In today’s society, it is hard to conceptualise innovation without the context of technology. It is imperative to understand the technological shift that can impact one’s managerial strategy greatly. In this article, the author highlights key lessons regarding innovation that centre on time, risk taking, identification of innovators, value propositions, customer-centric approach, and alignment of internal teams.
Much of today’s conversation about innovation is captivated by new technology – and with good reason: technology is responsible for many of the step-change transformations that have taken place in business in recent years. Across industries, it is necessary for leaders to stay contemporary with emerging technologies and also to deploy them appropriately across their organisations and end markets.
Yet, as important as it is for executives to stay current with relevant technological advancements, it is equally as important for us to remember that those advancements do not occur in a vacuum: in any sector, the speed with which companies develop and deploy new technologies will be a key determinant in the success of their innovation efforts.
In my 30-year career championing and delivering growth in industrial companies around the world, I have been fortunate to have led teams that have successfully competed at the cutting edge of innovation. For me, consistently delivering double-digit income growth across eight different industries in six different countries and managing workforces as large as 40,000 and annual budgets that topped $10 billion would not have been possible without generating organisational passion about innovation. While working for Air Products (APD), an international industrial gases and chemicals company, and later Honeywell (HON), I oversaw teams that made remarkable achievements – like the development of new-to-world molecules for improved environmental performance, and clean fuel technologies that help to make the world a safer, better place to live, just to name a few.
Amidst all of this progress, I have also seen companies struggle to maintain their competitive edge because they were unable to innovate more rapidly than their peers. Though some leaders talk about their commitment to innovation, executing on that vision requires a distinctive set of skills that ultimately can be mastered by every business leader.
Experience has taught me that establishing a robust operating system for how organisations work efficiently together allows leaders to build agile teams that are ready and motivated to drive growth through innovation. In particular, I have found that facilitating innovation in any industry depends upon six critical inputs, centered around time, risk, talent, value proposition, customer-centric thinking, and aligning internal teams around innovation.
Time: give innovation an equal share
It’s no secret that dedicating time to innovation work can yield tremendous results. During my tenure leading Honeywell’s AlliedSignal business, for instance, my team transformed our single-digit margins to 20+ percent margins by re-inventing our portfolio through innovation initiatives.
As that experience shows, there are great rewards to be reaped from making innovation a focal point. In practice, however, it can be challenging for executives to actually give innovation the attention it deserves. Though there can be myriad reasons for this, the problem often boils down to the question of how executives choose to divide their time.
I have found that executives’ time is best allocated according to a rule of three, giving one-third of working hours to each of the following: core business, talent and culture building, and growth and innovation.
In my career, carving out time to focus on the first two of these three areas has allowed me to create solid foundations on which innovative new offerings could be built. That is, sticking to the rule of three can help leaders identify pre-existing problems within their businesses and prevent other issues from cropping up. Spending more than one-third of the time on the core business, for example, could indicate deficiencies in either strategy or the organisation’s operating system.
On the other hand, neglecting to make time for matters related to talent and culture could hinder leaders’ abilities to find the right people to fill key positions or ensure that employees have the guidance they need to be successful. Ideally, organisations will attract and retain individuals who are versatile enough to step out of their regular roles to drive the process of innovation. Strength in these areas – core business and talent – underlies opportunities for growth and allows executives to devote an equal amount of time to innovation itself.
Adhering to the rule of three helped me to recognise that my team’s cross-functional engagement could be optimised when I first arrived at Honeywell’s AlliedSignal business in 2007, after spending 19 years at Air Products and Chemicals, Inc. The AlliedSignal division at Honeywell was focused on aerosols, solvent agents, blowing agents, and refrigerants and, for many at the organisation, had seemingly little prospects for growth.
At the time, external events like the Montreal and Kyoto Protocols were bringing a number of products to an end, and the business’s single-digit ROI was less than encouraging. Though the majority of the team was not convinced that there was room to advance the business, I did, however, find a critical few who were willing to innovate.
