Innovation: Part III

There's a danger for a magazine like Inc in writing about innovation, just as there's a danger for entrepreneurs who are seeking to make their companies more innovative. It is this: Innovation can often seem well beyond the reach of ordinary businesses. It can seem beyond the reach of ordinary mortals.

Just look at everything we've chronicled in our three-part series on innovation, beginning two months ago and culminating in this issue: Companies -- many of them in supersophisticated technical fields -- that hold hundreds of patents. Company builders, creative types all, who seem to crank out one dazzling idea after another. Whole sectors of the economy that are built around research and development and that feed both corporations and the government with a never-ending stream of new products and services. You could get to thinking that there's another business planet out there, dynamic and innovative, inhabited by people who are constantly dreaming up (and patenting) new stuff. And you could get to feeling that it's too bad you don't live on that planet, that you're condemned to labor here on Earth, in the vineyards of the ordinary.

If that's the way you're feeling, you should meet Jim Throneburg. He makes socks. Innovative socks.

In the late 1970s, Throneburg noticed that Americans weren't buying just one pair of sneakers anymore; when their sport changed, so did their shoes. "If the shoe changed for function, I figured I needed to design a sock that complemented the shoe," he says.

As it happened, Throneburg was able to draw upon his own experience at a weight-loss clinic. There his feet were expected to carry his six-foot-four-inch, 300-pound body over miles of walking trails. "My feet were killing me," he recalls. "So I called my R&D guys and said, 'Make me the thickest-soled sock you can possibly make."

Since then Throneburg has transformed his family's North Carolina hosiery company, Thorlo Inc., from a commodity business into what is arguably the most innovative sock manufacturer in the world. Throneburg harnessed Thorlo's existing capabilities, using technology he had perfected making padded socks for the military, and pumped millions of dollars into developing new yarns and designs. So far the company has created more than 25 varieties of sport-specific socks. "Everything that's not labor and material is R&D as far as I'm concerned," he says.

The "R" in Thorlo's R&D happens not so much within its Statesville, N.C., mill but wherever foot meets sock meets shoe, which is to say in the realm of ordinary people with ordinary problems. A woman golfer once complained to Throneburg that her socks slipped down into her shoes; he developed a ladies' rolltop sock for golf and tennis. Recently, Throneburg received a heartfelt letter from a man with a rare condition that caused his feet to blister. Thorlo's socks helped him run a marathon, the man wrote -- could Throneburg make socks for his young daughters, who had inherited the condition? "I forwarded the letter to product development," says Throneburg. "I might need to charge him $100 a dozen, and they'll cost me $1,000 to make. But hell, I might learn something."

Throneburg's experience illustrates a couple of fundamental truths about innovation. It can happen anywhere, in any industry, and at any time. Throneburg is an innovator in the sock business. Howard Schultz of Starbucks made his fortune by innovating in the coffee-shop business. Really, now, could you look someone straight in the eye and say there's no room for innovation in your industry?

SOLE MAN: "Everything that's not labor and material is R&D," says Jim Throneburg, whose company has created more than 25 varieties of socks.

Truth is, innovation is rarely the product of pure inspiration, that "Eureka!" moment when some genius comes up with a wholly new idea. Rather, innovation happens when people see things differently -- and when they arrange their companies to do what Peter Drucker calls the "organized, systematic, rational work" involved in bringing an idea to the marketplace. Neither of the two aspects of innovation is beyond the ability of conventional companies -- nor of CEOs with conventional backgrounds.

Take the seeing part first. Sure, someone with a Ph.D. in molecular biology will be better equipped than most of us to spot opportunities for innovation in drug delivery. But you don't need an advanced degree to decipher gaps in most marketplaces. Gary Hamel, chairman of innovation consulting firm Strategos, says that innovators typically view the world through four lenses. They look for deeply held conventions and challenge them; they look for change in the world and understand the revolutionary potential of the change; they empathize with customers and anticipate their needs; and they view their organizations less like businesses and more like skill sets, constantly asking, "How do I creatively recombine what I know to make new things?"

There's even a shortcut to innovative seeing espoused by Tom Kelley, general manager of Ideo, a design consulting firm. Try observing people as they use a product or service, suggests Kelley. "You watch where people have trouble," he says, "because where there's trouble in the status quo, that's where your opportunity is."

That's pretty much how Kerry Gilger, now CEO of $12-million Identitech, in Melbourne, Fla., got started. As a high school graduate laboring at a tedious desk job in Orlando, he watched all day long as the tellers from the credit union on the ground floor of the office building climbed the stairs to find customer-signature cards that were filed on the second floor. He figured there had to be a better way. Gilger had fiddled a bit with computer programming, so on the spur of the moment he called the credit union and asked the people there if they'd be interested in software that computerized customer signatures. They said no, but they told him about another credit union that was close to purchasing just such a system. "I called them and asked them if they'd be interested in a signature-verification system, and they told me to be in their office by 9 the next morning," recalls Gilger, who worked all night to bang out a program, stopped at home to put on a fresh shirt, and did a seat-of-the-pants presentation. The company's president liked what he saw and then demanded that Gilger draw up a contract immediately.

A fundamental truth is that innovation can happen anywhere, in any industry, at any time.

So innovation rarely comes out of the blue. "In almost all cases, you are replacing something that already exists," says Kelley. But what happens next -- development of the idea into a product -- is equally important. But what if you have an idea that's beyond your own capability to develop? Well, take the case of Richard Sweat, who worked as a junior dosimetrist planning radiation therapy for cancer patients at Boca Raton Community Hospital, in Florida. The hospital's radiation-therapy unit "was the first job I had out of high school," recalls Sweat. "I had very smart, creative people that I worked with who taught me well."

