Friday, January 17, 2020

Innovation or ERP: which path will digital transformation follow?

I've been thinking a lot about the concept of "digital transformation" recently.  You can't help but encounter it on Twitter or LinkedIn, in business publications and in discussions with customers and prospects.  Everyone wants to know about digital transformation. Admittedly, teaching a class on digital transformation keeps it forefront in my mind.

From all of this interaction, I've been wondering which management phenomenon digital transformation will be more like:  the ERP adoption of the 1990s or the innovation phase from 2005-2015 or so.  Both ERP and innovation had significant impact on businesses, both were in the press a lot, but so far I'd have to say that ERP did a lot more for businesses than innovation has, a few companies excepted.  In fairness, these two things aren't alike, except that they were both a key focus for management and promised dramatic change.  ERP is software which required a mindset change.  Digital Transformation is a philosophy backed by data and software applications.  However, they share some common features and make some similar promises.

Digital transformation has attributes and aspects of both the switch to integrated ERP, and the energy and passion (and promise) of innovation.  How it plays out, and the impact it creates, remains to be seen.   While many observers and vendors hope it will follow the ERP playbook, I think it is more likely to follow the innovation path. Here are a few ways digital transformation is like, and unlike, the two recent management eras.

Accelerating Existing Processes/Enterprise Capabilities
1.  ERP was vital and successful because it was integrating data and disparate processes, while automating existing capabilities.  All three of these ideas are important.  ERP built on an existing business process framework.  People were already processing purchase orders, running MRP and so forth.  In that instance, ERP built on and extended existing capabilities in a way that innovation did not.  As innovation became interesting to companies, it was evident (and remains evident today) that few companies have real experience or defined processes for innovation.

Digital transformation is a basket of ideas, philosophies and applications.  Some will build on existing actions or processes (RPA and Robotics).  Some will introduce new processes (blockchain).  Some may improve the use of data (Machine Learning).  Since digital transformation is not reinforcing and improving existing capabilities for the most part, it looks and its experience will probably be more like innovation's to date.



Organizational Strategy and Commitment
2. Doing ERP required the full commitment of the entire organization, while innovation is rarely an enterprise commitment.  Switching all your systems and many business processes to an enterprise application is difficult and requires complete commitment, across the organization and up and down the management hierarchy.  You cannot be successful if some groups adopt your ERP and others refuse to use it or ignore it.  Innovation, on the other hand, typically thrives in some pockets and is routinely ignored in others.  Few companies have a deep, continuing commitment to innovation.  In this regard, digital transformation is again more like innovation.

There is no one digital platform, and for the short and medium term most digital transformation will be done as pilots and proof of concept in small teams and functions, divided up into robotics, augmented reality, blockchain, machine learning for specific tasks and so forth.  Rather than integrate everything, digital transformation in the short and medium term will create new siloes, where some teams or functions are vastly more experienced and gain more benefits from exercising digital transformation, while others lag behind.  ERP benefited from the fact that virtually everyone was impacted, and most shifted to a new application that they all shared, like it or not.  Digital transformation will not operate in the same way.

Clarity of Purpose
3.  ERP has a unifiying purpose - integration and efficiency, while innovation focus is more diffuse - incremental changes to existing products and transformative new solutions.  In this regard, innovation is more scattershot, able to make solutions across the company in diverse ways, while ERP is focused on unifying and creating common ways of working and using data.  While digital transformation both uses and creates data, it will not necessarily create a unifying platform, and may solve many discrete problems but neglect to unify the company around a clear direction.  I think many early digital transformation projects will focus on efficiency, and then eventually customer experience.  In this light again digital transformation looks and feels a bit more like the innovation experience of the last 10 years or so, rather than the unifying activity of ERP.

Single Source of the Truth
4.  ERP provided a single source of truth about data in the company, creating one aggregated way to gather data about anything in the company.  Innovation does not necessarily create data, or create ways to think about the company or customer differently.  Digital transformation does deal with data, both consuming and using data to create new insights and opportunities, and using data as inputs to fuel activities through RPA, robotics, autonomous vehicles and other means.  Until a unified digital transformation platform emerges, however, every instance of digital transformation will address a narrow need or function, not consolidating or simplifying data globally.  Digital Transformation shares with ERP the need to clean and standardize the data before its use, but gains far less enterprise value from the data generated, and often requires new data in order to generate meaningful insights.  In this digital transformation shares many of the downsides of an ERP implementation (aligning processes, cleansing and preparing data) without all of the enterprise upside.

As more AI and Machine Learning becomes available for your data, the risk is that there are multiple interpretations of the new data, rather than a single source of truth.

Observable and Valuable Impact
5.  Cost reduction, efficiency, revenue gains?  ERP helped gain efficiency and put businesses on a more robust footing for better operations and allowed them to grow without adding headcount.  Thus, ERP has always been focused on process efficiency and cost reduction.  Innovation promises new organic growth, and is more reasonably positioned as a revenue enhancer, but often is used to drive efficiencies as well.  In the short run, most digital transformation will follow the path of ERP, cutting costs and creating efficiencies.  It is possible as more data is gathered and interpreted that some digital transformation applications and solutions can create new revenue streams, or perhaps new business models and services that create new recurring revenue.   But one really disruptive idea converted into a new product or service from a good innovation team will drive far more growth than digital transformation is likely to for quite some time.

