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Chapter One: Innovation

Innovation can be defined as a process that involves multiple activities to uncover new ways
to do things. Innovations create bigger opportunities and are critical for the survival,
economic growth, and success of a company. Innovating helps developing original concepts
and is a driver of optimizing operations. Companies that innovate are able to set the
organization in a different paradigm in order to identify new opportunities and best
methods to solve current problems.

“New innovations can be realized with creativity”

 To realize innovation, leaders should be open-minded and collaborative.

 Comfortable approach to uncertainty and Managing changes are behavioural
components to Innovate.
 Innovative leaders are curious and are optimistic since they dare to take risks.

Innovation refers to the introduction of a new good or a new quality of a good, method of
production, market, source of supply, and/or organization in an industry. It also refers to
improving on an existing concept or idea using a step-wise process to create a
commercially viable product.

Entrepreneurship = Creativity + Innovation

Creation since this can be defined as the act of making, inventing, or producing
something. The scientific process of defining creativity is a continuous effort covering a
number of decades of research and reasoning.

Creativity Process

 Preparation (Problem Assessment)

 Incubation (Conscious and Unconscious Mental Dynamic)
 Illumination (New Idea Conception)
 Verification (Evaluation of Ideas)
Stages Requirements
1. Awareness  Recognition of a problem or situation
 Curiosity
2. Preparation  Openness to experience
 Analysis of how the task might be approached
 Tolerance of ambiguity
 Willingness to redefine concepts
 Divergent thought processes
 Intuitive ability
3. Incubation  Incubation
 Absorption
 Seeking ideas, possible answers and solutions
 Independence
 Psychological freedom
4. Illumination (Insight)  Ability to switch from intuitive to analytical
patterns of thought
 Eureka!
5. Verification  Critical Attitude
 Analytical Ability
 Testing

Myths of Creativity

1. Creativity is an innate talent and cannot be taught

2. Creativity is a phenomenon linked with the so-called rebel
3. Right Brain Versus Left Brain
Van Vuuren (1997) holds the view that the ability to think creatively is a right-brain
activity. De Bono (1996) broadens this viewpoint and warns against a simplified
opinion, namely that creativity is simply the application of right-brain activities.
“PET” (“Positive Emission Tomography”) test revealed that right and left-brain
activity occurs simultaneously during creative behaviour.
4. Limited to Art and Artists
5. Exemption
6. No prior knowledge needed
7. The need for ‘Craziness’
Creativity is generally accepted as being “less serious” and sometimes also regarded
as “crazy”. The application of this technique can also be of the utmost importance in
the training of entrepreneurs where the development of ideas is seen in a realistic and
serious light.
8. Intelligence and Creativity
Creativity and intelligence are comparable. It is held that individuals with a higher IQ
are often not motivated to speculate about new ideas.

Dimensions of Innovation

 Product
 Process
 Position
 Paradigm

Product innovation is the easiest to understand. It means changes in the things which an
organization offers.
Process innovation is also quite easy to understand. It means changes in the organization’s
processes. In the other words it means changes in the ways in which organization is created
and delivered.
Position innovation is to understand needs some thinking and it is not as clear as the first
two innovation types. It means changes in the context in which the products/services are
Paradigm innovation is by far the hardest to understand. Meaning for that is changes in the
underlying mental models which frame what the organization does.

Characteristics of Successful Innovators

 Divergent Thinking: Instead of searching for one “correct” answer, they look beyond
the status quo to the multitude of possibilities. This is how innovation is born.
 Sensing Opportunity: Successful innovators have a knack for identifying gaps in the
market they operate in. Having opportunistic mindset allows these people to be more
alert and seek novelty whatever they can find it.
 Proactivity and Persistence: Being resilient in the face of obstacles, challenges and
adversity is a defining factor that differentiates great innovators from the rest.
 Prudence: Even though we like to think of innovators as risk takers, in reality, they
are the exact opposite. The misconception may arise because we, the general
population, do not fully comprehend the amount of thought and analysis that went
into a decision before it was made.
 Emotional Intelligence: You will often encounter great innovators networking with
people of different backgrounds and areas of expertise, bouncing ideas off of them
and building alliances. Well-developed emotional intelligence plays a vital role here,
as well as in selling their ideas to others and when coordinating with their teams.
Creativity VS Innovation
 Creativity is about unleashing the potential of the mind to conceive new ideas.
Creative ideas can also be thought experiments within one person's mind.
 Creativity is subjective, making it hard to measure, as our creative friends assert.
 Innovation, on the other hand, is completely measurable. Innovation is about
introducing change into relatively stable systems. It's also concerned with the
work required to make an idea viable. By identifying an unrecognized and unmet
need, an organization can use innovation to apply its creative resources to design an
appropriate solution and reap a return on its investment.

Creation Innovation
Meaning  Creativity means bringing  Innovation means to bring
something into existence. something into use.
Creation  Creativity is creation of a new  Innovation is the ability to
Ability idea change this idea into some new
product, new service or the new
system of production.
Nature  Creativity related to ideological  Innovation is related to changing
creation. ideas into reality.
Form  Creativity may be either for  Innovation is always practical,
pleasures, enjoyments, business-oriented and provider
extravagance or for solutions of of benefits, meaning thereby that
any problem is related to making of business
use of ideas
Function  Creativity is a function of  Innovation is a specific function
Thinking, which is possessed by of entrepreneurship.
almost all persons
Result and  Creativity is a big result of sweet  It may be developed in any
Pre- mistakes and improvements. particular person.
Innovation is important because it’s the only way that you can differentiate your products and
services from those of your competitors. For customers and clients to choose your business,
your offer needs to be distinctive and valuable, and the only way to achieve this is through
Innovation doesn’t have to be focused on changing a product or service. If you can
find an innovative new process that enables you to create a product more efficiently without
compromising on quality, you’ll be able to stand out from your rivals by undercutting their
prices. Similarly, your innovation could come in the form of a new distribution system,
enabling you to stand out by offering the fastest delivery to customers.
 Easy and effective solution to the problems
 Creative and Continuous Improvement provides organizational sustainability
 Innovation lead to increase in productivity as innovation can be done in any
function of organization
 Innovation stands out business from the crowd and competitors helping the
business to have a distinct image
 Eventually, innovation provides the better opportunities than your competitor
Solving problems: Most ideas are actually derived from attempts to solve existing problems.
As such, when you encourage innovation, you are opening doors for solutions to problems
both within and outside your company. If your business provides services, you might realize
that your customer do not have an avenue to share their opinions, complaints, and
compliments. The only avenue available could be the physical office. So, to solve the
problem, you could decide to operate a virtual office where customers’ needs can be attended
to within a short time. The customers will be happy and as a result, your sales will go higher.
•Adapting to change: This is especially evident in the technological world where there are
rapid changes defining the business. Change is inevitable and innovation is the method to not
only keep your business afloat, but also ensure that it remains relevant and profitable. With
the rise in mobile phones, traditional telephone had to find ways to remain relevant. Same
case with your business, when you develop an innovation culture, you remain relevant at all

•Maximizing on globalization: With markets all over the world becoming more interlinked,
greater opportunities are emerging in these new markets and with that, new needs and
challenges. For instance, China and India are estimated to be the leading markets, and Africa
is predicted to be the next “hot spot”. Therefore, if your company hopes to tap into this
market share, innovation is a must to enable you to capitalize on the opportunities opening

•Facing up the competition: The corporate world is always very competitive, and with many
new companies coming up, the top position in the industry is no longer a reserve of a few. To
retain or establish your company’s cutting edge, you can compete strategically by having a
dynamic business that is able to make strategic and innovative moves and thus cut above the

•Evolving workplace dynamics: The demographics in the work place are constantly
changing. With the new generation that has entered the market place; new trends are also
coming up. Innovation is therefore critical to ensure the smooth running of the company.

