Monday, November 23, 2015

Embedding innovation deep in your culture

Over the last few weeks I've been working with a client that is struggling to fully implement a new strategy that introduces innovation as an important component of day to day operations.  The company has a strong executional culture and has been successful in the past, but recognizes the need to do more innovation and more consistently.  As you might think, I've been working with them on their rewards, motivations, language, communication and other factors that build or sustain culture, trying to shift corporate thinking to embrace more innovation.  What's become apparent for me, one of those "ah-ha" moments, is that culture has different incarnations, and each must be changed for innovation to be successfully grafted into an existing culture.

Cultural Incarnations

I saw incarnations but we could call the different aspects of culture almost anything - faces, personalities or other descriptors.  Let's examine a few and talk about what's valuable and important about each, and why they matter to innovation.

One incarnation of culture is about how we treat and interact with our fellow employees. In this regard, culture signals what we should respect and value about our fellow employees, how we interact with them, what information we share and what we withhold.  This aspect of culture is important for day to day operations, and for innovation as well.  People who are rewarded for withholding innovation, or creating cliques, are often seeking awards and achievement for themselves, and will rarely share ideas with others.  Conversely, when people recognize this behavior they will not communicate or share good ideas, for fear that their ideas will be co-opted and others will claim the benefits and rewards.  A culture that encourages the hoarding of ideas or information and restricts honest and clear communication may be able to achieve efficient operations but cannot achieve good innovation.

A second incarnation, and perhaps the one I've been having the biggest "ah-ha" about lately, is the aspect of culture that instructs and directs how work gets done.  Far too often we see corporations asking, requesting and even demanding innovation from their staff, but failing to provide new tools, new techniques and new skills to help the staff create the new deliverables.  When asked to produce something new and different, but without new tools or a description of the new deliverable, teams revert to what's known and trusted.  And what's known and trusted are existing tools, existing ways of thinking and existing culture.  We cannot simply demand innovation without a corresponding effort to provide new tools, new skills and describe new deliverables. 

How culture, tools and skills are linked

When we roll out a new "innovation culture" it must of course provide opportunities for exploration and encourage risk taking.  Additionally, it must reward these activities and encourage open exchange of information and ideas. These factors all involve different aspects of culture that focus on the "what" and the "why" of innovation.  But we often neglect perhaps the most important aspect of culture - the "how" - how things get done, what tools should be implemented, what activities and skills must change in order to deliver new expectations.  Rolling out an innovation culture without a simultaneous introduction of new skills, new tools, new decision making and examples of new deliverables simply places strain on the existing culture and existing tools, and leads to heroic but ultimately doomed efforts to create new ideas in a stale, traditional environment with inadequate thinking and tools more suited for efficiency than innovation.

Innovation Failures

So, in the final analysis we can deconstruct what happens when executives demand innovation, yet fail to introduce new skills or tools or describe how an innovation imperative may change existing processes, decision making and skills.

  1. Executives call for "more innovation" but don't describe how this new strategy becomes a reality in day to day operations.  What should change, what should be introduced, what should be eliminated?
  2. Managers hear the call for innovation but don't find accompanying directions for new activities, don't gain more resources or skills.  Innovation is avoided if possible or conducted with less than full commitment within existing culture, processes and constraints.
  3. Managers are careful to keep innovation within tightly controlled boundaries, never interfering or upsetting day to day operations or distracting teams from doing their day jobs.
  4. Innovation teams are frustrated because they see the opportunities for larger, more disruptive ideas but they are hemmed in by tools, processes and deliverables that are suited for efficiency rather than innovation.
  5. Innovation teams produce "innovations" that look remarkably similar to existing products and services.  The new solutions aren't differentiated and don't produce a lot of value, leading executives to think that their teams can't innovate or that innovation is a wasted exercise, rather than drawing the proper conclusion that the teams needed new culture and new methods to create new products.
  6. Managers are rewarded for keeping the day to day operations efficient and effective.
  7. Executives are happy their teams continue to execute on a quarterly basis but are frustrated by their inability to drive new growth and create new products
  8. The cycle repeats
What's worse is that in many companies the different aspects of culture will adopt innovation at different rates.  Sometimes the language and intent of innovation will catch fire, and you'll find many people talking about innovation and trying to conduct it, but the portion of culture that deal with decision making, tools and day to day processes haven't been infected by innovation, so the passionate teams run into dispassionate, outdated and inadequate systems which don't understand what innovation is or how to manage it.

