Procurement
SECONDARY ACTIITIES
Inbound Logistics
Manufacturing
Outbound Logistics
Marketing
Service
INNOVATIVE INDEX

100

The benefit of this system is that it begins with the present context as base reading of 100 and every subsequent period is easily comparable in terms of Innovative index, much as the same way as the BSE Sensex . Further, if an organization wants to set targets for innovation in each activity, it can do so and at the end of the period measured investigate reasons for falling short of targets and suggest remedial measures. The drawback of such a system is that it does not differentiate between Incremental innovation and disruptive innovation per se. The way around this issue is to leave it to the evaluators to appropriately weigh the impact of an innovation and score it accordingly. It is indeed qualitative still, hence one way to further quantify it for homogeneity in measurement is to identify the monetary benefit derived from the innovation, in terms of revenue increase or cost savings, etc. Like all evaluations of such nature, there will be limitations which will need to be addressed as and when these systems are implemented. Needless to say, any business can use this model by customizing the scoring sheet weights according to its key innovation drivers.

‘Who moved my Cheese” moment – the shifting key drivers

The key drivers of innovation are the backbone of a firm’s innovative fabric. They drive the firm to excel and give competitive advantage. But here’s the catch. The Key drivers today may not be the key drivers tomorrow. Just as the in the past, the key drivers have changed with time. A quick look at any sector will be testimony to this fact. Let’s take automobiles. Technology was the key driver in the Henry Ford era was technology. That shifted to production systems which Toyota exemplified. Though technology and production systems still drive innovation, marketers today look towards customer need fulfillment for seeking innovation strategies. Businesses are increasingly turning towards information technology as a means to drive innovation. It is therefore imperative to bring in here the sustainable competitive advantage framework to highlight how innovation is key in the whole process.

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To make this process ‘sustainable’, we need to add a continuous feedback to the scheme above.

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Businesses that will continuously innovate and add new resources and capabilities will be able to ‘sustain’ the innovative index.

As Bansi Nagji & Geoff Tuff put it “Firms that excel at total innovation management simultaneously invest at three levels of ambition, carefully managing the balance among them.” as depicted in their model below

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In fact, Prahlad, Nidumolu & Rangaswami outline a 4-stage process showing how to sustain innovation, as illustrated below.

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Skill and Strength matching: The X-factor for sustaining Innovation

In the final analysis, am organization is but a collective team of individuals. Each has his own set of talents that are unique and affect the way he functions. Along with these latent strengths, there are weaknesses that each individual carries inside him. We studied how Intrapreneurship is central to making even the largest organizations to function like youthful, vibrant, nimble enterprises, churning out innovations in every function.

Summing up, Bob Eckert lists the top 10 Key Drivers of innovation15 :

1- The individual

2- The team

3- The Enterprise

4- Processes

5- Offerings

6- Psychological climate

7- Physical environment

8- Organizational culture

9- Market conditions

10-Geo-political culture

We have highlighted different types of process innovations, the need to provide the right organizational culture and being market centric. Hence, the final piece in the jig saw puzzle is the ‘individual: maximizing efficiency of employees not only in their functional roles but in the way they network, form teams, communicate and function. While a lot of training is focusing on technical skill building, we need to look at employees as a portfolio of talents rather than skills.

As Pinchot puts it “Intrapreneurs seem to be equal in right brain and left brain, equally- intuitive and analytic. They make decisions based on intuition when data or time don’t permit analytical solutions. When analysis will work, they use it.”

Luk Dewulf, pioneer in talent research, has offered a most exciting way to look at individuals and maximize their ability to function and innovate. Each is possessed with strengths and weaknesses. He uses Strength-Finder17 and a set of investigative tools to identify which of the talents are the strengths of the individual. The process has been used by us to then list in order of strength the various talents, some of which may have been latent. The lowest ranking talents are then the weaknesses.

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The individuals unique set of talents, a portfolio of his strengths, are called his “Gestalt”. We like to look at it as his DNA. If the individual is working in a profile or environment that taps only his strengths, not touching upon his weaknesses (“shadow” of the Gestalt), he will excel with astounding results. If however, his responsibilities require him to use those talents that are in fact his weaknesses, he will not only underperform, but lose motivation. In extreme situations it leads to burn-out. All these could ultimately become a big roadblock towards building an innovation driver workforce. It is hence recommended that a ‘gestalt’ of each employee be recognized and he be assigned the functions that best utilize his strengths. Correspondingly, he be assigned with team members who have those very talents as their strengths (gestalt) which he has in his shadow (weakness). Such ‘joining the dots’ strategy in human resource management has already brought brilliantly encouraging results for organizations.

The road ahead: Catch ‘em young

Successful entrepreneurs or intrapreneurs over the ages have shown proven excellence to innovate and excel due largely to two key areas: Strengths & Skills.

While skill sets can be ‘learned’ with formal training, it is the Strengths recognition that must also be highlighted. Whether an individual ultimately becomes an entrepreneur or intrapreneurs, the skills and strengths will anyways be essential for his future success. Unfortunately, in the present education system, there is less emphasis on working around strengths. Instead there is not even the effort to help the student recognize his talents. When he ends up frustrated or burned out in his career/business, it is too late.

It is recommended that skill training and strength identification be imparted to school going students at a very early age. Key skills required to be a successful entrepreneur or intrapreneurs are mostly networking, team building, leadership, communication, problem solving, negotiation and the like. Such skills should be imparted in the form of games or workshops, but in the school and college level.

Most importantly, Luk Dewulf’s ‘Gestalt’ model should be used to help each student recognize his key talents, his DNA for life and be taught how to manage his ‘shadow’ in such a way that instead of hindering his creativity and growth, it helps him succeed. This powerful too has the potential of churning out not just degree holders with skill sets, but a whole army of confident and achieving Entrepreneurs and Intrapreneurs. THIS would be our ultimate legacy to society.