Innovation and Quality – Allies or Enemies?

Can quality and creativity cohabit in the same house or are they natural enemies? Can a quality process be applied to innovation?

Let’s start with the first question. Quality involves the removal of unwanted variations, the enforcement of strict standards and controls, the application of best practice and the elimination of waste and errors. Creativity and innovation involve exploring many radical and unorthodox ideas, deliberately deviating from existing standards and controls, experimenting with prototypes and devoting resources to projects which are likely to fail.

So at first glance quality and creativity look to be at odds. One is striving for the elimination of variation and error while the other is crying out for both. They are surely two opposing philosophies requiring very different mindsets and attitudes. Can they co-exist? The answer is that they can and they must. Every successful organisation has to solve the paradox of how to achieve at the same time great quality and great creativity leading to successful innovations.

Why Quality is Not Enough

The natural tendency for business managers is to focus on improving efficiency and refining the current processes because it is clear that “we can do things better.” Improving quality and efficiency is important but it is not enough. If you were making horse drawn carriages then it did not matter how much you improved quality because automobiles were going to put you out of business. If you were making gas lamps and you focused on better production, it did not help because electric lights were going to make your lamps obsolete.

If you were making LP records then it did not matter how much time you spent in quality improvement programs because CDs were going to wipe you out. And if you were making typewriters then it did not help however much you improved the mechanical operations because electronic word processors were going to destroy your business. The message is that the right innovation can always beat efficiency. You have to improve what you are doing but you also have to find entirely new and better ways to do it.

Doing what we do now only better is not enough. If you do what you always did then you will get what you always got. You have to do something different to get different results. You have to do something significantly smarter to get significantly better results.

Successful businesses combine brilliant innovation with constant improvement and focus on quality. Think of a great rock group where one member composes a terrific new song. They then need perfect co-ordination, timing, rhythm and production to turn the creative idea into a hit. It is no good innovating if you cannot deliver a quality product or service to your client.

Organizing for Innovation

Successful organizations plan for innovation and allocate resources to it. They have innovation panels that hold reviews of all their products, services, processes, methods and routes to market. These reviews fulfill the following purposes:

1. They identify outmoded and aging products and processes and schedule them for replacement. These organizations recognize that everything in business has a life cycle and the end of a life cycle has to be anticipated so that replacements can be planned. Even systems that are running successfully and profitably today must be examined to see if it is time to supersede them with something better. It is much better to obsolete your own products with superior versions than to find that the competition have beaten you to it.
2. They set targets and deadlines in each area and department for the generation of new initiatives in order to replace the items selected as outworn. The general rule is that three new initiatives should be started for each new process needed. A one in three success rate for trials of new products is a good batting average so it is best to generate a large list of ideas and then whittle down to at least three to be prototyped. Each innovation project should have a project plan with a deadline for customer feedback and a planned date for a go/no go decision.
3. They measure progress against targets for individual projects and for the organization as a whole. They monitor key metrics including how many new products or processes have been implemented in the last year, what proportion of revenues are coming from new products or services, how many new launches are scheduled for the coming period and so on. They also try to assess more subjective parameters such as who is seen as the innovative leader in the industry and how do we compare to our competitors in innovation in the marketplace.
4. They systematically search for sources of new ideas from trends in the technology and the industry, from unexpected successes in the marketplace, from customer feedback and from input from employees at all levels.
5. They apply gating processes to projects and prototypes to check that they meet their milestones. They ensure that projects pass marketing, technology and financial hurdles in order to progress and have additional financial and development resources released to them.

Integration or Separation?

Should innovation prototypes for new businesses, products or services be given to existing departments to manage and develop or should they put into special incubator units? It is generally much more effective to put them into special units which are focused on innovation. Peter Drucker explains why as follows:

“Innovative efforts should never report to line managers charged with responsibility for ongoing operations. The new project is an infant and will remain one for the foreseeable future, and infants belong in the nursery. Executives in charge of existing businesses or products will have neither the time nor understanding for the infant project.”

When in 1995 General Motors wanted to create a new business based on in-car voice activated communication, OnStar, they appointed Chet Huber, a maverick within GM. He put together his own multi-disciplinary team with over half his staff coming from outside GM. Huber showed it was possible to innovate inside a large company like GM. By 2002, OnStar had over 2 million subscribers and was standard inside Acura, Audi, Lexus and Subaru as well as GM cars. Huber believes that radical innovation can happen inside big companies if you build a team that respects insiders and listens to outsiders.

IBM did the same when they had small “skunkworks” teams compete to develop the Personal Computer. Don Estridge and a team of 12 engineers in Boca Raton in Florida in just 18 months built a prototype, gained approval and launched the project which redefined the market and set the new standard for PCs.

The Innovation Process

How can you establish an innovation process in your business? Here is a simple checklist.

