Innovation State of the Union 2014

Every year we in the US go through a bit of political theater, where the president of the United States travels to the halls of Congress, to present his or, in the future, her, programs and goals for the coming year.  This speech has become known as the State of the Union speech.  Over the last 30 years in particular it has become a rather significant media event, where new programs are launched.

The President is required by the Constitution to present "information on the state of the Union and recommend to their consideration such measures as he shall judge necessary and expedient".  The President is required by the Constitution to update Congress on the state of the Union, but many presidents before Wilson presented a report, not a speech.  President Reagan probably set the tone for the modern State of the Union presentation, especially the idea of introducing a recent hero, when he invited and recognized Lenny Skutnick, who risked his life to save passengers on a jet that crashed into the Potomac.

The modern State of the Union typically consists of two messages.  First, a review of the current state of affairs.  Most presidents like to start out by saying the state of the Union is strong, or some other platitude, before going on to the meat of the presentation, what I like to call the list of demands.  These are programs, initiatives, regulations and laws the president would like to see enacted in the next term.  I've always wondered, since every president says the state of the union is strong, why do we need so many new initiatives?

Barack Obama will present his State of the Union speech tonight, January 28, 2014.  In it will be a statement about the current state of affairs, domestic and international, a recap of last year's legislative accomplishments and a request for new programs.  I wonder what would happen if the President included a state of affairs about innovation.  I think it would have to look something like this:

The Innovation State of the Union for 2014

 Friends, colleagues, citizens, I come before you tonight to say that the state of innovation in our country is strong.  (applause).  For years the US has been a consistent leader in innovation, and our innovation success is based on several core principles we hold dear:  private enterprise, excellent education, the incredible rewards for individual achievement, the intersection of research and technology.  While there are certainly strong innovators and entrepreneurs all over the globe, we know that no other country has the capabilities, core principles and governance structures to sustain innovation in the way the US has done for years.  (Applause)

But we must ensure the foundations of our innovative spirit are strong, and that we leave a legacy of innovation to our children and grandchildren.  Today I am here to tell you that while our current innovation state is strong, we can do more.  Specifically, we can improve our innovation state in several areas.

First, while many government agencies and private enterprises are innovating, the application of innovation is broad but not deep.  Innovation in many enterprises is a relatively new phenomenon, and it has yet to take hold, and expand through all function functions.  In too many places, innovation is a tool used occasionally for rapid response to a competitor, rather than a constantly engaged capability.  We must find ways to deepen our commitments to innovation and expose more of our organizations to innovation.

Second, while we are innovating, much of the output is incremental, continuous improvement.  I'm not here to denigrate that excellent work, but to point out that incremental innovation creates solutions for the short term, but does not imagine new and disruptive products and services.  We need to achieve a better balance between short-term focus and long-term aspiration.  We need more moon shots, both at NASA and in private organizations.

Third, innovation must make a shift from a "cottage" industry to an engaged community.  Yes, you've heard me talk about community many times, but in this instance I'm talking about opening up every innovation activity to discover people or companies that have ideas or technologies that help you achieve your goals.  Open innovation is an accelerator, and increasingly we must all find ways to discover the best ideas, wherever they exist.

Fourth, and I harken back at this point to my great predecessor, Franklin Delano Roosevelt, who said, the only thing we have to fear is fear itself.  We must lower the resistance to innovation, overcome corporate inertia.  Years of cost-cutting and efficiency gains can't be lost, but can't hold us back from the passion, energy, and yes, risks we must take to create compelling new ideas.

Finally, I've spoken to you about inequality previously, and I want to address the reasons that inequality exists and the role innovation has to play in creating and eliminating inequality.  In our great country, great innovators stand to gain outsized rewards for their ideas, technologies and inventions.  A significant amount of the "inequality" in our country is caused by people earning vast rewards for excellent ideas.  Thus, innovation is a cause of inequality.  But it is also a solution to inequality.  As good ideas emerge, in many cases they raise the standard of living for all of us, so our lives are improved.  Further, the tools and methods of innovation are freely available to everyone.  Many of our noted innovators, people in the highest echelons of wealth, started with little and used their good ideas to move upward.  Steve Jobs, a man who was adopted as a youth, a college dropout, became a billionaire based on his great ideas and hard work.  We can close the inequality gap by creating more opportunities for great innovators to recognize the value of their ideas.

In conclusion, my fellow Americans, we stand at a crossroads.  Our history is replete with stories of incredible innovators who have built industries, created jobs and established wealth.  We are not done yet.  There are so many new opportunities for innovation, to create new industries, new jobs and new incomes.  As Joseph Schumpeter noted, innovation is part of the process of creative destruction.  We must realize that as new products and services emerge, they may make existing solutions obsolete.  Our economy must be nimble, constantly changing and evolving, and creating a new workforce where every employee is capable of innovation, and every individual is capable of becoming an entrepreneur.