 You see, if your culture wasn't built with innovation as a vital component, then you face a significant challenge to fully introduce innovation as a factor in every aspect of your culture, from your decision making and language to your reward systems and so on.  Many companies are working on these aspects of culture.  But what will ultimately deliver success is infecting your operational culture with the capabilities, tools, methods and skills that make doing innovation more straightforward.  Talking about innovation, even sharing the same language is valuable, as is considering the rewards for innovators, but providing the tools, skills and desired outcomes is what will help teams actually deliver.

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posted by Jeffrey Phillips at 6:22 AM 0 comments

Tuesday, November 17, 2015

To accelerate innovation, focus on culture

There's an old joke about perspective and laziness I love and have used before on this blog, because it illustrates many of the challenges (and opportunities) of corporate innovation.  The joke goes that a young man steps out of a bar, and spies another person, obviously drunk, peering intently at the sidewalk under a street lamp.  Curious, the guy just leaving the bar goes over to the drunk and asks "what are you doing?"  The drunk answers "I'm looking for my keys".  The first guy decides to help and scans the area around the light post, but can't find any keys.  "Are you sure you lost them here?" he says to the drunk. "No" says the drunk, pointing at a dark alley.  "I lost them over there I think".  The sober guy, frustrated, says "well, why are you looking over here?".  The drunk replies, "because the light is better".  This analogy aligns so well to what corporate America does when it comes to a focus on innovation - intent discovery on things that don't matter, while purposefully ignoring the factors that must change to make innovation successful.

Intent focus on the unimportant

In an effort to be seen doing something, when innovation is a priority most organizations will respond with alacrity, gathering teams to conduct idea generation.  There will be hack-a-thons, crowdsourcing, open innovation, encouragement of "wild ideas", pizza parties and a host of other short term activities leading to a small subset of interesting ideas.  These ideas will have been formed by people with little innovation experience, formed in a setting with information about customer needs, competitive actions or market trends, and managed by people whose overriding goal is to get to a solution, any solution, as quickly and cleanly as possible, so that everyone can go back to doing what they ought to be doing: efficient execution of day to day operations.

There is intent focus on getting to an answer as quickly as possible, no matter how incremental or absurd the answer is, because the focus is on completing an innovation activity and getting back to what you regularly do.  Generating and implementing interesting, disruptive ideas is not seen as especially important, because few people believe the ideas will see the light of day after the idea generation events.  Therefore, everyone focuses like crazy on the idea generation, safe in the knowledge that they won't be called on to actually attempt to implement them.  The focus is on successful completion of the idea generation activity, not on actual implementation of new ideas.

Thus corporations emphasize the unimportant and rush away just as the real work begins.

Ignoring the difficult but important

Like the drunk at the light post, focusing on the well-lit spot at the curb rather than where the keys actually are, most corporations are too busy to pay attention to what really matters, and what blocks innovation.  There's good reason for that willful blindness, because what holds back innovation is the overriding focus on execution and efficiency baked into corporate culture.  In order to get more engagement with innovation and to do innovation more effectively, you've got to infect the culture with new ways of thinking, new perspectives, new tools and new processes and reward systems.  Otherwise innovation is a slap-dash bolt-on activity that cannot, will not, result in anything valuable.

But this truism indicates that to do innovation well, and especially to do innovation consistently over time, we have to focus on the core components of the business and change or adapt them to a new operating reality.  Most innovation teams are content to focus on idea generation, prototyping or other short term, simple activities, all the while realizing that the corporate culture and ways of investing and decision making aren't going to approve or validate their ideas.  Until and unless we focus on the culture first and foremost, no firm or team will be successful at innovating.  In other words, we've got to go look for the keys in the dark alley, no matter how much harder or more challenging it will be to do so, because that's where the real value is.  In plain language, until corporations address their overriding focus on efficiency and the inertia and risk aversion built into corporate culture, it will be exceptionally difficult to innovate.

