Commentary by Jack Hipple

The IBM Study on Innovation

The IBM Innovation Study--What Does It Say?

The recent pioneering global study and interview of corporate CEOs regarding innovation and its importance provides many insights into not only the world of innvoation, but the competitive nature of it. If everyone but you believes that innovation is the number one focus of business right now and you don’t, a serious pause for thinking is due. This study involved over 700 corporate leaders from arond the world. What does it say?

First, that innovation needs to be CORPORATE activity, not just an R&D activity. There are just as many opportunities in operations, finance, marketing, and services as there are in research and new product development. The business model used was cited as one of the most significant areas and had a payback twice that of innovation in operations. This raises the question again of deciding what business you’re in. If you’re supplying computer hardware, is your business building and selling computers or is it supplying a methodology for people to run calculations and store data? Is there a different business model? You bet! Consider the recent Forbes article (Feb 11, 2008, p37) entitled "The Death of Hardware". It describes the case of a major web business (Zillow) that provides up to date home pricing information to consumers. Doing this nationwide for 67 million homes takes up 4 TERABYTES of memory. Updating this for the recent housing price collapses in most parts of the country was going to cost a million dollars and take six months--unacceptable to its customers. Zillow ran the data over the internet using rented computer space from Amazon (are they in the book business or the information business you should be asking now) for $50,000 and it took 3 weeks. If you’re the IBM or Dell salesperson calling on Zillow, how do you feel? Were you calling on the right customer? Who was?

65% of respondents to this survey indicated that organizational structural change was the most common business model innovation, followed by 50% indicating major strategic partnerships. Not new product development. What does this mean? That HOW we do business is just as important as coming up with the next whiz bang thing. Consider the example above. If you’re Dell, is it time to rethink the focus on PC’s? Why not rent programs and storage space that is accessible over the web with a very inexpensive home device? What’s the impact on Microsoft of renting software vs. selling millions of copies of something that is used only once in a while? This is being done, but not by the major PC players. Computer data entry without keyboards is another intersting example. It will be interesting to see what happens long term. The study shows that business model innovation’s impact on the bottom line is at least 5X that of innovation focus on products, services, or operations.

The most significant barriers to innovation cited by these global executives were government/legal restrictions and economic uncertainly (external) and unsupported innovation culture and limited funding (internal). This is truly an amazing response as we know so much about these issues (except the government!). The culture and funding are determined by the CEO’s and their business managers themselves. If a CEO turns the innovation spigot on and off frequently and downsizes innovation at the first sign of uncertainty, this memory stays around a long time. We’ve been a part of and led studies on this and we keep reinventing the wheel and our knowledge. This key finding suggests that we have met the enemy and it is us. A leader can control funding and support. A CEO and the managers that report to him or her can question the hiring processes and the type of people hired. Are we cloning ourselves when we need to change ourselves? There are many psychological typing instruments that will accurately assist in assessing problem solving styles. Do we use them in team formation? Do we use them for career counseling?

The bottom line of all this is that business and people are the key concerns in the innovation area. You did know that, didn’t you? And your business practices reflect that, don’t they?

More on this study next time.

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