Thank you for your time and attention.  Thank an innovator, an inventor or an entrepreneur for their creative spirit.  Work to implement the recommendations I've made tonight.  Leave a legacy of innovation for future generations.

Idea construction

I'm interested in dispelling a commonly held myth today, the myth that suggests ideas are created once, whole and complete.  Ideas aren't found, they don't emerge.  Good ideas, the ones that get implemented and converted into new ideas, are constructed.

While we enjoy the stories about wildly creative people who are naturally adept at creating ideas out of thin air, customers and markets celebrate new products that deliver unexpected value.  The difference between creativity and innovation is in the delivery.  While we celebrate and appreciate creativity, it's the transition to valuable new products and services that fill unmet needs that customers value.  And to do that well, most ideas don't emerge, they are constructed.  What really matters is how they are constructed, and the "construction engineers" and processes that produce the final result.

Architects and Builders

For a reference point, let's consider perhaps one of the most famous architects of the 20th century, Frank Lloyd Wright.  His buildings and houses, at least on paper, were interesting, stunning masterpieces.  His work spanned the gamut, from commercial buildings to personal homes.  One of my favorites is Falling Water, which incorporates a natural stream into the design. 

Wright was a visionary, a man who could evoke designs for homes, buildings and furniture out of thin air.  He was a bit of a tyrant, ignoring feedback and input into his designs, however, and part of his legacy is that many of his buildings aren't structurally sound.  While he was a visionary architect and designer, many of his buildings relied on construction that wasn't possible at the time he was building, or required tradeoffs that people who used the buildings found unacceptable.

Builders, who produce the solutions that customers actually use, and frequently interact with customers as the product is being developed, are far more practical.  They have to translate the idea on blueprints to a real product, service, or building.  They have to contend with environmental conditions, site locations, real concerns of the consumer, and financial obligations.  This means that they often alter the designs of the architects, to make a design fit a specific location or need.

In this analogy, designers and architects are divergent thinkers, while engineers and builders are convergent thinkers.  What would be very helpful would be for each to adopt a bit of the other's perspective.

Constructed not Emergent

Far too often, in any business setting, executives and managers wait for what I like to call the perfect "emergent" idea - that is, the idea that is formed in perfection and can be implemented quickly and without change.  The only ideas that match this definition, perfect and quickly implemented, are ideas that are very incremental, because typically only very incremental changes can be implemented quickly and have little risk.  When idea generation and other activities don't produce ideas that are evidently perfect and quickly implementable, the executives often throw up their hands and declare idea generation a failure.  What they fail to realize is that hidden in the pile of "imperfect" ideas are nuggets of great value, if they'll allow a little experimentation, combining and construction to begin.  Ideas are rarely perfect or implementable after the first iteration, but after review, combining, editing, and constructing from new components and concepts and known solution, far better ideas can be created.  Idea generation doesn't produce perfect ideas.  If it did everyone would drop everything they are doing to spend all their time in brainstorming sessions.  Idea generation produces the raw material for excellent solutions, but you need both an architect and a builder to work together to produce the final result.  Great ideas are constructed with the help of several people who bring different perspectives and capabilities to bear, and do that work over time.  There is no immaculate generation, only a messy iterative process that with the right ingredients and perspectives can create something fresh, unusual and valuable.

It's a matter of verb use

The real problem we face is a choice of words.  When people talk about "finding" ideas or "generating" ideas they assume that good ideas will be produced once, originally, from the whole cloth with little additional work.  What they don't understand is that the best ideas are products of experimenting, constructing and combining, which results in a creative idea that is also a useful and proven concept.  To quote Edison here, "opportunity is missed by most people because it is dressed in overalls and looks like work".  Idea generation is both an event and a process.  The event is defined by gathering a team in a room for a few hours to generate raw material that is then combined, tested, evaluated and constructed into a final concept.  In my experience very few ideas sprung complete and unchanged from the idea generation event, yet for some reason many firms expect a "once and done" solution with little follow-on development. 

We need to shift our language to talk about concept construction rather than idea generation. 

Innovation and Inequality: cause, effect or both?

I see that Matthew Yglesias, the economics and business writer at Slate, has linked the future of innovation to rising inequality. His premise is that innovation is threatened by rising inequality - that is, there won't be a large market for new innovations because as inequality grows, there will be fewer and fewer people able to afford the new innovations.  His article is absolutely correct, if you assume that all innovation results in more expensive products than what was previously available.  A more nuanced article would note that innovation is both a cause of inequality, and a solution to inequality.