So why not start working on the biggest barrier to innovation - corporate culture?  Most CEOs will admit their cultures present barriers but they also know how difficult changing a culture is and how long it will take.  Which leads to another old saw:  you can eat an elephant one bite at a time, but you have to start sometime.  We can influence corporate culture in small, consistent ways that are constantly reinforced.  Unless a culture is under dire, immediate threat of extinction, slow, consistent change is the only way to influence a culture.

Creating culture change that influences innovation

I was asked recently by the COO of a large corporation how to impact the culture so his teams could get more innovation.  And I responded by asking how his product team leaders were compensated, what they thought their jobs were and what they were expected to deliver.  If the employees believe the purpose and goal of the company is efficient execution of day to day operations, and that's how they are compensated and rewarded, then that's what they will generate.  And if they understood that their jobs require a balance between efficient execution while constantly looking for improved ways to execute and disruptive solutions to improve their customer's business, and if they were compensated for customer delight and for solving problems customers recognize and don't know they have, then  companies will innovate.  Today, in the face of monolithic cultures, people follow what the culture dictates.  For innovators, the culture follows what employees and customers need. Far too often innovators are shackled to culture, rather than the other way round.

Right now, in most organizations, the people follow the culture because it has power.  Corporate culture has history, it has stories, it on-boards new employees, it dictates how things get done.  Employees have to be crazy to work against corporate culture, so people follow a culture, long after it has outlived its shelf life.  What we need are leaders and managers who create new solutions, and force the culture to follow the needs of customers and the intent of good leaders and managers. 

 As business needs, competition and customer demands change, cultures must change and adapt with them, keeping what's good and beneficial but adjusting to new competitive realities. It's interesting that the factor we should place the most emphasis on to improve innovation is what we leave till last, if we focus on it at all, and the things we focus on first are the easiest to do but have the least impact on transitioning an idea from concept to product or service. 

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posted by Jeffrey Phillips at 6:47 AM 0 comments

Monday, November 09, 2015

Exploitation and exploration go hand in hand

Exploiting and exploring are two terms my good friend Paul Hobcraft uses to delineate the activities most corporations SHOULD be conducting every day.  Exploiting existing models, processes, markets and frameworks to obtain all of the available revenue and profit possible.  This concept of exploiting existing models and existing reality is something that today's corporation is relatively good at doing, if not completely optimized to do.

Exploring is a completely different matter, because exploring requires looking outside or beyond existing markets, customers, needs and frameworks.  Exploring means ignoring or rejecting existing competencies and realities to discover some new opportunity, challenge or need, or introduce some completely new product, service or model.  This side of the equation is typically ignored, because it conflicts with optimal, efficient exploitation, when in fact it should simply precede it.

A brief history lesson

The idea of a marriage between exploration and exploitation is not new, in fact it is constantly repeated throughout history.  In the distant past people clamored to be explorers, to go where no one else had gone, to discover what no one else had discovered.  Of course most of those explorers where fascinated by discovering other lands, full of minerals (gold), people (slaves) or other quickly harvested and valuable goods.  In other words, most of the explorers weren't exploring merely for the sake of finding new lands.  They were intent on exploiting their discoveries.  They simply lived in a time when the connection between exploring and exploiting was more explicit, and in a time when the tools and capabilities to fully mine an existing model or reality weren't fully developed, or were limited by governments or religious institutions to only a select few.

Today, we live in an age where most of the "exploration" seems expensive and risky.  When we place exploration in the context of new lands or new worlds, we frequently talk about investigating harsh climates like Antarctica or off-world sites like the Moon or Mars.  A lot of the easily explored realms, at least where mineral rights or land rights are concerned, have been completed.  But what we haven't lost, but so often fail to use, is the exploration of the mind.  We can explore new opportunities, customer needs, technologies, markets and so much more without leaving home, and in those explorations discover completely new avenues to wealth and riches.  But the traditional exploration tools don't seem to translate, and increasingly we've become accustomed to improving exploitation capabilities instead of exploration capabilities.  That's because there's almost always a way to extract more cost from an existing process or model, and the risk is lower than attempting to discover a new solution.  We are experts at mining existing models, realities and frameworks for incremental gain, and that knowledge and experience has caused us to lose the desire and willingness to explore in even a marginal, half-hearted way.