•Customers’ changing tastes and preferences: The current customer has a great variety of
products and services available to him and is well informed of his choices than before. The
company must therefore keep itself abreast with these evolving tastes and also forge new
ways of satisfying the customer.

Risk of the Innovation Process

The innovation process is lauded for its many benefits that have defined the corporate and
social cultural scene since the era of industrialization. However, it does not lack its set of
challenges and risk as discussed below.
•Technological failure of the innovation – The biggest risk any company takes in the
innovation process is whether or not the new product or idea will work once it is launched in
the real world or whether it remains to be a white elephant. To manage this risk, the company
may carry out trials on a small scale to test its effectiveness. Once this is done and
observations made on, the necessary adjustments may be made accordingly to avert any huge
losses once the product is mass produced.

•Financial strain – Often, the innovation process is faced with the challenge of draining out
the company resources as returns are usually long-term as opposed to immediate. This may
lead to abortion of the product or idea once it is perceived to be non-profitable. However, you
should look at the projected returns and consider whether or not the innovation aligns with its
long-term goals.
•Market failure – For innovations which involve the introduction of new products or
technology to the market, it is imperative that the product meets the needs, tastes and
preferences of the consumers. Failure to do this would mean that demand would be low and
therefore the innovation not viable commercially. To avoid this, you should undertake
extensive and in-depth market research before committing limited resources to its
development and production.

•Redundancy – With trends in the market constantly changing and many innovations
emerging, it is possible that a profitable innovation today may be redundant in the near
future. To counter this, there must be constant research on how to improve the existing
systems and a keen observance of global trends and the factors influencing them in order to
stay a step ahead.

•Lack of capacity for implementation – This is especially a challenge for start-ups where
they lack the structural and financial capacity to roll out the innovation. You then risk
remaining a pipe dream. So, you may choose to look for partners who will assist in your area
of lack and thus overcome the challenge. It is important that the partner also shares in the
vision of the innovation to avoid conflicting interests in future.

•Organizational risks – This refers to the risks that are faced in the structure and running of
the business once the innovation is introduced. For instance, the company may revert to
focusing all resources and time towards innovation at the expense of its daily activities.
Proper planning and allocation of resources has to be ensured by the leadership to ensure this
does not happen.

•Unprecedented risks – These are risks that would not have been foreseen and may be
influenced by factors outside the company’s control. They may involve changes in policies or
political instability whose ripple effect spills over hindering the effectiveness of the
innovation. It is important for the business to keep a contingency plan to buffer it against
such unseen events.
Barriers to Creative Thinking
• Negative Attitude: Do you have the tendency to focus on the negative aspects of new
ideas when creating a display, like too expensive – too difficult – I don't have the
knowledge/ skills / time / space – we can't do it.
• Fear of Failure: The second major obstacle to creative thinking is the fear of failure
or loss. It is the fear of being wrong, of making a mistake, or of losing money or time.
As it happens, it is not the experience of failure that holds you back. You have failed
countless times in life and it hasn’t done you any permanent damage. It is the
possibility of failure, the anticipation of failure that paralyses action and becomes the
primary reason for failure and ineffective problem solving.
• Fear of Criticism: The third major obstacle to creative thinking is the fear of
criticism, or the fear of ridicule, scorn or rejection. It is the fear of sounding dumb or
looking foolish. This is triggered by the desire to be liked and approved of by others,
even people you don’t know or care about. As a result, you decide that, “If you want
to get along, you have to go along.”
It is amazing how many people live lives of underachievement and mediocrity
because they are afraid to attempt to sell themselves or their ideas for business
success. They are afraid to ask someone to buy or try their product or service. As a
result of these fears of rejection and criticism, they play it safe and settle for far less
than they are truly capable of earning.

• Executive Stress: You might not have the time to think creatively. The over-stressed
person finds it difficult to think objectively at all. Stress reduces the quality of all
mental processes. It limits creative thinking because that requires inspiration and
exploration. Thinking outside the box requires a relaxed state of mind.
• Following Rules: You might not be aware that it hampers the creativity when you
have a tendency to conform to accepted patterns of belief or thought – the rules and
limitations of the status quo. You restrict yourself with staying on the safe side. You
prevent yourself from being open to suggestions and ideas that are new or not
associated with your field of work.
• Passive Vs. Proactive: The fifth obstacle to creative thinking for business success is
passivity. If you do not continually stimulate your mind with new ideas and
information, it loses its vitality and energy, very much like a muscle that is not
exercised. Instead of thinking proactively and creatively, your thinking becomes
passive and automatic.
A major cause of passive thinking is routine. Most people get up at the same time
each morning, follow the same routine at their jobs, socialize with the same people in
the evenings, and watch the same television programs. As a result of not continually
challenging their minds, they become dull and complacent. If someone suggests or
proposes a new idea or way of doing things, they usually react with negativity and
discouragement. They very soon begin to feel threatened by any suggestion of change
from the way things have been done in the past.
• Rationalizing and Justifying: The sixth obstacle to creative thinking for business
success is rationalizing.  We know that human beings are rational creatures, but what
does that mean?  Being rational means that we continually use our minds to explain
the world to ourselves, so we can understand it better and feel more secure. In other
words, whatever you decide to do, or not do, you very quickly come up with a good
reason for your decision. By constantly rationalizing your decisions, you cannot learn
to improve performance for business success.
• Over-Reliance on Logic: Investing all your intellect into logical or analytical
thinking – the step-by-step approach – excludes imagination, intuition, emotion or
humour. Use your emotions to create a display, if it makes you smile it makes others
smile. If it makes you happy it makes others happy and if it makes you think about the
theme of your display it draws people in and they will stop and contemplate the
philosophy or opinion that you (indirectly) portray.
• Making Assumptions: Conscious and unconscious assumptions restrict creative
thinking. Are you sure that a specific subject is not done?  Is it the topic that is taboo?
Religious reasons? Is it a touchy subject or is it because you feel uncomfortable
tackling the issue, not knowing how to make a display about it?

Four Guidelines for Successful Brainstorming

Suspend Judgment: Suspending judgment is critical to the success of a brainstorming
session. It is important that the leader, as well as the participants, suspends judgment. Of the
four guidelines this is the most important one for the leader to enforce. Put simply, the
participants must understand that it is imperative that they set their judgment on the side; that
goes for judging their own ideas, as well as those of others. For some, it is human nature to
judge / censor their own ideas; this is to be avoided in brainstorming.
Free-wheel: Free-wheeling is what takes place when one let’s go of the barriers to creative
thinking and allows themselves to dream and take a journey through their mind and thoughts.
The participants should know that all ideas are valuable, whether they are silly or sensible, or
good or bad. This, of course, ties into the next guideline.
Quantity: Quantity rules in brainstorming over quality. The participants should be
encouraged to come up with as many ideas as possible; quality does not matter at all. Value
rests solely in the number of ideas that are generated.
Cross-fertilize: Cross-fertilization is a technique that enables the development of more ideas.
Cross-fertilization is practices when participants pick up an idea from someone else and
develop the idea further into new / different ideas. While taking someone else’s idea and
changing it might cause friction in another setting, this reaction is generally not encountered
in a well run brainstorming session.
Chapter Two: Lateral Thinking:
Dr. Edward de Bono originated the concept of Lateral Thinking. Lateral Thinking is a
means whereby the brain steps outside the normal barriers of logic, custom and culture.
Lateral Thinking is thinking process extended beyond normal limits. Lateral Thinking
encourages creative thinking by stepping outside our normal ‘thinking process’.
Lateral Thinking is a deliberate, systematic creative-thinking process that deliberately
looks at challenges from completely different angles. By introducing specific, unconventional
thinking techniques, lateral thinking enables thinkers to find novel solutions that would
otherwise remain uncovered. Lateral thinking focuses on what could be rather than what is
possible and centres around four directives:
• Recognize the dominant ideas that polarize the perception of a problem.
• Search for different ways of looking at things.
• Relax rigid control of thinking.
• Use chance to encourage other ideas

Lateral thinking is a technique used to induce innovation in idea creation by trying to shift
patterns of thought off their linear and predictable trajectory using unconnected inputs to
open up new lines of reasoning.

