Tuesday, June 28, 2011

Old models disrupted by new innovation

I listened yesterday to an NPR story about the difficulties that Hulu presents to its existing owners - primarily NBC, ABC and Fox.  The headline for the story:  what do you do with an interesting creation that you aren't sure you can control any longer?

I laughed out loud, because like atom bombs and genetically engineered creatures, the people who create really interesting innovations are always surprised when the creation is larger, more disruptive and more powerful than they can control.  Hulu was started almost as a lark - a way to provide more and better content on the web than cats playing pianos.  No one was sure if the millions of people looking at Youtube videos would watch feature length programming.  Now, however, while Hulu and other outlets are drawing millions of viewers, the traditional channels for content distribution - otherwise known as cable and satellite providers - are growing increasingly restless.  These distribution channels are losing the opportunity to control a franchise, and the traditional media distribution channels provide more revenue and profits today, even though viewership is growing far more quickly on the web.

What is NBC, ABC and Fox to do?  If they retain Hulu and it continues to grow and siphon viewers from traditional distribution channels, then the cash cow gets gored.  Cable and satellite distributors will demand to pay far less for the content, and may decide to look for other, unique sources of content.  If NBC, ABC and Fox decide to sell Hulu, they can either continue to provide content, which doesn't really solve the problem, or can delay or shift how they provide content to Hulu, which won't make it an attractive acquisition target.

NBC, ABC and Fox have innovated, without understanding or recognizing that really interesting innovation is almost always disruptive and cannibalizes the existing markets or channels.  Now, they are stuck with a creature of their own making, with no clear strategy about what to do or how to "control" their innovation.  People increasingly aren't tied down to a place to watch TV or content, or to a "time" to consume the content, or even to a specific channel or distribution media.  People will watch what they want, where they want and when they want.  The best content will be found, where ever it is, and on whatever device it can be consumed.  That's the customer need, which is ultimately paramount.



Hulu's success also identifies the misconception that we "all" are going to be publishers or content creators.  After all, if there were enough good content on Hulu, we wouldn't need Fox, ABC and NBC.  While more film makers have had their chances given new outlets, there's still a value in telling a good story.  So Hulu demonstrates the fact that there were at least two misconceptions of content and viewship.  First, that the major networks could control a disruptive innovation,  They are now afraid of the creature they've created.  Second, that having a publicly available and free media for exchanging content meant that anyone could be a producer of content, and that would detract from the major producers.  If anything, the web and Youtube have shown how important good storytellers and producers can be.  Otherwise, it's cats on skates all the time.

What shouldn't be surprising to the major networks, or to any innovator, is that a real, disruptive innovation not only creates new products and services, but if it is truly disruptive it will change business models and distribution channels.  The networks assumed they could control their innovation, but in fact their innovation to a great extent has impacted their business models in ways they didn't expect.  The interesting thing will be to see how the networks try to cut the Gordian knot and keep both their important channel partners, and web viewers, happy.  Doesn't seem like an easy solution.
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posted by Jeffrey Phillips at 1:34 PM 5 comments

Monday, June 27, 2011

Four kinds of innovation time

We innovation consultants often talk about the value of ideas.  Good ideas, well managed, in time can become new products and services that drive new growth, revenue and profits.  But while ideas are valuable, the input that really matters is time.  Even if you have the best ideas in the world, if you don't have the time necessary to work them effectively, they don't matter.

Today's insight is brought to you by your wristwatch, your calendar and your annual planning cycle, all of which are different ways to measure different blocks of time.  I believe there are at least four different kinds of innovation time, which can make it difficult to innovate regularly, if at all.

Right time
The first time barrier that many firms struggle with is "when is the right time" to innovate?  I guess when product life cycles were longer and customer demand less intense, a periodic innovation pattern was acceptable.  A firm could afford to innovate, then rest on the revenues and profits of the new product or service that was introduced.  In that scenario, all the firm had to do was to correctly predict when the product would lose favor in the market or when customer demand would change.  In many cases, the firm simply produced a "new model" and expected customer demand to shift to the new model. Those days, my friends, are over.

The right time to start innovating was yesterday.  And, if you missed it, you can start today.  The pace of change is accelerating.  Firms don't dictate customer demand anymore, and can barely respond to it effectively.  Now, you need to either anticipate it, or if you are really insightful or lucky, like Apple, create it.  There is no "right" time for innovation, it needs to occur all the time.

Finding Time
If you can convince yourself, your team and your management that innovation should be happening regularly, the next time barrier will be to "find" time to innovate.  After years of rightsizing, outsourcing and cost cutting, there's no slack in the system.  To innovate, real tradeoffs have to occur.  An individual or team must put aside important short term work to address important long term opportunities.  In most organizations, everyone is working 40-50 hours a week.  The real question isn't "can we find the time" but "is what John is working on now as important as a new product or service a year from now?"

