Wednesday, September 26, 2007

Check your assumptions

We all like a little context in our lives. We wake up each day expecting the sun to rise, to have oxygen to breathe and so forth. These are things we expect to be true, and we go to bed each night assuming these factors will remain the same the next day.

Most businesses act the same way. They operate each day with a certain set of assumptions. To be fair, it would be difficult to operate in any other way, since considering everything a variable makes decision making much more difficult. But what happens to many firms is that they take their assumptions for granted. Over time, these assumptions become givens, or are considered as fixed points that can't be changed. In fact, many organizations within the same industry will work to erect these factors to bar others from entering. A good example is legislation that bars companies from entering a certain industry or sets high requirements that not many firms can meet. Unfortunately, many firms go to bed each night expecting those factors to remain constant, in a world where few things are constant.

Innovators and disrupters on the other hand assume nothing is fixed or constant. In fact they will seek to break down or disrupt the very items that a firm or industry has erected, since they gain two benefits from doing so. First, they attack a firm at an assumed point of strength and second, they attempt to change a market in such a way that only the disrupter can benefit. Think for a minute - if every firm in an industry has accepted some criteria as a "given", then they have all based their operating models on that given. Disrupters, on the other hand, will disrupt a market specifically on these fixed attributes or boundary conditions, since these points are often ignored by the existing firms and create artificial boundaries.

Firms "safely" ensconced in an existing market seek to extend their market share or dominance in the market, and erect barriers to entry. Innovators seek to dramatically change a market in a way that an existing firm will have a hard time responding to or wants to protect.

Let me provide an example. One of my consulting clients is entering a market competing with several large, established competitors. These competitors are recognized as industry experts, and have close ties with their customers. The new entrant can't gain credibility very quickly over an entrenched competitor. However, the existing competitors have based their business model on consumer consumption. If the consumers acquire and use the product, then the competitors make money. There's no incentive to change the consumer's behavior in this market for the entrenched competitors, and it's not clear to them why a consumer would change their behavior. We're attacking this market on the basis of limiting or eliminating consumption and transitioning that consumption to another set of products and services. The existing competitor can't and won't do this because their business model assumes a growing consumption of the product and that's the way the firm makes money. We are attempting to disrupt the market not based on stronger distribution models or lower prices or tighter customer relationships, but by changing the consumer dynamic - the one place we believe the competitor cannot change its spots.

Look at your firm and the assumptions it makes about its markets, the "givens", the barriers to entry and how it competes. Just about any industry can be disrupted, and most will be disrupted in areas they don't expect. Banks right now are worried about Google, PayPal and other online transactional firms rather than investment firms or mutual funds. The digitization of music and movies will dramatically disrupt the recording labels. With some simple legislative changes the Democrats could completely change how we acquire and use health care in the next election. What do you take for granted in your market as a boundary or a fixed attribute that could be changed, skirted or disrupted?
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posted by Jeffrey Phillips at 2:01 PM 4 comments

Tuesday, September 25, 2007

Structural barriers to innovation

I was asked recently to discuss the most conducive physical space for teams that are working on innovation topics. The concern was that while a firm is attempting to become more innovative, the traditional cubicle environment blocked collaboration and discussion. I guess there are several ideas I have on this topic.

First, let's define the "innovation team". Generally speaking, innovation teams form, work and then return to previous duties. So it is rare that an innovation team works as a cohesive unit for a long period of time. Second, it is often the case that an innovation team is made up of people with different skills and capabilities who belong to different business units or functions, so in many cases the team is distributed geographically as well. If the teams are not cohabitating and are not permanent, then the "space" necessary for them to work in is psychic and online.

By "psychic" space I mean they need the approval and permission to work in ways that make sense for them, and to have the blessing of the management team to do what's necessary to increase innovation capabilities. I know of several firms where there are interesting rooms with bean bags and other wacky furniture but no one wants to risk creating an interesting idea because they know it will be shot down. Creating an atmosphere where anything can be considered, evaluated and recommended is important.

