Context Matters in Successful Innovation

I think we often over complicate the work of innovation, because we believe it cannot be simple and straightforward.  After all, how can an activity that can disrupt an industry, create compelling new products or services and reap significant riches be simple?  To drive all of this change, certainly innovation must be difficult and complex, right?  Consultants often benefit from this assumption that innovation is difficult or unusual.  Unfortunately the presumption that it must be difficult also means that many people are afraid they don't have the requisite skills.  Fear, uncertainty and doubt about innovation and the knowledge and skills it takes to do it well mean that far less innovation is attempted than probably should be.

In order to accelerate the pace of innovation and increase the amount of innovation that's done, we need to simplify it, or at least remove some of the uncertainty.  To do that I'm going to argue in this relatively short post that innovation has three important deliverables:

• problem definition, 
• ideas and 
• solutions.

Between those deliverables are two very important activities that illuminate and contribute the the generation of those deliverables.  Those two activities create context and content. While we focus on the deliverables it's actually the content/context that really drives innovation value.  Let's review the deliverables and the activities between them to understand what I mean.

Problems/Opportunities

The first real deliverable in any innovation activity should be defining and scoping an interesting problem or opportunity.  To ask for innovation without defining a need or opportunity is useless - but to innovate based on a key insight, opportunity or problem is exceptionally valuable.  Your first goal is to find the right problems to solve, the right opportunities to address.  I don't have enough pixels in this blog post to tell you how to do that, but have written about this previously.

Too many innovators and innovation teams start out without a good problem definition or opportunity, and this lack of scope dooms their work.

Ideas

Many people think an innovation activity begins with an idea, but they are wrong.  An innovation activity begins with a problem or opportunity that you investigate, and learn more about, and discover needs, all of which is context, and the next deliverable is a set of viable ideas to solve the problem.  Ideas are simply a waypoint in an innovation process or exercise.  Unfortunately many people think they are the output. 

And, even when innovation teams generate ideas, they often limit their thinking to small changes, incremental ideas, and a small handful of ideas rather than fully exploring the innovation opportunity.

Solutions

Innovation doesn't begin or end with ideas.  It ends with a valuable solution that customers can acquire and use, that makes their lives better or easier or more valuable.  There really isn't any innovation without this final value realization, so a valuable solution, well launched and well marketed, is the final deliverable of an innovation activity.

Now that we've identified the three deliverables of an innovation activity, let's turn to the activities that shape and inform the deliverables:  the context setting and content development that helps shape and inform ideas and solutions.

Trends and Needs:  Context/Content between problems and ideas

Once you have settled on a problem or opportunity to solve, you need to back up and gather context.  What are the issues?  What are the challenges?  Why does this problem or opportunity exist?  Who else is working on it?  Do customers understand the need or opportunity?  Is there value in solving it?  This context helps you shape the problem and begins to point at potential solutions (ideas).

We typically frame this in two activities:  trend spotting to understand the evolving nature of the world, the market, customers and technologies, and customer insight gathering, to understand the gaps and needs of customers and what they value.Without this insight, discovery and context you cannot generate meaningful ideas, and if you do manage to generate good ideas you won't be able to describe to anyone why they matter.  Too often innovators assume that they know what customers want or need, or simply believe their solutions and technologies are so valuable that they can address any needs or gaps.

Evaluation, Prototyping and Development: Context/Content between ideas and solutions

Once you have good ideas you must evaluate them against customer needs, corporate viability and competitive reality.  Then you must determine how to produce them and launch them in a timely fashion.  These activities too require investigation, discovery and context setting.  In many cases if the ideas are very new or different, you may need to create new product or service development capabilities or develop new business models or channels.  This may require new discovery and new experimentation - something your existing product development processes won't value or understand.  You may simply need new context for new ideas to be realized as new products.

Where the real work lies

The real work of innovation lies in this context and content development, between a good problem statement, ideas and solutions.  We often get far too caught up in these discrete deliverables, never realizing that the value lies in how well we understand the context and generate and evaluate the content between the deliverables.  If you want to know - its in these content and context activities that the innovation magic happens.

We innovators place far too much emphasis on the deliverables of innovation, and on ideas in particular, when we should be focused on the generation and understanding of the context and content activities that must occur between the deliverables.

3 innovation types: evolution, preventative and creative

I was thinking over the weekend that for years we've positioned innovation incorrectly.  Too often we position innovation as creating a new and valuable offering or solution, ready when customers are ready to demand new products and services.  In other words, we've positioned innovation as something to do to prepare for future business, future needs and future demands.  Innovation does answer for these issues - identifying needs and developing ideas for products and services for unmet and perhaps unanticipated needs. 

