Friday, January 18, 2019

It's past time to reintroduce risk into corporations

I was on a conference call recently, discussing an upcoming keynote that I'll deliver to a academic-federal government program meant to accelerate new technologies from basic research into the market.  We were talking about the "ecosystem" of contributors that can help move basic research from academia and research labs to market.  One participant talked about the role that large corporations could play, and sometimes do play, in commercializing new technologies.  At this comment one of my colleagues chuckled.  He said to me, after placing our phone on mute, that few corporations are willing to do much with technologies coming out of academic research.  They are simply too early in their development, with too little consideration for use in the real world.

We rejoined the call and encouraged the speaker to include the role that entrepreneurs play in moving ideas from academia to the market, rather than focus so much on corporations.  The coordinator wanted to know why we were encouraging more emphasis on entrepreneurs rather than corporations.  It's simple, I said.  Corporations are not longer willing to take any risks.  And there, my friends, is one of the major reasons that we see so little innovation from established companies, and so much disruption from unexpected sources.  Risk has been eliminated from corporations.  And we need it back.

Certainty and Risk Reduction

Corporations don't like risk or uncertainty.  In fact their bureaucracy, structures and pace are in place to ensure that any new project is carefully reviewed, carefully inspected and carefully scoped to either eliminate risk or mitigate risk to the greatest extent possible.  This means that most new products or services are so carefully managed and monitored that they can only be incremental change at best.  Nothing earth shattering or revolutionary will come from larger corporations given their structures and processes. 

Everything these companies have done over the last 30 years was focused on reducing risk and uncertainty.  Paychecks are based on being predictable, hitting quarterly targets as suggested in whispers to stock analysts months before.  A large and unexpected increase in revenue from a new product might be viewed negatively since it would be a surprise!

Could I get that with a side order of risk?

Risk avoidance leads to complacency and then to blinders.  Recent advances from asset-less companies like AirBnb or Uber demonstrate that easily accessible adjacent opportunities to large corporations were available, out in the open, ready for the taking, but none did.  There was too much risk associated with going into the room rental business for Marriott, Hilton or Sheraton. 

We need to increase the amount of risk we are willing to tolerate within larger corporations, or more will lose market share and the creative edge to others who are willing to take the risks.  When markets were stable and steady, the basis for success is to stay the course and not distract from a good thing.  When markets become more frothy, endure more change and more sudden change, when products and services can be rolled out much more quickly, companies must adapt to these changes by incorporating more risk into more projects.  Otherwise the risk isn't in product development, it will be found in revenue, profits and even viability.

Thank you, next!

Of course talking about incorporating more risk in new projects is like deciding to scale a sheer cliff when your previous experience in mountaineering has been limited to practice runs in the gym.  Compensation schemes, cultural phenomenon and other factors will constantly work to limit the amount of risk that is allowed in any project, so wholesale change must be the order of the day.

That means strategy and planning must incorporate more risk, and communication from the top down must encourage more risk in key innovation projects.  Corporations may need to create new measures and metrics, because existing ROI models simply won't countenance newer, riskier projects based on older ROI models.  Corporations can create new projects that incorporate more risk, but if these changes aren't made, the response when it comes time to fund these activities or staff them will be:  thank you, next!

When your industry is safe and secure, change is moderate and predictable, threats are low, you can operate in a very predictable manner and keep risk in check.  Given the state of the market, political turmoil, international trade tensions and the rapid evolution of new technologies through digital transformation, your level of operating risk and product risk just went up.  Are you able to dial up your level of new product development risk to help create the next generation of products? Or will you outsource risk to a new generation of entrepreneurs, thinking that you'll acquire their companies or products as they reach scale, only to watch them scale so rapidly that they eclipse you?


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posted by Jeffrey Phillips at 6:22 AM 0 comments

Monday, January 07, 2019

What 2019 holds for innovation

I wrote my obligatory look back at 2018 article on innovation recently, so it is natural that we should turn our attention to where innovation will take us in 2019.  In the 2018 review I made some disparaging remarks about Apple, which may or may not have caused it to lose a tremendous amount of market capitalization.  Or perhaps the stock was overvalued and Apple has become more interested in margin than in innovation.  I'll let you, gentle reader, be the judge.

