Monday, February 25, 2008

Innovation learning curve

In any new task, a person or team faces a "learning curve". Simply defined, the learning curve is the culmination of experience, mistakes, lessons learned and knowledge that one gains when doing a specific function or task. Inevitably, one starts any task as a beginner and masters the task over time, by doing it again and again.

How does a batter become a .300 hitter in baseball? By taking batting practice, and refining his swing over countless practice sessions. How does a person gain mastery over a piece of machinery like a drill press? By training on the press and working with it for years. Every function, everything we do experiences a learning curve. Which is why it is a bit of a conundrum when people are asked to demonstrate mastery of innovation when it's not done repeatedly.

Talk about a learning curve - innovation means creating new products or services in an environment that may not be fully aligned to the task, with people who often have to invent the process. Since innovation is rarely repeated, the models and processes are seldom reusable, so the innovators are constantly reinventing the process. Each team of innovators faces a learning curve, and most never achieve mastery, much less sustainable competence, and can't pass on their learning to other people.

Ever wonder why innovation seems so "hard"? Well, there's never the ability to "master" the innovation process, and in most cases there isn't even a process. A good analogy would be to ask a purchasing agent to use a different system and process every time they acquired a product or service, and to constantly switch the product or service they were acquiring. How could such a person ever master the situation and become proficient? Now, we'd never ask purchasing to constantly switch tools and processes, but most firms have no compunction whatsoever about switching innovation processes and teams, but expecting excellent results.

Innovation is a capability, a process and a skill that demands a learning curve. If your firm desires a capable, engaged innovation process, then it needs to allow the individuals who innovate to gain the competence and mastery of the process. This means that they need to work to a consistent process, and innovate over time using different ideas as drivers. It will mean they will fail, and incorporate that learning. If the innovation teams can't work to achieve innovation competency and mastery, then everyone faces a steep learning curve with unrealistic expectations.

In this case, hope is not a strategy. Innovation requires a consistent process and demands a level of competence just like any other process.
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posted by Jeffrey Phillips at 6:32 AM 5 comments

Thursday, February 21, 2008

Most Innovative companies

Well, it's happened again. A magazine has taken it upon itself to identify the most "innovative" companies in the US. This time its Fast Company. It's March 2008 edition has a list of the most innovative companies as chosen by the writers and editors of Fast Company. The criteria used are not identified, and this points out just one of my concerns about these types of lists. Beyond a lack of criteria, there are a number of other concerns with this list.

First, if we are going to establish a list of innovators, it would be nice to know how "innovation" is being defined. Does this mean constantly generating radical, disruptive innovation, or demonstrating consistent incremental innovation, or both? Innovation in services, business models or products, or all of the above? Using a defined innovation method or model, or at best an ad hoc innovation?

Second, does it "count" if you acquire innovation? Several of the firms on the list acquired a lot of their innovation skill through acquisitions of other companies. Does the fact that they have a team that innovates make them an innovative company? Or will the larger firm kill the innovation goose?

Third, any list like this identifies firms that are probably past their prime in terms of innovation. Sure, some of the firms on the list are still innovating, but most likely a fair number of these firms are resting on their laurels. It would be hard to identify the most innovative firms, since the innovation work they are doing RIGHT NOW won't be apparent for another year or two at best. This list is the most innovative firms from 2005. To a certain extent this is like the French thinking that the Maginot line was going to protect them from the Germans in WWII.

Fourth, this is a hodge-podge list of usual suspects. What I'd prefer to see is what the experts thought were the most innovative firms by industry. It's easy to say that Google and Apple are innovative. But what's the most innovative automobile manufacturer? Strangely enough, none are on the list. Is there no innovative in the automobile industry? How about the most innovative financial services firm? Is Fidelity more innovative than Vanguard? OK, Toyota and Prosper on the list for automotive and financial services, respectively. Does this mean that Toyota is really the most innovative automotive firm? The argument for Toyota seems to rest on the fact that Toyota has a 16% market share in the US and sold a significant amount of Tundra pickup trucks. Toyota clearly has the lead in hybrid vehicles, but could Tata be more innovative after introducing a $3000 car? How about other automotive firms?

A slightly more interesting way to consider this would be to look at the firms that are innovating in a particular industry. For example, the traditional consumer banking industry is being innovated from within - by Bank of America and Wachovia and Wells Fargo, and from without, by financial services firms like Charles Schwab and by less traditional competitors like Prosper, Paypal and Google. Which firms are creating the most innovation and change?

The magazine does a disservice (I think) by not being more specific with its criteria or unveiling its definition of innovation. To many firms we work with, getting the definition right is an effort. Then, it identifies a usual suspects list without really telling us why Toyota for example is considered more innovative than other automobile firms, and the short text in the article seems to use market share as a selection criteria. Having worked in the industry and seen behind the curtain at several of these firms, I can tell you that there are strengths and weaknesses in these selections. Some of the larger firms are very uneven in their application or capability for innovation, varying from business unit to business unit. Some of these firms are resting on their laurels. And some firms, like WL Gore for example, were left off the list.