And yes, there's the myth of Google's or 3M's 20% time.  That investment is actually begun by people who spot an idea and start working on their own time.  They then get some time to validate the idea "on the clock" so to speak, but many of the ideas created under 20% time were on the employees' time.  If firms want to innovate, they must create some slack in the system for excellent employees to have time to consider future products, not current problems.

Time to Market
One of the most interesting thought experiments I use when leading an innovation workshop is to ask:  how long is your product development cycle?  If we had an approved project that we could submit to the product development team today, how long would it take for that product or service to launch in the market? 

Typically the answer ranges from 9 months to 24 months, depending on the complexity of the product and the regulations in the market.  But then, to really get the team thinking, I'll ask:  OK, how long do you think it will take from the recognition of a customer problem or the identification of a customer need till we have a good idea validated and ready to present to product development.  Typically, this elicits blank stares.  So we'll just pull a number out of a hat and estimate 3 to 9 months.  Which, if correct means that from the identification of a need or problem to product launch is 12 to 33 months.  Yet most executives have no clue that it will take more than a handful of months for an innovation team to spot an interesting need, validate the need, conceive new products and launch a new product. 

Further, if your idea to market timeframe is 33 months, you'd better dream up ideas that will be important and relevant at least 40 months from now, or you'll be late to the market.  Innovation takes time, and the longer your idea to market cycle is, the more interesting and disruptive your ideas need to be.

Time to value

Once your new product or service launches, it can be difficult to ascertain whether or not it has been successful for quite some length of time.  Many consumer good manufacturers will pull a product from shelves only after 6 to 9 months, to ensure customers are aware of the product and to let advertising and market alert the customer and to ensure a sufficient trial.  How much time will your executives allow for your new product in the market before they start deciding to "pull the plug"?

While we all love the proverbial "hockey stick" growth curves, they are rare in the real world but prevalent in PowerPoint.  New products require time for adoption, since they usually require customers to become aware of the product and recognize the value proposition.  Usually there is a need to test the concept, or see others test the concept, before the majority acquires the product.  This is what Geoffrey Moore called "Crossing the Chasm".  This means your first adopters aren't the majority, and it will take a little time even for a good idea to enter the consciousness of the marketplace.

We're all out of time
The problem with these different perspectives on time is that most executives have been brought up in the school of the stopwatch.  They expect everything to happen in the very short term, and have little awareness and patience for the time necessary to bring a wholly new idea to market, and even less patience for the time necessary for a new product to gain traction in the market.  Wall Street has trained executives to meet quarterly numbers often at the expense of longer term growth, and many opportunities are passed over because there simply isn't time, or the time isn't right.  You can only postpone innovation so long, before it bestows insights on other firms that aren't time-bound. 
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posted by Jeffrey Phillips at 5:37 AM 13 comments

Thursday, June 23, 2011

Putting the idea cart before the capabilities horse

The phrase "putting the cart before the horse" is meant to help us quickly identify that priorities or actions are in the wrong order.  A horse does a far better job pulling a cart than pushing a cart, therefore the horse goes before the cart.  In innovation projects, however, far too frequently the idea goes before the capability or competency.

Let's stipulate that to innovate successfully there are at least five key ingredients or attributes that are necessary.  The one most people recognize without prompting is, of course, the idea, which is the celebrity of the innovation show.  Of course, the show can't go on without a number of other valuable and often overlooked features.  Those are:

  • Capabilities - processes, methods and workflows that define what to do with an idea
  • Competencies - the knowledge and skills to act on the idea effectively
  • Clarity - to understand key strategic goals and how innovation aligns to those goals
  • Bandwidth - enough time to work on the ideas
  • Confidence - the ability to work without fear of failure
A typical innovation project begins when someone has a big, pressing need and gathers a team to generate ideas.  However, exceptionally little thought is given to these other ingredients, and they are very valuable.  For example, we don't ask our team members to participate in important activities without proper training and supportive systems, except in the case of innovation.  We don't ask people to work on important projects but severely limit their time to do so, exception in the case of innovation.  Why is it so easy to start an innovation project without considering these important factors and implementing a solution for each?  Or do we believe innovation is so easy that these ingredients aren't necessary?

Perhaps it's because by the time we decide to innovate, we've wasted a lot of time, and it appears there's little time to "invest" in these activities, because they would further delay the innovation process.  When in fact we know that well defined innovation processes, leveraged by people who have been introduced to innovation tools and techniques and who work within a framework that provides enough time and commitment are much more likely to create relevant, meaningful ideas.