What we want to do in this blog post is to speculate on the coming year.  What do we know about the state of innovation?  What do we think will happen in 2019?  What innovation methods or approaches will gain ground?  Which activities or approaches will lose steam?  Will innovation finally cross the chasm, leave the hype cycle "trough of disillusionment" to take its rightful place in the "slope of enlightenment"?  We'll explore.

Looking ahead to 2019

As with any evolving or unfolding management philosophy, there are factors that can accelerate innovation or change it dramatically in 2019, and factors that will rise to create barriers to innovation.  More importantly though I think we'll see a reframing and repurposing of innovation, as many corporations decide they can't do innovation effectively enough internally and become distracted by digital transformation.

Old avatars lose their luster

We've referred to Apple as an example of innovativeness for a while, but that adulation and praise may be increasingly undeserved.  Apple did some amazing things with the iPod, iTunes, and the rest of the i series, but lately it has rested on its laurels.  Other innovators have also fallen on difficult times.  Facebook is increasingly exposed as a data supermarket, and illustrates another challenge for innovation in 2019, worries from consumers about who, exactly, is benefiting from innovation.  We need some new avatars, and we need the old avatars to return to their previous luster.

Mastering the basics

It's really time for some of the larger firms that have been experimenting with innovation to simply decide to master the basics.  Innovation doesn't need to be an unplanned, ad hoc experiment with few tools or milestones.  Large corporations have made significant commitments to efficiency, quality, Six Sigma and other philosophies.  Is it too much to expect at least some equivalent level of investment and proficiency?  If not, then why bother?

What innovation and who is it for?

Many corporations, especially those managing or collecting data or acting as a platform are using innovation to enrich themselves rather than their customers.  There will be a backlash to all of this unannounced or under-publicized data harvesting.  Customers want companies to innovate, but customers expect to benefit from the innovation, rather than being taken advantage of.

Can big business really innovate?

Many larger corporations are asking themselves this question, and increasing arriving at a bifurcated strategy for innovation.  They will do more incremental innovation internally, and will trust that entrepreneurs or third parties will do the horizon 2 and horizon 3 work for them.  In this regard we see evidence of this shift in the increase in accelerators and corporate venture capabilities of larger corporations, who are finding it difficult to do interesting and disruptive innovation internally.  An entire market opportunity will arise to conduct interesting horizon 2 and 3 innovation for or as a proxy to large corporations, which can then be acquired by the large corporations once proven in the marketplace.

 Product is Passe

Product innovation is so yesterday.  Product innovation is relatively easy to do, and relatively easy to copy, so companies are realizing that product innovation is the entry point in the game, and the real stakes are increasingly around business models, channels, experiences and services.  Yet many companies don't have experience or capabilities to constantly rework their channels and business models.  Something will have to give.  Many winners will follow the Uber and AirBnb model - changing business models, services and experiences using models that rely on physical assets as little as possible.

The risk in platforms

A few years ago, every company wanted to create a platform.  Platform innovation is still a hot topic but as industry executives watch Facebook and Apple testify on Capitol Hill, there is a growing awareness of the platform as a dual edged sword.  If consumers feel threatened or get angry about the use of their data or the access to the platform, Congress may step in and do something that these innovators don't want - regulate.  Unless of course the regulation codifies their lead.  Congress could play an interesting role in innovation in the next year or two, trying to 'protect' consumers but having the opposite effect, locking in larger firms who have abused privacy rights and forestalling new innovators.

Ecosystem

It used to be we'd delineate "closed' and "open" innovation activities.  Increasingly we just talk about innovation, recognizing that more and more, innovation involves other parties.  As it involves other parties, we begin to recognize that all innovation happens in the context of an ecosystem.  Understanding your ecosystem and how to work within it to maximize innovation effectiveness will become a key differentiator.  You simply will not do everything by yourself, and there are plenty of good partners in your ecosystem if you will allow yourself to work with the ecosystem.  The best innovators in the near future will 1) understand the players in their ecosystem and their value propositions 2) have existing relationships with those players and 3) understand how and when to leverage those relationships to drive the most value.

