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February 5, 2013

Do You Really Need to Innovate?

In this exclusive book excerpt, William Duggan, a Chazen senior scholar, argues that sometimes, doing the same old thing is the best course of action.

William Duggan

Not all problems call for an innovation. Perhaps what you’re already doing is fine and still works for the situation you will face in the foreseeable future. In that case, you don’t need creative strategy. But those cases are rare. The business world changes fast, so if you think your current strategy needs no changes at all next year, or the next, you’re probably prey to wishful thinking.

Most companies recognize this. They might not think they need an innovation, but they still look to the future in a variety of ways. They might ask for an evaluation, a feasibility study, a marketing report, or some other systematic review before they begin formal planning for all or part of their enterprise.

But often the company does know that they need an innovation: they recognize that they have a problem they don’t know how to solve. They are not always able to state the problem clearly, though, and sometimes they pick the wrong problem.

The question of where you need to innovate is not always easy to answer. Choosing a target — increase performance and decrease costs by 20 percent, let’s say — does not identify a creative problem. If you can meet these targets by working harder or hiring more people or expanding to new territory, then you don’t need an innovation. You just do more of what you’re already doing.

When Creative Strategy Won’t Cut It

Here’s an example where a problem statement did not call for an innovation. An executive came to me and said, “I have a great project idea but I’ve never sought funding before — I’m going to use creative strategy to find out how to fund it.” Well, not necessarily. There is plenty of existing expertise about project funding. This executive might simply need to find someone who has that expertise, or read up on the subject. But if it’s such an unusual project that there is no precedent for funding something like it, you need an innovation. That’s where creative strategy comes in. You would identify the unusual characteristics of the project — call them X, Y, and Z — and then state your innovation problem like this: “Innovate in funding an unusual project with the unusual characteristics of X, Y, and Z.”

Here’s another example. Two executives came to see me from a big financial services company. It had grown successfully in its home market, Japan, and then spread into the rest of Asia. At first glance, this is not an innovation problem: your expansion to East Asia worked, now do the same thing in the next regions you target.

What’s the problem?

When I asked that question, the executives shook their heads. They replied, “Our company has a strong Japanese business culture. Across East Asia, the business culture is similar. In the rest of the world, it’s not.” So far they were able to expand organically: set up a local office with some headquarters staff and then hire locals too. And they could expand through acquisition as well: buy a local firm and add some headquarters staff.

But when they tried to set up a local office outside East Asia, their headquarters staff did not know enough about the local business culture to fit in. And locals did not want to work for a Japanese company for cultural reasons, including lower pay.

The Innovation Solution

The executives were stuck.“We’ve already missed our three-year targets.”

Now we’re talking. They need an innovation.

If you start your strategy with setting financial targets, you’re really saying, “our strategic idea is to do more of what we’re already doing.” So step one for them is: throw out the three-year targets. Rephrase the problem statement to something like this: “Expand quickly into global markets while keeping key parts of Japanese business culture intact in each office.” For this, they need an innovation. If they end up with a good idea, they can then estimate what targets they will hit and at what pace.

Over the past decade or so, more and more companies have turned their attention to innovation. Their efforts take various organizational forms. You find chief innovation officers, innovation councils, innovations funds, incubators, greenhouses, and many other new structures or procedures to stimulate or support new product or business ideas. But beware — don’t get too organized. Don’t develop “metrics” beforehand to judge which ideas to pursue or approve.

Excerpted from Creative Strategy: A Guide for Innovation by William Duggan. Copyright © 2013 William Duggan. Used by arrangement with the Columbia University Press. All rights reserved.

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