Complimenting the use if logical (vertical) thinking, Lateral Thinking can be used to:
• Break down the No Barrier: The mind can reject any concept it wishes. In these
circumstances problem to solution may be difficult for the mind to travel in one jump.
‘Intermediate impossible’ could then be employed. Whilst not valid in itself it may
enable the brain to pause briefly and move on to a viable option.
For example: ‘we do not have enough firemen to combat this bush fire.
Intermediate impossible – ‘make everyone a fireman’
• Random Juxtaposition – Brings into a discussion something new which generates a
new set of ideas. Dr De Bono recommends a list of about twenty nouns from which
you can choose.
For example: In discussing ideas for improving supermarket visits – the addition of
the word say – ‘cafe’ could open up new ideas in terms of somewhere to leave your
trolley safely whilst you have a cup of tea.
• Challenging Accepted Outlooks/Statements– This technique brainstorms
statements/outlooks and challenges their validity however well founded they may be.
It also encompasses ‘negative brainstorming’ in which the group thinks of reasons
why a particular idea would not work. These should be converted into positive
images where appropriate.

What is it? What does it achieve?

A thinking process extended beyond normal Encourages creative thinking by stepping

limits. outside our normal ‘thinking’ process.

How to use it? When to use it?

Take a problem / situation Usually best as part of the brainstorming

process in:
Find out alternatives solutions by:
• Developing objectives for solutions
• Establishing logically the situation
• Developing possible solutions
• Generate options by lateral thinking
• Developing action plans
• Evaluate both logical and lateral options
and collectively decide on the best course of

Six Thinking Hats

Six Thinking Hats is a simple, effective parallel thinking process that helps people be more
productive, focused, and mindfully involved. A powerful tool set, which once learned can be
applied immediately!
You and your team members can learn how to separate thinking into six clear functions and
roles. Each thinking role is identified with a coloured symbolic "thinking hat." By mentally
wearing and switching "hats," you can easily focus or redirect thoughts, the conversation, or
the meeting.

The White Hat: The target is neutral and objective. The white hat takes care of objective
facts and numbers. White Hat Thinking excludes ones own opinions, hunches, judgements. It
removes feelings & impressions.

The Yellow Hat: The yellow is glad and positive. The yellow hat is optimist and covers the
hope the positive thought. It is positive thinking, optimism and opportunity. It advocates the
best-case scenarios and benefits.
The Black Hat: The black is sad and negative. The black hat covers negative aspects-why
something cannot be done. Black Hat Thinking incorporates cautious and careful. It separates
logical negative from emotional. Black Hat Thinking focus on errors, evidence, conclusion.
The Red Hat The red one suggests wrath, (to see red), fury and emotions. Red hat gives the
emotional point of view. Emotions come in three ways:
• Background emotions such as fear, anger, hatred, love etc.
• Initial Perceptions (Having insulted by someone etc.)
• Emotions after a map of situations has been put together.
Red Hat Thinking doesn’t have to be logical or consistent and there is no justification,
reasons or basis.
The Green Hat The green one is turf, vegetation and fertile growth, abundant. The green hat
indicates new creativity and ideas. Green Hat Thinking advocates new ideas, concepts and
perceptions and followers are deliberate for creating new ideas. Green Hat Thinking
promotes creative & lateral thinking.
The Blue Hat The blue one is cold, and is also the colour of the sky, that is in favour of upon
everything. The blue hat takes care of the control and the organization of process of the
thought. Also of the use of the other hats. Blue Hat Thinking is used by session leaders.
Benefits if Six Thinking Hats Method
• Decisions seem to make themselves
• Focused Thinking
• Improved Exploration
• Improved creativity & innovation
• Foster collaborative thinking
• Provides a common language
• Helps people work against type, preference
• Removal of ego from decisions
• Allows a switch in thinking without threatening ego

Lateral Thinking Techniques

• Alternatives: This techniques is about using concepts as a breeding ground for nre
ideas. Concepts are general theories or ways of doing things. By thinking of a variety
of ways to implement a concept is one way to generate ideas. You can then further
assessed each specific idea to generate additional concepts. Establishing a new
concept creates a whole new way for generating more ideas.
• Focus: The techniques is about learning when and how to change your focus to
improve your creative efforts. You can learn to focus on areas that other people have
not bothered to think about. Doing so may lead you to a breakthrough idea simply
because you are the first person to pay any attention to that area.
• Challenge: Challenge technique is about breaking free from the limits of traditional
thinking and the accepted ways of doing things. It is based on the assumption that
there may be a different and better way to do something even if there is no apparent
problem with the current way.
• Random Entry: Random Entry technique is about unconnected input to open up new
lines of thinking. This technique draws on your mind to focus connections between
seemingly unrelated things. With this techniques, you can use a randomly chosen
word, picture, sound or other stimulus to open lines of thinking.
• Provocation and Movement: Provocation is about generating provoking thoughts
and using them to build new ideas. It is a process that enables you to think outside the
box in order to get a compelling list of innovative ideas to consider.
• Harvesting: Harvesting techniques involves selecting specific ideas that seem
practical and have the most value then reshaping them into practical solutions. It is
about turning started ideas into workable ideas. This technique is done toward the end
of thinking in order to select ideas that may prove to be valuable in the current
situation or in the future. Harvesting helps you identify ideas that could be
implemented right away as well as those that may need more work.
• Treatment of Ideas: Treatment of Ideas involves shaping and strengthening ideas so
they best-fit a given organization or situation. Treatment technique is best for working
with started ideas to make them more specific and practical for given situation. For
example: you may think of some constraints that might interfere with the execution of
an idea, so you shape or restructure the idea to fit within the constraints.
Benefits of Lateral Thinking:
• Develop better idea generation and problem solving ability
• Gain competitive advantage by being vastly more innovative
• Constructively challenge current thinking and see new opportunities

Suspended Judgement:
Suspended judgement is a prerequisite for forward thinking. One has to suspend all
judgement of ideas and concepts. One is allowed to be wrong on the way even though one
must be right in the end.
Our education has mostly taught us vertical/critical thinking. It teaches us to seek correct
facts and make correct deductions from them. One learns to apply judgement at every step
and say “no” or “this would never work” etc. This emphasis on the need to be right all the
time completely shuts out creativity and progress.

In lateral thinking judgement is delayed during the generative state of thinking in order to be
applied during the selective stage. De Bono thinks that a wrong idea at some stage can lead to
a right one later on. He gives the example of Marconi who succeeded in transmitting wireless
waves across the Atlantic ocean through following up the erroneous idea that the waves
would follow the curvature of the earth.

The practical application of this concept leads to the following behaviours:

• An idea is not judged and evaluated. An idea is explored further.

• Some ideas are obviously wrong when no attempt is made to judge them. In such
cases one shifts the attention from why it is wrong to how it can be useful.

• Even if one knows that an idea must eventually be thrown out one delays that moment
in order to extract as much usefulness from the idea as possible.

• Instead of forcing an idea in a direction one follows along behind it.

This technique is very similar to analysis. Fractionation deals with completely breaking down
of the situation into its components. However, lateral thinking uses this fractionation to
provide material which can be used to stimulate restructuring of the original situation.

