Friday, September 25, 2009

Innovation Fallacies

The longer you hang around a subject, the more interesting the rumors and misperceptions. Innovation seems to spawn a number of fallacies, probably because it is very important, haphazardly performed and misunderstood by management. The combination of importance, carelessness and ignorance probably spawns a lot of fallacies. In fact, it sounds a lot like teen sex in a way.

One interesting new fallacy that seems to be making the rounds is that "open innovation" is easier and cheaper than innovation within the four walls of your organization. Open innovation can drive more ideas, and in many cases simply bypasses the bureaucracy and sloth of an organization to attract a number of people from outside the organization. In this manner open innovation can be faster, but it is not cheaper or less expensive, nor does it require fewer resources. Open innovation just shifts the costs from an innovation team, or R&D, to legal, IP and business development. If your legal, IP and business development teams have more bandwidth or lower cost than your innovation or R&D teams, perhaps this is a logical tradeoff. But don't expect open innovation to dramatically reduce the cost of innovation.

Another fallacy we see quite often is the assumption that a firm can start, and stop, innovation programs as needed or at will. While other projects may start and stop easily enough, there's enough barriers and roadblocks to make starting an innovation program difficult, and once halted almost impossible to start again. What's the biggest concern about innovation programs from those who are assigned to do the work? That is is another management "flavor of the month" program and the executives aren't serious. It is hard to start, and even harder to restart, an innovation project, and awfully easy to kill.

A third fallacy is that innovation can occur in a black box. While skunkworks can be successful, they compete for resources with other projects but can't communicate the goals and aims of the project or effort. Thus, managers have to balance how to resource a project, and what benefits or results they'll see from the innovation effort. Why would a manager provide resources to a black box project that potentially cannibalize his major product or service? We don't cut our own throats in real life, and we certainly don't do that at work. Skunkworks can work when fully resourced, all the way to product development, but innovation works best out in the open. The more visible an idea is, and the more scrutiny it receives within the comfortable confines of your organization, the more it will be shaped for the market.

The fourth fallacy is that really "good" people are important. Well, yes, people are important, but I'd rather have open-minded, collaborative volunteers than the smartest people who are assigned against their will. In fact, a good process and understanding of the tools and methods of innovation deployed by an "average" team will trump the best thinking of the best people who don't leverage the methods and processes. Clearly, as an innovation team, we'll take the best people we can get, but I'd prefer passion and the willingness to learn and use the innovation tools over people who think they already know the answer.

The fifth fallacy is that executives can demonstrate commitment by talking about innovation. Frankly, unless he or she is Walter Cronkite (a famous newsman for you younger set), executives don't communicate well, and often leave their direct reports and the people under them translating what was meant. If you want successful innovation, have your executives SHOW UP and participate in the work, and comment on the work and its outcomes, not simply state the importance of innovation. NO ONE IN YOUR ORGANIZATION KNOWS WHAT YOU MEAN BY INNOVATION ANYWAY! Demonstrate, then talk about it, rather than simply exhorting.

The last fallacy I'll talk about today is related to my recent post about new wine and old wineskins. You can't ask people to think differently and challenge the status quo, while working within the status quo and using all the existing tools and methods. New thinking requires new tools, and the ability and permission to use those new tools. Nothing is more frustrating for a team than to be told to innovate on the sly, on their own time, using old tools and methods to generate radically new ideas. Never the twain shall meet. If you want new ideas from your people, then give them the time and the tools to create the new ideas. No, demand that they take the time necessary to learn the tools and use them effectively. Otherwise, just buy ideas from consultants and save your team the headache.
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posted by Jeffrey Phillips at 1:04 PM 9 comments

Thursday, September 24, 2009

Timeless innovation insight

While I'm not one to rest on historical precedents, especially where innovation is concerned, it is interesting that we can find indications of the barriers to innovation in historical records, and the answers to some of those barriers as well.

