Friday, September 29, 2006

European versus American Innovation

For my firm, OVO, I write a newsletter on innovation. Recently we decided to take a look at the similarities and differences between innovation in Europe and in the US. We talked to several firms in Europe that specialize in creativity and innovation, and also talked to a number of firms here in the US. We also looked at the firms that are purchasing and using our software for idea management and brainstorming.

What became clear is that while firms on both continents are seeking to become more innovative, their methods and approaches are relatively different.

Firms in Europe are receiving a significant leg up from their governments. This is especially true in the Scandinavian countries where the governments are actively funding programs and running education classes to help firms become more innovative. This is based on the realization that 1) the home market is fairly small and 2) there is no cost advantage or geographic advantage, so exports are important and the only way to maintain a healthy economy is to innovatve constantly. Note that the EU has just convened a special panel to focus on improving the factors for innovation across the EU.

This differs significantly from the US point of view. The traditional approach in the US has been a very hands off approach from the federal government, with some states providing funding and research space for start-ups, but no real consistent support or training for innovation. There is some funding available through the SBIR and STTR programs, but most of that money is targeted to research which benefits the government. Most entrepreneurs know they have to find their own money, and most firms that want to innovate know they need to generate the funds themselves.

Some of this thinking goes back to the mythos of the independent tinkerer or inventor in his lab. I think the US has encouraged independent thought and work, and a legend has grown up around the lonely scientist, inventor or innovator working in isolation in her "skunk works". Europe, on the other hand, has a much more collegial, collaborative approach to innovation, although I suspect the US still has the advantage in a pure entrepreneurial setting, due to the simplicity of setting up a business and the access to private funds.

This mythos lends itself to the culture of the firms, their processes and tools. Interestingly, many firms in Europe are trying to provide training in leadership and culture around innovation, while consultants in the US seem to offer to "do it for you" and outsource the knowledge to initiate and manage an innovation process. Europe is more collaborative and willing to work across boundaries - look at Airbus as one example. The US is just beginning to consider "Open Innovation". Europe seems more ready to adopt processes and tools to enable innovation, while the US innovator seems more likely to try to "go it alone".

Again, I think a lot of this goes back to national attitudes and beliefs which work their way down into the corporate cultures and fabric of the way we work. In the US, we've always been trained to think independently, work alone, succeed or fail based on our own initiative. Even our MBA programs until recently had little focus on teamwork or collaboration. We have less overhead, fewer restrictions, less guidance than our European counterparts.

Who's right? That's really a loaded question. When you have fewer bullets (people, dollars, market size, resources) you husband each bullet carefully. The smaller European firms have to succeed in innovation because their markets are small and they must export to gain profits and market share. Traditionally the US was such a large market that many firms could sell only in this market, and succeed or fail with little competition. With globalization, that fact has changed. We need to be as aggressive in our innovation as the Finns, the Swedes, the Singaporeans and others who have honed their craft through years of competing as the smallest player on the block - and done so successfully.

In the US, we've really not been exposed to those requirements and the discipline necessary to succeed until recently, and how we react - from a government perspective, from a business perspective and from a cultural perspective - will dictate our ability to continue to grow our economy in the future.
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posted by Jeffrey Phillips at 4:50 AM 38 comments

Wednesday, September 27, 2006

Business Innovation Factory Conference

I mentioned this briefly in an earlier post, but I wanted to get the word out one more time.

The Business Innovation Factory, located in Providence, Rhode Island, is sponsoring a collaborative summit on innovation with some of the top thinkers on innovation in the world today. Rather than a traditional presentation based conference, this event is focused on storytelling, with lots of time for interaction and networking.

See the BIF's website and consider registering for the event, which will be held October 4th and 5th.

A number of folks who write regularly about innovation will be attending, and writing/blogging about the event. Those include good friends like:

Renee Callahan, who writes IdeaFlow
Joyce Wycoff, who writes Heads-Up!
(by the way, Joyce also organizes the Innovation Immersion conference, which you should strongly consider attending as well. We'll be there.)

and some other bloggers who write regularly on innovation, including:

Jeff DeCagna from Principled Innovation
Steve Hardy from Creative Generalist


It will be interesting to participate in the event and get to mix and mingle with such a great group of innovators, and the folks who write about innovation topics.

It's not too late to get involved in the BIF collaborative summit. Here's the details.

Hope to see you there.
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posted by Jeffrey Phillips at 10:30 AM 47 comments

Friday, September 22, 2006

More than words

Do you wonder if your senior executive team is serious about innovation? Most CEOs and senior executives are talking about innovation. It's clearly the buzzword of the month (week?)

