EIGHT S'S OF INNOVATION MANAGEMENT

The Eight S's of Innovation Management model shows the relationships among the Contextual Seven S's of strategy, structure, systems, style, staff, resources, and shared values; and the relationship between these seven S's and the eighth S-strategic performance (SP). The Contextual Seven S's interact with and depend on each other for their individual success as shown by the connecting lines. Everything starts with strategy. All of the other contextual S's must align with strategy, and each other, and function well together if strategic performance is to be achieved. Shared values contain elements of the other six Contextual S's, as well as shared values about strategic performance. These S's are defined in the boxed material which follows.

The IQI examines only for the characteristics of the Contextual Seven S's. Organizational strategic performance based on innovation is evaluated using an instrument entitled the Innovation Performance Inventory (IPI)

EIGHT S'S OF INNOVATION MANAGEMENT-

1. Strategy: There are three types of strategy: corporate, business, and functional. The corporate strategy defines what business or businesses the firm is in or should be in and how the firm will conduct that business (or those businesses) in a fundamental way. The business strategy describes how a firm will compete in a particular business. A firm's business strategy is its major plan of action aimed at gaining a sustainable advantage over competitors. Relative differentiation and relative low cost are the two most frequently suggested generic business strategies. Functional strategies support the business strategy. Functional strategies in the areas of marketing, finance, operations, human resources management, information systems management, and R&D should be aligned with the business strategy. Strategies are formulated to achieve organizational purposes, for example, goals and objectives. Organizational purposes are discussed as part of strategy.

2. Structure: The organization's structure consists of five parts: jobs, the authority to do those jobs, grouping of jobs in logical fashion, the manager's span of control, and mechanisms of coordination. The first four of these parts are normally shown in an organization chart. The last is usually described in the firm's operating policies and procedures.

3. Systems: The systems, processes and flows that show how an organization gets things done from day to day, for example, information systems, capital budgeting systems, manufacturing processes, quality-control systems, performance measurement systems.

4. Style (leadership/management style): The consistent pattern of behavior exhibited by a manager when relating to subordinates and other employees.

5. Staff: The number of employees with certain individual skills the firm needs to meet its goals.

6. reSources: The extent to which the organization has adequate resources to achieve its strategy-R&D, technology, software, knowledge management, and organizational learning-and the extent to which it leverages those resources.

7. Shared values (organizational culture): The values shared by members of the organization that make it different from other organizations.

8. Strategic Performance: Strategic Performance is a derivative of the other seven S's. Strategic Performance is usually measured for the unit undergoing this analysis. This is usually a profit center, but it could also be a revenue or cost center.

Source: Adapted by James M. Higgins from Robert H. Waterman, Jr., "The Seven Elements of Strategic Fit." Journal of Business Strategy (Winter 1982), p. 71. Some definitions have been modified to make them more consistent with general management terminology. The eighth S, reSources, has been added.

SEVEN OF THE 49 CONTEXTUAL CHARACTERISTICS OF INNOVATIVE ORGANIZATIONS

1. Strategy: Have a Stated and Working Strategy of Innovation

It is not necessary to be a big company to have a stated and working strategy of innovation. Take the case of Super Bakery, Inc. which has sales of $6 million a year, and whose majority owner is former Pittsburgh Steeler legend Franco Harris. Formed in Pittsburgh in April 1983, the company manufactures donuts and baked goods for institutions, mainly schools.

In the early 1980s Super Bakery followed the conservative strategy that is typical of its industry. With sales and profits going nowhere, the firm decided in 1987 to use a new strategy emphasizing innovation in both its products and its services. For instance, it began stressing relationship marketing with food distributors, looking for ways to make their jobs easier. Super Bakery went into partnership with noncompeting suppliers and got its donuts into a prepackaged meal. The company also educated school systems on ways of receiving government funding that they had not thought of before. Finally, Super Bakery looked to its customers' customers and tried to provide a product that they would demand, thereby pulling Super Bakery's products through the supply chain. All of these actions, and others, which are standard fare for many firms, were innovative activities for this industry.

The firm now has its own R&D facility, which created the "Super Donut," a reduced-fat, reduced-sugar, protein-enriched and vitamin-fortified product that was a major success from the start. This and a slightly lower-fat donut, the "Ultra Donut," were the first such foods to be approved by the U.S. Department of Agriculture for school breakfasts.

The results of all of this innovation were nothing short of spectacular. Super Bakery's sales increased significantly and costs were cut substantially. Customer service measures, such as accuracy of sales orders, meeting product quality standards, on-time delivery, total order-processing time, and accurate shipments, have all improved. The result-increased profits.

2. Structure: Forming Teams

A customer of one of Honeywell's divisions threatened to take his business elsewhere if the firm could not produce a new climate-control devise quickly. Honeywell responded by forming "tiger teams" consisting of people from marketing, design, and engineering. The company allowed the tiger team to break all the rules in order to reduce product development time from four years to one. As a result, they kept the customer.

