These authors, who are academics and consultants, believe that innovation requires radical change and a new vision, one that integrates the marketing, engineering and industrial design attributes necessary to succeed in the New Economy. Your company must first recognize the need to base inventions on marketplace needs, which may in turn call for a very different company structure than exists today.

Your company is lean and competitive. It has gone offshore, downsized and followed all the rules for responsible management. Still, your growth projections are flat, and profits are not growing at an acceptable rate. Your main competitor always seems to be one step ahead in controlling costs, although he is going broke in the process. If you match his most recent price move, you’ll be gone in six months.

Join the “Quality as Commodity Club” — a rapidly growing group whose members continue to hone the more measurable parts of the profit equation: controlling costs, optimizing inventory, streamlining distribution systems. While these organizations realize that innovation is an option, the metrics — those tried-and-true methods of quantitative analysis — aren’t there to chart their course.

Quality improvement, in the form of programs such as Six Sigma and “lean” manufacturing, was the mantra of the 1990s, as North American companies struggled to head off competition from Japan. For those companies that were successful in perfecting their products and services, higher quality brought higher costs, but it also brought customers who were willing to pay more for the quality they couldn’t get elsewhere.

A decade later, product quality has improved to such an extent that it is now a commodity — something that every company must deliver to stay in business, but that no longer provides a competitive advantage. Manufacturers in Korea, Taiwan, Hong Kong and mainland China have joined Japan in competing successfully with the West under the banner of quality. In our consulting work, we are witnessing a transition to offshore manufacturing for reasons of quality and capabilities as much as for cost. Now that quality manufacturing is a business staple, companies can no longer survive on their quality differential alone, and their higher costs have become unaffordable.

While many North American companies had viewed offshore production as a short-term solution to reduce costs, chances are that much of this business will never return home. The manufacture of military and defense commodities will of course continue to take place onshore. And there are ongoing initiatives to find a use for the many small machine shops left sitting idle when production moved to Asia countries. At the Doyle Center for Manufacturing in Pittsburgh, for example, efforts are under way to develop virtual manufacturing systems so that parts and systems work can be farmed out to onshore manufacturers capable of “just in time” delivery at less cost. Still, these initiatives to keep parts manufacture or assembly at home hold no competitive advantage because their quality capabilities are now standard fare.

For companies in the U.S. and abroad, the answer to the profitability dilemma and the new mandate for business in the 21st century is the same: innovation. While there is a consensus that the solution lies in innovation, few companies understand how to go about it. This article will help managers understand how to meet this new imperative.

Innovation requires new thinking

Although innovation is occasionally serendipitous, innovation can be planned; it can be a result of a rigorous, disciplined process. (See The Design of Things to Come; How Ordinary People Create Extraordinary Products, by C. Vogel, J. Cagan and P. Boatwright; Wharton School Press, 2005.) Innovation does not remove the need for quality; rather, it assures that quality-made products yield their own differentiated market and unique source of revenues, safe from competitive replication.

Although company culture and mindset is an important foundation for successful innovation, the challenge is to develop a method to identify and develop a truly innovative product. Some of the most influential companies today employ such methodology, enabling everyday people to succeed in new product and service development.

We have worked together as a team in studying innovative companies, and in teaching the process of innovation. We believe this process requires a new vision — one that integrates the marketing, engineering and industrial design attributes necessary to succeed in the New Economy. We offer the following concepts to help you achieve change in your company:

  • Concept 1: Remind everyone that innovation is not an option; it is a necessity. If your company is not innovating, it can only defend the past; it will become superfluous. Develop a pragmatic approach to innovation. The first step is toconsider how the marketplace defines innovation.
  • Concept 2: Help the people in your company to recognize that innovation isn’t about a leap in technology; it is about a leap in consumer value. Marketplace success isn’t about what is going on inside your company’s R&D lab; it’s about what is going on in the daily lives of your customers. Cyrus McCormick was just one of many inventors of the harvesting machine, but his success was not due to harvesting machines but to his invention of a system of installment payments for the farmers. Your company must first recognize the need to base inventions on marketplace needs, which may in turn call for a very different company structure than exists today.
  • Concept 3: Innovation is not a two-day workshop to empower your employees, nor is it simply another business tool to add to your current set of business practices. Adopting a true innovation mindset is not easy, partly because everyone has to participate. From finance to product design, from engineering to sales, everyone has to be committed to developing a unique value proposition that customers find useful, useable and desirable. Innovation requires systematic change at all levels of the company, and it often means changing how decisions aremade.
  • Concept 4: Innovation is worth restructuring for good reason: it leads to valued product and service differentiation, which leads to a clear brand identity, which drives corporate strategy from top to bottom. As Motorola’s CEO, Ed Zander, says: “The Razr has actually had more impact on the company inside than outside. It has galvanized us to accept nothing less than ‘Wow.’ ” (BusinessWeek, August 2005). Importantly, innovation helps a company to separate from the competition by clarifying what it provides, rather than how little it charges for services and products. The clearer and more insightful the innovation, the more a company can charge and the greater the profit per item.
  • Concept 5: You do not have to please all of the people all of the time, but you have to create a loyal base and build on it. A product with emotional appeal for a segment of the market is preferable to one that is bland and has no emotional impact on the market in general. The King Ranch version of Ford’s F-150 has seats made from saddle leather. No two seats are identical in look, and owners are responsible for treating the leather as they would a saddle. Ford produces only 20,000 of the King Ranch vehicles each year, but they enrich the company’s brand equity and satisfy a consumer segment willing to pay premium prices. When your company delivers the appropriate product to target customers, they will line up to pay you. Although customers may not have realized they needed your innovative product until they saw it, now they can’t think of an alternative.
  • Concept 6: There is an array of organizations and consultants that help organizations develop innovative products and services; more importantly, they can help to change how organization does business. Universities that have programs on product development can also be a source of assistance in understanding innovation. Companies that sponsor Carnegie Mellon’s integrated product development studies, for instance, have derived patented product ideas from the course, and have learned successful innovation methods that have influenced the company’s strategy, structure and vision.

Understanding and applying these concepts will help managers develop a culture of innovation. More importantly, they will help them create new products that respond to what customers are looking for and succeed in the marketplace.