When we think of innovation, we think of products. The Segway, the iPod, the Roomba, the hot cellphone of the quarter. It's not surprising: they make good copy, and they can be photographed.
But, according to Gary Hamel, in his new book "The Future of Management," product innovations are a short-lived form of competitive advantage. A highly-successful new product gives you only a few years of excess profits before imitators and, yes, more innovative products commoditize it. (Doesn't it seem that the RAZR's heyday was a thousand years ago?)
What about business model innovations? Examples cited by Hamel include Zara ("chic but cheap couture") and Southwest's low-fare airline model. While more sustainable than product innovations, global consulting firms and the ever-growing practice of outsourcing allow new business models to spread rapidly across industries.
Finally, for companies desiring long-term advantage, Hamel points to management innovation. These are entire new ways of organizing, orienting, incenting and acculturating staff and leadership. Significant management innovations are rare, but they can provide decades of value. Hamel cites historical examples such as DuPont's development and utilization of return on investment 4, Procter & Gamble's brand-management approach 5, and Toyota's use of each employee's ability (see how Toyota describes its approach here 6). In each case, the companies achieved advantages that lasted decades.
Why are management innovations so sustainable? Here's Hamel's explanation:
Amazingly, it took nearly 20 years for America's carmakers to decipher Toyota's advantage. Unlike its Western rivals, Toyota believed that first-line employees could be more than cogs in a soulless manufacturing machine [JC note: ironically, the result of a much earlier management innovation--Frederick Taylor's division-of-labor model]. If given the right tools and training, they could be problem-solvers, innovators, and change agents. Toyota saw within its workforce the necessary genius for never-ending, fast-paced operational improvement. In contrast, US car companies tended to discount the contributions that could be made by first-line employees, and relied instead on staff experts for improvements in quality and efficiency. (p. 29)
In other words, management innovation is hard to imitate because it goes against the training, experience and culture that a company has developed over its recent history. It means rewriting tacit rules that have gone unquestioned and that in most cases have led to the company's success in the past.
This, of course, means that establishing management innovation is terribly hard work, full of complexity and requiring learning and development on the part of all staff. But most importantly it requires unflagging commitment of the leadership, since they have the most invested in the status quo.
More tomorrow on "The Future of Management."