Book Review: The Innovator's Guide to Growth

I had the good fortune to meet Scott Anthony and some of the co-authors of The Innovator's Guide to Growth at the Front End of Innovation conference last week. This book presents a number of the concepts from the Christensen series (Innovator's Dilemma, Innovator's Solution, etc) in an approachable, step by step methodology for implementation. In that manner, this book and my book (Make us more Innovative) are great companions, since The Innovator's Guide is really focused more on the strategic aspects of understanding how to deploy an innovation capability and align those strategies to corporate goals, while Make us more Innovative is written to detail how to build a complete innovation capability. But enough about my book.

I really liked The Innovator's Guide to Growth because it attempts to take all the great concepts about innovation and break them down into an actual guide that an innovator could follow to bring more innovation to his or her company. This book has a lot of good templates, forms and examples to help a nascent innovation leader define the innovation intent and goals and convince the management team to engage in an ongoing program of innovation.

The book is breaks down into five sections: precursors to innovation, identifying opportunities, formulating and shaping ideas, building the business and supporting systems and structures. Key points from each section:

• A firm can't innovate successfully until it's house is in control and a good game plan is in place
• Many innovation opportunities exist in "nonconsumers" (think the unbanked or un-insured) or in situations where products and services "overmeet" the needs of customers (think Southwest in airlines)
• The chapters on identifying ideas spend a significant amount of time on defining the "jobs" that people want to complete - again harking back to Christensen's books and to the concept of Outcome-Driven innovation which has also been popularized by Strategyn.
• Developing and shaping ideas focuses on refining ideas and targeting opportunities using a strategy map borrowed from Blue Ocean strategy and using innovation techniques such as ideation sessions, analogies and internal and external submissions
• I felt the chapter on assembling and managing project teams was fairly strong and identified a number of good points, especially on the interactions between an innovation team and the executive team, and the innovation team and the rest of the organization
• The chapter on innovation metrics should be must reading for any innovation program
  

This book takes it's primary focus as disruptive innovation and does not spend much, if any time on any other innovations. It does have a broad definition of the outcomes of innovation (products, services and business models) and does note that many times the most disruptive and most defensible innovation is a business model innovation. It is an especially good book for an executive team that needs to understand how to build an innovation capability and set the appropriate expectations.

There are a few quibbles I have with the book, however. The first two thirds of the book are really loaded with good advice, templates and forms and case studies. Somewhere in the late middle of the book, where the book begins to address refining ideas and building the innovation team, the book begins to become more theoretical and less practical. For example, what kinds of people or skill sets are better or worse for an innovation team? Should innovation be a centralized or decentralized capability? What are the best idea generation methods? What should an innovation process or methodology look like? What are the roles and responsibilities within innovation? These questions are addressed obliquely, if at all, and important topics like rewards and recognition and corporate culture are not addressed at all. Perhaps the team assumed these items are already addressed if the firm has decided to become more innovative.

While I have a number of concerns with the book as a practical methodology for deploying an innovation capability, I can wholeheartedly recommend the book, especially the first six chapters which focus on the alignment of innovation to corporate strategy and intent, and chapter eight, which is about building and managing innovation teams. I think that the segue in the middle and last third of the book from practical advice, templates and forms to more theoretical advice may align to the fact that the actual deployment of these programs is subject to many more variables, but I would have expected a bit more detail in the chapters on organizing to innovate. I will point out that chapter ten on innovation metrics, while a bit short, is an excellent overview and mirrors a lot of good advice on building innovation metrics and the expectations around innovation returns.

This book definitely belongs on the shelf of any executive considering an innovation program or initiative, and on the desk of any innovation leader.

Finding lead users is easier than you think

Eric von Hippl, in his book Democratizing Innovation, introduced the concept of "lead users". These are customers of yours who are already innovating the products and services you offer, by using them in different ways than you anticipated or by aggregating your products and services with other products and services to create a new solution. The classic example is the mountain bike, which was originally built by hand from a wide array of spare parts until Specialized noticed that there was a market for these bicycles rather than just selling the parts to people who were crafting an entirely new type of bicycle. These "lead users" practically created a new market.

Well, the hard part about lead users is finding them. Every firm has a few "lead users" but it may be hard to identify which ones have great ideas versus which customers are just very vocal complainers. In evaluating some social networking tools and having read "Groundswell", the task of identifying lead users may be a bit easier if you are willing to get into a real dialog with your customers.