Thoughts and Conclusions

From this short analysis I think digital transformation will follow the architectural, implementation and data path of ERP and will focus primarily on efficiency and cost reduction, but will in the short term look and feel more like the innovation era.  Digital Transformation will create a lot of promise, but much of that will be lost to small prototypes, capabilities and benefits that are overhyped by vendors, a lack of enterprise engagement and eventually the really different ways that disparate teams and groups implement digital transformation internally.  Rather than unifying and simplifying, digital transformation may, again may, make organizations more stovepiped and make it more difficult for adjacent teams or functions to interact effectively because they will have implemented different forms of digital transformation at different speeds and have radically different insights from their data.

There is clearly a lot of promise in digital transformation, but in many ways much digital transformation activity remains as point solutions rather than an enterprise play.  Rather than consolidating and clarifying the data, it will create new ways to interpret the data and also may demand the acquisition of new data to operate effectively.  The disparate deployment options and ways digital transformation can be used may create wide disparities of digital capability and gaps in the same organization.  A much more thoughtful approach to digital transformation is required, more enterprise-level, more consolidated and more concerned with business processes and the interaction of disparate teams and functions.

Digital transformation is not an enterprise solution, but a set of capabilities and technologies that may enhance point solutions or data sets.  There is no one enterprise digital solution, rather a collection of digital capabilities that may support a digital strategy.  In this regard, digital transformation looks a lot like innovation - something with a lot of promise, that could create great impact, but often on a case by case basis in disparate settings, rather than fully integrating and creating a common platform.
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posted by Jeffrey Phillips at 6:50 AM 0 comments

Wednesday, January 15, 2020

Innovation Building Block 2 - important, unsolved problem or opportunity

I'm going back to basics for a handful of blog posts - back to what I call the innovation building blocks.  In the first blog I wrote about the importance of defining an innovation bias in your culture.  In this episode of the continuing series on innovation building blocks, I'm going to be focusing on the importance of an important and unsolved problem or opportunity.

To which you'd say:  no kidding.  And in general terms you'd be right - this should be obvious, but in so many ways innovation sponsors and innovation teams miss the mark on what should be a predicate to doing innovation work.  It's a lot more challenging to create, define and validate an important and unmet need or opportunity than you might think.

There are a handful of reasons for this.  I will be addressing three or four in this blog post.

Our technology or their need?

One of the first fallacies is that everyone needs what you've got.  Just as the old saying goes - when you have a hammer everything looks like a nail - so too with your capabilities or technologies.  There is far too much technology push when it comes to innovation.  Companies believe that since they have a new technology, simply getting the technology into the marketplace should be considered innovation.  Worse, since it is their technology and by all accounts a very interesting and valuable technology, it should be easy to push into the marketplace and gain rapid adoption.

What customers want and need are solutions (not technologies) that help them address real challenges or problems, that help them do things with less effort or more efficiency.  In the end, they could care less about the technology.  Do you really think most people understand how Google works, or how it makes money?  Start with the idea of market pull or finding unmet needs rather than pushing technology.

Starting with the customer in mind

OK, if we don't start the work with our technology in the forefront, what do we do?  Start with the customer or prospect in mind.  Understand their wants and needs, and the importance and relevance of the gaps or challenges in their lives.  This will sometimes be obvious, and will sometimes require real insight or even a leap of faith.

Identifying needs comes from real empathy and interaction with customers and prospects.  Rarely will asking a customer what they want or need lead to new insight.  It will require deeper observation, using ethnographic and design thinking skills to uncover unmet needs.  Few large companies do this work well because it is not a common research task and because it is qualitative, not quantitative.

I've also used with some success the strategy canvas from Blue Ocean Strategy, to identify a range of undermet or overmet needs.

However, identifying an unfulfilled need is not enough.  Unless you are Steve Jobs and can intuit what customers want, you'll want to do some prototyping and testing to validate the need and customers' willingness to acquire a new product or service.

Getting there first

Sometimes, it makes sense to skate to where the puck will be, rather than where it is.  This is what Gretzky said about hockey, and it is true in innovation as well. Some opportunities emerge based on shifts in the marketplace, technology introductions that transform competitive landscapes or demographic or societal shifts.  Whole segments can emerge and disappear relatively quickly.

How can we skate to the opportunities even before they emerge?  You have to work on future trends and identify emerging needs or opportunities and identify them before others do.  This work requires carefully watching the markets, assessing trends and forecasting some likely scenarios, to understand how the future may unfold, and what new opportunities may emerge, what new needs may be exposed due to those changes. When you see this opportunity, moving quickly to fill it before others do provides a significant advantage, what my co-author and I called pre-emption.

