Post-COVID predictions - Resiliency/Repatriation/Rethinking cash

I've written and published a post-COVID scenario, which you can find on my LinkedIn page.  (Small hint - if you click on the document in my "Featured" section, then click on the "expand" icon in the lower right, the document is easier to read and you can also download from there).

Following the scenario, I am writing a series of blog posts about some of the implications of the scenario and various predictions I've made coming out of the scenario.  In my first blog post of predictions, I wrote about the Rise of the Millennials and what that will mean for political and business governance.  I also wrote about the coming real estate bust - fueled by failing retail businesses and less demand for corporate buildings as employees work from home, as well as a possible crime wave.

In this blog post, I am examining a few more trends and likely outcomes, and their implications, including:

• Creating more robust supply chains - becoming "anti-fragile" and resilient
• Repatriation of critical businesses or industries
• A potential decline in the use of cash / growth of digital currency

Supply chain Resiliency - becoming Anti-Fragile

In a timely article - well, timely for my predictions and blog post - the New York Times ran a story on May 22, entitled What happened to the great American logistics machine? The answer to that question is that the same thing happened to logistics and supply chains that happens to many activities and processes:  as more people became dependent on the processes and supply chains, more efficiency was demanded, and consumers demanded lower costs.  The result:  very efficient and low cost supply chains stretching around the world, delivering goods and services at high speed and low cost.  However, COVID and our reaction to the virus exposed the other side of all that efficiency.  Those supply chains were exceptionally brittle, fragile, with dozens of failure points that could cause the supply chain to collapse.  A virus brought all those years of optimization tumbling down.

The toilet paper fiasco is a good example.  There is plenty of toilet paper in the US, but at least half of the production is for corporate use.  The problem with the businesses that produce for corporate or office use is that their supply chains are different, their packaging is different, their pricing is different, than the supply chain for consumer toilet paper.  You can't just start shipping commercial grade toilet paper to Wal-Mart and have them stock it and sell it. The supply chains are so optimized and so aligned to business needs that it will take time to shift, if it makes sense to shift at all.

When you add in the amount of international exposure that many supply chains possess, in high technology, in food, in clothing, in pharmaceuticals, and then understand the impact that closing the borders or concerns over transmission of a virus from China to the US through the supply chain has, you can see that our supply chains, while optimized for cost and efficiency, are exceptionally vulnerable to any number of disruptions.  For too long, we've taken too much for granted - ignored or wished away issues that are now surfacing that snap elongated, brittle and fragile supply chains.

What this means

After experiencing this level of disruption in their supply chains, many companies are likely to rethink these highly optimized but inflexible supply chains, and seek more vendors who can provide more option if another major disruption occurs.  This may create more complexity and introduce more paths and more vendors in a supply chain than in the highly optimized models, and require more validation of vendors and pathways, but this investment will reduce the likelihood of catastrophic failure in the retail channel.  What it will do is drive up safety stock and inventory throughout the supply chain, and most likely add cost that either the retailer or supply chain bears (becoming less profitable) or that the consumer bears (driving up prices).

Repatriation

Oh, but you might think we should lump these two ideas together - supply chain resilience and repatriation, and while they are related they are very different concepts in execution.  Politicians in the US were horrified to discover how reliant the US is for personal protective gear and many pharmaceuticals on China and other countries.  The COVID pandemic merely illustrated what has been true for a while - in a global economy, we are reliant on the good will and business practices of countries that may not be transparent and may actually be competitors.

There are a couple of ideas at play here. What we can expect first is that politicians will demand that some companies or industries repatriate manufacturing for the national interest.  When Trump did this in the steel industry, he did it to score political points, because steel is a global commodity and is available from many sources.  However, when only a few countries that may be more adversarial to the US are the only sources for specific goods, it's likely that a national policy will emerge directing some manufacturing capacity in the US for critical goods.  The US Defense Department has funded programs like this in the past.

In case you think this is a political issue in the US alone, know that Japan is aggressively pushing its industries to repatriate manufacturing from China, and in many cases helping to fund the migration back to Japan.  The US will not be the only country to consider repatriating some manufacturing, for supply chain reasons as described above, but also to avoid having its economy held hostage by foreign governments over critical supplies.

Beyond the political reasons for repatriation, many businesses will want to diversify risk and demonstrate that where possible they are creating and sustaining jobs in the United States.  As automation and robotics improve, it will in many cases prove simpler to set up new, smaller production facilities in the US, reduce shipping costs and time afloat from China to the US, than to manufacture products in China.  This isn't true for every industry or every product, but we can expect some repatriation based on improvements in automation and robotics.

Finally, repatriation may simply mean bringing the work closer to home.  Mexico was the original "low cost" manufacturing location, and it is not separated from the US by an ocean, so logistics are simpler.  Some repatriation may become finding manufacturing capacity closer to home, in friendlier countries.