I'm thinking today of the proverb that Jesus told his disciples, which was that "no one placed new wine in old wineskins". That was because the new wine would eventually puncture the old skins. New wine needed new wineskins. This is taken from Luke 5:37-39. Jesus' point was that new thinking required new containers. The old containers simply could not contain the new, more radical ways of thinking. Jesus was an innovator, by the way, interested in radically changing the existing order. He had a vision for the change he wanted and was unafraid to live up to the standards he expected from others who would adopt his approach. You're also probably aware of his fate, and what can happen to those who attempt radical change without the sponsorship of the executive.

Here's a timeless analogy very relevant to what we face in innovation today. Too often we are asking for "new wine" (new ideas), but we want to retain the old "wineskins" (old methods, old processes, old structures). This is a disconnect of the first order, as demonstrated by Jesus over 2000 years ago. Yet it is a trap that present day executives fall into all the time.

In our work on innovation, we find this new wine/old wineskin problem consistently. I'm currently working with a firm that desires to radically change a product in its industry, yet has not set aside time for its innovation team to meet regularly, doesn't reinforce the innovation tools we've provided and doesn't want to place too much emphasis on the innovation goals and efforts. What's likely to happen in this case is that the participants will simply revert to the ways they've worked in the past, and few if any new ideas will be generated. The likely result will be frustrated teams, disappointed management and few viable ideas.

It is an oxymoron and a waste of time to ask people to generate new ideas in an environment that will continue to reinforce the existing way of doing things, and that is unwilling to make any significant changes or acknowledgments to an innovation approach. What is even more astounding is that management teams must re-learn a lesson that has been experienced for thousands of years, and proven correct over and over again. You can't put new wine in old wineskins, and you can't create new ideas in an old, tired process that reinforces conventional thinking.
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posted by Jeffrey Phillips at 7:31 AM 4 comments

Tuesday, September 22, 2009

Free your mind

There's a line in The Matrix, the movie that gave Keanu Reeves his acting chops, that I believe is critical for innovation. In the movie, Reeves plays a person recently detached from the "matrix" who is struggling with what is, and is not, reality. Laurence Fishburne plays Morpheus, his mentor, who has rescued him from the matrix and is eager to have Reeves join his team.

Everything that Morpheus suggests to Reeves is antithetical to what his experiences and senses tell him. Morpheus can fly, can dodge bullets and do other things than seem impossible, until Reeves is forced to reconsider his reality. To help him achieve the same perspective, Morpheus says - "Free your mind".

We, too, as innovators need to free our minds. As I work with teams that are engaged in innovation work, far too frequently I see people who are still tied down to existing restrictions, existing templates, existing work rules and culture. These folks are trying to innovate, but their expectations are the same as they were under their previous work, and their goals and aspirations are far too small.

Recently I worked with a firm to reconsider and innovate a piece of furniture. We talked about a wide range of possibilities and then conducted a short brainwriting exercise. Once we were done, I asked how many of the participants had considered doing away with the core components all together, rather than simply iterating the existing components or adding one or two new features. In a team of 15, only two had even considered taking a completely new perspective. When we queried the team to discover why they had not taken a broader view, most of them suggested it simply had not occurred to them. They were tied to a specific worldview and formula, and weren't quite able to give it up.

Probably the first thing we need to do as innovators is discover if our prospective team members have the capability and flexibility to release what they know to be true. A team with too many people locked into old methods or perspectives will simply get frustrated. Then, we need some sort of sudden shock to the system to force us to free our minds and consider the problem or opportunity from a number of perspectives that aren't tied to the existing methods. Only then will you get the insights and ideas that matter.

Free your mind. Open up to a completely different set of realities. Take on a completely different perspective. In an innovation setting, this is the only way to succeed. If you can't ask "What if" in this setting, and are constantly governed by the here and now, the rules that already exist, then your team will struggle to innovate. How do you "Free your mind?" Well, if you saw the movie you know it's a choice, a red pill or a blue pill. In your organization, it's also a choice.