By online I mean that unless the team is physically cohabitating, most of the work is done virtually. The team needs excellent communication, collaboration and information sharing capabilities, and a well defined process that they each understand and commit to. Otherwise it will be difficult for the team to work effectively and the nature of the team will break down. Tools like collaborative software applications, simple communication vehicles and consistent virtual meetings will be very important.

Now, if the team is cohabitating, then what we'd like to see is a physical layout similar to a hub and spoke, with more emphasis on the hub. A large, central meeting area, very conducive to drop in meetings and discussions, centered on a number of smaller cubes of offices which encourages a lot of interaction. Good innovation has a lot of ebb and flow as part of its work - people will come together to generate and debate ideas or concepts, and then need to return to their desks to flesh out the idea and conduct further investigation and research. Then, they may gather again to discuss and elaborate the idea. This demands a space that is conducive to quick, impromptu meetings, "bull sessions", brainstorming and other group activities, and a place for quiet contemplation, research and evaluation of ideas in small groups or by a single user.

Sometimes people are concerned that the "tall walls" of their cubicle or office will get in the way. People who are completely bought into a process and have the assurance of their management team will not let anything get in the way of a great idea.
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posted by Jeffrey Phillips at 5:08 AM 4 comments

Monday, September 24, 2007

Innovation Equation

Sometimes, people want things in "black and white". They need to know there's some overriding formula or approach that if applied correctly will lead to the best results. Since the stakes are so high for innovation success, the investment risks so great, everyone wants to make sure they are doing things "right" from an innovation perspective. This thinking is the death knell of innovation.

If your team is worried about doing things "right", then they are constantly seeking to compare what they do to some known process or method. Unless your firm has been successfully innovative before, following any existing methods or processes is probably not going to be overly successful. Innovation generally requires change. Also, if your team is concerned about doing the "right" things, then they have concerns about doing the "wrong" things and will fail to experiment or stretch their vision or capabilities. Given the probabilities of success for any one idea or initiative, there are going to be some failures along the way. Too much emphasis on doing the "right" things will limit the number of ideas and focus the attention of the team on safe, proven ideas.

Innovation is a function of Insight, Execution, and Probability over time. As far as Insight is concerned, your team needs the freedom to understand what's happening in your market and where the opportunities lie. Once those opportunities or trends are identified, they need the ability to create and evaluate ideas to meet those opportunities and trends. As they do this, some ideas will fail, some will succeed, and some will morph to become completely new ideas. In this matter you can expect that probability will play a role. Ideas that seemed great on the surface will run into difficulties while ideas that seemed wild may prove to have value.

Time is also a critical element of the innovation function. Generating, evaluating and selecting ideas takes a significant amount of time, especially for teams just starting out or when innovation is not the primary focus of the team. Then, moving a new idea into product or service development and then launching the new product takes time as well, and even in these phases there may be good reasons to stop a project or kill an idea.

Insight, Execution, Probability and Time are some of the key inputs into an innovation equation. Clearly there are some "boundary" conditions as well. The capability of your teams and the culture of your organization play important roles in these equations. A limited viewpoint and a culture that resists innovation will stymie even the best innovation team. When your company attempts to innovate, are all of the variables addressed and optimized?
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posted by Jeffrey Phillips at 4:50 AM 4 comments

Thursday, September 20, 2007

Creating a positive bias

In most businesses, it's easier to be pessimistic than optimistic. That's because most of us would rather be seen as "realists" rather than optimists, since we don't control many of the inputs and outputs. Rather than have overly optimistic projections, and miss those projections, we'll pull in our horns a bit to stay safe. Likewise, it's usually easier to kill an idea than it is to sponsor one. New ideas require investment, risk and change, and the current environment of most businesses greatly dislikes these attributes.

When we work with firms to generate ideas and move them through a process to become products and services, we like to think about changing this "negative bias" - for several reasons. First, it's a cultural phenomenon throughout the organization, so everyone is looking for things to "stop doing". This means that the risk tolerance is very low, and change is resisted. In this environment, it is very difficult to create and evaluate ideas. Second, an innovation pipeline should be similar to a sales pipeline - many ideas should be generated early in the process, but over time as the ideas mature there will naturally be reasons to stop considering some of the ideas. Perhaps a competitor already has the projected product or service, or the concept does not fit within the business model. As ideas fall out of the idea pipeline, the pipeline gets smaller and smaller. If your "bias" in the idea generation and evaluation phase is too negatively weighted, by the time your process reaches new product development, your team may have ruled out all of the ideas.

