Innovation at the Frontier

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By Michael S. Slocum

Innovation is usually thought of as the creation of an idea or concept that is novel. It has been the pursuit of a new way to perform a required function. The search for what was previously undiscovered has been the goal of ideation activities for most as far back as can be remembered. The search for the undiscovered has fueled ingenuity but that perspective is changing – the way people innovate is changing as the field evolves.

Innovation's History

Historically, innovation has been practiced as an art – smart people apply black-box thought to generate solutions to problems. There was no recognizable or algorithmic approach to the field and the concept of innate innovativeness spread. The theory of innovative scarcity was formed based on this (erroneous) presumption that a person is born innovative.

Today, however, the practice of ideation can be reduced to a set of principles that may embody sets of algorithms that describe the innovation function. Scientific components are applied to the field to complement the existing artistic components, yielding repeatability, predictability and reliability. The reduction of innovation to an exact science (or at least going in that direction) has produced trainable (and validated) methods for achieving systematic innovation. The innovative capability of each person who is exposed to these methods is increased. This universal increase in the organization’s innovation quotient is the father of the theory of innovation plenty.

Innovation's Future

The global impact of innovation also has changed dramatically. Innovation is capable of creating a multitude of sub-innovations. The discovery of scientific phenomenon has been the driving force for the creation of entire fields of commerce and innovation including:

• The Internet: International pockets of innovation and invention
• E-commerce: Innovations created to match sellers and buyers
• Transaction security: Derived since the advent of the Internet

The pace of change has increased as well. Societal and customer needs are changing faster than ever before, demanding that businesses respond faster.

There is an argument that all that can be invented has been invented or, at least, that the number of high-level inventions has diminished over time with the overwhelming majority of patents issued being on a significantly lower innovative level. German writer Johann von Goethe stated that innovation changed such that the solution to a problem may already exist and that the problem solver’s task is to find those pre-existing solutions and adapt them to suit a particular purpose. This is a different approach to the search for an innovative solution – pursuing analogy rather than novelty.

Non-linear problem solving begins with the specific and heads to the generic – this generalization is the key to adaptive innovation. Adaptive innovation is the key to the ability of an organization’s ability to respond quickly to the needs of society and the customer – it leverages any ability to adapt and existing solution to suit for its purposes. This "adaptivation" should be pursued as part of any problem solving activity.

Adaptivation efforts are successful due to the work that has been achieved in fields in which patents and invention disclosures have been analyzed in order to catalog the efforts of previous problem solvers. These efforts are made available to the problem solver through the field of the Theory of Inventive Problem Solving (TRIZ).

TRIZ Is Adaptive

A fundamental aspect of TRIZ is the analysis of previous problem solving records – invention disclosure, patent records and historical observations classified as heuristics. Observations about the specific problem and the specific solution were made and coupled with analysis that likened specific problems and specific solutions into abstract groups. These abstract groups are usable when a specific problem is converted to an abstract problem that is analogous to one of the abstract problems from the researched group. A matrix then provides the appropriate solution concepts from the solution group.

This empirical approach allows the problem solver to practice systematic adaptation, reducing innovation process cycle-time. TRIZ precludes the generation of previously discovered solutions, thereby eliminating the waste of duplication from innovation – increasing the process’ efficiency and effectiveness. Improvements in ideation develop an organization’s ability to respond at the same rate of evolution for the societal and customer needs. This non-linear approach is both convergent and divergent and, therefore, works with different problem solving styles. Adaptivation allows a company to increase performance across several problem solving metrics by integrating the work of past problem solvers. The process is relatively easy to learn and competency can be established in a few months.

Adaptivation needs to become a key competency in the preservation strategy of an organization, while also being the first step in the evolution strategy – an ambidextrous application of adaptivation across a business. Doing more with the resources a company already has is an ideal solution; leveraging the pre-existing work of others expands corporate intellect. This is a robust method of expanding the search space during problem solving. The expansion of the search space integrates another key component necessary in today’s evolving competitive environment – open innovation.

Adaptivation as an Open Approach

Adaptivation provides insight into solutions to analogous problems from differing industries, technologies and scientific fields. This is an open approach to solution generation and it provides additional benefits to the problem solver. Not only are pre-existing approaches considered but the search space for these solutions is considerably larger than the organization’s typical search space. An organization typically looks inward at existing patents, competitive intelligence or for team members to create a solution based on previous experience. Collectively this describes the closed approach to innovation whose narrow-minded focus is no longer an acceptable ideation approach given the evolving natures of competition and innovation.

