Wednesday, March 28, 2012

Pandora's box and innovation

I've been thinking a lot about the current fad of innovation, where companies allow only very limited innovation exercises and quickly close the door again on innovation.  The concept of closely monitoring innovation in this manner reminds me to some extent of the story of Pandora.

Pandora, to jog your memory, was given a box by Zeus and told never to open it.  Her husband, Epimetheus, told her never to open the box, as he was warned that Zeus had probably created a nasty trick for humans.  However, once Epimetheus was away, Pandora was tempted.  She knew that many humans had disobeyed the gods and come away unscathed.  She opened the box and all manner of ills escaped.  She did manage to free hope as well, to offset the evils that had been set free.

I think in many ways executives act like Pandora when it comes to innovation.  They want to see what's in the innovation box, but only want to let a very little portion escape.  They want to carefully control what happens and snuff it out if it doesn't meet with their expectations.  However, innovation isn't often going to meet with current expectations.  It's difficult to let just a little innovation out of the box, so executives allow only tiny innovation experiments for fear that innovation may take hold and change the business and the culture.

Many executives are very concerned about opening Pandora's innovation box, to free all the innovation possibilities.  They are smart to be concerned, because innovation truly unleashed in any business will create distraction from the existing processes, create significant expectations within the employee base and the customer base and, most importantly, change the corporate culture. Executives realize that opening the innovation box completely can change everything.  So, in order to use innovation to their advantage while protecting the organization, they open the Pandora box of innovation only on occasion, and quickly shove the spirit back in the box once the innovation initiative is complete.

To continue on the classics theme, therefore, I'll argue that another famous story is perhaps the more appropriate approach.  In Shakespeare's Julius Caesar, Marc Anthony predicts the coming conflict when he says "cry Havoc, and let slip the dogs of war".  For innovation to take hold, we can't parcel it out in small doses, carefully controlled.  In those instances it is always unfamiliar and difficult.  It never takes root, and it never takes off.  While both Pandora's Box and Anthony's words have negative connotations - freeing the spirits and releasing the dogs of war - for innovation to take root and change your organization for the better, you must open the box completely and let the genies of innovation work their magic. Firms that attempt to parcel out innovation by the drink and then refocus the business on existing business as usual processes waste the chance to create a new innovation business as usual capability.  When innovation is treated as a capability that can be "turned on" and "turned off" with little support otherwise, you teach your culture that innovation is a difficult, ad-hoc and dangerous experiment.  No one wants to participate and everyone is uncomfortable when innovation is unleashed.  Further, they know that any innovation effort will be short-lived and many are simply experiments.


Unlike all of Pandora's evils, you can put innovation back in the box. That's unfortunate, because there are hundreds of poorly scoped, poorly executed innovation experiments under way right now, most of which will be snuffed out when executives put innovation back in the box.  Unlike the evils, once freed innovation can be quickly captured and placed back in the box.  Only when innovation takes root and becomes part of the culture can it truly make a real difference to your organization, but far too often it doesn't get the chance.
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posted by Jeffrey Phillips at 3:46 AM 0 comments

Tuesday, March 20, 2012

How to be more innovative

This is one of those posts where the topic feels so large and so poorly defined as to be almost impossible to describe.  Yet we get this question all the time - what can we do to be more innovative?  Every firm is in a rush to become more innovative, yet few have the time, resource or attention required.  I'm going to address in this post how to create an innovation discipline, since we believe that is the only way to sustain competitive advantage.

How to be more innovative, in five easy steps

Choose a focus or strategy

Innovation is much easier with a specific target in mind.  If your CEO or another executive asks for more innovation, work with that person to define the specific goals or strategies, or simply define what you think that means and pursue it.  Without a clear goal, innovation is exceptionally difficult.  With clarity, it is only reasonably difficult.  Align your innovation activities to specific corporate strategies and goals.

Understand the future customer

Your customers today are, more or less, content with what you offer.  They will offer at best incremental changes to existing products and services.  If you want to become more innovative, you need to understand the wants and needs of two groups - people who aren't customers today, and people who may be customers in the future.  The future is different from today, and your product or service must succeed in that uncertain future, not in today's market or environment.  You must spend time understanding the future customer and their likely wants and needs.  Use trend spotting and scenario planning to understand the future, and tools like ethnography to understand unarticulated needs.

