Tuesday, December 01, 2009

Innovating beyond the headlights

There's an interesting and difficult conundrum associated with innovation based on the calendars and timeframes of most organizations. While many organizations want innovation, they are not able to innovate beyond their "headlights", which to me means the span of time into the future they are willing to investigate.

Most businesses operate in approximately three timeframes: the quarter, the annual plan, and timeframes beyond one year out. These timeframes are dictated by the financial markets, not by any specific ebb and flow of business, and these time frames don't align to or account for the interworkings of the organizations. The first timeframe, 90 days, is dictated especially to publicly traded firms. However, any firm of any size will frankly tell you that little can be changed in a quarter. The next time frame is the fiscal year, which is dictated again by the financial community.

Note that neither of these timeframes has anything to do with the internal workings or operations of the business, especially when it comes to innovation. If we are honest with ourselves, we'll be willing to admit there are at least three phases of innovation and new product development: idea generation and selection, new product development and commercialization and launch. In most organizations new product development and commercialization will rarely take less than 18 months to two years. Adding in the timeframe to identify opportunities and generate ideas, it's easy to see that an idea generated today in most firms won't be commercialized in less than 2 to 2.5 years.

This is where the concept of innovating beyond the headlights comes into play. If we have an idea to product or service lifecycle of 2 to 2.5 years, then we need a planning cycle and an investigation cycle of at least that length, if not more. If the business is not identifying opportunities 3 to 5 years in the future and has a idea to product lifecycle of 2 to 2.5 years, then it's almost impossible for the firm to ever create a truly disruptive product, since it's development time is longer than its runway. It's not as if we compete in a market that has no other insightful, aggressive competitors and new entrants. Consumers aren't simply going to wait for your firm to unveil products and services that have already been launched by competitors.

No, innovators need to identify opportunities that are further into the future, and that will cause consternation by many of the individuals tied to the quarterly plan or the yearly plan. Innovators need to push their visions at least three to five years into the future to identify emerging opportunities or needs, and begin to develop products and services to meet those needs. Given the elapsed time to bring a new product to market, even a three year planning horizon is probably too short.

Forecasting opportunities that are less than two years into the future doesn't account for the internal development processes or the ability of competitors or disrupters to enter the market. Even incremental innovation is timeconsuming, so we may as well swing for the fences on a regular basis.

If these postulates hold true, then there are two conclusions. First, we need to make our idea to product or service launch process more compact and more efficient, so that we can identify opportunities and launch new products and services faster. In addition, we need to extend our trend spotting and scenario planning further into the future, to understand opportunities and provide enough runway so that we can create compelling and unique offerings and solutions as the market becomes aware of the needs.
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posted by Jeffrey Phillips at 5:39 AM


Anonymous Josh Gluckman said...

Good observations (as always!).

The same disconnect between business and innovation cycles also points to the need for a suitable a level of isolation for those teams and individuals incubating and commercialising ideas.

I use the term 'isolation' cautiously (as a full-on skunkworks isn't always appropriate) - but in essence, it's about ensuring new opportunities aren't starved of human/financial resources simply because it's more enticing to direct them towards activities within the 'current' business cycle.

(And the latter is a real temptation for many/most).

This is one of the arguments used for a dedicated incubation function

1:36 PM  
Blogger Paul said...

Shifting thinking away from planning is extremely tough. Talking about the time horizon of ends does helps shift the mentality away from simply a planning one and may help to break down the innovation activity into three frames of thought:

1. Goals that contribute to the immediate plans- within the period covered and can be budgeted in good (granular) detail,

2. Objectives that can be moved forward but have longer term horizons -attain later that are progressed within the period so you have a mix of actual spends for the designated period and forecasts for activities that take you over the current plan lines,

3. Ideals that reflect a new state or position from innovation- unattainable, even possible unknowns within the time period but need to be progressed wherever possible during and after the period planned for. These need to be built into the thinking and pilot money to be provided to ensure these can be moved forward.

Planning needs to 'account' for all three, in many cases it doesn’t as innovation activity is often looked upon as needing to be associated with specific tangible projects and not concepts and thoughts coming from future thinking or desired states.

2:14 AM  
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