Digital Transformation

Innovation has been on the periphery of management thinking for a while.  Some companies have been successful, some have not.  Some have fully deployed innovation tools and methods, some have not.  However, a new management imperative is emerging, and it remains to be seen if the new imperative - digital transformation - plays nicely with innovation, works in parallel or works in opposition.  All three could unfold.

My sense is that most executives will want to focus on digital transformation.  It seems obvious and natural and builds on existing products and platforms.  However, executive time is constrained, and time for digital transformation may mean less time, budget and attention for innovation.  On the other hand, a fully digitally transformed business should be able to conduct innovation much more effectively.  Digital transformation will either be a significant enabler, or increase barriers for innovation.

Signals not predictions

I've learned over time that making predictions about innovation, especially corporate innovation, is a fool's game.  However I think some of the items I've included here are either already underway (shifting risk to third parties with accelerators or corporate venture) or are obvious concerns (what does digital transformation mean to corporate innovation?).

While platforms and ecosystems have been discussed for years, I think innovators who understand the space are recognizing the value of a platform but also some of the risks involved, and how difficult it is to build a truly viable platform, while others are really only beginning to understand the value of the ecosystem that they live in.

Without a doubt we can say that digital transformation will have an impact on innovation, we just don't yet know what that impact will be.  We can also see that platforms and ecosystems, while both valuable, carry different risks.  Increasingly a platform may be viewed as something to regulate, like a utility, while tight ecosystem connections may offer more value.

Innovation needs aren't getting any less strategic for large corporations, and the demand from consumers is getting more intense.  What companies need is a specific, defined, communicated and implemented innovation strategy that helps clarify expectations, roles and goals.  Without that strategy and good communication, many organizations will continue to struggle to do innovation well, even 20 years into the innovation epoch.
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posted by Jeffrey Phillips at 6:23 AM 0 comments

Friday, December 28, 2018

The state of innovation at the end of 2018

Since everyone is compelled to write at least one backward looking story at the end of the year, I've chosen as my topic a review of innovation at the end of 2018.  This review isn't meant to be an attempt to grade innovation activities or suggest better or worse approaches, but to think about innovation holistically and consider the implications and ramifications of where we are, and where we who would like to think of ourselves as innovators will be moving in the future.

Let's look way back to establish a baseline.  All the way back to 1997.

1997 - a dividing line

I often speak at corporate events, universities and conferences, and one of my favorite parlor tricks is to ask people why 1997 is so significant in the annual of innovation.  To me, 1997 is so important we could create a BCE and ACE nomenclature around that year.  We could think of the days prior to 1997 as "before modern corporate innovation" and afterwards as during or after modern corporate innovation.  Why 1997?

Two significant occurrences happened in 1997:  Jobs returned to Apple and set it on a course that made it the company all innovators want to emulate, and Clayton Christensen published The Innovator's Dilemma.  A lot that we do today is built on the recognition and the shifts that occurred based on these two facts.

Jobs took a once interesting company that was nearly bankrupt and made it the model of innovation, especially business model innovation with a lot of design influence.Christensen, from his perch at Harvard basically introduced innovation as a management philosophy.   Change didn't happen overnight, but it did catch fire relatively quickly after 1997.

Prior to 1997

Before everyone gets up in arms about my selection of a crucial date in innovation history, I'll acknowledge there were other important innovation dates, start from Eurypides and his discovery of displacement (the infamous bath incident) and continuing on through a range of inventors (Edison springs to mind) and people who attempted to structure innovation (Osbourne and Parnes) as well as other inventors of innovation methods (Altshuller as an example).  But while all of these have influence on what we do as innovators today, none have the current impact on management thinking in the way that Jobs' Apple products (and margins) do.  It's pretty common to hear that someone wants their next product to be the "iPhone" of their industry.  When your product becomes the avatar for success in several industries, you've had an impact.