Define a process or methodology

When I talk to my customers, I tell them that many innovation tools and methods seem simple and obvious, and in many cases they are.  I also tell them that the fact that I own a hammer, a saw and a level does not make me an adept carpenter.  There's a difference between owning tools and having competence with the tools.  Far too many potential innovators have tools and methods, but don't know how to deploy them correctly, use them incorrectly or do so in the wrong order or context.  There is a method to the madness.  Define an innovation method or process that encompasses all of the work you need to do - from problem or opportunity definition to product or service commercialization and launch.

Understand your scope and expected deliverables

Your business as usual processes will seek to simplify, reduce and moderate any idea you create.  Therefore, it is important to define how disruptive or radical the outcome should be IN ADVANCE so that you can ward off the impending simplification.  This is only possible if you have the commitment or permission to pursue really interesting ideas in advance.  Otherwise the culture will chip away, simplify and reduce radical ideas into incremental ideas, because those are the ideas that fit within the existing frameworks. Further, you need to define what your potential outcomes look like.  Should you create a new product, a new service or a new business model.  Without early definition and agreement, all innovation reverts to incremental product development.

Bridge the gaps

There are three important gaps to bridge when innovating.  The first is between strategic corporate needs and innovation teams.  That bridge has to do with strategy, clarity and permission.  This bridge ensures that innovators create something that aligns to corporate needs.  The second bridge is between insights and ideas.  We need to understand customer needs and bridge from the needs to relevant ideas.  The final bridge is between ideas and products.  Product or service development teams are overworked and unprepared for new, important ideas that must be prioritized.  Far too often good ideas end up listed far down the priority stack, where they starve from lack of attention and funds. 

No fast, simple method to great innovation

Innovation is a discipline or competency which must be developed.  There is no instant innovation, no just add water innovation that will create real value.  Any firm can become more innovative following these steps, through commitment, clarity, process definition and skill development.  Once you've put these five factors into place, run innovation projects or initiatives repeatedly.  The more experience your teams and processes have, the more effective they'll become. These capabilities are often at odds with existing business as usual processes and will diminish quickly if not regularly exercised.


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posted by Jeffrey Phillips at 6:33 AM 1 comments

Friday, March 16, 2012

Innovate Carolina Conference April 20

I'm pleased once again to write about an innovation conference that is near and dear to my heart.  Each year the Carolinas Chapter of the PDMA organizes an innovation conference, to highlight innovation in the Southeast.  In 2011 many of the attendees favorably compared our conference to the best innovation conferences in the US.  This year, our conference (April 20th, Raleigh NC) will be even better.

We chose as our theme "innovating under tight resource or financial constraints".  While it is evident that the economy is slowly improving, that fact alone doesn't mean that more resource or more money will be made available for innovation.  Yet every firm should be innovating, during the rough economic times and during the flush times.  We need to learn to innovate constantly, consistently, in good times and in rough times.

Please take a moment, review the conference site and sign up.  There are three really important reasons to come to Innovate Carolina:
  1. The Speakers.  We have an excellent line up of speakers.  Their firms span the gamut from financial services, consumer goods, industrial equipment, health care, high technology and much more.  They include small firms and Fortune 500 firms.
  2. The Networking.  Innovation works best when you exchange ideas with people on the periphery of your industry, at the edge of your knowledge.  Building networks with other innovators here in Carolina, across the country and around the world is vital to your success.  You cannot be an effective innovator sitting behind a desk.
  3. The Information.  You can learn a tremendous amount from the speakers we've assembled.  And, since this is a local, one-day event, the information is readily available, very practical and delivered in an inexpensive, efficient way.
Speakers
We are fortunate to have as our keynote Stephen Shapiro, who I know and have heard speak.  Stephen is an innovation evangelist. He believes in the power of innovation and is a regular speaker on the topic, as well as being an author of several books on the topic.

