Innovation as a source of growth

By Inger Lise Aarrestad Rettedal

Apple and Google are ranked as some of the world’s most innovative companies. Apple simply revolutionised the market for cellular phones with their touch screen technology and iPhone. Now, the reason behind Apples success story is not necessarily the innovative products in itself, but the creativity and innovative process leading up to them. So how can a company create a culture for innovation as a source of growth?

The information flow is intensifying; the competition is hardening and the time from introducing a new idea until it gets copied has shortened. This places greater demands on those who want to differentiate, create and keep a competitive advantage. Focus on cost savings and bottom line is not enough to utilise a company’s true potential. Managers and board of directors need perspectives beyond this to be able to identify growth potential.

According to recent years annual innovation surveys amongst some of the executives in the worlds largest companies in over 58 countries by Boston Consulting Group and BusinessWeek, innovation is amongst top three of strategic priorities. Most people probably associate the term innovation with a new technological development. But innovation is so much more (ref. Schumpeter, 1983). Yes, it can be the development of new products and services, but it is also about new combinations of raw materials, new marketing approaches, new ways of working and processes. Not least it can be about new business models, changing the market situation and value creation as in Blue Ocean Strategy. In short – putting known things together in new ways.

In brand theory companies have these strategies for growth; (1) geographic expansion, (2) mergers and acquisitions, (3) brand alliances, (4) brand extensions, (5) developing new brands and (6) increase the use of an existing brand. The question arises; are these traditional growth strategies enough to keep ahead and secure growth? Can innovation outcompete the other growth theories?

I did an analysis of this a couple of years ago. Taking elements of control, investment level, speed and the duration of competitive advantage into consideration, innovation far exceeds as a growth strategy. And utilising several growth strategies simultaneously or subsequently will create synergy effect.

Innovation should not and does not come merely from an R&D department. Innovation potential exists in all of us, so the challenge we face as leaders is to support employees’ imagination and innovation capabilities. In Google employees can employ up to 20% of work time to develop their own projects and ideas. The company 3M has its own development program whose goal is to achieve 5-8% annual growth based on innovations developed in-house. Employees are also able to use 15% of their work time to explore ideas outside of their ordinary work responsibilities. Virgin calls for innovation in their own company by setting aside 3% of revenues each year for developing new service innovations.

Companies with consistently strong changeability and open-minded culture will have a higher possibility to achieve true innovative processes. Companies with a high tendency to innovate will also develop and introduce more innovative products and services than other companies.

Now, these types of innovation has basis in ideas developed in the actual company’s referred to. It is now a trend among major international companies to look for the power of innovation outside their own companies, through various forms of open innovation. Proctor&Gamble and IBM are examples of companies that tell openly about areas where they want innovative solutions, as do we in Statoil. The reason for this open innovation movement is probably due to technology and how it has changed the way we now communicate. Internet and interactive technology has created a lot more active consumers and players. What some describe as unnecessary restrictions is replaced with sharing of information, inspiration, ideas and knowledge. This is being done in a wide range of branches – in areas such as design, distribution, marketing models, business models, licensing, sales, research and development. It’s really pure logical; in a world with over 7 billion people – and where only 18000 of them work in your company – it goes without saying that a large proportion of the total human brain power is not on your payroll. Therefore – go and get ideas from the outside! This form of collaboration with the outside will bring new energy to the inside.

If a company solely focuses on creating value in the same manner as their competitors they will probably be equally fit; but to perform better, the company must create value in areas where others do not, nor have even considered. It is said that no companies can build a lasting competitive advantage. Innovation types have in common that they are of temporary art. This means that when the innovation is introduced or implemented, then innovation should again be the next step – because it is not solely the result of innovation that add up the growth, it is the continuous innovation that creates lasting competitive advantage. I would argue that by mastering the strategy of temporary competitive advantage by changing the market and constantly bring forth innovation; you will create a lasting competitive advantage. The key is to continuously create new advantages and not wait for peers to neutralise them before launching the next initiative. Such constant innovations provide lasting energy.