Christensen and Jobs also reinforced the idea that large companies can and should innovate.  Many earlier writers, inventors or consultants were individuals or very small teams, either by necessity or government dictate or other reason.  Christensen's work seems to make innovation safe for large corporations and to create a pseudo-scientific approach that provides some comfort to executives who were formed in the days of operational efficiency.

2018

The state of innovation in any year is less influenced by the calendar, post 1997, and more influenced by the state of the market, the profitability and competitive factors a company faces, its culture and its management team. Taking these in reverse order:

  • Management teams - in 2018 in a large corporation most executive management is in their early 60s.  They've been successful and achieved a very senior role, starting their careers in the late 1970s or early 1980s.  Most have an MBA from an established graduate program, and because of the date of their matriculation into the work world, and their experience in graduate school, have little education about innovation and few if any have led innovation projects.  These folks for the most part were steeped in management traditions of efficiency, meeting quarterly objectives, gradually increasing sales volumes, reducing errors and inefficiency.  As senior leaders looking to retire in a few years, their primary goals are to stay the course, build a legacy and to avoid any costly mistakes.  All of this means that innovation will be a low priority for these individuals until or unless the company has a dramatic challenge - rapidly declining sales, a powerful or compelling new entrant, an exceptionally fast changing technology base or exceptionally fickle and rapidly evolving customers.  Of course many of these executives are facing these issues but were schooled in times prior to the Internet and NAFTA when change was slower and more predictable.  
  • Profitability - most companies that have good access to the financial markets have been living large over the past few years due to exceptionally low interest rates used to prime the economic pump.  Cheap money and a strangely stagnant wage base have meant that companies are relatively profitable even in the face of growing competition.  The Trump administration's work on tariffs will create government sponsored winners and losers, accelerating profits for some industries and placing a pall over others.  As long as profits are relatively high, the demand for innovation is typically low.  We can see change on the horizon, however, if trade wars increase and the Fed and other financial markets signal the end of cheap money.  As Buffet likes to say, we'll see who has been swimming naked when the tide goes out.  In this context that means we'll see who has invested those profits from the good years in innovations that should be reaching market now, as competition rises and cheap money ends.
  • The market - the market, both the stock market, which signals consumer expectations about the future, and the economy in general, feel exceptionally strange.  It seems we are coming off a sugar high in the US, fueled by low taxes and cheap money, yet many of the signals of the financial crisis are emerging again - high student debt, increasing personal debt, borrowing at every level in the economy, including at the federal level.  This is money that will need to be paid back, and when the money comes due consumers will be forced to cut back.  As consumer spending is 70% of our economy, the economy will likely slow down, and demand for new products and services is likely to slow.  Then, when funds are scarce, only really interesting or differentiated products will command a premium.  As consumers pull back to pay down debt, the federal government will only be able to do so much in a divided Congress.  Thus, companies that have been innovating in 2016-2018 will benefit, and those that haven't likely won't have the funds to do so, and will miss a market window.  History has demonstrated that a significant amount of innovation happens during a market tightening and as the market starts to rebound.  Since the average recession in the US is approximately 11 months, we could see companies that have innovative products start to recognize these benefits in about a year or so. The companies that have been practicing innovation theater, talking about innovation without doing anything, won't be able to release anything meaningful in this timeframe.
You'll notice that I haven't written anything yet about innovation tools, methods, approaches or best practices.  That's because of the wide distribution of capabilities and experiences across companies and industries.  Some of the companies that know innovation best seem to have neglected innovation recently (looking at you Apple), while there are hundreds of larger corporations that haven't really implemented the basics of innovation in their organizations at all.  Since the level of sophistication is so low, many companies are still at the nascent stages of operationalizing an innovation function.  Yes many companies have an innovation success story but it is from one division or team, not a corporate capability.  This means that while there are proven innovation tools and methods, few companies even 20 years after Jobs returned to Apple and Christensen wrote The Innovator's Dilemma are really deeply invested and broadly capable of sustained corporate innovation.

