Episode 147      30 min 24 sec
Out on the cutting edge: Innovation as a driver of corporate success

Professor of Management Danny Samson explains the importance of innovation for business firms, and how to build a corporate culture that encourages it.

"You need to have innovation from the top to the bottom of the company. Firstly, a preparedness to take risk, a tolerance for the occasional failure, because nobody gets it right every time."  -- Professor Danny Samson




           



Prof Danny Samson
Professor Danny Samson

Danny Samson is Professor of Management at the University of Melbourne (since 1988), was Head of the Department of Management in the Faculty of Economics and Commerce for three years (2002-4), and is Director of the Foundation for Sustainable Economic Development there.  He has an honours degree in chemical engineering (UNSW) and a PhD in management from the Australian Graduate School of Management (1984).

His work history includes three years as an engineer at ICI Australia, appointment as a lecturer at AGSM, five years as an Assistant Professor of Business Administration at the University of Illinois and ten years as the Professor of Manufacturing Management at the Melbourne Business School, University of Melbourne.  He was Associate Dean (Development) in the Faculty of Economics and commerce from 1998 to 2001.

During his academic career he has been a consultant to senior executives in most manufacturing industries and in numerous service sector organisations. These include major companies in the food, building products, paper and printing, chemicals, processing, banking, engineering/ construction and other industries, in Australia and elsewhere.  This included ten years working on corporate strategy with the CEO and top team of a major bank with networks and brands in the UK, USA, New Zealand and Australia.

He regularly provides industry and executive seminars and has participated in a number of committees and industry bodies including appointment as a member of the Australian Manufacturing Council and the Commonwealth Government Industry Task Force on Leadership and Management (Karpin committee). He has undertaken numerous studies in technology management including the DIST sponsored study on “International Best Practices in Technology Management”.  He founded and directed for ten years, the Centre for Manufacturing Management at the University of Melbourne.  From 1994 to 2003, he was a Board member of TAC in Victoria, an insurer with $6 billion in assets.

He has published over one hundred academic research articles in journals, including in the Academy of Management Executive, Journal of the Operational Research Society, European Journal of Operational Research, Journal of Business Research, International Journal of Management Science, ASTIN Bulletin, Interfaces, International Journal of Technology Management, Australian Accounting Review, Decision Support Systems, International Journal of Production and Operations Management, Journal of Risk and Insurance, Journal of Management and Journal of Operations Management, where he is Associate Editor. His book titles include Managerial Decision Analysis, Production and Operations Management, Management for Engineers (3 editions), Patterns of Excellence, Technology Management, E Business: Value for Managers, and Management: Asia Pacific ( 3 editions, an industry leading book) .

His honours include winning a research prize for the best research article submitted to the European Actuarial Association and he was voted the Outstanding Instructor by the Executive MBA class of 1985 at the University of Illinois.  He was also awarded the Graduate Teaching Excellence Award at the College of Business Administration at the University of Illinois, and Deans teaching Award at the University of Melbourne. He has won numerous ‘best paper’ awards.

He is one of Australia’s best known executive educators, having created and led many successful programs both in Australia and elsewhere. He has continued large research grants to bring to his university, holding two ARC grants at present totalling $600,000.

In recent years he has led many executive education programs, such as the PETRONAS program at the University of Melbourne in which he and colleagues have educated 1500 managers in PETRONAS Malaysia with a graduate certificate in management from the University. He has also conducted two series of programs for over 500 academics in Malaysia on “Building a Quality Research portfolio” and “ Achieving Teaching Excellence”.

The recent research report on innovation can be accessed at: http://www.innovation.gov.au/Industry/IndustryInnovationCouncils/Documen...

Credits

Host: Elisabeth Lopez
Producers: Kelvin Param, Eric van Bemmel
Audio Engineer: Gavin Nebauer
Voiceover: Nerissa Hannink
Series Creators: Eric van Bemmel and Kelvin Param

View Tags  click a tag to find other episodes associated with it.

Download file Download mp3 (27.9 MB)

VOICEOVER
Welcome to Up Close, the research, opinion and analysis podcast from the University of Melbourne, Australia.

