Innovation: Making Inspiration Routine

It's not about brilliance. Valuable new ideas are the product of hard work and smart, disciplined processes.

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In April, A.G. Lafley, the chairman and CEO of Procter & Gamble (NYSE:PG), and Ram Charan, adviser to such business leaders as Jack Welch and Robert Nardelli, published an insider's guide to innovation at P&G and other top corporations. The Game-Changer: How You Can Drive Revenue and Profit Growth With Innovation argues that innovation -- like learning -- must be continuous and pursued at all levels of the organization. The book describes dozens of mechanisms for keeping the idea pipeline full, such as P&G's customer-immersion programs, which send employees to live in consumers' homes, and innovation "hot zones," facilities where product teams spend weeks on creative exercises.

It's a great book, but for owners of small companies, it's a little like reading about Disney World when all you have to play with is a backyard swing set. We wondered: Could P&G's approach to innovation be made to scale for businesses with a tiny fraction of P&G's resources?

We asked Lafley and Charan to imagine they were the founders of a company in an industry of their choice, with $4 million in revenue and 30 employees. What would they do to make their business as innovative as possible?

First, an observation about the Disney World analogy. P&G relies on innovation to drive growth; and, yes, it has developed a very effective arsenal of programs, processes, and techniques to generate ideas andconvert them into revenue. It has no choice. P&G operates in more than 150 countries with 85 on-the-ground operations, and it has 138,000 employees in 21 business divisions. This diversification, complexity, and bureaucracy can become innovation's enemies. Small companies may seem like backyard swing sets by comparison, but backyard swing sets are where children's imaginations roam free. In fundamental ways, small companies have significant advantages over large corporations when it comes to innovation. Where small companies generally fall down, however, is in building disciplines around the creation, capture, and execution of new ideas. Most small companies develop from a single great notion, usually the brainchild of a brilliant founder. But entrepreneurs can't afford to remain the sole font of innovation at their businesses any more than they can remain the sole salesperson. Nor can they rely on the passions of their staff and the mental sparks created when 30 people interact each day in close quarters. Innovation requires work. Workrequires structure. For companies,invention is 1 percent inspiration, 49 percent perspiration, and 50 percent smart routine.

Inc. asked us to choose an industry for our imagined company, and the swing-set reference put us in mind of toys. For this exercise, toys also have the advantage of being a consumer product that P&G is not involved in. We narrowed our focus to nonelectronic playthings, a category in which we must innovate to appeal to generations weaned on computers. Our goal is to design processes that will ensure that our growing company innovates repeatedly and reliably.

1Select the Strategy
Looking for an underserved market

Our first step is to ask ourselves: Where do we play? Invading adjacent markets and inventing whole new business categories is tempting, especially for entrepreneurs with low boredom thresholds. But this is a small company, and we don't have the resources to create a new customer base or extend the brand. So we will look for ways to understand our existing customers better and segment them. Interestingly, segmentation itself can be an innovative act, if we identify a corner of our market that is rarely treated as a segment. Can we look at toy buyers through some other lens than such tired demographics as gender, age, and income? For a small company, identifying an overlooked segment is less expensive than inventing a new technology and may sprout even more opportunities.

2Connect to Customers
The social network as idea collector

The best pointers to that elusive new market are parents and children themselves. But how will we reach them? At P&G, many of the best ideas are born of customer-immersion experiences. About 70 percent of P&G executives have spent several days either in a customer's house -- eating, playing, and shopping with the family -- or in a small shop, working behind the counter. But with a staff of 30, our toy company can't spare employees to spend days or weeks observing 6-year-olds at home and school to understand what incites their imaginations. Instead, most ideas will have to come from employees. So we will hire creative people and make them conduits to consumers. And we will teach them to sharpen their observational pow ers during the course of their everyday lives.

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