Innovation in the Great Depression

Here's something to make you go "hmmm". I've had a chance to read a report the Boston Consulting Group released recently called "Collateral Damage", which looks at the economy at the end of 2008/early 2009 and identifies some near term scenarios. The report is in four parts. Here's a link to part 4, which I found to be most interesting due to its forward looking nature. One thing the authors do in Part 4 is to compare this period with the Great Depression, and identify similarities and differences.

One of the items that jumped out at me was the discussion of products and services that did not seem to be impacted by the Great Depression. According to the authors, products from industries like food processing, chemicals and tobacco were relatively recession proof even in the Great Depression. You can understand this - chemicals are the basis of a wide range of products, while food is necessary for survival and tobacco..well let's just say that the consumers needed their cigarettes.

The report goes on to say that industries with highly innovative products withstood the Great Depression fairly well. The report states that the sale of refrigerators, considered an innovative product at the time, grew by 30% from 1929 to 1933. So in the face of rising unemployment, dramatic sales declines in most industries and product categories, innovative products not only held their own, their sales grew! You can chart this to the desire to be the first on the block with a refrigerator, or the fact that over time refrigerators save money by keeping food fresher, or a number of other attributes. But in the face of the worst economy we've faced in this country, people were spending money on innovative products and services.

What could that say about our situation now? Will people in 2009 pay for useful innovative products and services when they are clearly cutting their spending while waiting for the bottom of the downturn? Does a strategy of belt tightening make sense from a larger company's perspective? Sure, but those that tighten their belts and create new innovative products or services that meet needs created by the downturn or align with evolving trends are going to see their fortunes increase. Even though we are in a downturn, there is still a tremendous amount of interest in new products and services from consumers, especially those that address new challenges in the downturn.

"Innovation is Dead"

There's nothing more interesting and dare-devilish (is that a word?) than making a declarative statement that something is "dead". I guess Wired Magazine can get away with the wired/tired/expired meme, but to come out and declare something as over and done with, especially something as vital and interesting as innovation, that takes guts. Or perhaps the author is being provocative? Anyway, Bruce Nussbaum wrote at the end of 2008 for Businessweek that innovation is dead - transformation is in. Something like declaring gray as the new black.

In my experience, when the cognoscenti declare something as "dead", they are moving past it because to them it has become passe or uninteresting, while generally the early and late majorities are just becoming aware. I suspect that is the case with "innovation" as far as Bruce is concerned - he's covered it for years and may be getting a bit tired of the phase. Interestingly, there's no definition of "innovation" that he provides, and one could easily argue that the word, and its meaning, have been definitely misused in many instances. Corporate America speaks to Wall Street about innovation - I think there are at least 10 taglines in the Fortune 500 that include the word innovation - but most firms have yet to fully embrace the power or capability that innovative tools and techniques can provide. Additionally, if "innovation" as defined as tools and techniques to create new products and services is dead, then is there no longer any need for new products, new services or organic growth? In this instance, the declaration reminds me of the individual who proposed closing the US Patent Office at the turn of the 20th century. He was convinced there was nothing left to discover.

I think we can safely say that the need to discover new market opportunities and craft new products, services and business models still exists, with perhaps more urgency than ever before. I think we can also safely say that there are proven methodologies, tools and techniques that can provide insight and creativity, if organizations are willing to use them. If Bruce prefers to call these functions "transformation" rather than "innovation" so be it. I can be a transformation consultant. What's gotten confused is the label and the outcome. I doubt anyone would argue that businesses still need to be creative and generate new products and services and target unmet or undiscovered customer needs. What I think Bruce is reacting to is that the word "innovation" has been used to make empty promises to shareholders, and has been bandied around so much that it has lost credibility. However, there are plenty of firms that are engaged in innovation activities that are creating value for their businesses. The fact that some CEOs used the word but did not implement its meaning does not mean that innovation is dead.

God help us if innovation is dead. I think the Luddites were convinced that technology was the problem, and Malthus was convinced that humans were the problem. Innovation is not the problem, nor is it responsible for many of the problems we face. Quite the contrary, in the tools, techniques and thinking models of innovation lie the answers to our problems.

Strategic clarity and innovation

The more I work with senior leaders who are interested in innovation, the more clear it becomes clear that the number one barrier to innovation is what I'll call strategic clarity. Some will call it "strategic intent" from Hamel or others, some will call it a "common purpose" or core strategy. I'll call it what I think it really is - having a clear, communicated purpose and intent for the business.

Here's the thought experiment. In a firm that has a very clear purpose or strategy that everyone understands, it is easy to generate and evaluate ideas. New ideas either support or augment the strategic purpose that people understand, or they don't. In that environment, it may be difficult to obtain funding for an idea, but it shouldn't be difficult to gain agreement that the idea aligns to the strategies and core purpose of the business. Now, consider a firm that does not have a clear, communicated strategy. How does one recognize a good idea, if the strategy and direction of the business is not clear? What may appear to be a good idea in one quarter of the business may be shrugged off in another, since each business unit or team may have its own interpretation of the strategy and direction of the business.

