Innovation: Getting beyond the breakthrough

Corporations need to stop looking for the silver bullet...

Takeaway from the Deloitte’s Shift Index report (refer post dated September 29, 2009) as per the Blog Posted by Stephanie N. Mehta, Assistant managing editor, FORTUNE -

New research by the Deloitte Center for the Edge, part of tax and consulting firm Deloitte, paints an ominous picture: The return on assets for U.S. firms has fallen to almost a quarter of 1965 levels despite continued improvements in labor productivity.

And according to John Hagel III, co-chair of the center and one of the study's authors, the declines are taking place in all sectors of business — not just in maturing corporations. "The bottom line," he tells Fortune, "is that in every industry there has been erosion of return on assets."

Hagel and his fellow researchers are in the process of writing a follow-up study that will offer some detailed prescriptions for reversing the trend, but he shared some early insights with us. Two of his observations in particular stood out: 1) He says corporations need to move away from the idea of breakthrough innovation and 2) companies need to find a way to harness new kinds of information flows.

Hagel contends that U.S. companies' innovation efforts tend to focus on home runs — big, honking inventions that can, out of the gate, produce hundreds of millions of dollars in revenue and transform entire industries. In other words, products such as Apple's iPod.

But Hagel is fond of pointing out that even the iPod wasn't exactly an overnight breakthrough for Apple. Rather, he notes, the device has its roots in a company called PortalPlayer, which had been developing an operating system for digital music players for several years before it ultimately teamed with Apple on the iPod.

He offers one explanation for the home-run oriented mindset: 20th century corporations have operating and cost structures that need their products and innovations to succeed at a large scale, and so there's great pressure to produce big breakthroughs.

But Hagel feels a shift to high-velocity but smaller breakthroughs may ultimately produce the same result: "We tend to underestimate the value of rapid, incremental innovations, which actually begin to look like breakthroughs over time," he suggests.

New source of information

Hagel's other prescription — culling information from new and different sources –also calls for a shift in corporate thinking.

Deloitte's study, "The 2009 Shift Index," is actually a look at three different indices that help measure business change. The "flow index" is an effort to capture the value of so-called knowledge flows – information flowing into and out of the organization.

Hagel maintains that companies tend to be focused on internal and adjacent flows: information from within their organization, and knowledge gleaned from those closest to the company, such as suppliers and customers.

But to stay competitive, U.S. companies are going to have to adopt new ways of gathering information – a big shift that will itself require companies to innovate. For example, companies are simply going to have to figure out what information is valuable to track, and which flows are not helpful, Hagel says.

Hagel has done extensive work with Indian and Chinese organizations, and he believes U.S. executives can learn from the way companies in these emerging markets operate. He points to Chinese conglomerate Li & Fung Group as an example of a company that effectively tracks and applies knowledge from a variety of sources.

One of Li & Fung's businesses is garment manufacturing. Rather than act as an integrated one-stop-shop for its retail customers, Li & Fung uses multiple contractors who come together for certain projects, then disband after the task is completed.

By tapping into its various contractors – including those who aren't currently employed on a job – the company is able to get perhaps a more complete view of the world than competitors who only listen to direct suppliers.

When Li & Fung launched in the 70s, Hagel says, it gleaned knowledge from, say, materials manufacturers, and passed that information on to its apparel designer customers.

Today, Hagel says, companies have to rethink the way they gather information – and from where – in order to tap all the most important direct and indirect sources of information.

But they probably don't need a breakthrough innovation to do it.

Deloitte's Shift Index

Here is a link to a very detailed report titled "Measuring the shift of long-term change" that was produced by the Deloitte Center for the Edge - and written by John Hagel, John Seely Brown and Lang Davison. This document details Deloitte's Shift Index that includes three indices and 25 metrics designed to make longer-term performance trends more relevant and actionable:

http://www.deloitte.com/dtt/cda/doc/content/us_tmt_ce_ShiftIndex_0620092_1344(3).pdf

The document presents in great detail three waves of deep change resulting in “Big Shift” – Foundation Wave, Flow Wave and Impact Wave...

Traits of Best-In-Class ERP Implementations...

