Innovate your processes before innovating your products

I was leading an innovation training session, talking about the reasons for conducting trend spotting and scenario planning prior to idea generation.  There are many reasons why I like trend spotting and scenario planning, but it's the sense of understanding what might happen in the future that really resonates with me.  I described why we advocate trend spotting and scenario planning as a component of innovation, especially as the expectations of an innovation activity are more disruptive.  Given the pace of change and the number of factors that are changing in the environment, taking some time to understand what may happen and, more importantly, what may happen in response, is very important.  No matter how good your ideas are today, most firms cannot hope to realize them as new products or services for months or years. 

If you are confused by the opening paragraph and its juxtaposition with the title of the blog post, don't be.  We teach trend spotting and scenario planning to our customers to help them understand the importance of recognizing emerging needs and emerging segments, because the great ideas they generate won't become products or services very quickly.  They'll become products and services when the product or service development process in their organization provides resources for the new ideas, and spend time developing, validating, testing the new products and finally launching them.  What will the world look like when we are ready to finally release a product based on an idea from the past?  What new needs or new segments will emerge?

As we teach trend spotting and scenario planning inevitably one senior member of the attendees will raise his or her hand.  With careful patience they will tell me that while other firms may take months or years to move from the recognition of an opportunity to a good idea, and then from a good idea to a finished product, and then from a finished product to a successful market launch, their firm is different.  And then I ask them to tell me their firm's average product development process timeframe.  Usually, blank stares result, for good reason.  First, there is no such thing as an average product development timeframe.  Product development differs depending on the amount of change, the available resources and the urgency of the product need.  Second, very few firms keep track of their product development cycles, so they are unaware that for many of them, product development cycles are GROWING at a time when product lifecycles are SHRINKING.  That can't be a good result.

What this bring me to is the original topic of this blog post - and the title of the post.  Far too many organizations want to "innovate" products and services, only to be stymied by their inflexible or unresponsive product development process and capabilities.  For the last 20-30 years most organizations have spent a tremendous amount of effort and training to hone their product development processes, eliminate waste, restructure priorities, implement Stage-Gate and then test other philosophies like Agile.  The vast majority of product development teams are underresourced, overtaxed, and constantly bombarded by changes to existing product developments as well as revisions to priorities for projects already in the hopper.  They typically have few tools to help re-prioritize projects and almost always have the wrong skills available for the next project in the hopper.  Further, simply developing a new product or service doesn't mean it's ready for launch.  Products and services must be validated through customer feedback, fully tested, integrated with other products or services to tie into a larger offering, and a marketing campaign must be prepared.  As should be apparent, all of these actions can take months or years, and that's before we incorporate any product review by the regulatory agencies if the product has an impact on the health or safety of consumers.

In the final analysis, it becomes clear that in order to innovate successfully, a company must innovate and update its existing internal processes before trying to innovate products and services.  Companies worry about the investment and time associated with developing a new product, concerned that customers won't accept or adopt a new product.  This should be a secondary concern, because the vast majority of product or service requests that enter the product development and launch stages - what many of us in innovation call the "back end" of innovation - simply fail to ever get resourced or funded.  There's simply not enough time, resource or management engagement to move new, risky ideas ahead of existing product development projects, and the backlog extends for years.

We worked with several clients on this issue, and almost always came to the same conclusions.  Companies need to respond to this issue in one of three ways:

1. Rethink the internal product/service development process, to emphasize allocations to new products over existing projects.  Accelerate decision making and shorten cycle times to get new products to the market faster.
2. Outsource the design and development of new products, leaving your existing product and service development team to focus on legacy products and services, to reduce conflict and confusion over resource priorities.
3. Create a hybrid that speeds up and reworks internal capabilities while tapping external partners for key innovation tasks.

Regardless of the outcome you select, you'll need to spend time rethinking the approach and focus of your product and service development capabilities.

Now, it may be easy to suggest to yourself that innovation is an occasional activity and doesn't merit making changes to a stable, reliable product development process.  This thinking is wrong on both counts.  Innovation will become a far more consistent exercise as the pace of technology change increases and as competition increases.  Innovation will be required simply to remain in the game, not as an opportunity to leap ahead, which few take advantage of anyway.  Second, most product development processes do a poor job allocating resources and establishing priorities, and are bogged down with poorly defined projects and inadequate staffing levels.  It's exceptionally rare for products to exit the process on time and on budget.

