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Innovation Holds The Key To UK Future

From the laptop to the laws of gravity, British ingenuity has shaped our world and we have a strong history of championing new ideas and inventions. But as we slowly creep out of recession are we in danger of losing our ability to innovate and as a result our competitiveness? This article, written by Andrew Moore, COO, DAV Management, looks at how companies can continue to foster innovation within their organisations, both large and small, as we enter a new decade. It reviews the barriers and the opportunities that exist in the UK around innovation and what is needed in order to keep innovation front of mind in the UK at a time when it is extremely tough to get the Board to invest in new ideas – especially if these are unproven.

The Genius Inside

If anyone could be said to have invented the future it was Alan Turing. He created a wartime code-breaking machine that was the basis for all computer technology. By imagining a machine that could solve all conceivable mathematical problems, Turing had invented the concept of the programmable computer years before anyone could even see how to build one. Other famous British inventors include Frank Whittle, the inventor of jets that thrust Britain into the jet age and turned the aviation industry on its head. Joseph Banks, the founding father of scientific expeditions that was ultimately to lead to Charles Darwin’s ‘Origin of the Species’ and a plethora of discovery. Isaac Newton, whose book spelled out the mathematical principles that govern the universe and the law of gravity that holds all matters in place and there are many others to add to this impressive list. Since the first Industrial Revolution, which began in the 18th century the UK has always been strong on ideas, inventions, and can boast a solid manufacturing base and R&D.

However, the beginning of 2010 saw the UK manufacturing industry mount a week-long campaign aimed at “debunking” the “popular myth” that the UK has lost its manufacturing base. According to some statistics, the UK is still the world’s 6th largest manufacturer with strong positions in certain key industries, such as a 15 percent global market share in Aerospace. Manufacturing still accounts for fifty per cent of our exports, and seventy-five per cent of our business R&D.

A Sector In Decline

The reality, however, is that in the UK, the manufacturing sector is in relative decline. Over the past 30 years manufacturing output has grown more slowly than services, and the number of people employed in manufacturing has dropped steadily as productivity per employee has increased. Some nine million people worked in the manufacturing sector in 1970. The number was starting to fall sharply even before the rigours of the Thatcher era and today is well below four million. As recent employment statistics show, there is no sign that this trend is about to be reversed.

The sector faces a number of serious challenges, from the long-term threats posed by emerging markets, to the current economic downturn which is affecting manufacturers in high-wage and low-wage countries alike. Perhaps most seriously, Britain has a highly negative balance of trade (total exports minus total imports) that is not sustainable.

Many warn that UK manufacturing is also facing a critical skills shortage. While the government has pledged to expand scientific and technical education, the last decade has seen the closure of several university science departments. The announced public spending cuts of £6 billion will not help the outlook. It is all a far cry from the fostering of innovation of the era of Brunel which created an industrial heartland and built an empire. Now the new empires are the Tiger economies of Asia and the potential of the BRICS countries.

So, as we begin a new decade from a starting point where far too much reliance in the economy has been placed on financial services and property, and where growth prospects are at best flat, it is clear that recovery from recession must be driven by innovation. Although most companies are cautious over their R&D and development budgets, this is actually the time to invest in sustainable innovation, as it is the only way we can get out of today’s economic malaise.

Defining Innovation

According to John Riley, founder of the UK Innovation Initiative, an organisation aimed at bridging the divide between innovators and industry (), innovation isn’t derived just from ‘making things’ and as we move into this new era where manufacturing is clearly declining we should not lose heart but look to other forms of innovation to create a sustainable and competitive business.

Today there is a need to provide a clear distinction between innovation and invention. Innovation is a new way of doing something or "new stuff that is made useful". Innovation may refer to incremental and emergent or radical and revolutionary changes in thinking, products, processes, or organisations and is more about taking up new ideas and getting investors to use these ideas to create business value – this is what makes it truly innovative. Innovation can be a service, or a new process. It may not necessarily be a product but it is something that enables the business to work more effectively, efficiently and is delivering a competitive advantage.

