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Object lessons in innovation

Object lessons in innovation

In this Q&A, a business and technology consultant with 21 years of experience, Patrick Medley, serves up concrete examples of innovation in the global marketplace.

CIO Asia: What should organizations today understand about the nebulous concept of innovation?

Patrick Medley, IBM Global Business Services: When you look at innovation at an organization, basically you see it coming along three dimensions. The one that everybody is aware of, the most common variety is that of products and services. That is about organizations turning around and saying, 'OK, I'm going to change my product -- produce the new corn flakes, or even knives that go backwards.

The second dimension of innovation is around process. So process innovation is about the people in an organization changing the way in which they handle their processes, or putting in place management enhancements. The third is focused on bringing about business model

innovation. We at IBM did a study about two years ago with 700 odd CEOs around the world and through that study we identified one of the key differentiators in terms of performance of those organizations that actually innovated their business models. We found that those organizations that had basically changed the way in which they did business, compared to organizations that had just focused on product and service innovation, and those that focused on process innovation. We then did a lot more probing into that particular area, talking to 35 other organizations, doing some deep dives with them into issues relating to what they had gone and changed.

What came out of those detailed interviews?

Through that we identified a number of interesting facts.

Number one: business model innovation is to some extent about survival in long-term business. To survive, you need to be thinking about how you're going to innovate your business model. Just changing your processes, just changing your products and services -- that could just mean you're going to struggle to survive in the long term.

There's evidence to suggest this once you know where to look. For instance, just look at this simple statistic: 84 percent of the companies that were in the S&P 500 five decades ago, are no longer in it. Then look at which companies are still there and which aren't, and compare what businesses they were in 50 years ago to what they're in now. That's a fairly critical indicator of why you have got to look at some pretty fundamental changes in terms of how your business operates moving forward.

What kinds of business model innovation should organizations be trying to effect then?

We have identified three types of business model innovation coming out of our studies to date.

The first is about different business revenue models, different ways in which an organization generates revenue. The simple example there, for instance, is Cirque du Soleil. It's a circus, but it's changed the whole philosophy of what a circus is and can now charge, say, a hundred dollars per ticket, whereas 20 years ago it only cost you five dollars to watch a circus show.

The second is what we call industry business model innovation. This is really about how an organization to some extent changes an industry. A classic example of this is Virgin, which started out basically as a music retailer, but are now running airlines, financial services, and a whole range of pretty diversified businesses, including the mobile telephony business. Effectively, that's about a brand. It's about something that the image of Virgin carries. It's about doing innovative things. It's about being young, sexy, and that has carried the company through the years.

And the third -- which is what we're seeing most organizations doing today -- is enterprise model innovation. The key here -- and many organizations are doing this now -- is looking at your organization and turning around and saying: What is it I need to focus on to be more innovative? I don't need to do everything about my business. This is about being very clear about what your value proposition and business differentiation are, and then partnering other organizations to basically do the other stuff.

There are many examples of organizations today that have taken this particular path. One classic example that I cite is Procter & Gamble, which basically turned around and said they wanted to stay focused on gaining and leveraging a deep understanding of consumers, driving great relationships with their customers, developing product innovation and creating new products. Why are we doing anything else? was essentially what its Chairman asked five years ago. So Procter & Gamble went down the path and started to work with a number of service providers: people who could do manufacturing for them, people who could do logistics for them, other outsourcing providers. For instance, we now run HR for them within IBM.

Another example that we cite is Bharti, big mobile service provider in India, which basically partnered companies like Siemens to provide its network, and IBM to provide its IT infrastructure -- so they could focus on their side of the business. Which is really about dealing with issues about how they could get out into the marketplace and sell their products, get their messages across, and grow their business.

The basic philosophy is that at the end of the day, to survive you need to think about how you change your business model. Because just doing what you're doing today, you're probably not going to be in business in 50 years time.

I'll use IBM as an example here. We have transformed from being a traditional hardware supplier -- delivering PCs, boxes, et cetera -- into being a software and services provider. Today, over 50 percent of IBM's revenue comes from Services. We have actually been through this change ourselves. We've learnt that for us to survive we need to be constantly finding new ways of doing business, and new areas to operate in. And that also involves always asking ourselves who we can be partnering in moving forward.

Another example is that of Nokia, whose beginnings can go back to the forestry industry and the wood pulp mill business. But look at what Nokia is today. That is an amazing transformation, to move from being a forestry company to being now probably the number one mobile phone and connectivity solutions provider in the world.

I also take the mobile phone as a classic example of change, because the mobile phone has become multiple devices in one. I actually got one of the first mobile phones in Australia in 1986. It wasn't a mobile phone. It was a car phone that for the first time you could take out of your car. It was a foot high and weighed about 20 kilograms, and calling it a mobile was an exaggeration. It was more a luggable phone. And if you look at the mobile phone today: it's a camera, you can get your emails on it, you can get TV on it, you can surf the Web on it. It's more than a mobile phone. The whole thing has evolved. I have no idea what the mobile phone will be doing in five years time.

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