1. Diagnose the Current Situation

• First you need to find out what is impeding innovation today. Could it be a lack of vision or a complacent culture, or perhaps a difficult approval processes for new ideas?

2. Set Goals

• Set suitable goals, objectives and measures so that you can calibrate progress. The sorts of goals you choose will depend on your circumstances. They should be quant
  ifiable and have timescales. Examples might be: five major new products launched within the next year, 20 prototypes tested with customers, two new routes to market or a new logistics methods implemented to reduce inventories by 30%.

3. Design and Train

• Design an innovation program to involve staff at all levels. It will address the issues raised in the Innovation Audit and it will set in place the activities to achieve the goals. Train leaders and innovation champions throughout the company in the tools and techniques needed to make innovation a natural part of the organization’s activities.

4. Run Innovation Programs

• Implement innovation programs designed to achieve the goals. These might typically include: building a company intranet site to support all innovation activities, running ideas campaigns for individuals and teams, identifying internal and external sources of ideas, and establishing idea evaluation and implementation systems

5. Evaluate and Implement

• As the ideas flow in from the Innovation Programs they need to be promptly evaluated against clear criteria. An innovation funnel is established. The most promising ideas enter the funnel and receive detailed analysis and support. Some then go through to be prototyped. Soon innovative products, methods, processes and partnerships are moving from trials to full implementation.

6. Measure, Communicate, Adapt

• Progress against the goals is measured. Successes are trumpeted. Everyone is kept in the picture regarding developments. The program is adapted and enhanced to make it even more effective and to keep it fresh in people’s minds.

Evaluating Ideas: The Gating Process

Most organizations find that generating ideas is easier than evaluating or implementing them. Once you have a lot of promising ideas you need to evaluate them. In larger organizations with a rich flow of promising ideas a formalized and disciplined approach is called for. According to the Product Development & Management Association (PDMA) best-practices study, 68% of leading U.S. product developers now use some type of gating process to progress and evaluate innovations from conception of the idea through to full launch of a new product. The general principle is shown above in the form of a funnel.

Ideas from all sources flow in at the top of the funnel. They then go through a series of gates. The gating process determines which ideas carry on to the next round and which do not. Typically around two-thirds of the projects fail at each gate. It is sometimes described as a kill or go decision, but the ideas which do not proceed are not killed. They return to the database together with the reasons for the suspension of the idea in case they can be resurrected or recombined with another idea later.

The number of gates will be determined by the complexity of the product and the cost of its development. For a small company there may be one or two go/no go decisions. A company like Glaxo Smith Kline in pharmaceuticals has around 35 gates in its new product development process. New drugs can take seven years to bring to market – the costs, risks and paybacks are enormous. Sony, on the other hand, launches over 1,000 new products a year. The number of ideas entering the funnel must be truly enormous if over 1,000 make it all the way to launch.

The leading process is Stage-Gate, which is a trademark of Bob Cooper and Scott Edgett. Their methodology is well developed and deployed. Promising new product ideas go through a series of stages and gates. The flow is shown below.

Here is how Cooper describes the five key stages of the process following the discovery or idea generation phase:

Stage 1 – Scoping

• A quick and inexpensive assessment of the technical merits of the project and its market prospects.

Stage 2 – Building the Business Case

• This is the critical homework stage – the one that makes or breaks the project. The business case has three main components: product and project definition; project justification; and project plan.

Stage 3 – Development

• Business case plans are translated into concrete deliverables. The manufacturing or operations plan is mapped out, the marketing launch and operating plans are developed, and the test plans for the next stage are defined.

Stage 4 – Testing and Validation

• The purpose of this stage is to provide final and total validation of the entire project: the product itself, the production process, customer acceptance, and the economics of the project.

Stage 5 – Launch

• Full commercialization of the product – the beginning of full production and commercial launch.

Each stage involves team activity. A cross-functional team examines the project using key parameters and gathers information in order to make the decision as to whether the project advances to the next stage or not. The team looks at operational, technical, marketing and financial aspects of the proposal to assess potential risk and reward. The proposal has to clear the hurdles in the gate before proceeding to the next stage. Each stage involves more financial commitment and development than the previous stage so at each gate the hurdles are raised. The idea is to kill off those projects that do meet the gating criteria. As projects pass through the gates they are better understood, there is consequently less risk and more financial and marketing resources can be devoted to them. For a fuller explanation of the process the books and website of Cooper and Edgett are recommended.

Conclusion

The successful organization will focus on quality and innovation; it will juggle efficiency and creativity. Creativity does not mean chaos nor does it mean leaving things to chance. You can put in place processes for idea generation, idea evaluation and proposal implementation. The whole process can be managed on a formal basis while accepting many informal inputs.

What is needed is a total quality approach to the process of innovation.

Paul Sloane writes, speaks and leads workshops on creativity, innovation and leadership. He is the author of The Innovative Leader published by Kogan-Page.