Consider a venture capital business model. Fifteen to twenty businesses are funded, with the expectation that one hits a "home run", three or four become viable businesses and the rest fail. If you limit the number of ideas through a negative bias early in the process, you'll simply not have enough "critical mass" in the pipeline.

This concept of negative or positive bias impacts the culture as well as the idea pipeline. What do you want your organization to do and to think? Do you want them to reinforce the excitement and viability of ideas, or do you want your teams to constantly look for ways to eliminate ideas? Look at your rewards, recognition and compensation systems. What do you reward people to do? It's very difficult to innovate in a firm that has a negative bias towards ideas.
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posted by Jeffrey Phillips at 4:51 AM 3 comments

Friday, September 14, 2007

Low Hanging Fruit

In my last post - The Five Year Plan - I wrote about the effort required to change a company culture and create a real innovative organization. One of my readers left a post basically agreeing that it can be time consuming to change the culture and suggesting that a firm spend its early efforts focus on "Low Hanging Fruit". I don't necessarily disagree, but thought I would offer a counterpoint to a focus on low hanging fruit as an initial strategy for innovation.

There are at least three reasons why focusing on low hanging fruit can be a problem for an innovation team. First, low hanging fruit is usually somewhat obvious. If you attack a lot of problems or opportunities that others could have done if they only found the time, then the organization will ask if your initiative is really valuable, since you are only implementing ideas that have already existed. Second, if there is a lot of "low hanging fruit" - and there usually isn't - that says a lot about the organization. What motivated manager leaves a lot of good ideas on the table? There may be some easily identifiable ideas that can be quickly implemented, but I'll suggest to you that you'll run out of those fairly quickly.

Now, if you've been lucky enough to select and implement these simple ideas that have been just lying there for the taking, you've probably created a few enemies along the way, since you've either: 1) demonstrated another manager's lack of insight and/or talent or 2) taken an idea that they were going to pursue. Additionally, if you can implement a lot of ideas that are very simple to identify and bring to market, you've not asked for the firm to commit any resources, and you are probably implementing very incremental ideas.

This last point leads to the problem of expectations. Once you've implemented the easy ones, if there are any, then your pipeline is empty. You've demonstrated the capability of implementing simple ideas but you've not created anything new, nor have you prepared the organization for the challenge of creating and implementing more sophisticated ideas that will take longer and cause more change. In fact, what you've done so far is to demonstrate that innovation is about choosing very easy ideas to implement that don't seem to cost much or change the organization. So, the management team will have some concerns when you come to them, eight to twelve months into the program, and ask for more people and more resources in order to really implement innovation as a consistent capability. You'll not have a choice at that point, since a lot of the low hanging fruit will be gone, or taken off the table by other managers. Yet you've never set an expectation of investment or cost, never built a process or a team.

I think it's important to select a few ideas that are "low hanging fruit" to build credibility early, but you need to set the expectations and understand the strategic intent of the senior executives if you want to create a longer term capability. Any individual or consultant can go into just about any firm and find three or four ideas to implement quickly - that's not really a challenge. The challenge will arise when the "low hanging fruit" is gone, and you have to change the managements' expectations about investment and return.
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posted by Jeffrey Phillips at 4:58 AM 9 comments

Thursday, September 13, 2007

The Five Year Plan

Now, many of you, seeing the title may have been led to believe I was going to be commenting on your college career (perhaps it should have been titled the Seven Year plan) or was reminiscing about the old Soviet strategic planning models. Well, fortunately for you, gentle reader, the Five Year plan I'm going to write about today has more to do with the commitment to become an innovative firm, rather than any Soviet era planning approaches. Hopefully, the concept will also have more validity.

Most people want things when they want them (like right now). So, when we embark on an innovation project, inevitably one of the first questions is: when can we get some innovation results? Well, frankly that depends a lot on your culture, your approach, your decision making capabilities and the number and breadth of good ideas that already exist. Starting from scratch, it will be hard to deliver a lot of "innovation" very quickly.