Creative Destruction

Yes, you read that correctly.  Much innovation is a cause for inequality.  In a capitalist market, good ideas and excellent new products and solutions attract customers.  This means that the creators of those products and services, the innovators, reap outsized rewards.  Thus, being an innovator, leveraging innovation to create products and services that people demand, can increase your personal or corporate wealth.  Innovators will diverge from non-innovators who aren't creating new and valuable solutions.  There's really nothing new in this analysis.  People with great ideas and the ability to commercialize them and create compelling products have always had the opportunity to gain an inordinate share of the income, and thus create wealth.  It is this wealth that creates a growing divide between the "haves" and "have nots".  In fact Yglesias fails to make a distinction between rising incomes and dynastic wealth.  There are plenty of people - Steve Jobs was one - who started with very modest means, leveraged innovation to create new products that people wanted, and created wealth for himself, his company and his stockholders.  Contrast this with people who inherit wealth, who create little but are comfortably wealthy and also part of the "inequality" gap.  Who should we ask people to emulate?

After all, Schumpeter noted that the capitalist model and innovation in particular would follow a path of creative destruction, creating "winners" and "losers", and that model has held for generations.  What's interesting about the specific time we live in is that as markets have consolidated and technology platforms have become more universal and selling costs have fallen, it's easier to get rich more quickly than ever at levels unimaginable even a generation ago.  Is Twitter really worth a billion dollars?  Who knows.  But the team that built it came from modest means and are now wealthy based on their innovation.

Also an enabler

But innovation isn't just a cause of inequality, it is also a bridge.  Innovation doesn't always create more expensive products - often innovation creates better products at less cost that deliver more value.  Thus, innovation creates a better standard of living for everyone.  Yes, those on the top rise far faster than those at the bottom, but innovation in food, healthcare, housing and a range of other industries is improving lives not only in the US but around the world.  Just ask Bill Gates, who is convinced that poverty will be wiped out in the next 20 years.  I'm not as sold on his ideas as he is, but you get the point.

Further, innovation is a bridge to reduce inequality because any one with a good idea can cross the bridge.  Innovation isn't limited to a select few, like inherited nobility, but is available to anyone, anywhere.  People with good ideas and the desire to start something new create new businesses and new products every day.  What Yglesias should be focused on is how to create a more entrepreneurial and innovative mindset in every sector of society, leveraging innovation as a tool for everyone, rather than blaming innovation for the existing gap or warning that future innovation will falter because of the growing income gap.  Apple presents the counterpoint to Yglesias' warnings by the way.

While Apple continues to produce expensive and innovative phones, as does it's competitors, the adoption rate of "smartphones" is high in all sectors of society.  There's really little distinction between the wealthy and the poor in terms of cell phone adoption and use.  What Yglesias identifies as a potential gap for innovation is for luxury goods that can't tap into a larger market.  Yes, the top end of the market is getting richer, and perhaps more isolated from the rest of us, but they don't care about the cost of things.  They care about newness, design, originality.  Innovators will serve that market, and will also serve the "long tail" market as well.  The beauty of innovation is that it can serve them both.


To give Yglesias his due, he did describe perhaps the biggest counterfactual to his article, the strange fact that many excellent innovations came out of the Depression.  Perhaps it was the fact that the US consumers simply demanded more after years of hardship, but plenty of innovations were delivered during and after the Great Depression, at a time when you'd think innovation would be completely halted, since so few people could afford anything. 

Cause and Effect

Innovation is both a cause of inequality - because wealth flows to people with great ideas and solution to inequality, because innovation causes a rising standard of living for everyone, and the possibility that anyone can gain access to greater incomes and wealth.   Rather than point the finger at innovation, we should consider how to increase innovation and entrepreneurship in this country and everywhere that poverty exists.

Innovation the Tom Sawyer way

Over the last few years I've noticed a continuing discussion in many organizations about the origin of ideas.  Should the ideas they commercialize originate from inside the organization, outside the organization or both.  So far few executives have cast their vote for "neither".  Increasingly, firms that have focused on internal innovation have begun to rely more heavily on external ideas and technologies.  Many firms that have traditionally relied on internal innovation are noticing that there are far more ideas and technologies outside their walls than inside, and far more entrepreneurs and small companies who are willing to experiment with new solutions and technologies than the larger firms can.  Finally, smaller firms often have more rapid processes and response times, and are able to try out several iterations in less time with less cost than larger firms.

It would appear, in many cases, that "outsourcing" innovation would be a smart move, if a larger firm were able to signal its needs, influence external research and innovation, and constantly review the work that is being done, so as to snatch up good ideas and technologies before other firms could understand the value of an entrepreneur's concepts.  Being of a literary frame of mind, I pondered this approach and realized that one of our most famous literary characters had done this in literature.  His name was Tom Sawyer, the famous character created by Mark Twain.  Here's a slightly tongue-in-cheek approach to low risk, low cost open innovation.

