Is there a need for a CIO?

Recently the Corante Innovation Hub members took up the question of the new "Chief Innovation Officer" and the value that such a role could bring to a firm. I think the idea of a Chief Innovation Officer is a good one, if properly implemented.

What we don't want to do is add another layer of red tape and overhead to innovation, nor allow it to become a top-down process. Too often when a new senior executive position is created, the role drives a whole new bureaucracy, which means new rules, new reviews and so forth. If the CIO shouldn't create a new hierarchy, what would this person focus on?

It seems to me that innovation is similar to any other business process - that is, innovation is about moving a great new idea through a series of steps from initial concept to final commercialization as a new product or service. Rather than following a "top down" model, innovation follows a horizontal process across many different business functions and organizations to come to final fruition. Additionally, good ideas can happen anywhere in the organization, or even outside the organization. It should not be the CIO's job to originate the ideas or even "own" them.

It seems to me that the CIO needs to be a forceful advocate for innovation across the business, and should fund or sponsor teams or ideas to work to generate, evaluate and launch ideas. A good model would be an internal incubator within the organization where teams from different business functions or even internal employees and external business partners can come together and work on these new concepts. The CIO should be a forceful advocate for innovation and work with the senior leaders of the organization to impact the culture and the motivations (compensation) of the employees, to generate excitement and enthusiasm about innovation. The CIO should also seek out the trends in the industry or market to understand the next big opportunities and constant scan the horizon for what's likely to happen next, and confirm that vision with his or her management peers. In this manner the CIO ensures that the ideas being worked are ones that have value to the organization.

The CIO should establish one or more innovation processes, to define how certain types of ideas should flow through the organization on their way to become new products or services. What are the appropriate measures for a new idea under consideration? Certainly ROI is one we've used in the past, but is that a realistic measure in the short run? How should ideas be evaluated? Who should participate? Having a well-defined process with active participation means ideas get consistent evaluation and everyone understands the importance of the ideas.

If the VP of Sales could not communicate and quantify a sales pipeline for the coming quarter, we'd have concerns. For innovation in many firms, there's no one responsible for defining the process or the innovation pipeline, or reporting it and managing it.

I think there's a clear need for a Chief Innovation Officer who can work across the organization, sponsor great ideas and teams and act as an advocate for innovation within the business, as well as manage and report the innovations that are happening. However, this role will fail if the CIO takes a top-down approach, attempting to dictate which ideas are good or bad, or which groups or teams can or can't innovate. The role will also fail if the ideas are not tied to business requirements or needs. The CIO also must have his or her finger on the pulse of the business, and what the short and long term goals are, as well as the nascent trends.

This role as I've defined it is more about moving an idea through the "system" effectively and acting as a coach, scout and cheerleader than it is about dictating which ideas or which teams. The CIO must be great at working across functional or product boundaries and have the full confidence of the management team. He or she should be measured on the number of ideas generated, and the number of new products or services that are launched and their profitability.

Organized Innovation

Organized innovation is not an oxymoron, like peacekeeper missile or postal service, although I think a lot of people believe it is. Most people think about innovation as something that happens either in a quiet laboratory with lots of beakers and folks in lab coats, or as some eureka moment when, in a flash of inspiration, someone gets the next great idea.

I'd be happy to classify most R&D as innovation, and much of it is organized. Within most labs, a significant portion of the R&D is for incremental innovation, tweaking existing compounds or products. This is probably the case where innovation is organized. However, it probably represents only about 20% of the innovation potential in any firm.

For some reason, maybe it was the Back to the Future movies, we are led to believe that innovation is done by some slightly off-kilter scientist with bad hair working in a barn off by himself or herself. They tinker with all kinds of technologies and applications with no real apparent goal, other than to subvert a physical law, like travel through time or repeal the law of gravity. This is not a serious view of the potential of the people and the thinking within your organization when it comes to innovation.