Groundswell, the new book by Charlene Li and Josh Bernoff of Forrester, does a good job of presenting the power of social networking and social media tools such as blogs, forums and other interactive media. What I failed to realize until recently is how powerful these techniques can be to help you identify your most enthusiastic and energized customers - the folks who may actually be your best lead users. If your firm has the stomach for interacting on the most immediate and public level with your clients and customers, you may have a short cut to better ideas and to lead users.

What several firms have found is that by blogging and creating the means for interaction between the company and the customer base, there are a number of great ideas that are exchanged. But more importantly, a few people self-identify themselves as actively engaged with your products and services in ways you had not considered. These are usually very active participants in online communities and can be recruited to provide insights and ideas about your products and services. This effort is a virtuous cycle - as you listen and take action on what the lead users tell you, you gain even more insights and stronger relationships.

But, all of this comes at a price. Firms that are actively engaged with their customers have internal teams focused on blogging, forums and communities who are constantly exchanging information with their prospects and customers. To gain this level of exchange requires a significant investment in resources, and the willingness to "put it all out there" and hear both the good, and the bad, about your company, its products and services.

You can tap into lead users in ways you may never have expected, with less effort and more specific targeting, but it will require that you open up to a dialog with your customers at a level you've never had before.

Crap Shoot

Before we go any further, ponder this inponderable: Is one really big failure better than three or four small failures?

I was pondering this recently while talking to a participant at the Front End of Innovation show. He was quickly reviewing his firm's innovation process. It seems that his team had generated hundreds of ideas using reasonable approaches, evaluated them and selected one to move forward with. I was nodding along, very interested and engaged right up until he said "one". I decided not to react in my normal way, which would have been to fall down laughing or to roll my eyes, but instead let him carry on to tell me the idea had not been successful but his team had faith in the process.

So, back to the inponderable: As a manager or executive in a large firm, are you compensated to create risk or reduce risk? Does it appear wise to risk a lot on one roll of the dice? Would you, like some Las Vegas high roller, push all the chips in the middle for one good roll of the dice or spin of the roulette wheel? If you can see where I'm heading, stick with me for a minute. If I've lost you in the inponderable, then perhaps your gambler mentality has kicked in.

Logical gamblers, also known as venture capitalists, make a spread of moderate bets across a number of ideas or technologies. They KNOW going in that many of them will fail, but some will succeed and one or two will provide tremendous returns. No good VC bets everything on one idea or one technology. However, most firms that we talk to have a bias towards getting to the "one" good idea. There are so many problems with this thinking that a blog post simply can't do it justice, but here are a few concerns with this approach:

1. Being able to pick the "one" great idea out of a stack of reasonable ideas
2. Working with only one idea when the possibility for failure of any idea is so high
3. Raising the stakes so high since everything is stacked on the success of the one idea
4. Creating a project that's "too big to fail" since we don't have a second option
   

No, I don't think most shareholders expect their management teams to place risky bets. They want to know that the firm is investing money appropriately according to risk and return. So why would an innovation team, having generated hundreds of ideas, select a single one to move forward with? Why not try out four, or five, or six ideas, knowing full well that one or two of them is bound to fail. It may turn out that your team finds value in two or three of the ideas and decides to commercialize all of them. However, if your one idea turns out to have a hidden flaw, you don't have an alternative available.

Albert Einstein was famously quoted as saying that God did not roll dice. Well, if he doesn't, why should any innovation team?

Why IdeaStorm and Salesforce Ideas are fads

OK, perhaps you can say I'm biased. I am, after all, in the business of helping firms create sustainable innovation programs, and we do build innovation software. But I think I can raise a few legitimate points about the current wave of excitement about the intermingling of social networking tools and innovation software. The two best examples of these are IdeaStorm and SalesForce Ideas, although there are a number of other content management and collaboration tools offering to serve as innovation tools.

First, let's clarify our language. Having a bunch of people submit ideas to a portal is NOT innovation. That is simply a sounding off process, mostly about the problems that exist with current products or perhaps some incremental innovation ideas about how to change the existing products. While interesting and valuable, that's not innovation. Second, innovation is about being able to take ideas from any source and convert them into new products and services that add value. In the words of one of the IdeaStorm personnel:

I love seeing companies embrace this method of listening and engaging the customers. One caution I would send out to anyone setting up a larger scale idea site is the need for a management back end. You can only imagine trying to sort through and actually work on the almost 9K ideas we have so far without a method for tracking status, assigning owners, etc. Do you know if these other vendors offer the idea management tools as well?