ELIZABETH LOPEZ
I’m Elizabeth Lopez.  Thanks for joining us.  If you were to ask most people to identify one or two innovations that had transformed life as we know it, they’d come up with a list of inventions - Velcro, the Internet and the iPhone.  But in business the road to hell is paved with good inventions.  For every iPhone there’s a good idea that just failed to get the success it deserved, like Bluetooth.  Or an idea that failed in the Darwinian struggle for a place in the hearts of fickle consumers such as the Betamax video format, new Coke or the food additive Olestra. 
Once upon a time businesses in advanced economies had a good chance of surviving if they offered superior quality, good customer service and better still a star product and offshore manufacturing was for shoddy cheap goods.  But for our guest today on Up Close, Professor Danny Samson, who lectures in Operations Management at the University of Melbourne’s Faculty of Business and Economics, technological change has blurred those old demarcations.  He says companies can no longer rely for much time at all on the competitive edge offered by a single innovation.  He says companies large and small need to get serious about developing what he calls a systematic innovation capability, a capability that transcends the occasional product failure or setback.  Welcome to Up Close Danny.

DANNY SAMSON
Thanks.  It’s great to be here.

ELIZABETH LOPEZ
Innovation would have to be one of the most overused words in business and government and everyone agrees, advanced economies need to innovate to stay economically competitive, but what does this really mean?

DANNY SAMSON
Well let me say a couple of things about innovation and then systematic innovation capability.  So the first thing to probably differentiate is that innovation is much more than invention.  A lot of people I think, think that when they’ve had a good idea - and I’ve had some good ideas in my life - that’s the easy part.  The hard part is turning a great idea into a commercialised value-adding product either for a marketplace or indeed for society in general.  So innovation is the taking of an invention and then going through the hard work after you’ve invented something or done some research and development and come up with a value creating idea of some kind and then being able to scale it up, mass produce it, introduce it to a market or society.

ELIZABETH LOPEZ
So it’s a nice marriage of creativity plus maybe applying it to a business model.  Do most businesses in your view understand that?

DANNY SAMSON
Yeah I think they do.  But there’s a great difference between being able to understand it and being able to do it systematically and consistently well - and that’s what I studied.  So the first thing about innovation is that it’s also not just about new products and services.  Of course it’s about new products and services.  There’s my iPhone on the table and there’s an example of a systematically innovative company.  There are many.  So as well as products and services, same company, iTunes and so on, it’s also about new processes, new technologies and indeed completely new ways of organising and running a business, such as new marketing methods.  They can be innovative too. 
That’s our general definition about innovation.  That it’s about anything that is new.  So the first and perhaps most important thing to say about innovation is that it simply is about new.  New anything and it can be not necessarily new to the world.  It can be new to your market - in which case as far as your customers are concerned, it’s an innovation.

ELIZABETH LOPEZ
Well we all know about Google and Apple and all those high profile firms.  But can you tell us about some other firms that are doing innovation really well?  What do they seem to have in common?

DANNY SAMSON
Yes absolutely.  So what our study was, was of companies that are systematically innovative and have a capability to keep on with a stream of innovations.  As I’ve already defined, that means products, services, processes, technologies, business models - methods of going about marketing and sales and just methods about going about your business.  Now those companies range from very large to even very small.  So it’s important to say that any organisation, from the biggest to the smallest, can be systematically innovative.  The by-line I like to use for systematic innovation is that it is not just about having the occasional lucky break, as if somehow we stumble upon something.  That’s good when that happens.  But I don’t think I’d like to rely on that if I was the manager or owner of a business - hence the term systematic innovation capability.  It’s about an underpinning set of drivers and factors and investments that people make in that capability of how they organise to effectively take product services, technologies as I keep saying, through to fruition and value creation.

ELIZABETH LOPEZ
So is this something that just applies to large companies?  You talk about being able to tolerate a few odd failures, a lot of small businesses or medium sized businesses would say this is something we just can’t afford to have a few guys in special projects faffing around and coming up with something that might not deliver on the bottom line.