Most senior management teams understand that they've cut just about everything there is to cut, other than their pay packets, so there's not a lot more room for cost cutting. That means profits will flatten or get worse, since there is some inflation in some inputs like energy. So, to hold profits steady or grow them, there's got to be some new products and services offered that command higher prices and margins.

But with all the talk about innovation - how can you tell if your management team is serious? What's going to keep them from coming around next quarter and reading you the riot act for that one penny miss on the forecast? Well, really not much is going to change that.

Here are a couple of key indicators to tell you how serious your CEO and senior executive team is about innovation:

- They actively encourage risk taking and meet regularly with people who are innovators, to demonstrate support for the innovators. This demonstrates that the senior team is willing to spend their time on innovation.

- They change the compensation structures and metrics on their reports to reflect an urgency around innovation. Has the way you are evaluated and compensated changed? Jack Welch once said - show me a sales person's time card and I'll tell you how they are compensated. What's your motivation to innovate?

- They spend money on innovation initiative and projects and encourage broad participation to gather and evaluate ideas.

- They celebrate and recognize successes and failures from innovation

- They create specific, measurable goals for the firm - eg 30% of our revenue will come from products introduced in the last 3 years or 50% of our new products will be the result of ideas or technologies from outside the firm.

If you are confused about the real purpose of innovation in your company, simply look at what your senior team says and does when it comes to innovation. The folks who are really on board will be doing these things and many more and it will be visible and meaningful. If your senior team is not doing these things, they don't really mean what they say about innovation or don't understand innovation at all.
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posted by Jeffrey Phillips at 2:09 PM 23 comments

Thursday, September 21, 2006

Blind Man's Bluff

Sorry for what could be a politically incorrect title - but sometimes succinct is very valuable.

When you were a kid you may have played a game where one person was blindfolded and stood in the middle and had to guess who tagged them or touched them. Now that I think about it - this game is probably politically incorrect now too. At any rate the game was called Blind Man's Bluff.

I think many larger businesses are playing a game of Blind Man's Bluff everyday, trying to understand what firm will provide a new product or solution that takes away valuable market share or introduces a product that makes the existing product a "me too". There are two types of Blind Man's Bluff - the simple and the complex.

The simple one - and the one getting the most focus - is: which firm will introduce the next iteration that we have to overcome or copy? Who will produce the next incremental improvement that we have to match in our products, or explain away using adroit marketing? In this matter most firms aren't really playing Blind Man's Bluff - it's really a game of poker. Who's got the cards and who's bluffing?

Where Blind Man's Bluff really comes into play in most firms is the question: which company or band of garage dwellers will create a product or service that renders our main revenue stream obsolete? Most firms have some fairly significant blinders in that they take their key revenue streams for granted and assume that a challenger can be spotted from a long way off. What's most likely to disrupt your market is a dramatic change in something you think is immutable. Paid content becomes free content. Licensed software becomes open source. What blinders does your organization have based on its assumptions? I noted earlier that many firms think that they can spot challengers far out on the horizon. In some cases that's true, but many times challengers come from unexpected directions. I can remember reading a prediction a few years ago about "Free long distance calling" and how absurd most people thought that was. Today with Skype or other applications I can call people anywhere for free. What's ATT Long distance or Sprint Long Distance business plan now?

There are several reasons why most firms are playing Blind Man's Bluff with their future. One, they have blinders they don't recognize. It's hard to think about cannabalizing your own revenue streams, but you can bet there are other people thinking that way. Two, the infallability complex. If you are a leader, you tend to think you are smarter than those around you. Three, most firms tend to look in the wrong places and make the wrong assumptions about challengers. Four, assuming the market will stay the same in the future as it is today. Record companies fought the downloading of music and concepts like I-Tunes when they make a lot of sense to a consumer - why buy a whole record or CD when I really only want one or two tunes? Last, many firms don't do a good job of looking out at the future. We've trained them to think in quarterly increments. Long term thinking, innovation and strategy are costs that impact the bottom line every quarter, but don't necessarily add to the top line every quarter.

Blind Man's Bluff is a kid's game. Why do so many firms insist on playing?
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posted by Jeffrey Phillips at 8:57 AM 24 comments

Wednesday, September 20, 2006

Free content subverts a paradigm

For those of you who can remember when AOL and Compuserve seemed cool, think back for a moment to those halcyon days. Perhaps you put together your first computer at home, and AOL and Compuserve were the ways you created an online "community". At its peak, AOL was predominant. Everyone I knew who was online was using AOL or Compuserve to get an email address or participate in online communities.

