The slush fund

The real challenge for innovation in many firms isn't a lack of ideas, but the lack of an organized process to consider and evaluate ideas, and the ready funds necessary to implement an idea quickly. While I've written extensively about the necessary processes to speed innovation, I have not written about the funding issue. Most innovation teams need a small "slush" fund or R&D budget to provide some funding to try out new ideas and implement them quickly.

Speaking with a large firm recently, we tracked the process of an idea from initial capture to final implementation. Generally speaking an idea went through three gates or phases before it could be considered for funding. If it could be considered for funding, the idea then had to proceed through the annual planning process. Miss the window for the annual planning process and the idea waits till the following year unless some special funding was made available. This meant that an idea generated in February or March didn't get funded until November or December, and the funds to support the idea were not released until the first quarter, or at least a year after the idea was generated. In a market where new products and services are introduced daily, how much does your idea age before it gets funded?

If innovation is to be innovation, we should determine to implement good ideas when the time is right for the idea, not based on an existing ponderous annual planning process. I like to call these idea killing machines, since that's what they are. The time and effort required to move an idea through an annual planning process, especially given the difficulty of measuring the costs and returns of many ideas, means that too much time goes by before the funding is available. Other competitors are moving more quickly. Product lifecycles are getting smaller and smaller.

To keep innovation from getting crushed in the maw of the annual planning process, your firm is well advised to create a slush fund or innovation fund available outside of the traditional annual planning process, to provide just enough oxygen for good ideas that are out of phase with the planning process. Again, we can't expect the world to sit and wait for our great ideas to work themselves through a planning process that's based on a calendar year - good ideas need the funding necessary when the time is right. Too many times the window of opportunity closes before an idea can even be considered using a traditional planning process.

Several firms I've spoken with or worked with use an internal Venture Capital approach to solve this problem. Ideas can receive funding but have to apply to an internal VC fund to gain the money necessary to ripen the idea to the next step. This process is often much faster and more attuned to the lack of information and higher risks associated with innovative ideas.

Regardless of your innovation approach, find a way to provide some funding for ideas without having to pass the ideas through the annual plan, or you'll find the opportunities passing you by.

Hurry up and wait

Lately the market seems very hot for innovation software and consulting services. Our team has started a number of new engagements and it seems like there's a real, increasing demand for software and services that help firms become more innovative.

One of the things you can't help but notice, however, is that for every three or four companies you talk to where innovation is "urgent", only one or two will actually start a project in any timeframe that matches up to their urgency. I was speaking with a firm recently that seemed to have a very urgent need to innovate - other non-traditional competitors are clearly horning in on their core market. These non-traditional competitors don't enter a market with the same, traditional outlook and service offering, and are very attractive to customers. This entry alone should have been enough to kick start some new ideas on marketing and service development. As it was, the entry created an opportunity for a sales meeting. Several months later, I'm being told that the firm will not move ahead with innovation right now. I suspect cost cutting is in order.

Unfortunately, by the time it becomes apparent that the firm should create some new ideas, it may already be too late. One of the key drivers for innovation for many firms is the unexpected entrance of a competitor to its core market, especially non-traditional competitors. Another change that can be quick and disruptive is a change to the legal system, where one or two small provisions in the law can open up markets and opportunities for new competitors. As I noted above, by the time the firm identifies the threat and notices new competitors or new channels emerging, it is really almost too late. What frequently happens at that point is a rush to determine if the firm can quickly change and create a counter-punch or new products and services. But, given the atrophied innovation skills and product/service development timelines, it simply is not possible to react quickly enough, so the firm abandons innovation and turns to marketing or pricing power.

Competition and changes in the economy - services, legislation, internationalization - are happening faster than ever. A firm can no longer simply wait and react, but must be scanning the horizon and generating ideas that have to do with future outcomes and possibilities. Once someone else has stolen the march on your firm, catching up is difficult and getting ahead even more so.

The motivation for innovation

I had the chance to speak recently with Dan Keldsen, who writes the BizTechTalk blog, and creates some podcasts as well. We created a podcast of our conversation on the motivation for innovation.

Check it out here: http://www.biztechtalk.com/2007/03/the_motivation_.html

Thanks Dan - I enjoyed the conversation and this is my first podcast.

B 2 B Innovation

I heard a speaker lament recently about the difficulty that firms in the B2B space face in innovation. Many firms that create a component or product within a larger supply chain feel there's little opportunity for innovation, since their outputs (products or services) are dictated to them as part of the supply chain. As long as this is your accepted horizon, you are probably right. But that's a fairly limited worldview.

I saw a framework that I liked a lot and it got me thinking about innovation and the supply chain. The framework below uses an example of coffee and the value chain associated with coffee, but it proves that there is the possibility for innovation anywhere in the coffee value chain.

The framework looks like this:

Commodity	Goods	Service	Experience
Coffee Beans	Maxwell House	Dunkin Donuts	Starbucks
Cents/pound	Dollars/pound	$1/cup	$3/cup

Now, as the coffee grower, I may argue that I only have the ability to sell my beans to the co-operative or the roaster and accept the prices on the market. However, as a number of growers have proven, coffee beans can be differentiated and innovated, perhaps not based on physical properties but on environmental, social and economics bases. For example, fair trade, shade grown and ecologically friendly coffee is more expensive, yet at their roots the beans are the same.

