Saturday 7 March 2009

Here’s an idea – Get involved!


They can be a powerful thing.

Many of the fastest growing companies are based around an idea and the innovators who had it.

Take Innocent Drinks – a company famously setup by three individuals who were passionate about their idea for a smoothie made with fresh, natural ingredients. They came from nowhere in 1999 to almost single handedly create and then dominate the market for smoothies in the UK. Nine years on though and all is not rosy with Innocent - sales are down by 20% as competition increases in the smoothie market and customers trade down. Innocent's answer to this would appear to be to innovate – whether it's their flavoured water brand "This Water" or their new Veg Pots (think a Pot Noodle for the 21st century with 3 of your 5 a day veg!). There have been comments about whether this will actually work for them as a brand, but if they don't innovate they will always be at the whim of an ever more competitive market.

This is actually a problem for many companies as they switch from business innovator to business as usual. The company can become stale with the original innovators moving on and "managers" moving in - the product or service meanwhile goes through the normal cycle - moving through the growth stage when everyone is happy with profits and market share is maximised, then the maturity stage with competition increasing and profits/prices declining.

Companies can go one of two ways at this stage – they can lift their heads upwards and look ahead, essentially innovating (as Innocent has), or they can look down and gaze at the navel that is EBITDA (essentially how do we cut costs). Now don't get me wrong, a company won't last long if it isn't profitable, but a short term myopic focus on only the bottom line at the exclusion of investment in the future is a recipe for disaster – and this investment doesn't have to be a lot of money.

As James Gardner, Head of Innovation at LTSB says in his latest blog post when discussing the five key considerations for a company starting an innovation team – #1 Make sure you have money - #2 Make sure you don't have too much money. He goes on to say "if you get a big amount of money, you need to create a big return. But most truly interesting innovations don't generate big returns at the start. Certainly not the sort that make them the most attractive investments in the short term. Ergo, the money gets taken away again".

The take-away here though is "make sure you have money". I've seen a number of companies with Ideas schemes which purport to be a way of driving grassroots innovation whereas in reality they are simply programmes for identifying cost savings (that focus on EBITDA again) rather than truly focusing on new ideas (and the requisite budget this demands).

James really does put his money where his mouth is though. In looking at how to involve employees in the ideation process, they have created an innovation programme which both involves and engages the employees. Entitled "Innovation Market", they developed a stock market style solution for the submission and valuation of ideas. Based on the principles of the Wisdom of Crowdswhere the many are smarter than the few, LTSB have democratised the process of idea generation and selection.

The solution works by giving employees a virtual currency (beanz) and this currency can then be used by employees to buy into an idea. As with a company listed on the real stock market, the price tends to reflect the perceived value, so people seeing that the idea has legs early on can get in cheap, and then as its popularity (and likelihood of getting implemented) increases, so the price increases. Employees can make windfall gains by buying in low and selling high which can then be used within their innovations store for real-world rewards such as high-street vouchers.

Dell created a similar solution with its Idea Storm programme. This essentially allows people to submit an idea and for this idea to be voted on by other members of the public. Using just two buttons to either promote or demote the idea, Dell has created a simple process for ensuring popular ideas bubble to the top. The programme has been running now for 2 years and in that time has had 11,345 ideas contributed – this is the equivalent of almost 22 new ideas every working day – and to help them work out which ideas might have legs the community as a whole has promoted these ideas over 650k times.

These types of schemes work well for two reasons.

Firstly, R&D or innovation teams only have so much capacity – creating a way for the wider community to contribute- whether this is your own employees like LTSB or your customers like DELL – can help to focus this effort on the right ideas.

The second reason is that by involving your employees or customers in the programme you benefit from increased engagement and loyalty. People feel empowered and appreciated – and where an idea is actually implemented they get a sense of achievement in having contributed to this, even if this was simply helping to identify it as a good idea.

Now as good as the first reason is – this is essentially a loyalty blog and so it's the second point that most interests me.

There are many ways to generate loyalty, whether it's a reward programme or a communications programme, but as discussed previously, to generate long term emotional loyalty you need customers (and employees) to get involved – to get engaged- you want active participation, not passive inertia.

You can’t however simply setup an innovation programme through the HR or marketing department - for the programme to have real benefits it needs to be real, not simply another marketing programme. Employees or customers will quickly realise there is no substance to the programme if ideas are not taken forward and this will have a even worse effect on engagement then if you’d never even started.

As discussed earlier though, innovation is a strategic endeavour - something that needs to be invested in - and so requires executive leadership and sponsorship. This is made even harder when you consider that the average innovation programme can take up to 18 months to show returns – a little under half the tenure for an average CEO.

The alternative though to innovating in an increasingly competitive market is to cut costs - but as Greg Estes, portfolio manager at Intrepid Capital Management says "It’s generally very difficult to cut costs significantly for more than four quarters. After a while, though you may be widening profit margins, you're shrinking the entire firm."

A company may not always be fortunate enough to have innovators as leaders, but leaders can be innovative by providing support to allow ideas to take root and flourish. This may not only help to grow the company by opening up new markets, but also by engaging and increasing the loyalty of both employees and customers.