We've got to stop placing the idea or concept ahead of the important and necessary innovation capabilities.  While it requires an investment to train people and define methods and workflow, simply generating ideas in a team with little experience, no clear work rules and no investment in training will end in frustration.  Training on innovation techniques and methods, and definition of innovation processes and workflow should PRECEDE idea generation.  If those activities don't precede idea generation, then the idea is unlikely to proceed any further, since the people, processes and skills won't support advancement of the idea.  Again, why should we expect innovation, which is uncertain, risky and new to most organizations, to work well without the underlying foundations and frameworks that buttress other business processes?

Firms that do innovation well aren't necessarily smarter, or more creative, than other firms.  They are firms that understand the value of systematic approaches to innovation, coupled with a culture that provides time for innovation and reduces risk.  They put the capabilities and culture horse in place, which pulls along the ideas cart.

Now, we just need a 21st Century analogy to replace this whole horse/cart thing...
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posted by Jeffrey Phillips at 7:39 AM 3 comments

Tuesday, June 21, 2011

Improving the innovation gauntlet

You are probably familiar with the concept of a gauntlet. A gauntlet in its origins meant that an individual had to pass through a narrow passage formed by ranks of soldiers who were striking the individual as he or she passed by. Originally a gauntlet was used as punishment for defeated enemies or soldiers who demonstrated cowardice.  The concept of running a gauntlet go back at least to the Roman times, when Roman soldiers used a gauntlet to punish criminals in their ranks or enemy soldiers.

I often compare many innovation projects to running a gauntlet, especially from the perspective of the idea.

If you think about innovation in just about any company, the work seems to start with the generation of an incredibly interesting, new idea.  Often the idea is novel in several respects, and has the possibility to disrupt a market space or attract a range of new customers.  I always want to archive that moment and the possibilities of those ideas, because once the idea leaves this stage, it is rare that the idea remains the same.

Typically the idea is pelted from all sides by individuals who want to shape the idea to their interpretation of the needs and wants of the market.  Or by people who need to make the idea "fit" the existing business models, financial models, annual plans or other artificial containers we try to force upon the model.  Then there are the people and processes that want to ensure the new idea doesn't cannibalize any existing product or service the firm offers.  Then there are the individuals who have regulatory concerns, or health and safety concerns, or reputation concerns.  As the idea moves through this gauntlet, each organization takes the opportunity to chip away the aspects of the idea that are threatening to them, or that challenge the status quo.  Over time the idea is smoothed, rounded and polished, and becomes so incremental as to be hardly comparable to the original idea cooked up in the idea generation session.

If our organizations do one thing really well, it's paring down strange, hairy, audacious ideas into carefully contrived, simplistic concepts that can be presented without fear to mass audiences.  No wonder so many firms have so many look-alike products and services.

How do you escape the "gauntlet" mentality and commercialize the really interesting, radical idea that was what you started with?  Through focus on the customer need.

In almost every situation where the idea is trimmed, shaped or reduced, the individual or team doing so isn't reshaping the idea to meet or exceed customer wants and needs, they are changing the idea to make it fit with internal goals, methods and expectations.  Once the idea leaves idea generation, suddenly the customer's wants and needs take a back seat to what the firm believes is important and worthy.  Most of the work done on an idea once it leaves idea generation is not to the benefit of the customers to satisfy their unmet needs, but is done to satisfy the internal machinery and expectations of the internal processes.  Most organizations aren't adding value to the idea to improve it for the customer, they are simplifying and reducing the concept to make it internally tolerable.

Here's what you should do.  Any idea that must run the evaluation, funding and commercialization gauntlet should have an exceptionally clear definition of the problem or opportunity it is meant to solve, and a clear rationale about why it is important that the features or attributes of the idea exist.  Any team or individual who wishes to change or modify the idea must justify their actions on the basis of customer needs, not on the basis of internal processes or to protect existing products or services.  Instead of saying "we can't do..." the arguments should always be "the customer needs...". 

The unfortunate but often true fact is that the best way to do this is to assign an "idea champion" for each idea, a person who is passionate about the idea and willing to run the gauntlet with the idea to ensure consistency from start to finish.  Idea champions bring with them their own set of challenges, not least of which is temporary blindness to ideas that have missed the mark.  Rather, we prefer to hold each team to an honest accounting of the work they've done to further an idea, and any changes, especially in the scope of the idea, the features and attributes of the idea are documented in light of the customer need, not in terms of the business process or decision making.

