Crap Shoot

Before we go any further, ponder this inponderable: Is one really big failure better than three or four small failures?

I was pondering this recently while talking to a participant at the Front End of Innovation show. He was quickly reviewing his firm's innovation process. It seems that his team had generated hundreds of ideas using reasonable approaches, evaluated them and selected one to move forward with. I was nodding along, very interested and engaged right up until he said "one". I decided not to react in my normal way, which would have been to fall down laughing or to roll my eyes, but instead let him carry on to tell me the idea had not been successful but his team had faith in the process.

So, back to the inponderable: As a manager or executive in a large firm, are you compensated to create risk or reduce risk? Does it appear wise to risk a lot on one roll of the dice? Would you, like some Las Vegas high roller, push all the chips in the middle for one good roll of the dice or spin of the roulette wheel? If you can see where I'm heading, stick with me for a minute. If I've lost you in the inponderable, then perhaps your gambler mentality has kicked in.

Logical gamblers, also known as venture capitalists, make a spread of moderate bets across a number of ideas or technologies. They KNOW going in that many of them will fail, but some will succeed and one or two will provide tremendous returns. No good VC bets everything on one idea or one technology. However, most firms that we talk to have a bias towards getting to the "one" good idea. There are so many problems with this thinking that a blog post simply can't do it justice, but here are a few concerns with this approach:

1. Being able to pick the "one" great idea out of a stack of reasonable ideas
2. Working with only one idea when the possibility for failure of any idea is so high
3. Raising the stakes so high since everything is stacked on the success of the one idea
4. Creating a project that's "too big to fail" since we don't have a second option
   

No, I don't think most shareholders expect their management teams to place risky bets. They want to know that the firm is investing money appropriately according to risk and return. So why would an innovation team, having generated hundreds of ideas, select a single one to move forward with? Why not try out four, or five, or six ideas, knowing full well that one or two of them is bound to fail. It may turn out that your team finds value in two or three of the ideas and decides to commercialize all of them. However, if your one idea turns out to have a hidden flaw, you don't have an alternative available.

Albert Einstein was famously quoted as saying that God did not roll dice. Well, if he doesn't, why should any innovation team?

Why IdeaStorm and Salesforce Ideas are fads

OK, perhaps you can say I'm biased. I am, after all, in the business of helping firms create sustainable innovation programs, and we do build innovation software. But I think I can raise a few legitimate points about the current wave of excitement about the intermingling of social networking tools and innovation software. The two best examples of these are IdeaStorm and SalesForce Ideas, although there are a number of other content management and collaboration tools offering to serve as innovation tools.

First, let's clarify our language. Having a bunch of people submit ideas to a portal is NOT innovation. That is simply a sounding off process, mostly about the problems that exist with current products or perhaps some incremental innovation ideas about how to change the existing products. While interesting and valuable, that's not innovation. Second, innovation is about being able to take ideas from any source and convert them into new products and services that add value. In the words of one of the IdeaStorm personnel:

I love seeing companies embrace this method of listening and engaging the customers. One caution I would send out to anyone setting up a larger scale idea site is the need for a management back end. You can only imagine trying to sort through and actually work on the almost 9K ideas we have so far without a method for tracking status, assigning owners, etc. Do you know if these other vendors offer the idea management tools as well?

So, while many of these applications can accept ideas from anyone, anywhere, they don't have the facility to manage, distribute, evaluate and process the ideas so that they can become new products and services. If the folks at Dell are seeking idea management tools after a "successful" implementation of their IdeaStorm application, what does that say about the downstream processes and capabilities? After all, anyone who works in innovation will tell you that idea generation is easy - managing, evaluating and maturing ideas is the hard part. We think this is where the actual value in innovation resides - having a process and team that can consistently manage ideas and convert them into new products and services.