A new innovation can be based on a product, or a service, or a process, or a business model. Clearly the guys in R&D have a lock on the technologies and compounds, but rarely have a great understanding of how these new things get to market (that is the processes and business models that provide the means to bring a new product to market). Enron, for all its faults, is really just a company that innovated around a business model - how do we arbitrage and distribute power? They weren't really responsible for generating the power as much as the marketing and distribution, so their's was a business model innovation. In fact they were relatively organized around an innovation in the way electricity was distributed.

Certainly there are a number of other types and capabilities of innovation in your business. The question is, are your people and your processes organized in such a way to recognize a great new idea and bring it to market, whether its a product or a service or a business model? If a great new idea presented itself, how would the teams know? What measurements or metrics would they use to assess the idea? Are they compensated in such a way that encourages them to take the risks necessary to shepard the idea?

If you want an innovative organization, organize your innovations. Provide the teams, the means and the goals to encourage innovation throughout the company. Innovation and great ideas can happen anywhere in the firm, or can be suggested by business partners or customers as well. These ideas can be managed effectively if organized correctly. Outside of R&D, how do you manage your innovations? Do you recognize non-product based innovations?

Thinkers versus Doers

There is, I think, an interesting balancing act in many firms regarding innovation. There are at least two "camps" of people in any business, and keeping these folks working together and in the appropriate proportion is challenge and an opportunity.

I'm identifying the two camps as "Thinkers" and "Doers". I recognize that's highly simplistic, but strawmen in blogs often are. Thinkers are the people who are open to new ideas, new concepts and are constantly trying to improve or change the way things are done. They are the creative types, always experimenting. Their strengths are their willingness to experiment and change and try new things, new processes, invent new products or services. The weakness of many "Thinkers" is that they don't understand the processes and issues required to bring these new concepts to market.

Contrast the "Thinkers" with the "Doers". Frankly, the Doers are the people who get things done. They recognize an efficient, optimized process and don't appreciate tinkering with the process or with people who introduce a lot of change. Doers don't really like change all that much, since change is disruptive to the existing norms and processes.

Clearly, a firm needs both "Thinkers" and "Doers" and people who can be the bridge between the two camps. What's interesting is that a firm composed completely of Thinkers is basically a research lab or a think tank, while a firm compsed completely of "Doers" would eventually run itself, very efficiently, right out of business because it never changed or created new products or services. We need both of these skill sets to be effective in any business.

The trick to to understand:

1) the appropriate proportion of each skill set in every product group or team
2) the different approaches to compensating and motivating these very different people within the same teams
3) how to bridge between them and make both kinds of people successful in an organization

A creative agency I've worked with is a great example of this tension. There are five or six creative directors, who are free to generate ideas and early concepts. These folks are seen as gods in the firm. What the creative directors don't recognize is that behind each creative director there are eight to ten people responsible for taking those ideas and implementing them effectively for a client. Many of the people responsible for the execution of the work feel somewhat slighted that their work is not held in high esteem - and it would not get done if some of these "Doers" weren't there.

Since most businesses are built on the backs of "Doers", the people who reinforce efficiency, process, cost cutting and the like, the "Thinkers" are often looked at with some skepticism in many businesses, or shuttled off to skunk works or R&D labs. Here's something that will shake up your organization and improve the productivity: insert a "thinker" into each product group or business process, with the appropriate compensation and senior management backing. The thinker will create some (hopefully) creative tension within the process or product, but if incorporated into the team, will create real results.

What's the proportion of "Thinkers" and "Doers" in your organization? Do most of the "Thinkers" reside only in organizations like "design" or "R&D"?

Innovation and Risk Taking

I read recently on the Business InnovationInsider blog that there was a new research article about innovation and risk taking. I thought that would be worth checking out, since it is important to put innovation into context. Some innovation initiatives will fail, and the risk associated with each innovation initiative is that each one has some chance of failure. Hopefully, however, each initiative has a significant potential upside as well.