In each segment of the supply chain, there exists an opportunity to innovate. Sometimes this may mean the identification of new prospects or the creation of a new product or service based on existing capabilities. Sometimes this may mean innovating around a business model or service, or differentiating around attributes like the coffee growers above.

At another level, what this framework indicates is that people will generally always pay more for the "same" product that provides a richer experience. Since most needs are reasonably well met, we seek products that not only meet physical needs but also provide an experience, and we'll pay much more for products that provide more meaning and/or experience.

For a firm in the supply chain, how does the product or service provided offer more "experience"? Are there potential prospects or customers beyond your standard supply chain that you could offer an enhanced experience to?

The Empathy Gap

I was listening to NPR on the way to work early last week and heard a segment on Barack Obama and his ideas about what America needs. One idea in particular caught my attention - his concept of the empathy gap. Obama suggested that there was an empathy gap - simply not enough empathy for people who have less, earn less, have fewer educational opportunities. I did not get the chance to hear the whole speech, but his proposition was that we in America need more empathy for others.

Not long after hearing that, I attended an excellent forum of innovators run by the Center for Creative Leadership. A number of people who are leading innovation in their firms got together to talk about innovation in a corporate environment, and the successes and failures of their initiatives. One word that seemed to get used quite a bit, to my surprise, was empathy. Not what you'd expect from a bunch of business people seeking new products and services to provide to customers, with the ultimate goal of revenue and profit growth. Being somewhat slow on the uptake but never one to miss a pattern, I decided to look a little more closely at empathy as it pertains to innovation.

So I looked up empathy at www.dictionary.com:

the intellectual identification with or vicarious experiencing of the feelings, thoughts, or attitudes of another.

Empathy means being able to understand what other people think, what they need, what their attitudes are. In this light, empathy can be a very useful capability for innovators.

Generally we think of empathy as something that is exhibited when others are sick or hurting in some way. We may think of nurses or caregivers as empathetic. How often do we think of product managers or product designers as empathetic? If we are to create interesting and valuable new products and services, wouldn't it be helpful to identify with our prospects feelings, thoughts and attitudes? When is the last time you hired someone in your innovation team for the empathy skills?

Too often, we take as a starting point our current products and services and seek to change them slightly to "differentiate" them. What an empathetic firm can do is get under the skin of their prospects and understand what really matters to those customers and prospects and create something incredibly different. What we need in new product and new service development is the ability to understand, in a much deeper way, what our prospects and customers want, care about, desire and feel. Market research, trend spotting and some other capabilities can tell us what is likely to happen, but not why people think and feel the way they do. Perhaps we should look at a new measurement of skill beyond KAI or Myers-Briggs to see how empathetic a new employee can be.

This skill is especially important as many of our regular "wants and needs" are really already filled. What people want now is less about filling a physical need and more about completing an experience. People are seeking products and services that not only meet their actual needs but also meet their psychological, spiritual and emotional needs as well. Getting beyond the hard data to the empathetic insights may make all the difference.

Ideas in Context

One of the interesting challenges that innovation presents is that ideas are often "out of context". That is, ideas may be generated by people who are not responsible for their implementation, or ideas may appear but their scope and value are not clearly defined. When ideas are submitted with no context, they are difficult to evaluate and often don't move through the ideation process. If left without correction, eventually the idea management system becomes overloaded with interesting but ultimately useless ideas that simply sit in the system. This eventually leads to the decision that the system isn't working.

There are two ways to create context for innovation. The first is to publish a challenge or problem that needs to be solved. In this context, a team submits a challenge that the business faces or a problem that needs to be solved. The team also indicates the parameters of the solution, if applicable, and how the outcomes should be measured. So a challenge might look like this:

We are losing customers to Competitor X's new online portal. Our team requires new ideas to attract our old customers back to our portal and attract Competitor X's existing customers and prospects as well. A great idea will be measured based on its viability, it's ability to attract customers to the portal, the cost to implement, our ability to implement and the expected measurable increase in portal members.

By creating a defined challenge or problem, you can indicate:

• What the significant challenges the business is facing, so ideation is working on your most significant challenges
• What a solution might look like without limiting ideas
• How the solution will be evaluated, so ideas that don't pass these screens are less likely to be submitted

This provides much more focused ideation and more actionable ideas.

The second method to provide context is to ask the submitter for the context, evaluation criteria and measurement. Rather than simply allow individuals to submit ideas for the business, they need to also provide information regarding how the idea should be evaluated, what the measurable benefit will be to the business, the estimated effort and time to implement the idea and what part of the business will benefit. Too many suggestion boxes allow people to submit ideas with no context. Forcing the submitters to create the context will encourage more focus around the ideas and provide more direction for the idea evaluators. The obvious challenge with this approach is that each submitter determines what is important and drives the criteria, rather than the business providing focus.

Whether you use a focused challenge or an open suggestion box, developing the context for the ideas you capture will make your innovation process significantly more effective.