Why do we subject our ideas to processes akin to torture devices developed by the ancient Romans to punish criminals and cowards?  Why do we allow really interesting ideas to be shaped, formed and molded into "me too" products because of internal competition, fear and uncertainty rather than creating the compelling solutions that existed at the start?  Let's turn the innovation gauntlet into a mechanism to improve and speed ideas to market, rather than a process to reduce and distract ideas from becoming interesting new products and services.
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posted by Jeffrey Phillips at 5:56 AM 3 comments

Monday, June 20, 2011

Innovate, replicate or evaporate

I had the opportunity to sit in on a meeting with the president of a leading consumer goods company late last week.  I had been invited to the meeting to introduce some open innovation concepts, but I was there more for support and encouragement than to lead the discussion.  The president of the firm we were meeting with welcomed us graciously and explained some of the concepts his organizations was pursuing to find and manage new ideas.

Then, he said something that I wrote in the margins of my notepad.  Unprompted by us, he looked at us and said:
In this business, you innovate, replicate or evaporate.

Truer words were never spoken.

His business is a fast paced consumer business, driven to a certain extent by market trends and customer whims.  His business is constantly bringing out new products and working with large retail establishments to understand how to meet the demands of fickle customers. 

Think with me for a minute about his statement:  either innovate, replicate or evaporate.  What he is saying, and I confirmed it after the discussion, is that firms in his business either create really interesting new products that meet customer needs, or they compete by replicating what the innovators do.  In his market you are either an innovator or a very fast follower, or your firm is out of business.  There is no third option.  Like the role Alex Baldwin played in Glengarry Glen Ross, the third prize is you lose your job.

This trinity that our client identified is true in every industry, all that differs is the timing.  Whether you evaporate in a few months in a rapidly moving industry or market or slowly wither away in a market where customer demand evolves a bit more slowly, you really only have two choices.  And, what's even more difficult to grasp is that the "replicate" option is slowly dying away as well.

As new innovators come online across the globe, product life cycles and customer attention spans and loyalty are shrinking.  We are becoming an online, all the time, consumer, and we want what is new, valuable and exciting now.  Even fast replicators will have a hard time driving sales, as consumers shift their allegiances to the latest trend, fashion or look.

I wonder how decisions would be made if in every corporate boardroom in America these four words were posted in large font on the walls:  Innovate, Replicate or Evaporate.  Would that mantra drive new decisions and more innovation?
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posted by Jeffrey Phillips at 5:51 AM 4 comments

Wednesday, June 15, 2011

Fishing as a metaphor for innovating

I had the opportunity to go fishing over the weekend, at a pond on my grandfather's farm.  I love to fish, and want to pass down the pleasures of fishing to my kids.  Whether it's fishing for salmon in Alaska, for trout in the mountains of Virginia or simply tossing a worm into a pond, there's something magical about fishing.  And, since I am neck deep into innovation, I am constantly thinking about what the activity I have underway has to do with innovation.  Fishing, a sport or livelihood almost as old as time, has a lot of things to tell us about innovation.

First, a good fisherman scouts the scene.  That may be a lake, a river, a pond or a likely spot in the ocean.  It is a waste of time to put good bait into a spot where there are no fish, unless your idea of fishing is absolutely no distractions and no catching either.  Scouting the scene helps you determine where the fish may be, their likely habitats and their habits.

Second, once you've scouted the scene you need to determine if the fish are biting, and if so, what they are biting.   Different fish feed at different times of the day, and on different baits.  Trout fishermen are notorious for matching the hatch.  That means they are trying to decide what bugs are hatching currently and how they can present lures or flies that look like the bugs that are hatching in the water.  Timing is everything - even if the fish are in the water, fishing when they are more likely to be dormant (heat of the day) is a waste of time, as is fishing with bait that doesn't align to their diets or interests.

Third, if you've got the right spot and the right bait at the right time, then placement is everything.  You don't want to spook the fish, and you want to place the bait in the right place without disrupting the normal activities.  A loud splash or a poor cast disrupts the habitat and spooks the fish.  Good placement and presentation is paramount.

Fourth, you've got to know when you are getting a bite, and when that bite is a commitment and not simply a test.  Many wily fish will nibble your bait but are almost impossible to hook, because they take small bites rather than swallow the bait entirely.  Only when a fish commits to the bait do you stand a good chance of reeling him in.

Fifth, and most difficult for my kids:  fishing requires patience and experimentation.  Perhaps the bait isn't right.  Try a new bait.  Perhaps the fish are lying deeper in the water (where it is cooler) on a hot day.  Lower your bait.  Try, try, try and then move to a new spot.  Experiment, use what you know, learn and incorporate.  While we'd all love to see the fish bite immediately, good fishermen know that it can take time and patience.