If you hope to sustain innovation, start by focusing on your internal processes, both by developing a "front end" capability and reworking or rethinking the execution phases in the "back end".  The absence of either process, or the existence of an inadequate process in either case, stymies innovation.

The problem with corporate innovation

If that sounds like a pretentious title, you are probably right, but it's time to start talking about the fact that so many companies simply cannot innovate effectively.  Many long standing corporations in the US are simply withering on the vine, unable to respond to changing market conditions, new competitors or changing consumer demands.  Past success does not guarantee future success, and by the time many of these firms recognize the need to innovate the opportunity has past them by.

Corporate innovation faces challenges that entrepreneurs can't fathom.  Entrepreneurs often wish they had the people and resources that larger organizations do, without realizing that all those people and resources are already spoken for.  Larger organizations lack the freedom and agility that smaller organizations have.  Larger organizations are very slow to recognize and respond to major seismic shifts, so comfortable in their day to day operating models.  Industry conventions become first defensive barriers and then comfortable blankets, reassuring large organizations that they understand what the customer needs and what the industry will do.

Corporate executives face a really difficult challenge:  on one hand they must meet the quarterly numbers, or heads will roll.  Yet meeting quarterly numbers means an all hands on deck focus on day to day operations and ever increasing efficiency and effectiveness.  Yet on the other hand they are expected to grow revenues, differentiate and create valuable new products and services.  The difference is that the payoff for new stuff is all in the future and relatively uncertain, while cost cutting and efficiency is easily understood and implemented, and adds value to the bottom line immediately.

So corporate executives are faced with a couple of important questions.  First, how much innovation should we do, and of what type?  Second, how do we allocate resources and funds to innovation, and how do we oversee it and manage it?  Third, do we have internal capabilities and bandwidth to do innovation, or should we build the skills or outsource the work?  Faced with all of these questions, executives are often satisfied with small pilots or distributed innovation activities that may accomplish some incremental innovation but don't build innovation capabilities or change the operating models or culture of the business.  In other words, they are "innovating" but it doesn't seem to accelerate growth.  That's because where there is little risk there is likely little reward.  Further, even if the organization gets better at generating ideas, they haven't resolved how to commercialize good ideas quickly, due to long decision making and product development processes.  It's not an either/or proposition.  To get better at innovation you must design and develop a "front end" idea generation capability and link it to a product or service capability that is better at allocating resources to the best solutions.

Of course this demand for more innovation, and its incumbent investments and implementation timeframes, is happening at the same time as executive tenure shrinks.  Executives need to hit the ground running, demonstrate real value in their positions or the corporation will move them on to other roles.  Trying to "invest" in innovation capabilities and competencies isn't a winning proposition when the results may not happen for several years.

So executives are faced with a dilemma:  either use expert external partners who specialize in innovation to create new products and services, or build internal capabilities.  Both are ripe with opportunity and risk.  Outsourcing innovation means that the corporation becomes even more focused on day to day operations and may become blindsided by a new entrant, while paying top dollar for new ideas.  Where does the money come from to fund the external innovation consultants?  Can the ideas or concepts they generate enter the product development process?

On the other hand, if you try to build an internal innovation capability, that will mean designating staff to focus on innovation, and build skills and methodologies.  That sounds a lot like an internal investment that won't pay off in new ideas for quite some time, and even then may not generate valuable ideas.

So we are left with the classic tradeoff of money (outsourcing) or time (developing internally).  Currently, money is cheap and time is valuable, so I believe we'll see a turn to more and more outsourcing of innovation, which is smart in the short run and terrible in the long run.  The more corporations outsource innovation the more insular and protective of their operating models they become.  Innovation shouldn't be thought of as an occasional activity to boost revenues but a consistent internal capability to constantly reinvent both the corporation and the industry itself.

Until executives decide what innovation is meant to do, its role and position within the strategic framework of the corporation, it will have only short term appeal in most organizations.

