How to tell if innovation matters to your CEO

Thank the good folks at PWC for their latest survey of executives about innovation.  The new article, optimistically entitled "Unleashing the power of Innovation" was recently published and surveyed approximately 250 senior executives about innovation.  While interesting, there's not a lot "new" in the survey, and the authors give away the biggest challenge in the overview, by stating that:

the problem is that while the eyes of the CEO are fixed on innovation, the body of the organisation may not be following. The ‘antibodies’ that inhibit innovation include a culture that sees it as separate from the mainstream operations of the business and is slow to commercialise new ideas. 

And, the survey proves the authors are correct - or that the authors actually cared about what the executives said.  Over 57% of the executives referred to culture as one of the top three barriers for innovation. That's more than 13 percentage points over the second barrier, which is strangely "strong visionary business leadership".  You'd think that in the second case the executives would be pointing the finger at themselves.  But let's focus on culture.

The critical question
The authors state several times that innovation is moving up on the CEO's agenda.  If innovation is important to CEOs (which I believe) and if culture is the biggest impediment (which, by the way, is also almost always true), then there's a simple method for discerning if innovation is important to your company. It's the answer to this question:

Is the CEO and his or her senior staff working furiously on reducing
cultural barriers to innovation?  

If you see that the CEO and senior leaders are working on reducing uncertainty and risk, realigning compensation and rewards schemes, focusing their time and commitments around innovation, encouraging new ideas, balancing the need for efficiency with the need for creativity, then there's a good chance that innovation will flourish.  If the CEO and others talk about innovation but don't do much to mitigate a culture based on efficiency, repeatability and reducing risk and uncertainty, then either they don't understand the impact that culture has on innovation (best case) or do understand and simply don't have the time or energy to change the culture (worst case).

What's changing?  What's staying the same?
If innovation matters to your CEO, if 57% of the respondents recognize culture is a barrier, then you know what to look for.  Evidence that senior leaders are doing everything they can to create a balance between efficiency and innovation.  These two don't have to be mutually exclusive, or even competitors. They can co-exist, but it takes a special culture to encourage co-existence.  What changes have been rolled out in your culture lately?  Do they reinforce innovation or efficiency?

There are several real challenges inherent in this issue.  The first is that culture, while powerful, is intangible and omnipresent.  You don't change culture by engaging in a few training exercises.  It has to start from the top and roll out through the organization.  Which leads to the second issue:  cultural change takes time, and it's easier to recover a once innovative culture than to switch the thinking on a culture that hasn't ever been innovative.  A third challenge is a corollary to these:  if innovation is considered an activity or an occasional project, there shouldn't be a need to invest the time and energy to change the culture.  This skeptical response to cultural change demonstrates the lack of understanding about the power of culture as it relates to innovation.

What can you do?

If your teams want to innovate, the organization must change the culture to at a minimum accept innovation activities and at best embrace innovation and its ingredients: risk, uncertainty, variability, discovery and exploration.  The way to start is to communicate from the top, reinforce the communication with investments and activities, sustain the commitment to change over time, have senior leadership actively engaged in innovation successes and failures, and change the rewards and recognition systems.   But, again, if innovation is a "one and done" activity, why would you go through all of that effort?  And does anyone last long enough in a senior role to commit to all of this change with at best uncertain outcomes?

Innovators will win with seamless experiences

I've written before, both on this blog and on the blog I share with Paul Hobcraft about platforms and ecosystems about the need for seamless experiences.  Innovators often create technologies or products, which have interesting capabilities or features, but rarely do they think through the actual use of the products and understand how they fit in with other products, services, infrastructure, channels and data that exist in a customer's life.  These new products are often interesting but not "seamless" - customers encounter challenges when attempting to use these new solutions in their everyday settings.

It's our stipulation that the future is about seamless experiences.  Will you be willing to adopt a flashy new technology or product if it causes you to have to figure out how to make it work with your other products and services?  If history is any guide, this description - willing to make a new technology work when it is possibly incomplete or ignores the existing infrastructure - is the definition of an early adopter.  Geoffrey Moore and others noted that less than 5% of the market are early adopters, so the vast majority of us will wait until products and services are more seamless.  As we gather more and more technologies and products around us, with many different capabilities and standards, the likelihood of new products and technologies working together seamlessly approaches zero.  That's a huge problem and an opportunity for innovators.

Enter Amazon

It should come as no surprise that Amazon has identified this issue and is working on potential solutions.  Amazon's approach is to "reduce friction" to make products more seamless.

Amazon describes this as:

• Removing friction due to unfamiliarity
• Removing friction due to design 
• Removing friction due to misalignment with human behavior

Amazon gets the issue of seamless experience but is primarily responding to the need in the virtual world - online, through Alexa and other Amazon online services.

These issues are just as real and just as important in the physical world, where tangible products must integrate with a user's life and experiences.  Reducing hassles and improving seamless experience requires a deep understanding of customer context.

A real world example
For example, for a medical products company we worked with, we discovered that while the product itself worked very well, people struggled with the packaging.  The packaging was difficult to open, for a number of reasons, and was bulky and difficult to dispose of.  Engineers believed they'd done their jobs well because the product did its job well.  Marketers and salespeople recognized a problem when there weren't a lot of follow on purchases and only learned about the friction caused by the packaging much later.

