Leaders can capture more value from existing resources without launching disruptive change programs by focusing on the development of innovation networks.

It’s pretty clear today that the innovation of products and services has become a primary driving force behind the growth, performance and valuation of companies.

There is no “best practice” solution or proven blueprint to seed and cultivate innovation, nor will all efforts necessarily lead directly to results. The key to conquering the innovation monster, particularly in a recessionary environment, seems to be gaining insights inexpensively through an innovation process.

A major challenge for organizations today is how to support innovative thinking effectively. Every organization has some people who are more passionate about innovative thinking and others who feel uncomfortable about anything that requires change. Yet shared traits across many innovative teams or organizations require participation from multiple groups across a variety of functions if they are to be harnessed effectively.

To paraphrase Sudipta Bhattacharya, then SAP senior VP, in a 2007 Progressive Manufacturing Summit presentation: Innovation is never done in isolation.

In June, Knowledge@Wharton reported on a recent conference at the Mack Center for Technological Innovation, where “business leaders and academics argued that, rather than going back to the drawing board, companies should go outside their walls and tap into ‘innovation networks.’”

The idea is that new ideas spur more ideas, and networks allow firms to access the development capability of others, essentially generating a cycle of innovation. “Effective networks allow people with different kinds of knowledge and ways of tackling problems to cross-fertilize ideas,” McKinsey Quarterly stated in a 2008 report (registration required).

One area to consider is external innovation, wherein the innovation network enables organizations to reach outside their walls to find new sources of ideas.

“Every company recognizes the centrality of the consumer and that you have to start designing strategy by understanding the evolving needs of your target consumers and the like. The reality is that many companies are talking about this, but not doing it,” Jerry (Yoram) Wind, co-author of the new book The Network Challenge, recently said in an interview with Knowledge@Wharton.

“Yet the emergence of networks of consumers and the increased importance of social networking in life in general leads to a new way — and opportunity, really — to capitalize [on] and truly implement a customer-centric strategy where you realize that you have empowered consumers and they are part of your network,” Wind continued.

Dwayne Spradlin, president and CEO of online innovation marketplace InnoCentive, put it this way: “Do you consider the lab your world or your world the lab?”

InnoCentive, essentially the eBay of innovations, is a network of 170,000 experts ready to solve problems and link their network of experts with advice-seeking companies. The site allows users to submit their innovative ideas to hundreds of challenges, and those who provide the best solution receive a significant financial award. InnoCentive has paid out more than $3.5 million in awards to more than 300 winning “solvers.”

The company’s president and CEO explained to Knowledge@Wharton that academics who polled InnoCentive’s winning solvers discovered something “both startling and intuitively obvious. What they found was that typically … the background of the solver who solved the problem” was “no less than six disciplines away” from the subject area in which the problem emerged.

At the Mack Center for Technological Innovation, according to the University of Pennsylvania’s Wharton School report:

Although there was general agreement that a company could benefit from shifting its focus outside its own world, questions remained about how to make innovation networks more successful. Companies often find it hard to open up to innovation from outside sources, or may use their networks poorly and not get the full benefit. A consensus emerged that many companies must change their culture to take full advantage of the power of network innovation.

Indeed, to make full use of external innovation networks, an organization must have a strong innovation culture internally.

“Innovation networks, like cross-functional teams, require different skills and attitudes,” according to McKinsey, whose research “implies that most senior executives do not actively encourage and model innovative behavior.”

Among the “disciplined people-management fundamentals” McKinsey provided for firms to advance innovation: “Take explicit steps to foster an innovation culture based on trust among employees. In such a culture, people understand that their ideas are valued, trust that it is safe to express those ideas, and oversee risk collectively, together with their managers.”

For leading teams to help build a more innovative culture, McKinsey offered the following insights:

• “Members of the top team must agree that promoting it is a core part of the company’s strategy, reflect on the way their own behavior reinforces or inhibits it, and decide how they should role-model the change and engage middle managements.”
• “Identify managers who already act, to some degree, as network brokers and improve their coaching and facilitation skills so they can build the capabilities of other people involved in innovation efforts more effectively.”
• “People need to see results and to participate in the change. To get going quickly and learn along the way, select an innovation theme or topic area, and then create small project teams. While you try out topics and ideas, test the most effective leadership and organizational approaches for your business.”

“Whether they originate from internal or external sources, the ability to successfully capitalize on new concepts hinges on an organization’s ability to capture and identify the value of these concepts,” a 2008 Aberdeen Group report stated (registration required). “[I]t takes more than a great idea to innovate, but that’s where the process starts.”

Resources

Innovation: Sometimes It Takes a Village
Knowledge@Wharton, June 24, 2009

Leadership and Innovation
by Joanna Barsh, Marla M. Capozzi and Jonathan Davidson
McKinsey Quarterly, January 2008

Harnessing Networks to Create Value and Identify New Opportunities
Knowledge@Wharton, July 15, 2009

Innovation and Efficiency: Road Map to Operational Excellence
Speaker: Sudipta Bhattacharya
Progressive Manufacturing Summit (Managing Automation), June 14, 2007

Innovation Networks: New Insights, Open Questions and Management Fashions
Mack Center for Technological Innovation, June 2009

Getting the Process Right: A Fresh Look at PLM and Product Development
by Amy Rowell
Aberdeen Group, September 2008

The “Innovation Recession”
TIME Magazine, Oct. 2, 1978

10 Worst Innovation Mistakes In A Recession
by Bruce Nussbaum
BusinessWeek, Jan. 13, 2008