Where to focus your innovation effort

OVO has done a fair amount of innovation work in the banking and financial sector.  As such I would not call us "experts" in the banking or financial services space, but we've spent time there and we are always interested in new ideas that are percolating in the industry.  It was with great interest that I read a synopsis of a presentation given at Forum 2015, by the wonderfully named Jeffry Pilcher, who is the CEO/President and Founder of The Financial Brand.  His talk to the conference was on a key innovation target.  Not customers, not needs, not products, but on saving people time by reducing complexity.

Many, many times clients have debated about the best innovation opportunities, from opening a new market segment to creating a disruptive product.  But many of these factors miss a key point:  the vast majority of customers, as Geoffrey Moore and others have demonstrated, are early or late majority, unlikely to change and unwilling to change unless there is a really powerful value proposition.  In that case, while we as innovators need to think about compelling new products and services, we ought to first decide which of three or four key factors we want to solve that really matter in people's lives.  Pilcher does an excellent job explaining why saving time is so valuable.  His argument is that banking is complex and takes far too much time, when people are already overwhelmed and want more time for themselves.

Key factors to improve

So, if time is one key factor to improve, what are the others?  I'll argue that it is a relatively short list:

• Saving time (dramatic savings, not just shaving a few seconds here or there)
• Reducing complexity, simplifying usage
• Improving customer experience
• Improving usability or design to create intuitive solutions
• Integrating disparate but dependent activities

Pilcher has dealt nicely with saving time, and argues that the way to do so is to remove complexity.  I'd have gone farther in the banking space to argue that improving customer experience, in all channels and in all interactions, is vital to improving experience and saving time.

Apple has proven that design and intuitive solutions are valuable innovations, since they simplify consumers lives and make adopting new products or services far more easy to accomplish.  Apple (with iTunes) and others have demonstrated the power of integration - combining disparate activities that were important but difficult to accomplish in one hopefully simpler, more integrated solution.

In the end, most people are trying to solve fundamentally simple problems that are typically based around these issues.  Many innovators often have a hard time differentiating between symptoms and the real underlying illness, if I can use a medical analogy here.

Innovation Outcomes

Beyond confusion of symptoms and illnesses, there are other unfortunate perspectives that corporations introduce.  Many corporate innovators put the cart before the horse.  They suggest that they need a new widget or product that will generate $X amount of revenue or profit, and argue that they can get this return because the idea will add more value or features for consumers.  Instead, they should build their assertions starting with the most basic outcome for consumers.  The new widget will save time, reduce complexity and improve customer experience, attracting new customers and winning over customers from other vendors, leading to new revenue and new profits.  Where you start your thinking, what you base your outcomes on, matters in the end.  Innovation to drive new revenue and profits is an internally focused activity that will be shaped by internal needs.  Innovation to change lives or experiences is an externally focused activity that will be viewed and understood as such by consumers, and will be shaped as such through the innovation process.

What does this do for the consumer?

The first question we should be asking, then, is what does the consumer want to overcome or resolve?  Yes, the consumer has a "job to be done" and can do it in many different ways.  But ultimately innovation should reduce the workload, reduce the complexity, reduce the uncertainty.  We at OVO always talk about innovating from the customer's perspective.  The customers don't necessarily want new stuff, they want better lives, more time and interesting experiences.  Use these as your starting point for defining your innovations, and let that lead you to new products or services.

Where in the customer's experience is the greatest amount of needless complexity?  What factors or features consume time but don't provide equivalent value?  What disparate capabilities or needs do people have that must be accomplished that could be easily combined?  If you want to know where to focus your time as an innovator, there are worse places to start.

What Innovation shares with Humor

I had the opportunity to listen to NPR a lot over the weekend.  I was driving my daughter to and from her college as the semester has just ended.  That meant a lot of time on the road, listening to music, books on CDs and the radio.  I've found that NPR is a good source for a lot of my innovative posts, and this weekend was no exception.  Matt Diffee, a cartoonist for the New Yorker magazine, was interviewed in a news segment.  What struck me was how many similarities humor shares with innovation.

Here are just a few commonalities I thought were interesting:

Success rate
Take for example his "success" rate.  Diffee says that it's a good week when one out of ten of his cartoons is purchased by the New Yorker magazine.  What goes unsaid is that there are some weeks when none of his ideas are accepted.  Diffee has to restart his project clock every week, and gets constant, unrelenting feedback on his ideas in the form of acceptance and a check, or outright rejection.  We innovators need to appreciate what a cartoonist or a stand up comedian experiences before we get too frustrated with our own experiences.  These guys get their heads handed to them on a weekly basis, and that's how they earn their living.  Most innovators I know get frustrated when their ideas are rejected, but they fall back on their regular jobs.