About the Author:

Michael S. Slocum, Ph.D., is the chief innovation officer for Air Academy Associates, LLC. Contact Michael S. Slocum at mslocum (at) airacad.com or visit http://www.airacad.com.

SENADA and Microsoft Indonesia joined forces to launch iMULAi, a national innovation competition. The contest was launched on October 26 at Pesta Blogger, Indonesia’s first national blogging event, attended by more than 500 bloggers. The competition will run until December 31, 2007.
This US$200,000 national business innovation contest and awards program aims to create awareness about the importance of innovation to the social and economic future of Indonesians. It also highlights innovative ideas that increase Indonesia’s industry competitiveness.
iMULAi will award three prizes to companies that design the most innovative products and business solutions. Microsoft will provide prizes of hardware and software business technology and SENADA will provide up to $75,000 in grant financing for the first six months of the each winning project proposal. For more information, visit http://imulai.com.

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Microsoft Indonesia bersama SENADA, sebuah proyek untuk peningkatan daya saing yang didanai oleh USAID, hari ini meluncurkan program iMULAI, sebuah program kompetisi dan penghargaan berskala nasional bagi solusi inovatif untuk keperluan bisnis.

Program iMULAI bertujuan untuk menggugah semangat berinovasi dan menegaskan pentingnya inovasi di kalangan pebisnis Indonesia, serta mendukung terciptanya perekonomian Indonesia yang berdaya saing dan berbasis pengetahuan.

Kompetisi yang akan diselenggarakan hingga tanggal 31 Desember 2007 ini terbuka untuk semua perusahaan Indonesia (baik perusahaan yang baru mulai maupun yang sudah mapan) maupun organisasi non pemerintah.

iMULAI akan memilih tiga pemenang dengan gagasan inovasi paling menjanjikan dan paling berpotensi untuk memberikan dampak positif bagi industri Teknologi Informasi dan Komunikasi Indonesia.

Setiap inovasi ini akan menerima dukungan dalam bentuk piranti keras dan piranti lunak bisnis dari Microsoft senilai lebih dari Rp145.000.000 serta pendanaan hibah dari SENADA sebesar Rp220.000.000 untuk biaya pengembangan inovasi.

Untuk info lebih lanjut, kunjungi www.imulai.com.

For Release at 11 a.m. PDT

Oct. 22, 2007

Microsoft and U.S. Government Agencies Announce Initiative To Promote International Development

Collaboration through Public-Private Partnership Will Explore Opportunities to Work Together Across Cultures and Continents.

Washington, DC – Oct. 22, 2007 – Microsoft Corp. and the U.S. Agency for International Development (USAID), the U.S President’s Emergency Plan for AIDS Relief (PEPFAR), and the Millennium Challenge Corporation (MCC) today announced a unique public-private collaboration that intends to promote international development in the areas of economic growth, health, governance, education and humanitarian assistance around the world. The five-year public-private partnership aims to catalyze the global community to address the diverse social and business challenges faced by those who currently receive few or no benefits from technology.

Building on decades of business experience, research and development, and corporate citizenship efforts, Microsoft will strengthen its ongoing commitment, known as Unlimited Potential, to helping those underserved by technology overcome the barriers to social and economic empowerment.

By seeking to share respective strengths, experience, and resources (including human, in-kind, and financial support) Microsoft, USAID, PEPFAR, and MCC, will support achievement of the following core development objectives:

Ø Disaster Response/Humanitarian Assistance: Facilitating the provision of assistance including through collaboration on processes, tools and technologies to save lives and alleviate human suffering through disaster preparedness, response, and recovery;

Ø Health: Advancing global health care and addressing HIV/AIDS challenges through effective technology;

Ø Environmental Sustainability: Promoting a clean and sustainable environment by focusing on climate change and other forms of environmental degradation;

Ø Education and Youth Empowerment: Expanding educational opportunities to enable access to quality education through dynamic, learner-focused technologies and resources;

Ø Growth: Enabling economic development through digital inclusion, local innovation, access to credit, and job opportunities; and

Ø Governance: Promoting enhanced government service delivery, engagement with civil society, transparency, rule of law, human rights, child internet trafficking and protection issues, and strong intellectual property rights.