Analogies are used in lateral thinking by translating problems into analogies and then develop
the analogy. At the end one translates the analogy back and sees what might have happened
to the original problem. It is probably more useful to develop the two in parallel. The use of
analogies in lateral thinking is completely different. Unlike its use in argument, analogy in
lateral thinking is not to prove anything. They are simply used like all other lateral thinking
techniques; to generate further ideas.
A good example of analogies in lateral thinking comes from the tv show House. In this show
House uses mundane discussions and events as analogies to solve medical problems.
An example:
Suggested Problem: Finding your way in fog.
Suggested Analogies: A short-sighted person finding his way around. A traveller in a strange
country trying to find the railway station. Doing a crossword puzzle. Looking for something
that has been lost in the house.
Choice of Entry Point:
From what I understand, this technique is related quite a bit to the dominant and crucial ideas
explained earlier; since entry point and attention area for a problem depends on ones
perspective. Attention area refers to the part of a situation or problem that is attended to.
Entry point refers to the part of the problem or situation that is first attended to.
The choice of entry point is of huge importance because the historical sequence in which
ideas follow one another can completely determine the final outcome even if the ideas
themselves are same. In practice a different entry point will usually mean a different train of
ideas. For example, a picture of a man with a stick in his hand followed by a picture of a dog
running might suggest that the man is throwing sticks for the dog to retrieve. A picture of a
dog running followed by a picture of the man with a stick in his hand might suggest that the
man is chasing the dog out of his garden.
Attention area. The entry point is the first attention areas. Usually it starts at this point but
eventually covers the whole problem. Sometimes however important parts of the problem are
completely left out. It is only when these parts are brought under attention that the problem
can be solved.
For example, in Sherlock Holmes’ cases there was a large dog. Dr. Watson dismissed the dog
as being of no importance because it had done nothing on the night of the crime. Sherlock
Holmes pointed out that the great significance of the dog was precisely that it had done
nothing. He shifted attention from the significance of the fact that it had done nothing. This
meant that the criminal must have been known to the dog. Therefore, if something is left out
of consideration then it is very unlikely that it will ever come back in later on.
Like the reversal procedure one can deliberately turn away from what one would naturally
pay attention to in order to see what happens if one paid attention to something else. Another
method is to list the different features of the situation (fractionation) and then to proceed
methodically through this list paying attention to each feature in turn.
The important thing to keep in mind is that one should not feel that some features are so
trivial that they do not merit any attention. The difficulty is that in any situation one can pick
out as many features as one likes since the features reside not in the situation but in the way it
is looked at (Perspective).
Random Stimulation
Thus far most techniques discusses so far worked from within the idea. The idea has been
developed according to some routine process with the intention of allowing the information
to snap together again in a new pattern. But, instead of tryting to work form within the idea
one can deliberately generate external stimulation which then acts on the idea from outside.
This is called random stimulation.
The two ways of random stimulation are Exposure and Formal Generation. Exposure is when
one actively puts oneself into a position where one is subjected to random stimulation that is
part of exposure and part of formal generation. For example:
1. Accepting and welcoming random inputs.
2. Exposure to the ideas of others like in brainstorming.
3. Exposure to ideas from completely different fields.
4. Physical exposure to random stimulation. For instance going to an exhibition, zoo,
museum. |
The main point of random stimulation is not to look for anything when exposing oneself to
stimulation. Otherwise, one is exposing oneself with preconceived notions.
Formal Generation is done in multiple ways. One is to use a random word to elicit discussion.
Second, to select a book or journal. Third, select some object from the surroundings.
Random stimulation works because the mind has the ability to connect any two separate
inputs no matter how unconnected they are.
Chapter Three: Innovation Process
Innovation refers to the introduction of a new good or a new quality of a good, method of
production, market, source of supply, and/or organization in an industry. It also refers to
improving on an existing concept or idea using a step-wise process to create a commercially
viable product.
An innovation process is an organisational method that divides the uncertainties within an
innovation project into clearly subdivided steps and decision points in order to drive
development forward efficiently, while at the same time avoiding potential risks.

Innovative Process
• Identify market opportunities
• Develop Ideas
• Putting together teams
• Marketing Ideas
• Rapid Prototyping
• Innovation Culture:

Problem Statement:
A problem statement is important to a Design Thinking project, because it will guide you and
your team and provides a focus on the specific needs that you have uncovered. It also creates
a sense of possibility and optimism that allows team members to spark off ideas in the
Ideation stage. A good problem statement should thus have the following traits. It should be:
• Human-centred. This requires you to frame your problem statement according to
specific users, their needs and the insights that your team has gained in the Empathise
phase. The problem statement should be about the people the team is trying to help,
rather than focussing on technology, monetary returns or product specifications.
• Broad enough for creative freedom. This means that the problem statement should
not focus too narrowly on a specific method regarding the implementation of the
solution. The problem statement should also not list technical requirements, as this
would unnecessarily restrict the team and prevent them from exploring areas that
might bring unexpected value and insight to the project.
• Narrow enough to make it manageable. On the other hand, a problem statement
such as, “Improve the human condition,” is too broad and will likely cause team
members to easily feel daunted. Problem statements should have sufficient constraints
to make the project manageable.
Idea Generation:
Idea generation is the creative process or procedure that a company uses in order to figure out
solutions to any number of difficult challenges. It involves coming up with many ideas in a
group discussion, selecting the best idea or ideas, working to create a plan to implement the
idea, and then actually taking that idea and putting it into practice. The idea can be tangible,
something you can touch or see, or intangible, something symbolic or cultural.
This is the first step in an innovation process. It is where you decide on the concept
that you want to develop and come up with reasons why you want to improve the idea. It is
important for you to involve your employees and customers. Involving many knowledgeable
people will enable you to get a better understanding of the market. Besides, it will give you
an opportunity to look at the idea in different angles. At this stage also, experts will also
provide many viable ideas. Innovation ideas can be drawn from:
• Customers
• Employees
• Public
• Partners and Suppliers
• Competitors
Idea Generation Techniques
• Brainstorming: This process involves engendering a huge number of solutions for a
specific problem (idea) with emphasis being on the number of ideas. In the course of
brainstorming, there is no assessment of ideas. So, people can speak out their ideas
freely without fear of criticism. Even bizarre/strange ideas are accepted with open
hands. In fact, the crazier the idea, the better. Taming down is easier than thinking up.
• Brain-writing: Brain-writing is easy. Instead of asking the participants to shout out
ideas, they are told to pen down their ideas pertaining to a specific problem or
question on sheets of paper, for a small number of minutes.
• Mind-mapping: Mind-mapping is a graphical technique for imagining connections
between various pieces of information or ideas. Each fact or idea is written down and
then connected by curves or lines to its minor or major (previous or following) fact or
idea, thus building a web of relationships.
• Synectics: Synectics is a creative idea generation and problem solving technique that
arouses thought processes that the subject may not be aware of. It is a manner of
approaching problem-solving and creativity in a rational manner.
• Storyboarding: Storyboarding has to do with developing a visual story to explain or
explore. Storyboards can help creative people represent information they gained
during research. Pictures, quotes from the user, and other pertinent information are
fixed on cork board, or any comparable surface, to stand for a scenario and to assist
with comprehending the relationships between various ideas.
• Role Playing: n the role playing technique, each participant can take on a personality
or role different from his own. As the technique is fun, it can help people reduce their
inhibitions and come out with unexpected ideas.
• Visualization and visual prompts: Visualization is about thinking of challenges
visually so as to better comprehend the issue. It is a process of incubation and
illumination where the participant takes a break from the problem at hand and
concentrates on something wholly different while his mind subconsciously continues
to work on the idea. This grows into a phase of illumination where the participant
suddenly gets a diversity of solutions and he rapidly writes them down, thereby
creating fresh parallel lines of thought.
The second step in the innovation process is all about testing and growing ideas. Incubation
demands a trial and error approach and mindset. Business incubation is a unique and highly
flexible combination of business development processes, infrastructure and people designed
to nurture new and small businesses by helping them to survive and grow through the
difficult and vulnerable early stages of development. Business incubation provides a
nurturing, instructive and supportive environment for entrepreneurs during the critical stages
of starting up a new business.
In incubation this is when all the information that you have gathered in the
PREPARATION stage really goes back. It starts to churn in the back of your mind, in the
sub-consciousness. This is an extremely important stage because sometimes it can takes days,
or weeks, or months or sometimes even years. That idea that you’ll think about writing about
a book or piece of music, and you’re writing about it and you just leave it to the side for a
while and then you come back to it. Now the interesting thing about the incubation stages it
that to a certain extent it is not really under your control how long that stage will take.
Level of Process Innovation
Steps to Incubation:
1. Acknowledge that a new idea is too big or different to be put into the traditional pipeline
and that it needs a special approach.
2. Start building prototypes and getting customer feedback as soon as possible to learn and
develop the opportunity.
3. Identify the stakeholders that will need to be involved in a successful implementation of
the idea, and start working with them immediately.