Managers at Milliken & Company, a cloth manufacturer, team with customers to develop new products and services. This very successful strategy has proven especially effective in making the firm more competitive with non-U.S. firms, which almost always have an advantage in the form of lower labor costs. One result: Milliken loads its cloth product onto trucks so that when they arrive at Levi Strauss' clothing plants the materials can be unloaded in the order in which they are needed. The trucks thus become mini-warehouses for Strauss, which does not have to establish its own inventory of raw materials.

3. Systems: Rewarding Creativity and Innovation

Until recently many experts believed that researchers, scientists, engineers, and other professional innovators were best motivated by the work itself-by technical challenge, the opportunity to create, and autonomy. In most instances this may still be true. But corporations have discovered that their professional innovators are very receptive to financial and other non-intrinsic rewards.

"IBM has a program which is called the IBM Fellows," says George S. Howie, former director of IBM's technical personnel programs. "The fellows are typically engineers who have worked for the company 15-20 years and who have been extremely creative and productive. They are given executive salaries and five years to work on what they want to with the resources needed to support that research."

The 3M Corporation has its version of a Nobel Prize for innovative employees. The prize is the Golden Step Award whose trophy is a winged foot. Several Golden Steps are given out each year to employees whose new products have reached significant revenue and profit levels.

In addition, 3M has a dual-ladder promotion program that consists of one ladder for management while the other honors professional success. "Some innovative people would rather face mustard gas than budget forecasts," former CEO Allen Jacobson once said. "What these people need is a system that rewards them for their innovative abilities without forcing them into a manager's desk where they'll be miserable." Art Fry, inventor of the famous Post-It Notes, was promoted through the dual ladder, eventually attaining the position of corporate scientist, the highest rung on the technical side of the company. In addition, non-professionals, non-researchers, have historically been shown to be quite motivated to be more innovative by monetary rewards.

4. Style: Allowing Mistakes

At Johnson & Johnson, a mistake can be a badge of honor for an innovator. Back in the 1960's, CEO Jim Burke failed with the first major product he tried to launch for the company, but he received congratulations from company chairman General Robert Wood Johnson for taking a risk. Burke never forgot that lesson and went on to achieve many successes later.

5. Staff: Training in Creativity

Corning and Exxon are among the increasing number of firms that have trained their employees in creative processes and encourage their use. Corning has trained 26,000 employees in these techniques and Exxon, 7,000.

At one time, DuPont trained many of its employees in the use of techniques, for example: lateral thinking, metaphoric thinking, positive thinking, association trigger, and capturing and interpreting dreams. Use of these techniques proved to be very profitable. For instance, DuPont researchers were trying to figure out a way to dye Nomex fibers, which had proved to be impervious to dyes. Using the metaphor of a mine shaft, one researcher realized that timbers (metaphorically speaking) were needed to hold the fibers apart so that the dye could take effect. He then found a chemical agent that acted much like a timber in a mine shaft-holding the hole open until dyes could take effect.

Sometimes various groups of employees respond to certain processes better than others. For example, Amoco Chemical has found that its researchers prefer brainwriting (writing ideas on slips of paper for modification by others) over brainstorming because it helps cut down on self-censorship. General Motors has an automated brainwriting facility that uses networked PC's.

6. Shared Values: Managing the Organizational Culture

Microsoft became the world's leading software producer through a lot of hard work, astute technological and business acumen, and careful management of organizational culture. Microsoft's founder and CEO, Bill Gates, based the firm's culture on the principle of empowerment, a shared value about leadership and structure. Managers delegate power to the developers, who write and design software. The firm is managed in such a way that managers interact as little as possible with the developers, although they do provide mentors for newly recruited developers to help them understand the firm's culture.

Microsoft's physical layout facilitates creativity and innovation. Corporate headquarters resembles a college campus, with playing fields, an outdoor eating area, and a basketball court. Almost every office has a window, and almost every door is open. Employees work hard (80-hour weeks) and play hard (parties, pranks, picnics, sports, and good-natured fun). V 7. Resources: Creating New Opportunities Proactively

Nucor Steel first made the mini-mill successful, forever changing the U.S. steel industry by making U.S. steel cost-competitive on a global basis. Then it developed a flat-rolled steel process that is revolutionizing the steel industry for a second time.

American Airlines set the industry standard for reservation systems with its Sabre system, changing the way the industry booked seats and giving the company a tremendous strategic advantage. American Airlines also created the "frequent flyer" program, another first in the industry.

Chrysler reintroduced the convertible to the American consumer; it also created the mini-van; the "cab forward" design, and recently won the Motor Trend 1998 Car of the Year Award for its 300M-a luxury performance automobile. All of these innovations wreaked havoc on its competitors.

IN CLOSING

We've only examined seven characteristics, one for each of the seven contextual S's. But you can see what's happening. What all of these innovative companies know is that they can either move ahead, or decline. Understanding the future is important, but creating the future is even more important. If firms are to survive and prosper in the 21st century, they must assess their innovation capabilities, and then take strategic action to improve their innovation performance by unleashing employee creativity and developing an innovative organizational context that turns creativity into innovation.