Once Stephen gets the audience excited about innovation and its possibilities, we have a powerful lineup of companies from the Carolinas who are going to share lessons learned, success stories, tips and tricks, insights and other information about how they have created new innovations while working under tight financial or resource constraints. See the agenda here.  Those firms include:

  • Bank of America
  • Britax
  • Burt's Bees
  • Elster
  • Gilero
  • Milliken
  • Net App
  • Novant
  • Red Hat
  • Sealed Air
Beyond this notable line-up of excellent speakers, we also highlight innovation in the public and academic sector.  We are fortunate to have speakers from:

  • The North Carolina Department of Commerce
  • University of North Carolina
  • The Center for Creative Leadership
Networking

 Based on our experience in previous years and experience at other conferences, we provide plenty of time for networking.  This is an excellent way to meet other innovators who live here in the Southeast.  Your capabilities alone are limited, but leveraging a network of other innovative, creative people you and your organization can reach new heights.  The conference has opportunities for networking in the morning break, over lunch, in an afternoon break and activities immediately following the event Friday afternoon.

Information

Every firm faces another tough economic year.  This may lead you and your team to believe that innovation isn't in the cards, since money, time and resources are tight.  History, however, shows us that many great products and even firms started out as new ideas during a downturn.  Microsoft, for instance, was founded during a recession.  Many great companies, including Dupont, were launched during the Great Depression.  As the economy improves and spending increases, customers will demand new products and services.  Your team needs to be working on those new ideas now. 

Learn about successful innovation programs and outcomes that are underway now.  Learn how to innovate under tight financial or resource constraints.  Return to your office after the conference with tools and methods to make your teams more innovative NOW.





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posted by Jeffrey Phillips at 5:48 AM 0 comments

Wednesday, March 14, 2012

Why IT says no to innovation

Pity the IT manager.  He (or she) is increasingly under pressure from product managers, business line leaders and others who want "innovation".  Whether that's more data, or more insight from their data, or perhaps the product manager wants to deploy a new product - innovation is a constant demand.  And while the IT folks would love to support innovation, they more often than not say "no".  Who, in this day and age, can possibly say "no" to innovation?  Meet what I call the enabling functions:  legal, regulatory, intellectual property, IT and other business functions that are very likely to say "no" to your innovative idea.  Perhaps the more important question is: when everyone is demanding innovation, why are these groups refusing it?

In my new book Relentless Innovation I wrote about the importance of the "enabling" functions to not simply respond to requests to support new ideas but to anticipate and even engage in the identification and development of new ideas.  This would require IT to move from reacting to new innovation requests to become a leader in innovation across the board.  IT would be a critical part of ANY innovation discussion, not just about new servers but focused on how to support new products and new services.

I don't mean to pick on IT - it's not as though they are the only ones who have to block, slow or stymie innovation in many firms.  And it's not uniformly the case that IT is a barrier.  In some firms, with visionary CIOs and CTOs, IT is on the forefront of innovation.  But, more often, IT is the voice crying out "no" when innovation is proposed.  But this isn't a screed against IT.  No, this is a thoughtful, well articulated article about everything that you - and yes I am looking at you innovators - are doing wrong, forcing these enabling functions to say no.

Innovation in the "real" world

When someone in an organization gets the spark of a new idea, they often form a team to investigate the idea. This team examines market viability, financial opportunities and technical prowess.  They decide that the idea has merit and they prototype and test the idea with customers.  They receive excellent feedback and decide to promote the idea to senior management.  Executives become excited about the possibilities for the idea and call a meeting of all the affected groups. At that point, six months or a year after the idea is first identified, the "enabling" functions become aware of the idea for the first time.

"Enabling" Functions

In every organization there are business functions that perform what I call the enabling functions.  These are teams like legal, regulatory, compliance, information technology and other groups whose job it is to enable the product and service teams to accomplish their goals.  These enabling functions provide two important capabilities. First, they ensure the product or service doesn't cause damage to clients or to the firm in the legal system, and second they ensure the product or service can be sustained in the marketplace.  But these services and capabilities can't be delivered overnight.  IT systems alone can take years to build, test and deploy.  So your great idea that's been in development for six months may not have IT systems to support it for three more years. 