DANNY SAMSON
Yeah great question.  Of course large companies can have larger budgets and have the ability to take larger risks.  An example of a company that took a large risk and actually has made a great success of it is Toyota, with the hybrid synergy drive technology that is now right through their range in many countries including in Australia with the Hybrid Synergy Drive Camry.  I’ve been to their businesses in Japan, studied them in the US as well, where they’ve taken that technology and successfully scaled it up.  They keep on keeping on.  They’re into version three or four of it now, where they keep on improving it through further and further incremental innovations, once they were success with the radical innovation. 
So I started off by saying with large companies like Toyota they can take big risks occasionally.  But I do want to say that I studied six or seven small companies as well and on a smaller scale they absolutely can take those kinds of risks.  I studied a small company in the textile industry, total number of employees 30, a family owned company.  They employ two full time people driving innovativeness in their organisation.  So it’s economies of scale if you like in a sense that in a proportionate sense they’ve got a very large investment in being innovative and overcoming other disadvantages they have such as the high labour cost of being in the textile industry in the first world.
So some of the drivers that large and small companies, everything from the mighty Toyota - I also studied Microsoft as one of the companies that I did a case study on in this.  So, to scale, large and small companies were doing their systematic innovation capability investments and driving their processes through a company-wide - I could call it a full court press actually - a company-wide approach to really driving every aspect of their focus, their priorities, their resources, their strategies and then on to the things that they measure, the key performance indicators as we say were also about innovation.  Then on to the behavioural and the cultural factors, which are very important in any organisation - and that is how do we reward and recognised and promote people.  Again those things are hung from the things that make the business successful, which in the case of the companies I selected and studied is about systematic innovation.  So people get rewarded and recognised in those great companies according to their contribution to the achievement of that innovativeness. 

ELIZABETH LOPEZ
Well while we’re on people, what sort of leadership qualities do you need if you’re going to be innovative as a company?

DANNY SAMSON
That’s a wonderful question.  You need to have from the top to the bottom of the company. Firstly a preparedness to take risk, a tolerance for the occasional failure, because nobody gets it right every time.  I was studying ABB, a fabulous European company quite some years ago and they had a wonderful philosophy for taking risk.  They said we know you’re not going to get it right every time, failure is okay.  It’s tolerated as long as your batting average is high.  In other words we expect you to get it right a fair bit of the time, maybe even most of the time, but we have a preparedness to take risk and we understand and we have to have a tolerance of the occasional failure. 
Many companies are very conservative and highly risk adverse and that thwarts creativity and innovation because people are seen to be only as good as their last activity or their last decision.

ELIZABETH LOPEZ
How in say a large multinational company do you change an embedded risk adverse culture?

DANNY SAMSON
It has to start from the top.  The people who are working if you like on the shop floor can’t change culture and policy all by themselves. So this comes from the boardroom and the CEO who have to enunciate policies and have a preparedness - I call it a risk tolerance, that’s one thing - and also they should lead from the top by demonstrating through their own behaviours a sense of creativity and innovation.  So not just coming to work every day expecting to solve the same problems in the same old way - what we might call same old, same old - but also continuing to strive to think outside the square.  Yeah, it needs to be lead from the top.

ELIZABETH LOPEZ
So someone like Steve Jobs replying personally to an angry consumer, contacting him via Twitter, is that the sort of thing you mean?

DANNY SAMSON
That’s a good example.  But I would also like to look at the things that really drive product development in there.  He has been a hero in what I call the innovation community.  Him personally, because he has been personally the leader of those things, and also substantially because of the way in which his company has clearly demonstrated leadership in innovation capability.  Look at their financial and other results.  Stella. 

ELIZABETH LOPEZ
This is Up Close.  We’re talking to Professor Danny Samson of the University of Melbourne’s Faculty of Business and Economics about innovation for business success.  So Danny what were some of the findings that came out of the research you did on these 10 companies and how does it all fit together?

