Think Tank

According to Tony Blair, the next century will be dominated by brains not brawn. Innovation, creativity and out-of-the-box thinking were the buzzwords of the late Nineties, and businesses in all sectors were being urged to innovate or die. But it’s nothing new – Francis Bacon may have known nothing of business-speak or management theory, but he was writing about the need for innovation back in 1625.

However, more and more client companies are jumping on the bandwagon, says Matt Marsh, a designer at product development company Ideo. “Innovation is currently an extremely over-used term. Chief executives go into board meetings and say we must become more innovative, and then it falls to some poor sucker to attempt to put it into practice.”

Helen Cohen, head of invention at consultancy What If, agrees: “Chairmen and CEOs regularly extol the virtues of innovation, and for shareholders it’s a message that falls on eager ears. What’s missing in most cases is the practical follow through. Companies keep talking about ‘why we need it’ without asking ‘how are we going to do it?'”

Innovation and creativity, she says, are not interchangeable terms. “By our definition, creativity only becomes innovation when ideas become useful. In business, that means when a new product or service is launched or starts to make money. Creativity is a behaviour; innovation is a process,” she maintains.

Some client companies are attempting to stimulate corporate creativity and manage the innovation process by appointing a director of innovation. As Dorothy Mackenzie, founder of Dragon International, says, “There do seem to be more heads of innovation, managers of new ideas or creativity stimulators – call them what you will – at client companies because creativity is seen less as a new product development function and now in terms of organisational shift.”

Simon Avison of New Solutions agrees: “There are more clients and consultants out there with the word innovation in their title, and that is because there is a definite move towards the development of new products, rather than just line extensions.”

In the past, a head of innovation would have been someone in research and development at a multinational with a PhD, according to Richard Watson of agency selection service GDR. “Now the term is applied not just to new-product development, but also to the people in charge of cultural change within an organisation,” he says. And although many companies claim to be innovative, in practice many of them don’t put sufficient resources behind innovative ideas.

Many blue chip companies will not discuss their innovation strategies for fear of their competitors discovering what they are up to. However, telephone bank First Direct is in the process of appointing someone to the role, J Sainsbury has a number of innovation teams in place, and Boots the Chemists recently promoted Harvey Homan, director of new product development, to the newly-created post of director of innovation.

Boots has been fairly active in developing new products and services such as its opticians, chiropody and dentistry departments, as well as health and travel insurance. But a spokesman for the company says it had decided it was time to appoint a director responsible for looking at innovation across the whole organisation and to accelerate the pace of change.

Homan is responsible for three areas: “the customer offer”, management processes and corporate culture. “[My role] is to ensure that the company has the resources, environment and technology to support a flow of new ideas to grow Boots’ businesses. While encouraging home-grown initiatives, Boots will also be stepping up its activity to attract new ideas from outside the company,” he says.

This includes the development of the Ruby and Millie brand of cosmetics, which was brought to Boots by a couple of young entrepreneurs. Boots will now have sole rights to distribute the product, which is seen as a “funky” alternative to the Boots No 7 range.

Clients such as Boots, which are trying to become more innovative, do so because it affects the bottom line, says Tony Martin, head of innovation at Barclays Bank. “We have carried out research which indicates that 64 per cent of companies defined as innovative expect their trading prospects to improve, compared with 39 per cent of those classed as non innovative,” he says.

Marsh at Ideo says client companies which are focusing on innovation do so for three different reasons. The first is because they are trying to change the culture of the organisation to make it more entrepreneurial and competitive. The second is because they are in mature markets and have tried everything else, but the problem is that they are offering pretty much the same products and services as their rivals. “These are companies which are looking for new ways of improving the customer’s experience,” he says. And finally, there are those companies which are watching their sales fall and have to do something to increase shareholder value. “All three are very good reasons to innovate,” he says. “We have been working with Kodak to find out where it fits in with a world which is moving to digital imaging when it makes rolls and rolls of film. We’re looking at the implications for its products and services.”

However, innovation isn’t easy. Watson at GDR says, “There is little real innovation out there. Some design groups talk about line extensions as innovation and it simply is not.”

He says J Sainsbury, for example, has done little that is innovative in the last decade. “Loyalty cards are not really innovative. Real innovation is something like Dixons Freeserve, which changed the nature of Internet service provision.”

What If has just published a book on innovation called How to Start a Creative Revolution at Work. When it asked clients how many of the new ideas they generate that their competitors have also come up with, the answer is 80 to 100 per cent.

“You see this in almost any category of product or service; companies launching similar initiatives at similar times. So much of what is expected to be step-change innovation is little more than another ride on the merry-go-round of incrementalisation,” reads the book.

Management consultant Ernst & Young has recently carried out research into innovation and new-product development in the fmcg sector, and its findings make depressing reading. “Our research shows that it is not enough just to spend large amounts on product or service innovation,” says Ernst & Young partner Paul Mullis. “While companies are investing heavily in new product development, they are failing to deliver the right products to market in an efficient and timely manner.”

He says companies spend between 8 and 16 per cent of net revenues on innovation, but within 12 months of launch, 65 per cent of new products fail. Only 2.2 per cent of all new products are actually new, of which 43 per cent are dead within a year. Just over 6 per cent are line extensions – half fail in a year and 77 per cent are me-toos and have the highest mortality rate.

“Pursuing innovation costs money and involves risk and hard work,” adds Mullis, “The company must solve a list of problems which arise during the development process and after launch period. Successful launches are all the more remarkable given the increasing demands on shelf space, the competition from others and the difficulty finding a true niche market.”

According to Ernst & Young, if an innovative new product is to succeed then the manufacturers must work much more closely with retailers. “In an increasingly fast-moving world, manufacturers who successfully launch new products are the ones who are establishing greater links with retailers in order to keep up with the ever changing demands of the 1990s consumer,” says Mullis.

If innovation is to flourish in client companies and also within the design groups working with them, then organisations have to make some fundamental changes, according to research commissioned by Elmwood. Consultancy director Paul Middlebrook says many British companies have corporate structures which stifle creativity and innovation. “We have a culture which is not idea friendly. Too many managers in packaged goods companies and other brand-owning manufacturers appear scared of allowing creativity free rein – indeed, some appear scared of allowing it at all,” he says. He adds that the research carried out by a National Opinion Poll shows that one in four of the working population believes that they are not listened to by their superiors when they suggest an idea.

Middlebrook argues that companies need to break down the barriers that stifle creativity and thus innovation. “Deaf ears are the death of ideas,” he says, and companies which fail to innovate will be left behind. Or as Francis Bacon neatly put it: “He who will not apply new remedies must expect new evils.”

What If’s How to Start a Creative Revolution at Work is by Dave Allan, Matt Kingdon, Kris Murrin and Daz Rudkin. It is published by Capstone at £12.99