Wednesday, April 16, 2014

The state of Innovation, 2014

As a person who lives and breathes innovation constantly, daily in fact, it seems to me the right time to step back and look at the state of innovation broadly.  I'm doing this about a decade after OVO started its innovation focus, trying to assess what's working, and what's merely conversation, in the innovation sphere.


Ten years ago we formed OVO to transition some innovation processes and tools that we'd been using in the R&D and Federal space to start assisting clients in the private sector.  Dean Hering and I started OVO because we were convinced that the future of the US market would be based on better ideas that led to better products and services and business models.  At that time, it seemed the US was outsourcing everything, but we were convinced that the US could continue in a leadership role by doubling down on idea creation and intellectual property development.  While the manufacturing may be shipped overseas, we continue to lead the world on many aspects that contribute to great entrepreneurship and idea creation.

In 2004 many firms were struggling to create new organic growth and to create interesting differentiated products.  That's not so different from today, over 10 years later, because the predominant corporate thinking, decision making and cultures are so focused on efficiency and short term deliverables that it's nearly impossible to find the resources, the bandwidth and the time to simply think about new solutions, and even when you manage to achieve some new thinking, radical new ideas simply don't fit in the old containers of efficiency and 90 day increments.  I'm happy to report that some of this mentality is changing.  Many corporations are realizing that their internal, efficient, "business as usual" cultures are simply roadblocks to creating interesting new products and services.  But so much more needs to be done.

In 2004 we documented an innovation workflow or methodology we called Innovate on Purpose which was meant to describe a consistent workflow for innovation, starting with good opportunity or problem definition and moving through a defined series of activities to arrive at excellent ideas.  We still advocate that thinking today, that innovation is a process that can be taught, a set of intelligent steps to follow, based on powerful tools to drive insight and create ideas.  What many firms in 2004 were looking for wasn't so much a process as an activity - idea generation.  We were faced with talking about what came before idea generation - discovering customer needs, and what came after - actually evaluating, prototyping and developing the ideas that came out of the idea generation.  Today, a decade later, there's still far too much emphasis on idea generation, internal or "open innovation" seeking to find ideas or technologies in the external market, and not enough time given over to defining the right problem or opportunity, and understanding the breadth and depth of customer needs.  In many corporations the dominant methodologies are convergent, and instruct us to rush into solving a problem, rather than exploring the breadth and depth of the opportunity before rushing in. 

In 2004 we understood to some degree how important people were to the innovation equation, and over time we've come to appreciate even more just how important good, passionate people are to generating differentiated and valuable ideas.  You can select any random team in a business and get an incremental answer, but carefully build a team of passionate, empathetic people who are comfortable working in ambiguous settings and they will create ideas that are far better than the average team will.  Innovation is one of the last activities in a business that is truly dependent on the best people, yet time and again most businesses don't seek to build skills or place their best and most creative people on innovation activities.  To this end we are developing and will release in late spring an innovator assessment, which identifies a number of traits and characteristics your best innovators share, to help build the best teams.  But these individuals present only the raw talent for innovation, and need more training and skill development before they can work at peak performance.

In 2004 we defined a process but neglected one critical component, which we've added in the subsequent years.  That component is governance.  And while it may seem unlikely to add "overhead" and rules or governance to an innovation activity, proper governance reasonably applied will accelerate innovation, remove roadblocks and improve the opportunities for new products and services.  You see, gathering ideas from anyone with no sense of how those ideas relate to strategic problems is an exercise in futility.  You may gather a lot of ideas, but they aren't meaningful or valuable to anyone.  Understanding the burning platforms, addressing new market opportunities that matter to executives who have the funding, resources and power to make the ideas a reality matters.  Good governance, from choosing the right opportunities to gaining buy-in for the right funding and resources and having a champion who can remove roadblocks or raise the priority of your projects is paramount. 