DANNY SAMSON
Let’s dig into a little bit of the detail of what I’ll call the drivers of innovation.  The first one was that there is no single or simple recipe for innovation.  I studied 10 successfully innovative companies who had these systems in place. There was no simple recipe.  This is not like making scrambled eggs or even a fancy dish that you might like to cook up. Every organisation has a unique opportunity set and a different place that they’re starting from.  So I can’t say that there’s a recipe.  There has to be however a strategy for it. 
So the second thing I say is that there’s strong, determined, energetic and really dynamic leadership of that innovation.  If that’s not in place then nothing else will take hold and it won’t be systematic and it won’t be lasting. 
These firms also demonstrated a customer focus which I can call essentially a customer obsession.  They are very keen in all aspects of everything that they do, to drive more value into the solutions that they provide for their customer.  So they work with lead customers for example.  A good example there is 3M where all over the world they have a methodology of working with the leading edge of consumers and finding out what do they do with our products and services so that we can come up with new generations of products and services that add even more value to the customer experience.

ELIZABETH LOPEZ
You used an interesting example with 3M of their lead customers being mostly surgeons who needed infection control materials, but also Hollywood makeup artists.

DANNY SAMSON
Yes and 3M are in very many different industries and I will give you another example.  I was working here with the Department of Defence and they were telling me that they just love it when the 3M sales people and marketing people and technical support people call on them because of the range of new capabilities that their materials and their products bring.  So everywhere that 3M goes - and I can remember being in a sandpaper factory in Canada that 3M owns and operates.  I think it was in London Ontario a few years ago and even in that place everybody wanted to talk about innovation and nothing but innovation.  I’m speaking about managers, marketers, sales people - and definitely including the shop floor factory operators who were operating equipment.  Constantly looking for ways to do whatever it is that they do better.  So that includes process innovation, small step improvement, as a part of the innovation picture. 

ELIZABETH LOPEZ
So innovation is often not just the big hit, it’s a series of small changes over time that night not look like much while they’re happening?

DANNY SAMSON
That’s true and probably Toyota is the master of this in my view - of the companies that I’ve studied and I’ve been around plenty of them.  That is because after every radical innovation there is this whole series of small step tweaks and improvements and I’m not even sure where what we used to call continuous improvement in the days of quality management capabilities, where does that stop and small step innovation start?  I don’t know the answer and I don’t think it matters.  So absolutely I want to confirm that these organisations don’t just rely on the occasional big break through, but even when there is one they continue to tweak and adjust and improve on a continuing basis in all corners of the organisation.

ELIZABETH LOPEZ
You’ve mentioned in your research that the way to go about it is not to think in terms of finding a solution to a problem that doesn’t yet exist.  I suppose that’s where the customer focus comes in?

DANNY SAMSON
Well I think there’s probably a mix.  So if you think about a spectrum - and again one of the companies that I studied that was really fascinating was a large goldmining company.  So I picked that example to use to illustrate this because there’s a company that finds it very difficult to differentiate based on the product when you’re producing bars of gold, wonderfully valuable things as they are.  I think it’s 15 hundred and something dollars and ounce these days.  The fact is that it’s a commodity and it’s not possible to differentiate in the product.  But it is possible to differentiate very much in the process and to drive obviously cost reduction and profit margin very much through improvements to the efficiency of their processes.  That company has gone from being not very innovative, more than five years ago, through very determined leadership and the resourcing of innovation to now driving their cost down through process innovation focus.  They do big things and they do lots and lots of little things.

ELIZABETH LOPEZ
What are some of the things that they did?

DANNY SAMSON
Oh it’s fascinating.  I didn’t realise until I went into that company just what a hotbed of innovation mining can be.  Because many people, including before I was into the mining sector, think that mining is just about millions of tonnes of rocks and moving them and crushing them and grinding them and then getting the valuable minerals out.  Yes it is about all that stuff, but it’s also about improving the processes and the technologies and the efficiencies.  For example Newcrest is doing underground cave block mining and these companies are also bringing together biological processes for leaching out the minerals from the rock.  Amazing confluence of new technologies - apart from improvements in the efficiencies of the actual mining operation. 
I was talking to one of my students who is a senior executive in our of our executive programmes here at Melbourne Uni and he was saying that the next mine that they build is going to be completely operated without any people on site.  It’s going to be remotely operated from a control room thousands of miles away.  So innovation is up and down the mining sector. 