But in the hustle and bustle of day to day business, the main focus is on the now.  What can you deliver today, this week, this month, this quarter?  How can you help me achieve my quarterly revenue and income goals?  Sure, the future is nice, but I'll worry about that when I get there.  With this mentality, cost cutting, becoming more efficient, gradual but general improvement is the key focus, not innovation per se.

Making innovation more relevant right now

So the question becomes, how do you make innovation more relevant, right now, to executives and managers who are so focused on the short term?  One approach would be to focus on the "short term", what can innovation do for us to put better products on the shelves in less than 90 days.  The general answer to that, given product development cycles, channel issues and customer awareness is:  no much, except perhaps in the virtual world.  Building, modifying and releasing a physical product is going to take more than 90 days, and 90 days is the magic timeframe.  Anything we can do to impact revenue and cost within 90 days is good.  The timeframe beyond 90 days seems almost imaginary.

Innovation, where practiced at all, becomes incremental because of this pressure to generate rapid results.  Even if we can speed up innovation activities (we've run innovation programs from problem definition to fully developed prototypes in under a week) you've still got to go through the product development and launch cycle.  This means innovation will be focused on items and attributes around the periphery - messaging, packaging, claims, rather than interesting or radical innovation of the product or solution.

Another approach is to use innovation to ferret out efficiency gaps.  If we can't create better products and services, can we use innovative thinking to shorten any barriers or gaps to bringing our products to market with less cost or with fewer inputs?  This has been the management focus for years - right-sizing, outsourcing, automating.  It doesn't necessarily lead to new products but may lead to less expensive products or more rapid turns of incremental products. 

So, while we can speed up the existing processes and use innovation to identify gaps or inefficiencies, or use innovation to make some changes to the periphery of the product or service, there's not a lot of innovation that can be delivered and impact the bottom line in 90 days or less.  So we need to think about innovation differently, or perhaps in different categories.

Categorizing innovation

Clearly, as I've defined above, there's a real need for focus on process and peripheral innovation.  These innovations are meant to gradually improve the product or service, cut costs and deliver more bottom line value, and to do so quickly.  The driving pressure for this innovation focus is cost reduction, time reduction and the desire to show customers something "new", even if the newness is relatively minor.

There's also a need for preventative innovation.  I'll call any work to blunt attacks by existing competitors or new entrants as preventative. This kind of innovation identifies potential openings and gaps in a product line, or new "in demand" features or benefits that you don't currently offer.  Preventative innovation considers a slightly longer time frame - perhaps 2 or 3 quarters - doesn't necessarily create a new product as much as identify missing features or product line gaps and carefully evaluate what competitors and potential entrants are doing. 

Then there's radical or disruptive innovation, creating a completely new product or service, or disrupting an existing adjacent market.  This kind of innovation takes focus and planning, commitment for quarters or even years, and full commitment over several planning and budgeting cycles.  This kind of innovation ends up on the magazine covers and is what every CEO wants but can't quite understand how to deliver given the demands for quarterly results.

Three horizons

The three categories I've defined above are exceptionally similar to the "three horizons" model that many innovation consultants talk about.  But rather than call them "incremental", "radical" and "disruptive" I think it makes more sense to describe them based on what they are:  constant evolution, preventative and creative.

The first type of innovation is necessary (and is almost always underway) because your products and offerings can't sit still.  You must find ways to cut costs, make your delivery more efficient and tinker around the edges of existing products.  The second type of innovation is probably the least understood, because too many companies don't understand what their competitors are doing, and are often shocked by the offerings of new entrants.  Companies need to do a lot more preventative innovation, from a defensive point of view, to ward off new entrants and sustain or grow market share. 

Everyone acknowledges the importance of creative innovation - that is, the creation of a completely new offering that radically changes the competitive landscape - but few truly know how to do it or are willing to commit the resources to do it.

Investment cycles

Here's where every innovation consultant will lecture you about how much time and investment should be made in each of these three portfolio segments.  You can think about the three horizons, or my evolution, preventative and creative phases, as components of an innovation portfolio and next ask:  how much time, energy and investments should go into each one?  The general rule of thumb answer is 70:20:10.  Seventy percent of your innovation effort should go into evolution, 20% into preventative and so on.  But what if your budget for innovation is:  zero?  What if executives demand innovation but don't provide budgets or funding or resources?

The inevitable fall back position is to conduct efficiency innovation (evolution) because that's something your teams understand and can do relatively well now.  And, of course, you'll build and staff one high profile team to explore some really interesting innovation (creative) but they won't have the commitment or funding to stick it out - it's merely window dressing, because you expect to show some immediate results from the evolution innovation in the next few weeks and everyone will be satisfied.