So, if all of these things are true about fishing, what do they have to say about innovation?

First, scouting is important.  Is there a viable market opportunity?  If so, where?  How important is that need or opportunity, and when will it arise?  Is the customer or market aware of a need?  Knowing your customer or prospective customer and understanding his or her need is important.  Scouting (trend spotting) and scenario planning helps define the best opportunities.

Second, what do the market, environment, technology conditions look like?  A great idea ahead of its time is simply another failure in the making.  You need to identify the right opportunity, in the right timeframe, with the right solution in order to be successful.  You also need to generate lots of ideas within your scope or context, just as a fisherman has many different baits at his disposal.

Third, match your offering to the spoken or unspoken needs and demonstrate its benefits in a way that doesn't cause disruption to the customer.  Yes, you may cause significant disruption in the market, but the customer must be able to find and adopt your solution easily.  No matter how great your solution is, inertia says that customers will stick with a simple but inadequate solution rather than a more elegant solution that requires them to change or learn something new.  The best ideas are easily adopted, require little learning and seem obvious in hindsight.  The worst ideas are difficult to adopt, require a lot of change or learning and disrupt the user to gain a benefit.

Fourth, everyone is interested in new stuff, but not everyone is committed and will acquire new stuff.  You have to distinguish between interest (nibbles) which you will receive a lot of, and commitment (acquisition) which is valuable and a step beyond interest.  Few people will tell you your idea stinks, but don't use compliments to suggest the idea is valuable.  Value is indicated when they acquire your new product or service, not when they praise it.

Fifth, just because an idea doesn't pan out immediately, be patient.  Conduct lots of prototypes and experiments.  If you are on to some key need but can't break through, revisit your assumptions and change your hypothesis.  In other words, experiment within the scope of the product or solution or market set.  Know "when to fish and when to cut bait". Sorry, couldn't resist.  Don't assume your idea will take off dramatically, immediately.  The "hockey stick" curve of growth we all want to achieve is exceptionally rare, except on PowerPoint slides pitching the idea.

Finally, both innovating and fishing are proactive activities that engage the mind and the body.  Good fishermen are good thinkers, always planning, moving, experimenting.  They are engaged and passionate about their sport.  Good innovators display the same characteristics, and do it without the worms.  Who knew fishing and innovation had so many commonalities?
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posted by Jeffrey Phillips at 1:09 PM 9 comments

Once innovation leaders, Governments lag now

When I was a kid in the halcyon 60s and the crazy 70s, we knew that while there was a "Cold War" the US Government, and many European governments were active, working to protect us from the Communist threat.  Millions, no billions of dollars, pounds, francs, marks and other currencies were expended in scientific and military research that formed new offensive and defensive weapons.  Much of that research made its way into the public sector, where it became the basis for new electronics, new semiconductors, new medicines and other new innovations.

Once, in the not too distant past, faced with threats from clearly identifiable and significant enemies, our governments invested heavily in R&D.  After the end of the Cold War, a "peace" dividend was declared.  Many countries in Western Europe and the US decreased military spending, which led to lower rates of government sponsored research.  Further, aging populations and the demand for improved services from the populations led to shifts in investments and budget allocations.  Primary R&D, a key driver for many innovations, has taken a back seat to many other government programs.  Our NATO allies, fighting a war with Libya, have admitted that in the next 30 to 60 days they will have exhausted their armaments.  Many European governments leading the air war in Libya will have to decide how to continue to fund the air battle, as many have allowed their militaries to atrophy.  Britain, once the most powerful naval force in the world, no longer has an active aircraft carrier.  While the peace dividends may be welcome and the specter of war diminished, at least large scale land war, the downgrading of military research and the fall off in government R&D has left governments as innovation laggards rather than innovation leaders.

Some will argue that this is what "should be" - governments should not dictate industrial policy or pick and choose challenges to solve, technologies to promote and so forth.  However, few organizations do long term basic research better than governments, because they can take on problems over a much longer span of time than private enterprises, and can invest in challenges that may not attract funding or investment from private organizations.  Yet much of the basic R&D work a government does leads to new innovations and new products once the ideas are commercialized.  The knock-on effect of basic research is tremendous.

We risk losing a significant portion of our longer term research as national governments in Europe, the United States, Japan and other countries focus increasingly on other investment priorities - improving medical care, caring for their aging populations and so forth.  Everyone benefits from strong governmental R&D funding as those concepts filter out into the market as new products, new services and new capabilities.  While I have some concerns about the overt focus on sustainability and green technologies that the Obama administration favors, we in the US need to continue to support R&D investments in all phases of our government spending, and seek new methods to convert that research into new products and services, which will create new jobs. 