Here's my recommendation: take a snapshot of this list and look at these firms and their competitors in two or three years. That's when we'll know for sure who is the most innovative right now - it will take a couple of years to demonstrate which firms are consistently innovating and doing it well right now.
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posted by Jeffrey Phillips at 2:32 PM 7 comments

Friday, February 15, 2008

Reductive Innovation

In their great book Blue Ocean Strategy, Kim and Mauborgne provide a nice array of tools to think about the potential of new markets and new market segments for innovation. One of my favorite tools is the concept of underserved and overserved markets. An underserved market is a segment or group of people whose needs are met, but not completely met. An opportunity exists to serve them in a more complete and total way. An overserved market is a segment that has more than it needs, and could be enticed with a solution that provides the capabilities that are necessary and no more.

Watch carefully, then, the advance of some new products coming out of India. In the last few weeks Indian companies have announced the Nano car, which will cost less than $3000, and new cell phones that will cost less than $30. In the article about the phone, the author notes that the phone "has jettisoned all non-essential features - such as a screen". Well, when you don't have landline service and the thought of having any telecommunications service at all is a pipe dream, receiving a cell phone that works but lacks a screen is probably the least of your worries. While many of us in the States and Western Europe pine away for the latest touch screen technology integrated with MP3 capabilities for our phones, billions of people don't have any reliable telecommunications at all. This Indian firm is opening up telecommunications to a version of the "long tail" - except this is a vast but underserved mass market that won't miss the screen.

This thinking is virtually never reflected in the West. When we think of innovating, we are constantly asking - What can we add? not, What's best for the customer. So, inevitably, we end up with bloated products that have lots of features and gizmos that are supposed to be interesting and helpful but are just difficult to understand and use. If you use Vista, do you think this bloated piece of software is really innovative? Why do I need to relearn to use the software applications I've used for years. But I digress.

Frequently we should be asking ourselves as we innovate what we can REMOVE from a product - what features are unnecessary, or, what features or services if removed could open up an entirely new market or customer segment. Probably the only people who do this well are industrial designers, who are seeking the cleanest, sleekest look and customer experience. For the rest of us, innovation too often means larding up the product with features people say they want, but don't necessarily demand.

Sure, one way to look at the advance of the inexpensive Indian car or cell phone is to say that they've just found ways to cut costs and bring products to market that the Indian economy can afford. Think about this - that same customer profile exists in India, China, much of Southeast Asia, Latin America and Africa. The potential customer base is huge. Will we see Nokia and Motorola quickly copy suit to bring forward new, inexpensive phones to attack a dramatically underserved market? If the Indian firms learn innovative skills though reduction, what new products or services could they create or existing markets could they disrupt?
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posted by Jeffrey Phillips at 5:02 AM 8 comments

Tuesday, February 12, 2008

Justifying Innovation

We were asked recently to consider speaking on the topic of justifying innovation. That's a difficult topic but one that needs to be addressed, since many individuals are being asked to start an innovation initiative, but also justify the investment in resources and dollars, and the opportunity costs.

As I told the conference coordinator, if I had all of the answers to justifying the investment in innovation, I wouldn't be speaking at conferences but would be instead relaxing under a palm tree in a tropical resort with a tasty beverage in hand. However, even if we don't have all the answers, I think we do have a number of the questions. So, let's start there.

First question we ask when someone wants to "justify" innovation is: Innovation project or innovation program? I see these are very different, and the ability to justify or build a potential ROI for a project is fairly straightforward. If we take these actions to create this new product or service, we project that we'll have this return. Then you can apply your standard ROI or IRR models and make a decision. What if the real goal is to justify an innovation program - putting in place a longer term capability to encourage innovation broadly, to provide techniques, tools and processes to encourage everyone to innovate? How does one justify what is for all intents and purposes infrastructure?

Next question - why do we need to justify innovation at all? No one would ever question the relative value of a purchasing team and process and software, or a sales team. These are functions and people we need to run a business. We may argue about the size or expense of those teams, but rarely do we attempt to justify their existence. So, why do we need to justify the existence of an innovation capability? If the one key competitive advantage you have left is in creating new products and services faster and more effectively than your competition, do you need to justify the infrastructure to do that? Or is it only the initiatives that stand to create greater revenue and margins that must be justified, not the transactional, cost cutting items? Recognize that all of this is a bit tongue in cheek, but really - if organic growth and innovation is so important, why do we demand such rigorous attempts to justify it while birthing it?