The chief sponsor, grand poobah or CEO who is behind the effort has to set the stage for the team to free themselves from their yokes. This has to be an intentional effort. A half-hearted suggestion that people "think differently" won't be enough for most people. Demonstrating that something new requires something different, and that difference will be embraced, not just tolerated, is what's required.
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posted by Jeffrey Phillips at 8:17 AM 5 comments

Friday, September 18, 2009

Choosing the pace of innovation

I've invented another theorem or "law" of innovation, which suggests that the speed of innovation is inversely proportional to the kinds of innovations you create. If your team creates incremental innovations, then the pace of innovation must be high, and the pipeline kept full. If your team creates disruptive innovations, then the pace can be much slower, with perhaps fewer ideas in the pipeline. This is predicated on a number of assumptions:

The first assumption is that if you are satisfied with incremental innovations, that you understand that those are easy to copy and will have a short "shelf life". Betting on incremental innovation means that once you climb on the treadmill, you'll need to remain on the treadmill. Once you stop the incremental innovation, other firms are bound to continue and you'll lag behind. The implication is that you need to keep a continuous flow of ideas that can be cranked out quickly, as the older innovations become market standards and then commodities.

The second assumption is that you'll need more ideas if the concepts are incremental rather than disruptive. This is because no matter how smart your team is, there are a number of other smart people in your industry, and in the adjacent industries, who are likely to notice the same near term opportunities. You can't be on being the only firm that notices an incremental opportunity, so you'll need to keep a number of them active in case someone beats you to the punch. It's less likely to see a number of firms working on the same disruptive ideas, since the complexity around forecasting the trends in the market and customer needs and wants can be much higher. Therefore, you may not need as many disruptive ideas since there's less chance of duplication. The flip side of that argument also means that there's a greater chance of guessing wrong. You may be innovating in a space where firms have decided there's no opportunity, and they are right and you are wrong.

The third and most important assumption is that disruptive innovations have a longer shelf life. If that is true, then the pace of release of new disruptions can be much lower than if the ideas are incremental. If you consider a firm that has disrupted the market, typically a real disruption can maintain market leadership for several years, while an incremental innovation may remain distinct for six or eight months at best. Since replacements cannot come online as fast to match or replace a disruptive idea, your pace of development of disruptive ideas can be more methodical, more measured. In fact, it is probably in a leader's interest to be more methodical, because a firm that is successfully innovating as a disrupter is often only competing with itself.

In reality, few firms can afford to choose one approach or the other - they need both incremental and disruptive innovation. What we can argue is that the pace of both programs can differ, while the tools and methods remain the same.
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posted by Jeffrey Phillips at 1:51 PM 14 comments

Wednesday, September 16, 2009

The perfect setting for innovation

I've been thinking for a while about the perfect physical space for innovation. When we work with our clients we often are asked to help design a physical space for the team to work in. This should be a space that is open, colorful, inviting and really different from the regular work environment. The space needs to remind the people working there that when the teams are innovating, they need to be thinking differently than they do when in their day jobs. In a perfect world, there would not be such a separation of thinking, but until everyone is a perfect innovator, we'll have to settle for great thinking spaces.

The spaces we've worked on and in are usually spare space the firm can afford to reconfigure, and are usually the typical Class A space, with bare gray walls and industrial strength carpet. Sometimes the walls have been painted interesting colors or someone has put posters or other graphics up on the wall. Typically the space is fairly open, to allow a lot of movement, with smaller breakout areas for team work. Most of these physical spaces are a good first step, but don't really break out of the usual workspace - gray walls, cubicles, boring industrial feel.

After giving this some thought, I'm going to propose the best arrangement for an innovation space - a kitchen. Think about a kitchen and its properties. A kitchen is a place where you create delicious (hopefully) food from a wide range of ingredients following a methodology (recipes) and experimenting with new additives or flavors. Cooking is a good metaphor for innovation, because many of us follow a recipe to some extent, but we also experiment with different spices, flavorings or cooking styles. Experimentation is important, and having a number of different ingredients at hand is very valuable.