The article, by Vijayalakshmi and Pahlson-Moller looks at the risks and rewards of innovation. The authors look at the types of risks imposed on new ideas, from government regulations to sources and uses of capital. One of the risks they identify as a problem for a country and for a company is the inclination to change. The UK is held up as a model of a country that is less adaptable or willing to change than the US, therefore the UK lags the US in innovation.

The authors also describe the risks associated with the four "phases" of innovation - introducing a new product or service, growing a new product or service beyond its original intent, tweaking the product or service with incremental innovation and finally reviving an older product. These phases or stages represent different time frames and risks levels in the life of an innovation. We generally think most specifically about the risk associated with a new product introduction, but managing an existing portfolio of products has its own risks. Remember New Coke? That was really just a tweak of an existing product, but it failed spectacularly.

What surprised me about the article is that there is one risk the authors did not address at all - the risk associated with a strategy of no innovation. Isn't it considerably risky in this day and age to decide to rest on your laurels? What are the tradeoffs of risk/reward for innovative firms and non-innovative firms in the same industries? Arthur Little published a study two years ago which indicated that firms within the same industry differ widely in profitability and growth depending on their stance on innovation. Within the same industry, there were swings as wide as 4 percentage points of profit attributable to how innovative a firm was. The more innovative, the more profitable. So, clearly, there's a risk of not innovating, just as there are risks when a firm undertakes an innovative product or service.

If growth is important to a firm, and if growth is dependent on offering existing products and services to new customers, or offering new products and services to existing or new customers, then growth is driven by new products and new service offerings. These, in turn, are driven by product and service innovation. So, it would appear that growth and profitability can be tied in many ways to innovation, which makes a stance of "status quo" or a lack of innovation almost tantamount to surrender in a market.

That loud sucking sound

Do you remember Ross Perot? Only a decade ago or so he seemed poised to win the presidency of the United States by playing on our fears that Mexico was going to take all of our jobs. He was famous for commenting on the loud "sucking" sound that would be our jobs leaving the US and going to Mexico as part of the NAFTA agreement.

Today, Mexico exports over 90% of the goods and services it creates to the US. Mexico is exceptionally dependent on the US as an export market. That outsourcing concern was a legitimate concern - we did lose some jobs to Mexico, but our economy has continued to prosper and grow. What's interesting is what's about to happen to Mexico.

Mexico banked on the fact that the US (and other countries) would need low cost manufacturing labor. In that, they were correct. However, Mexico for the most part did not invest any money into education or technology advancement for its people, to improve its ability to compete beyond merely being the lowest cost alternative. Then, China became a player. Suddenly, Mexico is not the lowest cost manufacturer, and frankly China has better quality control and manufacturing capabilities. Chinese firms are moving into design capabilities as well.

Total Mexican export to China? Zero. China's biggest export market? The United States. Mexico's portion of the US market? Rapidly falling. If it weren't for cars and oil, Mexico's exports to the US would fall by half in the next few years. The Mexicans have gotten the wakeup call. There was a great news article about the recognition of China as a strategic competitor taking over their largest market, and what the Mexicans plan to do about it on Marketplace Radio recently. You can listen to it here.

Basically, the Mexican authorities that Marketplace spoke with have the right ideas and the wrong approach. The right ideas are that they must compete on design (innovation) and speed to market. Since they are next door, the Mexicans have an advantage over other low cost manufacturing locations. All things being equal, I like my products on a very timely basis, so the Mexicans can compete on products with short shelf lives or fast turn times. Also, the Mexicans realize they've got to differentiate beyond low cost, by becoming a design and innovation center. Unfortunately, the approach they are taking is to try to craft a "national" plan for innovation. Rather than create credits and enducements and improved technology education, the plan will probably fund certain types of companies which are friendly to the government and fail to encourage entrepreneurialism and true innovation and design.

One thing is certain. Companies, and countries, are recognizing that speed and innovation are the clear differentiators for business today.