This expanded initiative is an outgrowth of numerous successful joint global projects between Microsoft and USAID that have taken place over the last five years in areas such as education, digital literacy training and economic development.

“Microsoft believes in enabling new innovative avenues of social and economic empowerment,” said Gerri Elliott, corporate vice president of the Worldwide Public Sector organization at Microsoft. “This collaboration with USAID, PEPFAR and MCC — all leaders in solving issues faced in the developing world — is strategically aligned with Microsoft’s Unlimited Potential goal of applying the benefits of technology toward the health and well-being of people around the world.”

“In this age of increasing interconnectedness, this global collaboration with Microsoft will help to mobilize ideas and resources, skills and technologies to spur innovation and deliver results far more efficiently and effectively than ever before,” said Henrietta Fore, acting administrator of USAID.

The first project for collaboration under this global Memorandum of Understanding will be an alliance between Microsoft, USAID and Indonesia Entrepreneurship And Agribusiness Development Activity (or SENADA) -- a USAID-sponsored competitiveness project, The alliance partners will sponsor iMULAI, a national business innovation competition and awards program. This competition will promote the spirit and importance of innovation to business entrepreneurs and the general public in Indonesia. The competition also seeks to grow Indonesia’s global IT competitiveness.

“This groundbreaking public-private partnership will help PEPFAR leverage the tools of the information age and the core competencies of Microsoft to bring HIV/AIDS collaboration to the next level,” said Ambassador Mark Dybul, U.S. Global AIDS Coordinator of PEPFAR.

“Our joint collaboration with Microsoft, USAID, and PEPFAR will provide new avenues for MCC assistance to create the conditions that will unleash private sector investment, support job creation with technology, and be an incentive for policy reform,” said MCC CEO Ambassador John Danilovich.

About USAID

The American people, through the U.S. Agency for International Development, have provided economic and humanitarian assistance worldwide for nearly 50 years.

For more information on USAID programs, please visit www.usaid.gov.

About PEPFAR

The U.S. President’s Emergency Plan for AIDS Relief is the largest commitment ever by a single nation toward an international health initiative — a multifaceted approach to combating HIV/AIDS around the world. For more information about PEPFAR, please visit www.PEPFAR.gov.

About MCC

Millennium Challenge Corporation, a U.S. government corporation designed to work with some of the poorest countries in the world, is based on the principle that aid is most effective when it reinforces good governance, economic freedom, and investments in people that promote economic growth. For more information about MCC, please visit www.MCC.gov.

About Microsoft

Founded in 1975, Microsoft (Nasdaq “MSFT”) is the worldwide leader in software, services and solutions that help people and businesses realize their full potential.

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For more information about Microsoft Unlimited Potential:

http://www.microsoft.com/unlimitedpotential

For more information, press only:

Jared B. Adams, Merritt Group Inc., phone (703) 390-1530, mobile (703) 980-9535, adams@merrittgrp.com

Harry Edwards, U.S. Agency for International Development, (202) 712-4320

Davy Kong, Millennium Challenge Corporation, (202) 521-3864, kongd@mcc.gov

Kristin Pugh, Office of the US Global AIDS Coordinator, (202) 663-2708, pughka@state.gov

Note to editors: If you are interested in viewing additional information on Microsoft, please visit the Microsoft Web page at http://www.microsoft.com/presspass on Microsoft’s corporate information pages. Web links, telephone numbers and titles were correct at time of publication, but may since have changed. For additional assistance, journalists and analysts may contact Microsoft’s Rapid Response Team or other appropriate contacts listed at http://www.microsoft.com/presspass/contactpr.mspx

Stephen Wunker and George Pohle 11.12.07, 12:00 AM ET

Before a company can become the next Apple or Google it must understand its own innovation architecture.

On Wall Street Innovation Rules. Just look at Google’s three-year sprint to $200 billion in market capitalization and Nintendo’s miraculous makeover. Thanks to an innovative new videogame console, Nintendo has become Japan’s third most valuable company. Now bankers say that innovative little Facebook is worth up to $15 billion despite its short operating history.

But for each of these success stories there are thousands of others struggling to replicate the “innovative” DNA enjoyed by outfits like Apple and Google. Why do innovation efforts fail? We might expect individual innovations to fail—innovation is risky. However, that does not explain why companies often pull the plug on broad campaigns to accelerate innovation, sometimes after only short periods of time. Frequently, companies try to copy outstanding innovators, but the efforts never catch on, quickly become moribund and end up engendering cynicism.