NASA as an example

We used to be explorers.  Just over 50 years ago we entered the space race, fueled by the fear that the Soviets would beat us to the Moon.  We placed a man on the Moon and returned him safely, just 6 years after Kennedy made his demands.  We were moving into an exploration phase, discovering what was out there.  And suddenly it all came to a halt.  From a space perspective, the challenges to live on another planet, or even visit another planet, seemed too daunting, so we stopped exploring, and to some extent have even lost the capability to explore, relying on others to do it for us.  Space got too big, too expensive to explore, and instead we now simply seem to exploit the knowledge that we have, rather than dreaming big.

In the same way, thanks to cost cutting, outsourcing and financial engineering, we've managed to exploit existing business models, markets and customers for years, leaving the exploration to the companies on the fringe - the new, the discredited and the failing.  Increasingly, large firms like those in the pharmaceutical space will be marketing and commercialization engines, rather than exploration and discovery engines.  They cannot sustain the pipeline of blockbusters necessary to continue profits, so they'll acquire explorative firms and startup companies willing to explore.    This begs the question of whether size and inertia leads to less and less exploration, and more exploitation of existing models.  I'll leave that to other analysts, but I can say that larger firms struggle to innovate precisely because of their relationship, if not protection of, existing business models and markets.

These ideas of exploration and exploitation don't have to be mutually exclusive, and in fact for eons they were two sides of the same coin.  The Romans, the Huns, the Spaniards and many others explored and conquered new lands with the express intent of exploitation.  In those days the value was found in easily transferable wealth - gold, people, land - primarily tangible assets.  Today, exploration is about discovering opportunities, needs and ideas - primarily intangible assets - which conflicts with a vestigial history that values tangible assets over intangible assets that exists even today, when firms like Airbnb and Uber demonstrate that valuation is not necessarily based on physical, tangible assets but on ideas, networks and value propositions.

At a minimum, large corporations need to balance the investment, resources and funding for exploiting existing models and processes with the resources and focus on exploring new opportunities.  This will mean refocusing investments, building new skills, changing corporate culture and reward/compensation models, none of which will be easy to do.  But the alternative is a slow defensive death as other more explorative firms discover new opportunities that larger firms cannot match.  If efficiency is the best exploitation of an existing market or business model, then innovation is the best exploration of new models and realities, and both skills must be present in a vital competitive organization that hopes to grow.
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posted by Jeffrey Phillips at 8:23 AM 0 comments

Wednesday, November 04, 2015

Why passion is the key innovation driver

For years people have debated the reasons why some companies innovate and others don't.  To some extent, the business models and corporate strategies dictate where and how much innovation is done.  For example, when I worked at Texas Instruments, the strategy was to drive costs out of products that other firms created.  No one knew better how to drive the costs out of the manufacturing process for DRAM than TI.  Yet, within the DRAM and microprocessor markets and some other product lines, there was very little product innovation.  We created very little that was new, preferring instead to drive out costs once someone else had established the market.  The folks in Houston who were working on DSPs changed that model, and arguably TI became a product innovator because of DSP.  But much of the strategy and business model that TI had in place limited innovation, on purpose.

Other factors have included the state of the industry, the amount of regulation, the maturity of the organization and a host of other factors.  I see from Twitter today a new report from HBR that argues that companies that treat their workers "well" are often innovators.  Hidden in this research is the assertion that unionized organizations tend to have less innovation.  The author contents this is because of worker-management contention, inherent in a unionized company. 

What so many people get wrong about why people and organizations innovate is that they expect innovators to be quantifiable and measurable. They expect innovators to respond to external factors and influences, they expect innovators to be extrinsically motivated.  Therefore, we should see lots of pinball machines and free food (like a startup), lots of rewards and recognition.  Corporations should be able to create an environment where innovators want to work, and this theory is correct.  But what it misses is that the environment is an external factor that plays a part in attracting and sustaining an innovator.  But what you'll find true about most innovators, and innovative companies, is that they have something that is difficult to measure and difficult to create externally.  They have passion to solve a challenge or problem that others think is difficult or insurmountable.

