Top Down Innovation

Products are getting smarter. Business models are more volatile. Customers are connected and empowered. The pace of technical change and the volume of data pouring into companies are unprecedented. Innovative winners will harness these trends to become global icons. The losers will struggle to stay in business and many of them will fail. Welcome to the world of innovation management in the twenty-first century.

Ford Motor had a problem. Workers at its state of the art assembly plant were taking too long to produce each vehicle. Top management came up with a radical innovation by rethinking the standard automotive manufacturing process. Productivity soared, with the average time to produce each vehicle speeding up from over 12 h to just 90 min. With further process improvements, Ford accelerated the pace of global production to under a minute per vehicle. This was an unprecedented level of efficiency, a change that allowed the company to reduce car prices dramatically. Lower prices meant that millions of Americans could buy their first automobile. The advantages of Ford’s manufacturing innovations were so enormous that they revolutionized the entire automotive industry. The process efficiencies were quickly copied by other manufacturing sectors generating similar productivity advances. The radical improvement that Ford pioneered back in 1913 was the moving assembly line, an invention that established Ford’s early reputation as an architect of transformation.

Reed Hastings found himself in the middle of a customer and social media firestorm in the fall of 2011 when Netflix announced a plan to reinvent itself as a streaming media access provider—to the disadvantage of its DVD rental customers. Netflix intended to spin out its original DVDs-by-mail subscription business into a separate company called Qwikster while the Netflix brand would offer only streaming video options. The company’s most popular $9.99 per month subscription plan for combined streaming plus DVDs-by-mail would be eliminated. Customers would have to choose between subscribing to DVD titles through Qwikster and accessing streaming media titles from Netflix—or be forced to pay monthly fees to each company to maintain both types of access. It seemed that Hastings had decided to test the boundaries of his theory that companies “rarely die from moving too fast” by pushing Netflix customers to immediately adopt his vision for the future of streaming media.

When Stephen Elop joined Nokia as President and CEO in September 2010, he faced a daunting turnaround challenge. Nokia’s mobile device market share, which had peaked in 2007 at around 40 % worldwide, had fallen to under 30 %. The decline coincided with the launch of Apple’s wildly popular iPhone line and Google’s release of its open and free Android mobile operating system. This new competition triggered a tectonic shift in consumer demand, wireless carrier and app developer interest away from Nokia’s classic hardware-centric phone designs to Internet-connected smartphones with an abundance of applications. But that long-term shift and Nokia’s inability to keep pace are only obvious in retrospect. Elop joined Nokia amid expressions of optimism from the company’s directors that “The core strategy is solid and Nokia will continue to power through what is a substantial transformation (from a hardware company to a software company). Elop will help to accelerate that” (Nokia 2010).

Amazon opened its web site to the public in 1995, at a time when buying a product on the Internet was far from simple. Few of the product search options, customer reviews and user interfaces that today’s ecommerce shoppers take for granted were fully developed. Each online store made its own idiosyncratic design choices about how to illustrate its products, where to locate the shopping cart icon, and how many steps were needed to complete a purchase. Often such decisions were based on the aesthetic of the site designer rather than on any data about keeping visitors engaged or the best way to manage the checkout process so that customers didn’t abandon their online shopping carts. As Jeff Bezos put it in his 1997 letter to Amazon shareholders, “This is Day 1 for the Internet, and, if we execute well, for Amazon.com” (Bezos 1997).

“Develop the product that nobody thought of”—that sounds like a clarion call for radical innovation. Is it also an appropriate mission for a non-profit school that was founded in the nineteenth century? When that school is Stanford University, John Hennessy’s emphasis on the business of innovation makes perfect sense. Stanford shares an elite academic ranking with its east coast Ivy League peers, but its geographic location next to Silicon Valley has imbued the campus—professors, students, and the top administration—with an entrepreneurial and innovative zeal that is as pronounced as it is unusual in higher education. In keeping with founder Leland Stanford’s exhortation to prepare students for personal success and direct usefulness in life, Stanford describes itself as a wellspring of innovation. Its web site proudly notes that in the last 70 years over 39,000 businesses owe their start to the inventions and entrepreneurial aspirations of its faculty, administrators and students.

The pace of technology change is only going to accelerate. Disruptive innovation, propelled by cloud computing, big data, ecommerce, ubiquitous mobile and social connectivity, and the rising generation of born-digital entrepreneurs, is the new normal for managers in every industry sector. For an increasing number of organizations, growth prospects and survival will depend on their innovation strategy. Executives can decide to lead with innovation, or respond to it, but they can no longer ignore it.