But let's not pick on IT alone. If a legal team or regulatory team isn't aware of an idea and its impacts early in the discovery phase, you can and will spend time on ideas that aren't in compliance or would violate someone else's IP.  Since these enabling functions have both a protective function and a supporting function, they have great weight at the end of the idea development process and the beginning of the commercialization process.  And they can unintentionally stretch out the development of an idea and delay deployment for years.

Thin resources, long cycles

Most enabling functions are thinly staffed and have small budgets.  Most IT budgets, for example, are focused on maintaining existing systems and have few dollars for building new systems.  Even those dollars are often earmarked well in advance.  If your product or service needs information technology in order to get to market, serve a customer or offer support (and which doesn't), then you need to align your ideas very early with your IT team.  This doesn't mean that the IT team gets final say - it may be necessary to find external partners or rely on external platforms. But what it does mean is that your idea can't exist without the blessing of a range of enabling functions, and the worst thing you can do to an enabling function is surprise it with a new, valuable idea.

Further, it's not as though these enabling functions are sitting around waiting for a new idea to fall in their laps.  They have full time jobs and responsibilities, full agendas with existing priorities.  While your new idea seems very important to you, it is just one of a number of "top" priorities that already exist in the "to do" list.  And many of those other priorities come with funding, with prior approval and have already been staffed.

Want to say yes, have to say no

Most of the people who run enabling functions, like regulatory, legal and IT, want to say yes to your ideas.  In fact most of them want to be more innovative themselves.  But, if they aren't aware of your idea early, if they aren't funded to support new ideas, if their resources are stripped back to only support maintenance, they have no choice but to say "no".

Changing the approach

If you hope to be a Relentless Innovator, you must engage your enabling functions early in the innovation process.  Even then, even if they are more aware of ideas, that doesn't guaranteed their ability to respond as you'd wish.  They will need more money for unanticipated projects and more people to respond to new requests.  Further, they may need new, trusted partnerships to help them accomodate your requests.  If those relationships are developed and exist as your requests emerge, you can quickly determine which approach is right for you.  If those relationships don't exist, there is often too much work to focus on maintaining status quo and building new relationships under the gun.


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posted by Jeffrey Phillips at 6:57 AM 0 comments

Monday, March 12, 2012

Ideas change culture or culture changes ideas

There's an interesting aphorism I'd like to explore today, highlighted in the blog title.  Ideas change your culture or culture changes your ideas.  There is both an opportunity and a challenge embedded in that statement.

First, let's describe why the statement is true.  If you have interesting, radical, truly different ideas, then you either have a culture that embraces ideas and innovation, or your innovation team has been isolated from the decision making and priorities of the rest of your business.  Arthur C Clarke, the scientist and science fiction writer, had three laws about predicting the future.  They are:
  1. When a distinguished scientists predicts that something is possible, he or she is probably right.  When they predict something is impossible, they are probably wrong.
  2. The only way of discovering the limits of the possible is to venture a little way past them into the impossible.
  3. Any sufficiently advanced technology is indistinguishable from magic.
It is the third law that is most interesting to us in this discussion.  Any new idea, suitably radical, is indistinguishable from magic and therefore likely to be laughed at or ignored.  Most corporate cultures don't deal with "magic" very well.

Your culture will either embrace interesting, disruptive ideas and shift its attitudes and behaviors to engage those ideas, or it will ignore, reject or ridicule the ideas until they fall into line with expectations or are summarily dismissed.  A firm cannot create a radical new product or service without significant impact to the corporate attitudes, behaviors and beliefs.  The very experience of creating a radical new idea will by definition force change on the culture.  Oliver Wendell Holmes said that "Man's mind, once stretched by a new idea, never regains its original dimensions".  The same is true with corporate culture.  Therefore, a radical idea will change the culture, or the culture will change the idea.

Second, let's examine why this is important.  It is almost impossible for a conservative, reflexive, predictable culture to create a radical new product or service.  The culture can't embrace it and won't allow it.  And even if someone were bold enough to try, the culture isn't open to the change that's necessary to deliver the idea and sustain it.  In this case a good idea is rejected, or a radical idea is simplified to become acceptable to the organization.  The culture changed the idea.

