What’s the secret to a successful handoff? Trick question—there’s no such thing as a good handoff when it comes to innovation, says Ram Charan. Rather, the key to turning an idea into a business success is to gather all players around the table from the beginning. In his new book, The Game-Changer: How you Can Drive Revenue and Profit Growth, Charan and co-author A.G. Lafley, chairman and CEO of Procter &Gamble, lay out a process for systematic innovation -- the very thing that has turned P&G into an innovation powerhouse. Charan is one of the most influential corporate consultants in the world, a man so at home in the C-suites that he literally has no real home and spends 365 days a year in jets and hotels. Here, Charan talks about why innovation must be a social process, why linear handoffs are a recipe for failure, why you should be ruthless about killing ideas, and why successful companies of tomorrow will go horizontal.
You contend that innovation is a social process and that innovation failure is less often a matter of bad ideas and more often a result of failing to make the right connections. What do you mean?
Let me explain some simple things. First, as Thomas Edison said, an idea is called invention. Converting an idea into revenues and profits or something a customer uses is innovation. Today, in the Internet society, you can buy ideas. You can have ideas flow to you from outside your department and outside your company. Innovation is selecting an idea and converting it to the production of a product, service, or new business model that creates growth and profit. The conversion of an idea for most companies, if not all, requires more than one person to make it happen. And that is why it is a social process.
Do people often underestimate the social aspect?
We know people have not framed the process of innovation this way at all. But some companies have been doing it—Procter & Gamble, Lego, Honeywell, Nokia.
You also emphasize the necessity of killing ideas. How do you decide which ones to kill?
A company will have several ideas in the pipeline. It’s not just one idea; you have a portfolio of ideas. Some ideas will give you incremental benefit, some will give you medium-sized benefits, and some ideas are very risky and will be breakthroughs if you succeed. First you look at the whole portfolio and you prioritize it. Some things fall in the bottom priority. That’s the time you know you have to kill it because you don’t have resources.
So don’t look at ideas individually when deciding which ones to eliminate?
If you look at one idea alone it’s very difficult to do. If you have a portfolio of ideas and create priority one, priority two, and priority three, then you see the bottom has to go. That’s the approach. But if you take one idea, it’s going to be almost impossible to kill.
Is killing ideas integral to innovation?
Yes, because the success rate of innovation is not going to be 100 percent. If it’s 100 percent, you’re taking no risks.
What’s a good percentage of success?
It depends. We have laid out the social process. In that process, when you select an idea you’ve got to do prototyping and engage the consumer right away. By doing that, you reduce risk. If you do these kinds of things we related in the book, you have an increasing success ratio. At Proctor & Gamble, the success ratio has gone from 25 percent to 55 percent and the industry average is 15 to 20.
Does killing an idea mean it’s gone forever?
Now, when we say kill the idea, it does not really mean kill the idea. You could go and give it to somebody else and take a portion of equity. You can even go to a competitor, as P&G has done.
You talk about the mistake of one team throwing an idea over the wall, say from technology to marketing. How can a bad handoff doom a good idea?
We are saying do these things simultaneously and not linearly. You have marketing and product development and engineering people sitting together as one team, total immersion. When multiple disciplines sit together, they see the total picture, isolate the major hurdles, and work together to solve the problems. The principle of working simultaneously is huge in making breakthroughs in innovation. Any handoff linearly is going to reduce your success. On the automobile business there’s a handoff from marketing, design, engineering to suppliers -- it takes a long time. But you go to Toyota, they do it simultaneously and they do it faster.
The American auto companies follow the linear process?
I don’t want to name them, but they do. That’s why those guys are not succeeding. Any handoff linearly is going to increase your cycle time, and you’re going to run into problems.
How is the social architecture of companies changing to get away from this?
Necessity is the mother of invention. Those companies that are not getting top line growth organically, they are absolutely pressed to figure out how to create these collaborative changes for innovation. This is the era of the renaissance of innovation. If you don’t do innovation, cost cutting is not enough. You will be left behind.
