Tuesday, July 10, 2018

You need a chief disruption officer, not a chief innovation officer

In older times, when kings ruled countries with little input from their subjects, it was easy for the king to exhibit some hubris.  After all, the king's family and retinue encouraged the idea of divine coronation - the sense that the king had his power from a divine source and that everything under his domain should pay homage to him.  Given this power, it wasn't hard for kings to become a bit deaf to other ideas or suggestions, or the idea that he could be fallible.  To compensate for this, some kings employed jesters, who were people who could actively question the king's decisions.  Jesters of course are an outgrowth of slaves who rode with generals returning from major conquests in ancient Rome.  The slaves were employed to constantly remind the general that he wasn't a god.

I bring up this history lesson to illustrate a key point.  Today's executives are very powerful, but are beholden to markets that demand exceptional financial precision.  Anything that deviates from delivery on promised financial results can be easily called into question.  Since everything in a business is focused on core products and services, delivering the results on a quarterly basis, someone, it seems, needs to act as a 'jester', constantly asking to expand thinking beyond the next quarter.  The fact of the matter is, cultural attitudes, efficient processes, reward systems and other factors make the job of a "chief innovation officer" difficult, often turning the role into a chief incremental officer.  What major corporations need is a senior executive who's only job is to focus on the future, on disruption, on what's emerging and how the company can win.  What I'd call a chief disruption officer.

The CDO

OK, so far I've given you the history of the jester and related the importance and power that they had - the ability to question a king's decision - to a new role.  That new role is the Chief Disruption Officer.  When everyone in the company is focused on maintaining and defending the status quo, someone or some team needs to be looking over the horizon, seeing what's next and planning for emerging opportunities and emerging threats.  There is simply too much change underway to ignore this or to pay lip service to understanding what may disrupt your business, or what you can disrupt.

People will agree that insight into emerging opportunities and potential disruptions is important.  However, they will try to distribute the activity across a number of people or teams, and as the role is disseminated this way it loses importance.  Further, the role becomes an observer role rather than a proactive role, requiring the company to react to factors the observer identifies rather than move proactively into the marketplace.  To win the future, to be a good innovator, you need a fully functional CDO.

Supporting features

To make the CDO really work, you need more than a corporate figurehead.  The CDO needs a mandate from the CEO to win the future.  Beyond this mandate the CDO must align to corporate strategy and be accountable for specific revenue goals (ie 20% of revenue from newly released products or services).  This means that beyond a mandate and specific goals and measurements, the CDO needs funds that will allow them to obtain internal staff for key roles and/or partner with external agencies when internal staff are too busy doing incremental stuff.  Further, they need the ability to realize good ideas as new products and services, either within the internal product development process or developed externally or acquired.

If at lot of this sounds like what we expected a Chief Innovation Officer to do, you are right, but too often the CIOs are co-opted by existing models and practices and become proficient at building innovation methods and processes that simply augment existing models.  They become, in effect, the Chief Incremental Officer.  With all the pressure to sustain existing models and methods, we need a jester who has real power to create real difference in the organization.


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posted by Jeffrey Phillips at 12:25 PM 0 comments

Wednesday, June 20, 2018

Two answers you need to improve innovation success

I was talking recently with a colleague who had been working in corporate innovation for quite some time.  He was discouraged because he felt his innovation activities were really insightful, and had resulted in a product offering that had great value for customers.  But in the end the business decided not to commercialize his idea.

As we dissected the opportunity and the outcome, two issues became clear.  First, while the customer need was undeniable, eventually it proved to be outside of corporate direction and strategy.  The need was just far enough outside the bounds of what the company defined as its scope that he struggled to get executives to buy in.  While they had been happy to explore the market and need, they weren't convinced enough to enlarge their offerings. That decision was probably influenced by the second issue:  while the need was easily defined, the customers were dispersed and difficult to serve, and the business couldn't amount to more than $10M a year if everything went well.  While $10M in revenue sounds like a lot to a small business, to a larger business starting up a new product or business that can't exceed $10M in revenue at its peak isn't interesting.  It is a distraction.

Aligning innovation to strategy

Perhaps the first mistake that executives and innovators make when it comes to innovation is imagining that the exploration and discovery that is encouraged in the early stages of innovation will be recognized and scaled in the latter stages.  Most executives are more than happy to encourage some amount of fiddling around the edges of a business, exploring adjacencies and seeking out "white space".  That exploration is relatively inexpensive and may produce insight or knowledge to form future decisions.  The fact that innovation teams are allowed to conduct that exploration does not mean that any ideas created are going to become new products.