And, yes, I've introduced a soft, qualitative and almost impossible to measure or define concept into the discussion as perhaps the most important aspect.  Sorry, but not everything about modern business and management can be passed through scientific filters.  People are still very important to modern business success, and they can be unpredictable and play against stereotype and all of Frederick Taylor's scientific principles.  And that's almost always the case when we talk about innovation.

Other consultants have rightly noted that you cannot "mandate" innovation.  I cannot force an uninspired, efficiency-oriented workforce to suddenly and consistently create disruptive ideas, and even if I could they probably wouldn't be able to implement them.  What I can do as an executive or manager is set the stage, create the conditions where innovation and innovators can thrive. These are the external factors that may establish appropriate conditions, but there's an internal motivating factor as well that must be addressed.  And it has to do with the core principles of your organization, what you stand for, what you believe must be fixed or changed.  Your corporate principles and passion should convey to innovators that you want to fix important challenges or problems.  Then, if you are lucky, the combination of preparedness and opportunity collide.  You'll find or attract people who have a deep passion for the challenge or problem you are trying to solve, and you'll get a lot of innovation.

You see, most people work at a company for the pay, or the benefits, or the prestige of working for a company, or a myriad of other reasons.  Innovators work to solve challenges, address key gaps, promote interesting ideas.  Passionate people are hard to manage and hard to please, which is why most organizations have so few of them.  But you need passion, which creates energy and enthusiasm, to overcome all the barriers and hurdles that will be placed in the way of an innovation activity.  Only passionate people will resist narrowing the scope, reducing the expectations and accepting the status quo.  Only passionate people will take the time to think through the range of options, do the necessary homework and research to create really interesting ideas.

Given the choice, I'd spend more time clarifying my corporate goals and directions, ensuring what Simon Sinek calls the "why" is very clear, and recruiting people who have deep passion to create new solutions and to change the status quo rather than building an innovative environment for uninspired people.  Of course the perfect world is the combination - a corporate environment that promotes innovation, establishes a welcoming environment for exploration and divergence, rewarding innovators, married with a team of people who have real passion for the challenge and the problem.  Then you'll get real innovation.  The problem is:  building the environment is difficult but achievable.  Identifying, recruiting, hiring and especially managing passionate people is really difficult, and requires a very clear set of strategies and purpose.  The management effort alone to encourage, sustain and direct passionate people is itself a distraction from the day to day operations.

In the end passion for a particular challenge, gap, opportunity, technology or need is far more important for innovation than culture or environmental factors or rewards.  Passionate people don't care if the management team treats them "well" as long as they get to work on the problems and have a chance to innovate to solve them.  They don't care about pinball tables or "Fed Ex" days or anything else, just the chance to change the world - "put a dent in the universe" as Jobs would have said.  And this is why major corporations will struggle with innovation, and why inventors and smaller organizations will always be more innovative - it's a management chore to deal with passionate people, and they tend to be very single-minded in their pursuits. 
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posted by Jeffrey Phillips at 6:35 AM 0 comments

Tuesday, November 03, 2015

"T" time for innovation

Lately I've worked with or encountered a number of corporate clients who are trying desperately to innovate.  Their executives and management teams recognize the importance of innovation, and even include innovation as top three priorities or as a component of the annual strategy.  What's worse, unlike in the past, executives are starting to demand action on innovation, rather than simply use it as a speaking point or throw-away line.  So, mid and senior level managers are starting to wonder, how, exactly, can we "do" innovation and keep the everyday activities and "business as usual" processes running effectively?  Especially in an organization where the vast majority of people are already working 50 hours a week, and spend the majority of that time in back to back meetings.

I've written before but it bears repeating, innovation, that is, thinking up, designing and creating something new and different that drives value for customers, isn't going to happen in your day to day business as usual environment.  The efficient, effective environment isn't a good development platform for new thinking and new ideas.  It isn't designed or constructed to conduct discovery of new ideas.  Your existing product or service development programs are likely overworked and will reject ideas or solutions that require new capabilities.  In short, your day to day business as usual processes aren't going to welcome innovation work.  But I digress, since in your gut you know this already anyway.  We just both had to acknowledge it before we can move on to the real ideas.