So, where do things stand in 2014, looking back on over a decade of innovation consulting and services?  I think we can say a couple of things have improved over time.
  • First, there's far more awareness in executive ranks that the old efficiency model is running on empty and can't create new growth or differentiation.  But that model has proven so effective that many executives can't imagine another way to work.
  • Second, more people throughout the hierarchies of most corporations are far more open to change, risk and new tools and methods.  People are really ready for a new method to drive new growth, many are champing at the bit.  They are looking for signals from top management and permission to commit time and effort to new tools.
  • There are far more capable service providers and consultants to assist these corporations.  I've reluctantly come to the conclusion that consultants and service providers will remain the dominant force in innovation for another decade, not because the tools are difficult to learn and use but because the staffing levels and demands on internal managers and staff are so high.
There are also a couple of significant, consistent barriers that are holdovers from a decade ago.
  • First and most important, corporate culture.  No matter what anyone tells you, corporate culture is the biggest barrier to innovation, if for no other reason than inertia and fear of change.  No one person or one threat will change culture, and it will take time to change, but it must change and become far more comfortable with managing both efficiency and innovation.  In 2011 I wrote Relentless Innovation to focus on the fact that "business as usual" is THE barrier to innovation, and it remains that way today.
  • Clarity around the role that executives play for innovation.  While many existing executives didn't achieve their roles by innovating, they now need innovation to grow their businesses.  Executives need to understand the role they play as sponsors, to start projects, and resource providers and roadblock removers.  They need to build a framework under which innovation can thrive.
  • The markets.  Yes, we are all investors now, and yes we all want to see constant, consistent returns every quarter.  But we also must demand as investors that the firms we invest in show that they can be viable in the long run by creating interesting new products and services.  We as investors must tell the market that we value innovation, and that information must begin to change the incentives for executive management.
  • The cottage industry nature of innovation.  While some of us have attempted to present concepts and models to bring more consistency to innovation, and perhaps provide some common data models and standards, there's been significant resistance from many quarters.  Innovation tools and methods still have too much secrecy and mystery to them, which dampens adoption and slows innovation.  Other industries and functions have managed to thrive with standard, transparent tools and models.  We innovators are still quite far from that, and it retards the growth and adoption of innovation and the creation of more new products and services.  In 2013 I wrote the e-book 20 Mistakes Innovators Make because so many nascent innovators make the same mistakes.  This is due to the lack of consistent information and transparent processes and tools.
Looking back and looking forward

Over the last decade it's been quite a wild ride.  Corporate innovation was the mantra of Christensen and a handful of others in the early 2000s, and Christensen inspired us and others to offer services in this space.  Over the last decade we've seen a real blossoming of services, solutions and software for innovation, but much of this is still in its infancy, because of the issues I raised above.  As competition increases, consumer demands change and our economy adjusts to a "new normal" I expect innovation will become even more important in the future.  Will the demands on executive management make it clear that innovators are valued far more highly than laggards?  Will we begin to see the formation of consistent innovation tools and models that are more transparent?  Will we begin to identify people who have more innovation capacity and skill and promote them to positions of leadership?  Time will tell.  I hope to give you an update a decade from now on all that's gone right.
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posted by Jeffrey Phillips at 6:43 AM 0 comments

Monday, April 14, 2014

Innovation, team sports and vital components for both

In a slightly strange but very insightful Tweet Friday, Bill O'Connor (@Oconnorautodesk) noted that innovation today is often like a chess tournament where "no one has a chess set and no one knows the rules" .  I think he's on to something, but I'd use another sport to describe the opportunity and challenge of corporate innovation.

My preferred sport wouldn't be chess, which is primarily a solo practitioner game where one person faces off against another.  My preferred analogy would be baseball, where a number of important factors come into play. In team sports, the field or arena matters.  Chess can be played anywhere two people can meet, but team sports typically require a field or arena which is demarcated for that sport.  These boundaries are important, because in the real world of innovation companies have "boundaries" - competitive, regulatory, cultural and business model boundaries that to some extent dictate how they can, and where they can "play".  The arena or field creates limits to the types of things a team can do, much in the same way that corporate culture, competition and regulation limit what a firm can do.  On the other hand, the field or arena also augments play, because it was designed for the purpose.  You can't easily play baseball on a football field or a basketball court.  The space and its architecture and boundaries matter, to team sports and to innovation.

Next, a team sport is a good analogy for innovation because you can't launch a new product or service unless a wide range of people with deep skills in a number of different capabilities or functions provide assistance.  Good ideas are developed and commercialized through the support of product developers, legal teams, regulatory teams, finance and marketing.  In baseball, for example, players at different positions have different skills and strengths.  Shortstop and second basemen are good fielders, nimble and able to make acrobatic plays, but aren't often counted on to provide significant offense or batting prowess.  First base is where you park your big hitter, who may be a fielding liability.  Each position requires different skills, and together the team as a whole plays the game, each contributing their offensive and defensive skills.  In the same way a corporation that hopes to succeed at innovation needs a range of people representing a wide variety of important skills and talents.  Chess, as I mentioned, is a solo sport, and therefore perhaps not the best analogy for innovation.  Innovation requires a cross functional team.