This concept matters because two very important things happen when the culture changes the idea. First, the culture is reinforced.  Right or wrong, the culture grows stronger and more reflexive. By demonstrating its muscle and resistance, it becomes stronger and fewer people will resist it.  Every time the culture changes an idea, the culture becomes stronger and innovation becomes more difficult.  Second, once the culture changes one idea, it will seek to change every idea.  As its strength grows, everyone naturally assumes that the ideas must change, not the culture.  Changing the idea becomes inevitable.

These two factors ensure that the company becomes ever more inflexible, intolerant of new ideas and resistant to evident change.  Business as usual grows in stature and importance as markets, competitors and most importantly, customers and prospects shift desires and demands.  When real innovation is no longer a luxury but a necessity, the culture innately resists innovation even as the organization realizes the importance of innovation.  But the culture can't change - that's been established.

As we move into an era where innovation is a regular requirement, not an occasional luxury, ask yourself - do we want a culture that changes ideas, or a culture that can change as ideas require it to change?
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posted by Jeffrey Phillips at 8:03 AM 1 comments

Wednesday, March 07, 2012

Irresitable Innovation meets Immovable Object

I'm going to let you in on a secret.  Doing innovation isn't really all that hard, once you get the hang of it.  Yes, there are dozens of methodologies and approaches. You can tap into your employees and/or your customer base for ideas.  You can search for interesting technologies in research labs and universities.  You can prototype, test and tweak ideas based on customer pilots.  In fact, you can do just about anything in innovation.  That is, if you can get it started.

What few people seem to realize, except innovation consultants, is that innovation is the proverbial irresistible force.  Once the momentum gets started and people understand what to do, innovation can become a powerful force.  That's not to say there aren't resisters along the way, but as people gain skills and insights, and get to create new things of value, innovation can take on a life of its own.  But this is predicated on overcoming the immovable object - inertia, distraction, focus on other priorities, budgets, short term thinking.  Call it what you will, there is a huge barrier to getting started.

In the last few weeks we've been approached by several firms who want to become more innovative.  They have executive backing to start an innovation team and want to create an innovation discipline, not just deliver one innovative product or service.  Having been to a few of these rodeos, I can tell them exactly what will happen - which is, distraction.  You see, innovation is important, but rarely urgent.  The urgent stuff constantly creeps in to disrupt the important.  An executive meeting scheduled for January to approve an innovation project was pushed off to March due to other priorities.  Funding for an innovation team was held up due to a poor quarter.  Simply getting started with an innovation effort is a monumental task.  There are several reasons why this is true.

Everyone's an innovator until the money is due

CEOs regularly respond to surveys stating that innovation is one of their top three priorities.  Yet a recent NSF survey reported that only 20% of manufacturing companies and 8% of services companies reported a significant innovation over a three year period.  There's a big talking-doing gap, created because there are rewards for simply talking about innovation, but definite costs for doing something.

Covey was right

The urgent always overcomes the important, and today is far more urgent than tomorrow is important.  Creating an innovation team, capability or discipline is an investment in the future and a cost today.  Given the competitive nature of the current business environment, it is easy to emphasize costs and efficiency today rather than profits and possibilities in the future.  Innovation is almost always important but not urgent, and when it is urgent that is a signal that you are too late.

Inertia

Nothing and nobody likes change, and our business as usual cultures have adapted themselves well to an effective, efficient capability.  We've honed our operating models to peak efficiency, but in doing so made them far less flexible, less nimble and much more suspicious of change.  Doing anything new or different creates distractions, forces change and uncertainty on people and programs that have spent years avoiding change and uncertainty.  Inertia and fear of the unknown make innovation difficult to start.

Get a plan and get moving

The old joke goes - don't just do something, stand there - and it's reasonably true.  While I encourage my clients to get started as quickly as possible, because inevitably innovation will be derailed and delayed, you can't just take a running leap.  You need some semblance of a plan, and if you aren't given one by a sponsor, then just make one up and dare people to tell you you are wrong.  Define your plan, and get started as quickly as possible.  You will face delays, but by the time the slothful operations and engines of your business realize what you've done, their only argument will be that they aren't ready.  They can't debate the importance of innovation and can only quibble about your goals and direction. 