Process Innovation and Product Innovation

Product Innovation
In most cases the main motive for starting the innovation process was the need to develop (a)
new product(s), often driven by the demands of just one customer, or the desire to penetrate
new markets by developing new products or adapting existing products. The main
bottlenecks encountered during the problem-solving process were:
• Vague and implicit innovation goals and product specifications.
• Insufficient attention to the commercialization of the innovation.
• Irregular participation of marketing/sales in the mostly cross-functional innovation
• Tendency to (try to) innovate ‘right first time’ rather than to allow for failures,
improvement and learning during the process.
• Insufficient integration of the various stages of the problem-solving process. Together
with high pressure exercised by day-to-day operations, this led to delays and loss of
Furthermore, relatively few people were involved or informed of progress made, who was to
take part in the team at a later stage, who could provide useful information or whose (future)
functioning would be affected by the innovation. Limited internal diffusion had two
• Most companies were really small, so innovation was not a full-time job for any of the
team members. Insufficient communication easily led to loss of momentum and delay
or even failure. Little use was made of formal mechanisms to keep the process going.
• Moving from one stage of the problem solving process to the next was more difficult
if that stage required the involvement of skills or competencies not yet present in the
innovation team.
Typical bottlenecks related to the process of organizational adaptation involved:
• It was often difficult to find and accept new distribution channels (if these were
• The dominant orientation towards day-to-day operations was difficult to combine with
innovation and difficult to change.
• Change of know-how, i.e. internal learning or acquiring knowledge developed
elsewhere, was difficult.
Resistance to, and even fear of, introducing procedures in the development process. In
summary, the companies tended to concentrate on the development of the new product and to
neglect the production and, particularly, the market-side of the new product. Alignment of the
constituent processes and stages therein was generally insufficient. There was too little
communication of the innovation goals and progress made to other people than those actually
involved in the innovation process. The organizational adaptations required for the innovation
process to evolve successfully did not receive sufficient attention, if they were recognized at
Process Innovation
The main motives for adopting FMS were reduced delivery lead time, lower operational costs
(man hours, stock holding) and increased flexibility (both internally – reduced setup times
and smaller batches to reduce manufacturing lead time; and externally – product flexibility).
The choice for FMS to improve external flexibility and reduce lead-time was usually driven
by market(ing) demands. In some cases this was combined with the launch of a new
generation of products. In other cases FMS was selected to replace technically obsolete
equipment. In any case, efficiency improvements were required to justify the investment in
this relatively expensive technology. The main bottlenecks related to the problem-solving
process can be categorized as follows:
• Most companies perceived the innovation as a technical problem. The organizational
prerequisites for the successful use of FMS were underestimated if taken into account
at all.
• Consequently, manufacturing engineers or process planners dominated the innovation
• In one or two cases, the supplier’s limited experience with complex CNC-based
systems and/or with managing a network of second tier suppliers led to a delay of
more than one year.
At first glance, internal diffusion did not pose any particular problems. Actually,
however, internal diffusion appears to be very problematic, not so much because of what did
happen, but rather due to what did not happen. Manufacturing engineers and management
dominated the innovation process. Involvement of, and communication with, other functions
such as maintenance, scheduling, and quality control, whose functioning would require
considerable adaptation in order for the FMS to function optimally, was limited or in some
cases even virtually non-existent. This provides one of the main reasons for the delayed
business success of the new technology. In addition to sometimes considerable technical
problems occurring during the problem solving process, lack of organizational adaptation led
to serious trouble in most companies. Due to:
• the perception of the innovation as a mainly technical problem,
• the fact that the innovation cannot really be tried before the implementation of the
system, and
• insufficient involvement of other functions as mentioned before,
the majority of the companies discovered only after the implementation of FMS that they had
to make sometimes radical organizational adaptations. It took some companies another six
months up to more than two years in order not only to prove technical success but also to
achieve the business success pursued.
In summary, the technical aspects of the innovation (were paid) most attention.
Organizational prerequisites were largely neglected before the implementation of the system.
A major reason for this may well be the companies’ lack of experience with this type of
innovation and the consequences that this should have for the organization and management
of the innovation process.
Chapter Four: Managing Innovation
Innovation has become management’s new imperative. Everybody wants to be the next
Apple Google or Netflix , nobody wants to be Kodak, Blockbuster or US Steel .
Go to any conference these days and some whip-smart techno-geek will declare that you
must, “innovate or die,” and then dazzle you a wide array of case studies to illustrate the
point.  You’ll feel inspired, then scared and then have a few beers and go about your
What’s missing is a clear set of principles for action. What good is Steve Job’s unfailing
design sense when I can’t even get my outfits to match? How can Google’s technological
supremacy be relevant to me when I can’t even figure out my TV remote? In other words, we
need to take innovation down from the presentation screen and into working life.

The Three Pillars of Innovation

Finding novel solutions to important problems is not only hard, but complex. There are, after
all, a myriad of important problems at any given time and countless potential approaches to
each one of them. Innovation seems like too small a word.

Nevertheless, I think we can move the ball further by breaking it down into three discrete
areas of activity.:

Competency: Every organization has its own history and set of capabilities which determine
its innovation competency. An old-line industrial firm can’t just wake up one day and decide
to operate like a hot Silicon Valley tech startup overnight, nor should they try. However,
every enterprise can improve.

Tim Kastelle, who researches innovation, has built a powerful framework based on
competence and commitment that will help you climb the ladder from laggard to world-class

Strategy: As a manager knows, resource allocation is critical to strategy and therefore needs
to be an integral part of aligning innovation to strategic objectives.

Again, professor Kastelle provides valuable guidance with his version of the three horizons
model which suggests a 70/20/10 split between improving existing products and processes,
searching out adjacencies and exploring completely new markets.

Management: Even the most competent firm which deploys resources wisely still needs to
manage innovation effectively. This is my primary focus.
Innovation Management Matrix

Basic Research:  When you’re aim is to discover something truly new, neither the problem
nor the domain is well defined.  While some organizations are willing to invest in large-scale
research divisions, others try to keep on top of cutting edge discoveries through research
grants and academic affiliations.  Often, the three approaches are combined into a
comprehensive program.
Breakthrough Innovation: Sometimes, although the problem is well defined, organizations
or even entire fields of endeavour can get stuck. For instance, the need to find the structure of
DNA was a very well defined problem, but the answer eluded even Linus Pauling, the most
talented chemist of the day.
Usually, these types of problems are solved through synthesizing across domains. For
instance, Watson and Crick solved the DNA problem by combining insights from chemistry,
biology and X-ray crystallography. In a similar vein, many companies are learning to
embrace open innovation in order to pull in diverse resources.

Sustaining Innovation: Whatever you do, you always want to get better at it. Every year, our
cameras produce more pixels, our computers get more powerful and our household products
become “new and improved.” Large organizations tend to be very good at this type of
innovation, because conventional R&D labs and outsourcing are well suited for it.
Disruptive Innovation: The most troublesome area is disruptive innovation, because its
value isn’t always immediately apparent. Notably, Yahoo and Blockbuster had the
opportunity to invest in Google and Netflix early on, but missed the opportunity because they
didn’t see the potential.