Three internal innovation options
Once you've accepted that your day to day business as usual process, culture, reward structure, etc isn't going to accommodate innovation, you have three options:  force innovation to work within the existing confines and hope for the best, or design and develop a parallel system of innovation activities that embraces the processes, tools and thinking that good innovation requires, or adapt your existing business as usual models and processes to welcome more disruptive ideas and activities.  Of course there are other ways to get ideas, primarily from third parties or by acquiring intellectual property, and those are right for some situations and conditions, but this option is relevant only part of the time.

Working within existing confines

Let's be honest - we know what happens in this case because this is what most organizations try to do.  They want to learn new innovation tools but want to manage innovation within the comfortable confines and predictable outcomes of existing business as usual processes.  What this leads to is "me too" innovation, where the innovations are indistinguishable from existing products.  We already know this doesn't work, we already know the outcomes because most of us have seen this play before.

Parallel Systems

Perhaps the fastest way for an organization to do more innovation is to design and implement a team or process that works in parallel with the existing business as usual processes but isn't hampered by the existing constraints.  However, this typically means adding new people, learning new processes and the uncomfortable reality of two teams aiming at the same markets, one incremental and sustaining in nature, another disruptive and creative in nature, almost always at conflict, with two different goals or purposes.  The first team wants to sustain existing products and profits and not ruffle feathers.  The second wants to disrupt the market and shift business models, growing share and profits without regard to existing customers or expectations.  This model, when tried, almost always results in a collapse of the innovation team, but it is rarely tried since it requires so many additional resources.

Adapting existing Models and Processes

If you are going to do "in house" innovation consistently, I'll continue to argue that the most effective way to do that is to create an ambidextrous process that is scalable enough to manage day to day efficient processes effectively and to manage larger, disruptive ideas simultaneously.  Your people have the ability to manage both efficiency and innovation, and you don't need two disparate teams with wildly different foci.  You need one really good and agile team able to do both incremental and disruptive work.  But this requires a shift in talent and thinking, introducing and bringing us back to the "T" time of the title.  Because to adequately manage two different methods or processes within one team, you'll need:

Time - time to do the "business as usual" stuff and time to do the innovation stuff. Right now, in the absence of any direction or balancing of duties, all of a person's time is given over to efficiency and current products and processes.  You simply cannot do good innovation without giving people time to think, discover, investigate ideas and develop the ideas.  Employee time is your company's most valuable asset.  How is it being used to help drive future revenues?

Talent - you'll want to consider who is part of the product concept, product development and product realization team, and consider it an end to end capability. Today the "front end" is artificially divorced from the "execution" engine, when they should be firmly fused if not iterative.  The talent for the team needs to embrace people who are discoverers and ideators as well as people who are execution oriented.

Traction - there is so much embedded inertia and intellectual and psychological barrier to innovation that without a lot of momentum and traction, innovation isn't going to get done.  We create traction by demonstrating how important innovation is, by demonstrating a definitive plan of action, by funding innovation, by measuring it and by rewarding results.  Without traction, it's much easier to simply revert to the frictionless world of efficiency.

Training - Developing an end to end process that incorporates divergent thinking, exploration and ideation with product management, development and execution is going to require developing new skills and introducing new tools.  There are a lot of product development and execution tools that can actually accelerate this, including ideas like Agile, Lean, MVP and so forth. But these need to be balanced with divergent thinking, exploration, discovery and insight to customer need.  Blending these skills isn't impossible, but will be difficult until you see them all as piece of one greater capability.

Transparency - Product development and product execution are transparent.  We have very specific ways of measuring the development cycle (Stage Gate/Agile) and the commercialization (revenue, profits).  The Front End of the product cycle however is exceptionally murky.  We need as much transparency, commitment, communication and clear strategy in the front end as exists in the "back end".

One other item to notice:  while blending innovation into your product concept to product commercialization process can be challenging, it doesn't have to be expensive.  Good innovation can be done inexpensively, and in many cases has an exceptional return on investment when done well.  And yes I've described it as product concept to product commercialization, but you are free to change the word "product" to "service" or "business model" and the same still holds true.