3 types of innovation in your business

I was speaking with a customer in a firm which has helped us develop some of our software applications and methodologies. He's trying to figure out how to solve various problems in his organization that require "innovation" at some level. However, his approach was fairly interesting and one I thought could create some thinking.

His supposition was that there are three types of challenges or problems that require "innovation". They are:

1. A simple problem on the manufacturing floor that should be solved by a small team brainstorming and arriving at three or four viable solutions within 1 hour.
2. A larger problem, challenge or opportunity that is an extension of a product or a move of an existing product into a new market. This innovation happens over a longer period of time, is managed asynchronously and requires a larger number of people.
3. Truly big and disruptive innovation - a completely new product or service that significantly changes the market. This innovation requires a number of people, but does not have a defined time span, since it could happen very quickly or take quite a long period of time.

His is a different way of thinking about incremental and disruptive innovation, but he's pointed out that the magnitude of the problem, the number of people it takes to solve the problem, the scope of the problem or challenge and the nature of the problem or challenge dictate different approaches.

In the first instance, it is usually better to have "experts" all in one place at the same time, rapidly generating ideas and coming to consensus quickly. In this instance what's needed to improve innovation is teamwork, training on brainstorming techniques and a white board. Generally speaking you don't need a significant amount of outside involvement, and people with experience can add substantial value.

In the second instance, a team is much more likely to be made of up diverse individuals, since representation from many different functional groups is required. The timespan is usually longer, since incremental innovation takes what is known and moves into an unknown, along either a technology or market axis. I suspect that incremental innovation is probably the most difficult and problematic of the three types, since there is often a lot invested in the original product or service or market. What's required for success is a process and software applications to help a larger number of people collaborate and work asynchronously, and record their observations and decisions, and a culture willing to allow people to innovate.

In the third instance, truly disruptive innovation will probably require people from inside and outside your organization with little regard to the corporate crown jewels or structure. In fact very disruptive innovation probably needs to disregard what the firm thinks is important today, as it seeks to change a market the firm currently lives in, or create a market that no firm operates in. Given this supposition there are two possibilities: no sacred cows since it's a completely new space, or a huge sacred cow since we are probably cannabalizing our own products. What's required in this instance for success is a collaborative environment somewhat untethered to the existing corporate architecture that allows for exploring ideas and opportunities that many people might find dangerous, and a corporation willing to risk a lot with new products or services to dominate a market.

As firms interested in innovation, we should sponsor each type of innovation, and recognize the challenges inherent in each approach. What's consistent is the requirement that the firm, through its culture, support the teams and give them the necessary tools and processes. Each one of these approaches requires dramatically different team members, tools, processes and timelines, yet each approach is equally important.

Exploiting the niche

As I was deleting the ever present comment spam from this blog it struck me that as much as we may dislike comment spam on blogs, or email spam, these are incredible examples of innovation and rapid adoption of a niche. No one knew what email spam was until a few years ago, and now I receive over 100 spam emails a day. Who reads this stuff? Well, enough people to entice folks to build a spamming business which seems to break the law. Just a year or so ago content spam was unknown, now it's a plague to any blogger. This should really be no surprise, these are intelligent, creative, but slightly unscrupulous folks who are innovating in the white space.

What these individuals and others are doing is extending an application or technology from one "known" world or market to a rapidly growing and nascent market. Just as direct mail moved from your mailbox to your email inbox and on to your blog, existing processes and technologies will seek out new niches. I often wonder what would happen if only we could focus these content spammers and virus builders for good rather than evil.

This innovation is very natural and happens in the "real world" as new plants and animals colonize new ecological niches. Businesses want to leverage their existing technologies into new market niches, but the difference between the content spammers and most corporate innovators is that the smaller, faster guys often move into these niches before many larger firms even are aware of the niche. Another challenge is that a larger firm simply can't sponsor one thousand small innovation projects. Each content spammer is his own little business, moving rapidly and in isolation. For a business, there's simply too much overhead, time and money associated with each project, so many opportunities to exploit small market niches are missed.