And all of those people, whether they are innovators or sportsmen, need to be trained in their roles.  Athletes don't take the field without hours and hours of batting practice and fielding practice, but we often ask innovators to take on large projects with little or no training or prior experience.  Imagine running a professional sports team the way we run innovation projects.  Individual athletes would show up a few minutes before gametime, would lack complementary skills and in some cases even awareness of each other's strengths and weaknesses, and would play unfamiliar positions, uncertain of the strategy or expected outcomes.

Finally, there's got to be some strategy involved, and that's where the chess analogy or any sports analogy really rings true. Chess involves a lot of strategy, and while it may not appear so, baseball does as well.  Will we be a team that plays "small ball", using the hit and run and advancing runners, or will we count on the "long ball"?  The Oakland As introduced the concept of deep statistical research to find inexpensive but productive players, and that was an "innovation" in a sport over 100 years old.  Likewise, strategy matters for innovation.  What is the corporate strategy and key goals and objectives for innovation?  How do those strategies and goals frame what the team does?  Do they understand those strategies and how their work fits in?

So, using these analogies we are left with a number of interesting vignettes:

  1. You could have trained athletes who understand their roles but don't have an appropriate "arena" or strategy to pursue.  This scenario aligns to a company that focuses on "training" its employees on innovation techniques but doesn't have a consistent innovation process, and can't decide how or where to deploy the innovation capabilities.
  2. You could have a beautiful park in which to play, but no players or the wrong distribution of players and skills.  This scenario aligns to corporations that focus on building elaborate innovation centers with bright colors  and playful architecture, but neglect to fill the space with trained people who understand the goals and mission of innovation.
  3. You could have a beautiful park and the right number of players, but the wrong assortment.  This scenario aligns most readily to companies that think all innovation "belongs" in one function or department.  Often the idea is that innovation belongs in "R&D" for example, and the R&D staff receive a lot of investment and focus, and the rest of the company receives none.
  4. You could have the park, the players and the strategy but no audience.  This last scenario represents the fact that you can get everything right - the right people and in the right mix, following the right processes and with the right strategy, but neglect to notice that innovation should be driven by customer needs, not internal assumptions.
It's not until you have the right setting (or park), the right team members with the right skills and the appropriate distribution of the players and skills, and they all have the right training and practice, and they are in tune with the strategy that you'll be able to accomplish valuable innovation on a sustainable basis.   If you have all of these capabilities in hand, you'll then need the humility and patience to understand what customers need, and the willingness to respond.

Of course competitive sports fail as a perfect analogy for innovation because innovators aren't competing against one other team or opponent as they do in a sporting event.  Innovators are competing against a host of direct and indirect competition, and the rules are constantly changing.  Innovators have to be far more flexible and adaptive to market and competitive situations, technology shifts and customer demands, which many athletes don't have to consider.

Ultimately, athletic teams or innovators share some common challenges.  They need cohesion, the right mix of capabilities, attitudes and skills, an arena to perform and clear strategy to direct their efforts.  If any one of these is missing, performing at a peak level is virtually impossible.
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posted by Jeffrey Phillips at 5:48 AM 0 comments

Wednesday, April 09, 2014

Is crowdsourcing the answer for NBC?

When companies that rarely innovate attempt "open innovation"  I often wonder:  is this a sign that they finally understand the number and range of excellent ideas in the broader world, or is this a desperate sign that they've recognized the idea well is dry internally, and are left with nothing but an external search for ideas?

This question presented itself to me today when I read that NBC is crowdsourcing ideas for new TV shows.  Is NBC leading the way to greater democratization of television, breaking down barriers to find new talent and better stories, or have they simply exhausted their regular sources?  It will be an interesting experiment to watch.

While I don't have the data at hand as I write this, I've seen statistics that suggest that ABC looks at over 800 ideas for new shows in a season, and will actually script about 20 and create about 10 pilots.  Of these, typically two or three new series will enter a lineup, and typically one or two of those will fail.  This math isn't a surprise to many of us in the innovation space - it often takes a lot of ideas to uncover some really good ones, and with selection bias and other factors at work even ideas that seem great internally may falter when they encounter the audience.

