Innovation is an overused word, one which is usually associated with new products. But it’s about much more these days, as business leaders have come to understand. Innovation is really creative problem-solving—“applying know-how in a different way to solve the problem,” in the words of Robert Price, retired CEO of Control Data Corporation and author of The Eye for Innovation; Recognizing Possibilities and Managing the Creative Enterprise (2005).

Indeed, the new ‘buzz phrase’ amongst the emerging generation of successful manufacturers and retailers is ‘new markets, one acre at a time.’

Take, for example, the Imperial Tobacco Company (ITC). By applying an innovative supply chain approach, it successfully opened a new market in India, not with new products, but with a new distribution channel. “India is about 60 percent rural, villages are far apart and farms are highly fragmented (about one acre each),” prefaces Vijay Govindarajan, professor of international business, Tuck School of Business, Dartmouth College. Existing channels didn’t reach that market.

To tap into that market, ITC established Internet-based information kiosks in some 30,000 villages and trained one person to operate a computer that farmers could use to find the best prices for their crops on any given day. Next, ITC used that platform to make fertilizers, pesticides and other products available to help farmers maximize their yields. The company established distribution centers that could service these remote areas and, once this distribution channel was established, “ITC entered the food business, using the same platform,” Govindarajan says.

“This was a tremendous business model innovation,” Govindarajan says, and other companies have since signed on to the ITC platform, bringing their goods to this previously unserved market.

Skipping technologies

“There is real opportunity in logistics and distribution, particularly in emerging markets,” Govindarajan emphasizes. There, “you often can’t use the same approach as in developed countries, so you leverage the power of technology.” Even in developing countries, that means using the Internet, as ITC did so successfully. The Internet empowers consumers in a way that bricks and mortar can’t, so the most innovative companies are finding ways to use that technology to their—and their customers’—advantage.

Developing regions often skip layers of technology and start with the latest things, providing a jolt to companies insisting on their version of “business as usual” and an advantage to companies willing and able to use that to their advantage.

Anyone who’s been in developing countries in the past decade has seen this first-hand. Rather than stringing telephone cable, operators put up cell towers. Speech recognition technology, now being pursued by some companies, is another example. It may help potential customers skip the keyboard entirely in their Internet shopping experiences and open new markets for companies with illiterate consumers, particularly in the developing world.

Champagne and silicon

But technology is only part of the innovation picture. At the heart of the matter, insists Sam Kogan, president and COO of GEN3 Partners, is the need to “improve the parameters people use when they judge a product.” Take hybrid vehicles, for example. If customers’ purchase decisions are based mainly on ecological impact, they may buy hybrids, but if they look at the overall economics and payback periods, they wait. So, to sell more hybrid vehicles, manufacturers need to identify and address the main parameters of customer value.

Appleton, the developer of NCR paper, addressed these parameters when it tried to expand its market from a commodity supplier to a solutions provider, Kogan says. It targeted upscale takeout containers, feeling that styrofoam clamshell packaging could be improved. The problem was how to keep food warm for more than 30 minutes without increasing the cost of the packaging.

To address the challenge, “We operated at the level of ‘function,’” Kogan says, and examined other industries with similar requirements. The function of the wall was to retain heat, which the aerospace industry addressed with aerogels. Appleton used that idea to create a pore structure to trap warm air and use it as an insulator without increasing costs.

Likewise, a silicon chip manufacturer had a problem with bubbles in the polymer used to coat silicon wafers, which meant those chips couldn’t be etched for circuit boards. Experts within the company and from one of the top engineering universities in the U.S. couldn’t solve the problem, Kogan recounts.

GEN3 resolved the challenge by looking outside chip manufacturing to another industry based on bubbles—the champagne industry. Granted, champagne makers try to keep the bubbles in the product, but reversing the process was a relatively small step, he says. The point was to simplify the problem and find other industries that face similar issues, before considering the specific gasses or the specific polymer, Kogan says.

“Looking outside your own industry is one of the first things you learn in benchmarking,” Price says. “People in different circumstances have different perspectives of the same problem,” which may apply to the issue at hand. That said, “The richest source of ideas is to approach innovation from the point of view of those who execute the system. Start from the bottom and work up.”

GEN3’s approach is based on systematic innovation, Kogan says, which provides a framework within which to work. “It’s critical to have a discipline within which to innovate, rather than hoping for a creative spark. “As a CEO, I want to make sure I don’t play roulette. I want the best people, but I can’t rely on that when the pace of change is so fast.”

Innovation morphs

Most so-called innovations, however, still remain really mere product tweaks—incremental improvements—gauged to expand existing demand. Genuine breakthroughs—particularly in supply chain logistics—are few and far between, meaning that companies able to innovate in such areas have a real chance to seize competitive advantage.

Product life cycle is one of those areas in which companies can gain an advantage. In the past, the life cycle analyses focused on activities after the idea was created, according to Keith Williams, Midwest director for supply chain solutions, and competency manager for product lifecycle solutions at Hitachi Consulting. “What’s changed,” he says, “is upstream involvement throughout the organization. Companies are trying to define the economics up front,” before the product is designed to include such factors as economy of scale, interest and market opportunity.

From a sourcing perspective, Williams says, innovation can mean “defining a good scorecard to judge suppliers, as well as how the company collects and shares information with suppliers.” He does exercise a reservation for companies with expansive global footprints, “there are situations where you don’t want to (or can’t) share certain data.”