On the other hand, an invention is a new composition, device, or process. An invention may be derived from a pre-existing model or idea, or it could be independently conceived in which case it may be a radical breakthrough. The problem, John Riley suggests, is that many inventions don’t see the light of day within an organisation and so those inventions are not always innovative! He goes on to say that the difference between invention and innovation lies in the practical application of new products, processes and approaches to deliver real benefit.

But whether it is innovation or invention, currently much of our British talent is being sucked abroad. For example, it might surprise you to know that the IPod was a British idea but like so many ideas and many inventors, in recent times we have lost these to the US and other markets.

Now more than ever, we need innovation to be front of mind for the UK as opposed to letting this drift across to the US, the Far East and more recently BRIC nations, especially if we want to safeguard the UK’s competitiveness. But in order for us to do so, we need to somehow break through the bottlenecks. Despite the recognised need and prolonged national effort for industry to find, nurture and adopt UK innovation, too few are taken up by industry end-users.

Uncorking The Bottlenecks?

According to John Riley, if an organisation has a specific requirement and can identify a new innovation to solve that problem, there are still a number of hurdles for this new innovation to jump through in order for it to get adopted:

1. The technical evaluation. The innovation has to work of course, but technical innovators tend to be very full of product capabilities and feature sets and often don’t realise the commercial or business needs. For example, that the product needs to be able to scale and integrate with five different operating systems.

2. Demonstrating a business value fit. Innovators more often than not tend to be “techies” so they do not always have the commercial nous to look at what value the invention could bring to the business. They talk in ‘bits and bytes’ and not in a language that will engage the business or demonstrate the advantage the innovation can deliver.

3. Getting buy-in for an innovative idea through the ‘procurement police’ can be near on impossible. Procurement typically focuses on price and not long term strategic value. It is not geared up or equipped to handle innovation and is usually a different breed targeted on cost reductions, not the business value-add that innovation can deliver.

Additionally, most finance departments of large corporations demand unrealistic due diligence assurance and have drawn out procurement and risk avoidance processes that do not really accommodate innovation. Once an inventor has shown that a solution or a service or process can solve a problem, an organisation may want to adopt this but the innovator cannot demonstrate that the idea or the company will be around in two years time, there is no track record. So those corporate champions who support innovation adoption often take on a high level of personal career risk due to the inherent difficulties in satisfying corporate risk management requirements. Innovators are faced with the “Catch-22” of only being able to prove that they are financially viable if they get the contract they are pitching for. They also often become enmeshed in big company routines, and have to bear the crippling cost of extended evaluation processes, the vagaries of corporate politics and lengthy decision cycles. It often seems as if every hurdle to innovation is being put in their way.

Government And Supply Chain Frustrations

Likewise, there is no government funding to accommodate this risk in order to provide the pre-requisite credibility for products and services, so innovators have to prove that a product is suitable or viable at their own expense. This is an extremely expensive process to go through which in turn cripples smaller organisations and often precludes them from bringing a new innovation to market.

To add to this, UK Government procurement processes for buying technology are also very tightly controlled by EU directives and in some cases can take up to 17 months to push through new innovations, whereas in other European countries such as The Netherlands this can take as little as six months. Both countries are working to the same EU rules but they choose to interpret these in a different way. What this means is that it is a much longer cycle to get new technology through in the UK and adopted by UK Government. Advantage the Netherlands.

Take the example of an innovative company with innovative products that pass the proof points – they save time and money. Often these innovative organisations are then passed through to the prime contractors who depend on ongoing stable revenues from the customer. However there is a lot of win/loss in the supply chain between large contractors and smaller contractors. For example, if a smaller company comes along and can make it cheaper and quicker, then often these ideas gets blocked by the prime contractor as it may actually hurt their revenue streams. Large suppliers then become the gatekeepers for the customer and the project. Large suppliers understand the processes they need to go through and have the resource to deal with the customers. Small companies, however, do not.