I suspect that whether you look at Apple or Google, or W.L. Gore or other "innovative" firms it is relatively clear top down and across the organization "what business they are in" and what their core objectives and strategies are. If it's evident from the outside looking in, then certainly it must be relatively clear on the inside. This constancy of purpose and strategy, well communicated, reinforced and compensated, is what makes these firms successful at innovation. Since innovation is inherently risky and uncertain, the more clarity and direction provided, the easier the work becomes. On the other hand, I have worked recently with firms where mid and senior level managers are constantly struggling to understand what their core mission and strategic intent is - which leads to much back and forth as to what is innovation and how it can be applied within the firm.

David Ogilvy, the famous ad man, said that he loved the "freedom of a tight brief". In other words, the more structure and information available about the expected outcomes, the easier his work became. In the same way, firms that can define their objectives, strategies and purposes and communicate those effectively internally and externally have a huge advantage when it comes to innovation, since they have established a clarity of purpose within their organization, which builds scope for the innovation teams. Firms that lack the ability to define their strategy and communicate it effectively can still innovate, but at a much more tactical level. Innovation will thrive at the level of the organization where the strategies and purpose can be defined explicitly and will struggle where the strategies and strategic intent are less well defined.

What's your innovation music?

I like to work in analogies, since sometimes they can be more illuminating than the facts themselves. Analogies are good tools for teams trying to create new ideas or identify new opportunities. One that I like is the fact that the health care industry has a significant number of uninsured or underinsured, while the banking industry has a significant number of prospects that are unbanked or underbanked. What can one industry learn from the other about analogous situations?

Some of my favorite analogies are about music. For example, I like to talk about having a "drumbeat" innovation program, something that is regular, constant and steady. What's the tempo that your innovation program works to? Does it sound like a snare drum occasionally and then long periods of silence? Or perhaps a more regular, constant bass drum?

I was thinking about music and how it can be an analogy for your innovation programs as well. There are a number of different kinds of music, which also reflect the various kinds of innovation programs. For example, there is the blues. Blues music is one of my personal favorites, but I don't like blues inspired innovation. That's when the team sits around and moans about what they could do, if only they could throw off the shackles of the existing business, or get more funding, or change the culture. Blues innovation is really about complaining about the existing business, more than doing something to change it.

Many innovation programs are inspired by rock and roll music. That is, they come on stage with a lot of fanfare, are explosive and loud initially, live fast and die young, leaving a mess in their wake. Too often our innovation programs get started quickly but don't have much to say, and live a fast, messy life with little to show for it.

Many people have compared innovation to jazz, and I think that's probably the most apt analogy. Jazz is improvisational and unstructured, and the same song can be somewhat different every time it is played, depending on the situation, the musicians and the setting. However, the basic notes, melody and harmony are consistent. In other words, there is a framework, yet the musicians are encouraged to experiment and improvise within that framework. Sometimes the music is transcendent, sometimes not so much.

What's your innovation music? Does it have a consistent beat? Does it allow for improvisation and does it understand the importance of ebbing and flowing? Will that music have longevity or will it simply burn out and leave an ugly corpse?

Innovation isn't free

Lately I've had the chance to talk to a lot of prospective customers about their innovation needs. Many of them seem exceptionally interested in becoming more innovative, right up until they discover it might require an investment in time, resources and people to create a more innovative company. The last time I checked, anything that is valuable requires some investment.

Innovation requires investment to succeed. This should be a no-brainer, right? Many folks will argue that it does not require much investment to generate ideas, since many people within their organizations have lots of ideas. I'll concede that much is true, if you'll concede that someone will then have to make decisions about which ideas receive the investigation necessary to flesh them out to become new products and services. Recently Dell opened IdeaStorm, and received a tremendous number of ideas (over 9000 at my last check in with them). Now, the problem with 9000 ideas is not a lack of ideas, and Dell received all of these at basically no charge. No, the problem is that even if an evaluator could spend only 5 minutes per idea to determine whether or not to advance that idea to a further investigation, that's a 45,000 minute (one third of a man year) investment, and that investment does not include the research, additional investigation, discussion and team meetings necessary to convert the idea into a new product or service.

Let's also assert that your team doesn't have a good process for doing this kind of work now - that there are no processes, methods, databases or reward structures or compensation structures aligned to innovation. To successfully innovate, you'll need those things or your innovation program will falter. All of the things listed above require investment - in process definition, in training, in software and in time away from the "day job". You can either hire a couple more people to "do" innovation full time, or pull people away from their regular jobs on some part time basis, but the work has to get done and those resources have to come from somewhere.