In the end there are three ways to innovate:  buy intellectual property from someone else, have a design firm or consulting firm generate and develop ideas for you, or develop the capacity for innovation in house.  It's reasonable to consider all three options, and sometimes one may be a better solution than another, given circumstances.  But all three are important and you need to consider how to build an in-house capability.  To do that successfully, think about innovation as simply another phase of product or service development, tightly linked to development and commercialization.  Then think about how to manage innovation and day to day operations within one framework, using the five "Ts" I've described here.
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posted by Jeffrey Phillips at 7:02 AM 0 comments

Monday, November 02, 2015

Confusing the ends and the means

I've written before (and often) about challenges around clarity and communication introduce difficulty when corporations try to create new products and services.  Notice that for a blog about innovation, I didn't use the "i" word in the sentence above.  That's because I think corporations confuse the ends from the means, and in doing so create unnecessary barriers to creating valuable products and services.

First, let's get our thinking straight, because clarity and consistency matter.  In descending order of importance, executives want profitability, cost control, revenue growth and product differentiation. Many are very good at cost control and will accept profitability achieved by decreasing costs in the face of flat revenues.  A real win increases revenues while holding costs flat.  Revenue and corresponding profit growth typically come from gaining more business from existing and new customers from existing products, or introducing new products and services to new and existing customers.  It's in this latter case (new products and services to new and existing customers) where we typically think of "innovation".  But note what executives and shareholders "want" - growing revenues and profits.  They are willing to get more profit by holding revenue flat and decreasing costs, but the real rewards come from growing revenues and profits.

Now that we've established relatively obvious base principles, let's ask the next important question:   how do we discover and create new products and services that existing customers and unserved customers want?  And here's where innovation becomes important, once we accept that only through creating interesting and valuable new products and services can a corporation drive new revenue and profits from new and existing customers.  Innovation is a means to an end, not an end to itself.  And this is what so many corporations and executives fail to understand.

When these corporations and executives ask their teams for innovation, the executives assume that their people know what innovation is supposed to do for the company, and how to create interesting new products and services that customers want.  There are at least three false assumptions in the previous sentence:

  1. Mistaken assumption:  Employees know what innovation is supposed to do or the benefits it is supposed to create
  2. Mistaken assumption:  Employees know how to create interesting new products and services
  3. Mistaken assumption:  Employees understand customers unmet and unspoken needs and understand how to fill them
These mistaken assumptions lead to poorly framed and poorly executed innovation activities, which are compounded by a fourth assumption:  that employees have the knowledge, time, experience, familiarity with innovation tools and cultural acceptance to conduct a good innovation activity.  In reality, most teams don't understand or appreciate the commitment, time, resources or scope necessary to generate and realize really interesting ideas.
What everyone gets wrong is that innovation isn't the "ends" that executives seek.  They seek growth, differentiation, inordinate profits.  If those factors come from following the existing processes more efficiently, they will be ecstatic.  But we all know that doing things more efficiently rarely creates new products or services, so they are frequently disappointed.  When executives are clear with their expectations, when they communicate exactly what they want from innovation teams, when they provide appropriate scope and time frames, when they apply appropriate resources, they establish that innovation is a set of tools to help achieve profits, growth and differentiation through the creation of new products and services.  

In a perfect world, we'd use the "i" word much less pervasively, because what we'd talk about are the actual "ends" - new products and services that drive revenue and profits, rather than the means.  We need to spend a lot more time about what we want - the ends, and much less time on the means to get there. Once the ends are clear, then we can spend time focusing on the means, which, by all means, need greater focus.
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posted by Jeffrey Phillips at 6:50 AM 0 comments

Tuesday, October 27, 2015

Eliminating innovation unknowns - definitions

Yesterday I wrote a post about the need for executives to eliminate the "unknowns" when they want their teams to innovate.  If we call on people to improve their day to day routines, there are few unknowns.  They simply need to work more efficiently on the activities and processes that are familiar to them.  But when we call on people to innovate, there are a host of unknowns and uncertainties.  For example:  how much should we invest?  How do we gain the skills?  How do we prioritize existing projects and new innovation work?  How much risk and uncertainty will be tolerated?  These and other unknowns will haunt the team, and unless they are resolved quickly and effectively by a manager or executive, the teams will resolve them by reverting to existing norms and past experiences.