Also, at any party, where do people end up? In the kitchen, standing around, talking about the events of the day. A kitchen, because there's food and drink available, is inviting. People tend to remain there, talking about the issues of the day. From an innovation perspective, that's valuable. A wide range of people mixing together, exchanging ideas is a good building block for innovation. Additionally, kitchens are much less formal than a living room or sitting room, and invite people to interact. The fact that there are few comfy chairs in a kitchen encourages people to mill around. This ensures an exchange of ideas.

A kitchen also has all sorts of appliances, tools and utensils. These are the things that help prepare, mix and bake/broil/fry the food. Likewise, innovators need tools and techniques at hand in order to do their work effectively.

Another reason a kitchen, or some semblance of a kitchen would be an excellent jumping off point for an innovation space is because it would be so different, so unique from the rest of the working environment. A kitchen would be totally unexpected and offer people a very different environment in which to innovate, yet one that is potentially familiar and comfortable.

I can't wait to test this out - I think a kitchen, surrounded by some work areas or breakout areas and white boards, would offer a team a chance to "cook up" (sorry, couldn't resist) a whole range of new ideas. Clearly there needs to be some more traditional working space as well, but a kitchen, stocked not just with cooking utensils but tools for ideation, idea development and prototyping would form a unique site, ready for people to innovate. You could even staff the innovation site with personnel who are innovation coaches would could offer lessons on the methodologies, the tools and the practice of innovation, who could act as "executive chefs".
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posted by Jeffrey Phillips at 4:51 AM 6 comments

Tuesday, September 15, 2009

Who "owns" Innovation? Where does it "live" in an organization?

Braden Kelly has asked a number of us to respond to the question "Who owns innovation and where does it live in an organization?" This is actually a question we are asked quite frequently by our clients. The answers are based on the strategic goals of the firm.

First, let's consider who "owns" innovation. Many firms will argue that the CEO "owns" innovation, and they are correct, to a point. Anyone with any amount of experience working on innovation will tell you that an engaged, involved executive team is vital to success when innovating. However, a CEO simply doesn't have the time or bandwidth to get involved in every decision and manage all the disparate teams and activities that are involved. A CEO needs to make clear strategies and declarations about innovation's purpose, and ensure the work is conducted effectively and measured. OK, if the CEO doesn't "own" innovation, who does? I've written before that larger firms may need a Chief Innovation Officer, but only if that role is accurately defined. Since innovation can happen anywhere in the organization at any time, we certainly don't want to place all the emphasis on one person or team.

Our preferred model is an innovation team that sponsors innovation, defines the processes, methods, tools and language for the organization and works on disruptive or "white space" ideas. Just as there is one common chart of accounts or one standard purchasing process, we need to create common innovation tools and methods, and be able to roll up the results. This central innovation team can report to a CIO, but the team and the CIO bear only a portion of the innovation effort.

Clearly, a lot of innovation happens in product groups, geographies and lines of business. Establishing a central innovation team doesn't relieve these groups of the requirement for innovation - quite the opposite. Defining a team that can offer methods, tools and services should accelerate innovation in each line of business or product group. These teams are closer to the customer and have a better understanding of customer needs. Unfortunately the business lines are also bound by a 90 day clock, which keeps their focus on quarterly results and not longer term growth. There's a real need for innovation at this level, coupled with innovation at a level that is not so bound by quarterly results.

So, who owns innovation? The CEO should SPONSOR and ENCOURAGE innovation and MEASURE it regularly. A Chief Innovation Officer should build capabilities, methodologies and tool sets to enable innovation in the organization, and the individuals who head up business lines, product groups or geographies should build the expectation for innovation into their annual plans, and product incremental and occasional disruptive innovation. No one person can own the responsibility and capability for innovation, but a management team working together to a common goal can clearly establish the expectations, build the tools and set the plans to unleash the creativity their employees, partners and customers have.