A Lack of Centralised Innovation Strategy

Today there is no countrywide joined-up and centralised strategy board for innovation to provide the holistic view the UK needs. Funding and innovation is undertaken on a regional basis where Development Agencies provide help, advice and in some instances money, but this varies enormously from one county to another. This lack of representation for innovation means that it will prove difficult for the UK and its innovators to really start to export innovation and ideas. Most innovators are steered towards Venture Capitalists for funding and advice. More often than not these organisations may inject a large amount of money, but they will also take away control of the company which itself could stifle originality.

Yet Britain has a history of entrepreneurship with science parks across the country full of smart start ups and university spin off companies – all looking for their big break – despite in recent times the nervousness of investors. According to Lord Drayson, the former Science Minster “The one area that has not got stronger in the past ten years is the venture capital market. The science and the expertise in management is stronger than ever before.” There is expertise in the biotech and Cleantech markets, with a strong concentration of ideas around Cambridge, but it is limited in size compared to say, the economic innovation engine that is Silicon Valley in the US.

The UK is particularly strong in the area of computing and technology. The gradual convergence of social media and business technology that we have witnessed in the past couple of years brings innovation into organisations in a different way. Highly regulated industries, like the financial services market and banks for example are allowing Facebook and other social networking tools into their organisations but they cannot make up their minds whether they need to embrace it or police it. Social media provides a remarkably compelling way for users to develop relationships with other users as well as companies they wish to do business with. But the trouble with social media is that it is a relatively new phenomenon and there is no blueprint for how businesses should use and manage these tools.

The trouble is if you don’t adopt new technologies like social media, in years to come you may not attract the best and the brightest individuals into your organisation. It may be that a company’s decline will be traced to its failure to embrace social media, just as many companies missed the boat on the Web while their rivals flourished. On the other hand will those bright young minds abuse social networks and social media? This is the dilemma that many organisations are grabbling with today.

Likewise on the world stage if innovation is taking place in emerging companies and countries around the world but not at the same pace in the UK, will this leave UK business exposed? Plunging stock prices in this economy have made multinational companies more vulnerable to acquisition. Even BP is at risk of a takeover, some analysts say, following its problems in the Gulf of Mexico. So emerging growth companies that are becoming innovation leaders could quickly amass greater market capital values and overtake or take over traditional well-established organisations.

An Example of Creative Thinking

The problem is how to empower innovation workers to accelerate product development, eliminate risks, and sustain the innovation process, and foster a creative, innovation energising organisational culture. One such company that has consistently invested in cutting edge product initiatives that enhance market share and market capitalisation is Honda. Martin Moll, Marketing Director for Honda states that his company has a long history of innovation where it has has provided mobility products for a variety of diverse and challenging situations, be they geographic, climate or economic.

“At Honda, we believe that innovation brings the customer with us. There are many things that we are doing around innovation. Take the lawn mower, for example, which traditionally has had a very heavy petrol focus. With the world’s finite resources and to fit with our environmental strategy we looked at how we could produce a lawn mower that is still reliable with a resource that is more replenishable. Our latest invention, a robot mower, is an evolution of the basic electric model that no longer relies on petrol power. It offers the customer convenience as well as satisfies their conscience. All you do is simply set the parameters around your garden and the robot mower goes out and does it for you. When the battery charge goes low it locates itself back to its charging unit. Your garden is now there for your enjoyment rather than being a chore.

Another example and perhaps what we are better known for is innovation around cars. Here we have an increasing focus on hybrid technology, which Honda has been at the forefront for the last 10 years. Our latest hybrid CRX model is coming out in June. This combines electric power with petrol. It won’t compromise power usage, which has always been a criticism in the past. Instead the electric motor takes over when the engine is idle. It recharges itself and where you have spare capacity it transfers the energy and consumes less fuel. When you come to a stop, at a traffic light for example, it cuts the engine out all together so you are not making emissions, and it restarts when you press the accelerator. In future even the government’s midterm direction is in support of hybrid as opposed to fuel and the need to achieve zero emissions.”

Martin concludes by outlining why Honda’s innovations have worked. “At Honda it is about two key elements, mobility and making absolute sense. Whilst all new products are designed to be beneficial, we believe in creating products that are relevant, have use and fulfil what customers’ demand in the way that they like to live. Our product innovations must not be detrimental to the environment. We are not giving customers solutions at any costs but an innovation that fits in with what they perceive to be in tune with their lifestyle because we understand that society wants to exist.”