Not a bleak assessment

This isn't a bleak assessment.  It takes time for these kinds of changes to occur.  US corporations didn't get serious about quality until the Japanese car manufacturers starting winning based on quality, but that data was out there for close to 20 years before GM, Ford and Chrysler changed and before the Malcolm Baldridge award was created.  It took close to 40 years (1960 - 2000) for the hyper-efficient, low risk, short term economic model that the vast majority of companies follow to become fully ingrained. It will take 20-30 years for it to be unwound to an extent and for these organizations to relearn and for younger leaders more schooled in innovation, agility and change to take the reins.

When these factors happen we'll see more innovation, because the other factors that influence innovation - the accessibility of information, the ability to create products and services, access to venture capital or financial backing, access about customers and their needs - are only increasing and rapidly available on a global scale.  When AirBnB can scale from a few guys in an apartment in Brooklyn to the same valuation as several hotel chains in about a decade, anyone can quickly scale a company if they have the right idea.
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posted by Jeffrey Phillips at 11:59 AM 0 comments

Wednesday, December 19, 2018

Alert to the press: prototypes aren't finished products

I rise today to do something I find strange.  I'm actually going to defend Elon Musk.  Musk is receiving a significant amount of negative press after his unveiling of the Boring Company's (if you need to throw stones, do so at that name) pilot tunnel.

To the shock and dismay of many people, the prototype is only a mile long and uses Tesla cars rather than the futuristic car depicted in mockups.  People who were invited to take part in the drive felt the ride was a bit rough and the cars didn't travel as fast as promised.  These are the same people who will complain about wrinkled table cloths at a five star restaurant - completely missing the artistry in the food.

For heaven's sake, Musk just unveiled a prototype tunnel under Los Angeles, built in the last year or so at his own expense.  Could we stop for a moment and recognize the work involved to get planning approval and simply to build a mile long tunnel in a crowded metropolitan area like Los Angeles? 

Further, could we acknowledge for a second that it is a prototype, a very rough proof of concept - not meant to be a complete and final solution?  The problem with many consumers of new innovations is that they take a solution at face value and don't appreciate the potential for further refinements.  Who today using an Apple iPhone X would go back to the initial iPhone?  Over time Apple has improved and added features and benefits as it learned.  So to will Musk if he decides to move ahead with his plans.

But perhaps the biggest wow factor that the pundits miss is the cost.  Musk is interested in taking cost out of the digging of the tunnel and claims to have built the mile long tunnel for about $10M.  In contrast, the last time Los Angeles expanded its subway system it paid about $1B per mile for its tunnel.  Clearly we aren't comparing apples to apples - the subway tunnel was larger and more complex, but we can see that Musk may be able to take the cost of digging a tunnel down significantly.  Why isn't this - the most difficult and complex part of the whole project - the focus of the article, rather than how smooth the ride is?

I can't say I'm surprised. Almost any prototype and many 1.0 versions of products are very simple and basic, and consumers fail to understand how rapidly they can be improved as companies come up the learning curve.  We consumers often look at something like this prototype tunnel or a first version of a project and think that the solution in front of us is as good as it will get, while visionaries recognize how fast they will be able to improve the solution. 

In this context, the best response I can come up with to support Musk is:  pearls before swine.  Musk is showing the immense potential of a technology, and the pundits miss the incredible outcomes delivered to date to complain about how smooth the ride is, in a tunnel 30 feet under the surface of Los Angeles.  Probably the only privately funded tunnelbuilt in California outside of drug smugglers.  And yet we are still talking about how smooth the ride is in a prototype tunnel?

Prototypes aren't finished products and shouldn't be evaluated that way.  This isn't just a punditry failure; businesses do the same things to some of their best ideas.  They judge them too quickly and too harshly on metrics that only a completed product should be expected to meet.  I guess I expected a bit more wonder and amazement about the technology and the progress Musk has made.

Let's wait to judge the solution when it is a completed solution, and not apply rigid evaluation criteria suitable for a final product on a rough prototype.  Businesses can learn from this example.
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posted by Jeffrey Phillips at 1:58 PM 0 comments

Friday, December 14, 2018

The Six Million Dollar innovation fallacy

A few days ago I wrote a blog post about the relevance of the Six Million Dollar man to innovation, noting that the show was based around rebuilding Steve Austin, making him better, stronger and faster.  Many corporate innovation organizations need the Six Million Dollar man treatment.  Every firm needs to be innovating more effectively, faster, with better outcomes and increasingly with more partners.