Let's change the language

I think innovation champions and teams would do themselves a big favor by refocusing innovation language and talk about innovation in line with processes and outcomes.  We can flavor our language with:  evolutionary innovation to deliver short term benefits, preventative innovation to resist new entrants and sustain market share, creative innovation to win adjacent markets and customers. 

Once we win the language battle and demonstrate we can deliver on evolution and preventative efforts, we can get the funds and resources to do truly creative innovation.

Innovation lessons from Lego

In television, an outlandish episode that seeks to introduce revive a series often signals the eventual downfall of the show.  Those old enough to remember the TV series Happy Days will remember the episode when Fonzi jumped the shark on water skis.  This gave us the expression that something had "jumped the shark", an event signalling an inevitable downfall.

Today I'm wondering if making a movie about toys is a signal that something has "jumped the shark".  In strange and disappointing news, Lego announced that it was facing dire sales projections, with growth slowing from over 25% per year to low single digits.  Strange, when just a few years ago Lego was on top of the world, with great new toys, Lego kits, Lego Robots and the Lego movies.  While the management team blames internal complexity for the slowdown, those factors don't necessarily contribute to slowing sales.  Rather, I suspect that a company that had been on the brink of bankruptcy only a little over a decade ago discovered how to innovate in desperation, and began to neglect innovation as growth accelerated.  What we are seeing now is the aftermath of too little innovation and too much marketing.

What lessons can we learn?

Of course I should admit I'm doing this analysis from a distance, without complete information since Lego is a private company, but over the last few years Lego hasn't done nearly the innovation or introduced nearly the range of products and services that it did from the mid 2000s until 2012 or so.  Lego management turned the company around in the mid to late 2000s, and growth accelerated, only slowing in the last year or so.  The signals were out there, of course.  A new CEO was hired and let go within only 8 months.  What can we learn from Lego's example?

Growth can lead to bureaucracy and risk avoidance
Lego may be challenged by its aggressive growth, and with that growth came size and complexity.  However, and complexity isn't necessarily a factor in its innovation success, unless Lego allowed complacency and bureaucracy and risk avoidance to grow as sales grew.  Innovating at the brink of bankruptcy clarifies the mind (Steve Jobs would agree) and forces companies to focus on what's really important.  Getting large and perhaps bureaucratic can mean that concerns grow about taking new risks.  Internal bureaucracy didn't cause slow sales growth unless it blocked new innovative products or redirected investments.  Lego probably just lost some of its edge and taste for risk and innovation.

Only the paranoid survive
To me, one of the most important take aways should be, you simply cannot become complacent.  Good innovations from just a few years ago will only sustain your growth and differentiation for so long.  Customers are hungry for new solutions, rapacious in their research and unforgiving in their quest for new stuff.  In the past products and solutions had long shelf lives.  You could create an interesting product and merely tweak it, adding a handful of new features every few years.  Those days are over.  Customers demand and expect new capabilities and features on a regular, recurring basis.

Companies need to gin up a consistent innovation program which aims for incremental and disruptive innovations to occur all the time.  Lego is just an extreme example of desperate but winning innovation to avoid bankruptcy followed by a period of less interesting or less successful innovations while harvesting the profits of the prior innovations.  Lego and companies like this are particularly subject to this boom and bust cycle because of their target audience (children and teenagers primarily) who age out and don't want the same toys their siblings or parents had.  But while Lego is an extreme example, companies in every industry should take note.  From the peaks of profitability and industry acclaim to laying off 8% of its workforce in a period of only a few years.

Explore the adjacencies
I had hopes for Lego when they built some of the early Lego robots, because 1) the robots were cool 2) the robots extended Lego's audience into older kids, teens and even adults and 3) they were more expensive and had pull through.  But more importantly the robots were an exploration of an adjacent market or customer group.  Good innovators must constantly evaluate the adjacent markets and customer segments and provide new capabilities, features and products that entice new customers.  The apocryphal story is that Lego discovered lead users building robots with basic Legos and entered the market with their own product.  If that story is true, perhaps it's time for Lego to go back to evaluating what users are doing with Legos and capitalizing on new adjacencies.

The quote from the Lego chairman that he wanted to simplify the business model in order to reach more children suggests that Lego isn't reaching for new adjacencies, but doubling down on a fickle core market.

Grow up but don't grow old
Lego's problem mirrors Disney's problem in a way.  The business scales, but only so far.  Both attract children and young adults, but have difficulty really capitalizing on the adult market.  Disney has made forays into music and movies with some success, but they should be able to win more share and more business from adults.  Both of these firms need to grow up (expand their customer base using their trusted names and capabilities) but not grow old (build sclerotic bureaucracies that resist innovation).