In a keynote address delivered to Canadian business executives, Brian Guthrie, director of innovation and knowledge management with the Conference Board of Canada, highlighted the importance of innovation to future competitive success within any industry. In a story about 3M, he mentioned the importance of daydreaming to the innovation process:

“Changing the way individuals work within a company is one of the keys to sustainable innovation. He pointed to 3M, as an example. Known for their Scotch tape and yellow Post-it notes, 3M allows its employees to spend 15 percent of their work week staring up at the sky, dreaming of new ideas and thinking outside the box.”

The 15% rule seems to work for 3M. In fact, if you check out 3M’s Website, the tagline for the front page is “The Spirit of Innovation: That’s 3M.”

(graphic: 3M)

At what point should a company stop spending on R&D? The issue has been debated recently, especially after a Booz Allen Hamilton study showed “no discernable link between research-and-development spending and nearly all measures of business success, including growth, profitability, and shareholder return..” At some point, argued the report, increased spending on R&D will yield little or no incremental value when it comes to financial growth or profitability.

As if to punctuate the point, yesterday’s Wall Street Journal had an in-depth page one story about the R&D war between French tiremaker Michelin and Japan’s Bridgestone. Over the past five years, the two companies have battled for “the right to brag they produce the world’s fastest Formula One racing tires.” Yet, even with both companies pouring tens of millions of dollars into Formula One racing tire R&D, there’s no clear evidence that these research dollars are translating into greater profitability:

“Both companies say Formula One helps them sell more regular tires. But from a marketing standpoint, it is unclear whether either company is winning anything. Michelin spends about $70 million a year on Formula One, Bridgestone more than $100 million, people familiar with the numbers say. Neither company can point to hard evidence of an impact on sales or profit.”

The head of a marketing strategy company interviewed for the article puts the two companies’ efforts into perspective:

“The money spent by Michelin and Bridgestone is “staggering.” He compares their competition to an arms race. “I suspect many companies feel deep down they are wasting their money,” he says, “but that if they get out their competitors will take over.”

(photo credit: Michelin)

Over at BrandShift, Jennifer Rice explains how and why companies need to involve their customers in the process of innovation. Quite simply, customers can often serve as the inspiration for a number of “small but critical” innovations that may not be immediately obvious to senior executives in the marketing department. She illustrates the point with an example using breakfast burritos:

“I was thinking about innovation this morning when making my breakfast burritos. I’d purchased Mission brand tortillas… ugh. I’ll never buy them again. Not because the tortillas taste bad, but because they didn’t put plastic sheets in between each tortilla so they wouldn’t stick to each other. You can just picture the brand manager’s scratching his or her head, trying to find out why they’re losing market share… doing taste tests and evaluating product placement. And all the while, it’s because of some silly little plastic sheets that make customers’ lives easier.”

(photo credit: MexGrocer.com)

On the Creating Blue Oceans blog, Gabor George Burt continues to provide fascinating examples of companies and organizations that are implementing Blue Ocean Strategies. The basic rule of any Blue Ocean Strategy is that a company must search out and find uncontested market space (the “blue oceans”), thereby making the competition irrelevant. That means companies should avoid constraining themselves by manufacturing products or providing services within certain industry limits: “Businesses should be in the business of providing comprehensive solutions to customers, even if that means overstepping traditional industry boundaries.” And what better way to illustrate the point than with an example of Ukrainian bandits in Eastern Europe?:

“In the 90’s, scores of Ukrainians would pack into buses headed for Central European destinations such as Budapest, where they could buy all kinds of western consumer goods for the first time. These elaborate shopping excursions caught the attention of the Ukrainian underground. Packs of modern-day bandits started raiding the buses in mid-journey, knowing that they were full of cash on the way out or full of goods on the way back home.

As this ritual evolved, empathetic bandits began issuing certificates to their victims which stated that they have already been robbed. This way, if the bus was to be intercepted again, the passengers could prove to the next group of robbers that they have already been cleaned out and were not trying to hide anything. As such, the certificates saved time and confusion, and by overstepping traditional boundaries of banditry, much improved the overall experience of the victims.”

At the upcoming Fortune Innovation Forum in New York, W. Chan Kim (one of the co-authors of Blue Ocean Strategy) will be speaking as part of a panel discussion on how to make the competition irrelevant through Blue Ocean Strategies. However, no Ukrainian bandits will be attending the conference.

It looks like MIT’s Industrial Liaison Program (ILP) is helping to turn MIT into a customized R&D factory for Corporate America: the program has signed up more than 200 member companies that would like to tap into MIT’s human and intellectual capital in order to spark innovation. According to the MIT Web site, there are all kinds of offerings that can be tailored to any company’s needs - facilitated interactions with faculty members, access to proprietary knowledge bases, and full access to campus resources (i.e. the library). One of the success stories cited by MIT is Mars, Inc., which tapped into the MIT ILP program to optimize its M&Ms manufacturing process and fine-tune the company’s intellectual property strategies.

The ILP program was founded in 1948, but a number of recent trends - like the desire by universities to speed up the commercialization of technologies and the need by companies to get products to market faster than ever before - are really accelerating the growth of these types of programs at universities across America. Just like companies like IBM are “renting” their R&D researchers to other companies, top-notch universities like MIT are also “renting” their professors and researchers to companies.