Next quibble? The reliance on "wisdom of crowds". The social networking and collaboration engines will tell you in no uncertain terms that this is the best way to identify good ideas. That statement is probably true for problems with existing products and exceptionally near term incremental product changes. What the advocates of "wisdom of crowds" models don't tell you is that the crowd can be easily swayed. Look no further than the election for president. In January Hillary Clinton had a huge popular lead based on prediction markets and polling. If we'd made a decision then based on the "wisdom of crowds" we'd have president Hillary already. Wisdom of crowds and prediction markets fail repeatedly when new information is introduced and when new products, services or people are introduced. Other evaluation and consideration means are necessary when your firm is going to place a big bet on a breakthrough or disruptive idea. While your firm may want feedback on existing products and services, will you outsource your new product and service development to the market? If you do that, how do you differentiate from your competitors who are also listening to the same people?

Another concern about broadbased open innovation? Intellectual property ownership. If an idea is submitted by a consumer or customer, who owns the idea? Has the person submitting the idea done any research to investigate if that idea actually belongs to someone else already? What if the submitter claims rights to the idea or wants royalties? This is not to say that firms shouldn't acquire ideas from external agents, just that there are other, better ways to do this, especially as the ideas become more disruptive or have a higher market potential.

These open suggestion models are interesting but will ultimately run into many of the same problems that doomed the physical suggestion box:

1. Too many ideas are submitted for the teams to manage
2. There is no downstream process for managing ideas successfully
3. The ideas address too many different challenges and issues to manage effectively
4. The ideas usually don't address issues the management team considers strategic
5. There are concerns about the ownership and legality of the ideas

Innovation is more than simply receiving ideas from a broad array of people. Implemented effectively, innovation is a consistent process of gathering ideas, evaluating them, piloting or prototyping ideas and then creating new products, services and business models. If all your ideas come from crowds, then you are following the crowds, not leading them to new markets or new products. As Henry Ford said, "if I had listened to my customers I would have made a faster horse".

What's Innovative? Who is Innovative?

I read Ellen Domb's article on the BusinessWeek list of innovative firms, and her thoughts struck me as basically correct. I'm not sure that this list of firms represents anything other than a list of well known firms that have been reasonably successful lately. You can see the BusinessWeek list for yourself here. Click on the link labeled interactive scoreboard to see the list.

I think there are probably several reasons why this list fails to satisfy. One reason is that it is often difficult for people to arrive a a standard, common definition of innovation, since it means different things to different people. I doubt there was a good definition of innovation used, and used consistently, as people recommended firms for the list. Some of these firms are just very good at customer service or other aspects of business, but that does not make them innovative.

Another point is that some firms on this list are there because of what they MAY do in the future, not based on innovative skills they've demonstrated in the past. Likewise, some firms on this list are resting on old laurels and haven't been innovative in quite a while.

GM is a good example of a firm that is on this list because of what it says it will do - will create hybrid cars, will change the way designers and engineers work together. Is GM an innovative company? I don't think the American car buying public thinks so. Could GM become an innovative company? That's possible, but I don't think they've demonstrated that yet. Likewise, 3M is on the BusinessWeek list, but anyone who has followed 3M closely knows that innovation at 3M took a real hit when the board brought in a Six Sigma aficionado who clamped down on research freedom. Only lately has that been reversed, so 3M is on this list based on its innovation reputation from five to ten years ago.

Thanks to the interactive scoreboard that BusinessWeek provides with more details on the top 50 companies in their estimation, we can dig a little deeper. Certainly, being an innovative firm will enable your company to drive margin growth? Well, of the firms on the list, only 10 have had margin growth of double digits over the last 3 years, and 20 firms on the list have no margin growth or negative margin growth over that same period. If these firms are innovative, why can't they command a margin premium?

The problem with a survey approach like the one used by BusinessWeek is that it has a lot of bias built in for companies that are "known" innovators, or that are simply well known. Some of the firms on this list are innovative - Apple, Google, etc - and some aren't (Wal-Mart???) Some of these firms had a focus on innovation, but have recently shifted direction. BP is probably the best example - John Browne, the former CEO was very enthusiastic about innovation, but the new CEO is not.