First, a little history

If you aren't familiar with Mark Twain or Tom Sawyer, a little history or literary review may be in order.  The Adventures of Tom Sawyer is a novel written about a young man growing up on the Mississippi River in the Deep South before the Civil War.  Tom is an inquisitive, engaging young man, open to any adventure but inherent lazy.  When tasked with the responsibility of painting the fence in front of his house, agonizes over the task.  He'd rather go fishing, or many other things rather than paint the fence, so he considers how to get other people to do the work for him.  He settles on a plan to make it appear that painting the fence is more fun than sitting in the shade watching other people paint.  As other children congregate to watch him paint, he extolds the fun of painting, and eventually has the other children clamoring to get to paint the fence.  By the end of the episode, Tom is found relaxing in the shade as other children paint the fence for him.  He has outsourced all the work, at no cost to himself, and has even accepted small gifts from the children in order to allow them to paint the fence.

Innovation the Tom Sawyer way

Corporations can learn from Tom Sawyer and apply his ideas to their innovation needs.  This can't happen without some forethought and strategic planning, but done well it can mean a lot of your innovation activities are actually conducted by a constellation of firms that rely on your insights.

Let's look at what Tom did to get the other children to paint the fence for him, and what that means for corporate innovators who seek excellent technologies.

1. Create a clear plan.  Tom's parents expected him to paint the fence.  Tom needed complete the work, but preferred not to do the work himself.  So he created a plan and executed it to perfection.
2. Create demand.  Tom convinced others that doing the work was more interesting and more fun than watching the work.  Kids who would have normally been out playing were offering small inducements to have the opportunity to do Tom's work for him.
3. Claim the final product.  Tom was able to complete the fence painting, so his parents were happy and none the wiser.  Beyond that, Tom ended up with snacks, toys and other gifts that the kids gave him to get to do his painting for him.

How can a corporation apply Tom Sawyer's approach

Rather than attempt to generate all ideas and all technologies, a really savvy innovator could improve its ability to signal its needs, encourage partners to generate ideas and research, and swoop in to license those solutions before competitors do.  To accomplish this effectively, here's what the savvy Tom Sawyer-like innovator would need to do:

1. Define it's corporate strategy and communicate it clearly.  While this seems obvious, go test it at your company.  Many people have little to no idea what the corporation's strategies are.  Even fewer outsiders understand the strategy, so they will struggle to support it until it is communicated clearly.
2. Encourage third parties, research institutions, entrepreneurs and others to engage with you in your quest for the future.  Simply spouting a message isn't enough.  You need to build networks and relationships to external firms that can help make your future needs a reality.
3. Create energy and excitement about the research efforts.  Tom made it seem like fun to paint the fence, and attracted a crowd who watched and bid for the opportunity to paint.  You'll need a network, but you'll also need to constantly energize that network to encourage them to work on ideas or technologies that are vital for you.
4. Monitor the progress of external agents constantly and carefully.  If you know what you need, and you know what partners are working on, and you know their progress, it puts your firm in a position to
5. License or acquire the ideas, intellectual property or technology at just the right time.  As the technologies evolve, are tested and validated, your firm can be the first in line to attempt to acquire or license the technology or idea.  

 Note that this approach doesn't absolve you from internal innovation activities, but it can accelerate the development of new ideas and technology with little cost or risk to you, until the concepts are more robust and potentially vetted through customer tests or prototyping.  You've simply got to make it so compelling for someone else to do your work that they do it willingly, and then you can capitalize on the risks and investments they made when the technologies are ready to implement.

It's Diverge then Converge for Innovation

I was talking recently with a prospective client, who is trying to build an innovation capability in his business.  He and a small team have been asked to develop innovation competencies and processes in a rather large financial services business.  We've talked for hours about process definition, training the teams, defining key innovation objectives and working to shift the culture.  We are finally on the agenda to meet a very senior VP who will give us the green light to get started.  I saw a copy of the email that reminded the executive of the meeting and stated the purpose.  Greatly paraphrased, it said:  "We'll talk about how we'll do idea generation".

The mind reels.  Literally my mind reeled, and spun so much I was almost physically sick.  There are so many things wrong with this communication and expectation setting that I barely know where to begin, but let's pick a couple, shall we, so you don't encounter the same fate.

Narrowing the Aperture

While I understand that executives sometimes need to have things condensed in communication since they are busy and bombarded with emails, innovation is one of those topics that deserve a more robust discussion and should not be simplified.  If we are going to do something new and interesting, we need to explain exactly what our goals are and how interesting and disruptive the work will be.  Do you think Columbus asked to sail east by simply saying he'd "go another way".  No!  He had to work to convince Isabella and Ferdinand of his ideas and his intent.  He had to paint a picture of what he was certain would happen, in the face of constant ridicule. 