AOL was disrupted by two different attacks on its business model. First came the low cost email offerings - NetZero, HotMail and so on, chipping away at a fairly expensive email offering from AOL. Note that NetZero, HotMail and the others offered far less in terms of content and services, just basic email, but they opened up the lower end of the market and demonstrated there was demand for personal email at the lower end. Now, of course, email from Yahoo! or Google is free. In less than 15 years we've moved from a model where personal email was fairly expensive to the point where it can be free.

The second attack on AOL was on its content. At one time AOL was powerful because it had content that you could "surf" to within its confines. This was professionally developed content and communities of other AOL users could participate in that community. As the internet grew more popular and methods to create new websites and content grew, the closed communities of AOL seemed much less appealing.

Finally, the eventual nail in the coffin for AOL and some of the original internet pioneers is YouTube. You knew I was going to have to address YouTube at some point. YouTube takes everything that AOL was originally - closed, professional content, expensive, exclusive - and turns it all on its head. Anyone can publish just about anything to YouTube, and anyone can watch the content and interact with it - at no charge. Where's the marketing model? Well, from what I can see it will be either advertising or a "basic" free channel with some paid channels.

Two days ago a radio show noted that YouTube has 100 million hits a day. I checked this out and found several sources for the figures. YouTube has at least 5 times the number of hits a day as AOL has subscribers! To put those figures in perspective, in 2005 the movie industry in the US totaled approximately 9 billion dollars. Assuming an average ticket price of $10, the number of tickets purchased to watch movies in the US was about 900M - or the number of movie views YouTube averages in about 10 days. I doubt the YouTube guys planned to disrupt or subvert AOL or other content providers when they started their site, but that's what's happened.

Over the last ten years, content has mushroomed and become the driver for eyeballs and traffic. Content is king - no one really seems to care what the platforms are - email is taken for granted as a feature that's thrown in. Blogs are exploding and everyone who wants to can become a publisher and attract an audience. Why?

People are searching to reconnect and regain something that's been lost - the bowling league or the Kiwanas. We've lost to a certain extent the ties that bound us together in smaller groups and civic organizations. All this content, all this publishing allows a person now to define themselves and group themselves by the content they track. For example, I read other innovator blogs and feel as though some of those writers are my friends (I happen to have had the chance to meet some of them in person). This gives me an online sense of community.

There are a lot of smart people writing and publishing a lot of very intelligent, witty and funny stuff on the web, and that figures only to increase. Free publications used to mean low quality, and there is a lot of that out there. But a lot of what's being written and developed is great quality stuff and the trend will continue - free content will eventually subvert all of the original content providers - even Hollywood and the newspaper of record is not safe.
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posted by Jeffrey Phillips at 4:45 AM 25 comments

Friday, September 15, 2006

Telling stories about innovation

There's an interesting new conference coming up that you'll want to consider attending. The Business Innovation Factory in Rhode Island is sponsoring a conference that's bringing in a number of noted speakers and innovators to talk about telling stories about innovation.

The conference is scheduled for October 4th and 5th, and will features such thought leaders as Jeneanne Rae from Peer Insight, Dean Kamen, inventor of the Segway and many other fantastic new products, Walter Mossberg who writes for the Wall Street Journal, Larry Keeley from the Doblin Group and many others. Getting to hear and interact with any of these speakers is a great opportunity - having them all under one roof is quite rare. I've heard Doblin and Rae provide their perspectives on innovation and I can tell you it's quite powerful.

As part of the Corante Innovation Hub, we innovation bloggers have been invited to attend, participate and blog about the event. I think I'll be able to make it, and I believe Renee Hopkins-Callahan is planning to attend as well.

If you have an interest in innovation, you will want to check out this event. See the Business Innovation Factory website for more details.
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posted by Jeffrey Phillips at 11:51 AM 25 comments

Thursday, September 14, 2006

Sustaining Innovation in larger firms

Let's face it - innovation is easy in an entrepreneurial firm. After all, an entrepreneur seeks to upset the status quo and has nothing to defend. A large firm has established products and services, and first seeks to defend its market share and customers. This fact is one of the reasons that large firms struggle to innovate consistently - they are playing defense rather than offense.

In this post I'd like to consider a couple of different innovation approaches that larger firms are taking in order to keep the innovation edge. The approaches are:

- Skunkworks
- Innovation teams
- Innovation Center of Excellence
- The Thermo-Electron approach
- Buying innovative ideas from smaller competitors

My bias going in is that the smaller the organizational structure and the less it believes it has to defend, the more likely the organization is to create and produce new innovations. Also, the more management attention and focus on innovation, and the less on quarterly results and other distracting factors, means more innovation.