Disruptive innovations generally target light or non-consumers of a category, so they require

a new business model and have high failure rates. Venture capital firms who focus on
disruptive investments expect to that most will fail. One growing trend is for firms to
establish innovation labs, where they can test and learn without excessive risk.

Five Innovation Myths:

• Innovation is Planned and Predictable
• Technical specifications should be thoroughly prepared in advance
• Creativity relies on dreams and blue-sky ideas
• Big projects will develop better innovation than smaller ones
• Technology is the driving force of innovation and success
Chapter Five: Innovative Reward Strategies
All organizations have reward systems. Without them, people would not join, come to work,
or perform in any manner consistent with the mission or strategy of the organization.
Executives and managers often think of rewards only as compensation, but in the context of
this book, we will see that rewards go well beyond pay. They include systems, programs, and
practices that influence the actions of people. Further, the intent or objectives of most formal
programs often become distorted when one examines the impact they actually have on
people. Let’s review the key elements of reward systems and what they have become in most
of today’s organizations.
a reward system is the integration of specific programs that encourage and reinforce actions
that lead to desired results.
Basic Salaries
Salaries are the most obvious form of reward. They are the regular income received for being
employed by an organization. Some people refer to it as “show-up pay,” meaning that one
receives a salary for coming to work. Traditionally, the amount received reflects different
levels of responsibilities within the organization as well as the skills, capabilities, or
reputation the person brings to the organization. Different industries pay people in similar
roles differently because of their ability to afford the costs and their requirements for talent.

Performance Ratings and Increases to Pay

Organizations and people within most developed countries have come to expect that salaries
will increase on an annual basis. The basis may be performance or cost of living. The concept
of merit pay is simple— those who perform better should receive higher pay increases than
those who function at average or below-average levels. The problem today is that merit
increases over the past 10 to 12 years in the United States have averaged around 4 percent.
Studies and opinion samples demonstrate that high performers should receive at least two or
three times the standard pay increase in order to be appropriately rewarded.

Promotions, Career Development, Performance Coaching

A promotion is the most common form of formal recognition. A person who excels in his or
her job is promoted by the organization to broader responsibilities and challenges and to
higher pay. People naturally seek to climb the ladder of success because it provides greater
job satisfaction, higher income, and more stature.
An increasing number of companies are investing in the development of their leaders
and their key technical talent. This is highly important in providing the capabilities needed
for enduring success. However, when financial resources become tight, training and
development are seen as discretionary spending.
Bonus and Incentive Programs
These programs provide executives, managers, and employees with payment based on their
performance for a designated time period. The dollars do not get added to one’s salary but are
regarded as part of the total annual compensation. The amount of the payout is often
determined by the performance of the company or business unit and by the individual. The
program may be based on performance against objectives or a share of a profit pool.
Salespeople often receive commissions for selling products or services and bonuses for
accomplishing other specific sales objectives.
While the purpose of these programs is to reward people directly for their
performance, these programs have become distorted in many companies. Those who have
received bonuses over several years have adjusted their lifestyle to include these dollars. If
performance is not achieved, there are tremendous pressures for the company to find some
way to make bonus payouts regardless.
Special Recognition
Programs to recognize individual top performers have gone in and out of favor in American
industry. Employee-of-the-month and spot tangible awards (e.g., movie passes, dinners for
two, points for merchandise, and so on) abound as ways to reward individuals who perform
above and beyond their current job. These programs are also used to recognize individuals
who achieve a certain length of service (e.g., 25 years) or are part of a company’s celebration
of a milestone event.
The problems with these programs are more in how they practice than in their
objective. Some companies use them to reward the non-managerial, non-professional staff,
and so major segments of the population (the leaders) are excluded.
Some managers use these programs to reinforce their stature and perceived power
within their unit; others use them to reinforce both results and desired actions in sincere,
meaningful ways. The same program can create vastly different environments.

Stock Options and Other Equity Related Program

The dot-com businesses of the 1990s expanded the awareness and use of stock-related
programs in many companies. Where they were once the purview of top executives, stock
options or the ability to buy the company’s shares at a discount through an employee stock
purchase program (ESPP) are important parts of compensation for many of today’s
First, executives want their employees to feel that they have a personal stake in the company,
expecting that this will influence their actions to control costs or better serve customers.
Second, such programs are designed to retain employees, because a person who leaves the
company forfeits any appreciated value of non-vested shares. Finally, these programs provide
a benefit by increasing the personal wealth of individuals, usually with little or no cost to the
company. The wealth is created by what the marketplace pays for the stock, not the financial
resources of the company.

Employee Benefits and Services

Employee benefits have always been an element of the total compensation package for
organizations. These benefits usually include insurance programs for health care, life, or
disability; retirement or investment programs; and policies related to vacation, holidays, and
personal leave. As companies become larger, the number and provisions of these programs
expand and become standard practice. Companies differentiate themselves by the services
they offer employees, such as child care, exercise programs, financial counselling, and dry-
cleaning and concierge services.
Such programs are highly important to employees, and when they work well, they
reflect a culture that executives want to establish in the organization—fun, exciting, personal
support, and so on. However, the individual determines the value of these programs based on
his or her particular needs. Individuals want different things at different stages of their lives.

Purpose of Reward System

The ultimate purpose of a reward system is to provide a systematic way to deliver positive
consequences. There are several key elements to this simple definition. First, a systematic
process means that there are several elements directed at accomplishing specific
outcomes. Their purpose, structure, and delivery are integrated to accomplish common goals.
Further, while there are some immediate impacts, these consequences are delivered
consistently over time—that is what an effective system does. Second, there is a direct
alignment between the success of the organization and actions that are encouraged and
rewarded. The rewards are based on these actions and/or the results they produce. Third, the
delivery of the consequences can be accomplished in many ways— informal or formal; by a
manager, by peers, or by the work itself; and immediately or over time. While the
organization may create specific programs to deliver certain consequences (e.g., sales
commission plan), the programs all influence the practices or culture of the organization.
Fourth, the consequences are perceived as positive to the individual. Remember, the
person defines their value, not the organization, and ideally, the person is left with the desire
to do more. Finally, effective consequences have the desired impact on the individual.
They leave the person feeling good and valued for something he or she has accomplished. By
not receiving a particular consequence, an individual may feel a loss, a missed opportunity, or
the desire to adjust his or her actions to achieve the desired consequences. While the feelings
may appear negative, they underscore the importance of the contingency nature of rewards.
When rewards ultimately lose their link with performance or action, they rightly become an
expected part of employment (e.g., an entitlement).