ELIZABETH LOPEZ
Danny, you say that firms don’t necessarily have to be all that innovative in-house, they can outsource their innovation as Sony did a couple of years ago inviting hackers to suggest new ways and means to enhance PlayStation.  Tell us a bit about open innovation and how you can drive it?

DANNY SAMSON
Yes, open innovation is a relatively new term, if you think about innovation it’s been around for a very long time.  People and companies have been innovative, I don’t know, since the year dot let’s call it.  However in recent years with modern organisations, contracts and markets and the sophistication of technology - let me start by saying the issue or the problem is, is that no organisation can keep up with all of the different types of technology and process development that is required.  So organisations have had to find ways to cooperate and collaborate with others, simply because they might well only have part of the solution themselves to go forward. 
This is happening very much in internet space, in ebusiness space if you like.  It’s happening very much in biotechnology. It’s also happening in the defence sector - and that’s probably the best example to use here.
I’ve done some consulting work in the defence sector in which even the defence sector that used to be, as you can imagine, a little bit - I’ll call it cloak and dagger - but more seriously secretive in keeping their technology and their developments to themselves.  They’ve had to realise that they can’t control and develop all of the technologies that they want.  So even the defence sector has had to open up their boundaries if you like of their technological space and realise that they can learn, for example, from the gaming sector.  From the movie industry in terms of the simulations that go on and from a range of other places.
So open innovation works well when it’s done appropriately.  You can create win, win, collaborative relationships whereby your organisation - listeners might only have a part of the solution that’s required to really create value, but by teaming up with some other organisations a lot of value can be created.

ELIZABETH LOPEZ
How do you reconcile the security or IP aspects with getting access to knowledge that you don’t necessarily have in-house?

DANNY SAMSON
Yes, there are some complexities to it.  Life is a lot easier when everything can be done under a cloak of secrecy and behind walls.  So you use contracts and trust.  So you have to be prepared to trust with partners, work with people, build relationships. But typically behind that you need to have lawyers and you need to have contracts so that if things ever do go wrong, things are done properly underneath it.

ELIZABETH LOPEZ
Now all this innovation is going to cost you isn’t it?

DANNY SAMSON
Yes of course.  You only get back if you invest.  So some of the world’s best companies invest.  I was just talking to a colleague this morning about a local company in the machine tool industry that invests 9% of their sales revenue in new product development.  That’s not atypical as an amount.  It’s a lot of money, especially when you compare it to the profit of a lot of companies.  It might be almost as much as their gross profit, or even their net profit.  But one way or the other, if you want to be successfully innovative you’ve got to invest in two things. 
Firstly I would argue some technical investment in product and process and technological development.  But at least as importantly, and an area that is sometimes underdone by executives, is to invest in the skills of your staff up and down the organisation.  I think that’s probably been underdone, even in those companies where they’ve invested in the technical side of innovation, it’s about people, creativity and teamwork. 

ELIZABETH LOPEZ
This is Up Close.  We’re talking to Professor Danny Samson of the University of Melbourne’s Faculty of Business and Economics about innovation for business.  Danny, you’ve also made some interesting observations about cultural differences between Japan and English speaking countries on incentives in terms of how the people themselves are rewarded for innovation.

DANNY SAMSON
Yes I think that in the West we tend to reward individuals more than teams.  But no matter which it is - and even in some Japanese companies that I have visited and studied, they do tend to reward people for the things that are successful in the company - and in this case obviously it’s about innovation.  The mix of rewards though is much broader than just monetary rewards in the best companies - no matter whether it’s in Japan or a Western country.  The mix of rewards is a mix of extrinsic and intrinsic rewards, including possibly some money, possibly some things that I’ll call in-kind but tangible rewards, but also very importantly the reason that these companies can win in the labour market as I like to put it, is because the company is an attractive place to work because they provide their staff with psychological rewards. 
Let’s simply call it job satisfaction, that the people that contribute to – in this case we’re talking about innovation – are recognised for that.  They get to take home – let’s call it a heart full of good job satisfaction and the recognition for their contributions.  I think that’s actually universal.  Yes there are different shades of it according to different cultures.  Not just in different countries, but even every company I’ve noticed has a different mix to how they provide people with rewards of the tangible versus what I’ll call the psychological or job satisfaction kind.