Alba Ceballos, director of international sales and marketing for intermodal shipper Serra International, Inc., notes that while shipping itself hasn’t changed much, the implementation of technology is changing the ways customers interact. “They’re looking for information.” And that is where shippers and logistics providers can differentiate themselves.”

At C.H. Robinson Worldwide (www.chrobinson.com), says Jim Butts, Vice President/Transportation: “We’re going into the demand chain” to improve such features as “order creation, inventory, warehousing, cross-documentation, order optimization, et cetera. We’re finding that as supply chains change dramatically in terms of sourcing decisions and technology, innovation is a much bigger part of how businesses approach their daily challenges. The application of technology is more fluid, so requirements for innovative solutions are more important.”

With a little help from friends

Collaborations in such a fast-paced environment can be vital, but author Robert Price notes that, “Historically, collaboration isn’t used often enough.” He cites the particular importance of what he calls ‘pre-competitive collaboration’ in providing access to significant technologies, many of which are just emerging. Companies participating in such agreements are among the first to develop new services or products based on those technologies.

There’s another type of collaboration, ‘consortia,’ often formed to help emerging industries or technologies develop and to establish standards. Participation in such consortia gives companies input into the fundamental decisions establishing the joint foundations of new areas.

Third-party logistics provider C.H. Robinson Worldwide, Inc. firmly believes in collaboration. As one of America’s largest third-party logistics providers, C.H. Robinson sees a lot of examples of innovative practices among industries. The insights gained by this exposure trickle down to all of its clients, positioning the company as a bridge for best practices between industries.

Some of the solutions based on those best practices, however, remain proprietary. To that end, C.H. Robinson formed the Transportation Management Center, where a customer’s special knowledge of its own market converges with C.H. Robinson’s expertise in logistics to produce company-specific supply chain solutions. For its small parcel customers, C.H. Robinson drilled down to undertake a project to improve small parcel shipping options. Working with its network of shippers, Butts says the company “found a better solution,” which remains a proprietary innovation the company regards as a competitive advantage.

The goal, of course, is to add value. “A lot of people in the distribution chain say, ‘The customer wants it this way, so that’s how I do it,’” Kogan says. But the customer doesn’t always know about the latest innovations and how they can add value or lower costs.

The next BIG thing

When Sprint looked ahead to the future of mobility, it developed a new subsidiary called Sprint Enterprise Mobility to help businesses maximize the competitive advantages that mobility offers. In the process, says Gareth Matthews, Vice President/Marketing and Commercial Activities, the concept of mobility changed from putting cell phones in everybody’s hands into a grander vision of integrating mobility with information and the business process—thereby adding value to the enterprise.

“The goal,” Matthews says, “is to connect people to processes seamlessly, which speeds time-to-market and provides better information.” Sprint Enterprise Mobility was formed in December and is still building its customer base, but Matthews cites RFID as an example of mobility technology that helps people make better decisions because they have more current information. “As a result, you’re actually able to develop new things and new business models that yield a competitive advantage.”

For example, when applied to order tracking and tracing, a keystone of modern logistics, enterprise-wide mobility solutions allow shippers to proactively change routing based on weather or the political climate, and alert customers to the change immediately, giving them more time to adjust their own plans

When applied to manufacturing, enterprise-wide mobility allows products or their constituent ingredients to be handled and tracked automatically, freeing employees for other things. For sales personnel, it allows orders to be placed directly from the customer’s site.

Hope is not a strategy

“Innovation is an objective trend,” says Gen3 Partner’s Sam Kogan. “You need to study products” and their evolution, and to understand your own company and “where you fit in distribution, because distribution as we know it will disappear.” Kogan cites traditional trading companies in Japan. Even 20 years ago, you couldn’t operate in Japan without forming an alliance with one. Today, that once omnipotent distribution network is falling apart in the wake of strategic procurement and e-commerce.

Many companies are desperate for a competitive advantage and are hoping for a miracle. But hope is not a strategy. Instead, proclaims Vijay Govindarajan in his Harvard Business Review article, “Businesses have to stretch themselves a lot to think about what is needed to make these things happen.”

Forget, Borrow, Learn:
Three Principles For Innovation

If there are any guidelines for innovation, they are “forget, borrow and learn.” (For a richer discussion of these guidelines, refer to: Vijay Govindarajan and Chris Trimble, from Ten Rules for Strategic Innovators: from Idea to Execution, Harvard Business School Press, December 2005).

“Forget the rules by which established companies play,” advises Vijay Govindarajan, professor international business, Tuck School of Business, Dartmouth College. Those rules are based on legacy technologies and the way things have been done historically, and aren’t necessarily effective in today’s market.

Borrow ideas from other industries. Focus on the core issue and identify other industries that deal with similar issues. Oftentimes outsiders have the different perspectives you need to help you move ahead. “Invention is the last resort,” Sam Kogan, president and COO of GEN3 Partners, says. “You don’t need to invent what you can borrow.”

Learn. When you’re creating breakthrough innovations, there are a lot of unknowns. “Every supercomputer Seymour Cray designed was a failure and had to be reworked from scratch,” notes Robert Price, retired Control Data CEO in his new book The Eye for Innovation from Yale Press (released November 2005). Despite the failures, Cray produced “the most advanced computer systems of the day,” Price says.