What Is Innovation and How Is It Managed Efficiently?
Innovation can make or break a company. Lego, the children’s building block company, learned this invaluable lesson after a significant amount of trial and error, according to Scott Davis’s Forbes article, “How Lego Built Up from Innovation Rubble.”
In the early 2000s, Lego decided to make a change to its original product philosophy. The company began to design its toys to be more playable by children, in the action-figure sense of the word, and less build-intensive. At first, Lego designed fictional characters for the building block sets around which the company attempted to build a theme and storyline (even to the point of airing kids’ TV series based on the toys). Some were successful, like the popular Bionicle line, and others failed.
By employing open innovation, which feeds primarily off of customer input, Lego realized that its primary demographic, children, wanted characters with history and a familiar context. So Lego started producing Star Wars, Harry Potter, DC Superheroes, and Disney sets (to name a few), all geared toward fans of pre-existing fictional franchises. Today, Lego uses a crowdsourcing platform where people can post their own custom Lego creations. Those who receive more than 10,000 votes have a shot at being commercialized by Lego.
Lego’s story is a perfect example of how managing innovation properly can make the difference between a banner year and bankruptcy. Anyone interested in pursuing an online master’s in business administration degree should consider devoting a significant portion of their studies to learning how innovation works in the modern world and what tools are available in the data age to help guide innovation decisions.
Open Innovation to Acquisitions: A Management Challenge
In the business sense of the word, innovation refers to a perfect marriage between creative ideas and profitability. For a new product or process idea to be truly innovative, it must be different enough to generate enough demand to turn a profit.
“[Successful innovation] is a systematic process of searching for the right business model to support the new product,” writes strategy and innovation consultant Tendayi Viki in his article, “Innovation is Management,” on Forbes.
“This systematic search involves understanding customer needs and their jobs-to-be-done. It involves figuring out the right solution for customers, the right channels to reach them, and the right customer relationships to have. It also involves figuring out the right price points and cost structures for profitability. This means an innovation team has to be cross-functional in terms of skills, including those MBA types.”
The drive between today’s innovation success and ideation, the formation of new and potentially profitable ideas, is open innovation. As Lego discovered, open innovation refers to customer-driven decision-making in the innovation pipeline. The internet is so pervasive in society now that a company looking to introduce new products, capture new markets, or test new processes can include its customers to more accurately predict success (or failure).
According to serial innovator Nicholas Bry in “Open Innovation: Getting Started” on InnovationExcellence.com, open innovation requires detail-oriented management involving a number of different innovator sources. These can include incubators, tech hubs, crowdsourcing, idea contests, co-creation platforms (such as the crowdsourced idea creation process used by Lego), co-developments, and hackathons.
The management of open innovation sources can be tricky because it involves managing non-employees to some extent. Also, as business writer Billy Cina points out in her CIO.com article, “2017: How Innovation Management is Bridging the Startup-Enterprise Divide,” acquisition is also a common form of innovation and requires management competent in business mergers and acquisitions.
The Right Way to Approach Innovation
A team of business professionals, led by researchers Dylan Minor, Paul Brook, and Josh Bernoff, studied more than 100 public companies with over 3 million employees to understand better how innovation takes place in the real world. Their results were included in “Data from 3.5 Million Employees Shows How Innovation Really Works” in Harvard Business Review.
The researchers identified four variables that affect the ideation rate of a company (which they define as the number of ideas approved by management divided by the total number of active users in the system). Innovative companies, in their opinion and based on their research, generate better ideas and manage them appropriately, resulting in growth. The four variables they discovered are:
- Scale: Innovation programs need a lot of participants to be successful. The more participants, the more quality ideas will be generated. The companies studied saw an average of one idea for every four participants.
- Frequency: Companies will also be more successful if they frequently generate idea challenges for employees or participants. The degree of variation on such ideas is high, but on average one actionable idea will come of every five idea candidates.
- Engagement: Idea generation is only a part of the process. The ideas need other people to review them and help determine whether they are worthy of moving forward. In the authors’ words, “A successful idea management system is a ferment of commentary, with lots of feedback.”
- Diversity: Engineers aren’t the only ones who have great ideas. An innovation system needs input and contributions from people in every part of a company’s organization (and outside the organization if crowdsourcing is utilized). The more diverse the innovation system, the more likely an innovation is to appeal to everyone.
Managing a company’s innovation process is a complex task full of variables. Successful innovation managers know that ideation comes from anywhere, and they know how to use modern tools to examine the merits of each idea. And when an innovative idea is found worthy of moving forward into production or practice, a good manager will be proficient in other business management concepts to facilitate a smooth transition from innovation all the way through to store shelves.
Ohio University’s Master of Business Administration Degree
Nationally recognized by U.S. News & World Report as a “Best Online MBA” program, Ohio University’s online MBA degree program takes advantage of the latest in online classroom technology to bring students an engaging and academically rigorous experience that can benefit them in their careers.
With concentrations in finance, health care, executive management, and business analytics, the program offers graduates the business background and team experience they will need to be successful leaders of innovation and business venture endeavors.
Lego and Innovation – Forbes
Innovation is Management – Forbes
Open Innovation – InnovationExcellence.com
Innovation Management and the Startup-Enterprise Divide – CIO.com
How Innovation Really Works – Harvard Business Review