I’ve been thinking about innovation a great deal lately and am fascinated by how many people confuse two different kinds of innovation.
The two different kinds of innovation are:
- continuous improvement – the drive for operational excellence, which is driven by optimising existing business processes and products (in the Six Sigma world the DMAIC approach is used for this kind of change)
- step-change innovation – creating new ways of thinking, new products and new ways of doing things (in the Six Sigma world the DMADV or DFSS approach is used for this kind of change)
It often seems that the revenue and cost impacts of these two different kinds of innovation is little understood.
The former, optimisation, generally has the effect of reducing costs. This is an admirable thing and is always worth doing.
However, I sometimes think that we are in danger of optimising the customer service and humanity completely out of our business operations by focusing so much on cost out initiatives.
The second kind, step-change innovation, is more focused on new revenue opportunities. This is the lifeblood of any business, it is not sustainable to keep taking costs out of the business and merely optimising the existing business and products.
Sustaining innovation within existing businesses is hard. Academics have been researching for years seeking the secret sauce of innovation so that we can pour it into our businesses and succeed according to some formula.
But it is not that easy. Innovation is hard. I’ve done it from inside of large organisations. New ideas are difficult to achieve consensus upon. New products are hard to bring to birth when everyone is already doing well with the existing products. It is hard to get people to buy into change unless there is a substantial reason to get their attention.
Everyone is usually running hard to keep up and to meet the current KPIs and the last thing they need is some crazy innovator trying to stop them from getting business as usual done.
Innovation is risky and entails the possibility of failure. It is important to ask ourselves how we can make this risky business of innovation work for our particular organisation. A key factor is how failures are treated. Another important factor is allowing some time out of normal business to build the innovation idea into reality.
In my experience innovation within a successful existing business is only possible with the help, protection and support of highly engaged senior executives. Every time I’ve tried it without this type of support it’s been almost impossible to survive the political tension between innovation, business as usual and meeting existing KPIs.
However, there is one certain thing. Operational excellence and continuous improvement are not the way to grow a business. But they are a great idea for freeing up some funds to invest in step-change innovation that creates new business models and new products. Thus it is important for an organisation to make space for both kinds of innovation.