You will face the important/urgent dichotomy, and you will face resistance, and you will face inertia as a team starting an innovation effort.  You can allow and accept that, which will lead to questions six months down the road about what you've accomplished.  Little or nothing.  Or, you can define a plan and strike out quickly, forcing the naysayers to catch up.  Believe me, it is better to be out ahead, with a head of steam, than trying to justify your important but not urgent project.
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posted by Jeffrey Phillips at 5:56 AM 0 comments

Monday, March 05, 2012

Is your culture kryptonite for innovators?

I've made the argument previously that corporate culture is one of the most significant barriers to innovation.  Yet corporate culture is ephemeral, hard to grasp and change.  Like Potter Stewart's definition of pornography, you can't define it, but you know it when you see it.  Why is it that culture is so powerful yet so hard to define and manage?  If culture lacks definition and isn't transparent, why is it such a major obstacle to innovation?  Finally, if culture is powerful, what does your culture do to your innovators?

First, we ought to debate whether or not "corporate culture" exists.  Certainly we can't see it, can't "cage" it.  Corporate culture is really the belief system a company has about itself and how it operates.  It can't be seen, and in most cases can't be documented or defined.  While many executives would like to believe that they influence and control the culture, they are usually wrong.  Culture is far more powerful than an executive who will take on a role for just a few years.  The culture, like a rubber band, will simply snap back into place once the executive who attempts to promote some change moves on to another position.

Really, arguing about culture is like debating why an airplane can fly.  We know there are scientific principles and aerodynamic reasons for flight, but most of us can't describe them yet we willing strap ourselves in and read comfortably during the flight.  Culture is similar to that - most executives can't define and can't control corporate culture, but willingly partake of the impact and benefits.

Why is corporate culture powerful?

Corporate culture is powerful for at least three significant reasons.  First, it defines what people should focus on and what they should avoid.  Yes, this should come from managers or executives, but there aren't enough managers or executives to go around telling people what to focus on.  Culture, formal and informal, defines what is valuable, what is important and what will be rewarded.  Second, culture is cohesive.  It helps a broadly distributed organization work to common purposes, without constantly consulting a documented process map or decision tree.  Culture helps people in very disparate organizations make similar decisions given the same data.  Third, culture acts as both an on-boarding mechanism and as a guidepost to bring people into line, or cause people who aren't aligned to the culture to leave.  Culture reinforces itself - attracting more people who think similarly to the culture and forcing those with different perspectives to change their thinking or encouraging them to leave.  These powers are vast and important - they shape the way work gets done and how people think.

Why is culture important for innovators?

That last sentence says it all - culture shapes the way work gets done and how people think.  Culture reinforces specific goals, work styles and perspectives and rejects others.  When new ideas arise in a company, the culture quickly surrounds the ideas like antibodies, evaluating the idea to determine if 1) it is a threat to the culture and 2) if it is within acceptable bounds of the existing frameworks.  If either of these concepts isn't true, the culture will try to reject, stymie or change the idea until it is killed or changed to fit within the cultural framework.

What does existing culture do to innovators?

Unless your existing culture sponsors and encourages innovation (a very small minority of companies) culture has a corrosive effect on most people who want to explore and promote innovation.  Most cultures exist to protect and defend "business as usual", and innovation in inevitably a threat to existing business process.  Therefore, culture blocks innovation and innovators, telling them "we've never done that before" or "that failed the last time we tried it".  Culture ensures that safe, incremental ideas are funded and new, risky ideas don't receive resources or funding.  Innovators are constantly scrambling to find money, time and resources to pursue even simple ideas.  Further, the culture presents a skeptical face to new ideas.  Innovators are asked - do you really think that will fly?  Their ideas are belittled.  The tools they use, especially tools to discover future needs or understand how the future will unfold, seem strange and unfamiliar.  The work seems frivolous next to the "hard" and valuable work of achieving the next quarter.  In short, existing cultures isolate, frustrate, belittle and starve good innovators.  Which is why far more entrepreneurial firms create interesting new products than large corporations.

Can you create a culture of innovation in an existing business as usual company?