While digging in, I was determined to find a way for my team to leverage their domain knowledge of our end markets to create new, even more efficient and environmentally compliant offerings. Ultimately, these new products were supported by installing a more effective operating system and using the ensuing business performance enhancements to fund our innovation work. I spent time on building an operating system that allowed my team to improve our base business to generate to the resources required for growth. This created significant investment opportunities that were greater than 20 percent ROI. In parallel, we were able to support our research and development efforts by driving engagement with customers, regulators who needed to confirm the legislative environment, and NGOs that provided social approval on the new offerings.
In the end, the efficiencies of the new operating system helped us invest time and resources into fruitful innovations: we developed three new-to-world molecules over the course of two-and-a-half years, and the business achieved 20+ percent margins and a 20+ percent income growth rate.
Encourage risk taking, but focus on moving the needle
When I was promoted to Managing Director of one of APD’s key joint ventures in the mid-1990s, the business seemed to have a bright future: the Malaysia-based industrial gases division had been benefitting from an economic boom that was affecting the larger geographic region, and new orders were constantly pouring in.
After six months on the job, however, that once-promising business environment quickly turned bleak as the Southeast Asian financial crisis hit, ravaging the Malaysian market.
Though the economic situation in the region created a climate of uncertainty, my team and I determined that maintaining our commitment to product development – in spite of all of the risks that process would entail – was the best way for us to not just survive, but also thrive during the crisis.
At that moment, deciding to take the risks that come with pursuing innovation was not easy – and doing so rarely is. In business, and in society more broadly, it’s not difficult to fall into a pattern of risk-averse behavior. This is especially true at large organisations, where proposals for new product developments may be submitted to bureaucratic approval processes that often do little more than maintain the status quo.
While there’s no doubt that the risks associated with research and development should be carefully considered, in the end, innovation doesn’t happen without them. That’s why any business – be it a huge multi-national corporation or a small startup – can benefit from seeking out innovators within the organisation and creating an environment where those innovators can flourish. Since the skills that innovation work requires are often not the same as those used in the typical day-to-day activities of the business, it is important to encourage innovation teams to share and develop their own ideas through active experimentation.
Part of embracing this type of risk taking also means giving employees room to fail. In the long run, the results – however negative – from a trial that fails fast in the span of a few weeks are more valuable than one that never gets tested at all because managers spent months waffling over the concept. Even so, there’s an art to failure, and it lies in structuring the discovery and development process around evaluation and learning.
At the outset, the team involved in testing a new offering should define their goals for the work. Then, I find, setting milestones and identifying “needle movers” – items that have financial impact on the business – become crucial next steps. This type of planning allows innovators to explore new territory while providing benchmarks that enable them to track their progress, so that the risk taking does not get out of hand; it also requires collecting data, which can be saved and mined for insights later on, even if the initial project doesn’t produce the desired results.
Deploying this approach in our innovation work at APD helped us to continually learn from each new trial. As an additional tactic for reducing the risks associated with our development initiatives, we directed efforts toward expanding our understanding of how our customers used our products. Based on this knowledge, we dedicated time to helping our customers understand the value proposition of the products that we were creating, which drove demand for the new offerings.
For instance, we developed local cryogenic freezing capabilities that food producers could use to ultimately sell their products at a higher price point. One such use case related to the process of producing spices; by cryogenically freezing the product, the spices would retain their oils – which contain the flavors – when ground, increasing the end product’s value.
Another application of the cryogenic freezing capability we developed was the preservation of shrimp. Shrimp farmers give oxygen to shrimp to make them grow larger, which increases the price as sold by the pound; we drove demand for our cryogenic freezing technology by explaining to customers that this method of preservation locked in more moisture, resulting in higher value for both our customer and their end consumers. In the end, our customers were able to advance price increases based on the value generated.
By thinking creatively about communicating the value proposition of our product to customers, our team was able to successfully take innovative products to market, justifying the risks of the research and development process.
Identify innovators and be their champion
Returning for a moment to that idea of the time-consuming, bureaucratic processes that can thwart new developments brings me to another one of innovation’s most vital inputs: people. Different members of a team have different strengths, but the truth is, innovators are a rare breed. Finding these individuals – those who have an insatiable curiosity and drive to learn – is half of the battle when it comes to talent. The rest lies in making sure that those would-be innovators receive the support they need to do their best work, which in turn will help the organisation on its journey toward growth.