ELIZABETH LOPEZ
I guess it’s fairly clear to see what’s in it for businesses in advances economies, because they can’t compete on things like rent and labour costs.  But what is there in this for businesses in developing economies where they can gain the edge on competitors because they do have access to very cheap labour and land.

DANNY SAMSON
Let’s pick a country such as Korea.  I visited there and it used to be a low cost place.  A lot of business activity was generated 20 years ago because of the low cost structure.  If you want to go back 20 years further than that Japan used to be such a place.  That doesn’t last forever is obviously what I am on about.  These companies and countries go through cycles.  As a country industrialises - and inevitably China is going through that now, of course - inevitably you can’t be a low cost region or country.  Even as we speak, manufacturing and other businesses are moving out of the expensive - and I mean relatively expensive - regions around Beijing and Shanghai and they’re moving west and they’re moving other places in search of low cost.
So you can use the low cost advantage for a while, but ultimately you have to compete on other things.  For a while you might be able to compete in some industries on quality. But even that’s substantially over.  Even inexpensive cars from inexpensive countries now have got at least adequate if not excellent quality. 
So that only leaves one other endless - and I do mean endless, the ultimate competitive weapon, which is never ending, which is of course innovation.

ELIZABETH LOPEZ
Danny is there a role for government in all this, or are businesses best to keep away?

DANNY SAMSON
Oh I think that there is a role for government.  Government can facilitate innovativeness in a few different ways.  Firstly I think that government can help with sunrise industries. It’s difficult for early stage industries and technologies to be fully supported only by private sector.  So I think government can do this. 
I’ll give you an example again since we’ve just been talking about other places.  The Japanese government going back 50 years or so, MITI is famous for having brought together industry leaders and said we want to have a national policy and a national technological development in this area or that area and industry does come to the party. So one role of government is to facilitate the development of sunrise start-up technologies and industries. 
Perhaps even more important is the role of government in providing a creative and skilled workforce.  Again that allows me to make the point that innovation is not just the province of scientists, business leaders and engineers - and I’m allowed to say that because I am a chemical engineer by original career and training.  Innovation comes from the whole of the workforce.  So the whole creative mindset, the ability to work in teams, the ability to think outside the square, those can all be provided by the education system, which is substantially the province of government. 

ELIZABETH LOPEZ
Do governments tend to realise this?

DANNY SAMSON
Some have done so much better than others and the usual suspects that we mostly study - and let me say that my study was not of national policy or national education schemes.  But countries that have seemed to have done quite a lot better would include Singapore, Taiwan, Israel is usually mentioned and a number of other of what I’ll call the newly developed countries where there’s been a real influence by the education system on the creativity and the innovation performance of those nations.

ELIZABETH LOPEZ
We haven’t talked about sustainability yet.  How is that related to innovation?  I imagine a lot of firms would see it as simply an add-on that would be nice if we could ever get around to it.  How do you feel it’s intrinsic to all of this?

DANNY SAMSON
Quite a few of the companies who are advanced in innovation also happen to be advanced in their approaches to sustainable development.  So the first thing that somebody like me, who studies this as best we can from a scientific perspective, says is that coincidence?  The answer is I think not.  There are causal mechanisms that cause companies who are advanced in innovation to also be advanced in their policies, strategies and practices of sustainable development.  Because to be advanced in sustainable development means doing good things, not just for your financial bottom line but for your environmental bottom line and also for your social and community outcomes as well.  That requires you to do innovative things in order to for example pollute the world a little bit less, to reduce your carbon emissions or your heat output or whatever it might be.  Also do to innovative things in the community by definition require a stance on innovation.  So those two things go absolutely hand in glove.

ELIZABETH LOPEZ
One example you researched was of a bakery that does all sorts of things like cogeneration in its factory to trap the heat used in baking and use it for other energy generation purposes. They use a hybrid vehicle for deliveries. What drove that?  Was it about compliance or did they really drive it from a firm belief that this was a good thing that would also help the bottom line?

