Management№ 3 December 2017

Economist Joseph Schumpeter introduced his theory of innovation in the 1920s. He saw the activities of pioneering entrepreneurs, who searched for new business solutions and drove innovation, as playing the key role in economic development. However, innovative ideas are not enough on their own, as they need to be put into practice effectively.

 

Pizza as an Example

Peter Drucker, one of the most influential management theoreticians of the twentieth century, noted that business has only two functions: marketing and innovation. “They create results. Everything else is a cost,” he said.

In 2010, Domino’s Pizza shares were worth less than $9 apiece. Seven years later they went up almost 20 times, and the company itself became the second largest network of pizzerias in the world. How did this happen? It put all its efforts into clever marketing and innovation, just as Drucker prescribed.

At first, Patrick Doyle, Domino’s new CEO, improved product quality and invested heavily in advertising. Then, Domino’s introduced a number of innovations that improved customer service. After all, a pizza by itself is not worth much if it is not delivered properly. Customers want their pizza quickly and hot, as if straight from the oven. So the company optimised its orders using a mobile application and introducing delivery via a messaging service. Later, it turned to improving its delivery fleet and equipping its delivery vehicles with portable ovens, which could keep up to 80 pizzas warm.

Change always begins in the mind. “I could go on about the innovations at Domino’s, but Doyle’s most important lessons are about the mindset required for organisations to do big things in tough fields”, wrote William Taylor, the co-founder of Fast Company in his article for the Harvard Business Review.


 

Innovations can be classified in several ways

In and of themselves

  • Products (new/improved goods/services)
  • Processes (new/improved production processes/provision of services)
  • Marketing (new design/packaging/method of promoting)
  • Organisational (new methods of organisation to increase efficiency)

By their level of influence

  • Gradually beneficial, e.g. the development of the iPhone in recent years)
  • Appearance of radically new sectors and technologies, e.g. the aeroplane
  • Architectural, e.g. the Sony Walkman cassette player, which borrowed components from devices that already existed
  • Breakthroughs that remove 'extraneous' products from the market, e.g. USB sticks which made floppy disks obsolete

According to source:

  • Open
  • Closed

Materials used from the 'Management of Innovations in Russian Companies' report (a joint initiative from RBC and the Innovation and R&D Directors Club


Internet resources with information on the latest trends:

Trendwatching – one of the leading global sources on innovation
Trendhunter – a global collection of cutting-edge ideas based on crowdsourcing
Moreinspiration – an overview of innovative products and technologies in various sectors
Coolbusinessideas – a blog about the latest and most promising business ideas
Cool Hunting – the best design, technology, cultural and art innovations

Innovative Puzzle

Fear of change and underestimating the harm of inaction are the two biggest enemies of innovative management. Since innovation is always a risky business, it is treated with caution. At the same time, people often forget that while some wait, others act.

However, a desire to be ahead of the curve is not enough on its own. Innovation for its own sake does not usually work. Instead, it has to always solve someone’s business problem. “Our sales are growing, the number of restaurants is growing, and the quality of our technology is growing,” comments Patrick Doyle on Domino’s innovative strategy and its successful application. If they do not act as a solution to a problem, innovations are simply irrelevant. Management consultancies always recommend integrating innovation into the long-term development strategy for any company. The idea needs to go beyond ‘what should we do?’ and into ‘what results do we expect from implementing it?”

In the late 1990s, in Russia, the iron ore market stagnated: demand for products and prices stayed flat, but Lebedinsky GOK (now part of Metalloinvest) took a risk and built a new unit for hot briquetted iron (HBI), the likes of which had never before been built in Russia. At that time there were only a few such facilities in the world, in India, Mexico and Venezuela. This decision was bold and revolutionary, but time proved that it was necessary. In 2007, Metalloinvest launched a second HBI plant at Lebedinsky GOK with an even bigger production capacity, and in 2012 it decided to build HBI-3 Plant, which was launched in July 2017. The company’s bet on innovation made Metalloinvest the global leader in the market for value-added iron ore products.

In the late 1990s, Lebedinsky GOK took a risk and built an HBI production facility, the first in Russia

Lean Innovation

What else encourages innovation? Building creative teams and stimulating creative thinking in employees are also vital for management. There are many examples of successful innovative projects conceived by staff members, which brought their companies to new heights through advance products and technology. Google, for example, has a whole culture of start-ups built into its structure. It is thanks to this culture that customers around the world can benefit from applications and services such as Gmail, AdSense and Google Cardboard.

This is especially true when working with young ambitious employees. It is up to individual companies how they choose to stimulate creativity in their workforce. Metalloinvest offers two platforms to its young staff members who want to share their ideas with senior management: the Scientific and Technology Conference and the Corporate Forum of Youth Initiatives.

“This is a traditional and extremely useful practice. Using these platforms, our specialists are able to share their ideas directly and secure managerial support, while the company receives first-hand practical suggestions on improving production.”


Ruslan Ilyasov

Deputy CEO for Organisational Development and Human Resources, Management Company Metalloinvest

In the 1990s, Steve Blank, the godfather of Silicon Valley, who has launched eight successful start-ups, recognised the importance of customer development. His methodology utilises a customer-oriented approach to product creation. As Blank puts it, market demand should drive all innovative business activities. This approach is one of the component parts of the Lean Start-up methodology.

It could appear that customer development is directed entirely outwards, into the consumer market. But in case of innovation the methodology can prove useful for businesses internally. When it comes to heavy industry, innovation can manifest itself not only in the final product or service, but also in the process of development and production. And it is the company’s employees who are best placed to help identify what processes require innovative intervention.

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