The timing of an idea

Diffee described a cartoon he drew of an old man with a sign that said "face painting".  The old man was holding interior paint and a roller, clearly not what most kids would expect.  Diffee and his friends thought the cartoon was funny.  It was rejected by the New Yorker the first time he submitted it, and the second time.  His mom found the cartoon and encouraged him to submit it again.  Undaunted, and without much to lose he submitted it again.  The New Yorker accepted it the third time he submitted it.  Ideas and cartoons are similar - there are times and places for them, and just because an idea is rejected at a specific time and place does not necessarily make the idea a bad one.  It can be that the presentation of the idea was poor or the audience not quite ready or right for the idea.

Practice

In another story making the rounds Sara Silverman was angry with a comedy club in New York for paying her less than the male comic that went on just before she did.  It later turned out that the club had asked her in to fill in at the last minute and offered her the standing rate for comedians trying out their new programs.  The kerfluffle was over $10 or cab fare, which is what it turns out a lot of comedy clubs offer comedians who are just breaking in new material.  I'm not here to weigh in on gender equity, but to point out how little these folks are paid in service to their new material.  Even the lead spot was only paid $60 bucks.

Yep, you read it right.  Even Seinfeld and other famous comedians must break in new material to see how it plays. They work with little fanfare to develop their acts, in small clubs with little compensation, to get their timing and stories just right.  In other words, experienced, well-paid performers are perfecting new programs through trial and error, testing what works and what doesn't.  In the innovation world we'd call this experimentation, testing new ideas and developing them, first in simple prototypes without a lot of fanfare, mostly to learn what needs to change and what can stay.  A lot of this innovation work happens behind the scenes, trying new things, testing new concepts, long before the final product is brought out and released.  There's a lot of work to develop new ideas, and constant practice helps.

Risk/Failure

Every humorist, comedian and cartoonist risks a lot every time they display their work.  Their ideas about what is funny, what will entertain and make people laugh, may or may not work.  They are on stage, paid to make people laugh, and if the material doesn't work they quickly get the ax.  Every comic understands that's the nature of the opportunity.  We innovators need to have the same expectation.  We need to believe in our ideas and understand and embrace the risks that come with asking to change the status quo or introduce something completely new and different.  Innovation is often born and developed in the background, as I noted above, but it must be launched in the open, where everyone can see, understand and respond.  Innovators have to be comfortable developing their ideas with little resource and in the background, then announcing their ideas on a big stage where risks are high and failure is frequent.

The Unexpected

Finally, innovation and humor share the fact that the punch lines are often unexpected.  The best jokes lead up to a story with an expected ending, only for the punch line to be something completely different, and the unexpected outcome branches into a different perspective that people find funny, shocking or just unexpected, and it is this different ending that makes the joke work.

Innovation works the same way.  We innovators are often confronted with the same challenges and seek to solve problems or needs that customers have.  We can do this through continuous improvement, which is the solution customers expect or through innovation, which tells the same story but comes up with very different and potentially unexpected solutions.  When we "branch" to a new ending, we need to ensure the branch we take has meaning for customers, who often either don't know what a compelling solution would look like, or don't believe we'd have the courage to create it.

These are just a few of the factors that humor shares with innovation.  I know that both can lead to significant delight of an audience, or a stony, cold silence of rejection.

Innovating against conventional wisdom

I love those funny insightful quote from people like Yogi Berra, who was either an unrecognized cosmic genius (When you get to a fork in the road, take it) or perhaps occasionally just full of malapropisms (Nobody goes there anymore, it's too crowded).  Likewise, I think, we innovators should think about how and where we choose to innovate.  Another (baseball) related quote sums this up perfectly.  When Willie Keeler was asked how he was able to sustain such a high batting average, he responded it was simple:  hit em where they ain't.  Shouldn't that be our innovation mantra as well?