When we shortchange the conversation with executives about innovation, when we limit the scope and downplay the impact, we set expectations far too low.  This makes it hard to get anyone excited about the possibilities, and difficult to ask for more funds or resources to do good work.  By narrowing the conversation, we've limited our possibilities and outcomes, or we have to work to recover by holding more conversations with the executives to broaden our definitions and their expectations.  It's never easy to expand expectations and definitions once they've been set or narrowed.

Using synonyms for the real thing

I hate the fact that idea generation or brainstorming is in some cases a synonym for innovation.  These words are too simplistic and are in fact nested.  Brainstorming is one way to generate ideas.  Generating ideas is one step in an innovation process.  To equate innovation with brainstorming is similar to equate getting an A in one collegiate course with getting a degree.  Yes, it is a step, and an important one, but simply one step in a more holistic process.

When we describe "innovation" as idea generation, or equate brainstorming with innovation, we cheapen the words and reduce the possibilities and potential experience and outcomes.  Those who follow this blog know that innovation involves defining challenging issues or emerging opportunities, researching trends to discover future needs and market conditions, researching and understanding unmet needs, generating ideas or discovering new technologies and, finally, selecting the best solutions to achieve your goals.  Talking about idea generation or using brainstorming as a synonym for innovation is far too simplistic, and narrows the work and expectation, and the amount of time people are willing to invest or commit resources.

Short term actions versus long term change

Finally, this short communication is meant to reassure an executive that what we are about to do can be done quickly with only short term ramifications.  Sorry, but you can't build innovation capabilities or competencies in the short run and sustain them.  Innovation, like any other skill or capability must be regularly exercised or we lose those skills.  Equating innovation with a one time brainstorming effort condenses the work and creates the expectation of a discrete, one time event, not the development of skills and knowledge that will be consistently deployed over time.  You can't "do" innovation once and do it well.  You need to build skills and constantly exercise those skills, for two reasons.  First, without consistent innovation your firm falls behind competitors. You simply can't innovation occasionally and win.  Second, your team loses faith in innovation as a toolset and the skills atrophy if they aren't used regularly.  If you want sudden, rapid and occasional innovation, use a consultant.  If you want to build a sustained capability, train the teams, deploy the teams on innovation activities regularly and set the right expectations.

Communication and Commitment

Look, I know it's hard to ask for the level of commitment required to do innovation well.  Most firms have invested so much in their status quo systems and processes, and have so little extra bandwidth that innovation is going to cause disruptions internally if it is done well.  And no one wants to disrupt the status quo - they want to add a bit more innovation on top of a perfectly functioning organization.  You can't layer on innovation without building skills, consistently innovating over time, and that takes time and commitment.

You'll be much better off setting the broadest possible expectation early through good communication and by building the rationale for innovation.  Setting the scope or expectation too low early means incremental innovation at best, which will not satisfy and will be quickly terminated when it doesn't deliver, or asking for more funds and resources after the work starts, which is never welcome.  Ask for everything up front, accept that you'll need to start small.  Demonstrate the broad scope and opportunity early so that executives understand the potential depth and breadth of innovation, and once you've established the potential scope it will be OK to start out with a smaller scope to prove the value and build your skills and capabilities to the larger scope  you've identified.  But please, be careful with your language, set the right expectations and don't limit your scope too early.

If you understand innovation at all, you'll know the concepts of divergence and convergence.  It's much better to start with divergence, and then converge as necessary, than to converge at the beginning.  Once you've done that, it's exceptionally difficult to diverge afterwards.

Why innovators need a word other than failure

I'm really conflicted today.  On the way to work I've been listening to a MarketPlace series on innovation, entrepreneurship and failure.  The radio programs (available here and here on the web) are interesting and highlight a key contributing factor that many people outside of highly entrepreneurial settings miss.  Innovation, in many shapes and forms, is often built on the ashes and detritus of failure.  While the MarketPlace series is focused primarily on entrepreneurs and startups who are innovating, the same lessons and stories apply to innovation in larger firms.  Much good innovation, in firms of any size, is based on the experience and knowledge gained from previous failures.

But we risk creating what I'll call the Failure Fetish, the belief that we MUST fail in order to succeed in the future.  Further, we risk creating a High Church of Failure, demanding that individuals and companies risk far too much and learn far too little.  Today's story featured a serial entrepreneur with a PhD in vision sciences who has had two entrepreneurial efforts end prematurely.  She is a 40 something mom with teenagers, a lot of debt and is considering mortgaging her house to try again.  Entrepreneurs and innovators need to be single minded and risk averse, but they also need a rational outlook and a life! 

While "failure" is often a key contributor to better innovation, what we need are new words to describe what "failure" entails.  It isn't the failure that really matters, after all, it's what you learn from the failure and how you apply that learning in the future that matters.  A reference here to Einstein is probably valuable:  insanity is defined as doing the same things over and over again and expecting different results.  Failure is valuable if, and only if, it teaches something that we didn't know, and we can incorporate that learning into future activities to create more insight and value.

