The Complete Business Innovation

Good ideas may surface from the farthest reaches of the organization. Thus, the challenge for top executives is to stimulate experiments across the entire organization, select the most promising of the lot, and disseminate them quickly and appropriately throughout the business.

We are living in a time when information and technology has given rise to abundance, so the competition in supply market is growing at a steady pace. Good ideas, in times like these, need to be nurtured and applied as efficiently and effectively as possible, in order to reap economic benefits.

Early research on innovation tended to address the organization’s ability to respond and adapt to external and/or internal changes (Burns and Stalker) (Hull and Hage). Subsequent work on innovation stressed more on proactive innovation and distinguished between the types of innovation. There are three types of innovation (process, product/service, and strategy), each of which can vary from incremental to radical and from sustaining to discontinuous.

Emphasis was on the organization’s ability to promote both process and product innovation, regardless of an immediate need for change (Kanter).

Innovation vs. Invention
Joseph Schumpeter defines innovation as the combination and creative application of existing and new knowledge of elements to improve existing and/or develop new products and services, production processes, organization-methods, and commercialization, in order to create or preserve added value.

The Oxford English Dictionary defines innovation as ‘making changes to something established’. Invention is the act of ‘coming upon or finding discovery’. It is important that we do not mix innovation with invention.

Business Innovation
Innovation is generated at individual, organizational, and environmental levels. Let’s look at various types of innovation.

1. Innovate Market or Innovation from Market (Consumer)
2. Innovate Industry or Innovation from Industry (Competitor)
3. Innovate Product or Innovation from Product / Process (Operations)
4. Innovate Team/Organization or Innovation from Team/Organization (Management)

Innovation from Market
“A business has only two basic functions marketing and innovation”, says Peter Drucker. However, Robert Tucker suggests five necessary steps to make a business innovative.

1. Innovation must be approached as a discipline, practiced and taught to employees.
2. It must be cross-functional, and not just left to the R&D department.
3. It must be proactive, and not just responsive to what competitors are doing.
4. It must involve everyone in the organization and everyone’s performance evaluation should include it.
5. It must be customer-centered.

First, second, and forth steps belong to innovation from organization. Third and fifth belong to innovation from market. Market surveys and research enable an organization to be innovative.

Innovation from Organization
Jim Biolos in Harvard Management Update offers the following six steps that need to be followed while making a team innovative:

1. Make sure that the members of the group are communicating with one another in a free-flowing or maybe even a freewheeling way.
2. Make sure that all the team members have equal and enough responsibility.
3. Show confidence in the team.
4. Provide the appropriate resources to the team, and make sure the members know that those resources are available.
5. Make sure that each team member has a challenging role in the work.
6. Monitor the pressure.

Team’s Success
A team usually consists of up to ten people, who devote about one-quarter of their time to the project for three to four months. Participating in a team is considered a plum assignment, because it provides exposure to top executives.

Employees of China’s multinational electronics company Haier, for example, discovered by visiting rural customers, that they frequently used their washing machines not only to wash clothes, but also to clean vegetables. Taking this new information and the potential market into consideration, Haier made a few modifications to its machine, and was able to make it versatile enough to wash both clothes and vegetables. This helped Haier become the market leader in rural areas of its home country.

Innovation from Management
“Managers don’t simply copy something they see elsewhere. They take pieces of practice or technology that they find and recombine them in novel ways to solve customer problems”, says Philippe Pommez, Natura’s R&D Director, “The hard part is not finding the new technology; it is knowing what you are looking for. This is where our conceptualization of new products and new lines that serve local needs becomes indispensable.”

Managers of companies situated in developing countries, sometimes despair of closing the gap with larger and better-funded multinationals. Clearly, there is hope for companies anywhere in the world to win through innovation and creativity.

Innovation from Industry
There are three important fundamentals of innovation and entrepreneurship.

First, an Industrialist searches for innovative opportunities and develops an innovative idea into a practical business or a service. Second is the industrial strategy that brings innovation successfully to the market. Third is free enterprise itself, and it focuses on the organization that is the carrier of innovation.