Today I'd like to talk about the other side of the Six Million Dollar man innovation.  As a kid I was entranced by the fact that a regular guy could have his arm replaced with a bionic arm that allowed him to lift exceptionally heavy objects, until an older friend of mine pointed out that the arm might be able to lift heavy objects, but it was attached to a flesh and blood human, who was still subject to the weaknesses and frailties of being human.  This has a lot to say about corporations becoming more innovative - you can't simply bolt on an innovative process to a conservative "body" and expect the two to work together seamlessly.

Setting the context

If the first two paragraphs have you wondering, let's recap.  The Six Million Dollar man was a TV show in the 1970s about an astronaut who suffers a horrific accident, and parts of his body - an arm, two legs and an eye - are made "bionic".  The replacement limbs he receives are more powerful and more capable than the flesh and blood variety.  Steve Austin, the character in the show, goes on to do important work for the US government because he is an augmented human and capable of doing important work that a normal human might not be able to do.

There are some big gaps in the physics of the show, however.  A human simply cannot lift an exceptionally heavy weight just because their arm is bionic.  For many of the feats Austin undertakes, in reality the arm would separate from the body.  They never really dealt with these issues on the show, but in real life we have this challenge - can you bolt on a really powerful limb to a less powerful organism and expect them to work effectively?

How this relates to innovation

The big question then, from an innovation point of view, is can you bolt on a really interesting, powerful innovation capability to an organization that remains complacent and conservative, focused on efficiency and meeting the next quarter's numbers?  Does this powerful innovation capability, like Steve Austin's arm, attempt to do things that the corporate body simply isn't capable of doing or even understanding?  And when the innovation capability takes on more interesting and risky propositions than the rest of the company can bear, what happens?

Depending on the linkages between the innovation capacity and the rest of the organization, a couple of outcomes are possible:
  • If the innovation capacity is loosely linked to the rest of the organization, the risky ideas are likely to be considered as wildly outside the scope of reality, and ignored or rejected.  No fatal dismemberment takes place but the innovation capacity faces a slow atrophy as its ideas are ignored.
  • If the innovation capacity is tightly integrated to the rest of the organization, and the organization isn't attuned or aligned to new innovation activities and outcomes, chaos or disruption will ensue.  As the innovation team creates really disruptive ideas that the conservative operational team is called on to implement, the operational processes and people will either seek to simplify the idea, to fit into their traditional ways of thinking or working, or will try to force radically different ideas into a process not meant for them.
What this ultimately means

What this analysis suggests is that unlike Steve Austin, who is part human and part bionic, organizations need to be fully innovative or fully conservative.  Trying to be a "bit" innovative as a business is a lot like Steve's arm:  as long as the bionic arm is acting like a regular flesh and blood arm, doing the things that a normal arm would do, there's no problem.  Once the bionic arm tries to do things it is capable of, but the body isn't capable of, dramatic failures will increase.

Thus, it is risky to attempt to bolt on a powerful innovation process to an unwilling, conservative and efficiency-oriented business.  You'll need to encourage the business to become more innovative - more "bionic" if you'd like to think that way, or train the innovation capacity to work at the level, rate and risk tolerance of the rest of the organization - and what's the point in that?

This analysis leads to another insight:  you can either accelerate and improve your internal innovation capabilities across the organization, in all groups, functions or geographies, or you might want to consider simply acquiring horizon 2 and 3 innovations. Increasing innovation in large corporations may become less about building or bolting on powerful competencies and more about incubating great ideas in small companies and acquiring exciting new ideas as tested products and services.

Can you acquire innovation?

There are opportunities and risks involved even in new idea acquisition, however.  Compelling new ideas and products may have different business models or reach customers through different channels than your existing products do, forcing your team to broaden its reach substantially or make choices between new, exciting but disruptive products or the tried and true products that align to existing capabilities. 