Why we need a new word

But I think we need a new word to describe what we mean when we talk about "failure".  The experience of failure, especially as an entrepreneur, is terrible.  Shutting down a company, or simply retracting a product that didn't achieve anticipated success, is heart-wrenching.  Failure has so many negative connotations, and can become a label for people, a status.  People can become a "failure", instead of their ideas failing in the marketplace.  What we ought to be talking about is experimenting.

An experiment is an attempt to test a hypothesis, and gain new learning.  The problem with the word "experiment" is that experiments are not meant to be permanent solutions, but rather short trials in which we test a solution, hopefully with a hypothesis, and then compare the results to expected or anticipated results.  But what we are often talking about when we talk about "failure" is more akin to experimenting - testing, learning, reworking, testing again and finally implementing.

What comes from experimenting?  Learning, what works and what doesn't work.  Experience, from having tested a hypothesis, having placed a product in a customer's hands.  Knowledge that can be called on and applied in another attempt.  People who have tried and failed, or experimented in my language, have the ability to review a situation, evaluate a product and point out issues or weaknesses that others around them don't see.  That doesn't come from enthusiasm or academic excellence.  Those insights come from experience.  What the VCs in Silicon Valley ultimately buy when they invest in experienced entrepreneurs is the insight not to make the simple mistakes, the ability to quickly call up past experience and use it to avoid challenges.  What Malcolm Gladwell described in Blink.

The lack of corporate failure

But "failing" at the corporate level carries a significantly different connotation.  While an entrepreneur may "fail" and shut down a small business with a few employees (not to make light of that, having done it myself) a corporation has a much larger stake in success or failure.  Designing, building and releasing a product that may "fail" in the marketplace has very large costs in terms of development, and in terms of missed opportunities.  It can have a significant impact on stock prices, shareholders and all employees.  So "failure" in the corporate world is often FINAO.  Failure is not an option.

So we innovators need a new word for what we mean by "failure".  What we mean are short, sharp experiments meant to gain knowledge and insight that leads to better products, which can be brought to market quickly, with less risk and a higher degree of success.  Corporate innovators need all the trappings of failure - learning, experience, insights - but without the ripple effect.  What we need, as corporate innovators, is the ability to experiment, prototype and test new concepts and products as thoroughly and as rapidly as possible.  Then, our experiments become controlled "mini-failures" that offer much the same learning, but without the devastating effects more common in a startup.

What corporate innovators need is more space to experiment, more opportunities to experiment with new ideas and solutions, a better prototyping capability and access to customers and prospects who understand the value of testing prototypes and conducting experiments.  The faster we learn, and the more effectively we develop knowledge, skills and experience, the better innovators we'll be.  Capturing all of the benefits of "failure" with few of the downsides.

I'll worship at the church of experimentation, rather than at the church of failure, thanks very much.

Major League Innovation: The Value Chain

For my first "official" post of the new year I thought I'd write about what separates "big league" innovators from their "minor league" competitors.  When I write about big league and minor league, I'm making reference, for those of you who aren't baseball fans, to the distinction between the major league baseball clubs (The Yankees, the Dodgers, the Reds, the Cubs, etc) and their "minor league" farm franchises.  Every major league club has a syndicate of teams that develop young players and promote them from small city "Single A" teams to Double A and finally Triple A, like my hometown Durham Bulls, a "farm team" of the Tampa Bay Rays.  While members of each of the squads in question all play baseball, the distinctions between them are relatively astounding, especially when it concerns the performance on the field and the rewards the players receive.  Many Single A players are drafted out of high school and play in "the minors" for years, hoping to break into Double A or Triple A.  They play in small parks and are meant to develop into players who are capable of playing "at the next level".  Everyone in Single A through Triple A wants a visit to "the Show", major league baseball.  While they all play baseball, the skill level and quality of play is higher, the stakes are higher, and the outcomes are much higher in the big leagues.

Likewise, I believe there is a delineation between firms which are trying to innovate.  Some are just starting out, exercising small trial programs or generating ideas periodically.  Others are tapping into a larger, more sophisticated innovation program.  So, if many firms are doing "innovation" but some are in the "big leagues" while others are in "the minors" for now, what's the distinction?  What separates the big leaguers from the minor leaguers in the innovation work that they do?  I believe there are several key differences.

The first is continuity and consistency.  Firms in the major leagues of innovation are innovating constantly.  They have staked out a reputation for innovation and recognize that the results of their innovation activities create competitive differentiation and advantage.  Their innovation is recognized as driving increased corporate valuation.  The firms in the minor leagues innovate sporadically, occasionally and never sustain innovation over time.

The second is capability.  In the major leagues of innovation, those firms understand how important it is to build internal skills, knowledge and capability about innovation.  They are investing in their people and their toolsets.  Minor league innovators assume people have enough knowledge to do innovation on their own, or with minimal skills or guidance.  Major league innovators understand that their "bench strength" may not be enough to see them through.  They tap into third parties with open innovation to expand the range of ideas and frameworks.