So, while many of these applications can accept ideas from anyone, anywhere, they don't have the facility to manage, distribute, evaluate and process the ideas so that they can become new products and services. If the folks at Dell are seeking idea management tools after a "successful" implementation of their IdeaStorm application, what does that say about the downstream processes and capabilities? After all, anyone who works in innovation will tell you that idea generation is easy - managing, evaluating and maturing ideas is the hard part. We think this is where the actual value in innovation resides - having a process and team that can consistently manage ideas and convert them into new products and services.

Next quibble? The reliance on "wisdom of crowds". The social networking and collaboration engines will tell you in no uncertain terms that this is the best way to identify good ideas. That statement is probably true for problems with existing products and exceptionally near term incremental product changes. What the advocates of "wisdom of crowds" models don't tell you is that the crowd can be easily swayed. Look no further than the election for president. In January Hillary Clinton had a huge popular lead based on prediction markets and polling. If we'd made a decision then based on the "wisdom of crowds" we'd have president Hillary already. Wisdom of crowds and prediction markets fail repeatedly when new information is introduced and when new products, services or people are introduced. Other evaluation and consideration means are necessary when your firm is going to place a big bet on a breakthrough or disruptive idea. While your firm may want feedback on existing products and services, will you outsource your new product and service development to the market? If you do that, how do you differentiate from your competitors who are also listening to the same people?

Another concern about broadbased open innovation? Intellectual property ownership. If an idea is submitted by a consumer or customer, who owns the idea? Has the person submitting the idea done any research to investigate if that idea actually belongs to someone else already? What if the submitter claims rights to the idea or wants royalties? This is not to say that firms shouldn't acquire ideas from external agents, just that there are other, better ways to do this, especially as the ideas become more disruptive or have a higher market potential.

These open suggestion models are interesting but will ultimately run into many of the same problems that doomed the physical suggestion box:

1. Too many ideas are submitted for the teams to manage
2. There is no downstream process for managing ideas successfully
3. The ideas address too many different challenges and issues to manage effectively
4. The ideas usually don't address issues the management team considers strategic
5. There are concerns about the ownership and legality of the ideas

Innovation is more than simply receiving ideas from a broad array of people. Implemented effectively, innovation is a consistent process of gathering ideas, evaluating them, piloting or prototyping ideas and then creating new products, services and business models. If all your ideas come from crowds, then you are following the crowds, not leading them to new markets or new products. As Henry Ford said, "if I had listened to my customers I would have made a faster horse".

What's Innovative? Who is Innovative?

I read Ellen Domb's article on the BusinessWeek list of innovative firms, and her thoughts struck me as basically correct. I'm not sure that this list of firms represents anything other than a list of well known firms that have been reasonably successful lately. You can see the BusinessWeek list for yourself here. Click on the link labeled interactive scoreboard to see the list.

I think there are probably several reasons why this list fails to satisfy. One reason is that it is often difficult for people to arrive a a standard, common definition of innovation, since it means different things to different people. I doubt there was a good definition of innovation used, and used consistently, as people recommended firms for the list. Some of these firms are just very good at customer service or other aspects of business, but that does not make them innovative.

Another point is that some firms on this list are there because of what they MAY do in the future, not based on innovative skills they've demonstrated in the past. Likewise, some firms on this list are resting on old laurels and haven't been innovative in quite a while.

GM is a good example of a firm that is on this list because of what it says it will do - will create hybrid cars, will change the way designers and engineers work together. Is GM an innovative company? I don't think the American car buying public thinks so. Could GM become an innovative company? That's possible, but I don't think they've demonstrated that yet. Likewise, 3M is on the BusinessWeek list, but anyone who has followed 3M closely knows that innovation at 3M took a real hit when the board brought in a Six Sigma aficionado who clamped down on research freedom. Only lately has that been reversed, so 3M is on this list based on its innovation reputation from five to ten years ago.

Thanks to the interactive scoreboard that BusinessWeek provides with more details on the top 50 companies in their estimation, we can dig a little deeper. Certainly, being an innovative firm will enable your company to drive margin growth? Well, of the firms on the list, only 10 have had margin growth of double digits over the last 3 years, and 20 firms on the list have no margin growth or negative margin growth over that same period. If these firms are innovative, why can't they command a margin premium?

