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.