Determinants of Effective Reward Systems

• Strategy: An effective program to reward individuals must be linked directly to what
makes the organization effective in attracting, retaining, and motivating its primary
resource—people. Further, we will see in later chapters that different programs, such
as salaries, variable pay, recognition, and so on, have inherent strengths and
weaknesses and how they can be interwoven to build on their strengths to create a
winning organization.
• Translation: For any program to deliver rewards effectively, the individual needs to
know what to do. This means that he or she must be able to translate the desired
vision, goals, results, or values into actions that he or she can take. There are some
aspects that are common to all members of the organization and some aspects that are
unique to roles and capabilities. Reward systems depend on people knowing how they
are doing during the performance period. They have little effect if people are not able
to make adjustments or take critical actions before the end of the performance period.
• Relationship: The interactions of people create relationships within and outside an
organization, and these relationships often determine the success of the organization.
Whether this involves a customer service representative who handles a difficult
customer effectively, an executive who addresses the concerns of investors, or a unit
manager who strengthens cooperation with other departments, relationships are vital
to success and are uniquely human. Effective reward systems are designed to
encourage and reinforce the relationships the organization needs to succeed in a
dynamic marketplace.
• Integrity: The programs need to function with sincerity, reliability, and trust. If
people perceive that rewards are intended to manipulate or exploit them, the programs
and the leaders will be resented. If a program is presented in one manner but operates
in a different manner, integrity will be eroded. Hence effective reward systems must
have a strong level of discipline, commitment, and administrative reliability to them.
When a salesperson does not feel that he or she is receiving the proper credit for sales,
the entire sales incentive system will be mistrusted. Promises made but not fulfilled
by executives also set up situations in which their credibility is eroded. People need to
know, have confidence in, and trust that the process by which their rewards are
determined and delivered is consistent with its objectives, structure, and philosophy.
Then people can focus their energy on achieving the desired results
• Value: The receiver determines the importance and value of any reward. Program
designers and executives often ignore this simple, obvious, and profound principle.
The value is a function of many things, and economic worth is only part of it.
Executives can do a great deal to enhance the value of rewards beyond their financial
implications. In later chapters we will examine recommendations to enhance the value
of rewards so that they become truly positive experiences.
• Engagement: When business plans are made but not communicated outside a small
circle, they have little impact on actions. Further, reward systems that are not linked
directly to a business strategy, plan, or philosophy may become meaningless ways in
which an organization distributes financial resources. Plans need to engage people to
understand what they must do and allow them to see how they are progressing and
how they will realize something of value.
Customized, Systematized and Personalized Rewards
WHEN A COMPANY DEVELOPS a strategic plan, it is often followed by annual
operational plans that define how the strategic objectives will be achieved. These plans
provide a clear sense of direction for allocating resources and developing programs to
strengthen the organization’s ability to fulfil its mission. Unfortunately, most companies stop
at this point, assuming that once the plans are clear, people will carry them out completely.
Strategic planning can be inspiring and exciting, and it can give people a clear sense of
direction. If it is positive, involving, and engaging, strategic planning usually creates
One of the unique characteristics of a reward system is its ability to steadily maintain
employee focus and performance, encouraging employees to find new ways to achieve
the results outlined in the strategic plan.

Developing a Reward Strategy

1. Define the segment for which the organization needs to develop a reward strategy
The first step is to determine the persons or groups for whom one is developing the reward
strategy. Is the focus on the key executives of the organization, the sales staff, or specialized
technical or functional workers? Or will the focus include everyone in the company? While
one ultimately may develop a reward strategy that encompasses all members of an
organization, there likely will be different programs for each population segment. What are
these key segments? This process is similar to basic marketing techniques. In marketing their
products, successful companies segment their markets into different customer sets and then
seek to provide products, services, and promotional campaigns that will influence the
members of these groups to buy the products.
A company that is in the emerging growth stage of its development may find that the
priority area of its reward strategy is either with its technology team or its sales organization.
The company likely needs to attract a significant number of new people with specialized
skills and abilities. At the same time, these individuals need to learn the organization and
products quickly, build strong relationships with peers, and do the work successfully.
Information needs to get to the sales organization quickly, as well as into engineering and
product development. Customer relationships need to be developed and strengthened.
Consequently, the organization needs to specifically determine the various groups for
whom a tailored set of reward programs will support implementation of the company’s
2. Defining what the organization needs to Succeed
The next step involves defining how these individuals support the organization and what they
must do to make a difference to the organization’s success. In short, this means determining
primary roles, accountabilities, and performance requirements. To determine what is
important more specifically, consider these dimensions and questions:
1. Work process. To what extent does the work require individuals to collaborate and
integrate their activities? With whom do they need to collaborate and around what types of
issues or functions? Are the situations in which work needs to be coordinated occurring on a
periodic basis or as part of one’s everyday responsibilities?
2. Time frame. What is the performance cycle? Organizations at various stages of
development face a wide variety of challenges. For some, there is a primary crisis of
immediate importance; for others, it is necessary to continue to improve their capabilities and
performance at least as rapidly as their competitors do. The time cycle of the organization
therefore has a significant bearing on the types and alternative choices it has for reward
systems. This dimension therefore involves understanding the sense of urgency for change,
the performance cycles of the business, and the priorities of the strategic plan.
3. Relationship. What is the nature of the relationships the organization wants with
these individuals? A relationship is often defined by the degrees of awareness, sensitivity,
communication, and commitment to the success of others. Relationships are between people.
They may be very short term, transaction-oriented or intense, evolving, and highly
interdependent. For example, a speciality chemical company that develops highly customized
products found that its highest growth opportunity and profitability came from customers for
whom it built highly customized solutions. It shifted its strategy from trying to sell to anyone
in the market to building strong partnership-type relationships with its key customers. The
company shifted its general market sales to an independent distributor network and focused
the sales and development organization on expanding the relationship with key accounts. Had
this change not been accompanied by a major change in the company’s sales compensation
plan and an expansion of the incentive to include the development engineers, this strategy
would have failed. Instead, it made a major difference to the company’s increasing “customer
share” and return on its assets.

3. Determining What People Want

People come to work for an organization for many reasons. Numerous studies have attempted
to identify the decision criteria. Clearly, the reward system is not always the dominant reason
people take a job. For many, it is the opportunity to work for a leader in an industry or for an
organization that provides significant investment in training, development, and career
opportunities. For others, the company may be geographically desirable, may provide
opportunities for travel or discounts on products and services, or may involve the individual
in relationships with other people of similar expertise in the company.
Finally, many people are attracted by the compensation, benefits, employee services,
and opportunities to receive incentive pay, stock options, or special awards. They become
excited by the opportunities that are available to them as well as by the challenge of the work,
the work environment, and the vision of the company’s leaders. The focus of a reward
strategy needs to go beyond increasing a firm’s ability to attract and retain individuals.
Rewards must be meaningful to the performers, in addition to those in transition (either
joining or leaving the organization).
It is critical to remember a simple but essential principle of effective rewards—the
receiver, not the provider, determines the value. Companies often go to great lengths and
expense in determining what is competitive in the marketplace but spend considerably little
time and money determining if what they have is meaningful to their employees.
Top five factors of importance to individuals from their employers are:
1. High-quality leadership
2. Health care benefits
3. Involvement in decisions
4. Paid personal time off
5. Challenging work assignments
The fundamental concept is to enable people to earn the things they value for doing or
achieving outcomes the organization needs in order to be successful. The person determines
the meaning and value of the rewards; the organization determines the basis on which one
will receive them.

4. Selecting the Programs that Fit Strategically

Organizations provide programs, services, and experiences for a variety of reasons. Some
programs can be based on one’s membership in an organization, and others can be based on
one’s performance. By membership, we mean that people receive these services or have the
opportunity to participate in these programs as a right of joining the organization. People who
are not employees cannot receive them. For example, health care benefits usually are
provided to all employees based on their joining the firm; they are not reserved for only the
highest performers in the company. Some programs may be provided to an individual based
on his or her role in the organization; executives receive higher salaries and also may receive
supplemental benefits or perquisites (e.g., parking). Because some programs are provided
based on membership does not mean that everyone receives them equally. The requirement is
that one needs to be in a specific position or meet some other requirement to receive them.
Performance-based rewards, however, are based on actions and results, and
individuals may not receive them equally, even those with the same job. Performance may be
determined by the achievements of the individual, team, group, division, or even the overall
company. For example, when a company has a profit-sharing program for all employees, it is
a performance-based reward because the awards are based on the performance of the
company even though everyone receives a payout.