When we deign to make a list of innovative firms, let's be sure to use more specific definitions, and identify firms that are actively innovating and able to demonstrate what innovation has meant in terms of new products, services, business models and the returns that the innovation has delivered.

Hunters and Farmers

When I ran a sales force, I noticed that some members of the sales team were really motivated to sell to new clients. They were interested in "bagging the elephant" as the saying goes, and had little interest in hanging around after the sale, penetrating the account and offering account management. We called these folks the "hunters". Likewise, there were a number of sales people who preferred account management, doing the little things to win new work in existing accounts. These individuals were called the "farmers". A well-balanced sales team has a mixture of new account types who enjoy winning over the new accounts, and account managers, who excel at growing existing accounts. Makes sense, no?

So, why am I telling you about the structure of sales teams on an innovation blog? Well, I believe there's a corollary to innovation in the sales team mixture as described above. In most firms, there is a preponderance of people and effort expended on making the current organization run. Just about every process and every person is focused on near-term results and keeping the existing model "whole". In other words, the vast majority of the people in any organization are focused on existing product and service management. They relate closely to the account managers in a sales organization, who seek to carefully grow existing opportunities. The place where the analogy breaks down is in finding a corresponding match for the "hunters" in the sales force in the rest of the organization.

In most firms, few people are concerned about bagging the next elephant when it comes to creating a really innovative new product or service. Sure, there are a few people tucked away in some corporate strategy team who ponder the long term future, but at a product or service level the vast majority of people are responsible for ensuring we don't mess up what exists today. Even the "new product development" people in most organizations are simply forecasting the incremental model changes and product roadmaps, so they aren't really big game hunters.

If a balance in the sales force between hunters and farmers is appropriate, and both are very necessary, isn't there also a need for hunters and farmers when it comes to product or service development and management? The vast majority of people I interact with from an innovation perspective are very comfortable with growing existing opportunities or perhaps considering the next incremental innovation, yet virtually no one is out on the tundra, the veldt, the dark forest (insert your own "heart of darkness" metaphor here) where the rules are a little less defined, the stakes are higher and the risk is greater.

Shouldn't every product line or service area have at least one hunter - someone who is actively tasked with identifying the next big opportunity and who does not have day to day operational responsibility? Who within your organization is actively considering the products and services that should be delivered in 3 to 5 years, and what impact those products and services will have on the market? Can that person or team work outside the existing thought processes, culture and bureaucracy to envision something completely new and different?

Where are the hunters in a product or service development in your organization? What are they hunting, and what weapons are they using? Have you considered the appropriate mix of "farmers" - those who carefully grow the existing products and services and "hunters" - those who identify and bag the next big opportunities? Certainly the model is heavily weighted to farmers, but does your model leave room for the hunters?

Six Secrets of Business Model Innovation

I've had the opportunity to interact with the folks at Peer Insight for several years. They are without a doubt a leader in the concepts and approach for service innovation. Recently I had the chance to review a new presentation they've made available on their website. If you visit, click on the link on the left hand margin about the Six Secrets of Business Model Exploration.

What the team at Peer Insight have kindly done for you is to create a "field guide" or methodology for thinking about innovating around services. What's nice about this is that the guide applies well to just about any firm interested in innovating from a services perspective, so firms that are purely services oriented (banking, health care, hospitality) can use the guide, as well as firms that provide products as well as services.

As most of us will readily admit, innovators are great synthesizers, so while there may not be a lot of "new thinking" in the document, there's a great rationale and approach for you to consider if you are just starting to consider innovation as a key capability, or are already underway. Each of the Six Secrets is documented and in most cases several tools or approaches are provided. The key is that while your firm may have addressed one or more of these "Secrets", it's unusual to find a firm that has deep knowledge and competency in all six.

Another thing to know about innovators is that they are more than willing to steal (politically correct word is "borrow") from others who have good methodologies or models. I'll be considering how we at OVO can use what Peer Insight has generously provided as a field guide when we work with our clients. I'd suggest you take a look and see what insights the field guide and the folks at Peer Insight can provide for you.