Additionally, innovation needs to reside at every level of the organization. We've seen it proven that innovation driven from the top doesn't work effectively, and innovation residing in just one product group or team creates an unbalanced organization. Every group, every team should be expected to innovate. It's not the responsibility of one team or one manager, but every individual in every group.
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posted by Jeffrey Phillips at 5:02 AM 6 comments

Monday, September 14, 2009

Ships and Castles, Ports and Plains

I spent a few days last week and over the weekend in the company of a number of innovation and creativity practitioners. I come away from that amazed at the kinds of ideas and collaborations that are possible when we are exposed to other ways of thinking and other people.

I titled this post "Ships and Castles, Ports and Plains" because there is so much evidence that many firms take a "castle" approach to innovation. That is, they stake out their ground and protect it with a castle, occasionally leaving the castle to do battle in the nearby country. A castle is great for defense, but it suggests a reactive, defensive mindset, where the walls of the castle become an inhibitor to growth and new ideas. Ships, on the other hand, are primarily offensive in nature and are meant to explore new waters and new oceans. Ships "project" power and influence and explore or discover new things and new places. Clearly, a combination of ships and castles is probably the ultimate defensive/offensive strategy, and lends itself well to innovation thinking as well.

But what about "Ports and Plains"? While I can only point to strategic work that's been done around ships and castles, I want to claim Ports and Plains as my own. I think most research and evidence will suggest that most of the big shifts in society have come from "ports" - because that's where people from different countries, with different languages and different ideas mix and mingle. Meanwhile, out on the plains, there is less involvement with people who are "different" from the people on the plains and much less exchange of ideas and information. Ports are often seen as too permissive or too liberal, while the plains are often bastions of conservative thought.

Note that both ships and ports are concepts where people from different cultures, experiences and backgrounds interact. They are the best metaphors for mixing different ideas from different cultures. As an example of the failure of interacting with the "outside" world, consider China in the 1800s. China walled itself off from outside "corrupting" influences, to the extent that the British fought a "war" with China to get to dock in Shanghai. During the isolation from the western influences, China slipped intellectually and technologically behind the rest of the world. Contrast that with China's engagement and rapid technological increases today, as it engages the outside world.

There's a lesson in this for all of you in Fortune 500 firms who have suffered from having all of your education and travel frozen due to budget cuts. As you have less and less interaction with customers, prospects, business partners and others who may introduce new ideas and influence your thinking, you will have fewer ideas. Additionally, without the interaction of a number of different people and perspectives, your frame of reference will shrink and you'll concentrate more on safe, simple ideas. It is not impossible to innovate without interacting with others, but rich interaction at a conference, a tradeshow, an educational offering or other experience adds so much to your perspectives and your thinking.

Many firms are at risk of building a castle on a plain and never interacting or mingling with their customers and business partners, much less with other people who may disrupt or challenge their ideas. That's a recipe for extinction. Where are all the interesting places to visit? Ports and crossroads.
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posted by Jeffrey Phillips at 8:57 AM 2 comments

Wednesday, September 09, 2009

Chubb accelerates with Innovation and Imaginatik

I know it sounds strange, but I spoke today with an insurance company that is interested in identifying new ideas and moving quickly. Yes, innovation has found its way to what appears to be a slow-moving, stodgy, conservative industry.

I interviewed Jon Bidwell, the Chief Innovation Officer at Chubb about their innovation experiences and goals, and their use of Imaginatik. Jon was very forthcoming about Chubb's opportunities and goals.

First, Jon told me a bit about Chubb's history and its current challenges. Chubb is an insurance and financial services company, so it faces many of the challenges we see in the market today. Additionally, Chubb is increasingly global and wants to tap its employees and partners for their ideas. Chubb realizes that speed is of the essence, and that good ideas exist inside, as well as outside the firm.

To give you a proper sense of the speed of the effort, Chubb's board approved the innovation program in June 2008 and requested that the innovation team start its first event by September 30th. That meant the innovation team had to come up to speed, identify some key areas of focus, build some processes and evaluate and select an idea management platform in that period. That's moving quickly in my experience, especially for a regulated firm not used to aggressive innovation.