Let's also consider for just a minute your inputs. What scanning, trend watching, market research and competitive analysis are you doing right now? If any, how would that information or insight inform your innovation process? Generally speaking, you need to have better insights and understanding of the coming trends to create new products and services. If you aren't actively gathering, analyzing and synthesizing that data, then you have another gap to fill that will require more resources.

Is this post meant to discourage you from building an innovation capability? On the contrary, it's meant to help you think about what investments are necessary to manage ideas from the first identification of a trend through the generation of ideas and onward to development of a new product or service. This work isn't always easy, and it certainly doesn't come without risks. Success in this work requires an investment in people, in process and in resources. If you are planning to try to innovate on the cheap, don't bother. Everyone understands the risks and the resources required, and you'll soon find that only the truly committed are even trying to innovate.

Innovation isn't free, in fact it isn't even cheap. But the rewards can be tremendous.

Innovation for the common man

I had the opportunity yesterday to speak with Ami Kassar, who is the Chief Innovation Officer at Advanta. The purpose of our talk was to discuss the IdeaBlob (www.ideablob.com), an idea database and portal that Advanta has created. People who are interested can sign up to submit ideas and receive feedback on their ideas. Each month the ideas are voted on and one individual wins $10,000 to fund their idea.

At first this sounds similar to Dell's Ideastorm or Starbuck MyStarbucks Idea, but it is radically different in at least one respect. Ideastorm and MyStarbucks Idea were developed to collect and evaluate ideas that benefit Dell and Starbucks. Basically we the consuming public can submit our ideas about what we think Dell or Starbucks could create or do better. Advanta has a slightly different take, aligned to its mission. Advanta provides credit cards to entrepreneurs and small business owners, and wants to develop tools to help this segment succeed. Advanta set up the ideablob with the goal of helping entrepreneurs and small business owners. Advanta does not take ownership of the ideas, and in fact funds ideas that in most cases have no bearing on their business.

There's a couple of things at work here. First, Advanta is using an innovation tool to help small business owners exchange ideas and promote their ideas, giving them a platform and a voice. Second, the platform (ideablob) helps Advanta extend their core mission and provide a service to their core customers. Third, Advanta is also leveraging to some extend the concept of social networking, and even extending the social networking to live events.

All of this has driven over 100,000 registered users, the majority probably not Advanta customers originally according to Ami. Advanta is also benefiting from goodwill in the small business and entrepreneurial community and excellent word of mouth.

What you may also find interesting, and I found refreshing, is that Kassar had not clear objectives for ideablob. According to our discussion, he felt it would benefit Advanta and its community, and decided to give it a try. As he said, when you innovate, you've got to try things and be prepared to fail occasionally. Very refreshing, and rarely seen in larger firms.

Take a look at what Advanta is doing with Ideablob, keeping in mind their core focus is creating and offering credit cards to small business owners. Note also that they are just releasing a new site, www.bizequity.com, to help small business owners value their businesses or other businesses near them.

Rocketry as a metaphor for innovation

Have you ever wondered what it must be like to be the astronaut waiting for the rocket to launch you into space? Knowing the escape velocities required, and the amount of thrust necessary to leave the Earth and enter space, you'd be sitting on a lot of potential energy just waiting to be unleashed, to hurl you into a rather unknown and perilous place, to discover new things. There couldn't be a more apt parallel between this situation and the start of a new innovation initiative.

Just as it takes a lot of energy to get a rocket off the ground, it takes a lot of energy and momentum to propel an early innovation initiative to success. If you'll notice, there's not an incremental, push it along a little bit at a time and see what happens aspect to launching a rocket. The forces weighing against the rocket and the astronauts are too strong to take off successfully that way. The same is true with innovation. We need a solid launch, with lots of energy behind it to resist the cultural forces that will pull innovation back to Earth. With too little support, too little energy, too modest goals, we'll never get off the ground.

Like our hypothetical astronaut, our innovation teams are sitting on a tremendous amount of potential energy that can be unleashed and directed. Any organization is full of great concepts and ideas waiting to be directed. It's the innovation team's job, and the management's responsibility, to unleash and direct that energy and passion to create new products and services and eliminate the cultural barriers. Interestingly, after the big initial push, the ensuing work becomes easier, for the rocket and for the team, as you leave the gravity well and demonstrate success.

One significant difference between space flight and innovation is that the overwhelming majority of astronauts return safely to earth. Of course the failure option is not considered. On the other hand, many innovations will skip off of the earth's atmosphere and burn up on re-entry. The risk associated with failure in an innovation program should be much lower.

To recap, both a spaceship and an innovation program need to overcome tremendous pressure to succeed. There are no incremental launches, no half steps into orbit. Once there, the pressure to return an astronaut to safety is tremendous, while the failure rate for ideas should be reasonably high.