In fact, if you consider it carefully, this makes a lot of sense. Becoming more innovative requires a cultural change, and consistent emphasis across the organization. These kinds of initiatives don't happen overnight. Additionally, no matter how quickly you generate ideas, they still have to be evaluated, compared to existing products or services, and pushed through a development process. And, concurrent to all of that, you've got to continue to run your existing business.

What I like to recommend is a three to five year effort, to roll out a reasonable, rational set of actions that will move the firm gradually but inevitably to becoming more innovative. Let's take a look at the actions and how they break down over time:

Year One

Identify and train a small working team
Initiate some brainstorming
Communicate the intent to become more innovative and indicate key areas for strategic growth
Start defining and implementing a consistent process

Year Two

Start gathering trends and analyzing them
Start a training program to train individuals outside of the innovation team
Begin implementing ideas that were generated in the first year
Start measuring the innovation process
Gather and report an innovation pipeline or portfolio

Year Three

Produce a new product or service based on the early ideation work
Begin the work to implement new disruptive or "white space" ideas
Implement programs to recognize and reward people for innovation
Demonstrate the success of the process by launching innovative new products or services
Evaluate actuals to plans for early incremental ideas

Year Four
Launch a disruptive idea that was generated two or three years ago
Identify the final locations or processes within your culture that still resist innovation
Tweak your innovation processes and goals
Demonstrate the capability to produce consistent incremental innovations

Year Five
Demonstrate consistent innovation achievement across the organization
Recognize individuals who have consistently innovated
Demonstrate to the firm and the market the consistent benefits of innovation leadership

You may quibble with some of these actions and this timeframe. That's OK. Some firms may be able to mature their innovation capabilities and culture more quickly. However, for most firms I doubt this can be done in less than three years unless the firm is in very difficult straits and aligns completely to innovation focus from the outset.

The most likely path for most firms is:

First year - tinkering with ideation and brainstorming in a few select areas of the business
Second year - implement a central team and start defining a consistent innovation process
Third year - work specifically on changing the corporate culture to embrace innovation and start generating and evaluating disruptive ideas

It's rare to find many firms that will, from a standing start, embrace disruptive ideas and change a corporate culture to become more innovative. Senior executives recognize the challenges embedded in changing a culture too quickly, and creating too much distraction from the day to day operations as well.

So, what does this mean? It means that your firm needs to make an early decision when focusing on innovation. It is relatively easy to tinker at the margins and gain some measure of incremental innovation success. However, low risk will generally mean low rewards and little change to the organization. It is much more difficult to create a long term consistent innovation focus and get corporate wide buy-in to becoming a consistent innovation leader. Before you embark on an innovation effort, make sure everyone understands the commitment level and timeframes associated with the change.

While your management team may want innovation "now", they WILL BE disappointed with the results if they aren't willing to make a long term commitment.
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posted by Jeffrey Phillips at 8:31 AM 7 comments

Tuesday, September 11, 2007

PDMA 2007 Innovation Event

For those of you who want to mix and mingle with an innovative crowd, there are a number of opportunities coming up this fall. One you should definitely check out is the PDMA 2007 Innovation event. Each year PDMA sponsors at least two large events, the Front End Conference and the PDMA fall innovation event.

This year the PDMA has a very interesting program on innovation. Just a look at the website for the event will tell you that the folks at the PDMA believe innovation is changing the way we think about business. This event is one of several where we at OVO will be in attendance, either as a sponsor, a facilitator or as an exhibitor.

Now, if the concept of an interesting innovation event is not enough to grab your attention, then maybe the fact that the conference will be in Orlando, on Disney premises, will tip the scales in favor of your attendance? I hope you'll consider coming to the PDMA Innovation Connection event September 30 - October 2nd in Orlando.
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posted by Jeffrey Phillips at 1:41 PM 3 comments

Monday, September 10, 2007

Culture, Uber Alles

Every once in a while you'll see something that appears so obvious that you'll wonder why it was even attempted at all. For example, it turns out that overeating and lack of exercise can lead to obesity! Or, for another example, the firms with the most success at innovation have a culture that embraces innovation.