Europe is waking up to this problem.  Witness the latest report from their Innovation Union, which points out many of the problems the European Governments face from an innovation perspective.  While the EU is in fact larger than the US and creates more PhDs, it lags the innovative power of the US, even as the US is losing its innovative edge to places like China.

It is almost inevitable that in these dire economic times that funding for the military and for basic research across the board will be cut, and basic government R&D has fallen over 5% just in the last few years.  This lack of investment has a knock-on effect, as private industry is also suffering through some difficult years, and new policies make investments in private R&D less attractive.  Large enterprises in the US currently have stockpiles of cash that should be translated into new research, but we need new tax incentives and less regulation to encourage these firms to get that cash working on new research.  As the US government continues to shift its focus from R&D investments to cash payments for medical care, health care and other benefits, private industry must step in and take up the R&D slack, working with universities and research institutions.  A significant engine of prosperity is slowly fading away with little to replace it.  Something must step into the breech, or innovation in the US will suffer.  The European commission report is a wake up call for all taxpayers in the US and in Europe.  Basic research drives innovation, which drives new products and new job creation.  Don't let government R&D die, and press to extend private enterprise R&D tax credits.
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posted by Jeffrey Phillips at 6:07 AM 3 comments

Tuesday, June 14, 2011

Innovation deficits and debt

The US Government, along with many other governments around the world, is beginning to come to grips with its fiscal deficit, and, hopefully, its long term debt.  A deficit is a current year short-fall that occurs when spending exceeds tax receipts.  A debt, on the other hand, is the accumulated deficits.  Both are pernicious, and both must be addressed, or, like Greece, we'll all find ourselves in the uncomfortable situation of dramatic cuts in government services or paying extreme taxes to pay down our creditors.

Another factor you should watch closely is big business, at least in the US.  Right now, many businesses are reporting exceptional profits in the face of a slow economy.  I'll argue they are doing this in many cases by driving two significant deficits, which are leading to debt.  Neither of these deficits will show up as a negative on the balance sheet in the short term, but may cripple the firms in the long run.

The first deficit or debt is in information technology.  Many firms are simply relying on existing software and existing systems to get them through these lean years, and are investing far too little in development and new systems.  Many IT organizations are barely able to sustain their existing infrastructure, much less add new functionality.  Many are also hoping to take advantage of a generational shift to the "cloud", which they believe will dramatically reduce IT costs, but they aren't taking into account the dramatic costs of shifting to the cloud.  In the next few years the lack of investment in IT will be obvious and CEOs in the near future will have to invest in IT to continue to drive revenue and profits, demonstrating the deficit and debt around IT spending.

The other deficit or debt that is near and dear to my heart is the innovation deficit.  In this economic environment most firms are satisfied with sustaining the status quo, and squeezing all the value that they can out of existing products or services.  They use many arguments to demonstrate why innovation is currently too expensive, too difficult or too risky.  Many executives know they need innovation in order to sustain growth and profits (see any recent CEO survey where 70% of CEOs demand more innovation), yet many CEOs also recognize that innovation isn't getting done.  For proof see the NSF survey where less than 25% of manufacturing firms and less than 10% of services firms report generating a new product.  This deficit builds to an innovation "debt" or gap, which has several implications.

First, many firms that are leaders today aren't innovating, and won't have interesting and valuable new products and services to offer.  To sustain themselves in the near future, they will have to acquire smaller firms with new offerings or risk the wrath of their customers.  Second, new entrants and upstarts will cause radical disruptions because they bear less of the infrastructure cost and have less at risk when they innovate, so the table is set for disruption in any industry that isn't very innovative now.  Third, competitors in countries like India and China that are lending us money to drive our fiscal deficits are innovating, so we can expect more and more innovation from those firms and countries.

Right now many firms in the US are whistling past the graveyard, hoping to get through a tough economic climate and get back on solid footing.  They are driving profits by squeezing more efficiency and returns from existing infrastructure and products, but at the same time creating an innovation deficit which they won't be able to fill in the coming years.  As nature abhors a vacuum, that innovation deficit or debt will be filled by someone, some firm or some country.  Don't kid yourself: short-term profits are coming at the risk of long term product and service innovation.  Our businesses are creating an innovation debt to rival the debt rung up by our government, and sooner or later we will pay for the lack of investment.