What NBC is doing is a high wire exercise, and I wonder if they are prepared for the results.  While they are asking for ideas from their audience, I doubt that they've done much to change how they evaluate ideas or the internal culture of the network.  If you read the article you'll see that the judge panel they are using to evaluate ideas and pilots consists of a range of comedic talent that they've featured in other shows, some successful and some that failed.  If NBC really wanted to understand what people want, they'd go further, allowing crowdsourced ideas to be evaluated and ranked by the crowd.  One wonders if they know who their audience is and what they want.

The audience is increasingly separating.  People over 50 are not finding much on TV worth watching on the "big four" especially comedies, because they don't reflect what the audience does.  People under 50 are increasing consuming content on the web that can be spun up quickly, with little cost or risk, or are playing video games or consuming other content.  Few people in the audience are willing to allow a set schedule to force them to watch what's presented, or when it's presented.

ABC's Modern Family is probably the pre-eminent show for a number of reasons, including the fact that a wide range of demographics are represented (old, young, gay, straight, even some people of color) and manages to be both poignant and funny.  The rest of the sitcoms and comedies on TV rehash old plots and present caricatures that aren't funny.  Large studios face increasing competition from anyone with a web cam and the ability to upload content on YouTube, which is where my 15 year old spends as much time as anywhere else consuming content.

So, NBC's experiment should be fascinating.  The questions we should ask:


  • If NBC is presented with some really good comedic talent and content, will they recognize it?
  • If they accept new shows, will they have the courage to leave the ideas and talent alone, or will they force it into the boxes that they understand?
  • If they can successfully bring new shows to market, will anyone be left watching regular broadcast TV anyway?
  • Can NBC innovate not the content of the show but the entire broadcast model, competing more with webcast, YouTube and other online content providers to reach new consumers where they are, rather than compete with ABC in "primetime"?
Innovators, here's your chance.  If we are all as smart and funny as we all think we are, we should be able to create interesting, funny shows that can't be ignored by the studio.  I'm hoping to see some of your ideas at NBC in the near future.
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posted by Jeffrey Phillips at 4:36 AM 0 comments

Monday, April 07, 2014

The innovation worm turns at GM

There's been a lot of coverage in the US about GM and it's latest quality fiasco, the faulty ignition switch.  As is the case in many corporate investigations, the people now taking the heat were probably uninvolved or unaware of the dangers, and the executives who made the decisions are comfortably retired.  Hopefully, through this investigation, the people who were injured will receive some compensation, and GM and other companies will learn how to value human safety over profits.

But in the story I read, what may be a "throw away" line from GM's new CEO Mary Barra was all but missed.  However, that line, "..moved from cost culture after the bankruptcy to a customer culture" may be the most important factor in GM's survival, and something that every large firm needs to understand.  Focus on cost and efficiency has been paramount for 30 years, as trade barriers fell, competition increased and customers had more choices and became better consumers.  Large corporations have focused on driving out costs, eliminating inefficiencies and reducing risk and uncertainty.  Decisions and timelines have shortened.  Many corporate managers simply cannot will themselves to think beyond the next 90 days.  But in one short sentence, Barra has signaled that she gets it - efficiency is vital, but customer intimacy and the engagement and innovation that will emerge from understanding and focusing on customers is what will sustain corporations in the near future.

Sure, GM has some special advantages.  Bankruptcy allowed it to shed underperforming assets and many debts, to emerge as a more healthy and hopefully a more vital company.  But through that process did it shed its culture and thinking models?  That remains to be seen.  Barra's statement, just one in a short news article and probably one of many she had made, could be the signal that the worm will turn.  That finally larger organizations will begin to understand that customers and their needs matter, and that by gathering and understanding those needs, they can build better products and services.

Now, the skeptics among you will note that Barra is using this as a liferaft, claiming to value the customer because customer appreciation to a company in GM's predicament is paramount, in the same way that patriotism is the last refuge of a scoundrel.  Time will tell.  I think - I hope, that is, that Barra and others like her will recognize that the operating models, timeframes and decision making capabilities of their organizations need to change.  That cost conscious companies inevitably make barely acceptable products that no customers love, and that competitors easily copy or replace.  To win customers and retain them, new insights driven by true customer research and deep understanding are vital.  These insights should lead to new ideas, and onward to new products or new features on existing products.  And to me, that sounds a lot like innovation.