The most important role - Experience Manager

While most companies are very familiar with the idea of a product manager or service manager who defines the features and benefits of key deliverables, few companies are really adept at understanding the use of those new products and services in the larger customer context.  Increasingly, what will be important and will drive adoption of new products and services are the insights of what I'll call experience managers - people who truly understand the customer's context, the existing products and services that surround the new solution and the vibrant ecosystem of products, services and channels in which the new solution must exist.  Understanding this, removing friction and solving for a seamless experience is what will make a winning solution.

And, if you are wondering if anyone is writing or thinking about this topic, you can see some brilliant commentary on experience managers here.

Eating the seed corn

Eating the seed corn is an old saying that at one time meant quite a lot, but probably has little import anymore.  When farming was about simply surviving from season to season, eating the seed corn literally meant eating the seeds of the future planting.  Each year farmers would save some seeds, or potatoes, or whatever they needed to plant for the coming spring.  If the winter was harsh enough, they might have to eat those plants or seed in order to survive.  Of course this left them weakened but alive, but when spring arrived they didn't have seeds to plant, and would have to either leave the land or borrow to buy seeds to plant a crop, simply driving an already weakened family further into debt, with the hope of a bumper crop to provide sustenance for the coming year, leaving enough aside to plan for future planting and the ability to pay off the borrowed seeds.  Eating the seed corn should be a last resort.

Did Target eat its seed corn?

I'm writing about "eating the seed corn" because of recent news stories concerning the sudden end of innovation projects at Target.  Other than what I read on the web, I have no further insight about what happened to these projects.  It could be that management decided the investment wasn't worth the cost, or that promised deliverables or outcomes weren't going to appear.  We'll never know, but from the outside looking in this looks like an attempt to cut costs and deliver a good profit margin in an otherwise flat revenue year.  One can either grow revenue or cut costs (or both) to create better margins:  it seems like Target management chose to cut costs.  But instead of cutting costs across the board, it seems to have simply hacked two rather large innovation projects where there was reasonably large investments.

Now I'm fairly sure that these projects don't represent all the innovation underway at Target.  At least I hope that's the case.  But reading between the lines it appears that both of these concepts were ready for release and scaling, so most if not all of the investment had been made.  Those costs were in the past - the ideas should start to generate revenue at this point.  Cutting them means that there will be little incremental organic or new growth from new ideas.  Even the management team admits that Target is going to "focus on the core".  When you hear that it means going back to the basics, back to best operating principles, cutting fat and inefficiency.  Can Target right the ship and remain competitive as Amazon starts to open brick and mortar stores?  Can Target shut down interesting, perhaps promising innovation projects at a time when competition seems very stiff, and Target's differentiation with Amazon and Wal-Mart seems to grow smaller every passing day?

What's perhaps even more interesting about this news

What's also odd about this news is that interesting, innovative ideas get killed all the time in large corporations, for a variety of reasons.  Sometimes the ideas simply don't play out.  Sometimes the ideas threaten to cannibalize existing revenue streams. Sometimes another senior executive stands to lose when another one backing the new idea wins.  Yet you rarely hear so much about the ideas and their promise, or find examples of a company forced to respond so publicly to the termination of innovative ideas that weren't launched.  Is this because the people behind the ideas felt that Target management was out of step with the demands in the marketplace for new ideas?  We don't know for sure, but this signals a very interesting new possibility:  that after hearing about the importance of innovation, people within companies start to believe that management is serious about innovating, and the innovators become convinced that their ideas will become products or services, and become far more frustrated and angry when they don't.  In the past, terminating these ideas wouldn't make news, because people would go back to their day jobs, a little sadder and wiser.  Increasingly, we may find that people don't go quietly into that good night, and challenge a management team they think is making the wrong decisions, openly and even publicly.  This new openness could create interesting signals to investors about who is serious about innovation, and who will follow through on the promises of innovation.

R&D as a metaphor for seed corn

The retail industry is a bit unusual, since it doesn't typically have an "R&D" component the way say a software company or semiconductor company would.  In these research oriented companies there's a constant battle to create new research and bring completely new products and services into the world.  Yet many industries lack a consistent team or purpose to generate really new solutions or ideas - they don't have a true "R&D" function, so innovation often is used as a stop gap measure to provide new ideas in the lack of a research capability.  But it's difficult to compare a true R&D team, which has processes and staffing and budgets that are relatively consistent, year in and year out, to pop up innovation teams that can be quickly started, and in the Target case rapidly extinguished.  Increasingly it's difficult to compete with a notion of research, of new development, of innovation, in any industry, and Target and others like it are missing an opportunity.  Whether they label it as "innovation" or R&D or some other label, companies and industries that for years or even decades have avoided these consistent investments can't compete effectively without them anymore.  Whether you call it R&D or consistent innovation or something else, every industry must be creating new products, services and business models on a consistent, predictable basis.  The pace of change and the emerging global competition is simply too fierce to wait.

We'll see about Target. Did they hunker down at exactly the moment they should reinforce innovation?  Can they sustain relevance and growth as Amazon enters the brick and mortar space, and as Alibaba casts a envious eye on the US market?  Time will tell, and it will be worth watching.