But the ultimate distinction between Major Leaguers and Minor Leaguers when it comes to innovation is focus.  Minor league innovators set their sights on building a new product or service.  They hope to disrupt an existing product or service, create a compelling new product or service and ride the results for years.  Sounds good, no?  Major Leaguers take this perspective one step further.  Yes, innovation and disruption are valuable, but why stop?  Once you've disrupted one portion of the "value chain", why not go ahead and gobble up more of the value chain?

Value Chain Explanation

I'll pause briefly to be sure that you and I have the same understanding about the "value chain". The Value Chain concept was best described by Michael Porter, who examined all the steps in a process of developing a solution for a customer.  I'm misusing and slightly abusing his idea of the value chain, because the original "value chain" consisted of the steps necessary to bring a product to market.  Here I'm using "value chain" to mean all the ways of delivering similar or additional value to a customer.

Let's use an example, probably one that you are too familiar with.  Let's use NetFlix.

NetFlix started out life as a response to Blockbuster, specifically as a means to escape Blockbuster's high fees for returning videos after they were due.  But over time people recognized that NetFlix solved another problem or offered an ever better benefit.  Consumers could choose the actual movies they wanted to watch and have them delivered to their home, rather than drive to Blockbuster and have to choose Steve Seagal action movies, which were the only ones left on the shelf.  Once they beat BlockBuster, NetFlix could have rested on its laurels.  But NetFlix didn't stop there.  They continued to expand into the value chain, moving into the distribution of movies online.

But the really interesting new innovation, the "value chain" innovation, is when NetFlix moves from a content delivery to content creation.  With House of Cards, my new favorite show, and other content, Netflix innovates again, challenging traditional content development and delivery.  In a certain way, Netflix has inverted the traditional content consumption.  It used to be that you built content and then sought a channel or conduit to the market.  Netflix built a channel and then augmented with content.  But the point is that they continue to innovate, and moved beyond the original product to innovate within the value chain of entertainment.

Of course we can include Apple in the Big Leagues as well, not for the iPod or iPhone, but for iTunes.  Apple subverted the content development cycle not by creating its own content but by creating a platform where anyone could offer content.  Google and of course Youtube are moving quickly in this direction.

Why Value Chain innovation is the "big leagues"

I've made the assertion that Value Chain innovation is the "big leagues".  Here's why I think that is true.  Create any really interesting new widget - phone, watch, PC, tablet, etc - and someone else will eventually copy it or create something better.  Right now, I'm feeling the tug towards Samsung cell phones over my iPhone.  Why?  Because lately Samsung phones seem better, more interesting, could I say it, more innovative than Apple's.  The point is, anyone can innovate once, and whatever you create can be quickly copied.  Big League innovators understand this and continue to innovate, doubling down on the product itself but also looking for adjacencies - adjacent needs, adjacent markets, and eventually, adjacencies in the value chain.  This is how firms stay on top.

Now, many of you reading this will note that I have applauded Apple for being a value chain innovator and then I questioned the innovation around their handset.  The challenge for Apple is:  what have you done for me lately?  Ever thinner versions of a handset that is now six or seven years old, and a music and apps distribution platform that appears more clunky by the day appear to show that Apple may be settling in to play defense, rather than continuing to innovate.  We'll see.

What it takes

Nascent innovators need to understand that to become a "major league" innovator takes time and investment.  A firm doesn't move from sporadic or non-existent innovation capability to leading the major leagues in just a year or two.  Just hitting at the Mendoza line in the Majors is difficult.  What every firm needs to do is understand their capabilities and commitments today, and map a course to where they want to be and need to be in regards to innovation capabilities.

Where is your firm in its maturation level?  Are you at Single A, way down in the minors, learning the basics?  At Double A or Triple A, moving up to the show?  Or are you ready for the innovation big leagues, where innovation is more about consistency, capability and the ability to innovate beyond the product, into the business model or value chain?

More importantly, do you understand the level of commitment, the skill development, the attitudes and perspectives that are necessary to innovate continually and with great resolve?  Can your organization think beyond simple product innovation, to discover innovation opportunities in adjacencies, in business models and within the value chain? 

Craptastic systems and the products they generate

There are a number of excellent bloggers and tweeters who focus on innovation.  One of those is Tim Kastelle, a lecturer and author in Australia that I've followed for years.  Today he tweeted about a post Martin Weigel had written, which was titled "Saying No to Crap".  The author paid special attention to something called Sturgeon's Law, which suggests that 90% of anything created in any industry is "crap". By "crap" I believe he meant undifferentiated or uninteresting, not novel or new.  Of course Sturgeon's Law was a basic assertion by a science fiction writer, not necessarily based on logarithmic tables like Moore's Law.   But Sturgeon's "law" has a point:  why is so much stuff we create so crappy and uninspirational?