DANNY SAMSON
The second of those things - it definitely was much more than compliance.  It’s relatively easy to comply with the law because in many cases the law sets a relatively low level in terms of just a straight out compliance.  They go way beyond compliance looking for win-win outcomes whereby they can save money for example on energy.  They went much further than that.  They firstly looked into their processes so that they could save heat and they could also find more efficient ways to cool things because when you’re doing baked products - I’m not an expert my any means - but you have to heat stuff up obviously and you have ovens, but you also have to be able to rapidly cool things as well.  So they re-designed all of their processes and their equipment in order to save energy. 
Now of course you’ve got to make an investment, you’ve got to spend some money to make some money, of course, in business and that includes in innovation.  To improve your sustainability through being innovative in the design of your equipment, they went a long way beyond compliance.  They then looked at the design of their actual products and services and they found that by doing some different things with the actual materials of construction.  So folks I’m actually referring to baked goods of all different kinds.  So don’t think about steel and plastic, I’m talking about the things that they actually make in their pies and cakes and pastries.  In their products and services they found that by attending to the issues of sustainable development and environmental outcomes that they could make better, healthier products and services and also at the same time drive through innovation their own business performance forward. 

ELIZABETH LOPEZ
So you’re taking about the bakery Ferguson Plarre?

DANNY SAMSON
Yes.

ELIZABETH LOPEZ
I want to ask you about creative destruction, what is that?

DANNY SAMSON
This comes from an idea that was originally published in a book in 1934.  I won’t bore people with the academic history behind it.  But creative destruction can be thought of in my view of replacing your tired old products, services, processes, technologies, whatever, with something that is new and better.  I would simply ask listeners to consider that you’re better off competing with your old tired products and coming up with new things that replace them, then having somebody else do it to you.  So whatever the domain of that is, it’s much better off that you manage your product lifecycles effectively.  I’d say nothing lasts forever.  Every product and service is eventually going to get mature and start to decline. Businesses do a lot of things to try and come up with innovative tweaks, large and small to try and do that.  Creative destruction is where you purposefully manage the portfolio of products in order to make sure that you are the one that’s replacing your tired old products with new offerings as against one of your competitors.

ELIZABETH LOPEZ
So it takes nerves of steel to kill off your children, doesn’t it?

DANNY SAMSON
Well I think it takes a lot of courage to do that and that’s why a lot of companies aren’t very good at killing off their tired old products and coming up with new ones, because they’re wedded to the things that have made them successful for such a long time - exactly.

ELIZABETH LOPEZ
Can you give us an example?

DANNY SAMSON
Oh I’d give you an example of software and even hardware.  I think that Hewlett Packard who I studied for quite a long time, have been very good at bringing out new generations of - let’s take printers.  They’re forever coming out with new, different, better performing and often cheaper printers and recycling those old printers out of our offices and so on and getting us to go through those consumption cycles that match their product development cycles.  Their approach is that they’re much better off coming up with new, better printers and getting us to buy their printers on and on rather than somebody else’s.  So they’re going through cycles of renewal quite often.  Sometimes we might wonder whether they’re doing that a little bit too often.  Same thing when it comes to software. 

ELIZABETH LOPEZ
That was Professor Danny Samson of the University of Melbourne’s Faculty of Business and Economics.  We’ve been talking today about the importance of innovation to business.  Thanks very much for coming in Danny.

DANNY SAMSON
Thanks.  It’s been a pleasure. 

ELIZABETH LOPEZ
Relevant links and a full transcript of this episode can be found at upclose.unimelb.edu.au.  Up Close of a production of the University of Melbourne, Australia.  This episode was recorded on 07 June, 2011 and was produced by Kelvin Param and Eric van Bemmel.  Audio engineering by Gavin Nebauer.  Up Close is created by Eric van Bemmel and Kelvin Param.  I’m Elizabeth Lopez.  Thanks for joining us.

VOICEOVER
You’ve been listening to Up Close.  For more information visit upclose.unimelb.edu.au.  Copyright 2011, the University of Melbourne. 


show transcript | print transcript | download pdf