Significant investments in new products or services will be made as those new products or services fit squarely within a strategic direction or goal.  Exploration is useful and reasonable when the costs are relatively low.  Investments in new products and services are expensive, and must be carefully aligned to strategic needs and imperatives.  Innovation teams need to understand this.  Innovation teams must understand their remit:  discover and explore some interesting spaces, and give the executive team more insight and knowledge, and/or create some compelling new products based on that insight.  Ask yourself:  what is your executive buying from you?  Insight, or new products?  Scaling a new product is a risky investment, so many innovation activities may only be intended to produce insight.  Understanding that from the start is very important.

Minimum Viable Threshold

I think I'll coin a new acronym today:  the Minimum Viable Threshold or MVT.  The MVT is simply the size that a new business must achieve to be interesting to the existing business.  In a small business, generating $10M of new revenue may be very interesting and important.  At GE, Jeff Immelt set the MVT at $100M.  Understanding what the minimum viable threshold of revenue, profit, margin or other metrics is exceptionally important.  Even if you can dominate a market, even if there is no other competition, even if your new innovation is head and shoulders above the other competitive offerings, if you can't achieve the company's MVT within a few years the innovation simply won't get funded.

Understanding the MVT seems obvious, right?  But it is one of those informal metrics that some people understand but are rarely discussed.  Innovators can fall in love with their ideas, not recognizing that executives have yardsticks and metrics they'll use to measure new innovations.  Some of those metrics may be overt or obvious, others, like MVT probably won't be.  As an innovation team leader, your job is to know what the MVT is, or at least understand its parameters.  If you cannot achieve the MVT, rescope the innovation or rethink your focus.

Recognize that small investments to discover new insights may be all that your executive team wants from your innovation activity, and understand the difference between dominating a $10M market and owning 10% of a $1B market if you hope to convert your ideas into new products or services.
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posted by Jeffrey Phillips at 6:34 AM 0 comments

Tuesday, June 05, 2018

Scale gives way to speed

With apologies for the use of a tired phrase, there is a new game in town and it will dramatically impact how, why and where you do innovation work.  The new game, as demonstrated by a number of emerging disrupters, is captured in the book Unscaled and discussed at length in this nice blog post - one I wish I could have written.

There are a couple of overlapping points here, but the main idea is that scale as a competitive weapon is increasingly passe.  As more and more of what we consume becomes virtual, scale doesn't matter.  As more and more of the supporting infrastructure (HR/IT/Finance/etc) can be acquired as a service, companies don't need to achieve scale to achieve profitability, or to crowd out other competitors.  Scale is giving way to agility, speed and customer experience.  We can see this playing out with firms like Uber and AirBnB, which are far smaller from a scale or headcount perspective from their competitors.  Size - at least the size of the corporation - doesn't matter as much anymore.  Speed, agility and insight matter more.

Overcoming the legacy of scale

In the article I linked to above, the author is detailing the importance of the ecosystem over the importance of technologies like BlockChain.  His point is that big businesses routinely trip over themselves to understand the technologies that are emerging without thinking through the impact on the existing business models or the new business models that may emerge.  To a great extent, large corporations are prisoners in a jail of their own making.  For years they've built large and somewhat inflexible companies and cultures, and now, they find themselves unable to innovate or rework those structures and cultures.  They are stuck with what the author calls a "heritage of scale" that is hard to escape.

What does this shift suggest about innovation?

As virtually any company can enter almost any market in little or no time, relying on outsourced IT, Human Resources and other services, new companies will be able to explore and experiment with widely different business models.  When we combine that flexibility with the vast amounts of money being invested in AI, Blockchain, IoT and big data we can imagine that a significant number of new companies will emerge that will disrupt existing business processes and business models of existing corporate giants.

For the larger companies, it's time to completely rethink your strategy and what innovation can do to help you.  Rather than worry about scale, your innovation efforts should focus on what makes your organization fast, nimble, agile and focused on customer experience.  Don't try to solve everything, but select key opportunities and markets to experiment with new models, new processes and test new scaling experiments.  You may need to cannibalize your own offerings to do this, but given the minimal investments to enter many market sectors it makes sense to try.

For midsized companies, stop thinking about scale and start thinking about flexibility.  Getting bigger is less and less attractive.  Getting closer to the customer and creating new experiences and business models, and leveraging an emerging ecosystem is far more important.  Don't try to create everything - create new products, services and business models that are complementary to other offerings in the ecosystem.