To be positioned for success, innovators should be celebrated and sponsored. Supporting these individuals’ inquiries from the top will signal that efforts toward innovation are valued, and that failure – which innovators need in order to learn – is not the end of the world. Setting this tone will help to align the organisation around supporting innovation and will help managers feel more at ease with the inevitable ups and downs of the development process.
What’s more, it’s important to place innovators in managerial roles with authority. I believe that it is most effective to put leadership over development teams in the hands of the innovators themselves, and that these leaders should report directly to executives on those “needle moving” milestones. Offering innovators empowerment and ownership over the process cultivates a culture that is conducive to advancement on all fronts. This may mean that you, as the executive, have more to do, but the results from the team are worth it.
I learned the value of managing talent within the innovation process firsthand during my time as President & CEO of Honeywell Home and Building Technologies. Before I started in that role, the business had acquired thirteen companies that were run independently. In the past, this siloed system of operation had worked because software was developed to use in on-premise systems. By the time I arrived, however, the industry was shifting toward an edge-cloud-mobility platform.
To develop and make the transition to this new platform, I led the integration of the thirteen acquired companies, which served as a great boon to the development process: the companies that had historically been separate entities could now combine their talent to develop a platform that would be broadly applicable and customisable. We worked to identify individuals who could step out of their existing roles to lead our innovation initiatives and funded them to their next milestones. This allowed us to evaluate the process of innovation as it continued on.
Another key learning from this experience was the importance of knowing how to respect the legacy of a business while guiding it through major organisational shifts. Though it no longer made sense for each of the previously acquired companies to operate separately, we never lost sight of the fact that the people who worked in those businesses possessed deep expertise and domain knowledge that would be valuable to us throughout the change management process.
By pooling our talent, we drove the innovation process to create new technology that could give our customers greater intelligence about the buildings and spaces they own and occupy. Instead of just including lighting, heating, and other utlities, our newly developed systems could collect data around operations like building occupancy and space management to yield enhanced insights about the ways people used and interacted with spaces and structures.
Define value propositions from the beginning
In my experience, obtaining buy-in from internal teams and external stakeholders can present a significant hurdle to getting innovation efforts underway. During my tenure as CEO of Honeywell Transportation Systems, for instance, I found that my proposals for increasing our innovation work were initially met with some resistance.
When I arrived, Honeywell was the leading supplier of turbochargers to the diesel auto industry, which was a very profitable business at the time (between 2013 and 2016). Many at the organisation feared that developing new products would dilute the high margins that had been achieved until then, in spite of that fact that significant growth was available in gasoline, electric, hybrid, and software.
How, then, did my team overcome this obstacle? We turned our focus to articulating a clear value proposition from the start of each new project – a strong practice for initiating any development work.
To find the opportunities for innovation, my team at Honeywell mapped our markets and the competitive landscape in which we were operating. We thought about what our team could learn from deals that had been lost and set those as targets for our business to hit.
We also forced ourselves to consider the impact that our innovation work would have from our customers’ point of view. To do this, we began as if we were actually further along in the process and were already pitching the new offering to a customer – a strategy that I have used to help determine value propositions at many different points in my career.
In fact, I always ask development teams to write the one-page letter our customer would send to their chairman to receive approval for the product. This has pushed my teams to think about the proposition in both technical and economic terms and to ask important questions, such as what is known, believed, and assumed about the proposed product. In the beginning, it is fine if the team only has a hypothesis for each of these considerations, but ultimately, they should arrive at a sense of how the customer will benefit from the product overall.
This exercise may sound simple, but if that draft letter does not hold water, neither will the development project – and no amount of PowerPoint slides can fix that.
Once the value proposition was set, we took note of what details needed to shift from the “believed” or “assumed” categories to the “known” category. These help to point out what I like to call “needle movers” for the project – items that have financial impact on the business. Selecting these “needle movers” will catalyse the early stages of rapid experimentation and risk elimination or value confirmation.
In the end, by allowing research and thinking about value proposition to guide our innovation agenda, my team at Honeywell executed on a plan to develop innovative offerings for new gas technology. The new technology yielded positive results, as our team took Honeywell Transportation Systems from a 12 percent to a 20 percent operating income margin – and a win rate of nearly 50 percent in a market with six major competitors.