Next, what's the value of one good idea? Do you think that Proctor&Gamble has recouped all of its innovation investments from the Swiffer alone? Do you think that the iPod has recovered all the investment that Apple has placed into its innovation capabilities by itself? A major firm is likely to spend between $300K and $3M dollars to build and fund an innovation capability. These numbers of course may vary, but the point is that it's easy to see how one or two significant ideas a year will repay these investments 100 fold. Ah, you may say, but I may get these ideas anyway without any investment. Are you really willing to take that chance? And even if you get the ideas without any investment, can you recognize and commercialize them fast ehough? A firm I worked with over two years ago to generate ideas identified several industry leading ideas but then failed to act on them. Recently a competitor launched a service that my client had identified over two years ago but not acted on. How many times have you said - we thought of that first?

Finally, the last thought around innovation. There are two metrics you can use to measure how well innovation is working. For the first year, most likely, you'll need to use process based metrics. How many ideas did we create? How many ideas moved into new product or service development? How many people are participating? You need to establish your goals and use these metrics early on because it takes time for ideas to prove their value. Few companies can convert an idea immediately into revenue and profts. The second metric is what we call outcome based metrics. Over time as the ideas you generate have impact, you should be able to trace the revenues and margin back to your innovation team. Recognize that probably 85 to 90 percent of your original ideas may not provide a payback, but some will break even and some will return returns far beyond what your entire investment in the innovation capability.

Ok, let's review. First, what are you trying to justify? A project is ok but not consistent or sustainable. Focus on the innovation capability or program over the long run. Second, if innovation is really important to your firm, why do you need to justify it at all? This is really addressing the mindset and culture of the organization, of course you'll need to provide some rationale for the investment, but you need to encourage the teams to think about innovation as a critical infrastructure component that is sustainable, rather than a short term quick fix. Third, since you can't predict the outcome in advance - which ideas will be generated, which ideas will succeed in the marketplace, you have the choice of making up a statistical model of probable success, or asking yourself what the value of one good idea well implemented could be. Finally, the realistic answer is that in the short term, you will measure benefits and results by the activities and process outcomes, and over the middle term and long term measure results by returns, market share and differentiation.
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posted by Jeffrey Phillips at 1:06 PM 3 comments

Monday, February 04, 2008

Authentic Innovation

Driving to work listening to NPR this morning, I heard an interview with two pollsters who were talking about the presidential race. What was interesting to me was that one of the most important aspects of the campaigns, and the candidates, was the concept of authenticity. Several potential voters commented on the fact that some candidates (McCain and Obama) seemed "authentic" while others (Clinton and Romney) seemed less so. What is really striking is that in some cases the potential voter identified concerns or problems with the more "authentic" candidate but said they'd vote for them because they were more authentic. What's going on here?

I think there's a trend forming - not just in politics but in all facets of life in the US. Things have become so packaged, so commercialized, that many of us yearn for something that is more original, more meaningful, more..dare I say it..authentic. This is not just about political candidates, although clearly there is great expression of that trend in the presidential race. We are all so familiar with pre-packaged, permanent pressed, sound bite candidates that we seek others who are more likely to occasionally spout an off color remark, or perhaps, tell us the truth rather than pander to our expectations.

However, if you look around, that trend is showing up in other areas. Note for example the latest Budweiser beer ads that detail exactly how the beer is made, or Coors beer, which details how little the beer has changed over the years. Or Pontiac's new focus on the car and the driver, as if owning a car has ever been about anything else (at least for men) than who you are and how you want to be perceived. Let's face it - few men want to be seen driving mini-vans, but that's another post.

So, if there is a trend toward seeking products and services that are "authentic", what can that mean for your business? Your marketing needs to reflect your status in the industry and the intent and history of the business. If your firm is a firm with deep engineering roots, then claim it. H-P has a great advantage over Dell in this regard. Tell us that you claim your roots and what those roots mean to you, and should mean to the customer. Then, be authentic with your products. I just heard that Microsoft may be releasing an "upgrade" for Vista which reduces bloatware. This is a great thing. If it happens, Microsoft is admitting that its products failed to meet expectations and that it is willing to listen and make them better. Don't lard up your products or services with things that are fads or trinkets. Deliver what you say you will.

However, authenticity isn't really a "fad" or trend, and will be hard to claim as your own if your firm is merely a follower. To be authentic, you'll need to make a claim or stake out some turf and defend it. That means the management team needs to be authentic when innovation is considered. What turf are they willing to claim? What is important to them and what are they willing to reinforce? Also, if they make those claims, what will it cost them?

I think there's an increasing demand for authenticity, from individuals towards their political leaders as well as from employees to their employers. Most importantly, is there a growing demand for authenticity from consumers to the producers of products and services? If so, how will your firm respond?
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posted by Jeffrey Phillips at 4:53 AM 7 comments