Innovation, like tax collection, isn't an on-again, off-again activity based on external conditions but a consistent requirement over time, which we may come to recognize at our peril.
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posted by Jeffrey Phillips at 5:48 AM 5 comments

Monday, June 13, 2011

Old ideas aren't as dangerous as old expectations

It's rare that you'll find a quote from General Motors in an innovation blog, but I read that Dan Akerson, Chairman and CEO of General Motors, gave the commencement address at Bryant University.  Akerson gave a fine commencement address, full of self-deprecating humor and advice for the graduates.  But one thing he said, tucked in at the end, was important.  He said "Don't be afraid of new ideas; be afraid of old ones".  Here, in the wrap-up of his speech, are the words GM, and every firm needs to hear.

Why are so many firms "afraid" or perhaps more realistically "resistant" to new ideas?  Why do so many firms and individuals cling to ideas that are old and outdated?  Why do individuals and firms consistently cling to concepts that are well past their shelf life, and in doing so fall behind the competition?

New ideas require a shift in perspective.  New ideas require us, as individuals or as corporations, to reconsider our thinking.  New ideas suggest a shift in demand, in the marketplace or in habits or behaviors, and those changes or shifts may indicate that our offerings will be less interesting or less valuable.  But new ideas also come with a price tag.  It is not clear if new ideas will "pan out". After all, the success of many businesses is built on a solid, well-defined "old" idea that has proven its merit, while a new idea may not be as defensible, as scalable or as profitable as the old idea.

So, in light of these challenges, many firms rest comfortably in the knowledge that while new ideas may arise, their "old" idea provides substantial value.  With luck, the old idea can be extended for many years and the firm can build defenses against the preponderance of new ideas.  Over time comfort, inertia and a defensive mindset take hold.  It is far easier to defend, after all, than to attack.  Military strategy holds that an attacking army needs to far outweigh a well entrenched defensive position, and the same is true in business.  Playing defense is far easier, requires less resources and is a more comfortable position. 

Yet a defensive mindset assumes that the environment will change little, if at all, and customers' needs will change very gradually, and that there are few if any shifts in demographic behavior or economic activity.  When the global economy was fractured and trade was limited, these assumptions made sense.  Now, however, with a fully integrated economy that can see supply lines ruptured (Japan Tsunami) and rapidly stitched back together (see also Japanese Tsunami), change is inevitable and global demand increasing.  Consumers are ever more fickle, demanding new products, new services and new experiences at a rate never seen before.  These factors, plus a significant shift Southward (to Southeast Asia, India and Africa) of population density and economic intensity over the North (North America, Europe, Japan) indicate significant shifts in consumer activity and demography.  Firms relying on old principles, old ideas and old rules about product cycle longevity are at significant risk.

We can't be merely afraid of old ideas.  In older, established economies our businesses should be constantly re-evaluating existing business models, product offerings and experiences, running numerous experiments to discover what will work in an emerging future.  It's not merely old ideas that are dangerous, it is old expectations, old rules of thumb and old methods of managing.  The pace is changing, and old theories and old expectations are just as dangerous as old ideas.
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posted by Jeffrey Phillips at 5:57 AM 3 comments

Thursday, June 02, 2011

Five types of innovation failure

Sitting in on a Tweet Chat (Innochat) yesterday we were tweeting about innovation "failure".  One of the opportunities and challenges associated with tweeting is the difficulty of accurately defining what you mean by certain words or phrases.  I'm sure innovation failure has as many definitions.

Giving it some thought, however, I felt it was appropriate perhaps not to define what innovation failure is, but to think about the root causes of innovation "failure".  If we understand the root causes or types of failure, we can enter projects with appropriate expectations and awareness.  Herewith, my attempt to define at least five significant types or causes of innovation failure.

Things you don't notice
In the first category of innovation failure are the opportunities or markets you simply don't notice.  In hindsight these opportunities or markets are fairly evident, but at the time perhaps the competitive nature of a market or business simply blinds many people to an opportunity.  Take, for instance, Sony, one of the leaders in portable music equipment and in recording.  Why didn't Sony create an iTunes concept?  It would seem they had all the pieces, but they failed to notice the opportunity. These failures often occur when firms or even industries assume that business will continue much the same as it has for years.  A small oligarchy implicitly agrees on the rules for the market and new entrants eventually overthrow the existing order.  This failure is based on a firm's complacency, inertia and fear of change, and is based on the assumption that markets and customers will demand much the same products and services year on year.


Things you notice but reject or choose to ignore
It is a failure to notice a new market or opportunity and choose to ignore the opportunity, waiting for someone else to take the lead, or so locked into a specific business model that you can't exploit an opportunity or market when it presents itself.  The "we aren't innovative" argument isn't a strategic, it is the abdication of strategy and initiative, and in itself is a failure.  Noticing a market or opportunity and ignoring it is perhaps a worse failure than not noticing at all.  This failure is based on a lack of strategy and initiative.  Noticing opportunities yet looking away, being reactive rather than proactive, is quite possibly the worst failure of all.