D’Aveni wrote that in a highly competitive market is not enough to adapt to reality. Companies that do well in any given market must have a different approach by actively breaking down the other’s advantages to adapt reality to them. Hence, he builds on the words by George Bernard Shaw: “The reasonable man adapts himself to the world: the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.”

Innovation as a source of growth makes the company less predictable for others; it creates competitive advantages and brings forth new solutions and new ideas that will benefit both the company and the world.

References:

  • Aaker, D. A. and Joachimstahler, E. (2000), ”Brand Leadership”, New York: The Free Press
  • Aarrestad I.L. and Hem L. (2008), ”Growth strategies for a brand – a comparison”, Magma, ‘Siviløkonomenes Tidsskrift for økonomi og ledelse, årgang 11’. No. 2 and 3/2008 (Norwegian only)
  • Barwise, P. and Robertson, T. (1992), ”Brand portfolios”, European Management Journal, Volume 10, No 3, September 1992
  • D’Aveni, R.A. (1995), ”Coping with hypercompetition: Utilizing the new 7S’s framework”, Academy of Management Executive, Volume 9, Issue 3, August 95
  • Schumpeter, J.A. (1983), ”The theory of Economic Development: An Inquiry Into Profits, Capital, Credit, Interest, and the Business Cycle”, Transaction Publishers, London
  • Thompke, S. And Nimgade, A. (1998), ”Case: Innovation at 3M Corporation (A)”, Harvard Business School Publishing, 9-699-012, Rev. October 13, 1998.

4 Comments

  1. Posted April 20, 2012 at 5:19 PM | Permalink | Reply

    Very vell written, Inger Lise.
    What we are seeing is a) an increased understanding of the need for innovation and b) an increased understanding of the methods for innovation.

    Today we have more tools, more case studies and we are seeing companies radically innovate how they innovate.

    Today I’ve had the pleasure of teaching strategic innovation at BI’s elective program on “innovation and entreprenurship”, and we see a new mastery of strategic management when we teach it in light of innovation thinking.

    For most companies, however, the first step is not strategy, but strectching their innovation thinking modes (see my StartUp Weekend opening presentation) http://www.slideshare.net/Engage-Innovate/startup-weekend-you-should-all-be-pirates

    But to get started on strategic innovation, more excecutives would benefit to read “Making disruptive innovation work for you”.
    http://engageinnovate.wordpress.com/2011/12/04/making-disruptive-innovation-work-for-you/

    Thanks for writing, Inger Lise.

  2. Caroline Skagestad
    Posted April 24, 2012 at 12:11 PM | Permalink | Reply

    Hi Inger Lise!

    Very good article highlighting several important theories and ideas. However, I’d like to know how you think this might be implemented in TPD (more specifically to strategic procurement). I have challenges in seeing how we can be “innovative” in this area….

    All feedbacks are highly appreciated!!

    • Inger Lise Aarrestad Rettedal
      Posted May 12, 2012 at 5:27 PM | Permalink | Reply

      Hi Caroline! Sorry I haven’t been able to answer you before now. Thanks for the comment! In Statoil we have an innovative sourcing approach, that is highly relevant with regards to the things I have written here. Our approach to the rig market is one example of that. We also drive innovation and technology development in the industry in close collaboration with our very important and highly competent supplier industry. The solutions we have developed together with our vendors over the last 40 years are all great examples. But innovation is first and foremost a question about attitude, so ask yourself, you colleagues and the people you meet in everyday work life; what can we stop doing that does not add value, what can we bring in to our approach that nobody else have though of yet, can this be done differently, how can we work smarter together to be able to create solutions that will enable us to cross energy frontiers? All well, Inger Lise

  3. Posted May 12, 2012 at 5:42 PM | Permalink | Reply

    Christian, thanks for the comment! I have answered you through Statoil’s Energy Group on LinkedIn earlier on. Looking forward to more innovation discussions with you!

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