Winning through incremental innovation.

Mention innovation, and most people think of blockbuster, breakthrough products or concepts -- the Canon inkjet printer, 3M's Post-It note, Fedex's overnight delivery service, the Sony Walkman. But as wonderful as revolutionary innovations can, be for a company's bottom line and corporate image, far more often it's the steady, small-scale developments that can be counted on to deliver the consistent growth companies need to survive.

Still, many companies focus on finding the next big thing -- and miss out on the incremental innovations that can also create significant value. As James M. Kilts, chairman and CEO of The Gillette Company, pointed out, even companies with a reputation for generating new products can falter when it comes to nurturing innovation company-wide.

"New products have traditionally been a key driver to success for Gillette; in 2001, 40 percent of our sales came from products that weren't around five years ago;' Kilts told the audience at the CEO2CEO Conference. "But when I joined Gillette a few years ago, I found that there was a lack of incremental innovation across all parts of the company.... Innovation is and should be communicated as a company-wide opportunity to improve the way business is done by every employee at every level and every function," he added.

Consider Gillette's receivables: "We were the slowest collector and faster payer for the past 25 years in consumer products," Kilts said. The company's terms were comparable, its collection team experienced. So what was the problem? "It turned out our collection team worked for the sales [department], and their key job was to make sure nobody got mad at us," he explained. "So we said, 'No, your job is to collect against our terms.' We put training and incentive programs in, and it turned out to be a big innovation. We generated about $700 million of excess cash just by collecting the money"

While extending the innovation mandate beyond R&D to all facets of operations is no easy feat, more CEOs are tackling the challenge -- and finding the results well worth their endeavors.

Incenting Innovation

For automotive components and system supplier Magna International, innovation is built into a "corporate constitution" that outlines the company's core principles -- one of which is to foster inventive thinking on the part of employees. "Incremental innovation requires the right environment -- one built on fairness, security, safety and proper commumcations," said Belinda Stronach, president and CEO of the $11 billion company, who says that a comprehensive incentive program helps motivate its 72,000 employees to be creative.

"We slice up the pie of profits before it's baked," she said. Six percent of profits are distributed to Magna's management team, all of whom -- Stronach included -- receive low base salaries. "Employees receive 10 percent of profits, of which a portion is in shares and a portion is in cash," she noted. "We're all motivated to generate profit because we receive a percentage, and we're also required to hold shares so that we look out for the long-term interests of the company."

Aware that profit incentives alone won't deliver innovation, Magna also encourages creative thinking and idea sharing by promoting open communications and a sense of security among employees. To facilitate dialogue and collect ideas, for example, each division holds monthly meetings between employees and the general manager. "We recently created an employee advocate position -- an individual jointly selected by the employees and by management who cannot be fired by management, only by an employee ballot vote -- to foster communications between employees and management," Stronach said. "The mandate is to facilitate communications, keep employees happy and bring forward new ideas."

"Without safeguards, employees will not have the confidence or the motivation to come forward with new ideas," she added. "We found that by making employees stakeholders and providing the right entrepreneurial environment, incremental innovation is a byproduct."

TIC from the CEO

William V Hickey, CEO and president of Sealed Air Corporation, sees innovation as preventive medicine for a deadly disease: commoditization. "We believe there is no such thing as a commodity," he said. "Our goal is to continue to find ways to make our products non-commodities through added value and through differentiation -- through innovation!'

How does Sealed Air deliver on such a tall order? "You need CEO-level interest in innovation and technology," Hickey said. "And you have to have the commitment, to walk the walk. Despite all of the cost cutting American industry has gone through in the last five years -- and we've done our share of that -- we have maintained our spending commitment to R&D. We spend 2.5 percent of sales on R&D, which is twice the industry average."

Sealed Air has some impressive incremental innovations to show for it. Best known for the Bubble Wrap packaging it invented in 1960, the company built on that franchise 15 years ago by introducing a consumer version of its most famous product, and now offers inflatable Bubble Wrap. Manufacturing operations will be able to generate Bubble Wrap on demand using a machine that is about the size of a single roll of Bubble Wrap, Hickey explained. "The space you would have needed to store a single roll of Bubble Wrap can now be replaced by this," he said.

But Sealed Air's innovations aren't all about bubbles. It recently developed an award-winning packaging that incorporates an "oxygen-scavenging film" to keep packaged food products fresher longer. "By adding in-house-developed technology to the film on top of the package, we can absorb latent oxygen and thereby reduce spoilage," reported Hickey, who says the packaging extends the shelf life of Buitoni packaged pasta products by nearly 100 percent. "The benefits to Buitoni are both longer manufacturing runs, because of the [later expiration dates], and wider distribution, because they can now meet the turnover demands of market channels like convenience stores."

In accounting for this impressive track record, Hickey pointed to corporate programs that go beyond rhetoric: "We make it a requirement that our R&D organization visit two customers a year," he said, "and we ask them, 'What in your packaging is giving you a problem today, and what can we do to make it better?"'

A recognition program also helps to instill his philosophy of pursuing innovation into the corporate culture. "Most companies recognize top sales performers, but we recognize the top R&D performers," Hickey said. "We have a global innovation recognition once a year, and I make it a point to attend that event."

Building Blocks

When James Kilts joined Gillette two years ago, the 100-year-old company already had a respectable legacy of inventive thinking, with headline products like the Atra, Sensor; Venus and the Mach series under its innovation belt. Yet Kilts wasted no time introducing into the firm his four building blocks for innovation: communicate a vision, get the right people, stay clear of building consensus, and look externally.

"It starts with communication," Kilts said. "You need to ensure that your organization understands that innovation is not confined to the R&D function or to other technical areas. We created a simple vision two years ago: build total brand value by innovating to deliver consumer value and customer leadership faster; better and more completely than the competition."

But having a clearly articulated message only works if you have the right people -- and give them the freedom to take chances. "You've got to hire and retain people with energy and people who love to change and learn;' Kilts said. "And you need to encourage risk taking. One of the themes in our company is to remember that the opposite of success is not necessarily failure but inertia."

While risky ventures often spark debate, contention comes with the territory." Real creativity can be very contentious, and you need to encourage people to challenge [current thinking] and maintain an attitude that they're unafraid to disagree with authority figures," Kilts said. "Consensus building is not always the best way to promote innovation."

In fact, sometimes the popular consensus can be dead wrong. Kilts, who prior to joining Gillette held top positions at Nabisco and Kraft Foods, recalled that when Oscar Mayer looked at possible modifications to its Lunchables line of kids' lunch packages, the product group considered -- and rejected as terrible -- the idea of adding a drink to the product. Shortly thereafter, the president of that division met with a customer who voiced the same idea. "The president went back and told the product group, who said they thought it was the worst possible idea, 'Well, I'm going to do it anyway,'" Kilts said. "That little idea, called the Fun Pak on Lunchables, doubled the size of the business."

Finally, said Kilts, companies need to look outside their own doors and use benchmarking as a source of new ideas. "Talk with people in other industries about what they're doing and what they're accomplishing," he urged. "I've gotten a lot of good ideas from other industries."