Jon has developed a small permanent team of four people responsible for developing the methodologies, training and communication and managing the events and tools. Other people are drafted part-time as necessary based on the needs and the division or business lines involved in the innovation events. Note that most of the work they've done so far is "directed" - campaigns or events. Chubb has not yet provided an innovation "suggestion box" based on Imaginatik's tools, but that is in the works.

Jon's team also identified an innovation fund, to support the development of ideas that don't align to the annual plans or budgeting cycles. Most firms that we've worked with have found that a separate fund to speed ideas through development outside the typical budgeting process are far more successful, since they can react to market opportunities much more quickly.

One of the points of emphasis was the need for transparency throughout the process. Participants can submit ideas, comment on ideas and see their ideas in the innovation pipeline supported by Imaginatik. Another point of emphasis is speed. The Chubb team is conducting a number of events and has successfully implemented a number of ideas, with the goal of moving ideas from idea generation into the market as new products and services in six months or less.

Imaginatik's software has supported the development of the innovation community and campaigns and has proven easy to configure and deploy. While Chubb evaluated four competitors in a quick RFP, the team felt that Imaginatik's application provided the best solution combining idea generation with innovation processes. Chubb is using Imaginatik to capture ideas from agents and business partners, as well as internal employees.

Bidwell also discussed a number of activities his team undertook to overcome any cultural barriers, including a significant amount of communication about innovation from executives, and work to think through appropriate incentives, rewards and recognitions for the participants. Chubb is actively monitoring the statistics that show who generates ideas, who contributes to the development of an idea and so forth.

The Chubb story, one year on, is a fairly significant success. In short order the board approved the innovation team and investment, and three months later the team was actively engaged in generating and capturing ideas. Less than two quarters after that, new products and services were entering the market. While the majority of Chubb's ideas to date have been incremental or sustaining, Chubb is beginning to see more disruptive ideas. Bidwell's lessons learned: Be flexible, recognize that there's a lot of learn and be willing to learn and adjust as you go.

Our take is that Chubb has successfully integrated an innovation program and idea management tool by emphasizing the cultural aspects (recognition, rewards, communication, company history) and focusing on speed. Chubb's decision to set aside funds for the innovation program mean that ideas can be developed and funded outside of the annual planning process, which can speed products to market more quickly, rather than having to wait for the next budget cycle. Clearly the senior executives at Chubb have decided to accelerate product and service development using innovation and Imaginatik as drivers for success.
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posted by Jeffrey Phillips at 9:28 AM 2 comments

Tuesday, September 08, 2009

Innovation success or culture - which comes first?

Many strategic challenges have a "chicken or egg" quandary. In the case of the chicke and the egg, which comes first? Clearly you can't have a chicken if the chicken didn't come from an egg. But you can't have an egg if it didn't come from a chicken. Quite a conundrum. Ranks up there with Schrodinger's cat and other notable thought experiments.

The chicken and egg question has parallels in innovation, especially when firms consider how to get started. The dilemma the firms face is: do we work on creating an innovation culture before attempting innovation, or do we start with smaller, more tactical innovation activities that will allow us to build up innovation knowledge and experience that can be transferred to the culture? Here's a couple of things to ponder while considering the tradeoffs.

First, anyone, anywhere can brainstorm or generate ideas. That does not make them "innovative" and one brainstorm is not necessarily repeatable or sustainable. However, that may be the best first step for many firms, only comfortable with small, trial steps. However, what many firms find once they've generated ideas is that there is no sustaining process or procedure for managing ideas, and the "day job" is more compelling. Cultural roadblocks often stymie further pursuit of ideas.

Second, building a culture is hard, but changing a culture is very difficult. In any existing firm, there are norms and expectations that have been built over time and reinforced in the way people work and how they are compensated. Changing a firm's culture does not happen overnight, and many executives recognize this. So, there's yet another rationale for trying a "quick and dirty" innovation project rather than trying to implement longer term change.

Third, building a culture of innovation requires a vision. You can't simply wave a wand and expect the culture to change - it can change, but it must change based on some shared concepts and vision. Executives have to define a very clear rationale for the change and present the end state. This requires commitment and good communication skills over a long period of time. Again, since we manage today with a stopwatch rather than a calendar, time is of the essence, and quick wins are preferred to methodical changes.