I'll leave it to others to explain what this all means for startups, because how you look at an industry and where you find value will vary enormously.  Just know that the future will be won by those that are fast, agile, innovative and more open to working with an ecosystem, rather than those that try to own everything.

Corporate innovation must change

For far too many corporate innovators, innovation is about extending an existing product or service or perhaps creating a new, disruptive product or service.  Increasingly it's clear that corporate strategy must embrace an increasingly unscaled world where size matters less and speed and agility matters more.  This means that corporate strategy must change and more closely inform innovation strategy, so that more innovation effort goes into overcoming the legacy of scale, more innovation efforts go into working with an ecosystem and into changing the existing business model.

Exploring these ideas

The new book Unscaled deals with some of these ideas - illustrating the fact that scale is no longer a guaranteed advantage.  I co-wrote OutManeuver with a good friend, which explains why speed, agility, insight and innovation are the key competitive advantages in the future.  Thinking about emerging ecosystems and realizing that the cost for entering almost any market has fallen, it's clear that speed and agility will matter more than scale, and working with an ecosystem will matter more than trying to lock in a specific set of customers.

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posted by Jeffrey Phillips at 5:35 AM 0 comments

Friday, June 01, 2018

Innovation and the rapidly changing world of photography

We've reached a couple of interesting milestones in a very short period of time, and it behooves us to pay attention to the changes in what has been an important industry - photography.  For innovators, it's been easy to kick Kodak around, for having missed the transition to digital photography while owning many of the patents.  However, Kodak by itself isn't the whole story in the world of photography.

Today, Canon announced that it will no longer sell cameras that require film.  If the stories I've heard are true, they actually stopped making cameras that require film several years ago and have simply been selling off their inventory.  This of course follows on Kodak's decision to stop manufacturing film for most cameras, which occurred in 2009. 

The rapid advance of technology

Both Canon's exit and Kodak's exit from film are examples of the ever-accelerating pace of technology.  Canon has been manufacturing cameras for over 75 years, but the exit from the film camera business was rather sudden, tied to Kodak's exit from the film business.  Both companies had long and profitable runs from these original products, and both experienced a sudden and rapid transition.  Canon was able to shift from film cameras to digital cameras without too much damage, but Kodak struggled.  And here's an interesting point about both innovation and strategy.

Canon was concerned about capturing and reproducing images.  They weren't necessarily tied to a specific technology - firm or digital, either was fine for them.  Kodak was concerned about making as much profit as possible from film, and found it difficult to innovate away from the cash cow, even while they were developing patents around the digital camera.  This is a lesson about strategic intent and its opportunities or limits on innovation.  Strategy can either inform innovation or it can limit innovation.  Canon saw an opportunity to take its photography business from film to digital - and followed consumer preferences and technology advancement.  Kodak dug in its heels and paid the price.

Jobs to be Done

While I use a number of customer insight tools to discover needs, the Jobs to be Done model seems to be very relevant in the story of Canon and Kodak.  Canon understood the "JTBD" issue pretty well.  Clearly the job people wanted to do is to be able to capture images of family and friends quickly, and to share them quickly and easily, at a low cost.  Kodak interpreted that job in the framework of "film".  Canon interpreted that job in the framework of "flexibility" and created options for consumers.

With the advent of iPhones and then apps like Snapchat, it's clear that most photography has moved in an interesting direction - it has become more amateur in nature and more immediate.  People don't seem to care much about high definition photos as much as they care about taking a photo "now" and sharing it on social media "now", and that's not a job for film.

Two takeaways about Canon and Kodak

We can learn a lot about innovation from thinking about what's happened to film and the film camera, but two important innovation lessons are:
  1. Your strategy either accelerates innovation or it limits innovation.  Understanding how strategy is communicated and the scope or barriers your strategy creates for innovation is vital.  This is a big missing link in many organizations - aligning innovation to corporate or business line strategy.
  2. Understanding the job that the customer wants to do, and how that job is changing, is vital to sustain a competitive advantage.  Polaroid was probably closer to the right idea - take a photo and develop it on the fly - than we thought at the time.  If only they could have imagined how to make their photos digital and shareable. 
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posted by Jeffrey Phillips at 6:25 AM 0 comments

Tuesday, May 29, 2018

Why failure can be an innovation aphrodisiac

If you stick around innovation long enough you'll probably come to believe that we are all dead-enders.  After all, what group of people could willingly embrace as much failure with such a positive attitude?  Failure, you'll be reminded, is necessary for innovation.  I like to quote the saying that my ski instructor told me years ago - "if you aren't falling, you aren't trying hard enough".