Innovation without context is opinion

Far too frequently, companies conduct innovation work without trying to find an important and unmet need or opportunity.  Gaining this information is what I call gathering innovation context. The needs, wants, priorities, unmet gaps and emerging trends provide context to let good innovators know where the opportunities lie.  With this context, creating new ideas or identifying new solutions or technologies is simplified.  Without this context, all innovation is supposition, guesswork and opinion.

It's difficult to do good discovery work (what I've discussed in this post) without creating a bias for innovation (which was the topic of the previous post). These building blocks aren't simply foundational, they are also mutually supportive.  Without a bias for innovation, teams and executives will skip past the context setting to get more rapidly to what they consider the main event - the idea generation and validation.  This is why so many innovation projects seem to produce the same results - without new context, the old context is substituted or adopted, and the same ideas appear to be valid.
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posted by Jeffrey Phillips at 9:08 AM 0 comments

Thursday, January 09, 2020

The digital revolution will not be evenly distributed

I'm writing today about digital transformation, and starting with two of my favorite quotes.  The first, referenced in the title, is from William Gibson, the author of Neuromancer and other great sci-fi books, who wrote:  "the future is here, it's just not evenly distributed".  That is, we experience glimpses of the future everyday, and some places or companies are more advanced than others.

Mark Twain said that that history does not repeat itself, but it does rhyme.  I feel this describes the talk about digital transformation.  Please don't misunderstand me - I think the emerging technologies that support a true digital transformation are amazing, and have the power to provide more benefits to customers and to create more insights and more profits for companies than ever before.  I'm perhaps a bit jaded because it feels like we've been here before, but in an entirely different way.

Almost 30 years ago I was fortunate enough to be part of one of the first implementations of SAP (R/2) in the United States.  At that time, software applications were stovepiped.  There were financial applications, manufacturing applications and customer service applications but no unified, enterprise application that integrated systems and data across all the functions.  SAP changed that, taking the market by storm and changing our expectations about software solutions and data integration. 

When we would talk to clients about the investments and potential benefits of implementing SAP, we'd always look for the means to generate new revenues and profits as part of the benefit, but the truth was that most of the benefits were driven by automation, efficiency and cost reduction.  Strangely, however, in most instances SAP installations did not dramatically reduce employment - the jobs and roles simply shifted to higher value work.

I think some of the same phenomena are at work in digital transformation, but on a much larger scale.  In all honesty there is no one digital transformation "solution", but a host of tools, methods and applications to make a company more digital.  The funny thing about all of this is that the benefits aren't from being digital, but should result from becoming smarter, faster and more nimble.  We'll see if the digital tools and solutions create those benefits. 

This is about transformation

But let's not neglect the fact that "digital" transformation is really about transformation.  The digital aspect merely points out that new tools and new methods are mostly consuming or creating data, or integrating or using data.  But what's going to get transformed is the revenue model, the customer experience and ultimately the business model.  What many firms are going to discover is that you can't bolt new digital technology onto an outdated, slow and bureaucratic operating model and expect benefits.  New technologies and richer data will require companies to change how they operate, and right now many companies think that digital transformation belongs with the IT organization, because it is driven by data.

What's going to happen is that many of the underlying capabilities or tools will create more data, which will lead to new services, products and experiences, which can be delivered through new channels and create new customer relationships, which will lead to new business model opportunities.  The operating model of the business will need to transform at least as quickly as the implementation and use of the underlying technologies.  Most companies do not understand this and are not prepared for the amount of structural and business model change that is going to occur.

Why will this happen?  New data streams will create opportunities for new services, new experiences and new revenue models.  Increasingly physical products will be offered as services on recurring revenue streams rather than as one time purchases.  Products that were once valuable will be given away in order to extract data and monetize the data stream.  All of these factors will radically change existing business models.

This is about the data

Digital transformation is a two edged sword - it both gives data and consumes data.  Some applications, like IoT, will create massive amounts of data that must be gathered, stored and interpreted.  However, for that data to have meaning, other data must be acquired and appended.  Other applications like robotics or Augmented reality will require new data streams that must be created.  Many of these solutions do not yet exist and in many cases are specific to the task at hand.

Many companies face at least three significant challenges where data is concerned:

  1. The data they have is noisy, inconsistent and incomplete, meaning that the existing data cannot be used effectively for digital tools like machine learning until it is cleaned and standardized.  Much of the historical data is not useful unless it is radically improved.
  2. Most companies don't have a lot of experience managing the volumes of data that will be generated, or acquiring and ingesting other data that will enrich the core data streams.  Few companies truly know which data is important and which data is not important.
  3. Most companies lack experience creating value from data.  This is the holy grail - creating revenue streams from harvested data.  Yet, value is still barely understood and the skills don't exist in most organizations to do this well.  Few companies have deep knowledge and experience monetizing data streams.  This concept is one of the most anticipated value propositions of digital transformation, yet probably will be one of the most elusive.

Back to the ERP analogy

If I could revert to the ERP analogy, then, we can make assessments of what is likely to happen based on past experience. 

In the early ERP days, many companies had imperfect or incomplete data when ERP was implemented, so SAP and other ERP applications were often implemented with only the minimum amount of data necessary and older systems were kept functional to refer back to.  I think there will be a fair amount of parallel operations as digital systems come online for the same reason.  This is likely to slow full digital adoption because of the costs of supporting new systems and maintaining legacy systems at the same time.