Wanted: Innovation Leaders

Sometimes I think that many firms should place an ad in the employment pages that says: Wanted: Innovation Leaders. Must be visionary, tough, well-connected and willing to risk it all.

I was reading a post from Drew Boyd (see his Innovation in Practice blog) about academic research into what competencies are important in innovation practitioners and innovation leaders. Drew, and the academics and research he cites, are far more eloquent than I can be. However, the lack of eloquence has never slowed me from climbing up on the soapbox.

Any firm that decides to build a consistent, sustainable innovation capability needs senior executive commitment and funding. That goes without saying. But the innovation initiative needs a strong, determined leader who can demonstrate the following four skills or competencies:

1. Vision
2. Commitment
3. Fearlessness
4. Excellent communication

A person lacking in one or two of these competencies might be able to compensate with the addition of a sidekick or team mate who can bring that specific skill to the table. Let's drill into each to determine why they are important.

Vision: The innovation team leader will recruit people to his team in an uncertain climate to do some fairly risky things. She needs to be able to communicate her vision for innovation capabilities and how that aligns to the senior management team's needs and strategies.

Commitment: Sorry, part-timers need not apply. If your innovation team leader is part-time, how can she convince people to join her team and make a big commitment. They'll all have one foot in the innovation team and one foot firmly planted in their safe, comfortable existing roles. An innovation leader trying to start a challenging new process that probably runs counter to organization culture can't succeed on a part-time basis.

Fearlessness: You can't succeed when innovation trying not to fail. Too many innovation programs seek very simple, very safe ideas to generate and implement. That's not the point. We've already got Black belts and continuous improvement programs and product roadmaps. We need some risk and danger. The leader needs to be able to stick her neck out and ask some crazy questions, cannibalize existing products and overturn markets, or the end result will be more of the same.

Communication: The innovation leader will recruit full time and part time people to a completely new task, create new processes and methods and generate ideas that will hopefully threaten existing products and services. Based on that description, don't you think they need great communication skills? This means both the skills to speak to the executives as well as to inform the team and the general population.

If your team is forming, or you are considering building an innovation program, now is a good time to write the job description of the innovation leader. Part Gary Cooper, Part Dr. Phil and fully committed to success.

Does your innovation program have legs?

I was talking with an innovation practitioner in a firm recently and he admitted that if he were "hit by a bus" or left the organization, that action would probably effectively end the innovation effort in his firm. His organization's innovation efforts don't have deep roots, or perhaps the program does have legs, unfortunately they are attached to the main idea champion.

Right now, in a lot of organizations, I suspect that this is a common occurrence. Innovation is important but often not "urgent", and so it has been located in one small segment of the business usually supported by people who are very excited and enthusiastic about doing innovation, but beyond that small team there is little cultural alignment to innovation and little investment or adoption of the concepts or processes. This isn't really an indictment of most organizations; innovation simply hasn't been a focus all that long and in many cases hasn't built a clear value proposition, so many individuals and firms still have a "wait and see" approach.

When we talk to clients, we ask them whether they want an innovation "project" or an innovation capability or program. The distinction is that a project is a discrete activity with a defined end date that may or may not be repeated, whereas a capability or program is meant to be a continuous process. What makes the difference between a project and a capability or program is what we call "innovation infrastructure" - changes to the culture, the compensation, the rewards and recognition, how people are evaluated and the communication necessary to ensure everyone is on board and understands the priorities. Anyone, anywhere can run an innovation project without changing the culture or how people are evaluated. All I have to do is generate some ideas and evaluate them using some criteria and hopefully implement one. But that doesn't mean I can do it again successfully, or that anyone else in the firm can leverage what I've done.

Another indication of the difference between a project and a capability is whether or not you can eliminate a major champion of innovation and have the process continue. So, if the innovation sponsor or leader in your business gets hit by a bus or decides to leave and take a new job, will the innovation program continue or come crashing to a halt? If the innovation focus is systemic, you may suffer a hiccup or two and carry on. If the innovation initiative lacks corporate buy-in and roots, then perhaps your innovation program does have two legs and just walked out the door.