Move from continuous improvement to continuous innovation (transcript)

Brad Power: People familiar with continuous improvement will understand the continuous part. It means always rather than episodic; not a one time event but something you do on an ongoing basis. In other words, it means that we don’t rest on our laurels and say we did one big transformational change and then sit back and think that we can now relax.

And the innovation part is that it’s not just incremental changes that are at departmental level or lower levels of the organization. Instead, we mean big end to end changes that are discontinuous and radical - that’s the innovation part.

Continuous innovation argues is that in organizations today, it’s not good enough just to do continuous improvement and it’s not good enough just to be doing episodic innovation. Both of these are hard to do, but they’re not good enough because there are some companies out there that are doing this on a serial repeated basis. They’re going to disrupt you or you’re going to miss opportunities in the marketplace if you don’t develop a management system that supports continuous innovation.

PEX Network: You mention this notion of disrupter. Could you elaborate on why you think this notion of continuous improvement is becoming so much more important?

Brad Power: If you are a high tech company or if you’re managing a high tech company – e.g.. Intel, Apple, or Google – you imagine they have to innovate frequently because product life cycles are short. If Apple comes out with a new phone it’s only going to be good for six months or a year. If Google comes out with new software, it’s only going to be good for a short period of time.

In high tech industries, we understand that innovation and disruption is happening as a natural course of events. What’s happening, though, is that as more and more products become "informated" - that is they have more and more technology embedded in them - then they start to behave like high tech companies.

For instance, if you look at something like retail, Amazon has changed retail because they’ve informated it. It’s now based on a web-based offering and you don’t have to go to a physical store. The cycle times in what Amazon does and is able to do are much shorter, whereas the companies that have stores and assets and physical things struggle to keep up with the pace of change of an Amazon.

Then, take something we all know: the automobile. In the beginning Henry Ford competed because he had an assembly line. Then GM came along and competed because they had more models and offerings. Then Toyota came along and they had a continuous improvement system, the Toyota production system, that made things more efficient, more reliable, better quality.

Now Google has a driverless car. The car has been surrounded by information and now the physical motor and the things that get you around may be less important than where you are and the ability of that car to manage itself.

So the auto industry, which had long cycle times and physical products, is shifting to being more information based. Therefore the cycle times on a product, the product life cycle, the speed with which you can introduce modifications, will increase.

There’s a guy named Marc Andreessen who wrote something he calls ‘Software is Eating the World’. Software is becoming a bigger and bigger part of physical products. If you’re in the financial services industry, which is very information based, you already knew you were just like a high tech company needing to innovate frequently. If you’re in retail, you’re increasingly become an information business. Now even physical things,like automobiles, are also becoming information businesses and therefore having to respond on a rapid basis as if they were a high tech company.

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PEX Network: It sounds like industries that you wouldn’t think of as having to be worried so much about digital disruption, now they are being threatened by some of these digital disrupters.

Brad Power: That’s right. That’s why it’s important now. It’s always been true that you needed to worry about innovation. It would have been great if you could have but now it’s almost becoming a requirement because you have these disrupters out there, the start-ups and the Googles and the Amazons of the world, disrupting your core business.

PEX Network: I wonder if we could explore this distinction between continuous improvement and continuous innovation. How in your opinion do they differ?

Brad Power: Continuous improvement in the broader scheme of things, if you did it as the Toyota system, there is space for breakthrough ideas, not just incremental ideas. In practice, however, most of continuous improvement work happens at a departmental level.

For instance, if you look at the way Don Linsenmann [refers to speaker at PEX Week] today was describing the work of DuPont, for example, those black belts and master black belts are working within the management structure, within the departments and the units within DuPont. They are typically working what I would consider to be incrementally. It may seem radical for them, but it’s typically within one department, within one area driving costs to the bottom line.

Innovation is going to happen across those organizational units and may even be a complete disruption to the model. So DuPont and others need to think about what could happen, what would be possible. It’s kind of at the ten X level or the 100 X level, not at the one to ten X level.

How could they look at an end-to-end process? How could they look at a completely new business? How could they change their business model? These are the kinds of questions that need to be asked and that continuous improvement needs to evolve toward, the kinds of big picture questions. Who are our customers? What business are we in? What business model are we trying to use?

PEX Network: What can companies do to start to build this capability or build this capacity to continuously innovate into their enterprise?

Brad Power: There are two steps to what we’re talking about. The first is that you’ve got a management system for innovation and the management system for innovation has to be protected and separate from the management system for what I call tuning the performance engine or incremental improvement - making things better, faster, cheaper, but in the current business model.

If you really want to have a management system for innovation, it needs to be protected, separate and incubated. This means that it needs to have its own money, that it needs to be funded and that it needs to have its own organization and its own resources. It also needs to have its own people. What happens is - and it’s true of continuous improvement as well - that in the whirlwind of work it’s hard to get people to take time away from delivering today to improve their jobs for tomorrow.

Now we’re taking that yet a step further - that it’s not just people looking at ways to improve their own jobs, ideas about that, but doing something that’s more reflective and disruptive, looking at a new technology, challenging fundamental assumptions about the way that not only the work is done but the way that the company has been organized and serves its customers. Instead of tuning the performance engine, we’re disrupting the whole business, the whole business model. And for that, you need a separate management system, separate management processes and separate funding.

So how do you get started?

Looking at it from typical change management - like Kotter would recommend - first of all you need to create a sense of urgency. Is there a shared view in your organization that disruption is a threat or an opportunity for you? If not, you can stop right there. If there’s no sense of urgency and you don’t feel that there’s a disruption coming for you then you might as well just stay with enjoying your current legacy business and driving continuous incremental improvements in that business.

If, however, you’re like a lot of CEOs that I talk to and you look at how much you are spending on innovation - 5%? How much do you think you need to spend on innovation? Probably more, maybe 10%, maybe 15%. How would you do that? What would you do? Where would you get started?

Then you need to figure out what are the disruptions or opportunities that are coming at you, what might you do, what are your moonshots. Are you going to create a lab over on the side to do that? Are you going to fund people to take 10%, 15%, 20% of their time and come up with ideas? Are you going to crowd source so that you can get the best ideas by the crowd to decide which are the best? These are some of the ideas that I introduced in my talk, but it all starts with pulling it into do we have a shared view that there is a threat or opportunity in the market that’s radical, disruptive, that we need to look at? And that will then cause everything else to cascade, but the first step is really creating that sense of urgency, case for action, case for change, business case vision.