Many believe that failure is important for innovators because people learn from their failures.  That is, they will fail once and try again, only hopefully not repeating the same old mistakes as the previous time.  Others believe that failure makes an innovator more resolute, more willing to stick to an idea even more aggressively the second time around. Both of these reasons have some truth to them.  Every innovator is (hopefully) smart enough not to repeat the same mistakes again and again, but I'm sure some do.  Every innovator knows that innovation is difficult and often insurmountable obstacles can be scaled through sheer determination.  But neither of these is the real reason that I think failure can be so important.

Failure changes your perspective

If nothing else, I think failure is so interesting and so vital for innovation because it changes your perspective.  If you've really failed, all your hangups and inhibitions may go right out the window with your failure.  When you've failed, you may have to start at rock bottom, without any assets, without any investments.  These facts may lead to an entirely new way of thinking.  When you start with nothing - no money, no credibility, no assets - you think about solving problems in a completely different way.

One way that reaching "rock bottom" can help clarify innovation opportunities is that do get started, you've got to create a solution that results in revenue.  No longer can you rely on friends and family or a generous corporate sponsor.  To rebuild a company or brand, you can't start on promises and VC money - you need to build a product or solution that can drive revenue now.  Which means you've got to do a better job understanding not only what customers want, but what they are willing to pay for.

Wants and needs are not enough

For example, I want to get to work in 10 minutes, although my commute is closer to 20.  I need to get to work safely, and in a state where I am prepared to do good work.  But I'm not willing to pay for saving 10 minutes if it means my jet backpack doesn't protect me from the elements or from low flying planes.  This is the classic mistake that the Segway made - it did revolutionize transportation, just in ways no one cared to experience.

What customers want to solve is important, but what they are willing to pay to solve is perhaps just as important.  When you start from zero, after a magnificent failure, one of the first things you must do is figure out how to drive revenue in the short run.  Because many sources of funding may dry up, and financial backers will want to see you create revenue before funding your business or project a second time.  This is when failure is an asset, if you are willing to treat it that way.

Too comfortable

Too many corporate innovation teams face this dilemma - they are overfed.  While they insist that they don't have enough money to innovate successfully, too many of them have in fact too much.  What they need is more constraints and less financial resources, but more time.  Time to discover needs, investigate markets and customers, find the real need customers want to solve and are willing to pay for.  I think a lot of corporate innovation fails because innovation teams are too removed from their customers and too reliant on reports and fail to go meet customers and identify needs that customers have that need to be solved, and that customers will pay for.   Perhaps every innovation team and entrepreneur needs at least one spectacular failure that will lead on to more inquisitiveness and the ability to innovation to get to revenue quickly.
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posted by Jeffrey Phillips at 10:34 AM 0 comments

Thursday, May 17, 2018

Why innovators should focus on product deconstruction

I've been thinking a lot lately about innovation and how we may have emphasized one component at the expense of another.  Here I'm talking about something that should appear obvious - the focus of innovation in building new things.  We are constantly reminded that innovation is about building new products and services and experiences.  And this definition is entirely right and proper.

But I think it neglects something very important.  I was reminded of this recently when at dinner with an executive from a large manufacturing concern.  This company makes many different products, one of them components for mattresses.  Now, all of us want far more innovation to make mattresses more comfortable, to make them last longer and so on.  But, strange to think, the internal coil mattress is actually a very complicated product, a virtual lasagna of layers of cover, cotton, and steel.  While that finished product is very comfortable, it is very difficult to deconstruct when an individual is finished with the product.  And herein lies the rest of the blog post.

How might we make our products easily deconstructable?

I've been thinking about this ever since that conversation, because when we bought a new mattress for our son we asked the company that delivered the new one (and hauled away the old one) what would happen to the old mattress.  Goes into the landfill, they said.  And I thought, what a terrible outcome.  So much of the mattress could be reused - the cotton batting, the inner springs, some of the foam siding.  But the cost of deconstructing a mattress, which wasn't designed to be easily taken apart, makes it difficult to get a lot of reuse from the components.

