“In terms of innovation in today’s

business environment, it’s more

important than ever,” explains Dr.

Kishore Swaminathan, chief scientist

at Accenture. One reason is that

technology and market conditions

are evolving at a more rapid pace

than ever before. The challenge is

to remain at the forefront of these

changes. “In order for businesses to

keep up, they need to be innovative,”

Swaminathan says.

Globalization is another important

motivator for innovation. Dealing

with the challenges of an increas-

ingly global economy plays a big part

in determining success. Although

globalization presents opportunities,

it also heightens competition that

demands an emphasis on innovation.

“We’re seeing companies, especially

when the economy takes a downturn,

that are in big trouble because they

haven’t looked to the future in terms

of innovation to put them into the

next realm of competition,” says Dr.

Michael Goul, professor of informa-

tion systems in the W.P. Carey School

of Business at Arizona State University.

The global economy means orga-

nizations must deal with vastly differ-

ent cultures and approaches to inno-

vation. For example, Swaminathan

points out that in the U.S., mobile

phone technology has experienced

evolutionary development, starting

off with basic voice capabilities and

evolving into more sophisticated

features, such as Web browsing.

However, in developing nations the

mobile device has been a revolution-

ary technology in that many of the

people in these nations never had

even a wired phone or any access to

the Web and suddenly they have a

mobile phone with a Web browser.

“Even though some of the innova-

tions that are going on are relatively

simple, they are also really very inter-

esting,” Swaminathan says. “For exam-

ple, in India, you can book a vacation

with plane and hotel reservations

almost entirely through SMS [short

message service]. This is common in a

lot of emerging countries but is not at

all common in the U.S. or even in most

of the rest of the Western world.”

Another driver of innovation is

Web 2.0. A new generation is growing

up using Web 2.0 communities to

interact with one another virtually.

Social networking, online videos,

blogging, content sharing and other

means of Web-based communication

are a significant part of daily life for

young people, and this will affect how

they do business and interact in the

future. “Nobody really understands

what their expectations are going to

Establishing the right corporate culture is key to success. by Jackie Zack

What is the most critical factor driving success in the current competitive business

environment? The unequivocal answer among business and technology leaders is

innovation. The ability to bring new products, methods and technologies to commercial

success has the potential to generate enormous economic benefits that can give an organization a

competitive edge. Now more than ever, innovation is not an option, it’s a requirement.

Illustration b

y Do

n Bisho

p

Innovation Strategy

PAGE 1 | Teradata Magazine | December 2008 | ©2008 Teradata Corporation | AR-5800

be in the workplace or from the companies

that they buy goods and services from. This

is an interesting unknown in terms of how

the world might shape up,” Swaminathan

says. Web 2.0 will have a profound effect on

technology and the ways companies con-

duct business, and innovative organizations

will embrace that challenge.

Address obstaclesCompanies need to do much more than

develop better, less expensive products and

services than their competitors. They need

to add features, improve performance and

be able to quickly launch new products

into the marketplace. That, however, is not

always a smooth process.

One of the challenges organizations face

is what Swaminathan calls the “chicken

and egg” problem, a predicament in which

management wants to be innovative but

doesn’t want to take the risk without prior

proof of success. “Of course, in order to

prove it, somebody has to take the risk,”

Swaminathan says. “Companies that have a

risk-taking culture, or the ability to encour-

age people to take risks and not seriously

punish them if they fail, have the ability to

break the chicken-and-egg problem.”

Another cultural impediment occurs when

organizations encounter resistance while

attempting to embark on an open or external

innovation strategy—that is, one that utilizes

outside resources. Goul refers to it as the “if

it isn’t invented here, it’s no good” mentality.

“That’s a culture that you have to change if

you want to be more open to external part-

ners in your innovation strategy,” he says.

Organizations are also faced with the

“ambidextrous innovation” hurdle, or the

challenge of managing different types of

innovation concurrently. “There are many

different ways to implement and manage

innovation, and you will probably have sev-

eral types of innovation going on in your

company at the same time,” Goul explains.

For example, innovation can be internal,

or closed; external, which involves explor-

ing sources outside of the organization

(customers, competitors, academics, firms

in unrelated industries, etc.); or open,

which entails investigating both internal

and external sources for innovation proj-

ects. Going further, innovation can be:

> Incremental. Building or improving

on current products and technologies

> Architectural. Rearranging existing

components into new patterns

> Radical. Exploring new technology

Many organizations find greater success

focusing on multiple methods of innova-

tion as opposed to a single strategy. “A

business that is strictly focused on internal

innovation will miss out on what is hap-

pening elsewhere,” says Goul. “On the other

hand, if you just watch what everybody

else is doing externally, then your ability to

differentiate strategically is more difficult

because you can’t position yourself for

something that hasn’t already been in the

external environment.”

With multiple innovations emerging

simultaneously comes the challenge of

managing these different streams. Which

types of initiatives are going to be the most

important to the success of the business?

Where do we allocate resources? “That’s

really the tough issue,” says Goul. “How do

we combine the different types of innova-

tion and manage them as one big innova-

tion strategy?”

