Innovation at the Frontier

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