Wharton@Work

October 2014 | Innovation

Three Innovation Capabilities That Drive Organic Growth

For eight years, Wharton has brought together some of the brightest minds in innovation to help participants drive organic growth in their companies. Roch Parayre, learning director of the program, explains, “The focus of Innovation for Growth: Strategies for Creating Value is not on R&D management. Our emphasis over four days is on innovating your business model, and developing a culture of innovation that will drive organic growth. It examines the topic with a broad lens, providing tools that help participants manage for innovation as opposed to managing for operational excellence.”

Tim Munoz, who teaches in the program, brings the same lessons to participants that help his clients — including GSK, Pepsi, P&G, and the Bill and Melinda Gates Foundation — build cultures of innovation. The managing director at 4innov says there are three innovation capabilities every company must cultivate in order to succeed in today’s hyper-competitive landscape. “The three capabilities correlate very highly with the most innovative companies. They might call them something different, but they all have them.

“The first is determining what’s needed. Your understanding of your customers must be so deep that you can identify not only the problems they are currently struggling to resolve, but what else they might need in the future, as categories and requirements change. What’s needed is not a better version of what’s already out there,” he says, “but something that delivers on a truly unmet customer need, present and future.”

Munoz cites Pepsi’s recent efforts to move into fortified foods and beverages. “This is a company that understands its customers. People are moving toward healthier lifestyles. They are going after mindfulness and balance, seeking physical and mental energy, not just quick food or fuel. Pepsi is making a real push to be a pioneer, finding products that bring the kinds of benefits their customers are looking for.”

The second capability is figuring out what is possible from a technology standpoint. “To determine what’s possible,” says Munoz, “you have to define the problem in its most elemental form. Often, what stands in the way of a truly innovative solution is that you’re solving the wrong problem. If you look at the history of science, all of the big leaps forward — gunpowder, penicillin, the combustion engine — came when the inventor or scientist redefined the problem, making it broad enough to be able to consider different solutions, but specific enough to solve.”

He cites Swedish company Hövding as an illustration. Since bike helmets came out in the 1970s, there have been many people who don’t use them, no matter how much evidence there is that they make bike riding safer. Munoz says those who defined the problem incorrectly made helmets that fit differently or were lighter weight. They assumed, in other words, that the problem was about design. But the problem is much simpler, says Munoz. People just don’t want to wear them. In 2005, two Swedish industrial designers came up with a solution: a scarf for bicyclists that expands on impact. “It’s like an airbag for your head. Once they defined the problem differently, they realized that what was needed was a protective device for the head that was not a helmet.”

Determining what’s required is the third capability, says Munoz. “Don’t expect an innovative new business to look like the business you have today. Obviously what’s required is a business model that is profitable and grows, but there are many models out there. Discover as many ways as possible for making money.”

But if you can’t expect a new business to look like your core, what can you expect? Munoz stresses that innovation, which is by definition what is new, has to be speculative. “It’s hard for those who are used to being able to predict outcomes with accuracy. But you have to take some leaps of faith. New business directions don’t happen unless you are willing to flex your business model.”

Choosing among the three capabilities isn’t an option. Munoz stresses that they must be merged in a hyper-integrated approach, and you don’t need to be the best at all three. “You can have one major and two minors. If you are a ‘what’s possible’ company, you need to minor in need and requirement. Consistent, powerful growth depends on constantly challenging your customer assumptions, your technology assumptions, and your business assumptions.”