Two answers you need to improve innovation success

I was talking recently with a colleague who had been working in corporate innovation for quite some time.  He was discouraged because he felt his innovation activities were really insightful, and had resulted in a product offering that had great value for customers.  But in the end the business decided not to commercialize his idea.

As we dissected the opportunity and the outcome, two issues became clear.  First, while the customer need was undeniable, eventually it proved to be outside of corporate direction and strategy.  The need was just far enough outside the bounds of what the company defined as its scope that he struggled to get executives to buy in.  While they had been happy to explore the market and need, they weren't convinced enough to enlarge their offerings. That decision was probably influenced by the second issue:  while the need was easily defined, the customers were dispersed and difficult to serve, and the business couldn't amount to more than $10M a year if everything went well.  While $10M in revenue sounds like a lot to a small business, to a larger business starting up a new product or business that can't exceed $10M in revenue at its peak isn't interesting.  It is a distraction.

Aligning innovation to strategy

Perhaps the first mistake that executives and innovators make when it comes to innovation is imagining that the exploration and discovery that is encouraged in the early stages of innovation will be recognized and scaled in the latter stages.  Most executives are more than happy to encourage some amount of fiddling around the edges of a business, exploring adjacencies and seeking out "white space".  That exploration is relatively inexpensive and may produce insight or knowledge to form future decisions.  The fact that innovation teams are allowed to conduct that exploration does not mean that any ideas created are going to become new products.

Significant investments in new products or services will be made as those new products or services fit squarely within a strategic direction or goal.  Exploration is useful and reasonable when the costs are relatively low.  Investments in new products and services are expensive, and must be carefully aligned to strategic needs and imperatives.  Innovation teams need to understand this.  Innovation teams must understand their remit:  discover and explore some interesting spaces, and give the executive team more insight and knowledge, and/or create some compelling new products based on that insight.  Ask yourself:  what is your executive buying from you?  Insight, or new products?  Scaling a new product is a risky investment, so many innovation activities may only be intended to produce insight.  Understanding that from the start is very important.

Minimum Viable Threshold

I think I'll coin a new acronym today:  the Minimum Viable Threshold or MVT.  The MVT is simply the size that a new business must achieve to be interesting to the existing business.  In a small business, generating $10M of new revenue may be very interesting and important.  At GE, Jeff Immelt set the MVT at $100M.  Understanding what the minimum viable threshold of revenue, profit, margin or other metrics is exceptionally important.  Even if you can dominate a market, even if there is no other competition, even if your new innovation is head and shoulders above the other competitive offerings, if you can't achieve the company's MVT within a few years the innovation simply won't get funded.

Understanding the MVT seems obvious, right?  But it is one of those informal metrics that some people understand but are rarely discussed.  Innovators can fall in love with their ideas, not recognizing that executives have yardsticks and metrics they'll use to measure new innovations.  Some of those metrics may be overt or obvious, others, like MVT probably won't be.  As an innovation team leader, your job is to know what the MVT is, or at least understand its parameters.  If you cannot achieve the MVT, rescope the innovation or rethink your focus.

Recognize that small investments to discover new insights may be all that your executive team wants from your innovation activity, and understand the difference between dominating a $10M market and owning 10% of a $1B market if you hope to convert your ideas into new products or services.

Scale gives way to speed

With apologies for the use of a tired phrase, there is a new game in town and it will dramatically impact how, why and where you do innovation work.  The new game, as demonstrated by a number of emerging disrupters, is captured in the book Unscaled and discussed at length in this nice blog post - one I wish I could have written.

There are a couple of overlapping points here, but the main idea is that scale as a competitive weapon is increasingly passe.  As more and more of what we consume becomes virtual, scale doesn't matter.  As more and more of the supporting infrastructure (HR/IT/Finance/etc) can be acquired as a service, companies don't need to achieve scale to achieve profitability, or to crowd out other competitors.  Scale is giving way to agility, speed and customer experience.  We can see this playing out with firms like Uber and AirBnB, which are far smaller from a scale or headcount perspective from their competitors.  Size - at least the size of the corporation - doesn't matter as much anymore.  Speed, agility and insight matter more.

Overcoming the legacy of scale

In the article I linked to above, the author is detailing the importance of the ecosystem over the importance of technologies like BlockChain.  His point is that big businesses routinely trip over themselves to understand the technologies that are emerging without thinking through the impact on the existing business models or the new business models that may emerge.  To a great extent, large corporations are prisoners in a jail of their own making.  For years they've built large and somewhat inflexible companies and cultures, and now, they find themselves unable to innovate or rework those structures and cultures.  They are stuck with what the author calls a "heritage of scale" that is hard to escape.

What does this shift suggest about innovation?

As virtually any company can enter almost any market in little or no time, relying on outsourced IT, Human Resources and other services, new companies will be able to explore and experiment with widely different business models.  When we combine that flexibility with the vast amounts of money being invested in AI, Blockchain, IoT and big data we can imagine that a significant number of new companies will emerge that will disrupt existing business processes and business models of existing corporate giants.