Create the right cultureWhat does it take for a company to become,

and stay, innovative? Experts agree that

the first key is creating an organizational

culture that is receptive to innovation. (See

figure.) An organization’s culture is often

viewed metaphorically as an iceberg, which

illustrates the importance of building an

approachable culture throughout the entire

enterprise. A small part of the iceberg

is immediately visible, but beneath the

ocean’s surface it extends much deeper and

can be significantly larger. In a business, the

part of the culture above the surface is the

visible culture, but looking below the sur-

face reveals the hidden culture that more

often supports, or inhibits, innovation.

“A major key to being innovative lies in

creating a culture that’s able to take risks

at all levels of the company, not just at the

Innovation-friendly organization

To be successful, an organization needs to make innovation an integral part of its vision, leadership, processes and culture.

Source: Vadim Kotelnikov, 1000 Ventures

PAGE 2 | Teradata Magazine | December 2008 | ©2008 Teradata Corporation | AR-5800

top level, but all the way to the bottom and

particularly at the middle-management

level,” says Swaminathan.

Top-level commitment is, of course, a

necessity, but some companies, such as

Accenture, have had even more success by

infiltrating information into the culture as

a long-term strategic project as opposed to

a tactical one. “Creating a culture of inno-

vation from top to bottom is going to take

a while, but it really is key,” he adds.

Creating an innovative culture also

involves hiring the right people. “Creative

people are not necessarily the easiest

people to manage, but you have to have

a culture of hiring, managing and giving

enough breathing room to creative people,”

Swaminathan says.

Establishing a high-level centralized

group that is able to make quick decisions

about innovation rather than channeling

through the regular hierarchy is another

tactic that innovative businesses use.

“Some companies have a centralized

group that keeps an eye on all the differ-

ent types of innovation and manages it

like a portfolio,” Goul says. “If you let each

innovation go its own way, you’re really not

implementing the strategy that you need

for your company in the long term.”

Swaminathan points out that in some

cases, establishing a culture of innovation

isn’t enough to get a new product out the

door. It’s important for an organization to

understand its limitations. If a new product

or service is drastically different from what

a company currently does, the best option

might be to establish a new operation to

handle the innovation. “A lot of companies

will spin it off, either as a separate company

or business unit,” he says.

Businesses also need to emphasize con-

sistent investment in research and develop-

ment to successfully fuel innovation, par-

ticularly during difficult economic times.

“You cannot cut down on that investment.

It should be a relentless, consistent invest-

ment in innovation that will pay out in the

long run,” Swaminathan explains.

Goul suggests another key is recognizing

the importance of developing and imple-

menting an innovation strategy. Businesses

need to make crucial decisions regarding

which projects to pursue based on their

value streams. One major company, for

example, purchases all of the latest com-

puter gadgets so employees can experiment

with them. For another business, however,

solutions that make its supply chain more

efficient are higher in the value stream.

Developing a strategy also involves

determining how the innovation will fit

culturally into the organization and then

how it will be assimilated into that culture.

Finally, says Goul, you have to execute the

innovation, which involves transforming

processes, assigning people to see the inno-

vation initiative through to completion and

creatively marketing it.

Embrace the futureInnovation is central to developing new

products, new services and new ways of

doing business. With our technology-driven

world and increasingly global economy, it is

becoming increasingly more difficult to dif-

ferentiate products and to keep up with new

and changing markets. Successful organiza-

tions will embrace innovation and realize it

can lead to faster growth, increased market

share and better corporate positioning. T

Jackie Zack is a freelance business, marketing

and technology writer based in Brighton, Mich.

Disruptive versus incremental innovation

I nnovations can disrupt the status quo or build on it. A disruptive innovation is the

development of a revolutionary new product or technology, an “out of the blue”

project that might not be consistent with a company’s operating model. Disruptive

innovation has the potential to transform existing markets or industries, or even create

new ones, but a high level of uncertainty, risk and cost are associated with it.

Incremental innovation does not radically change products, services, technologies

or markets. Rather, it exploits current technology by building upon and enhancing

existing products and services. “Successful companies do not succeed on a daily

basis by coming up with something completely out of the blue,” says Dr. Kishore

Swaminathan, chief scientist at Accenture. “Incremental innovation is a very gradual,

continuous improvement. It is innovation all the way from a factory worker and a fore-

man to the designers, mechanical engineers and so forth. When you add it all up, the

sum of all the grassroots innovation is actually much, much greater than the isolated

brilliant ideas.”

Dr. Michael Goul, a professor of information systems in the W.P. Carey School of

Business at Arizona State University, agrees that innovation doesn’t have to be disrup-

tive to be successful. “It reminds me of the joke: If you have a really hard job to do on

the assembly line, you put the laziest person on it because they’ll figure out how to do

it the fastest. It illustrates that even those small innovations are important, and if you

don’t capture them, you miss an opportunity.

“The pie is bigger for everyone if you have incremental innovations that allow

products and services to link together by, for example, connecting between different

platforms and making sure those connections are optimized.”

—J.Z.

PAGE 3 | Teradata Magazine | December 2008 | ©2008 Teradata Corporation | AR-5800