In the early ERP days, there were few companies with the internal staff that could manage the new IT technology, so large consulting firms grew in coordination with ERP companies. Accenture, Deloitte and others should benefit from large implementations.  The good news here is that we should have learned something from those implementations and should be smarter about how to go about installing and bringing the digital tools online.  Human capital will be at a premium.

However, and this is where there is a significant departure from the ERP model, digital transformation tools are not monolithic.  An ERP application might replace three or four legacy applications.  Digital Transformation, bringing online IoT, blockchain, robotics, machine learning, big data and other tools and technologies, will simply layer on a number of new and discrete technologies and data streams on top of the ERP/CRM platform.  In other words, rather than integrating and harmonizing all the data in one application, these tools and methods will create new data streams with different focus and different purposes, potentially requiring a new means to capture and standardize all of the data from all of the different digital functions.

And it's hard to get value from data until you normalize, clean, standardize and interrogate the data.

The implication here is that the existing IT structures in most organizations will not be able to manage all of this data, in all of these streams, to create meaningful value from the data in their current organizational structures and forms.

Fulfilling the promise of digital transformation

Let's go a bit further - what happens when everyone has been promised the ability to gain more insight into the data using machine learning, and everyone wants to interrogate the data coming from a wide variety of data streams?  What happens when many IoT devices go online and products start sending packets of data back to home base?  What happens when marketers and sales teams want to start generating new value from the data being generated?  And all of this has to occur while the company continues with its traditional operations, to fulfill existing products and services?

There is a LOT of change coming, and I worry that the digital tools, while they have tremendous opportunity and promise, will overburden legacy companies which are struggling to compete today.  Most companies are not very nimble or agile, not accustomed to big change, so it will be interesting so watch this unfold.  The biggest opportunity - more data and more value from the data - is also one of the biggest challenges given the state of existing databases and data capabilities today. 

From this analysis we can expect to see lots of very small digital transformation pilots, because companies need to learn how to implement these tools, how to gain value from them and most importantly how to manage the data they generate and use the data they have.  Digital transformation will be a spot solution for at least the next few years, rarely an enterprise solution unless supported by an enterprise application.  Machine learning, robotics, IoT, blockchain, augmented reality and other technologies are not enterprise applications, but meant for specific tasks, and will be implemented in that manner and generate data specific to those applications in the short run.
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posted by Jeffrey Phillips at 5:32 AM 0 comments

Wednesday, January 08, 2020

Culture and innovation bias - the first building block

I'm writing a series of blog posts about the fundamentals of innovation success.  In my previous article I wrote about the importance of fundamentals in any activity, using music and practicing scales as an analogy for understanding the fundamentals of innovation. 

In this post I'm going to be writing about two very interconnected issues - organizational culture and the bias for, or against, innovation.  This is a critical fundamental attribute for successful innovation, not just on a project by project basis, but enterprise wide.

Definition of Culture

I won't spend a lot of time on the definition of culture, but it is worth describing what culture "is" in this context and why it matters.  Culture is the aggregation of all the historical record of the company, the stories the company tells about itself, what it values, what it rewards.  It is all of the formal and especially informal decision making apparatus.  It is the set of beliefs and behaviors that form and structure how decisions are made and how work gets done.  In this regard, culture is an exceptionally powerful but intangible force.

What our cultures focus on now

Over the last 20-30 years, we've trained our cultures to value efficiency, cost reduction, a lack of risk and variance and especially stability.  This has been brought about by a range of management thinking, including Six Sigma and Lean work, right sizing, outsourcing and cost containment.  There is nothing wrong with these ideas - they have made many organizations profitable and effective.  However, they do not lead to growth or differentiation, and have established a very conservative mindset in many managers and reinforced the concept of efficiency in the culture.

How to assess your culture and its bias

If you want to know what your culture reinforces about certain ideas or topics, it is easy to get feedback.  Simply suggest a more radical idea and wait the feedback.  If the feedback starts with "tell me more" or "we could" or "how might we" then your organization may have some tolerance for exploration and risk.  If the responses start with all the reasons why the idea won't work, or worse, why the existing bureaucracy or organization simply won't tolerate the idea, then you'll know the bias of the organization.

Most companies and organizations have a bias for efficiency, predictability, low variability and low risk.  This mindset and cultural preference conflicts with innovation.  So, the prevailing bias for many companies is not necessarily against innovation, but for efficiency, and cultures and their biases are difficult to change.

Readiness to change/bias for innovation

To innovate once, your teams can often scale the organizational bias against innovation momentarily, but to innovate repeatedly and in many sectors of your business you must address the prevailing cultural bias.  As anyone who has worked on culture can tell you, changing a culture happens in only two ways:  really slowly over time, just as the culture was built, or really rapidly.  The problem with the "really rapidly" option is that culture only changes really rapidly under an imminent, observable threat that cannot be avoided. 