Skunkworks

Made famous by Lockheed, a skunkworks is a secret team in a secret location working on a secret project. This approach is used when the concepts are secret necessarily (ie Government Research) or when the ideas are radical and the CEO is afraid the culture might kill the concept before it gets a chance. A skunk works demonstrates that the CEO is serious about innovation, but also generally indicates that he or she is afraid that the culture will expel the innovation quickly. A skunk works isn't really scalable so it does not necessarily lead to consistent improvements in innovation - rather it indicates that there are clearly two types of people in the firm - those the CEO thinks can innovate (a very small team) and those not trusted to do so.

Innovation Teams

An innovation team is formed when a business unit or product team determines they need something new. Most innovation teams are formed, live and then broken apart once a new product or service is launched. They live a short life and birth one or a couple of products. They differ from a skunk works in that they do their work in the open, and their ideas and products are recognized by the rest of the organization. An innovation team often does not receive the funding or tools that a skunk works provides, and uses what is at hand to get their innovations done so they can get back to their "real jobs". Again, there's not a lot of institutional learning in a temporary innovation team, and few processes and tools are captured for reuse.

Innovation Center of Excellence

Remember when the CoE was a real focus. Every firm needed a Center of Excellence for virtually any process or business function. Many firms are beginning an innovation Center of Excellence for innovation. In one sense, I think this is a great idea. If the center of excellence can become the librarian of the processes and tools and approaches that have been used before, innovation teams will be able to reap the benefits of knowledge generated previously. If an innovation Center of Excellence can provide tools and processes to teams, even better. However, an Innovation Center of Excellence cannot become the final arbiter or generator of ideas or be the only judge and jury for ideas. Centralizing the knowledge is valuable - centralizing the generation and evaluation of ideas is risky.

Thermo-Electron

Thermo-Electron is a firm that attempted to keep its teams small. As a new innovation grew, it would form a new company focused on just that new innovation. In this manner they attempted to stay focused on innovation and rapid growth by creating small companies that lived under the Thermo-Electron umbrella. I don't know if Thermo-Electron still retains that concept, but what was great about it was that a new product or service quickly became a new company without the overhead or need to defend old turf. In this way Thermo-Electron became a holding company with lots of smaller firms underneath it. Obviously the challenge is to manage a large portfolio organization, but it is a viable alternative.

Buying Innovation

Let's face it - larger firms are recognizing that they simply cannot keep up with consumer demands in a global economy. There is simply too much innovation, too much science happening in India, China, Brazil, Europe...you get the point. Larger pharmaceutical firms and some consumer packaged goods firms have recognized this and shifted some of their innovation focus to "business development" - which means scouting and finding new technologies and products that small firms have created but don't have the marketing heft to get it to a large customer base. This places the risk on people (enterpreneurs) who are inherently ready to accept it and lets the larger firm defend its existing market position and quickly bring new products to market with little risk or investment. Frankly, this may be the best approach for larger organizations until and unless they are ready to make internal innovation important and urgent. There are just too many smaller firms and competitors in many locations willing to attack large existing markets - and larger firms have honed their capabilities to retain existing customers, not fight for new ones with new products.

Of course there are hybrids. Many firms are using a Center of Excellence model combined with a business development model to sustain innovation. Many large firms have recognized that innovation is a key ingredient to organic growth and are attempting to re-introduce the original entrepreneurialism that the firms were founded on, but the pressures of quarterly results and competitive threats are too great to keep management attention for long. What we need in a large firm is a startup's mentality and fearlessness connected to a large firm's marketing and distribution capability.
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posted by Jeffrey Phillips at 5:18 AM 42 comments

Monday, September 11, 2006

Service Innovation

There's quite a lot written about innovation - especially from the perspective of new product development. However, our economies and most of those of the developed world are switching rapidly to service-oriented economies, and the definitions of innovation and research on service innovation are very slim. We've only really had about 30-40 years of research on innovation in the product sector, and that work has produced some good thinking (Stage-Gate for example), but there's been little work done on service innovation while our business models have changed substantially.

I guess there's probably several reasons for the focus on product rather than service innovation. First, it's easier to define and manage a physical product as opposed to a service. Products can be created and churned out in rapid order with little variation, and can be changed or adapted quickly. Most services can't be easily moderated and rely on people to deliver, which introduces variation from the outset. Second, product innovation can be defended with patents and product protection, while it is hard to defend service innovation. If I offer the world a new service, it's usually not hard for others to copy it if they choose to. Third, many "services" have been deemed as too insignificant or too inexpensive to innovation. Most firms would prefer to throw more "low cost" people at this issue rather than improve the service or innovate around it. Well, over time, people will become your highest cost factor, and you'll need to find ways to innovate your service model just to keep your costs in line.