So, in many cases we are left with two alternatives, neither of which seem to have positive outcomes. On one hand a firm can innovate with small projects and programs and attempt to overcome cultural issues as they arise. Often they will find that the culture doesn't reward people who take risks and who propose programs that are different from the status quo. On the other hand, a firm can start working on the culture and begin changing the expectations before launching innovation programs, but this is time consuming and most executives don't have the patience for such efforts.

Probably the best approach is to run the changes in parallel. Start working on cultural change while enacting a series of small innovation programs. Build on the successes and use any failures as opportunities to reinforce the cultural change. Expect that any effort to change the culture will take several years. However, if you can successfully influence the culture, the innovation possibilities are incredible. Culture is the biggest roadblock to innovation, but once overcome, it can be the stimulus and propulsion for innovation.

In the case of innovation activities versus innovation culture, don't think of these as tradeoffs but as activities that should, probably must, be done simultaneously if you want to build a long term, successful innovation capability.
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posted by Jeffrey Phillips at 6:28 AM 2 comments

Thursday, September 03, 2009

The government's role in innovation

Recently a number of bloggers and Tweeters have linked to an interview with Greg Bialecki, who works for the governor of Massachusetts on economic development. The question posed to Bialecki was "what is the appropriate role for state government in accelerating innovation?". Bialecki does a good job of straddling the many sides of the question, noting that many businesses are against more government involvement, since they believe it will lead to regulation and taxes, or favortism.

But the question is a good one. At any level of government, from a city to state or province to a federal or national government, what is the appropriate role for the government in an innovation policy or strategy? It seems to me to break down into three likely outcomes.

The first is based on the Apollo program. In this instance the government identifies a significant need or opportunity and challenges itself and industry to achieve it (put a man on the moon before the end of the decade). Note that the statement doesn't dictate specific technologies or vendors. It is a challenge that created excitement and enthusiasm. Government agencies, private industry and other organizations then asked themselves - OK, if we are going to achieve this seemingly difficult mission, what is necessary for us to do? Then they went on to solve a number of engineering challenges and captured the attention of the nation. Thousands of kids (I'm one) wanted to become an astronaut because of the excitement and glamor. I think that this kind of effort - creating a challenge that engages all of the population - is one involvement in innovation that governments should have continuously. Right now, rather than creating a 1000 page health care plan, the government should set a specific goal and ask all of us to help achieve that. Perhaps the goal is universal coverage with no increase in healthcare outlays. We need big challenges to come together and overcome these hurdles.

This leads to the second possible government involvement - selecting preferred industries or technologies. Government involvement in selecting the "best" or preferred industries or technologies is fraught with hazard. Left to its own devices, the government that created ARPANET might still be monopolizing the ability to communicate and interact. Clearly any government with research facilities should be responsible for generating new research, but not selecting which technologies are approved or disapproved. Government involvement at that level and scale is bound to be tied up with political favoritism and will be showered on the largest and most powerful (see for example the GM bailout, or the bailout of larger banks).

The third kind of involvement is something rarely seen in the US outside of the Defense Department - a public/private partnership. The government could easily define specific issues or challenges it faces and create opportunities for innovation to address these specific issues. While this does occur on a limited basis today, the contracting rules and the size and influence of incumbents make it difficult for smaller firms or new entrants to compete. This means that many of the same old tired ideas and concepts are constantly recycled. If the Federal government could open itself up to more innovation around its biggest challenges, and invite a wide array of innovators and reduce the issues around contracting, it could create an entirely new innovation community which might significantly impact its ability to govern and its ability to deliver services. Secondarily to these outcomes would be the scaling of new ideas which could then flow back into the private sector. Thus, the government could be an incubator of ideas that eventually benefit the private sector. To a certain extent, this was true in the 40s, 50s and 60s, but as significant government research has dwindled, less innovation flows out of the government. We could easily turn the tables by asking the citizens and industries to respond to innovation challenges.