Research by IBM Global Business Services, Innosight and the benchmarking organization APQC has shown the fallacy in the assumption that successful innovation will come simply by replicating the approach used by successful innovators. A survey of 90 companies across a variety of industries and 14 countries shows that the sourcing, shaping and implementation of ideas at innovative firms tends to conform to a small number of innovation archetypes. These different “builds” represent a self-reinforcing combination of culture and operations. Google is representative of one of those models, but only one. Because there is no single archetype of innovation, companies get into trouble by trying to replicate characteristics that are not “natural” to their own business. Instead, firms should recognize the benefits of the innovation model they inhabit, compare themselves to others using a similar approach and borrow selectively from other categories.

IS YOUR COMPANY BUILT FOR INNOVATION? IF IT IS, it’s likely to fall into one of the following four innovation archetypes.

1. The marketplace of ideas

In the marketplace archetype, employees are charged with creating new ideas, shopping them around to gain support and implementing them rapidly to test feasibility and market acceptance. It is an environment that is somewhat chaotic by design.

Google typifies this model. The company emphasizes hiring bright, creative people and tells them that up to 20% of their time may be spent pursuing personal ideas. While the firm has portfolio guidelines— currently 70% of projects focus on core search and ads, 20% on extensions to search such as news and 10% on speculative ideas—there is a highly decentralized system to determine which projects move ahead. Employees create ideas, post them on internal Web bulletin boards and discuss merits, risks and nearterm action plans.

Those ideas that generate the most support through this process move into rapid prototyping. Product requirements are kept as simple as possible so that features may evolve as users provide feedback. Early versions are quickly released for internal use, then for beta release through the Web site’s Google Labs.

Google is not alone in fostering a bottom-up approach to innovation. Others, including 3M, Best Buy and cable television companies like Viacom, take this tack. People are lauded for coming up with ideas, trying them quickly and learning from experience. Failure is expected and even rewarded, as long as it improves the company’s understanding of technology or the market.

Because the marketplace model relies on highquality input of ideas, these firms tend to seek opportunities from many sources, including close interactions with clients and partners. Once they vet ideas, firms in this archetype tend to have a relatively short time to market and launch many new businesses. This speed to launch is due partly to the companies’ preferences for validating ideas in the marketplace rather than with detailed upfront analysis.

2. The visionary leader

The visionary leader model revolves around a senior executive who understands the future better than customers may, motivates employees to zealously pursue that vision and keeps generating ideas that are unexpected and profound.

Steve Jobs of Apple is the paragon. His visions have included creating one of the first personal computers, commercializing the graphical user interface on the first Macintosh, bringing design to computing with the iMac, and developing the iPod. While the firm has created many innovations, it tends to launch only a few key products at a time and in fact spends less on R&D than the industry average.

Apple’s big ideas often have not started with Jobs. A little-known product designer named Tony Fadell thought up the iPod, for instance. Jobs’ great talent is the ability to spot high-potential concepts, champion them and inspire teams to pursue them.

Other visionaries include Henry Ford, who once famously said, “If I’d asked people what they wanted, they would have asked for a better horse.” Ford innovated both in product design and production process, designing unthinkably inexpensive cars produced in a very new manner.

Sony’s Akio Morita closely observed consumers as they went about their daily lives. Morita believed that markets that did not yet exist could be accurately measured and analyzed, so he relied on his observational insights to design some of the company’s most successful new products. His thinking about how Sony’s technology could improve consumers’ experiences led to such game-changing products as the Walkman.

Sometimes the vision does not involve an end product or process but instead focuses on a new method of approaching the customer. Harrah’s Chief Executive Gary Loveman, for instance, came to the company after teaching service management at Harvard Business School. He decided to use data analysis to target the ideal customers for his gaming business. He then united his company to pursue that goal, with impressive results.

This model goes beyond executive inspiration. These organizations typically construct formal mechanisms that are designed as conduits for making operational the ideas of the visionary.

3. Systematic innovation

Most companies aren’t Google or Apple. Their culture, their people and their environments are very different— causing them to take another route to innovation: They create processes designed to produce results systematically.

It is easy to believe that such efforts only generate bureaucracy, endless meetings and me-too products that yield tepid growth. After all, if companies have similar processes and similar people, they will likely create similar outputs. However, it’s possible to use such rigor in mold-breaking ways.

