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Taking a Root Cause Approach to Innovation: Interview with Alfredo Schwarz, AES Corporation

Alfredo Schwarz
Contributor: Alfredo Schwarz
Posted: 08/01/2012

Do you want to foster a workplace where all of your people can contribute to creating new products and services that better serve your customers? The flash of inspiration might be less important than you think.

Innovation is a function of a series of practices within an organization to create an environment where people can connect and share ideas, says Alfredo Schwarz, APEX Program Lead at AES Corporation, a global power company.

In this PEX Network interview, Schwarz discusses something he calls root-cause based innovation, details some similarities between innovation management and continuous improvement and describes how you can leverage the continuous improvement discipline to foster innovations and breakthroughs in business.

Editor’s note: the following is a transcript of a video interview with Alfredo Schwarz. To watch the original interview see "Applying a Root-cause Approach to Innovation" . This transcript has been edited for readability.

PEX Network: Everyone seems to be talking about innovation these days - do you think that’s the right focus and why do you think everyone’s so interested in innovation?

Innovation has become a buzzword. It’s the same as "globalization" or the slogan "thinking global, acting local" that become the corporate mantra of many organisations in the 90’s. The thing that I believe organisations really need to think about, is what does innovation really mean to them? What do they want to accomplish in being innovative?

For some organizations innovation is key to their survival to generate disruption and to stay in the market. But other organisations, putting a lot of effort into disruptive innovation might not bring much value to them. So we really need to first ask yourself, what does innovation really mean for me? What am I going to get from it? Then you move onto strategy.

PEX Network: What does innovation mean to you?

We generate and distribute energy across many different countries in cities around the world. The product – electricity - itself doesn’t change. What we want is lights blinking for everyone in a sustainable, reliable, safe way in the communities that we serve. So where can we innovate? We need to look at how can we enhance the way that we deliver value; how we can be cost effective in the way we produce the energy to deliver it in a socially and environmentally friendly way. If I was constanty chasing disruptive innovation, I don't think I’d be successful. If we focus on continuous improvement and in that process we create a nice framework for continuous improvement, then disrupt innovations tend to happen in a higher frequency. And we have several cases of that.

PEX Network: Let's explore that connection between innovation and continuous improvement a little bit more. I think often times when we think of innovation, we think of that light bulb flash of inspiration, something... somebody has a great, big idea and it completely changes the way that we work in the world, etc. You think it's possible to actually build innovation into your continuous improvement programme. Why do you think this?

I'm not a big fan of the "lightbulb" approach to innovation. In fact, there's quite a bit of research that says that innovation doesn’t come out of those Eureka moments. What research has shown is that innovation is a function of a series of practices that you can create inside your business that is going to create an environment where people can connect and create better ideas.

And then if you think about the structure of a continuous improvement programme, it has most of those elements already. I even get some ugly faces from innovation practitioners who say, you’re just doing more of the same under a different name. Instead of calling it a pilot project, you call it a prototype, for instance.

But the thing is, if you really think critically about the continuous improvement programme, it includes teamwork and collaboration. It includes a set of methodologies that's going to help you have some focus. And the key point is – where I think continuous improvement programmes have an advantage when compared to an innovation programme - is that we want to find out the root cause of the problems before we go into innovation process. I tend to call that root cause based innovation.

First you find the problem to make sure you’re not working on the symptom. Find your root cause and then you can say, now we're ready, let's go to open innovation and ask our customers to help solve that root cause. Let's work open to the whole organisation to contribute with ideas, all go to a deep dive, do some benchmark, bring our R&D company to help us out solve that. You might want to extend a little bit the time of the continuous improvement project to get that. But that's when you have to seek the spark [of innovation]. Once you have that idea, you need discipline to execute. You can have thousands of ideas but if they don't become a product or a service or a new way of running your business, they're still just good ideas in the air.

PEX Network: Take me through in a little more detail how it actually works. Can you give me an example?

There's a very interesting example of one of our companies in a developing country. One of the biggest issues that energy distribution companies have in developing countries, is the issue of energy tapping [i.e. where people divert electricity supply to themselves, in effect stealing it]. We know that those customers need that energy to survive, to enhance their quality of live. But how can you deliver that energy and bring citizenship to them? So we had a very, very successful project in regularising those customers. We took them from illegality and gave them a bill, put in a meter and they become part of a formal community. They start receiving the bills of the house, they have access to credit, they become citizens. That's a major contribution to the lives of those people.

But then comes to the second point; those people, they’ve been 20, maybe 30 years, living in those houses and never paid an energy bill. They never had the culture of paying an energy bill. What does that mean for that population? We started a black belt project to try to find out the root cause of that - what’s stopping our customers to pay the bill? We came out to a series of causes, and some of them are just process related, that we need to improve our process, and we captured a lot of benefit from it.

But the other cause is that the bill is expensive for those families for the level of incomes. So how do you increase value, the perception of value so they prefer to buy, to pay for the energy, which is significant source of comfort for their lives, security, a hot shower, and so on, than, for example, buying clothes or something else that would say leisure that could be avoided to a next moment. So we start a co-creation process with the communities. We brought the communities to work with us to try to better understand how could we develop the solutions to make the energy fit their pockets, their budget - the family income.

We had a lot of trial and error, as in any innovation process is because we come with the new ideas, the pilot projects or prototypes, and we test them in the field. And sometimes even the ideas that came from the community that everybody thought was great didn't work in practice, so we had to PDCA once again and spin the continuous development cycle many times until we got it right. And we achieved very, very significant results, moving forward. And the project took one year from the start to end.

PEX Network: My final question is really a much more general question, which is how do you really see the notion of disruptive innovation - which could fundamentally change the way that you do business - fit within the notion of continuous improvement?

There are many definitions of innovation. So the first thing is what does innovation really mean to you? Does it mean it's new to the business or new to the market or new across the globe? It's very hard to measure. So think about what that means to you, and if you have a way of doing things and you change it significantly to achieve better results, I think you’re already innovating in that process. As you do that, you may get something that's really unique to the market or unique in the way you do it.

In the example I just said before, what was innovative was our approach to solve the problem. The solutions by themselves were not a fundamentally innovative. Instead, it was the way in which we reached those solutions - how we built them with the community – that was innovative.

The organisation also has to have the capacity to sustain innovation. Wherever you need to make a change, do it fast and make sure that it becomes a new paradigm. If you don't practice innovation even when you create disruptive innovation, you might fail on its deployment. So you need to be aware of the obstacles that you’re going to have, deploying not just simple, small innovations, but also disruptive innovations. It's practice that's going to make you a sustainable and continuous innovator, improver and aggregator of value for our organisation.

Alfredo Schwarz
Contributor: Alfredo Schwarz
Posted: 08/01/2012