From my perspective, I don't want to see any government picking industries or technologies. I do want the government to identify key challenges and needs, and bring together the best minds to create innovative solutions. Currently, one of the biggest stumbling blocks to innovating with, or for, any government is the bureaucratic hurdles involved in contracting, and the over-reliance on existing "beltway bandits" who have long incumbancy but little innovation incentive. Let's open up the interactions, bring more people and firms into the innovation arena and have governments define the big challenges and turn the rest of us to work.
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posted by Jeffrey Phillips at 7:05 AM 9 comments

Tuesday, September 01, 2009

Experience - the ultimate differentiator

I was shopping for a friend's birthday cake when I decided to go to Fresh Market, a small grocery chain known for its bakery and fresh items. The market is meant to remind you of an older, perhaps European market, with fresh vegetables, a butcher shop and a huge selection of loose grains, coffees and other edibles. The Fresh Markets I've been to are arranged so that a shopper can easily browse the goods, and the buildings are dark, with wood flooring and very helpful service. The Fresh Market is definitely different from most grocery stores, which have shelves that appear ready to tip over on top of you, bright fluorescent lights and sales or "specials" all over the store.

But what really started me thinking about innovation and the Fresh Market was their slogan. Experience the Food. Not, for example, "Taste the Food" or some argument about how you shop or the freshness of the produce, or the lowest prices. In fact they say nothing about the quality of the food, whether or not it is organic, or the prices of the food. Locally, we know that Fresh Market is on the more expensive side. But what they choose to focus on, at least with some of their marketing messaging, is Experience. They are innovating the grocery store model to focus on the shoppers' and the customers' experience of the event, and of the food.

Now, the Fresh market isn't the first to focus on the "experience" of the food for the consumer. Forbes Magazine and other periodicals have suggested that Whole Foods has a "food porn" strategy, telling stories about the food, how it was raised and the life stories of those who grew the apples, raised the cows, fed the chickens. But Whole Foods was ultimately about a lifestyle that rejected the pre-packaged ways of traditional grocery stores and was about embracing a new, and sometimes counterculture way of doing things.

Both of these firms understand that Customer Experience is one of the most compelling differentiators in the market. Even in the financial environment we have in 2009, Fresh Market and Whole Foods are holding their own, while traditional grocery stores struggle. People identify and are willing to pay more for Experience, even in what should be a commodity like groceries. Apple (the electronics manufacturer, not the food) understands this and has always had excellent Customer Experience, to the point that it ships its iPhone with no evident user manual. Nordstroms understands this, offering customer service and experience that's not found anywhere else in the clothing retailers.

Yet, the few examples I provide above indicate that while Customer Experience is powerful as an innovation opportunity and differentiator, few firms focus on Customer Experience. It appears to be too expensive, too labor intensive, too different for their situation or industry. Let's look at retail banks as an example. Does any retail bank offer a unique customer experience? Most interact with customers at branches through bullet proof glass at the drive up or in those velvet roped lines inside the branch. Most require that you fill out antiquated forms and recite 15 digit numbers to access your money. Most branches feel like a cross between a prison and an elementary school, with the really important executives in hushed offices at the back, while tellers and greeters act as the guards on the watchtowers. Could there be a different experience than this? Absolutely. The only bank I've see experimenting with its customer experience is Umpqua Bank in the Northwest. How many bank branches do you think get written up in Architecture Week Magazine? Banks are just one of many industries that have yet to recognize the sustaining power of innovating around Customer Experience.

Think about the airline industry. Can you name a recent positive experience you've had with the airlines? Only Virgin Atlantic seems to be paying attention to innovation around Customer Experience, while the rest of the industry seems focused on driving costs down and driving away customers with terrible service and experience.

Why would a grocery store take as its motto "Experience the Food"? Why would a bank radically alter its branches? Why would an airline examine how its customers are treated? Because they understand that what appears to be a commodity can be innovated, especially around customer experience.
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posted by Jeffrey Phillips at 5:55 AM 6 comments