After all, I don't think many of us set out every day to create products and services that are undifferentiated and indistinguishable from the other products or services on offer.  No one I know wants to create products that are uninteresting and uninspiring.  After all, we work in the innovation space.  It should be our very nature to create interesting, valuable, different products and services that inspire awe and customer delight.  Yet Sturgeon's Law suggests that much of what we create, even when we innovate, is crap.  I think it is important to explore why that might be true.

The Process of Crap

As anyone who has studied processes knows, there are three fundamental components to a process:  inputs, activities and outputs.  We've suggested that the majority of the outputs are "crap".  This should lead us to inspect the inputs of the process, as well as the activities, and at least two other factors:  the strategies that direct the process, and the culture that governs the process.  At least one of these, if not more of them, is causing a preponderance of crap.

And, by the way, it's not just the innovation side of the outputs that are crap.  Sturgeon's Law suggests that 90% of everything is crap - the new stuff you are creating now and the old stuff you are providing to customers.  And yes, we could argue about the 90% factor.  Perhaps it's really only 75% for your company or industry.  But this is like arguing about how many angels can dance on the head of a pin.  It misses the point to pursue some Talmudic arguments about a distraction.  Let's examine why your processes are so craptastic by examining the components:  strategy, culture, inputs and activities.

Strategy

While I've been a consultant for years, I've never interacted with a company that wanted to make crap.  Most have aspirational strategic statements about leadership and customer delight.  Yet many fail on a regular basis to achieve their lofty goals.  Why?  Writing strategy is easy.  Implementing strategy and sticking to it over a period of time is hard, especially when a strategy calls for differentiation.  It's far easier to mimic a market than to lead or vary from market leaders.  There's safety in numbers.  Far better to achieve an industry average using strategies that are similar to other competitors than to fail miserably when doing something different.  Like passing in football, only three things can happen, and two are bad, which is why football remained a run-first game for so many years. 

Many corporations set out important and differentiated strategies and then simply revert to what they are comfortable with and what they know.  They compete with other firms that do the same things, and look in wonder at firms like Zappos that take a distinctly different approach.  Strategy should dictate the creation of anti-crap, but the absence of strategy, or the failure to live out strategy, ensures the production of crap.

Inputs

In combination with strategy, inputs are another factor that should steer firms away from crap.  Inputs, in this case ideas and insights about customer needs, should give clear signals to firms about what to create that is truly valuable, unique and interesting.  In fact, many insights and ideas do provide these signals.  The problem is that many businesses have success filters that knock down ideas or reject insights that don't align with the existing thinking and models and processes the business has codified.  While hundreds of interesting and valuable ideas are created every day, inevitably almost all are rejected because they don't align to the craptastic models and processes we've perfected.

Activities

Which leads us to one of the real reasons we create so much crap - the activities and processes and decision making systems that exist.  These are designed and hardened over time to create highly repetitive, low variable products that meet minimum thresholds.  There is, in fact, a concept sweeping through the corridors of many businesses - the "minimum viable product".  What this concept was originally meant to indicate was that you had a "floor" for product design and requirement.  Unfortunately the MVP is rapidly becoming the ceiling as well.  Every existing process and system that define the activities used to design and build a system are also imbued with the ability to sand off the unusual bits, round the edges and ensure complacency and conformity.  It's as if Huxley was right, except we have a Brave New World for products rather than people.

Culture

The final major component that ensures a constant stream of barely distinguishable crap is corporate culture.  Culture is the powerful but informal force that dictates what people do and how they think.  Our cultures have become conformist, risk averse places where short term goals are paramount and satisfying the customer is king.   The culture acknowledges the need for differentiation and then goes right back to making me-too products that don't excite customers and don't create value or differentiation.

The Summation

In summation, we have designed systems and organizations that are, by Sturgeon's definition, craptastic - absolutely perfect at generating indistinguishable crap.  Yet we long for interesting, innovative products that attract market attention and command obscene profit margins.  Something must change.  Either we need to moderate our aspirations or modify our craptastic systems.  There's a biblical saying that suggests you can't make new wine in old wine skins.  The same may be true of your craptastic processes.  To accelerate innovation, you may need innovation processes that supercede craptastic processes, since anything that enters a craptastic process will be reduced, simplified and rounded off, resulting in me too products with little differentiation.

And in case you were wondering, I've simply defined a word that I think defines many existing processes - craptastic.  This is simply the state of being fantastic at creating what Sturgeon called "crap".  This doesn't mean that the products or services generated are necessarily terrible, just indistinguishable from competition.  The strange thing is - most were designed that way, and no matter what you want as a result, anything managed within a craptastic system results in a craptastic outcome.