Companies and people will jettison long-held beliefs or operations when their company's existence is at risk.  However, this is a really difficult time to innovate because everyone is focused on simply surviving.  So we will have to accept that cultural change and embracing an innovation bias is something that happens over time.

How can you build a bias for innovation

Building a bias for innovation in your organization is relatively straightforward, but it takes management engagement and perseverance.  Just as a bias for efficiency was built over decades, a bias for innovation will be built over years, not weeks or months.  There are a few key activities or attributes you can focus on to help:

  1. Communication.  If innovation is important to the organization, then it should be communicated constantly, and followed up with action.  Communication should occur at all levels, reinforcing the importance of innovation, and identifying the innovative actions that are happening.  Companies should communicate both the innovation successes, and the projects that may not have been successful, but where valuable learning occurred.  
  2. Compensation.  If you want your organization to change its behaviors and bias, then you must change its reward structure.  People and organizations do what they are rewarded to do.  Thus, look at your compensation and rewards structures and programs to see how you can more frequently and more transparently reward innovation, outcomes and activities.
  3. Evaluation.  Every organization evaluates its members, employees and teams.  Most organizations do not evaluate their people or teams based on innovation activities or outcomes.  It's rare to find innovation as a focus of an annual review or an evaluation.  If people or teams aren't evaluated on innovation engagement, then they'll turn their attention to what they are evaluated on.  If you want to shift your bias toward innovation, change what you evaluate.
  4. Find the flag pole people and encourage them to lead.  Every organization, every team has what I call "flag pole" people.  These are people that may or may not be in formal positions of power but whom others in the organization look to for influence and ideas.  Identify these influencers and use them to shift the thinking and behavior of others.  
  5. Adopt good analogies from other businesses.  While I don't know if Microsoft's approach to "learn it all, rather than know it all" is working, it is definitely a step in the right direction.  As the CEO keeps repeating this mantra, he is establishing a theme for the business and setting direction for the company, opening up to new concepts and new ideas not developed at Microsoft.  This is a simple theme with profound implications.  It sets out a new way of thinking and working (learning and discovery) and allows executives and managers to gently influence and correct people who are still in the older mindset (know it all, internal focused, not exploring or learning).
Infection or conversion

Your company can be infected with this thinking, in that new thinking and some new cultural phenomenon can be demonstrated by one or two teams momentarily.  However, you will find that like many other infections the anti-bodies will soon seek to snuff the infection and revert to the norm.  Your organization will need to find a few teams or business units to try out a new cultural approach and bias, and will need to infect them through some of the steps listed above, but will also need to wall off or inoculate these teams from the cultural bias that will react to new thinking.

As you do that, the rest of the culture will be watching, watching to see what the executives do and say, watching to see the results and what happens if the results aren't stellar, waiting to see if this is just another flash in the pan or an ongoing change with deep commitment.  In other words, is the attempt to change a cultural bias a one time activity that is easily snuffed or is there real management commitment behind it?  Will the organization commit to converting to a new normal - a new bias for innovation?

Conclusion

Any team or organization can innovate once or in good times sporadically.  That's because the prevailing culture will ignore or tolerate some dissonance, and times may prevail on the culture to ignore or overlook risk and variability periodically, but cultures will inevitably snap back to their status quo.  Corporations simply cannot afford to fight their own cultures or innovate only every once in a while or based on what the culture is willing to tolerate.  We are in an era where consistent, continual innovation is a matter of survival.

Without the building block or fundamental attribute of a bias for innovation within the culture, you simply cannot sustain innovation, especially transformative or disruptive innovation that drives new organic growth.  With this realization, there are a couple of questions to answer:

  1. Is it worth the effort to introduce change to the culture to create a bias for innovation?
  2. When should we start?
  3. Where should we start?
The answers in reverse order are:

  1. Start with the most important influencers in your business.  These may not be the most important executives but the people that others look to for cues about how the business operates.  You will need executive support as well, but moving the influencers and important middle managers makes all the difference.
  2. Yesterday.  You should have started yesterday, but today is a good day to start as well.  Waiting only postpones and perhaps increases the amount of work you need to do.
  3. The investment and costs associated with changing a culture are surprisingly low.  The problem isn't out of pocket dollars, but management time and attention over a period of time.  That's the investment side.  The return side on the inevitable ROI equation is:  can we return more on this investment than we put in?  Evidence shows that good innovators in every industry have better profit margins, better stock prices and grow revenue faster than their less innovative competitors, so you'll need to be the judge, but evidence shows creating a bias for innovation is a consistent winner.
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posted by Jeffrey Phillips at 8:30 AM 0 comments

Tuesday, January 07, 2020

Innovation building blocks

I like music - but that does not exactly make me a good musician.  Over the years I've taken lessons on the piano, tenor saxophone, bagpipes and most recently the acoustic guitar.  One thing I've learned is that every competent teacher of any instrument wants you to learn and practice your scales.  As a kid I hated scales. Scales are just going up 8 notes and coming back down.  For a "C" scale you don't even get to throw in any sharps or flats - pretty boring and monotonous.  Scales get a bit more interesting as you add sharps or flats, but they remain composed of 8 notes.  When you are a kid practicing scales you constantly ask - when do we get to the "real" music?

