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The Power of Proposition Innovation

November 23, 2011

In this age of consumer analytics and customer-centricity, most companies don’t develop products and services before talking to customers, identifying latent needs and wants, and studying behaviors. However, while coming to grips with myriad customer segments and mountains of data, executives may well have forgotten a way of developing new products and services that stood them in good stead for decades. An old-fashioned process, proposition innovation starts with companies — not consumers — and entails developing products and services that aren’t based on consumer feedback or profiles.

If you think about it, several enterprises still routinely develop products and services without talking or listening to consumers. Italy’s best-known industries adopt this approach; for instance, fashion houses, from Armani to Prada, create new lines every season, setting trends that others quickly copy. (Walk down Milan’s Via Montenapoleone, and you will see the most unlikely people covertly taking pictures of the big labels’ latest products in shop windows.)

In most of these fashion houses, a single designer (sometimes, a small team) is the only source of innovation. She or he designs clothes and accessories based on subjective ideas of the world as well as visions of how people should dress. Milan’s design cluster — the local community of artists, architects, design schools, textile-makers, critics, et al — may shape their ideas as does Italian history, arts, and style. Still, the innovations stem from deep within the company.

Most companies don’t feel that proposition innovation is effective; that employees are capable of pulling it off; or that it will yield results without links to the outside world. Executives are also convinced the process is difficult to replicate because the “genius” model works only in industries where innovation is idiosyncratic and intuition is essential. However, according to my recent research, that may not be always true.

Take the case of Elica, an Italian company that has become a global market leader by relying on proposition innovation. Although it is located in the middle of nowhere, the company has transformed range hoods, of all things, from noisy things you keep hidden, to quiet and eye-catching devices that make kitchens look more attractive. Elica transformed itself from a low-end supplier to an innovative organization by proposing — and imposing — a radically different vision on the interntaional market.

Ten years ago, the Italian company decided to sell range hoods that would make cooking more enjoyable while looking good too. As a first step, Elica developed a powerful and compact air-treatment system that would fit into a small cylinder. Then, it engineered the system so it would be quieter than rival products, managing to reduce noise levels by as much as 35%. Finally, it designed a range of attractive hoods — such as a ceiling-mounted lamp range hood, which casts a soft light on the countertop; a futuristic-looking circular wall-mounted one; a menhir-like island range hood, and so on.

Elica’s premium products aren’t based on the creative genius of executives or designers, but are the result of its innovation system. The top team started out thinking that the ability to come up with innovative products and services depends on employees’ ability to see the world; it wasn’t about studying customer data and responding. They therefore reoriented the organization.

One major problem the company faced was the lack of imagination. The town of Fabriano, Elica’s base, is encircled by the Apennines. Few employees spoke English; even fewer had traveled around Europe, Italy, or even outside the valley. To tear down barriers and develop a culture that would produce a constant flow of new ideas, Elica created a company-wide community — from blue-collar workers to white-collar designers across functions — and ensured that they interacted freely and frequently.

Elica uses several novel levers to foster innovation:

It has designed a workplace that encourages people to exchange ideas. Every function, including manufacturing, surrounds a large square, which resembles the Greek agora or the Roman forum, where people can gather, chat, and share.

The company counts on spouses and children to expose employees to new cultures. For instance, Elica offers sponsorships to employees’ children so they can travel and study abroad. That naturally helps broaden employees’ outlooks.

Elica uses art as a transformational device. It runs workshops and artist sessions at which employees from all functions and levels can participate. This helps destroy mental stereotypes, catalyze new ideas, and allow employees to develop a taste for aesthetics.

By 2010, Elica had generated revenues of € 370 million (around $532 million), carving out a 41% market share in Europe and 17% worldwide. Moreover, 30% of its revenues came from products introduced in the last three years; the figure was just 10% in 2005. In addition, The Great Places to Work Institute has adjudged Elica one of the best places to work in Italy for three years in a row — an unforeseen benefit.

When was the last time your company experimented with proposition innovation?

Alessandro Di Fiore

Alessandro Di Fiore is the CEO of the European Centre for Strategic Innovation, based in Milan.

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