Fostering An Innovation Culture

Ideas spark innovation and ideas are the result of having a clear understanding of the problems that need to be solved and the potential solutions. But in order to have the ability to innovate and sell, you really need to gain insight to truly understand the needs of the market. But how do you identify the key factors that provide this understanding and make sense of very complex situations? How can an organisation help foster innovation? How does a large organisation deal with entrepreneurs when they are on the inside? How do you develop a culture for innovation?  And how do you determine what innovative ideas to invest in and how best to approach the market? The reality is that you can’t invest in every idea and all these initiatives present risks because some innovations by their very nature will fail. As Woody Allen once said, “If you're not failing every now and again, it's a sign you're not doing anything very innovative.”

The conclusions of recent research undertaken by software technology vendor, Adobe found there are clear barriers that on a day-to-day basis, prevent employees from bringing innovative ideas to life. The report, “Unleashing Innovation”, found employees generally saw themselves as being innovative but they were less impressed by their peers, managers and organisations overall. 43 per cent of line manages rated themselves positively as innovators, but only 22 per cent rated their teams, and only 18 per cent their Board directors innovative - essentially creating silos of innovation within the workplace.

To embrace innovation, businesses must become true learning organisations where individuals are allowed to experiment and where it is okay for small well managed projects to fail – providing there are fast feedback loops on the reasons for failure and that lessons learned are embraced in order to seek success in other projects. In other words organisations need to create an atmosphere that accepts failure as part of the learning process rather than a finger pointing or a blame culture environment.

Creating A Safe-Fail Environment

At DAV our adaptable and resourceful teams not only have the experience necessary to help organisations develop and deliver innovation through technology when it is required, but at the same time we can also help them to develop a culture for innovation, determine what innovative ideas to invest in, and help create the right environment for those ideas to thrive. It’s also about ensuring that what needs to be done actually gets done, as well.  Innovation requires completion.

More recently we have found that one way to achieve the right environment and to gain the necessary insight and understanding is to look at cognitive strategies and theories in order to allow a culture in the organisation that focuses on safe-fail experimentation rather than fail-safe. In essence cognitive strategies help organisations to look at old problems in a new way, to seize new opportunities in uncertain and complex situations where traditional approaches have failed to deliver success.

We’ve partnered up with an international research organisation, Cognitive Edge, and together we have created a space for our clients where traditional management practices no longer apply and where we are enabling innovation and ideas to flourish because the decisions and the strategy are based on real insight and understanding. Someone once said, “The most successful people are those who are good at Plan B.” At DAV, we help create the right culture to ensure that all your plans, A, B and even C, deliver the business value and innovation today’s times demand.

Innovation In A Complex World

Today, the world we live in is far more complex than it was in years gone by. In May 2010, the official figures showed that economy grew slightly faster in the first three months of this year, than had been anticipated. The official figures showed that GDP rose by 0.3 percent up from the estimate of 0.2 but still slower than the 0.4 percent growth in the final quarter of last year.

So we are still coming out of recession but very slowly and businesses can expect more reining in before the year is out. The US has certainly seen a more stable and scalable recovery than we have witnessed here in the UK. But despite some continued gloominess Britain’s entrepreneurs can take heart from the fact that genuine innovation will always be a key selling point. The government has a greater role to play to ensure that the UK remains competitive, as do larger corporates who need to adjust their mindsets and re-model their processes to narrow the cultural gap that exists between enterprise and SME innovators.

The key to long term success will be to ensure that you adopt innovation and new ideas within your own organisation rather than stifle initiatives, either because you haven’t created the right environment or you simply don’t have the visibility to make informed decisions.

Those organisations who innovate will lead the way in the next decade. Those who don’t are in danger of not only being left behind, but they could possibly find themselves extinct.

- ENDS -

Footnote: More information on Cognitive Strategies can be found in DAV Management’s latest business paper: Thriving, Not Simply Surviving.

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