As an adult learner (trying for the second time on the guitar after being told my family would leave me if I kept up the bagpipes) I've grown to appreciate the power of the scale.  After all, scales are really the building block of music.  A scale tells you what notes will go with or sound good with other notes, and which notes to avoid.  All music builds from scales, so getting them right and knowing your scales and chords makes all the difference.

I'm writing about this because there is a real link between learning music and scales and learning to innovate.  This is especially true when we think about two key items:  the basic building blocks and continual practice.  Except for the musical savants among us, all good musicians are good musicians because of repetitive practice and deep knowledge of musical building blocks - scales.  Likewise, all good innovators are a result of understanding the core concepts of innovation, and regular practice.

Practice, Practice

I'll leave to your imagination how I feel about practicing innovation.  On second thought, no, I won't.  If you want meaningful ideas that lead to good innovation on even a semi-regular basis, your people and teams need regular innovation practice.  Innovation isn't difficult but it is new and unusual, not a skill people regularly practice.  What's more, many people don't believe they are "creative" so the work looks even more difficult and unusual.  Regular practice with creativity and innovation tools is a must.

Now that we've covered one of the key reasons that many corporate innovation activities fail (lack of consistency and practice), we can turn our attention to another key problem:  understanding the building blocks of successful innovation activity.

Innovation building blocks

There are a couple of building blocks that are typically misunderstood or ignored, that can greatly improve any innovation activity.  If these building blocks are in place, innovation success will increase dramatically.  The building blocks are:

 - A cultural imperative for exploration and change
 - A key problem or challenge that a sponsor wants to solve
 - An openness to novelty
 - Good scope definition
 - Adequate time for participants
 - Diverse inputs and perspectives

You'll notice the word "ideas" is not in my list of building blocks.  That's because ideas are an outcome of a well-prepared, well-structured activity.  They are the result of good foundational work and practice.  Ideas, like great music, flow more easily and more tunefully when the essential building blocks are in place.

If your team possesses these building blocks, innovation is a walk in the park.  If not, your teams and activities will encounter significant barriers and roadblocks, which will either stymie your innovation work or cause the scope to be reduced to the point where your ideas resemble existing products and services.

Over the next few weeks I'll be exploring these basic building blocks.  If these building blocks are in place, innovation can be accomplished far more easily.  If not, each one will shift from a building block into a barrier.
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posted by Jeffrey Phillips at 10:35 AM 0 comments

Wednesday, December 18, 2019

Innovation FOMO and FOMAD

Today, memes enter and leave the lexicon so quickly that I almost hesitate to use newly coined words or phrases, in fear that they may have already become passe.  So you can imagine my trepidation in using FOMO - the "fear of missing out" - when writing about innovation.  However, rather than simply expand on innovation FOMO, I'd like to introduce another, even more important issue - FOMAD.  This is one of my own creation, and one I'm certain will be rippling through Twitter and the other social media platforms shortly.

FOMAD

What is FOMAD?  In the innovation context, FOMAD is the "fear of making a decision".  There is a tremendous amount of FOMAD in many innovation activities, and I think FOMAD is perhaps one of the most significant roadblocks to innovation success.  Here's why.

FOMAD is a symptom

FOMAD is a symptom of a consistently recurring problem in innovation.  Innovation teams have too little information or context about corporate direction, strategy, funding mechanisms or risk tolerance to decide whether or not the ideas they've created are useful or meaningful.  After days, weeks or months of innovation activity, they are left with a handful of what appear to be good ideas.  However, lacking good strategic context or clearly defined problems or evident financial support, the fear of making a decision about one of the ideas rises.  When all options seem equally viable and the path to a decision is unclear, all options seem equally attractive.  Innovation teams struggle with the fear of making a decision.

This symptom can be easily addressed and clarified by better scope definition, executive support and expectation setting earlier in an innovation activity.

FOMAD is about tradeoffs

FOMAD is also a problem due to scare allocation of resources - people, time and money - to innovation activities.  While scarcity and constraints are good fuel for innovation, they often create FOMAD when it's time to decide which ideas to champion, or even which problems or opportunities should be addressed by innovation.  The problem is that lack of resources and uncertain processes make innovation more of a gambling activity than an insightful, practiced activity.  So teams are left with the question - which big bet should we make?  Making one selection often means that you cannot invest in other good ideas, so decision making is delayed because the tradeoffs are uncomfortable or unfortunate.

FOMAD indicates career concerns

Fear of making a decision is also generated when careers are made or lost on a big project.  Too many times corporations build up an innovation activity and place too much emphasis on any one project.  Then, when the pressure mounts, it can be difficult for teams to get behind a good idea, recognizing that all new and transformative ideas have risk.  Even the best ideas can fail for all sorts of reasons.  Who wants to be the team that ardently supported an idea that eventually failed?  Failure of this type in many companies is a career-limiting move, what we used to call in my Accenture days a CLM.  Ever notice how wishy-washy many innovation teams are when called on to make a definitive statement about the potential success of an idea?  They know they cannot guarantee that the idea will receive the investment it requires, that it will be developed and launched successfully.  Thus it can be hard to make a definitive decision and back that decision when they don't control the downstream activities, and while many companies talk about failure as a learning exercise, it is more often a question of losing credibility.