Samsung provides an example. Over the past 15 years innovation has helped set the company apart from fierce competitors. This vast company creates more products in a year than any visionary could possibly conceive and it does so within a Korean company culture not historically inclined toward bottom-up idea generation.

The firm succeeds through a mix of executive prioritization and team processes. Samsung’s leadership prioritized design as a critical competency in 1993 and significantly increased the design budget to support the emphasis. It developed Design Centers in London, Los Angeles, San Francisco, Tokyo and Shanghai to look for emerging customer trends. It created an Innovation Design Lab as an in-house school for promising designers, and it sends people on internships in industries as diverse as fashion and cosmetics to gain new ways of thinking.

The company invests about 10% of its revenues in R&D—a very high figure for the industry—and it devotes 15% of its R&D team to looking at needs and lifestyles ten years from now. The firm unites its disparate businesses through leveraging a common core of semiconductor components, a field in which it holds a strong position. Importantly, senior management strives to create a culture of perpetual crisis that forces the company to look seriously at competitive threats and develop new growth businesses.

One key is breaking down barriers between internal groups and then facilitating rapid innovation to meet competitive challenges. For example, more than 2,000 people a year cycle through its Value Innovation Program (VIP) Center outside Seoul, where designers, engineers, planners and programmers gather for days—or months—on end to hammer out detailed specifications for new products.

The center was established to bring together critical team members at the start of a project. These cross-functional teams work long days in windowless rooms to shape ideas and resolve differences, returning to their ordinary jobs only after the task is completed. Fifty “value innovation specialists” facilitate the work. The teams strive to break down stale cultural norms and encourage junior members to challenge senior staff. Output is rapidly prototyped and tested.

Systematic organizations conceive of innovation in both strategic and tactical terms. Strategically, they pay relatively high levels of attention to the landscape in which the innovation is to take effect. Tactically, they focus on project execution, seeking efficient and fast implementation.

In addition to Samsung, Procter & Gamble and Goldman Sachs typify this approach.

4. Collaborative innovation

The models explored thus far rely primarily upon internally generated innovation to create growth. Another archetype is more externally oriented, featuring companies that team with outside partners to evaluate a wide range of opportunities, rapidly select the ones to trial and often implement the ideas through these partners.

Vodafone illustrates this model. Its strength lies in its global brand and its customer service. However, its network equipment is supplied by outside firms such as Ericsson, its customers are often acquired by thirdparty dealers such as Carphone Warehouse and its software applications are sourced from a range of third parties. Vodafone has even partnered in owning wireless networks, whether in the U.S., with Verizon, or in Bahrain, with the Kuwaiti firm MTC.

Vodafone excels in understanding customer needs, outlining what they’re looking for and seeking the appropriate solution from its partners. It then performs quick but thorough quality control and plugs the innovation into its network. If the solution proves off the mark, the firm can swap in an alternative relatively easily. Its technology infrastructure facilitates this flexibility, as does its large idea pipeline.

Collaboration organizations gather “innovation intelligence” by building formal relationships with other firms that can help them not only shape the innovative concept but also actively implement the solution. For example, most movie studios are collaboration organizations, partnering with independent producers to generate ideas, with technology companies to create special effects, and with advertising agencies to promote new releases.

Another more recent example is social networking Web site Facebook, whose popularity has soared since it opened its platform to outside developers. Today thousands of programmers around the world have given Facebook a broad menu of applications featuring everything from fantasy sports to photo sharing. Such alliance-friendly organizations work to develop a performance vision shared by their partners.

By understanding which archetype a firm inhabits, leaders can gain perspective on what actions will best foster innovation. Of course, there is no single formula for successful innovation. But research shows that most firms can’t easily change the method in which they innovate. It’s like trying to change your genetic makeup with plastic surgery. A more fruitful approach is to embrace your innovation archetype and improve upon it.

Excerpted from a recent issue of Strategy & Innovation. For more, go to www.forbes.com/strategy&innovation. Stephen Wunker is a partner at Innosight. He can be reached at swunker@innosight.com. George Pohle is the global leader of IBM Business Strategy Practice. He can be reached at pohle@us.ibm.com.

Several years ago in Leuwigajah, Ban-dung, a garbage avalanche struck. The disaster happened in the early morning hours and many people were killed, buried alive in their houses. Indonesia is all too fa­miliar with natural and man-made disasters, but no one would ever have imagined such a thing could happen. The bleak sight and foul smell of the dump had become the daily order of life; nobody ever thought that the gargantuan pile of waste would collapse and kill people. But it did and Bandung, once known as the city of flowers, became known as the city of garbage.