Perhaps one of the simplest, and yet most important unknown to address is a definition of innovation.  We at OVO often demand that our clients develop a consistent definition of innovation that can be communicated to teams within the organization.  This may seem somewhat pedantic or even silly, but until there is a common understanding of the definition of innovation, trying to understand what is "meant" by innovation and trying to deliver on that uncertain request is difficult.  Clearing up this first and perhaps most important unknown is important.

Thanks to UNC

Thanks to UNC we can see just how loose and distributed the definition of innovation is for senior executives. One of their executive MBA programs has recently asked senior leaders from a range of different companies to provide their definition of innovation.  You can see those different definitions by clicking here.  I hope you'll read these definitions, because they are instructive in several ways.

Note that I don't believe it's appropriate for each executive to provide exactly the same definition of innovation.  Circumstances, budgets and competitive realities are different across firms and industries, so the definitions will vary.  But note the range of definitions.  Some speak of improving the status quo.  Some speak of greater efficiency.  Some address customer experience.  Some are impossibly subjective.  Imagine trying to convey some of these definitions to an internal team!

There's plenty of definition out there

Whether executives want to recognize it or not, there are plenty of examples of definition of innovation out there.  Our general definition of innovation is:  people putting ideas into valuable action.  But we don't think you should stop there, because this is only a general definition.  It needs to be enhanced and qualified.

We can thank a number of different experts and agencies for helping us continue to evolve and improve a definition and establish scope.  But for some reason this good thinking is typically missed by corporations.  For example, we believe that a good definition should include the acceptable range of outcomes.  Doblin has helpfully established their "ten types" of innovation:  product, service, business model, customer experience, channel and so forth.  Whether you like this taxonomy or not is unimportant.  What does matter is that in your communications and definition you provide some definition as to what outcomes are valuable, because in the absence of any definition, all innovation is product innovation, and product innovation may not be necessary or even valuable to consumers.  When no definition is provided, past experience guides decisions, and that may not be the best framework.

Other analysts have provided us with the "three horizons" to help determine the amount of change we hope to accomplish with innovation.  So, we can say for example that in this project we are seeking incremental change to existing products, or in that project we want disruptive change.  Again, in the absence of clarity and communication, all innovation becomes incremental.

Next, we can consider the anticipated constraints.  Since innovation is a new and unusual activity, most teams will make assumptions about the resource and time investment.  They'll believe that the project should be accomplished as quickly as possible, with the lowest possible investment.  In following that train of thought they are likely to miss unmet needs and rely too heavily on existing processes, tools and decision making criteria.  We need to define and communicate how much risk, uncertainty and change we are willing to bear, and corresponding to that request, how much discovery, time and investment we are willing to commit.  In the absence of this communication, it will be assumed that any innovation activity, like Hobbes's definition of human life, will be nasty, brutish and short.

Delegating scope and decision making

When an executive asks for innovation but fails to provide definitions and context, it is as if he or she is simply delegating all of the strategic thinking to the team.  While a handful of people are likely to welcome this outcome, the vast majority of corporate teams are left in a state of confusion.  They are experts at executing clearly defined plans that follow past models.  They are not comfortable or experienced working with a nebulous scope to uncertain outcomes.  When confronted with this possibility the most likely response is to complete a project based on existing rules, templates and tools, which results in outcomes that look very similar to existing products and services. 

In no other activity do senior leaders fail to provide clear goals, definitions and communication more readily or more often than in an innovation setting. The reason why this is true is relatively obvious - the vast majority of the time executives and senior leaders don't have to be very exacting with definitions and anticipated outcomes because the vast majority of the work is replicating existing products for existing customers in existing markets.  In other words, the team already knows what is expected.  It's gaining an understanding that innovation requires new definitions, new scope and better communication that will accelerate the pace of new products and services.  This is the first, and quite possibly, the most important unknown that innovators must address.
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posted by Jeffrey Phillips at 6:30 AM 0 comments