FOMAD in your business indicates some key issues

Every business doing innovation has some FOMAD, but I've defined at least three reasons FOMAD might exist, and in doing so indicated some ways to reduce or eliminate FOMAD.

First, create clarity, funding and good scope for your innovation activities.  FOMAD is often a symptom of poor project definition or lack of executive support.

Second, while scarcity is a reality, innovation often receives far too little funding and can feel more like gambling that a careful investment.  Ensure the teams have enough funding to make good choices and that not every idea feels like the throw of the dice.

Third, mean what you say about failure.  Who wants to back a good idea when they can't guarantee the outcome but may be held accountable for the "failure"?  Failures are learning exercises - often expensive ones to be sure - but should be treated as such.  If failure is a career limiting move, then you can expect that your teams will be unwilling to ardently back good ideas.

These three instances of FOMAD are addressable. The first instance is a question of executive involvement, choosing important and urgent challenges and defining scope effectively.  The second instance is a question of resources and funding, having reasonable expectations for what it costs to do innovation and the potential return of ideas.  The third is about the expectations and culture of the organization, how people are rewarded and recognized (or punished) for failure, when failure was likely.

If your innovation activities aren't delivering what you expect, check your FOMAD.  And contact me, because I can help reduce and eliminate FOMAD in your business.



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posted by Jeffrey Phillips at 7:17 AM 0 comments

Wednesday, December 11, 2019

Why being ambidextrous is not enough - looking ahead to 2020

It's about that time of year where we begin to look back, to think about what we've accomplished and what lies ahead.  Knowing that the end of the year is in sight, and the holidays are almost upon us, we anticipate work slowing down, and perhaps for just a few days we can actually think - really think - about what's going to happen in 2020.

I've had the good fortune over the last six weeks to reach out and talk to a significant number of my colleagues, friends and some new acquaintances in the innovation space. What I've been trying to find out is 1) what is happening in the innovation space currently and 2) what do people think the future opportunities for innovation are?  I have a number of ideas and thoughts that I'd like to share - by calling on these conversations and my own opinion and research.

The key question I keep coming back to is:  can you juggle three really different needs and initiatives simultaneously?  Because I think increasingly an efficient core, an innovative edge and a digital transformation will all be important.




The beginning of the end, or the end of the beginning?

For more years than I can count, people have been calling for the "end" of innovation.  As Churchill said in the dark years of World War II, this could be the beginning of the end, or the end of the beginning.  Of the people I've talked to over the last six weeks, a blend of innovation consultants, analysts and corporate practitioners, most feel that innovation as a concept is reaching maturity.  That is, many companies believe that the capability to innovate is becoming a commodity inside businesses.  I think most management teams believe they can accomplish incremental innovation in house, and they are happy with that result.  So the question becomes - will there be a sustained push for more innovation, and will there be a need for more external assistance?  I think there will remain a focus on innovation, but with different agendas and motives.  Incremental innovation will become a consistent focus, while transformative and disruptive innovation will be sporadic at best. 

A good friend, Drew Boyd, who is no slouch at innovation himself, suggested that innovation moves in cycles.  For some firms we may be in a cycle where management teams are seeking to harvest ideas from previous investments in innovation.  It could be that many companies are waiting to see the fruits of the investments in innovation over the past few years, hesitant to invest more before seeing some outcomes.  Innovation - in this definition meaning creating valuable new products and services to drive organic growth, revenue and new profits - will always be in demand, yet my sense and the sense of others is that innovation for many reasons hasn't lived up to expectations in many corporations.  This failure to meet expectations (we can argue if these expectations were reasonable or the activities fully resourced) plus the emergence of digital transformation lead to the sense that interest in core innovation may wane slightly in the new year.

Shiny Objects ahead

There are, however, a few shiny objects on the horizon and closing fast.  The lure of digital transformation, and the excitement over the Internet of Things, machine learning and so forth is tangible.  Most companies know that this digital wave is about to crash, and most if they are honest with themselves know they aren't prepared.  This new management phenomenon will pull attention and funding away from innovation and in many cases this may be the right investment.  As more and more data is generated, companies stand to lose revenue, share and brand image if they don't respond with better digital capabilities.

However, management bandwidth is limited, so increased focus on digital transformation can only mean lesser focus on innovation, or pushing innovation into the fabric of the operating model.  Since few companies have fully adopted innovation as an operating capability, this means that its likely fewer innovation projects will be started, and when they are started it will help innovation activities receive funding if they focus on smart and connected outcomes.

This points out the opportunity to merge innovation, the creation of new products and services, which seems a bit long in the tooth, with digital transformation, which is emerging but not yet solidified.  If we can find ways to create new, smart and connected products and services that leverage innovation skills and digital skills, I think this is a win-win for everyone. I'm a bit concerned that much of the digital transformation focus in placed on specific tools (machine learning as an example) and not enough focus is on solving actual problems (what should machine learning do and what benefit does that create?).