In the end you are left with the conclusion that whether you plan to create your own disruptive ideas through a bionic capability or you plan to acquire new products and services, you must rethink your internal organization, operating models and culture.  Just as Steve Austin and his bionic capabilities required people to think differently about augmented humans, real innovators, whether they build or buy compelling new ideas, must rethink their strategies, operations and capabilities.
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posted by Jeffrey Phillips at 6:59 AM 0 comments

Tuesday, December 11, 2018

Six million dollar innovation

Since I write about innovation regularly, I often receive questions about "the future" of innovation.  Who really knows anything about the future of innovation, when many of us don't fully comprehend all of the tools and activities for innovation that are available to us now.

My standard response is in the title of the post.  In the future, we'll do innovation work much more quickly than we do today, we'll be smarter about our approach and increasingly we'll never do it alone.  But it's especially appropriate given the return of the Six Million Dollar man that we can talk about making things:
  • Better
  • Faster
  • Stronger
The return of the Six Million Dollar Man

For those of you who came of age in the 1970s, few television shows had more impact on your imagination than the Six Million Dollar man.  After all, that was a time when astronauts still had glamour, when the concept of a half-human, half-cyborg was fantasy and the Terminator was well off in the future.  For those not raised on the Six Million Dollar man, he has returned as an action figure in Christmas oriented Honda commercials.  Which says something about Honda and its marketing targets, but I digress.

Steve Austin, the Six Million Dollar man, was in a horrific test flight accident, and government scientists rebuilt him with bionic legs and a bionic arm and eye, which made him far more powerful than other normal humans.  Even the amount - Six Million Dollars - seemed astronomical at the time.  However, in Steve's story - rebuilding a broken human, making him better, faster and stronger - is a story that is powerful for today's business executives and their challenge to improve innovation.

Today, we need to make our innovation efforts, our entire businesses, more effective at innovation (better), more facile and speedier at innovation (faster) and more daring in their attempts.  We will also have to teach these organizations that they can't go it alone.

Faster

We'll do innovation faster than we do today because 1) we'll know more about innovation and how it works 2) we'll have more information about needs and emerging technologies and capabilities but 3) most importantly customer demands and emerging competitors will be coming for your customers and markets faster than ever.  I don't think any company will have a choice.  As markets, technologies and competitors accelerate, as customers increase their demands, you'll be faced with either speed up the innovation process and generate more new products and services at greater speed or you will be the dinosaur.  This isn't hyperbole.  This is a fact.  Slow and steady may have won the old races but that model won't win in the future.

Better/Smarter

As Artificial Intelligence, machine learning, big data, predictive analytics, IoT and a host of other technologies emerge, we'll capitalize on the data that is generated and managed by increasing our insights and beginning to spot trends as they emerge.  Even if our innovation processes don't improve - which one hopes they will - the preponderance of the data will help make decisions less risky, and thus make the innovation process more intelligent.

In addition, a newer cohort of employees who are less wedded to old corporate models and decision making and more attuned to technology adoption and social media, and the concept of an MVP, will be more likely to engage innovation at a more strategic level.

With partners

Every company, every innovation process is currently surrounded by an ecosystem of partners, customers, channels, competitors, funders and other institutions that are potential partners who can provide ideas, technologies, market access or insight, funding and other important ingredients to the success of a new product or service.  The days of going it alone are ending rapidly as organizations of all shapes and sizes are discovering that the ecosystem can help them get to market faster, with less risk.  Today, when you do innovation on your own you are a hero.  In the future, trying to do innovation on your own, ignoring the potential partners in your ecosystem will seem unthinkable.

Even Six Million Dollars rings a bell

So, we need to be better, faster, smarter and work with partners if we are to succeed in the future.  Steve Austin and the Six Million Dollar man were more prescient than people could know.  Even the figure, a huge figure by 1970s standards, now seems rather small to most corporations.  But I'm willing to bet that most firms don't spend even six million dollars a year on innovation  (taking the R&D budget out of the equation).  What would it look like if we rebuilt our innovation capacity and funded innovation at even a modest $6 million dollars?  Would we, too, have a bionic innovation capability?  Or like Austin Powers, raised after decades of sleep, would we demand $1 million dollars not realizing just how small a demand that is?