Here's what I mean.  Far too often "everyone" agrees that a specific market or space is just "ripe" for innovation, while other segments, markets or industries are just too limited, and no one in their right mind should innovate there.  Too often experts tell us things that they know are true and direct our attention to "facts" not quite in evidence, leading a lot of lemmings to innovate in a particular market, while other markets or segments, crying out for innovation, are ignored.  Let's use a specific example.  We recently completed a project for a large retail bank.  The conventional wisdom is that all Millennials and Gen Y and Gen Z will never use or frequent a retail bank.  They are too wired in, too mobile and too dependent on the internet to ever darken the door of a branch bank.  Or so we were assured by experts.  So this leads to a lot of "innovation" in mobile apps targeting younger customers and the constant breast beating of retail bankers stuck with old, unattractive retail branches.  So no one is innovating in branches, except trying to figure out how to turn them into coffee shops or community centers.  All the smart money in the retail and commercial banking sector is in payments and money movement, not in retail banking.  After all, nobody goes there anymore.

But what if the prognosticators and experts are wrong?  What if we should be innovating in the very place they suggest we ignore?  After all, as an innovator you have a number of choices as to where to innovate, but very limited resources.  Should you innovate in the same markets and segments that all the cognoscenti suggest you should, and simply follow the crowd, or should you carefully consider all the data and seek markets, segments and customers where your innovation will matter?  Should you zig when others zag, even in an innovation setting?  Is it better to be the fifth or sixth firm to "innovate" is a specific space where everyone is innovating, or to carve out unrecognized opportunities that you can own?

Well, the recent punchline to the issue of whether or not younger consumers will use branches is new research that demonstrates young customers use branches about the same amount as older customers.  It's not that younger customers reject branches.  Younger customers (and the rest of us) now have different interactions and expectations about interacting with banks, and many different channels.  There are simply some interactions where all of us, regardless of age or experience, prefer the face to face interaction.  And, since many banks are ignoring the branch experience as an innovation opportunity, perhaps some bank out there will realize that branch banking isn't going away, but is simply changing, and will realize that no one else is really innovating in this space, while all of the competitors are seeking to drive all banking to a hand-held device.  While "everyone" is talking about the death of the retail bank, some firm is going to understand the overlooked opportunity and be the only one innovating in that space - literally hitting them where they ain't.

Sometimes what is counterintuitive is also true.  I'm guilty of nodding along as experts told us the branch banking system would die on the vine, that no younger customer would be caught dead in one.  Again we've neglected to think through the entire customer experience to realize that not everything can be automated, minimized, placed on a handheld device.  The sooner the branch banking system realizes that (and overcomes some other issues like opening hours) the greater potential for relevancy.

So the question becomes, how much of the conventional wisdom should you accept when it comes to where you place your innovation bets?  What happens if every player in an industry accepts the same models or wisdom (I'm looking at you now, Wall Street, and the whole CDO packaging fiasco).  Can you afford to be the fifth or sixth company to innovate in the same space, or does it make sense to differentiate where and why you innovate?    I'm often reminded of the Woody Allen movie Sleeper, in which Allen's character wakes up in the future after a long coma, to find everyone eating fatty foods and smoking cigars constantly.  When he rejects the lifestyle, they tell him that people in his generation had it all wrong.  Steaks and cigars were never life threatening.  Will we wake up from our comfortable sleep to find out that all the conventional wisdom was wrong?  I suspect it won't take us long to discover the error of conventional wisdom and innovation bets.  Less time than Allen's character, but with greater complications.

If you've read this far, thanks for sticking with me.  There are two interwoven points I wanted to make, and have probably done so relatively poorly.  The first is that innovation goals should be driven by your specific insights, not on what the cognoscenti decides.  Far too often the conventional wisdom is wrong, and leads us to investments that don't pay off or were simply wrong.  It's often easier to follow the herd, when experts and analysts are telling you that younger generations won't go to branch banks, who is to say they are wrong?

The second point is that every innovator has only a limited number of bets to make in any given time period.  Too many factors in running the day to day business will restrict the number of innovation activities that you can undertake.  So, the question becomes, should you innovate in exactly the same place everyone else is innovating, or should you innovate in markets or segments that have needs that others are ignoring or overlooking?  In the payments space, can you compete with Apple, Facebook, Google, Paypal and a host of others, or could you rather partner with these firms in these opportunities and innovate in the branch setting, which most banks are ignoring?  Of course I've used a banking example, but the same phenomenon plays out in every industry.