Has the worm turned?  Or will Barra identify the importance of a "customer culture" only to return to efficiency and cost controls?  Does Barra think that signaling remorse to customers creates a "customer culture" or will she work to put the customer at the center of GM's focus, in place of the bottom line which has clearly been the central driving factor.  I think Barra and others may find that placing the customer at the center, and using the insights that come from doing that effectively through innovation may enhance, not reduce the bottom line.  Is GM trying to make cheap cars, or cars that meet customer needs but are inexpensive?  There is a difference.
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posted by Jeffrey Phillips at 5:52 AM 0 comments

Tuesday, March 25, 2014

Renegades, unreasonable men and jesters drive innovation

I've written before about the Shaw quote about progress and it's reliance on the "unreasonable" man.  Just as a reminder, George Bernard Shaw wrote that "a reasonable man adapts himself to the conditions that surround him.  The unreasonable man adapts conditions to himself...therefore all progress depends on the unreasonable man."  This was brought home as I was thinking about the events in Crimea recently.

There are people, even perhaps readers of this blog, who understand game theory and psychology better than I do, but what a great example recently of game theory and unreasonableness than what Putin did in the Crimea.  Putin has demonstrated that he will use his "unreasonableness" to get what he wants.  After all, when he acts in an unreasonable way he gets outcomes (Crimea) that he wants.  When he comes back into the fold of reasonableness, he will also be rewarded by Europe, who will be happy to see him act within what European leaders consider the acceptable norm.  In either setting, he wins.  He gets what he wants by assertiveness and ignoring convention (being unreasonable, according to bureaucrats) and will be rewarded again when he completes the takeover and acts according to international custom and law.  Those politicians and government officials, our president included, lose not because they are inept or incapable, but because they are concerned with appearing "reasonable".  They won't step outside accepted political and social norms to win what they want.

So, you may agree or disagree with my hypothesis above, but you should be asking:  what's this got to do with innovation?  Let me quote Shaw again:  all progress depends on the unreasonable man.  To be innovative, in a startup, a midsized firm or a large corporation, you've got to be unreasonable.  Being innovative by definition means creating something new and valuable, and the mere creation of something new and valuable is bound to upset the existing order.   People who build and defend the existing order will see anything new and valuable, that calls the existing order into question, as unreasonable and disruptive. 

Let's look at the typical corporate environment to see how innovation can be "unreasonable".  Most organizations have honed their operating models for years, striving for efficiency, low costs, low variability, low risk.  They have becomes machines of efficiency, which work at peak performance because the products, solutions and processes are well-defined, well-understood.  Now, attempt to introduce a radically different idea, or product, or way of thinking into that homogeneous, protected environment.  The antibodies of corporate culture will attack the new idea at once, questioning the value of the idea, the purpose and goal of a project, the predictability of a result.  Why not just keep doing what we are doing, they ask.

Gandhi was considered a renegade, a borderline criminal, for his actions to gain status for Indians and to establish home rule.  Gandhi had a great quote for what innovators will face when they introduce new ideas into a very safe and predictable corporate culture.  First they ignore you, hoping you'll go away. They they ridicule the ideas, laughing at the concepts, hoping to embarrass you.  Then they actively fight the ideas, to protect the status quo.  Eventually, if you have the stamina to push through and your ideas are valuable, you'll win.  Who but an unreasonable man could endure such resistance?

Corporate innovation faces a significant challenge, because there are few incentives and many disincentives for unreasonable men and women in the corporate culture.  Our business cultures and incentives are set up much like the scenario I presented in the Crimea, where everyone expects everyone else to act within established parameters of social acceptance and predictability.  Managers and executives who don't work within corporate culture, who question the rationale of strategy, who present new and radical ideas often aren't welcomed or promoted.  Most corporate executives toe the company line rather than act or think in what the culture would consider an "unreasonable" way.  This makes it difficult for anyone in large corporations to pursue radical ideas, because they've been taught to think within the corporate parameters, not to work against them.

In the days when kings ruled the world many had a court jester whose job it was to poke fun at plans or ideas presented to the king, often because the king needed a different opinion or perspective.  This role was often taken on by people with a very quick wit, who could create jokes about plans or place ideas in a farcical light.  The point was to question the advice and existing order.  I've argued before that many corporations need a corporate jester, to constantly question the direction and goal of organizations, and they need to tolerate and even listen to the few "unreasonable" men and women who are striving to create new products and services.  Yet too often corporate cultures squelch their voices and compensation and promotion paths are closed if people don't seem "within the fold" of the corporate culture. 