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Recent Comments | 16 Total
June 2, 2008 at 12:26pm by Chelsea McCarthy
Great ideas/thoughts on the meaning of innovation and risk taking! I really enjoyed the article as it puts a lot ideals into perspective. Innovation really is a social process and the companies that continue to provide linear hand-offs will fall behind. It seems that the social process starts organically with small companies but as they grow into larger corporations it becomes harder to keep up with.
June 3, 2008 at 3:22pm by Christopher Scherer
The one line that really hits home with me is the failure statistics. If your not failing and your rolling out 100% successes then your not taking risks! I have worked for companies that had huge success rates for new products, but we were not truly innovative, just safe. I will certainly check out the book too.
-Peace
June 3, 2008 at 7:10pm by John Riley
This was a fantastic interview. Ram's ideas are insightful, succint and practical. The social process of converting an idea in to a product or service and then creating profits from it is fascinating.
June 4, 2008 at 10:47am by Sarah Doody
I agree that innovation is truly a social process. By having multiple disciplines involved early on, you are able to identify and solve problems far more effectively - and as a result, get to market faster. However, the challenge with this idea of social innovation lies in finding the balance for the group to focus on one or two key ideas and have a strong leader who knows when you hit what I'd call "idea creep - when excess ideas need to be killed.
June 10, 2008 at 4:56pm by John Agno
An idea killer is the "not invented here" bug.
Many critical thinkers in industry consider themselves the best source of new ideas and this "aura of excellence," if not checked, can allow arrogance to lead to a not-invented-here resentment of ideas emerging from outside the organization.
When you are leading a costly research organization where blockbuster innovation matters in today's global economy, you can't afford to be blinded to new concepts from outside the walls of your enterprise. Such is the case in the pharmaceutical industry where blockbuster products generate global sales in excess of one billion dollars a year.
As leaders embrace innovation, along with flexibility to find and apply the best minds to the research project from both the outside and inside, they begin to break down the walls of arrogance and not-invented-here mentality within the enterprise. A more entrepreneurial culture emerges where people feel more comfortable sharing knowledge and building social capital in order to improve the productivity of the organization.
June 10, 2008 at 6:22pm by paul sloane
He is right. Innovation is a social process which must be in everyone's objectives. Taking a portfolio approach to new projects and killing the weakest contenders are two keys to successful innovation.
June 11, 2008 at 1:38pm by Jay Tatum
I appreciate Ram's perspective and its great to finally see synergism working its magic. For years industry leaders who were LEADERS recognized the need to bring together the social captial that moves ideas to the innovation stage in making them profitable. The process, though, is not really all that new - it's been around a couple of thousand years. The real joy in hearing Ram discuss it is that he expresses it with such compassion and energy that continuing to do business linearly leaves one wanting.
ON the flip side of this great article is the wisdom of a very talented interviewer asking different questions that we typical don't find asked. Sometimes the questions being asked are as important as the answers and I think Kermit Pattison should be praised for going beyond the frey of the topic and engaging Ram's integrity. Well done, Kermit!
June 11, 2008 at 4:44pm by Russ Hoffman
One might refer to this as "suspending the personal ego" in favor to enabling the "group ego". A skilled facillitator should be able to identify gains for each individual so that they might easily participate in the matrix.
June 17, 2008 at 12:32pm by Tony Ripley
I'll have to admit that when I saw Lego as a referenced company that effectively works their ideas; I knew that Ram Charan was indeed dedicated to innovation and leadership. He is looking at ALL businesses that produce goods and services. Too often some companies get second tier treatment for being a "toy" company or maybe just a publisher of "comics". For instance, it seems to me like Marvel had a lot of different contingents sitting around the table when someone allowed then to think beyond the published page.
I am starting what I hope to be an innovative approach for gaming enthusiasts through the Gamealogical Institute (it’s a website). There used to be great anticipation when going into town to see what was new at the store. Today, this anticipation can be both satisfied and whetted on a nearly constant basis through the internet; stores are virtual and their “inventory” and “displays” can change in an instant. If your product of service will have any involvement with the internet, you will have a very large contingent that needs to be accounted for at the development table.
June 18, 2008 at 3:51pm by Salem Honey
Great little interview.
I would completely agree on the social process. Especially within different departments. Getting multiple departments (marketing, design, accounting) with the various ways their minds work at their own specific function to work on a singular goal, you can find some great innovation out of the strangest places.
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