5. Developing the Strategic Plan for Total Rewards

This final step in the development of the reward strategy is focused on two outcomes: 1. A
plan or document that summarizes the assumptions and objectives and a plan for how to
support the business’s strategy with rewards. 2. A clear definition of the requirements for
each of the specific reward programs and how they are integrated into a strategic framework.
The primary value of this documentation is that it provides a basis for assessment, discussion,
decision making, resource allocation, and accountability management. The plan also may
serve as the standard against which the effectiveness of current programs can be assessed or
new programs can be devised and implemented. One of the greatest benefits companies
receive from this task is the ability to establish priorities for investment and development as
well as the reduction of programs that either are counterproductive or are wasting resources.
Alignment between the strategy and the actions of people can strengthen the commitment and
ability of the firm to succeed.
If the total rewards plan is limited or a minor element of the firm’s strategic plan,
efforts to enhance reward systems will not be considered to create value. While the emphasis
of the business must remain clearly on its strategic and operational tasks, the reward strategy
can define a clear set of consequences for achievement of the key objectives.
Further, this reward strategy can serve to focus executives, managers, and human
resource or other professionals on what is necessary to encourage and reinforce the actions
needed to be taken by people within the organization. As we saw earlier, the business’s
strategic plan will serve to provide focus, the periodic reviews of progress and other
information systems will keep the required attention on objectives, and the reward programs
will sustain the motivation, commitment, and performance of people who are so critical to
successful plan implementation.
Key Objective of Reward Programs
Base Compensation System
• Focus on competencies and paths
• Develop and Apply
• Be competitive with marketing
Variable Compensation System
• Supports team achievements
• Ties measures to strategy
• Focuses on both short and long term
Recognition Management Systems
• Recognize individuals and teams
• Reinforce service-oriented actions
• Be as immediate as possible

Importance or Purpose of Measuring Performance

• Measures provides the focus for taking action
• Measures provide the basis for monitoring work activities
• Measures Provide the basis on which the organization rewards performance-based

Performance Measurement
Balance Scorecard
Kaplan and Norton (1996) present the Balanced Scorecard model as a useful tool for the
managers to obtain a competitive advantage. These days, organizations are competing into a
complex environment where understanding the objectives and the way they can be achieved
it’s vital. The Balanced Scorecard translates the mission and the organization strategy into a
set of performance indicators that offers a model for the performance measurement system.
The model assets the organizational performance through four perspectives: financial, clients,
learning and growth and internal processes (Kaplan & Norton, 1996). The indicators
represent a balance between external indicators for stakeholders and the internal indicators of
critical processes, innovation learning and development.
The better we understand innovation processes the better our business model will be
as well as the related system of measuring performance, which will supply better information
for innovation management. This is why it seems best to use Balanced Scorecard (BSC)
process classification, which is based on the value chain and covers all the key company
• Innovation process – company is studying the development of customers’ needs and based
upon the results it organizes research and development of new products that satisfy these
• Operational process – ensure production and supply of products and services to customers.
• Post-sale services – can represent an advantage in business competition. It can be e.g. fast
service of sophisticated and expensive systems or training programs supporting efficient use
of these products.
The advantage of this method is that the transition from strategic to process level
achieved through process perspective is very straightforward. Another advantage of this value
chain is that the innovation process stands at its beginning and that it includes the
investigation of current and future needs of the customers, as well as research and
development of new ways how these needs could be satisfied.
The BSC concept transforms company vision and strategy into a comprehensive set of
performance indicators that provides a framework for assessing its strategy and management
system. BSC measures company performance using four balanced perspectives – financial,
customer, internal business processes and potential

360 Degree Feedback

This tool is all about answering the question, “How well are our people performing in the
eyes of those who have a stake in their performance?” It provides individuals with a broad
assessment of their performance based on the views of those around them, including their
supervisor or manager, direct reports, peers, customers, suppliers, and so on. Results are
confidentially tallied and presented to the employee, usually by a manager. The insights from
360 degree feedback are typically used in employee training and development. Done well,
360 degree feedback helps to democratise the review process, by weighing the opinions of
many people, instead of just the individual’s line manager.
Management By Objectives (MBO)
The Management by Objectives (MBO) method is a process in which managers and
employees jointly set objectives for the employees, periodically evaluate performance, and
reward according to the results. Although it is a three-step process, no standard form is used
with MBO, so it is a method. MBO is also referred to as work planning and review, goals
management, goals and controls, and management by results.
The MBO method is one of the best methods of developing employees. Like critical
incidents, employees get ongoing feedback on how they are doing, usually at scheduled
interval meetings. We can use the MBO method successfully with our employees if we
commit to the process and truly involve employees rather than trying to make them believe
that our objectives are theirs—accurate measures. On an organization-wide basis, MBO is not
too commonly used as the sole assessment method. It is more commonly used based on the
evaluative assessment during the development part of the performance appraisal. One
difficult part of MBO is that in many situations, most, if not all, employees will have
different goals, making MBO more difficult and time-consuming than using a standard
assessment form.
MBO is a three-step process:
• Set individual objectives and plans – SMART Objective
• Give feedback and evaluate performance-based
• Reward according to performance

Performance Appraisal and Performance Management

Performance management is the process of identifying, measuring, managing, and
developing the performance of the human resources in an organization. Performance
management is about what you’re going to do to help an employee continue in their
development to become increasingly better in their performance for your organization.
Performance management, meanwhile, is focused on the present and the future. Performance
management more takes that information and explicitly evaluates it relationship to what’s
important to the organization as a whole.
Performance appraisal, on the other hand, is the ongoing process of evaluating
employee performance. Performance appraisal is how you evaluate the progress being made
by assessing or measuring the employee’s actual performance on a regular basis over time.
performance appraisal is about the past, meaning how the employee performed in the
immediate past period being reviewed during the appraisal process. Performance appraisal is
all about an individual and how they’ve performed in the past

Performance Management Appraisal Management

Strategic Operational

Involved overall assessment Top-down assessment

Future-oriented for growth Retrospective for corrections

Ongoing or continuous review, interspersed Typically once or twice per year

with formal reviews

Individual or Collective Individual

Conduced by managers and supervisors Conducted by in-house HR Department

Flexible Process Rigid or Structured System

Not usually linked to compensation Often linked to Compensation

Ideas Banking
Tolerating Ambiguity: Tolerance for ambiguity can be defined as the degree to which an
individual is comfortable with uncertainty, unpredictability, conflicting directions, and
multiple demands. Tolerance for ambiguity is manifest in a person’s ability to operate
effectively in an uncertain environment. The extent of ambiguity may vary greatly and is
generally linked to the underlying cause for uncertainty. Some people may be born with a
natural predilection toward tolerance for ambiguity, while for others it develops over time
through education and experience.
The best way to develop a tolerance for ambiguity is to make mistakes early, cheaply, and
often. To learn that failure is a blessing, if it helps you grow. To learn that failure in pursuit of
a worthy goal is noble and that questions are more important than answers.

The Culture of Innovation: Innovation culture is the work environment that leaders
cultivate in order to nurture unorthodox thinking and its application. Workplaces that foster a
culture of innovation generally subscribe to the belief that innovation is not the province of
top leadership but can come from anyone in the organization. Innovation cultures are prized
by organizations that compete in markets defined by rapid change; maintaining the status quo
is insufficient to compete effectively, thus making an innovation culture essential for success.
Innovation cultures often measure employees based on metrics such as value creation
(for customers as well as for shareholders) and competitive differentiation, instead of
traditional metrics such as on-time delivery and revenue generation. Companies that foster
innovative thinking also encourage discovery and find ways to reward time spent on the
research required to generate new products and ideas.

Characteristics of Innovative Culture

• Openness: Innovation comes from the combination of need and culture of openness
to new things.
• Playfulness: Innovation comes from the environment in which thinking &
experimenting is stimulated.
• Adaptability: Innovation is the collective capability to adapt to changes. Adaptability
is key.
• Flexibility: Healthy process for innovation goes between flexibility and hard process. 
• Agility: Innovation efforts work best when focused through fast, rapid cycles to shape
and test solutions.
Executing Innovation Initiatives