Here's the question - are we willing to accept slightly less sleek or beautiful products that would become far more easily deconstructed, and therefore far friendlier to the environment and creating components that could be reused?  Why doesn't innovation focus on the obsolescence problem - what happens when a product reaches near end of life and should be easily deconstructed to reuse the component parts?

This is question of design, of cost and of conscience.  For years consumers have acquired shiny new products and discarded them without a thought as to what happens to the finished good once it goes into the waste stream.  If you've ever seen people taking apart circuit boards by hand, or seen large electronic devices or mattresses go into the waste stream, you'll know that we are 1) dumping a lot of stuff that won't decompose well into large pits and 2) there is inherent value in this waste stream but our designs don't anticipate or accommodate the simple deconstruction of a finished good.

What if innovation and design focused on deconstruction as well?

I think that there is a huge opportunity for companies to create products that can be easily taken apart once the product end of life is reached.  Doing so may require changes to the manufacturing and packaging of a product.  Making it easier to deconstruct may make the product less visually appealing or less sleek, but it is something we can do and should be thinking about as we design new products.  Too often innovators think about building the shiny new product but don't fully consider what happens when a product reaches end of life, and frankly we ought to be far more concerned about how products are being deconstructed or simply dumped into the Earth.

Could we be as innovative in the deconstruction of a product at its end of life as we are about its initial design and development?  Would it cost a lot more to build a product that could be easily deconstructed and taken apart for its components, to encourage reuse and recycling?  I think the market for fully recyclable or reuseable products is out there, waiting for this.  Good innovators should be thinking not just about creating new products, but how to quickly and easily build products that can be deconstructed as well.
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posted by Jeffrey Phillips at 5:51 AM 0 comments

Wednesday, May 09, 2018

The innovation skills you need

When a noted doyen of the Fortune 500 like Coca Cola talks innovation, your ears should perk up.  After all the consumer packaged goods conglomerate has been in business for a long time, and has been successful, but is facing a number of headwinds in its core business.  Selling sugary drinks seems passe, as bottled water, energy drinks and other health conscious foods and beverages seem to be taking over the "share of mouth" or "share of stomach" that food and beverage companies like to talk about.

When a company that has both succeeded at innovation and failed utterly at new product development and launch (remember New Coke?) talks innovation publicly, it's worth listening to.  When the Chief Talent Officer talks about the skills that Coke needs in order to sustain innovation, it's worth listening even closer.  Stacy Panayioutou, Coke's Chief Talent Officer, was recently interviewed by CBS News.  What's interesting in the discussion is the types of skills she says Coke needs in order to succeed in the future.

Reading the article closely

If you read the linked article closely you'll see that Coke, traditionally a bastion of marketing and financial management, is now looking for people with different skill sets.  Panayioutou says that Coke needs people who can spot trends, help Coke analyze what customers want and create more agility and speed.  She also says that Coke has a new strategy and purpose, innovating both around food and drinks as well as issues like packaging.  She needs people who can understand the new strategy and help implement it.  She's looking for people comfortable with creating and promoting change, who can help disrupt existing products and markets.  These skills and traits describe true innovators, people who can understand corporate strategy, find new opportunities through future scanning and customer research and create new products that disrupt the existing markets.

But she goes on to say they need good thinkers, people who are good collaborators and who have good learning agility.  The last skill there - good learning agility - means that people will have to learn new things and then implement them quickly, and then repeat the process, because new opportunities and new information won't come in periodic cycles but will come quickly and repeatedly. 

Fast, Nimble, Agile, Innovative

Not to toot my own horn too much, but there's a methodology aligned to this way of thinking, that my co-author and I outlined in our book OutManeuver.  We made the case that too often American business is focused on head to head competition, where the larger firm hopes to overwhelm or subdue smaller firms through size or mass.  But increasingly large firms are finding that small firms use their agility and speed and innovative skills to bypass this head to head competition.

If the article is to be believed, Coke could have it both ways - size and speed, depth and agility.  Coke has a lot of products and deep intellectual property to leverage, as well as a revered brand.  If it can add to that the speed and agility to address rapidly emerging needs and more innovative thinking, it could become a really formidable competitor. 

Innovators take note:  speed, agility, the ability to learn in iterative cycles, think disruptively, these skills are now valued at what would appear to be large behemoths, companies you may not think of as innovators.  The question will be:  can these firms leverage those skill to great effect, or will their existing cultures squelch the new additions and overwhelm their skills and passion?
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posted by Jeffrey Phillips at 7:19 AM 0 comments