April 2009 - Posts

Welcome to the Innovation@Merage Blog
The Paul Merage School of Business is pleased to provide this blog for discussing information on all aspects of innovation and how it is impacting businesses and academics. We hope you will find our blog to be an engaging way to communicate about the latest topics on thought leadership.  

  • Some Surprises on the Innovation Survey

    In Business Week’s annual survey on innovation, it’s not a big surprise that many of even the most innovative companies have taken a hit. (With stock indexes hovering at about half their peak value, it would be amazing if they hadn’t.)

    Also it’s no surprise that Apple and Google lead the list of still-innovating companies. It’s in their DNA.

    The surprises are hidden in the deeper stories. Tata Motors, for example, has not only upended the car industry by producing the first
    $2200 car, they are going to be selling those cars at electronic stores and department stores, plus Tata owned retailers. That’s a whole new business model after a century of dealerships.

    One important element of their innovative approach is that they sponsor annual awards for the best innovations. Plus an award for entrepreneurial employees who tried something new that failed. What? Yes, awarding failure—something that a lot of companies give lip service to, but very few actually do.

    A less hopeful surprise, however, is the result of a survey by Duke’s Pratt School of Engineering. They found that half of Americans believe that the innovations of this century will not come from this country. Most believe that China will take the lead.

    If you’re an entrepreneurial company today, you have a chance to prove them wrong—but only if you keep innovation alive during these financial times.

  • Killer Cultures

    As an advertising professional, you couldn’t miss the launch of the revolutionary new Saturn some twenty years ago.  Never mind that it wasn’t an engineering marvel. It was built by GM, but created in a clean new plant with friendly labor relations, sold by dealers who wouldn’t haggle on price, delivered to customers who were so loyal they would use scarce vacation days to celebrate together at a manufacturing plant.

    Today, unless there’s a last-minute Hail Mary from the dealers, Saturn is dead, a toxic brand that’s helping bring down GM.  In an article in Newsweek, Paul Ingrassia explains just what went wrong, and it’s a classic lesson in corporate culture.

    First there was infighting--sibling brands fought for resources, and won. Then they lost their champions—both the CEO and the labor leader were replaced by people who quickly reverted to the status quo. Then massive debt and falling sales drove GM to start making Saturns at otherwise idle plants, far from their distinctive culture. R&D was cut—they didn’t have a new model for a decade. In short, everything that made this an innovative approach was scuttled, and the entire auto industry has paid the price. Because instead of learning from Saturn, GM used their powerful internal culture to kill it.

    GM execs have long lived in a bubble, getting fresh new cars every few months, driving wide mid-western streets to their spacious suburban homes, flying to meet their peers in corporate jets. So while their market share has been falling for 30 years, they kept reinforcing the old way of doing things, fighting the fuel standards that could have made them competitive, and killing their own innovations in electric vehicles.

    Looking to the future of your company, if you want to stay ahead, it’s not enough to come up with a new product now and then.  You have to make sure your corporate culture isn’t killing innovation faster than you can create it.

  • Investing in the Recession, Part Two

    The Wall Street Journal is calling it the iPod Lesson—and it’s more proof that investing in innovation during hard times pays off. The amazing 9-minute Kraft macaroni and cheese, launched in 1937. Miracle fiber nylon, 1938. And, of course, iPod in 2001 when the dot com bubble had flattened technology companies.

    Somehow people found the money to buy these items that nobody knew they needed, even in the hardest of times. And the advantage lasted for decades.  Which is why even though revenues dropped 7.7% last year, R & D spending held flat at the most innovative companies, and some even reported higher spending.

    Intel, for example, had a 90% drop in fourth quarter earnings, but only a slight dip in R&D, and new investments of $7 billion slated for the next two years. They’re investing in novel ways, partnering with universities to share their expertise and reap the value of fresh ideas. In our Topics in Strategic Innovaton class last quarter, our MBA students worked closely with Intel to explore new markets and new technologies.

    So if you’re trying to predict the winners after this recession, you might want to take a closer look at the folks who are brave enough to keep investing in innovation when all other budgets are slashed.

  • Top Performers — This Year?

    Business Week’s Top 50 Best Performing Companies from the S&P 500, as you might expect, has some pretty sobering news. Because it’s figured on a three-year average, some of the companies that made the list are now going through layoffs, reduced earnings and are trading at a fraction of last year’s share prices.

    Oddly enough, however, only one was cited for its excellence in cost cutting.  The star performers in this group are the ones who have a strategy of innovation. And not just Google and Apple, but even staid Colgate-Palmolive, with their new disposable toothbrush with built-in toothpaste, or #1 Gilead, with a single-dose timed-release HIV drug.

    In fact, recessions are precisely the time when companies get ahead by doing things better, cheaper and faster.  Pepsi gained huge market share against once-invincible Coke by selling in bigger bottles during the Depression. The iPod launched during the last recession.  And according to a McKinsey study, the companies that were most profitable over the last two decades were the ones that increased spending on R&D and acquisitions during recessions.

    So whether you’re contemplating strategy for your own company, or looking to invest, now more than ever is the time to look toward disruptive innovation.

    Print, podcasts and video: The BusinessWeek 50