The split between incremental and disruptive innovation

As noted above, most companies believe that they can do incremental innovation - that is, successfully add a new feature to an existing product, and they are probably right.  However, this capability basically keeps the lights on - incremental innovation does not create new revenue streams or enhance profit margins.  To "move the needle" companies need an occasional transformative or disruptive innovation.  And in this recognition lie both opportunities and problems.

There are opportunities to generate transformative ideas within large companies.  The staff are familiar with customer needs and emerging opportunities, so generating transformative or disruptive ideas is not difficult.  But converting disruptive ideas into new products or services within an existing business is difficult, because existing processes and business models, as well as executives whose businesses would be impacted by a transformative idea will resist creating such a disruptive idea internally.  Developing and launching new, transformative ideas that may cannibalize existing products or radically change operating models threaten existing revenue and profits, which make converting disruptive ideas into new products or services difficult.

Increasingly this means that most companies are likely to hone their incremental innovation skills, which in reality are an extension of familiar activities combining lean, agile and Six Sigma, and I believe will partner with startups and external firms to create interesting or disruptive new ideas.  I expect to see even more accelerators, incubators, corporate venturing programs and other mostly external laboratories for transformative and disruptive work.

One to create, another to scale

The idea that external or near external accelerators and incubators will create and validate new, transformative ideas isn't necessarily new.  Some companies are working in this manner already.  I just think increasingly we'll see more risk shifted to external organizations to create and validate ideas, and at the right time larger corporations will then acquire the solution and scale.  After all, isn't that what larger corporations do best, launch ideas into a viable marketplace and scale the good ideas?

I remain hopeful and skeptical.  Hopeful because the underlying story seems to make sense, but skeptical that larger companies can successfully identify good ideas in the ecosystem, acquire them in a relatively timely fashion and then scale ideas that weren't developed in house and may conflict with existing operations or brands.  Technology-driven companies do this kind of work finding emerging technologies in the open market, and it can take months or years to validate and acquire a technology that is just a component to a larger product or solution.  Imagine trying to determine the value of a partially tested solution and acquiring it and scaling it.

The story works but the successes so far leave room for growth.

Transformation, of everything

Jim Carroll, one of the leading speakers on the future, has determined that his new focus should be on transformation.  Note that I am dropping the leading "digital" from that description, because of course we are going to be transforming businesses and operations with digital technologies.  Digital transformation almost goes without saying.  We've been doing that since the first ERP implementations 30 years ago.

What we should be talking about is simply transforming our businesses, from large, static, slow-moving, monolithic and unresponsive to agile, insightful, creative and responsive organizations.  This transformation is enabled by digital technology, but also requires rethinking how people are deployed and managed, where the focus of the business lies and how the business interacts with and relates to customers.  More decision making needs to be pushed further down the org chart, and the org chart itself needs to evolve.  We need faster decisions, made closer to the customer, and far more agility, speed and innovation to compete.  Larger, older companies built on older models have further to go than newer, more digital and agile companies, but even newer companies must transform.

And I wonder if transform is the right word, because it implies a one time change, from this to that.  However, given the pace of change and the number of new entrants and the increasing power of digital and the internet, how businesses work will continue to change.  So transformation may not be a one time activity but a constant evolution.

You'll need three hands

Many people talk about ambidextrous companies - those that can maintain an efficient, effective core while simultaneously innovating to create new products and services.  The real test will be whether or not these ambidextrous companies can do both well while simultaneously transforming to meet new market conditions and customer expectations.

Wrapping Up

What we are ultimately talking about is not just product innovation, and where it occurs (incremental innovation inside, disruptive innovation outside) but also service and business model innovation, with the focus turned inward.  How might we innovate and transform our businesses to make them more agile, more nimble, to operate more quickly and decisively?  Can we maintain existing operations AND constantly evolve?  If so, how?  This question invites innovation back into the company, but with a different flavor and focus.  Now, speed, agility and business model innovation become paramount, and innovation capabilities and tools will be turned not only to the creation of new products for consumers, but to create new operating models, new organizational structures and new revenue models.  If you outsource all of your best innovation thinking, can you then turn the innovation skills to evolve your business when it needs to transform?

Digital transformation is a component of transformation, in the same way that ERP, CRM and the internet made today's businesses more efficient and profitable.  New expectations will leave slow, monolithic companies in the dust, however, and merely tinkering with digital transformation without changing services, customer expectations and business models will create a company that is ever more efficient at doing things that fewer and fewer customers want.

The expectations just went up.  Customers expect high quality products and services delivered at low prices, which means efficiency.  However, they also want interesting new products and services that address formerly unmet or unserved needs.  This means innovation.  But just as important is the ability to connect these devices and services to other data streams to create more meaning, more experience and more information.  This is the power of digital.

These concepts are tightly linked, and your company increasingly must be good at doing all three, simultaneously if you are to compete effectively in the future.


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posted by Jeffrey Phillips at 6:57 AM 0 comments