Companies can increase bottom line by using full potential, US expert tells Gabrielle Monaghan

Thanks to the iPod, Apple has just reported its most profitable quarter ever. The latest version, the slim black and white iPod nano, is seen as a fashion accessory as well as an entertainment device. Indeed, the rise of the iPod led Apple to be named last year as the world's most innovative company in a survey by the Boston Consulting.

"It's clear the nano is not technologically innovative. The innovation was in the packaging, marketing and its appeal to kids," said Dr Thomas Esselman, who teaches a course in innovation in engineering and science at Harvard University.

So how could Irish companies create a product as innovative as the iPod? Esselman, whose full-time job is as chief technology officer for the northern region of Altran Technologies, the Paris-based consulting company he founded in 1986 , came to Dublin to help them find out.

He gave a masterclass at Dublin City University's Ryan Academy last week on how innovation in science and engineering is key to achieving success. The academy, funded by the Ryan family in honour of their father Tony, Ryanair's founder, brings international business experts to Ireland to help inspire new thinking and approaches to entrepreneurship.

"One of the most important things companies have to do is to choose what to work on," Esselman said in an interview. "If a manager says: 'I need a new product', we help them think more clearly about what project they want to work on.

"If all innovation projects succeed, then you are not doing it right because you are not taking risks. You need to push the boundaries. You need a portfolio of high, medium and low-risk projects."

Esselman says that after a company picks the right project, they must overcome personal or organisational barriers to make it a success. Personal barriers include fear of taking risks and ridicule from peers, while organisational barriers include an unwillingness to accept a project is not working, or firing employees after a project fails, instead of learning from the process.

"Another barrier is when a company doesn't provide flexibility, such as by insisting 'we want it done, but we want it done by Friday'," Esselman said. "Organisations such as 3M allocate certain amounts of time to do something they're interested in. It's about the freedom to take the time for new projects."

Companies worldwide are targeting untapped potential in a bid to improve profit growth through innovation management, according to a 2005 global survey of 800 companies by Arthur D Little.

The study found excellence in innovation can boost operating profit margins by four percentage points. Seventy-four per cent of executives surveyed by Boston Consulting last year expected to increase spending on innovation, up from 64 per cent in 2004.

Almost 90 per cent of the executives said generating organic growth through innovation has become essential for success.

Indeed, Apple was just chugging along before the iPod revitalised it in October 2001. The ubiquitous small white music players now generate just under half of its $14 billion (€11.4 billion) revenues. However, companies still struggle to get innovation right, the same studies found. Innovators in the top 25 per cent are getting 10 times more output than those in the bottom 25 per cent.

Companies can innovate more efficiently, Esselman said at his Dublin lecture, by using global partnerships; being open to outside ideas; networking well; keeping track of competition; staying close to customers; establishing processes for managing innovation; nurturing a risk culture, and developing and sticking to a roadmap.

Esselman has been lecturing at Harvard since 2002 and has spoken on innovation at several universities in the US and Europe. He began teaching in Harvard after meeting Prof David Weitz from Harvard's division of engineering and applied science.

"I was attending a Harvard industrial outreach programme and was having coffee between lectures. Dave Weitz asked what I did and I said I was a consultant.

He said: 'Consultants know how to solve problems. My students are dreadful - they don't know how to solve a problem.' I told him that if he wanted to do something about it, I'd be happy to help. The first year we did a workshop, and the following year, it was accepted as a course."