Innovation in Recessions: Cranking Up the Oxygen
New technologies are "just a vehicle to respond to needs," Rudy Provoost, CEO of Philips Lighting, says in a recent podcast with Knowledge@Wharton. Provoost, on campus for Wharton's Full-Spectrum Innovation: Driving Organic Growth program, spoke with the program's academic co-director George Day about Philips's approach to innovation. Philips is the world's largest producer of industrial and consumer lighting products, and has a big role to play in the ongoing transformation from incandescent to solid-state lighting using LED technology.
Provoost, who served as CEO of Philips Consumer Electronics before moving to lighting last year, discusses revolutionary shifts he faced in other technologies — such as the move from analog to digital, CRT to LCD and plasma. "Lighting is at the crossroads — and I say that both from a marketing perspective and from a company perspective," Provoost says. "There are some very important real trends that change the dynamics of the business and even the business models that go with it. There's the whole shift from incandescent lighting to new forms of lighting, solid-state lighting in particular."
Rethinking the Company
These new technologies are revolutionizing an industry that had relatively minor innovations in incandescent lighting since the time Thomas Edison flipped the switch on his first successful light bulb. Harry Verhaar, senior director of energy and climate change for Philips Lighting, in a separate interview with Wharton@Work, notes that this change has transformed the lighting business. "Philips was founded to produce incandescent light bulbs," says Verhaar. "Now we're launching a global campaign to phase them completely out of existence. Within the next 10 years, we hope the only place you'll be able to see an incandescent light bulb is in a museum."
He notes that in the home, Philips's compact fluorescent bulbs use up to 70 percent less electricity than standard incandescent bulbs and last 10 to 15 times longer. At work, energy-efficient lighting systems and low-mercury fluorescent lights are reducing environmental impact and energy consumption, as well as improving productivity. In communities, new street lighting systems are saving millions of dollars and cutting energy bills by 50 percent or more.
While the new lighting systems offer compelling economics and impact, adoption rates by customers are still relatively slow. Street lighting changeovers are moving at about 3 percent per year and office lighting is switching at 7 percent. Even with a better mousetrap — or lighting system — it may still take a while for the world to beat a path to your door.
Philips is not only focusing on new technologies but also on accelerating adoption. "The two biggest challenges we face," Verhaar says, "are lack of awareness and short-term financial thinking." Philips is conducting global awareness campaigns for consumers, businesses, and communities. This communication focuses on translating individual action into impact for the planet. For example, Philips's website promotes the ENERGY STAR "Change a Light, Change the World Pledge," which notes that if every household in the United States replaced just one standard light bulb with a more efficient Compact Fluorescent Lamp integrated bulb (CFLi), it would have an impact on pollution equal to taking 800,000 cars off the road.
Innovation from the Outside In
Given this need to engage and educate consumers, the innovation challenge of a new technology such as solid-state lighting goes beyond R&D and manufacturing. Marketing has a vital role. "In that sense, again, we will not be a successful lighting company by excelling in manufacturing processes," Provoost says. "It's really about [looking] outside and understanding what the market needs are, what the future applications are, what the requirements are for lighting solutions and experiences in various places and spaces: What does it mean in the office? What does it mean in the shop? What does it mean in terms of city beautification, street lighting? On the technology side, we very much know what is possible. On the marketing side, we have to be more specific in answering the question of what is required — and then bring the two together."
Technologies are not the goal; they are "just a vehicle to respond to needs and come up with absolutely brilliant solutions and applications. In that sense, my focus will [much more] be outside-in, understanding what needs to be done and how I can connect the dots also between the capabilities and competencies we have now in the new lighting company, which is a mix of existing Philips businesses and acquired companies, then make sure that we are obsessed with end-user-driven innovation and just take that to its full consequence."
Provoost described a "Triple A" strategy of innovation. First, the leader needs to be an advocate. Second, managers leading projects need real accountability, "owners with a face and a name." Third, organizations need amplifiers such as incentives and rewards to encourage innovation. He says it is everyone's job to innovate, "because innovation is not only about product innovation or service innovation. In essence, you can innovate everything, every day, in every process. I think the notion of innovation, in my opinion, should be a very inclusive notion."
Innovation and Recession
Provoost also discusses how companies should manage innovation in recessionary times. While some companies may cut back on innovation, Philips Lighting takes the opposite approach. "In times of recession, the last thing you want to do is cut off the oxygen. In times of recession, you need to work harder, run faster and so you need a lot of oxygen — and for me innovation is about oxygen. So, we are not going to cut the oxygen and we're not going to cut the lifeline — because no lifeline means no survival." While resources may be more constrained, "it's not about doing less, it's about picking the right battles."
Professor Day also notes the benefits of investing in growth and innovation during an economic downturn. "Some years ago, there was a very interesting study which looked at a couple of recessions and looked at the changes in industry structure, both before and after the recession," he says. Some companies gained market share during these times by increasing spending on innovation and education while competitors were cutting back to boost current earnings. They "cut back on marketing, cut back on innovation, not to mention executive education and all of those other things — and they invariably lost a lot of ground... And that is when you can pile on and gain share."
Full-Spectrum Innovation
Wharton's Full Spectrum Innovation program is a three-day workshop that gives participants a broad view of innovation — and a challenging environment in which to test and adapt their strategies. The program is taught by thought-leading faculty such as Day and Paul Schoemaker, who wrote the ground-breaking books Decision Traps, Market-Driven Strategy, and Peripheral Vision. Larry Huston, former vice president of innovation at Procter & Gamble, and the creator of the company's much-celebrated Connect and Develop innovation strategy, offers new innovation frameworks.
These innovation leaders help participants capitalize on the sweet spot between emerging trends, organizational capabilities, and unmet market needs. They help you discover new ways to reach outside your own labs and tap into the best ideas anywhere in the world. Participants learn to use an "Innovation Toolkit" to design a flexible innovation process that lets your company quickly adapt to, and profit from, changes in customers, competitors, or markets. And they take this flexible toolkit back to their organizations to fire up their innovation processes and improve their "innovation DNA."