Peer Insight, a firm in Alexandria, Virginia headed by Tim Ogilvie and Jeneanne Rae, have tackled the question of service innovation head on. Through a lot of research and work with some leading firms, they've begun to compile a database on innovation projects and lessons learned within firms that are focused on service innovation. Some of those firms offer products and the services are secondary, and some are completely service focused. Peer Insight has recently published an executive summary of the work they've done so far, which you can request at their website. The executive summary presents some high level findings from the research they've done to date.

There are a couple of findings that were of interest to me, especially the "origins" of innovation and "intended market effect". For the work in the survey, they asked the innovators where their innovations came from. Over 70% of the innovations came from internal sources, as process improvements or planning for growth. 30% came from external sources, mostly as responses to competitive threats. Only 10% of the innovations were noted as "customer initiated". In a service company, where you'll live and die through the daily interaction with your customers and the value you add in each interaction, you'd have to believe that customers can create a number of ideas and recommendations for improving your service. Yet so far only 10% of the service innovation originate through what I'd consider an exceptionally important channel. Firms that focus on services and want to innovate would be well served to listen more closely and work with their customers to sustain innovation.

Second, the intendend market effect was interesting because it indicated that service innovation is still fiddling with the edges rather than any disruptive innovation. Over 85% of the innovations noted were incremental innovations or, generously, a breakthrough innovation. Most were "new to segment", which suggests the capabilities and ideas were already in play and the firm packaged them for a new segment. Only 15% were "new to world", which suggests that the service oriented firms are still playing it very carefully.

The synopsis goes on to note that there is a less well-defined development path for service innovations as opposed to products. In our methodology for innovation, we have a five step process - Generate ideas, Capture ideas, Evaluate ideas, Develop as products or services, Launch. In the "Develop" phase, new products go through a fairly sophisticated process of New Product Development managed by Stage Gate or other processes, enabled by Product Lifecycle Management applications. In most firms there is no corresponding New Service Development process and few systems or tools to support the process. Note that the "front end" of innovation for both types of innovation is the same - ideas have to be generated and captured and evaluated - but then the process really breaks down where service innovation is concerned.

Peer Insight is doing some great work around service innovation, and their work and thinking can be applied to any firm that provides services to their customers.
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posted by Jeffrey Phillips at 5:20 AM 24 comments

Thursday, September 07, 2006

Wants or Needs?

I've worked in marketing for quite a while, and it seems we marketers have a compunction about wants and needs. I think these are fairly poorly defined and often used synonymously. That presents a risk when we talk about the drivers for innovation.

I may want to lose weight, or I may need to lose weight. The first is an expression of interest, the second is a requirement. Too often we focus on what people say they want, rather than what they really need. Innovation is often too focused on what people say they want, and unfortunately history is littered with things that seemed to fulfill what customers said they wanted but were judged as market flops. Or, we as marketers can make assumptions about what people want, and bring new products and services to market based on those intuited wants. That is still very risky, as the wants are not expressed in terms of dollars or tradeoffs.

From an innovation perspective, what's important is to discover the needs that individuals, prospects and markets have, and translate those needs into features of a new product or service. There are several different types of needs:

- Unmet needs. I have a need that is not met by current products or services. For example, an inexpensive pump and filter to provide fresh, clean water to poor communities in third world countries.

- Somewhat met needs. For example, I have a need to travel quickly to distant locations, so I fly there. However, my experience based on most flights is less than satisfactory. That opened up the discount airline industry.

- Overmet needs. For example, any Microsoft Office product. There are more features than I can possibly use or even understand. It seems that someone soon will innovate a spreadsheet, a word processor or a project management application that is less complex and easier to use, with far fewer features and a lower price. Of course, Basecamp has done this for Project Management.

There's another way to look at wants and needs as well in the context of innovation. Most firms WANT to be considered innovators and WANT to increase revenues and margins, but NEED to cut costs. That's why many firms treat innovation as a cost cutting measure rather than a growth initiative. I was recently asked how we help firms rationalize an investment in innovation. My response was - from a marketer's perspective I'd like to talk and focus on growth, but from a needs perspective we look at the customer's situation. If their focus on idea management and innovation is driven by cost cutting, then that's the way we justify innovation.

As you consider your innovation initiative, what are your focus areas? Have you focused on what you think your customer wants, or what you know the market needs?
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posted by Jeffrey Phillips at 8:18 AM 35 comments