Adopt a customer-centric approach to innovation
When developing ideas for new offerings, it is easy to lose sight of how innovations will prove valuable to customers at the end of the process. That’s why I have long been a proponent of bringing customers into research and development efforts early on. Living with the customer – by embedding your team in their operations and studying their approach – can reveal unmet and undefined needs in the sector. Working on-site with customers as innovation partners, I find, is faster and yields more insights than does bringing customers into your company’s “development island” – not least because it gives teams the opportunity to speak with multiple people from the customer’s organisation and receive instant feedback.
Such was the case when I was working in the electronic specialty materials division at APD in the early 2000s. There, we produced components that leading chipmakers used in products such as smartphones and flat panel televisions.
At that time, the semiconductor industry was experiencing waves of change, with Asia-based firms becoming more significant and wafer sizes expanding while line dimensions were dramatically being reduced.
To adapt to these changes, we doubled-down on innovation, and made sure to involve our customers in the process. We accomplished this by performing analytical work on-site in our customers’ development labs, offering this as a paid service. Here, identifying innovators – as discussed in one of our previous lessons – became key: we searched for people in our organisation who not only had the technical expertise and confidence to build new products but also had the listening skills and curiosity to act as sounding boards for our customers, in order to best understand their needs.
Conducting development efforts at our customers’ facilities engaged them in our work and allowed us to bring value to the customers by providing capabilities that they needed. Thanks to this strategy, our business doubled its margins and grew sevenfold in a five-year period. Additionally, we were able to expand our business in Korea, Taiwan, Japan, and China and move the business’s global headquarters from North America to Asia.
It’s also useful to keep customers on board even after the development process is complete. Customers can serve as strong partners in publicising and communicating about the new offering when it is ready to be brought to market. Customers can endorse the product by publishing joint papers or presenting jointly at conferences with R&D leaders and other company executives; this establishes a two-way exchange that in turn helps the customer become successful. Forging relationships with customers as global champions of new offerings, in my experience, reinforced my organisation’s market position.
Aligning internal teams around innovation
Sometimes, resistance to innovation can stem from individuals’ own egos; in corporations, many leaders can become too heavily invested in focusing on the base business. As a result, they may feel that deviating from running the established business could jeopardise their personal advancement at the organisation. Thus, these individuals fail to see opportunities to explore new ideas and are reluctant to re-develop portfolios to respond to customers’ changing needs.
I experienced the challenges of eliminating this barrier to progress when I was working in a division of APD that produced hydrogen products used to create clean fuels and low-sulfur, low-particulate transportation fuels. Initially, many at the organisation believed in the widely accepted notion that the refining industry would not allow third parties to operate processing plants on their sites. My team, however, held fast to our business model’s innovation agenda and put together a business case that supported APD’s plans to increase the scale and reliability of its hydrogen plants, in part by connecting the plants in clusters.
We also made sure to identify the right people at our customers’ organisations in order to move the innovation projects forward. Sometimes, this meant reaching out to a VP of strategy or members of the sales team and explaining the project to them so that they could act as our advocates. In the end, our efforts took the business from several hundred millions of dollars to several billions of dollars in revenue.
When innovative success is achieved, there are many accolades to be shared. Until then, a company must be ego-free in the development phase – and that can mean catching and correcting attitudes to the contrary while a project is still in its nascent stages.
Today, technology is becoming an increasingly important source of differentiation and the ability to generate new profit streams. As a leader, it is vital to understand and engage with the technologically-rooted shifts that are taking place. Still, there are other elements of managerial strategy that should come into play in order to facilitate innovation in the technological age.
The six concepts that I have explored in this series are inputs that will help executives adopt a leadership style conducive to fostering a culture of innovation. In turn, creating an organisational culture that places innovation at its core will encourage teams to capitalize upon the enhanced capabilities offered by new technology and will enable them to do so at a competitive pace.
About the Author
Over the past three decades, Terrence Hahn has worked across eight different industries in six countries, with a dozen years spent at Honeywell, including as CEO of its Home and Buildings Technologies business and CEO of Transportation Systems, along with nearly twenty years at Air Products & Chemicals driving growth across multiple end markets. Terrence is an innovator of software, services, new materials and operating systems that drive business success. He has recently started a new role as the CEO of API Technologies, a Massachusetts-based technology company that also has European operations.