What does your culture and reward system do to the renegades, the jesters and the unreasonable men and women?  These are the people who are most likely to create interesting new ideas, and right now many corporate cultures are ignoring them, shoving them to the periphery of a business, rather than understanding how their insights can be converted into new products and services that create value for customers.  Protecting the status quo is nice, as long as you have strong defenses and weak opposition, but those days are numbered.  You must sally out and attack new markets, enter new channels and perhaps even disrupt your own products.  The reasonable managers and executives aren't going to do that.  Give the unreasonable a chance.
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posted by Jeffrey Phillips at 6:02 AM 0 comments

Tuesday, March 18, 2014

Six Components for successful innovation capacity

I'm always a little cautious about any post that dares to state a definitive number of tasks or components for successful completion of any task.  Therefore, it's with some trepidation that I'm going out on a limb to talk about what I think are six critical components for sustained innovation capacity.  Note that I am saying six critical, not "the only six critical" because while I'm certain these are important, there are probably others that are just as important.

But, since most organizations don't have these critical capabilities in place, why worry about two or three others until the most important functions are in place. 

Note that I am making a distinction between an innovation project - discrete, one time effort - versus building a capability to sustain innovation.  As we said when we talked about the Executive Workmat, you don't need a lot of overhead to innovate once, but you need more guidance and structures to sustain innovation over the long term.

Here's my "top down" list of six critical components to sustain innovation:
  1. Good "governance".  And don't recoil from that concept just yet.
  2. Engaged sponsors who understand the importance of their role.
  3. A defined innovation workflow or process.
  4. Innovation teams made up of engaged people who have some training within the process and understand their roles - perhaps are even proficient at the tools.
  5. Common deliverables - a standard set of outputs, data, information and templates to simplify and standardize innovation outputs and outcomes where possible
  6. A culture that sustains innovation, reduces friction and risk, encourages exploration.
A brief treatise on each.

Governance

Most innovators shudder when they hear governance, but no process works better with good governance than innovation.  Most firms have very little time or focus for innovation, so when they get to do innovation they need sharp focus on the right goals and metrics, and good resource allocation and project prioritization.  If this governance is missing or left to chance, the innovation you'll do will be disappointingly small.  We don't want to smother the activity with lots of traditional governance, but providing some clear lines of sight, decision making and prioritization will accelerate innovation.

Engaged Sponsors

A "sponsor" is a person who desperately wants a solution to a problem or opportunity, and can provide air cover, resources and funding to ensure the project gets done.  Sponsors are not selected; they select themselves.  Sponsors aren't simply overseers; they should benefit from the work.  Innovation should focus on critical needs that senior sponsors can't solve or address with existing toolkits.  If the activities aren't sponsored, they won't receive staffing or funding, or will lack critical definition and oversight.

Workflow

Yes, you can innovate once using any process or method you'd like, but the more often you innovate, and as you innovate in more lines of business, geographies and functions, a common, understood method, workflow or process matters.  Like governance, a consistent, firm but light hand is wanted here.  Everyone should understand the process, know its capabilities and limitations, and gain skills in applying the process.  But the process shouldn't dictate the pace or the amount of discovery, and the process should be an means, not an ends.

People

I've said it before and will continue to say it until you believe it:  people are THE most vital component in innovation.  Machines and computers can't describe opportunities, do customer research, generate ideas, evaluate ideas.  People matter most.  And getting the right people engaged who are passionate about new ideas and not wedded to the "way we do things" matters.  Moreover, those passionate people need training, and time to do innovation work effectively.

Deliverables

An outcome of good process and strong teams is consistent deliverables.  To repeat innovation success and to gain learning curve advantages, it helps to standardize outputs where possible.  This means defining what each activity should generate, and providing an example, a tool or a template for critical activities.  Doing so reduces the chance that the innovation teams will dream up their own deliverables or completely miss information or insights.

Culture 

If engaged people and good processes are important, then we must examine the formal and informal decision making and structures that influence what people do and how they do what they do.  That means examining formal decision making and hierarchy, and examining informal cultural barriers.  Your culture dictates to a great extent how engaged and creative your people will be, and what ideas they will entertain.  You don't need to change your culture to innovate once; the culture will overlook your impertinence.  But if you plan to innovate consistently, you will need to train your culture to become much more engaging, risk taking.  More open to experimentation and "failure".  More willing to explore divergent thinking and to break industry rules.   And, since that type of thinking conflicts with 30 years of training and management philosophy, it will be hard to do.