Around the globe, companies are helping to democratize the process of innovation by tapping into leading-edge innovators in unlikely or undiscovered places. Working with these “lead users,” world-class companies are able to create breakthrough new products and services. In fact, Eric von Hippel (a speaker at the upcoming Fortune Innovation Forum) recently wrote a book on this revolutionary concept of Democratizing Innovation.

One of the examples usually cited is InnoCentive, an e-business venture of Eli Lilly. InnoCentive is a Web-based community matching top scientists to relevant R&D challenges facing leading companies from around the globe; as such, InnoCentive provides an online resource for major companies willing to reward scientific innovation through financial incentives.

For example, one of the featured R&D challenges is a method for separating DNA molecules. If you can solve it by February 2006, there’s $40,000 in cash waiting for you in unmarked bills.

Nokia: product design as a key to continuous innovation

The current issue of Fortune magazine has an interesting article on Nokia CEO Olli-Pekka Kallasvuo (”OPK”), who has transformed innovative design into a central focus of the company’s core business strategy. Customers are already buzzing about Nokia’s new $700 phone (the Nokia 8800) and the company is already planning the rollout of a new BlackBerry-like device with Wi-Fi capability sometime early next year. Investors are buzzing, too: Nokia’s stock price has jumped 25% in the past few months. The key, says Fortune writer Nelson Schwartz, was “unleasing a torrent of creativity” that resulted in 50 new cellphone models this year alone.

Design is a hot issue in the world of innovation, and as part of an upcoming Fortune Innovation Forum in New York, a number of design experts - like the Director of BMW Group Design and the Creative Director of Target - will be discussing why design matters more than ever. When business executives think like designers, they can implement the type of business strategy that leads to continuous innovation.

The NetDimensions blog points to a recent posting by Dave Pollard on the Top 10 areas for business innovation: “All 10 of Dave’s trends (whether we agree that these are the absolute “Top 10″ or not doesn’t matter — they are all real and growing trends) either already powerfully influence or will in future powerfully influence learning and development decisions.” So, without further ado… The Top 10 ideas:

(1) Open source business
(2) Disruptive innovation
(3) Complexity
(4) Corporate Reform
(5) Innovation Incubation
(6) Social Networking/Personal Productivity Improvement
(7) Wisdom of Crowds
(8) Channel Customization
(9) Customer Relationship Management
(10) Execution (”navigating a great idea through an organizational minefield”)

According to Pollard, the 10 ideas were inspired by a subscriber-only survey in strategy + business magazine about 35 trends that will influence the world of business.

Lately, it seems that nearly every major business publication has been covering the plight of the U.S. automotive industry, with pundits of all stripes and colors offering their prescriptions for a corporate rebound. Now, it looks like Ford Motor Company is starting to tap into the collective knowledge of its workforce for solutions:

Ford Motor Co. is turning to employees for ideas and insights to help guide a major turnaround of the company’s North American operations. Salaried employees in Ford’s Americas division received an e-mail Friday from division president Mark Fields and his management team, encouraging them to share suggestions with senior management.

At Ford, the new initiative is indicative of a major cultural shift, as CEO Bill Ford attempts to create a new culture of grassroots innovation:

Bill Ford called on employees in September to step forward with good ideas, saying the company needed to reinvigorate the spirit of innovation that drove its successes in the last century. Addressing his challenge to Ford workers during a conference call with analysts and reporters last week, Bill Ford said employees took that invitation seriously. “I’ve been flooded with e-mails from employees with ideas — and not just product innovation: everything from plant ideas to saving money, ideas to reach the customer,” Ford said in the conference call. “There is a lot of pent-up demand, apparently.”

While some may view this initiative by Ford as a panicked response by a struggling corporate giant, it’s really a case of tapping into the “wisdom of crowds” and taking advantage of the power of “collaborative innovation.” There are a number of buzzwords to describe this phenomenon, but it appears increasingly clear that, in order to remain globally competitive, many American corporations will be looking for creative ways to harness the collective intelligence of their workers.

Usually, the most innovative companies in America are considered to be technology companies - Amazon, Google, Apple and the like. Occasionally, a company like Jet Blue hits the radar. Maybe, just maybe, a consumer packaged goods company like P&G or a big conglomerate like General Electric earns a favorable mention in a mainstream business publication for their emphasis on innovation.

Yet, hardly anyone ever mentions companies from the financial services sector - despite the fact that some of the greatest innovations of the past 25 years have occurred in finance. What about the modern mutual fund, the stock option, the foreign currency swap, the, ahem, junk bond? Aren’t these all examples of new product innovation? Or consider the fact that many banks are completely redesigning themselves to look like retail stores, complete with bright lighting, comfortable couches and perky sales associates. Isn’t that an example of service innovation within the financial services sector?

In 2002, Peter Tufano, a professor at Harvard Business School, wrote an interesting paper on the topic of financial innovation (available as a 44-page PDF). Tufano looked at the taxonomy of financial innovation and outlined a number of reasons for the explosion in financial innovation in recent years. In many ways, financial innovation is much like more traditional forms of business innovation:

Financial markets have continued to produce a multitude of new products, including many new forms of derivatives, alternative risk transfer products, exchange traded funds, and variants of tax-deductible equity. A longer view suggests that financial innovation — like innovation elsewhere in business — is an ongoing process whereby private parties experiment to try to differentiate their products and services, responding to both sudden and gradual changes in the economy.