Incremental Innovation: A Strategy for Turbulent Times

Summary

In the current economy, everyone is locked into a mindset that freezes action and stymies the most important asset of any company: the intellectual creativity of all employees.  This article provides a brief background and insight into an approach that has had traction in over 150 companies (over 25 years) and is rooted in “Incremental Innovation,” those ideas for improvements in products (upgrades), processes and services, the “nuggets of gold,” that are waiting to be quickly mined into rich profits.  Thousands of employees have been trained and demonstrated that “all” employees can find those opportunities.  And when the process is fully endorsed by management, a new management structure is mandated.  This article points to Incremental Innovation as the basis of an overlooked alternative to long and painful turnarounds and survival.

Introduction

Despite the frenetic coverage of Congressional efforts to craft a stimulus bill, most owners and managers of businesses understand that a Federal stimulus bill won’t magically restore the American economy to vibrant health.  They know that if American industry is to regain its competitive pre-eminence and its momentum toward growth, they’re the ones who have to make it happen, for their individual companies and for the economy as a whole.  They need to stimulate demand and they’re looking for ways to incorporate the best practices of business operation into their own enterprises.  What they need much more than bailout money is clear-headed, practical guidance toward improving their operations to help them weather the current economic conditions while at the same time positioning them to maximize their growth and profitability when the business cycle again swings upward.

The overarching problem in the current economic situation is what marketers call the ‘FUD Factor’: Fear, Uncertainty and Doubt.  This downturn is unique – just like every other downturn before it – and so it presents unprecedented combinations of economic bad news.  ‘Different’ doesn’t necessarily mean ‘worse,’ but because no one has seen this exact set of circumstances before, no one knows what to expect as these circumstances play out.  The worst aspect of this fear and uncertainty is the very normal response it elicits from consumers, investors and markets: hesitancy and even paralysis.  The FUD Factor is like sand in the engine of industry, causing credit, purchasing and production to grind ever slower.

The effect on individual companies is toxic.  They’re immediately forced to address short-term survival issues such as maintaining positive cash flow and keeping operating profit at levels that not only keep the doors open through the down phase of the business cycle but also demonstrate to customers, vendors, and finance sources that those doors are likely to stay open.  The long-term survival of individual companies rests in large part in the hands of those panic-prone outside parties and partners, whose limited view of a company’s operations and situation can result in snap judgments based on faulty information – snap judgments that can lead to precipitous actions with disastrous consequences for the company and its owners, managers and employees.

Incremental Innovation Ideas - Quick and Profitable

We’ve seen this all before, over twenty-five years of assisting companies in the transformation needed to incorporate best practices and achieve increases in profitable growth. But we didn’t accomplish anything by encouraging spending lots of money on the wants and needs of every person with their hand out.  We put our creative juices into those issues that could be fixed and delivered with a High Value/Low Cost solution.  “Spend wisely” in time of crisis.  Clients have always looked at our team as the “Stimulus Gurus” who sparked excitement by getting everyone involved in these “Incremental Innovations” that radically changed their companies.  And did so very quickly.  It was amazing even to me how fast the process was when all employees got involved in the process.  I’ve written three books on the methodology we use, distilled and refined from the successes we’ve catalyzed in scores of companies.  We know from personal experience, as do the company owners, managers and employees we’ve coached, that the down phase of the business cycle presents an opportunity to strengthen a company and prepare it to vault ahead of its competition.

The method to achieving this result is incremental innovation with cumulative impact. In this context, ‘Incremental Innovation’ represents product, service or process innovation, a bottom up approach.  It taps into the latent expertise and creativity of all of the company’s workforce: it’s the workers, not the executives, who have the widest, deepest and most detailed knowledge of what new enhancements a product needs or how the company does its work of actual production, and no one job classification holds a monopoly on those creative ideas.  For incremental innovation to be effective, however, it has to winnow out from all the creative ideas just those ones that are simple, practical and capable of delivering a modest but tangible improvement in the company’s operational efficiency, cash flow, gross margins and/or responsiveness to customers.  When diligently implemented, each round of incremental innovation provides the foundation for the next round, creating a never-ending virtuous cycle.  And there’s another strange but equally valuable effect: when everyone in the company feels he or she is part of maximizing the results from the company’s work, a new management perspective pervades the company.

A New Management Paradigm Evolves

That cumulative effect of incremental innovation transforms the entire company as the culture from the executive suite to the marketing personnel to the factory floor and shipping docks shifts to an innovation-driven, efficiency-focused model.  Because I was trained as a physicist, I look at this process as a kind of quantum leap from the old state of the company to a new and more effective state.  That’s not to say that the process is instantaneous – actually, it requires that the company spend the time and energy to pass through a “meta-stable state” as it builds the virtuous cycle of incremental innovation.  But when that cycle kicks in and becomes second nature to everyone in the company, the transformation occurs, and the company becomes a clear leader in its industry by outperforming its peers in one or more key dimensions.

The process isn’t effortless, but it’s surprisingly painless and remarkably quick to the “meta-stable state”.  That’s because incremental innovation provides immediate and measurable improvements in the individual company’s cash flow and profitability.  The transformed Quantum Leap company gains an enduring advantage in its market: it’s more nimble, more profitable, better able to use price as a strategic weapon (due to better margins), and perhaps most importantly, able to utilize its entire workforce as a reliable, ongoing source of innovation.  The returns are tangible and impressive: a State of California audit of 23 small businesses that underwent this transformation identified a 3,800 percent return on total investment.  This involved: 371 ideas; $28 Million return on costs of $735,000 at 10 manufacturing, 10 distribution and 3 service companies.  Each idea was implemented in less than 8 weeks from initiation of the idea. Of the 371 ideas, 57 were “Big Ideas”: $1 Million of Value (or 1% of sales) with a 100 to 1 ROI.  The results are exactly the same in Fortune 500 companies.  For example, in a large bank, the time to close books each night was moved up by 1½ hours (a Big Idea – a really Big Idea because they had that extra time for use of funds).  

Conclusion – Focus on Hitting Singles

Beyond the value to individual companies, imagine the benefit to the American economy as a whole.  As more and more companies undergo this type of transformation, the pressure on their peers to improve and innovate will increase, and that will lead to an increase in productivity for the entire economy.  Indeed, the more U.S. companies that make that quantum leap, the more the U.S. will reclaim places in the ranks of world-leading companies in each industry.
There’s no “don’t try this at home” disclaimer here.  Every American business can and should engage in the process of incremental innovation. It isn’t sexy but you can start by learning to leverage the expertise and creativity of your company’s entire workforce – everyone, at all levels.  Don’t look for a grand slam out of each idea, suggestion or project, but instead concentrate on producing a steady stream of solid line-drive singles.  You can create your own methodology for incremental innovation, or you can accelerate the process by engaging expert help to coach you and your team in the relevant skills and practices.  The sooner you start and the more expertise you bring to bear on the effort, the quicker you’ll reach the goal of transforming into a Quantum Leap company – and the faster you’ll banish Fear, Uncertainty and Doubt from your business future.  Leonard Bertain Ph.D. is the owner of Corporate Innovation in Oakland, CA (You may copy a pdf version of this below)  len@bertain.com