There's an approach that might work in larger organizations, however. Why not encourage small teams to take existing technologies and target these markets as funded spin-offs? Give them enough backing and enough encouragement and let them act as small, independent entrepreneurs, leveraging existing technologies and knowledge but without all the overhead and bureaucracy. Isn't that in many ways what the content spammers are doing? Targeting a new market niche with existing market technology faster than other people?

Most firms would like to get "faster" in their innovation processes and bring new products and services to market more quickly. This reduces the innovation cycle time and lowers the chance that the product or service arrives at the market as an also-ran. However, in larger firms there are forms to complete, committees to visit, funding documents to approve. Innovation in some firms may be more likely as a series of funded intra/entrepreneurial events rather than a managed process, depending on the types of niches, the speed with which the niche will need to be exploited and the availability of the existing technology.

There's something to be learned from the virus builders and the content spammers. They have capitalized on a market niche and built successful, if slightly unscrupulous businesses by leveraging existing technology in ways that now seem apparent. Their growth, however, gives rise to an entirely new opportunity - how to prevent them from doing what they do!

If it's not hard, it's not worth doing

I was speaking with a prospective partner in another firm about innovation. His recent discovery was that innovation is "hard". By that he meant that there are a significant number of moving parts that must align for a firm to innovate successfully. Some of these moving parts include corporate culture, corporate strategy, communications, turf wars and motivation. It can be very difficult to corral these moving parts successfully.

Innovation is hard in an existing company because it often changes the very fabric of the way a firm works. Yesterday I wrote about Michelin, which is changing its culture to become much more "open" in the way it innovates, surely a difficult task for a firm with such emphasis on engineering and science. Innovation is hard because it introduces increased risk into organizations that have worked very hard over the last few years to eliminate mistakes and risks. Just ask anyone who has been through Sarbox or Six Sigma or FDA Validation what they think of introducing new processes and concepts to the existing systems.

Innovation is hard because there's very little consensus about what it means. Incremental innovation or disruptive innovation? Product innovation or service innovation? There's a significant amount of discussion but no clear definitions within many businesses as to what we mean when we talk about innovation. Innovation is hard because it does not appear to "belong" to any one team or person. The financials belong to the CFO. The responsibility for sales belong to the VP of Sales. Most business functions or processes have a very clear owner. Who "owns" innovation in a business?

Yet, as many philosophers have told us, the easy stuff isn't really all that rewarding. The "hard" changes and decisions we make about our businesses are the ones that create change - hopefully for the better. Yes, innovation and the impacts that it brings to any business are challenging, but let's also consider the alternative. Downsizing or shutting down a firm that can't compete is difficult work. Struggling to compete with nimble, low cost competitors is "hard".

No doubt innovation is hard work and creates change, but that change is worth it. There are enough examples of dramatic change introduced into a market (old line air carriers versus low fare carriers, NetFlix versus Blockbuster, Blockbuster versus the cinema) that demonstrate that innovation is usually worth the effort and the risk.

The fact that innovation is difficult is not a rationale for not innovating. In fact, an argument that innovation is hard and therefore the firm will not innovate is not only a cop-out, but an abdication of decision making and a lack of will to remain successful over the long run. Yes, innovation is hard, just as implementing ERP was hard, or improving product quality was hard, or opening overseas manufacturing was hard. But the difficult of these projects and initiatives did not ultimately block their advancement, and neither should the challenges associated with innovation.

Out in the open

I had the opportunity to participate at Innoventure, a conference bringing together industry, government agencies and academia to foster increased innovation in the Southeast US. One of the key sponsors of the event was Michelin.

Michelin has a new focus to speed innovation, and discussed its focus and new viewpoints with the attendees and with the local Greenville, SC paper. In the newspaper article, the director of external research is quoted as saying that Michelin used to have a "secretive" culture and did not share research, but that it is increasingly emphasizing openness and collaboration with universities, research labs and even entrepreneurs. Such collaboration helps Michelin innovate faster. "We discovered there's lots of ways to do innovation. One of Michelin's weaknesses is we focuse very, very heavily on the product, and we have an excellent product. But business model innovation and new ways to sell tires, new ways to bring products and services to our customers, we've been more behind there."