While this is an extreme example, it provides a vivid image of the public health problems we face when the volume of waste we produce outpaces our ability to manage its disposal. The responsibility of a find­ing a new solution lies not just with gov­ernment, but with every member of society. Fortunately, there are solutions, and thanks to business innovation and drive, PT Mittran offers such solutions. PT Mittran is a recycling and waste management firm that turns garbage into revenue. From waste, it uses easily accessible technology to produce commercially viable products such as compost, biomass fuel, and recyclable materials.

PT Mittran specializes in integrated gar­bage handling. They collect household and informal sector rubbish, operate volume re­ducing crushers at temporary garbage col­lection points, recycle industry waste, com­post organic waste, and ultimately handle end-point waste disposal.

Modern garbage processing is aimed at managing city garbage in an environmen­tally friendly way and at the same time ac­celerating other activities such as compost production and the recycling process. In modern processing, also called rapid com­posting, organic materials are degraded using mechanisation and aerobic bacteria. Mechanisation reduces the particle size of organic materials which allows more oxy­gen into the waste to be consumed by bac­teria, accelerating decomposition. Eventu­ally this waste becomes commercially viable fertilizer which can be packaged for sale. And this is just one example of the busi­ness opportunities that waste management affords.

As we all know, garbage is a growth indus­try. There is great potential for development.So far, applications have focused primarily on alternative uses of household garbage, but there is industry potential as well. Bio­mass fuel can be produced from garbage to be used as an alternative energy source. For example, PT Mittran produces and supplys biomass fuel for use in a leading Indonesian cement factory.

Modern, environmentally friendly waste management offers many benefits. It can help society and government address our mounting garbage issues and generate revenue at the same time. The environ­mental and social benefits alone are attrac­tive: Reduce waste, pollution, the eyesore of mounds of trash, and the risk of disease. But there are also business and financial benefits: Jobs, trade, and revenue creation. Plus, financial incentives exist for envi­ronmentally friendly waste management, which the government offers through its environmental preservation programs. So there is a happy ending to this story, we can turn garbage into gold.

Kiagus Muhammad Harry Robby Irawan

Contributor

Competitiveness at the Frontier - SENADA Nov'07

Background

Small and medium enterprises (SMEs) are very important players in Indonesia’s economy. This is illustrated by the fact that SMEs employed 85.4 million people – more than 96 percent of the national workforce – in 2006. This figure however, was not followed by a similar contribution to national GDP. In the same year, 48.93 million SMEs – 99.985 percent of all enterprises in the country – accounted for only 53.28 percent of the national GDP. These figures show that SMEs substantially outnumber large enterprises, but are outperformed by large firms in terms of unit leverage.

Regionally, ASEAN has called for the formation of an ASEAN free-trade area (AFTA) by 2015 for selected commodities and services. This combined with plans for the regionalization of APEC member countries by 2025 add to the motivation for Indonesia to improve its global economic readiness.

Given this backdrop, some agents of change have attempted to rectify sluggish Indonesian competitiveness, particularly: Business technology centers, business incubators, entrepreneurship centers, SME working groups, bodies within public institutions, private institutions through corporate social responsibility programs, and foreign and national non-government organizations.

Hitherto, these initiatives remain scattered, too removed from the fore to bring impact, dedicated to too specific issues, too small to produce leverage, and uncoordinated. Hence, ‘coordination and synergy’ become the new battle cry as this effort requires concerted mobilization of resources.

National Agenda

The national development policy of Indonesia is outlined in the National Medium-term Development Plan (NMDP) 2004-2009. The NMDP stipulates three important points: 1) Creating a safe and peaceful Indonesia, 2) Creating a just and prosperous Indonesia, and 3) Improving prosperity. The third point is further broken down into five goals, within which poverty alleviation and unemployment reduction are outlined.

In concurrence, the Government of Indonesia has targeted to halve the number of absolute poverty from 16.6 percent in 2004 to 8.2 percent in 2009, and to reduce unemployment from 9.5 percent in 2004 to 5.1 percent in 2009. For this purpose, economic growth must be kept at an average of 6.6 percent.