Innovation in Products
Switching to a new market with the same product can be considered innovative to some extent.

However, innovation in products is always the basic goal of any team, within an organization. Views of the customers through research and surveys are carry forwarded to the R&D team for further product innovation. Ultimately, it depends on how good you are at learning from the market, industry, and your team. Johnson & Johnson, the American multinational corporation, is a great example of constant and successful innovation in its products.

Attributes of a Family Business

Well-known Groups

Fiat Group (Italy) – Agnelli family
Grupo Modelo (Mexico) – Diez Fernandez family
IKEA (Sweden) – Kamprad family
L’Oreal (France) – Bettencourt family
McCain Foods (Canada) – McCain family
Samsung Group (South Korea) – Lee family
Tata Group (India) – Tata family
Reliance (India) – Ambani family
The Gap (USA) – Fisher family
Wal-Mart (USA) – Sam Walton family

Distinguishing Features

– A cohesive force usually exists behind the management of these organizations, providing a strong sense of mission and a shared vision ideally cemented by loyalty and commitment.
– The benefit of low capital costs allows them to adopt long-term business strategies or to exploit market niches, which are not sufficiently profitable for larger businesses.
– They own long-term perspectives, saving and reinvesting capital, and viewing the business as a legacy of heirs. Hence, pressure for short-term profit is reduced.
– Their attitude is inward looking. Decisions are based on emotions rather than commercial grounds.

Family System vs. Business System

Inward looking vs. Outward looking
Emotion based vs. Task based
Unconditional acceptance vs. Unemotional
Sharing vs. Reward performance
Lifetime membership vs. Perform or Leave
Averse to change vs. Embrace change
To nurture vs. To generate profits

Birth and Initial Expansion

Worldwide statistics show that the mortality rate among small and middle-size businesses is about 15 % at the end of the first year of existence, and 23 % after the second.

A newly created company demands a great deal of effort, time, energy, and devotion, just like a newborn baby. New companies have a propensity to have high operational costs and low profits, while the turnover is rather modest and still unpredictable.

The growth of the company depends on its promoter’s attitude. As the driving force of the company, he or she takes all the decisions and assumes all the economic responsibilities. As the company grows, more employees are hired in its dynamic team. Values like trustworthiness and loyalty are imparted as their belongingness with the company grows.

Growth and Complexity: Development Through Generations

A crucial period for a family business is during its expansion. There will come a stage when the family or existing management does not have either the skills or sufficient time to manage the business effectively. At a crucial time like this, external management should be introduced. In this stage, the promoter must delegate tasks, allow others to take over vital functions in the company, and hand over the power of decision-making on to others.

The typical stage of development for a family business, as it passes on from generation to generation, is when the founder passes the business on to his or her heirs. The founder must be prepared to gradually let go of his direct influence, in exchange for indirect influence through his leadership.

Maturity and Sibling Rivalry

As the business ‘matures’ and the promoter grows older, the next generation has to take over some of the responsibilities. During this shift, it is very vital that there is no conflict between siblings, as to who is awarded with what position in the business. However, primogeniture, the phenomenon of favoring the first born is often evident in big business families.

Conflict may arise from a parent’s wish to treat children equally. The founder has to then consider a fair distribution of property and the delegation of the management among all the heir’s, in such a way that the continuation of the company is not endangered.

The basic rule that should be followed is: what is good for the company is good for the family.

Principles of Managing a Family Business

1. Family business does not necessarily mean unprofessional business.
2. Accept emotions and personal relationships as unavoidable elements in the rational world of your company.
3. Accept the synchronicity of the family and business life cycle.
4. Keep family and business separate, whilst knowing that they are both sides of one coin.
5. Accept help in order to avoid blindness for family and business affairs.
6. Respect the loyalty of ‘non-family family’.
7. Give the company a chance.
8. Succession is a coin with two faces: hereditary succession and management succession.
9. Succession preferably implies a (mental) de-familiarization.
10. What is good for the company is good for the family.