The problem with a survey approach like the one used by BusinessWeek is that it has a lot of bias built in for companies that are "known" innovators, or that are simply well known. Some of the firms on this list are innovative - Apple, Google, etc - and some aren't (Wal-Mart???) Some of these firms had a focus on innovation, but have recently shifted direction. BP is probably the best example - John Browne, the former CEO was very enthusiastic about innovation, but the new CEO is not.

When we deign to make a list of innovative firms, let's be sure to use more specific definitions, and identify firms that are actively innovating and able to demonstrate what innovation has meant in terms of new products, services, business models and the returns that the innovation has delivered.

Hunters and Farmers

When I ran a sales force, I noticed that some members of the sales team were really motivated to sell to new clients. They were interested in "bagging the elephant" as the saying goes, and had little interest in hanging around after the sale, penetrating the account and offering account management. We called these folks the "hunters". Likewise, there were a number of sales people who preferred account management, doing the little things to win new work in existing accounts. These individuals were called the "farmers". A well-balanced sales team has a mixture of new account types who enjoy winning over the new accounts, and account managers, who excel at growing existing accounts. Makes sense, no?

So, why am I telling you about the structure of sales teams on an innovation blog? Well, I believe there's a corollary to innovation in the sales team mixture as described above. In most firms, there is a preponderance of people and effort expended on making the current organization run. Just about every process and every person is focused on near-term results and keeping the existing model "whole". In other words, the vast majority of the people in any organization are focused on existing product and service management. They relate closely to the account managers in a sales organization, who seek to carefully grow existing opportunities. The place where the analogy breaks down is in finding a corresponding match for the "hunters" in the sales force in the rest of the organization.

In most firms, few people are concerned about bagging the next elephant when it comes to creating a really innovative new product or service. Sure, there are a few people tucked away in some corporate strategy team who ponder the long term future, but at a product or service level the vast majority of people are responsible for ensuring we don't mess up what exists today. Even the "new product development" people in most organizations are simply forecasting the incremental model changes and product roadmaps, so they aren't really big game hunters.

If a balance in the sales force between hunters and farmers is appropriate, and both are very necessary, isn't there also a need for hunters and farmers when it comes to product or service development and management? The vast majority of people I interact with from an innovation perspective are very comfortable with growing existing opportunities or perhaps considering the next incremental innovation, yet virtually no one is out on the tundra, the veldt, the dark forest (insert your own "heart of darkness" metaphor here) where the rules are a little less defined, the stakes are higher and the risk is greater.

Shouldn't every product line or service area have at least one hunter - someone who is actively tasked with identifying the next big opportunity and who does not have day to day operational responsibility? Who within your organization is actively considering the products and services that should be delivered in 3 to 5 years, and what impact those products and services will have on the market? Can that person or team work outside the existing thought processes, culture and bureaucracy to envision something completely new and different?

Where are the hunters in a product or service development in your organization? What are they hunting, and what weapons are they using? Have you considered the appropriate mix of "farmers" - those who carefully grow the existing products and services and "hunters" - those who identify and bag the next big opportunities? Certainly the model is heavily weighted to farmers, but does your model leave room for the hunters?

Six Secrets of Business Model Innovation

I've had the opportunity to interact with the folks at Peer Insight for several years. They are without a doubt a leader in the concepts and approach for service innovation. Recently I had the chance to review a new presentation they've made available on their website. If you visit, click on the link on the left hand margin about the Six Secrets of Business Model Exploration.

What the team at Peer Insight have kindly done for you is to create a "field guide" or methodology for thinking about innovating around services. What's nice about this is that the guide applies well to just about any firm interested in innovating from a services perspective, so firms that are purely services oriented (banking, health care, hospitality) can use the guide, as well as firms that provide products as well as services.

As most of us will readily admit, innovators are great synthesizers, so while there may not be a lot of "new thinking" in the document, there's a great rationale and approach for you to consider if you are just starting to consider innovation as a key capability, or are already underway. Each of the Six Secrets is documented and in most cases several tools or approaches are provided. The key is that while your firm may have addressed one or more of these "Secrets", it's unusual to find a firm that has deep knowledge and competency in all six.

Another thing to know about innovators is that they are more than willing to steal (politically correct word is "borrow") from others who have good methodologies or models. I'll be considering how we at OVO can use what Peer Insight has generously provided as a field guide when we work with our clients. I'd suggest you take a look and see what insights the field guide and the folks at Peer Insight can provide for you.