Within the framework of the national development agenda, SMEs are expected to play a more central role, for which empowerment is mandatory. Translated into action, there are five strategic issues for empowering SMEs: 1) The creation of an enabling business environment, 2) The provision of supportive systems for the development of SMEs, 3) The development of entrepreneurship and competitive advantage, 4) The empowerment of micro-scale enterprises, and 5) Quality improvement of cooperative institutions.

Recent Development

The recently issued (June 12, 2007) Presidential Instruction No. 6/2007 on Policies to Accelerate Real Sector development and to Empower Micro-, Small-, and Medium-sized Enterprises has ordered the Coordinating Minister for Economic Affairs (CMEA) to form task forces to prepare for the establishment of an SME Innovation Center. The CMEA has responded by forming a task force of inter-departmental representatives of the steering committee, the organizing committee, and four working groups on (i) Policy, Program, and Regulation, (ii) Technology, Network, and Data Center, (iii) Institution and Human Resources, and (iv) Infrastructure and Financing. The task force intends to produce the roadmap and blueprint for the SME Innovation Center by December 31, 2007, aiming at an official launch in early 2008. Hopefully by then we can have a one-stop Center for all matters related to the development of SMEs, which is accessible to all, and can serve as a platform for coordination and synergy.

Totok Hari Wibowo

Contributor

Steve Jobs and Macintosh recently launched the next generation iPhone, “an all-inclusive multimedia device,” that some media sources have reported, “will completely change the way customers think about and use cellular technology.” Sony’s next generation PS3 (Play Station III) is battling Microsoft’s Xbox and Nintendo’s Wii for the global title of, “the most innovative gaming console.” And Microsoft’s Vista operating system is being marketed as one of the “most innovative operational platforms” for personal computers.

It is becoming increasingly difficult to pick up the business section of a newspaper or read a business magazine today without a headline stressing the importance of product innovation and firm competitiveness. Although the articles tend to differ based on the size and complexity of the firm being described, virtually all the articles strongly confirm that businesses with the most innovative products are the most productive, flexible, stable, profitable, pioneering, and global.

Innovative firms are typically defined by how functional, unique, useful, marketable, and even hip or edgy their products are. Product innovation usually relates to the “perceived innovativeness of the external goods or services a firm provides relative to other similar products or services.” The more innovative a product is, the better it meets its pre-expectations, satisfies customers’ needs, makes users feel, and saves clients money. Innovative products therefore attract higher value, garner greater customer loyalty, and secure broader markets.

Coincidently, the discussion of how these same firms think, manage, and internalize innovation as an organizational process is often overlooked, even though it is the foundation on which their innovative products are developed.

Process innovation is defined by the way businesses think and act. It applies to all aspects of firms’ business operation systems and corporate cultures, from management to marketing, design to distribution, human resources development to research and development. Process innovation improves how firms develop new products or services that add value or reduce costs, capture or retain new and old customers, or carryout strategic thinking and corporate governance.

Problems arise when smaller firms only see product innovation achieved by large investments in critical fixed assets such as machinery, equipment, software, or technology, rather than in the internal processes that manage firms’ day-to-day operations. With this mindset, smaller firms that try to innovate often miss opportunities to upgrade because their understanding of innovation, and how it is achieved, is too narrow.

Product innovation is closely tied to process innovation because many determinants of a product’s originality, novelty, or value added is a direct result of a firm’s internal processes and management. A firm that does not invest in quality production processes and standards or human resource systems may have lower quality goods with higher defect rates. A firm that does not invest in innovative advertising or marketing research may produce products customers no longer need or want.

The efficiency with which firms learn to internalize a broader perspective of innovation directly impacts their understanding of its high value incentives, especially in areas of process management where investments in innovation can be cheaper and easier to implement.

As a more all-encompassing understanding of what it takes to become an innovative company becomes ingrained within firms’ corporate cultures, adoption rates of innovative technologies and practices increase proportionately, thus leading to stronger, smarter firms and more importantly, innovative products.

Caesar Layton

SENADA Senior Industry Advisor

A recent recruitment advertisement in the Economist magazines boldly stated, "Ireland's success relies on the innate ability of its people to innovate". The part of this statement linking economic competitiveness to innovation has gained widespread and growing acceptance. Leading nations and leading firms alike are driven by the innovation mantra.

In 1985, Michael Porter[1] wrote "...firms create competitive advantage by perceiving or discovering new and better ways to compete ... which is ultimately an act of innovation." More than twenty years later a survey by the consulting firm Booz Allen found that 80 percent of senior executives cited innovation as among their companies' critical success factors.