Talking but not doing
Currently, many firms are talking a good game about innovation but aren't actually doing anything.  This is a failure of dramatic proportions.  Surveys typically show that CEOs rank innovation as one of their top three priorities, yet a recent NSF survey found that only 25% of manufacturing firms and 8% of services firms reported creating a new product or service in 2006-2008.  There's a significant gap between the talk about innovation and the actual output.  Talking about innovation is not doing innovation.  This merely creates a significant amount of cynicism inside the firm and outside the firm, and makes doing real innovation even more difficult.  This is a failure of transparency and goal setting.

Trying to create something new but failing in the attempt
Many, many firms will engage an innovation project and generate new ideas.  Often these ideas "die on the vine" or simply aren't implemented effectively.  This is an innovation project failure, often caused by poor planning or poor understanding of customer needs, or little commitment to actual change.  Doing real innovation work is hard, requires discipline and a willing sponsor at the end of the line.  Many barriers will prevent even a committed team from moving an idea from concept to product.   This failure is a failure of commitment and process, typically resulting from a lack of resources, inadequate staffing, and a poor understanding of an innovation process.

Products or services that fail in the marketplace
Every year thousands of new products are introduced and pulled from the shelves only a few months after they were released.  Look at the Microsoft Kin phone as a really compelling example.  These are new ideas that made the transition from concept to new product but were rejected in the marketplace.  This kind of failure is damaging and expensive.  After all, these ideas were developed, new products were created and launched, and the products were met with at best a collective yawn.  Doesn't say much for innovation when that happens.  These failures are a failure of timing (right product, too early or too late) or a failure of understanding the needs and wants of the marketplace (poor customer insight).  When most people talk about innovation failure, this is what they mean.

Perhaps the most important question, then, is which kind of innovation failure is most important or most dangerous.  I think the knee jerk response will be "products or services that fail in the marketplace" since they are the most visible and most expensive from an investment perspective.  I'd argue that the worst kinds of innovation failures are those that you don't notice, or do notice and ignore, since those are the ones that will disrupt the industry.  The challenge is in the cost structures.  The failures of products in the marketplace show up on the books today, while failures to act on new opportunities or markets don't show up as costs for years.
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posted by Jeffrey Phillips at 1:39 PM 2 comments

Innovation: discovering the right questions

"What's the right answer?" is a question we hear all the time.  In school we are expected to learn our material and spit out the "right" answer on demand.  In business we are expected to look at historical precedents, what our competitors are doing and what we can afford, and provide the "right" answer.

Strangely, I often hear this when applied to innovation.  What's the right answer?  When I hear this I know that the perspectives and intents are all wrong, and innovation will simply be another tool applied to find the right answer, instead of being applied to its true capabilities.

Far too often, the reasons that innovation "fails" are not tied up in the ideas that are generated, but in the questions that were posed and the rush to find the "right" answer.  We in business are trained to find the one right answer very quickly, and have often failed to realize that innovation is often a voyage of discovery, to determine the correct opportunities and destinations rather than simply answer a question.  Business cultures and attitudes have hammered into our heads the need to find the answer quickly, rather than explore for the best opportunity or outcome.  We take for granted that the questions posed or the opportunities as framed are correct, and proceed to use innovation tools and techniques within an exceptionally limited framework, attempting to answer a question that is too limited and perhaps not even valid.

This isn't our fault, really.  We've been trained for years to accept the offered premise, which is that the question posed or the opportunity identified is the correct one.  But far too frequently management's ability to assert the right strategy or ask the right question seems less and less obvious, and innovation isn't a technique or tool meant to answer one question as much as to explore a number of possibilities, and perhaps return with answer to a far different but more compelling question.

It's not hard to tell whether or not an innovation effort will struggle.  The roots of the failure lie in the original definition of the problem and the expectations inherent in the way the question is framed.  In my experience many executives frame questions far too narrowly, missing many innovation opportunities, and place far too much pressure on obtaining the "right" answer to questions that were ineffectual to begin with.

Innovation should often be framed in two distinct phases:  the discovery phase, where we take the given paradigm and extend it beyond where the thinking originated, and the action phase, where we start to generate and select ideas based on the opportunities or problems as framed in discovery.  Far too often the discovery phase is taken as stated by an executive, with little or no investigation, with constraints and scope that are far too small to enable innovation to work.

Please remember that innovation is, first and foremost, an act of discovery, often of things you may not have intended to discover.
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posted by Jeffrey Phillips at 6:03 AM 6 comments