Why you can't pick and choose

What if you don't want to work on all of these factors?  What if you'd like more innovation but don't want to contemplate a focus on these six features?  Which can you prioritize and which can you ignore?  Ah, that's a sucker's bet.  For instance, let's say you provide good governance, train your people and define deliverables but don't change anything about your culture.  Will that deliver the results you hope for?  Probably not.   Or, you work diligently on your culture, define processes and deliverables but lack for engaged sponsors.  Everyone will work on innovation but none of the ideas will ever progress because there's no executive buy-in.

Increasingly, and for a number of reasons, innovation will shift in importance from an occasional, half-hearted activity to a much more focused, consistent capability.  That shift can't happen until an organization designs and builds the components I've described above, and that Paul Hobcraft and I described in the Executive Workmat.  Many firms will try to conduct innovation having paid lip service to some or all of these components, and for the most part that innovation work will become exceptionally incremental or will fail.  Unless and until you decide to do innovation right, and do it completely, you'll struggle to do any innovation at all.

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posted by Jeffrey Phillips at 6:36 AM 1 comments

Friday, March 14, 2014

Small, impermanent and sticky - the real innovation world

There's nothing more aggravating than when a Disney World ride can communicate a deep philosophical point about business.  After all, once we knock down trade barriers, globalize the financial systems and everyone starts using the internet for interaction and commerce, it's a very small world after all.  That point was brought home recently for me in a rather interesting way.

I've been leading an innovation project in Cincinnati, which has been really negatively impacted by the Delta-Northwest merger.  Cincinnati lost on the order of several hundred flights a day when the two "hubs" - Delta's in Cincinnati and Northwest's in Detroit - were merged into Detroit.  This supposedly led to the loss of some multinational corporations, since international travel became more difficult.  One notable loss for Cincinnati was Chiquita Brands, the number one distributor of bananas.  Chiquita moved out of Cincinnati in early 2012.

Now, here's the interesting point about "economic development" as it is pursued today.  One state will try to convince a factory or business to relocate to its state from another.  This is a zero sum game, because any firm willing to leave one state or location for another will do so again.  But traditional economic development has been focused on recruiting existing companies to open new locations or to move or relocate locations to other states.  What we end up competing on are factors like low cost of labor, available land, low taxes and other factors that aren't adding value and can be easily copied by someone else.

Where, you may ask, did Chiquita end up, and why is it the focus of an innovation blog?  Well, Chiquita ended up in Charlotte, not far from my hometown of Raleigh.  And boy was Charlotte excited.  A major multinational firm was picking up and moving to Charlotte.  That happened only a few years ago.  Yesterday, it was announced that Chiquita has agreed to merge with the largest distributor of bananas in Europe, Fyffes, and the new global headquarters will be located in Ireland, where, as you guessed it, corporate taxes are lower.  Charlotte barely had time to celebrate the new headquarters before the new merger will move the global headquarters yet again.

So in a space of less than 30 years, Chiquita or its predecessors have been headquartered in:  New Orleans, Cincinnati, Charlotte and now Ireland.  The cycle time for a corporate headquarters is rapidly shrinking.  Chiquita was headquartered in New Orleans for about 50 years, Cincinnati for 30 years, Charlotte for 3 years.  The pace of change is accelerating everywhere and in every dimension.

So, what's this got to do with innovation? With all apologies to Thomas Friedman's "Hot, Flat and Crowded" there are three factors for innovators to consider:

  1. Your competition is global regardless of your product or service.
  2. Nothing is permanent, not competitive advantage, location, tax laws, trade protections, intellectual property, etc.  Always extract all the value you can from what you do now and simultaneously cannibalize your products before someone else does.
  3. We need to make cities, regions and states places where creative people "stick" which will attract entrepreneurs and large corporate innovators.
It is a geographically small world

Once the majority of the income in any industry is based on data and financial services, you compete with everyone everywhere because everything is digital.  Sure, Chiquita distributes bananas, but much of that revenue is hedged on Wall Street and other financial markets, and Chiquita maximizes its profits based on weather forecasts, consumer demand data and other factors.  Financial transactions and information matter, and they can be managed from anywhere.  The majority of the innovation is in the business model and services, not in the actual product - bananas.  The actual bananas are a small portion of the actual business and most of the labor force in Central America probably doesn't work for Chiquita anyway.  Increasingly, we all compete on information, intellectual property, financial transactions and ideas.  Anyone can compete with anyone anywhere.  Increasingly it is a very small competitive world, and anyone can compete with anyone else anywhere, anytime.