This is the beginning of a significant change - not only for Michelin, but for leading consumer packaged goods manufacturers like 3M and P&G, as well as a number of other firms. Even large firms with extensive R&D facilities can't keep up with the demands of consumers and all the new research and technology coming on the scene. If the large guys can't do it effectively, how can small and mid-sized firms, with smaller R&D budgets, compete?

I think they will have no option but to work in an open source innovation model, or choose to innovate around the things they think they can control or differentiate. For example, Michelin will probably not outsource its innovation around tire technology, but may seek new ideas for sales channels and methods to interact with customers. Who understands customers really well and what can Michelin learn, borrow or steal (legally) from those firms?

There's a significant amount of discussion around "open innovation" and open source business models. I think we'll see more of these larger, well respected R&D driven firms open up to outside ideas and push some of their technology out to smaller firms which may be able to bring the technology to fruition more quickly. Working with partners, large and small, will increase the speed of innovation and bringing new products to market.

I think the focus in the short and medium term will be on this aspect. Once we've had a great idea and can protect it, what is the best means to bring it to market? Should we try to do this ourselves, or should we work with partners? However, in the short and medium term, R&D labs are not going to fully open the kimono - since we are talking about the crown jewels. Other than software, I'm not sure a completely "open source" business model works yet - but give it a few years and some trials in the market and we may begin to see more openness even around the ideas and intellectual property.

World Class Idea management

I had the opportunity to hear Sam Stern speak at the American Creativity Conference in Austin two weeks ago. For some reason Sam was the last speaker on a Friday afternoon, which is a bit of a shame, since his was one of the best talks I heard at the conference.

Sam was using stories from his book, Corporate Creativity, to drive home some points about creativity and innovation in the workplace. There were some great stories in his book - I'd encourage you to get it and read it.

Anyway, one of the topics that caught my attention was that Sam talked about the keys to a successful idea management system. Since my firm builds these things, I was interested to see what Sam had to say about idea capture and management systems. I think his criteria are fairly good:

1. The Idea Capture and Management system must be simple to use. He told a story about the US Forest Service having an idea capture document that required four pages! Not surprisingly, very few ideas were captured or recorded. This was changed to a process where ideas were submitted by email. The idea submissions increased by close to a factor of 10.

2. The Idea Capture and Management system must have a bias for action. Otherwise, idea capture systems become cul-de-sacs or container systems. Yes, it's important to capture the idea, but there must be other processes or actions taken, reactively or proactively. Otherwise the idea sits and rots. What action do you require once an idea is captured?

3. The Idea Capture and Management system must reach everyone. Most of the innovations he talks about in his book were accidental innovations or innovations that the corporations tried to shut down, and only stayed alive because small teams worked on their own time. The greater the participation, the more viewpoints that come to light.

4. The Idea Capture and Management system should provide modest rewards. If the rewards are too large, there's too much pressure to "get it right" and ideas never surface. If the rewards are too small, people think their ideas and participation don't matter. The rewards often don't need to be based on money, but on recognition and the opportunity to continue working on interesting things.

5. The Idea Capture and Management system should document and share results. It's unfortunate that many idea capture systems take an idea, and the originator of the idea has little to no knowledge of how the idea is considered, evaluated and judged. Providing information to the originator about the ultimate outcome and how the idea was evaluated makes the person much more likely to contribute again.

In the abstract, I think this is a very good list of features for an idea management system. The list contains concepts about action and idea flow, and incorporating a number of participants. These attributes would have to mean that the culture reinforces the use of such a system, and that the firm has a bias toward action in eeverything it does. These concepts could not work successfully in a firm where one must seek permission, but one where initiative is rewarded.