As the CES show winds down in Las Vegas for 2015, we are reminded of the amazing innovations that companies have created to improve our lives. While not obvious, innovation comes in many forms and is often the result of a necessary ingredient that is counterintuitive -- failure. That's right. How companies react to failure is an important part of their success. And, if companies fail to innovate in our increasingly competitive world, they risk dying.
Examples of companies that turned failure into success
In its early years, Minnesota Mining and Manufacturing Company, now known as 3M, was a dismal failure. After years of mining losses and red ink, company founders and investors came to a crossroads. They could close the business, or change course. 3M executives did what most successful executives do when faced with failure. They used it as an opportunity to find a path to success. We're glad they did. Today, the company generates over $31 billion in revenue selling over 55,000 products and employing roughly 84,000 people.
When Steve Jobs returned to Apple after his 12 years of wandering, the company needed a controversial $150 million investment from "arch rival" Microsoft to stay afloat. Even worse, when asked what he would do if he were in Jobs's shoes, Michael Dell said, "I'd shut it (the company) down, and give the money back to shareholders." Rather than give up, Jobs was able to use these "indignities" to fuel an amazing comeback. In a very short period of time, Apple grew to the most valuable company ever.
What is the ingredient that brought 3M and Apple from the brink of failure to achieve such an amazing record of success? While there are several candidates, the one that both companies clearly had in common is their use of innovation to overcome failure.
If innovation has this potential, how can you use it as a tool to power your organization's success?
Create an Innovation Culture
To create an innovative culture, managers need to make sure that all employees know that innovation is a job requirement. It should be woven into the fabric of the business and given a prominent place in job descriptions, procedures, and performance evaluations. Innovation should be defined to include incremental as well as revolutionary improvements. In a Harvard Business Review interview, Katsuaki Watanabe of Toyota said, "There is no genius in our company. We just do whatever we believe is right, trying every day to improve every little bit and piece. But when 70 years of very small improvements accumulate, they become a revolution." Over a 35-year period, Toyota's innovation culture increased the number of annual suggestions per employee 480-fold from 0.1 to 48.
Create a New Product Development System that rewards Innovation
At 3M, employees are paid for spending 15% of their time creating whatever they want. Once employees believe they have a worthy invention, they can "run it up the flagpole" using 3M's "Champion" new product development system. The Post-It-Note was created by a couple of employees that used their 15 percent time to generate the idea and champion it through the 3M System. Google has adopted a similar system as part of their innovation framework since it pays employees for spending 20 percent of their time on whatever projects they want.
Innovative companies recognize that failure is an important step in the process of success. They understand that with each failure, the company moves one step closer to success. In this way, failure is given a positive value. For example, if a successful product brings in $1 billion in sales, and it takes 9 failures to achieve each success, each step in the process (including the 9 failures) can be viewed as bringing the company $100 million in additional business -- a positive way to look at failure. This is the way that great sales people look at the selling process.
Look forward rather than protect the past
Kodak invented the digital camera. It didn't commercialize this invention because it wanted to protect its film business. The Company had what I call the "FDH" syndrome. It was Fat, Dumb, and Happy with its success in film. It looked backward instead of forward. As Bill Gates is fond of saying, "Success is a lousy teacher. It seduces smart people into thinking they can't lose." To be innovative, you cannot be afraid to obsolete your own products. If you are, others will obsolete them for you. That is what happened to Kodak and many others.
Marketing Information System
The marketplace is constantly evolving and changing. To be successful, you need a system that continuously monitors the marketplace, collects feedback in real time, analyzes the feedback, reports the unvarnished truth to decision makers, and takes corrective action. What worked yesterday, may not work tomorrow, and the information about tomorrow is often available today. Companies need the right telescopes and microscopes to see what is going on and react swiftly once the information is properly analyzed and triangulated.
Passionate Pursuit of Improvement
The Lexus slogan the Passionate Pursuit of Perfection embodies the TQM (total quality management) mantra of continual improvement, or kaizen. This guiding philosophy has propelled Toyota to regaining its lead in global automotive sales in spite of self-destructive missteps and problems caused by the devastating Tsunami of 2011.
Innovation in manufacturing
While Dell is not recognized as a product innovator, the company was very innovative in its factory processes, supply-chain management, and make-to-order e-commerce systems. Its efficiency strategies worked quite well for a number of years - giving Dell cost and quality advantages over its "IBM-PC compatible" rivals and Fortune 500 status. Dell got FDH, Michael Dell left for a while, and innovation went by the wayside. So did sales.
Necessity is not the only mother of invention
Companies such as 3M and Apple chose innovation at a point in their histories when they did not have much choice. For them, necessity was the mother of invention. 3M institutionalized their innovative ways. Time will tell if Apple will continue to innovate after Steve Jobs has passed.
We should be most concerned about companies that are currently successful that do not have innovation ingrained in the fabric of their businesses. They are the ones that need to avoid the FDH (fat, dumb, and happy) syndrome, try new things and not rest on their laurels. They have to risk failure to continue to achieve great success. They should know that survival today requires more than treading water, and that many of the companies that were once great are now gone or on their way out largely because they stopped innovating. In fact, according to Forbes, the average lifespan of a successful S&P 500 Company was 67 years in the 1920's. Today it is 15 years. More companies need to innovate to improve these declining numbers.
The innovations do not have to be revolutionary or the exclusive domain of new or improved products. The improvements can be incremental as they are at Toyota, or they can be in business systems and processes as they were at Dell. Innovations can (and should) be in marketing as they have been at Procter & Gamble. Some may recall that the company invented the "soap opera" to sell its soap.
Wherever innovations come from, however they are done, and in whatever part of the business they occur, companies need to continuously innovate or risk dying.