It's a really impermanent world

I like to tell the story in the banking world of the "3/6/3" financial model.  Retail bankers from the 60s and 70s knew it well:  borrow at 3%, lend at 6% and you're on the golf course at 3pm.  Those were the halcyon days of long product cycles, exceptional predictability in financial markets and low competition.  Today, nothing is permanent, fixed or inviolate, and your business plan had better be as flexible and dynamic as the markets you serve.  Cincinnati banked on Delta airline maintaining a hub, and had hoped to retain Chiquita, but mergers and low taxes came calling.  I'm sure Charlotte hoped that Chiquita would stay, but mergers and low taxes came calling.  Cities, regions and states need to rethink their value propositions to private enterprises, and private companies need to rethink their relationships with the market, their customers and competitors.  A recent Gartner study suggested that the average longevity of larger American firms is shrinking - that is, the birth, life and death cycle of large firms is getting shorter.  Your plans must incorporate the dynamic and impermanent nature of your markets.

Adoption of new technologies accelerates once the "infrastructure" is established.  For example, it will take a long time for electronic appliances to penetrate homes until electricity becomes a consistent service.  But once the infrastructures are in place, innovation accelerates.  Look no further than smartphones and what they are doing in terms of information and apps.  Smartphones have replaced point and shoot cameras, GPS devices and in some cases handheld computers.  As the platform solidifies, there will be an accelerating opportunity for innovation.

It could be a "sticky" world

Note that few firms are moving from Austin, or Silicon Valley, and few firms are migrating to Sudan, regardless of the tax implications or the weather.  There are factors that make a physical place "sticky", and factors that can make a corporation "sticky" for its employees and customers.  Every firm and every location needs to think carefully about how they become "sticky" for the best employees, customers and citizens.

Yes, everything is more mobile, but there are plenty of people who are willing to "stick" with the right company or location.  In fact while corporate headquarters are moving all the time (Boeing to Chicago, Chiquita to Charlotte, Ray-o-vac to Atlanta to name just a few), most people in the US exhibit less mobility than ever before.  Some of the lack of mobility is tied to homes that are underwater, but increasingly it seems that people are less likely to move to take new jobs.  That means that companies can command more loyalty and engagement if they'd like to, but so far most are more interested in lowering the tax base rather than creating more passion and loyalty from their best workers.

Richard Florida and others have written extensively about what makes a city or region "sticky", and when a place attracts and retains smart, creative people there is often a positive network effect, attracting more people with more ideas and more intellectual capital to that location.  As these things happen, the value of being "in that place" rises, incomes and home prices rise and so forth.  And, when or if one large corporation flits in and out, like Chiquita in Charlotte, if the place is truly an interesting, sticky place the people there will remain and start interesting new businesses rather than follow Chiquita onward to its new destination.  In other words, we need our locations to be destinations that people desire more than the businesses they work for.

What does a sticky location or business look like?  It's a place that pursues future possibilities rather than hunkering down to rest on past triumphs.  It's a place that encourages interaction, education, free exchange of ideas.  It's a place where many different "communities" interact and where funds and resources are allocated to the best ideas, not to favorite sons or pet projects.  It's a place where there is a critical mass of interested, and interesting people who have ideas they want to share, and where there are people who listen and implement those ideas.

Hot, Flat and Crowded or small, impermanent and sticky

Friedman borders on the Malthusian in his book, and for good reason.  Many of the issues he cites are real - overcrowding and global warming for example.  But in the midst of these issues are other issues and challenges just as important.  The world of innovation is increasingly smaller and more fiercely competitive, impermanent and rocked with constant, unexpected change. Places and organizations must become more "sticky" to attract and retain talent, with less regard to nameplate corporations which will come and go, drawn by tax incentives.  Places and businesses must compete on more than low labor costs, low taxes and corporate incentives.  They must differentiate on human capital, creativity and network effects brought on by a dynamic local population.

The first two factors are unavoidable.  Your business or geographic location will be buffeted by increasing competition and the accelerating pace of change and uncertainty.  The real question is whether your firm or location can create a place where interesting, vital, creative and innovative people "stick" regardless of the tos and fros of corporate behemoths chasing transient incentives.
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posted by Jeffrey Phillips at 5:03 AM 0 comments