Based on an elaborate survey, Panorama Consulting group had published 2008 ERP Report. As per this report, just 57% of respondents are either very satisfied or fairly satisfied with their ERP systems. The others (43%) are either fairly dissatisfied, very dissatisfied, or not sure. Many organizations assume that this success or failure is attributed to the software itself, but our findings indicate that project success is largely attributed to the strategy and actions of the project team implementing the software.
Here are the key critical success factors observed in best-in-class ERP implementations, as per the Report:
1. Focus on business processes and requirements first. Too often, companies get tied up in the technical capabilities or platforms that a particular software system can support. More important are the identification of key business requirements and the proper alignment of software with business operations. Once these needs are defined, organizations can more effectively choose the software that fits its unique business needs and implement it in a way that does not require extensive customization.

2. Focus on achieving a healthy ERP ROI, including post-implementation performance measurement. This requires more than just developing a high-level business case to solicit approval from upper management or a board of directors. It also entails establishing key performance measures, setting baselines and targets for those measures, and tracking performance after go-live. This is the only way to truly realize the benefit potential and success of ERP software.

3. Commit strong project management and resources to the project. At the end of the day, a company implementing ERP owns the success or failure of the implementation, which should be managed accordingly. Whether positive or negative, these results must be managed accordingly by a team that includes a strong project manager and other “A-players” from several departments at the company.

4. Gain commitment from company executives. Any project without support from its top management will fail. Support from a CIO or IT director alone is not enough. No matter how well executed a project may be, obstacles will arise during the implementation. The entire executive staff needs to be involved to resolve issues as they occur.

5. Take time to plan up front. Companies must not jump right into a project without validating business requirements or the implementation project plan. The more time is spent ensuring these things are done right at the beginning of the project, the less time is spent fixing problems later. This also ensures that an organization has selected an ERP solution that is
well aligned with its business needs.

6. Focus on data. Data and re-engineered business processes deliver the benefits realization companies should need and expect. Many companies implement ERP systems because their ability to manage data has been greatly diminished by the confusion of redundant, invisible, and meaningless data spread across multiple systems. Businesses who understand this invest heavily in data cleansing, mapping, migration and verification.

7. Ensure adequate training and change management. ERP systems bring enormous changes to employees. The system - no matter how advanced - will prove to be ineffective if the staff does not understand how to use it. A focus on training, organizational change management,
job design, and other employee support measures is crucial to any ERP project.

8. Understand the purpose of ERP. Even if competitors are using cutting edge ERP solutions, it is more important for organizations to clearly define their purpose and requirements before moving forward with a new system. Otherwise, the technology is unlikely to be aligned with the company’s business needs.

Why Companies seek new ERP Software?

SYSPRO, has announced the results of a survey covering the enterprise applications investment strategies and

adoption trends of 250 mid-market manufacturing and distribution companies.

IDC, a leading provider of global IT research and advice, conducted the survey during the first quarter of 2008. 

The survey found firm evidence of growing dissatisfaction with currently installed enterprise resource planning (ERP)

solutions, which respondents say are lacking the business process  requirements and cost controls needed in today's

economic environment. Nearly a quarter of those surveyed said their dissatisfaction with their current solution capabilities

had moved from 17% dissatisfied to 25% dissatisfied, between the fourth quarter of 2007 and the first quarter of 2008.

When asked to describe their current business culture as it applies to technology buying behavior, most (38%) of these

mid-market respondents described their culture as "pragmatic, yet visionary." This was in contrast to cultures

that were more aggressive or more conservative in their buying behavior.

The following reasons companies gave for seeking new ERP software are ranked according to the percentage of companies citing them:

Ø       Process improvement (26%)

Ø       Cost reduction (17%)

Ø       Lean manufacturing functionality (12%)

Ø       Better inventory control (10%)

Ø       Enhanced distribution functionality (9%)

Ø       Additional financial functionality (7%)

Ø       System scalability (6%)

Ø       Compliance/regulatory requirements (6%)

Ø       Interoperability with disparate systems (3%)

Ø       Additional analytics/reporting functionality (3%)

Survey results also indicate that 70% of the respondents are demanding

configurations that meet their industry specific requirements.