Sweat started his own company, Southeastern Radiation Products (SRP), in 1986, making custom supplies for radiation-therapy centers. But it wasn't until some 10 years later that he hit upon an idea for a product that would establish him as an innovator. During radiation therapy, patients often use a device called a compensator to shield their vital organs; Sweat had used them day in and day out for years. "I don't know when the lightbulb went off," he says, "but about five and a half years ago I decided we could improve upon what already existed."

Although Sweat could clearly envision his product, he lacked the scientific background and the resources to make it. That didn't stop him. As Tom Kelley reminds us, even famously solo inventors like Thomas Edison are often teams in disguise. (Edison came up with 400 patented ideas in six years, thanks in part to the 14 colleagues working with him.) So it was with Sweat. He tapped two customers to help him build a prototype out of materials that had not traditionally been used to make similar products in the past. He contacted his local manufacturing extension partnership, a federally funded program that provides consulting services to small companies, to help him set up a lean manufacturing system. Later he forged a marketing partnership with a larger company, which helped refine and sell his product to hospitals. Result: hospitals can E-mail SRP specifications for a patient, and the company can custom-manufacture the product and ship it within 15 hours.

As an innovative business matures, it falls to the CEO to find ways of institutionalizing the creativity he or she once brought to the table -- in effect, building development into the very fabric of the business. Here, too, there's no need for advanced degrees or high-tech products. Jim Nichols innovated with septic tanks.

Nichols is president of Infiltrator Systems, a $100-million manufacturer of septic and storm-water systems in Old Saybrook, Conn. Back in the mid 1980s, Nichols's own failing septic system inspired him to design a plastic septic chamber that would outperform the standard stone-and-pipe design. The concept gave birth to Infiltrator, and Nichols has worked diligently ever since to build a company that's bigger than his own good ideas. "Other people can leapfrog over you and take the market away from you," he says. "So we need to be in a process of continued development. If someone is going to put us out of business, it had better be us."

Nichols has put in place a series of practices that he says enable Infiltrator to "know the market so well that we can anticipate what customers need before they need it." First and foremost among those practices is gathering information -- from customers, industry reports, and the contractors who install Infiltrator's systems. Vice-president of engineering Bryan Coppes says that Infiltrator's marketing team recently made a product presentation to contractors, and their feedback resulted in significant design changes. "We get in front of the customer and throw out an idea before we actually tool things up," he says. Nichols adds that industry research once inspired him to design a leach field with a more robust sidewall, well before states began to recognize that research. When states started changing their specifications, Infiltrator had a clear market advantage. To systematize that kind of information gathering, the company now pays $4,500 a year for a subscription to Nerac, a database service that enables Infiltrator's department managers to plug in keywords and get back a constant flow of E-mail with the latest industry trends, patents, and trade-magazine articles.

Ideas are just the beginning, of course, and the way Infiltrator assesses them has changed radically over the past three years. It was, in fact, a colossal product failure that made Nichols realize that Infiltrator had a problem with the way new products were being developed. Four years ago the company's new storm-water-management system failed repeatedly, triggering multiple lawsuits from customers and leading Infiltrator to file for Chapter 11 protection to manage the claims. The company's core business not only survived but grew, and creditors and claimants were paid in full when the company emerged from bankruptcy, in September 2000. But the product failure was a wake-up call.

"I say to people, 'If you're not making any mistakes, you're flat out not trying hard enough.' "

Enter Stage Gate, a new product-evaluation tool that involves employees throughout the company. Ideas come from Infiltrator's salespeople, the engineering department, and even inventors outside the company who know its reputation for bringing new products to market. Every idea is guided through a series of "gates" by a champion -- either the person who first conceived of the idea or someone in the company who is impassioned enough to develop and refine it. A project team performs R&D, market research, pilot studies, and financial analyses, then makes a recommendation to an evaluation team consisting of Nichols and other top executives. The first product to come out of Stage Gate was a new storm-water-management system, which replaced the product that so vexed the company four years ago. Introduced in January, after three years and $7 million in R&D, it is being "enthusiastically received in the marketplace," says Nichols.

In the past three years, two new products and three innovations to existing products have come out of the Stage Gate process; another seven ideas are now in the system. About half the product ideas that go through Stage Gate come to fruition; the rest die in the process. But failure, says Nichols, is part of the game. "You have to set up a culture where people are allowed to try things and to make mistakes. I say to people, 'If you're not making any mistakes, you're flat out not trying hard enough." Case in point: Bryan Coppes was the project leader for the storm-water system that failed. It was Coppes who championed the new system through Stage Gate.

The moral of such stories? Innovation, so it is said, is the stuff of progress, the engine of the U.S. economy, the generator of profits for business and wealth for society. Here at Inc we take no issue with any such pronouncements; indeed, we believe them wholeheartedly. But don't be misled by what you might call the glitz surrounding innovative people and companies. There is a world of Ph.D.'s and patents, of scientific luminaries, of dazzling and complex new technologies and the well-funded businesses that bring them to market. But that's only one realm in the world of innovation. The rest of that planet is made up of companies that are probably much like yours, run by people whose claim to fame isn't scientific genius, only the ability to see things that others overlook and to bring those new ideas to the marketplace.

Donna Fenn is a contributing editor at Inc. John Case is a contributor to the magazine.

The Innovation Factor: Part III

Innovation, We Trust
Creation Nation
A Brief History of Innovation
Ordinary People, Extraordinary Creativity

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