I think the answer is "yes", but the time, focus and commitment necessary is significant - starting from the most senior executives and working through to the most important keepers of the culture - middle managers.  Creating a culture of innovation starts by reframing the importance of innovation, carefully defining what innovation is and then constantly reinforcing the importance of innovation by setting specific goals, measuring innovation progress and changing compensation and reward programs to reinforce innovation.  And "innovation" isn't a "this year" thing, by the way.  I hear far too frequently that someone's CEO has decided that innovation is going to be the focus for the year.  As if your corporate culture is intimidated by a yearly focus, or can be whipped into shape within that timeframe - or will remain in its new state once the focus changes.

There is no free lunch, especially where corporate culture is concerned.  Too many firms, too many executives have become comfortable with cultures that return enough to keep shareholders happy but those same cultures resist innovation.  Your innovators are frustrated, isolated and angry, and are voting with their feet.  As more and more innovators leave, the short-term, efficient, business as usual culture is only reinforced, creating a vicious cycle of ever more efficiency and increasingly, no capability or appetite for innovation.

Your culture may seem innocuous, but many cultures are kryptonite to innovators.  And, unlike in the Superman comic strip, there more to be done than simply removing the kryptonite in order to get more innovation.  You'll need innovators who have skills and understand how to get things done.  The absence of innovation barriers by itself will not ensure innovation success.
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posted by Jeffrey Phillips at 5:54 AM 3 comments

Thursday, March 01, 2012

The evaluation metric that kills innovative ideas

I was speaking with a client recently who reminded me of the metrics her CEO had set out for innovative new ideas.  While I think it is important to have clear goals and quantifiable metrics for innovations, I was a bit apprehensive about these measurements.  Take a look at them and see if you can guess which one gives me the most concern:
  • Concept must generate more than $30M annually in revenue
  • Must command at least a 40% margin
  • Must be protectable
  • and must do all of this in less than five years
As they say, last, but not least.

It's great that this firm has very clear milestones and evaluation metrics for its new ideas.  Clear expectations help teams make decisions.  But I have some real concerns with this set of metrics, as reasonable as it may seem.

I don't have a lot of heartburn with the margin requirement.  Clearly a new product should drive more margin than an existing product, or at least attract a larger share of the market.  It's also valuable to have ideas that are protectable, so that your team can defend the concept and hope to prevent new entrants who simply copy the idea.

No, the real concern I have is with the revenue achievement and the timeframe.  As a business gets larger it becomes less interested in mucking around with "small" opportunities.  They require a lot of overhead and don't generate enough revenue to warrant the attention they demand.  The minimum revenue size of a product in order to achieve thresholds varies from firm to firm, but in this case if a product couldn't achieve at least $30M in revenue within five years of the launch of the idea, then the executives didn't want it presented, regardless of the margin it would generate.

How does that work in the "real world"?  Can we get some statistics on firms, or products that grow rapidly?  In fact, we can.  The website linked below examined some of the fastest growing technology firms, from their start to achievement of $50M in revenue and onward to greater growth.  Remember these are fast growing technology firms.  Go take a look and come back.  I'll wait.

Did you note the message near the bottom?  Almost 50% of these fast growing technology firms took more than eight years to achieve $50M in revenues. And these are fast growing firms in a hot sector.

Furthermore, these firms reflect entrepreneurial firms trying to win new business, without any other encumbrances.  They don't compete with other products in a portfolio, don't compete for resources with other products, don't have other executives who aren't sure they want that product to succeed.

Now, think again about $30M in five years.  If venture backed entrepreneurial firms in the software and hardware industries found it difficult to achieve this kind of growth, what do you think the odds are of a product in a relatively stodgy industrial or agricultural or even pharmaceutical firm will be able to do the same?  That's right, pretty low.  Here's a question - of all the products that the firm has created and released in the last "x" years, how many have achieved what you've now established as the benchmark for innovation and growth?

So, this presents a quandary: while we need goals and metrics, do we risk establishing growth and revenue goals that are difficult for even fast growing, free standing technology firms to beat?  And, if so, do we simply doom all our ideas to a quick death on the management decisioning chopping block?  What are the right goals, given that these may be a bit aggressive?
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posted by Jeffrey Phillips at 6:35 AM 2 comments