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Keep It Simple to Raise Your Innovation IQ

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Mention Apple, Facebook, Google and Amazon, and their transformational innovations immediately come to mind. Not surprisingly, they're ranked one-through-four on Fast Company's 2012 "World's Most Innovative Companies" list. All are also on "The 50 Most Innovative Companies in 2012" list put out by MIT's Technology Review except Amazon; it was eliminated in the 11th hour this year for the disappointing reviews of its Kindle Fire, and will undoubtedly be back next year. But these lists can be misleading; the omnipresent public personae of these companies lead us to sometimes forget that innovation starts small, and has simplicity at its core.

With all the news we see daily about their new introductions, profits, stock prices, gigantic new campuses and more, it's easy to forget that all of these companies began life with very poignant and simple missions. Their initial innovations, regardless of the complex algorithms or the fancy programming, adhered to fundamental principles around simplicity of design, use and purpose. Great innovators, and those that tend to sustain innovation, cut through complexity to clear the way for their fervent mission. They have what we should call high Innovation IQ.

Take Ikea, Vanguard and our company, Tetra Pak. All have built major corporations based on surprisingly simple, albeit ingenious, innovations. And these simple innovations have spurred further innovation that taken together, have changed billions of lives and their respective industries, which is why all three are among the 30 case studies of innovative companies cited in Repeatability; Building Enduring Businesses for a World of Constant Change by Bain & Company partners and co-authors James Allen and Chris Zook.

Being included in the book was an honor in and of itself; the authors looked at more than 200 highly successful companies with innovative products and ideas in a wide-ranging multi-year study. Those that made the cut have endured, notes Allen, by following simple but smart business models, continuously improving on their innovations and maintaining simplicity at their core, which allows them to change rapidly without succumbing to complexity.

Of course, this sounds simple, but nothing can be further from the truth. "People are dying under the complexity of today's business environment, and complexity is the killer of growth," says Allen. His solution: "Staying simple requires a CEO who can simplify the message. But if they're exhausted, they become leaders that complicate." The CEOs of innovative companies are able to remain true to their missions and cut through the proverbial crap.

At face value, giant furniture manufacturer and retailer Ikea has changed little since Ingvar Kamprad opened the first one in Sweden in the 1950s. But it has focused on making its economics more efficient, improving design, expanding product categories and choosing appropriate locations, notes Allen.

Yet in this day and age, even simple, basic low-tech furniture is no longer a low-tech enterprise considering the many innovations selling it requires. With 23 billion euros in sales and almost 300 stores in 25 countries, there are economies of scale and mechanics surrounding their supply, materials, manufacturing processes, transportation, Internet sales and marketing and more that must be constantly upgraded and streamlined. But the goal is to always do it with simplicity and speed. "Ikea has adapted and endured, and constantly learned and improved, while others have failed to do so," says Allen.

When John Bogle introduced a passively managed index fund at Vanguard in 1976, he was driven by the simple idea that actively managed funds can't outperform the market in the long run, so why should investors pay a fee for active management? His alternative--a firm of all no-load funds with passive assets that simply tracked market indexes--didn't need managers or researchers, so Bogle simply eliminated these intermediaries. Any individual investor could buy in, just as anyone can join a public golf club as opposed to a swanky private one with high-stakes entry requirements.

Today, Vanguard's costs amount to one-sixth of those of its competitors, notes Allen, and its innovational approach has engendered tremendous customer loyalty. In this increasingly complex financial environment, Vanguard provides investors with an easy-to-understand model, offering guidance about which type of investment profile best suits their needs, without endorsing any specific products. It is now the world's largest mutual fund company, with $1.7 trillion under management.

Tetra Pak also stemmed from a simple idea, notes Allen. Swedish engineer Dr. Ruben Rausing realized that modern food retailing techniques--from national distribution to self-service shopping in supermarkets--called for a lighter and more user-friendly type of packaging for milk than the unwieldy metal canisters and heavy glass bottles prevalent in the 1940s. His goal was to create a paper-based package that would use a minimum amount of material, provide maximum hygiene and save more than it cost.

After a decade of experimentation, Dr. Rausing introduced a tetrahedron-shaped carton in September 1952 that met all his goals and changed the nature of the packaging industry. Still sold today, the Tetra Classic is a lightweight, compact design that optimizes shipping and shelf efficiency. And a decade later, he transformed the industry again by introducing aseptic technology, which allows milk in seemingly simple cartons to remain wholesome without refrigeration for up to a year and eliminates the need to maintain a costly, cold-distribution chain from the manufacturing plant to the store, providing energy savings and a low carbon footprint.

As we mark our 60th anniversary this month, the premise behind our first carton still motivates us today. As Allen points out in his book, our founder's original mantra that a package should 'save more than it cost' is still our standard today. We strive to create packages that deliver value based on cost savings, differentiation, channel/distribution expansion and other opportunities that drive growth.

And as I look back on our history, and that of other innovative companies, I can't help but reflect on the fact that the lessons here are clear and universal. Sustaining innovation calls for commitment to the founding mission that is at the core of a company's raison d'être. And perhaps most importantly, world-changing innovation starts small, and begets more innovation. That first store, investment fund or carton is only the beginning. Leadership has to have an unrelenting focus on keeping things simple and keeping everything focused. In other words, we have to have a high innovation IQ.