The part of the Economist advertisement tying innovation to nationality (or race, for that matter) is, fortunately for laggard countries, marketing nonsense. Then why do some nations innovate more than others?

There are a variety of general factors associated with innovative business climates, starting with policies and regulations that are simple, clear, designed with the well being of private sector firms in mind, and administered by competent government officials. another important factor is the level and flow of knowledge within a society and within a business environment. These factors can and have been successfully addressed, such as in South Korea, where in the last half-century investments and later on, policy reform, have catapulted it to economic prominence.

Where does Indonesia rank on the innovation scale? A view of some of the country's leading industries is revealing. Indonesia remains highly dependent on low value added, extractive industries, such as mineral fuels and agricultural products. some of these industries remain strong, not because of innovation, but because Indonesia is favored with abundant natural resources currently in great demand. Indonesia's light manufacturing industries such as garments and footwear - once leaders because of inexpensive labor costs - have lost some competitiveness because they have not anticipated or adjusted to the dynamic nature of market and competitors (including fact that cheap labor has become commodity).

Competitive advantage is increasingly achieved through differentiation along supply chains. Foreign clothing buyers, once satisfied with suppliers that cut, make and trim, now prefer suppliers that source fabric, design, cut, make, trim, finish, package and ship. Most of Indonesia's garments firms cannot do this.

Fortunately, a great body of research, documented experience, and instructive frameworks exist on how to pursue successful business innovation strategies. Researchers and business gurus address innovation on different levels. There are the end result, manifested in new products, process and business ventures; there are method, anchored in clear focus, discipline, and stock taking; but what experts stress most as the requisite foundation for business innovation is organizational culture.

Traditional organizational structures, hierarchal and centralized in decision making, are poisonous to innovation. While there is no blueprint for the modern “innovation organization”, there are several common characteristics. Two of this are;

1. Flat organizational Structures.
These have shallow, board lines of communication, which facilitate transparency, information sharing, and the freedom for decentralized decision making and self-management.

2. Risk Taking.
This should not just be allowed, but embraced and rewarded.
Unsuccessful risks, in an innovative organization, should never hamper a team member’s opportunities and advancement. As Robert Wood Johnson, former chairman Johnson & Johnson, stated, “… if you are not failing, you won’t succeed. If you can’t succeed, you can’t grow.”

Creating innovative organizational structures is one of businesses’ greatest challenges because it usually requires senior managers to dispense with long held beliefs and practices. For most businesses, innovation is “unnatural act” because the uncertainty is too high, the time horizon too long, and the investment too large[2]. Further, there is no greater source of disruption and anxiety, if only short term, than radical organization that unshackles the human spirit, you’re going to need some decidedly un-bureaucratic management principles[3].
An innovative organizational culture breeds people who behave illogically, basing their work on uncertainty and ambiguity. These concepts are not easily accepted by firms with established products, standard operating procedures, and cash flows to worry about.
Experience has shown there are traps in building innovative organizations. Most firms simply cannot make themselves go far enough to attain the innovative organization; resistance, especially at the top, is too great. Other firms have gone too far. Being creative does not mean being undisciplined. In fact, a balance must be struck. “Businesses should be nurtured through a series of balancing acts that combine entrepreneurship and disciplined management, short and long term thinking, and established and new processes[4].”
Innovative capacity (unlike some innovations) cannot be bought or sold, and certainly cannot be copied. It is behavior that is learned and must be sustained; a daunting, albeit worthwhile, challenge. This is powerful evidence that the financial performance of firms with innovative organizational structures consistently outperform those with more traditional organizational structures. Fortunately, though, neither Ireland nor any other country is genetically more predisposed than another. Organizational DNA unlike biological DNA, can be re-engineered.

Steve Smith
SENADA Project Director

[1] Porter, M.E. 1985. “The Competitive Advantage Of Nations.”
[2] Humble, J., And G. Jones. 1989. “Creating A Climate For Innovation.” Long Range Planning. Vol. 22, No. 4, August 1989, Pp. 46-51.
[3] Hamel, G. 2006. “The Why, What, And How Of Management Innovation.” Harvard Business review, February 2006, P.72.
[4] Garvin, D.A., And L.C. Levesque. 2006. “Meeting The Challenge Of corporate Entrepreneurship.” Harvard Business Review, October 2006, Pp. 102-112