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posted by Jeffrey Phillips at 5:04 AM 0 comments

Tuesday, November 27, 2018

The "whole product" is more relevant than ever

You simply must tip your hat to Geoffrey Moore and others who created the concept of the "whole product".  I've written about this concept several times, and I raise it again because the underlying ideas are about to become really important in innovation circles.  If you haven't read Crossing the Chasm or aren't quite familiar with what a "whole product" is, then it may make sense to go and read up.  When you are done, come back and let's continue the conversation about why whole products are about to become a lot more interesting.

Whole product (1.0)

When Moore and others conceived of the original "whole product", they were making a point about the differences between technology (which many inventors, entrepreneurs and early adopters find interesting) and "whole products" - adding features, capabilities, instruction manuals, user hot-lines and other features and services around a core technology to make the eventual solution more useful and valuable for people who aren't early adopters.  It turns out that most of the market prefers well-conceived and fully developed solutions rather than core technologies.  If that sounds surprising to you, you are probably a tech enthusiast or an entrepreneur in an emerging technology, and about to get a rude awakening when your technology doesn't sell as you expect it to.

Moore's point was that the vast majority of customers wanted more than the technology, they wanted additional capabilities that expand beyond the core generic product to an "expected" product and onward to a "whole product".  When the technology is finally wrapped in the additional features, services, offerings and data that make up a "whole product" then the vast majority of the market is willing to acquire.

Moore went on to say that features that were in the expected, whole or ideal product always migrate into the core product.  For example, seat belts.  Years ago seat belts were a feature, then become standard equipment, then became almost an afterthought as more and more safety devices were added.  Today, cars are designed with a vast array of safety devices that were almost unimaginable to manufacturers even 20-30 years ago.  Safety has become a component of the core product.

Whole Product (2.0)

The reason that whole product is becoming even more interesting is that the notion of product is expanding and many companies will soon be shifting to innovation "beyond the product".  The very nature of product offerings is changing rapidly, as Uber and other asset-less companies demonstrate.  As Software as a Service and other "as a service" models demonstrate, increasingly there isn't a "product" per se, but a number of services wrapped up as a product offering.  Thus, service innovation, business model innovation, channel innovation are becoming more important, and the definition of a "whole product" - what the vast majority of customers want to acquire - is rapidly expanding.  In fact the whole nomenclature may be wrong - it may be that we should be calling this the "whole solution" to move away from "product" nomenclature.  Somewhere in the offering there may be tangible products, but increasingly the services, business models, data, platforms and even ecosystems will be what draw customers to a solution.

Impacts on Innovation

This is, and will, have a huge impact on innovation.  First, product innovation is almost passe.  That's not to say we won't continue to innovate products - we will - but increasingly many innovations will happen "beyond the product" or to augment the tangible product. In fact I suspect much of the value of the innovation in the future will be in the augmented services, channels and business models.

Second, while many corporations and consultants are relatively good at incremental product innovation, there's far less experience around innovation outside of tangible products.  If you thought disruptive innovation around a tangible product was challenging, wait until you try to imagine the services, experiences and business models that must be provided to attract customers in the future. 

Third, the expansion of innovation beyond the product means that innovation change will be more dramatic, more sweeping.  Companies will need greater cross-functional participation in innovation because so many different components of their capabilities will be required, from channels to distribution to marketing to product management, and even finance.  This doesn't necessarily make innovation more difficult, just demands more strategic direction and more collaboration.

Fourth, this means that future innovation activity will need to be much more customer-centered, less technology centered and much more integrative.  As innovators we need to think about the second and third level needs and expectations of customers, well beyond the core product.  This will lead to thinking about how and where the product is acquired, used, supported, connected to the Internet or other data exchange systems, how the acquisition or use is funded and many other concepts that are either ignored or outsourced to third parties today.

What's your new "whole product" definition?  What do your customers need in order to acquire the newer intangible services you'll offer?  Do you have the skills to conceive, design and implement around the innovation beyond the product requirements?
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posted by Jeffrey Phillips at 7:13 AM 0 comments