For the larger companies, it's time to completely rethink your strategy and what innovation can do to help you.  Rather than worry about scale, your innovation efforts should focus on what makes your organization fast, nimble, agile and focused on customer experience.  Don't try to solve everything, but select key opportunities and markets to experiment with new models, new processes and test new scaling experiments.  You may need to cannibalize your own offerings to do this, but given the minimal investments to enter many market sectors it makes sense to try.

For midsized companies, stop thinking about scale and start thinking about flexibility.  Getting bigger is less and less attractive.  Getting closer to the customer and creating new experiences and business models, and leveraging an emerging ecosystem is far more important.  Don't try to create everything - create new products, services and business models that are complementary to other offerings in the ecosystem.

I'll leave it to others to explain what this all means for startups, because how you look at an industry and where you find value will vary enormously.  Just know that the future will be won by those that are fast, agile, innovative and more open to working with an ecosystem, rather than those that try to own everything.

Corporate innovation must change

For far too many corporate innovators, innovation is about extending an existing product or service or perhaps creating a new, disruptive product or service.  Increasingly it's clear that corporate strategy must embrace an increasingly unscaled world where size matters less and speed and agility matters more.  This means that corporate strategy must change and more closely inform innovation strategy, so that more innovation effort goes into overcoming the legacy of scale, more innovation efforts go into working with an ecosystem and into changing the existing business model.

Exploring these ideas

The new book Unscaled deals with some of these ideas - illustrating the fact that scale is no longer a guaranteed advantage.  I co-wrote OutManeuver with a good friend, which explains why speed, agility, insight and innovation are the key competitive advantages in the future.  Thinking about emerging ecosystems and realizing that the cost for entering almost any market has fallen, it's clear that speed and agility will matter more than scale, and working with an ecosystem will matter more than trying to lock in a specific set of customers.

Innovation and the rapidly changing world of photography

We've reached a couple of interesting milestones in a very short period of time, and it behooves us to pay attention to the changes in what has been an important industry - photography.  For innovators, it's been easy to kick Kodak around, for having missed the transition to digital photography while owning many of the patents.  However, Kodak by itself isn't the whole story in the world of photography.

Today, Canon announced that it will no longer sell cameras that require film.  If the stories I've heard are true, they actually stopped making cameras that require film several years ago and have simply been selling off their inventory.  This of course follows on Kodak's decision to stop manufacturing film for most cameras, which occurred in 2009. 

The rapid advance of technology

Both Canon's exit and Kodak's exit from film are examples of the ever-accelerating pace of technology.  Canon has been manufacturing cameras for over 75 years, but the exit from the film camera business was rather sudden, tied to Kodak's exit from the film business.  Both companies had long and profitable runs from these original products, and both experienced a sudden and rapid transition.  Canon was able to shift from film cameras to digital cameras without too much damage, but Kodak struggled.  And here's an interesting point about both innovation and strategy.

Canon was concerned about capturing and reproducing images.  They weren't necessarily tied to a specific technology - firm or digital, either was fine for them.  Kodak was concerned about making as much profit as possible from film, and found it difficult to innovate away from the cash cow, even while they were developing patents around the digital camera.  This is a lesson about strategic intent and its opportunities or limits on innovation.  Strategy can either inform innovation or it can limit innovation.  Canon saw an opportunity to take its photography business from film to digital - and followed consumer preferences and technology advancement.  Kodak dug in its heels and paid the price.

Jobs to be Done

While I use a number of customer insight tools to discover needs, the Jobs to be Done model seems to be very relevant in the story of Canon and Kodak.  Canon understood the "JTBD" issue pretty well.  Clearly the job people wanted to do is to be able to capture images of family and friends quickly, and to share them quickly and easily, at a low cost.  Kodak interpreted that job in the framework of "film".  Canon interpreted that job in the framework of "flexibility" and created options for consumers.

With the advent of iPhones and then apps like Snapchat, it's clear that most photography has moved in an interesting direction - it has become more amateur in nature and more immediate.  People don't seem to care much about high definition photos as much as they care about taking a photo "now" and sharing it on social media "now", and that's not a job for film.

Two takeaways about Canon and Kodak

We can learn a lot about innovation from thinking about what's happened to film and the film camera, but two important innovation lessons are:

1. Your strategy either accelerates innovation or it limits innovation.  Understanding how strategy is communicated and the scope or barriers your strategy creates for innovation is vital.  This is a big missing link in many organizations - aligning innovation to corporate or business line strategy.
2. Understanding the job that the customer wants to do, and how that job is changing, is vital to sustain a competitive advantage.  Polaroid was probably closer to the right idea - take a photo and develop it on the fly - than we thought at the time.  If only they could have imagined how to make their photos digital and shareable.