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Innovation: Making Inspiration Routine

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

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.

The concept of social networks has become commonplace; generally, companies use them to push out marketing messages. In our company, we will use such networks to pull in ideas. We will require every employee to conduct ongoing conversations with his or her own social network -- at least five friends or relatives who have children -- about what they and their kids look for in toys. To get them started, we will create a discussion guide or list of questions. "What parts of the toy store does your child gravitate toward? Does he prefer toys that allow him to create things or that challenge him to solve a problem?" We will ask employees to occasionally film their children and their friends' children at play. Then we will review those videos and look for patterns or anomalies. And we will keep asking questions. "Why did the child prefer this toy over another? What does her body language tell us? What might she have been thinking or feeling?"

We will give our social networks a good shake, and now we imagine an idea tumbles out. Among those subjects we observe are children with learning disabilities, who engage differently with some ordinary toys. Their parents work hard to find games at which they can succeed, and in conversations with our employees the parents emphasize their children's strengths. We see an opportunity: toys that allow children with special needs to make the most of their individual talents. This meets our requirement for creating a new market segment.

3 Generate Ideas
Brainstorming done right

Our focus narrowed, we begin the process of identifying potential new products. At this point we will bring members of employees' networks into the office to brainstorm. Fortunately, P&G's brainstorming practices are perfectly scalable. For example, session leaders ask participants to write down their ideas on a big sheet of paper rather than leave that chore to the facilitator. That forces participants to refine their thinking. Session leaders use props: P&G's or a competitor's products, or bits and pieces of relevant materials. They discourage negative comments and tolerate -- even encourage -- digressions. As we continue to pursue new ideas in this category, we will hold employee-consumer brainstorming sessions every quarter.

And we will invite child psychologists, teachers, and nurses to join those sessions. While we have these experts in the office, we will also ask them to view the videos made earlier in the process and point out signals we may have missed. Again, our goal is to develop a staff so interested in and knowledgeable about children that staff members revert to field-research mode whenever they are around children. In small companies, some people invent and many people execute, but everyone must observe.

As a result of brainstorming, talking to their social networks, and constantly observing children, employees will naturally start generating ideas. But many of those ideas will have the brightness and weight of balloons; lacking ballast, they will tend to drift off into the ether. Rather than have employees bombard us with one-sentence, off-the-top-of-their-heads e-mails, we want them to add that ballast on their own. So we will ask them to compose one-page, detailed descriptions of their ideas, accompanied by a sketch rendered digitally or in pencil (or even crayon -- this is a toy company, after all). That will help us understand the concept and make it easier to discuss with others. We will also ask that before submitting ideas they pair up with another employee, much like how members of Congress seek co-sponsors on proposed legislation. That partner can help them hash out details and identify potential objections and obstacles. If the project is approved, the two will continue working as a team, which fosters collaboration.