Yes, culture matters. According to a recently published study in MIT's business school publication, corporate culture is the most important factor for innovation success. The authors of the study defined a culture of innovation as one that has a future market orientation, a willingness to cannibalize and a tolerance for risk.

Well, as my kids say - "Duh".

Everybody wants to innovate - after all, how many CEOs will stand up and say "We want to be the followers in our market. We want to be second best." Everyone wants to innovate, but too often things, like culture and bureaucracy get in the way. People know instinctively that innovation is important, but making the quarter is really urgent, and we'll get to that innovation stuff eventually. Corporate culture is really good at weeding out things that aren't emphasized, measured or rewarded. If you can't point at an exact measurement or benefit from innovation, then it won't happen in your organization.

Culture blocks innovation in several ways. First, most corporate culture doesn't like risk or change, and innovation requires both of those. Second, most corporate cultures like well defined opportunities with little deviation or change from a stated goal. Again, innovation violates that. Third, corporate culture is generally about preservation. The authors noted that a focus on cannibalization is important, and requires a future perspective. So, innovation goes against the grain for most corporate cultures.

Except where it doesn't, as Dr. Seuss would say. I found it interesting that Steven Jobs, head of the innovation organization known as Apple said that if his products were going to be cannibalized, he was going to be the cannibal. Jobs has a future orientation - which means he's concerned with what comes next, and is tolerant of risk because he has failed, as often as he has succeeded. That's another problem with corporate culture in most firms. Most firms can't tolerate failure and punish it rather quickly. Firms that want to be innovative will fail, and those that punish failure will tamp down any innovation.

Did we really need research to know that culture is the biggest barrier or the biggest contributor to innovation success? Possibly. Sometimes the obvious needs to be stated in order for us to accept it. Now, the question is, how do we change our culture to make it more accepting of innovation. That's the subject of our latest white paper - see it here.
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posted by Jeffrey Phillips at 2:23 PM 2 comments

Wednesday, September 05, 2007

Innovation - Project or Program

In most businesses, when the management team gets interested in a new methodology, concept or approach, they'll ask for someone to head up a project to explore the possibilities of the new thinking. In this way the team can investigate a new method or approach without a lot of fanfare, and the management team can quickly end a project that does not seem to add value.

Today, a lot of firms express interest in innovation as a new direction, but are unsure of the investment and amount of change necessary to become more innovative. It's understandable that the management team wants to see some validity to the approach and some small successes before creating a significant investment and implementing broad change. However, project based innovation is exceptionally difficult to do well.

Most projects have a logical start and end, and follow well understood plans. Projects are staffed by pulling people together on a part-time basis and providing only the bare minimum funding, resources and time to experiment with a new approach. At the first sign of trouble or pushback, the team will report its difficulties and in many cases the project will be shut down. In other cases, something more important will come along and the members of the team associated with the project will be pulled off to address the more important issue.

It is difficult to treat innovation as a project, for all of these reasons and many more. Yes, you can turn on and turn off idea generation, so you can treat brainstorming or ideation as an occasional effort, but people tire of this approach quickly if the ideas they generate are never evaluated or used downstream. To create really innovative ideas, people need freedom, space and time to generate, manage, compare and evaluate ideas. In a project setting, there is simply too much pressure to get something done quickly, and little commitment to the team or changing the way people work.

Innovation should be thought of as an open ended program, an initiative that has clearly defined benefits and actions but no defined end date. Innovation requires good communication to a broad audience so people understand what's happening and why it is happening, and will probably require change to the way people think and work. If the approach is limited and time-bound, little change to the work approach or culture is possible. Innovation also involves risk - if the management team is not willing to allow some risky ideas or ideas that take some time to develop, then it is not serious about innovation over the long run, but is seeking some "quick hits" to add to its product portfolio.

Innovation projects will rarely succeed, unless they are embedded in a program that ensures innovation becomes an expectation of the business. With that in mind, examine the involvement, funding and resources provided by the management team, and the amount of communication and cultural change they are prepared to create to understand if your innovation task is a project, or a program.
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posted by Jeffrey Phillips at 4:37 AM 4 comments