What this means

Politicians will want to be seen "doing something" after the COVID outbreak, and will want to seem to punish China for whatever role it played in covering up the COVID outbreak.  Plus, China will be a convenient whipping boy for people who want to focus on the lack of goods and the cost of goods, and more importantly the loss of jobs in the US during the prolonged economic doldrums post COVID.  While politicians may demand repatriation, there won't be a lot of money in the federal budget to assist, other than tax breaks for corporations, but there will be a combination of political pressure, risk diversification and improvements in automation to move jobs to the US or at a minimum away from China.

These moves will come with several costs - to our relationship with China, to our "go it alone" strategy globally and to the prices we pay for goods in the US.  An already difficult relationship with China will simply get worse if it appears the US is actively encouraging manufacturers to leave China, and if businesses do leave China that could dramatically impact the already weak Chinese economy.  Many other countries that might be willing to open their doors for our manufacturing may wonder if this is a temporary move, which might be reversed over time.  All of these activities increase uncertainty and increase consumer costs in the short run but may reduce political, reputational and logistics risk.

Filthy Lucre - the end of cash?

One other trend that could be accelerated out of the COVID pandemic is the radical reduction of currency as a form of payment.  Coins and paper currency are already of questionable value, given the state of digital payment platforms like ATM cards, debit and credit cards, gift cards and a host of other digital payment platforms.  Several smaller European countries are moving to a mostly cash-less operation, and it will pay to watch how those experiments unfold.

Paper currency and coins are potential COVID vectors, passing from hand to hand in transactions, and paper currency remains somewhat easy to counterfeit.  Since a dollar is not very valuable today, fractions of a dollar - in terms of coins - are even less valuable.  When it takes four or five quarters to buy a soft drink in a vending machine, increasingly we should ask - what is the value of coinage?  Why aren't all vending machines wired to accept credit cards or other electronic payment mechanisms?

I think we'll see a gradual shift in the US toward more digital currency and less paper currency in circulation.  This creates some really interesting challenges, but for very different reasons.  In the US it will require an acceleration of digital transformation, to ensure that in every situation, payments can be exchanged electronically without cash.  That may seem simple, but we are still far from a ubiquitous payment platform in the US.  The second consideration is in international markets, where the dollar is a trusted reserve currency.  Will other countries, governments and businesses have any concerns if the currency moves to a digital platform?  Finally, what about other countries where the US dollar - in paper form - serves as a secondary currency?  Does the US dollar lose some value, or do these countries and their economies shift to another paper currency, or do they rapidly shift to even more electronic or digital currency?

What this means

A shift toward a more digital currency, and digital forms of payment, will accelerate a lot of digital transformation in the many business sectors.  It will increase the power of banks and financial services companies that deal with payments, and could damage black market or illegal activities in the US if the amount or value of hard currency falls.

This shift could have real implications in other countries, where the US dollar is a secondary (and often more trusted) form of currency.  In places where US currency has been relatively ubiquitous, it could become a constraint on smaller economies where the US dollar is trusted, and could impact economies, especially in Central America where the US dollar is a trusted currency and digital currencies and payment mechanisms aren't well evolved.

Conclusion

These are just three of the predictions I am making about the future that will unfold after COVID, yet even in these three predictions you can see a significant amount of change that could impact the US economy and by implication the global economy.  When we add in other predictions, such as the three I identified in the first post (Rise of the Millennials, real estate bust and potential crime wave), we can begin to see real, potential change in the way we work, govern and live.

Keep an eye here for more predictions, and please feel free to let me know your thoughts or to ask questions.

First 3 predictions for post-COVID world

I've just published a short paper on the likely future after COVID, and am exploring what the trend spotting and scenario development suggests to me.  We need to be spending time understanding the emerging future and preparing for it.  I've presented one version of the potential future in my paper, posted on my LinkedIn account. I'll be calling out some implications and predictions based on this paper.  Please take some time to download and read the paper, and share it with others if you think it has merit.  Contact me to discuss what's in the paper, what you think I got right or where I may have missed the mark.

Over the next week or so I'll be writing short blog posts that examine a handful of the trends and some of the predictions that I made in the longer scenario, to illuminate factors governments and companies should consider as they start thinking about what lies ahead.

The three trends, predictions and implications I'll be addressing in this post are:

1. The rise of the Millennials and what comes next
2. The looming real estate bust of 2021-2022
3. A potential new crime wave

I'm intentionally blending trends and implications that cut across economic, societal and political realms, and want my readers to recognize how inter-related these factors are. The rise of the Millennials and the crime wave are both societal and demographic in nature.  The potential Real estate bust is an economic phenomenon, and the likely rising crime wave will also be influenced by economic conditions.

Here come the Millennials

As I note in the paper, our presidential election in 2020 will be the last gasp of the Greatest Generation and to a great extent will signal the beginning of the end of leadership by the Boomers. Increasingly, younger generations will take the stage in economic, political and business leadership.  The rule of the boomers has been been a short ride, from the 1990s till today, and mostly a sugar high, fueled by a rapidly rising stock market and cheap money, but leaving little behind in terms of infrastructure. The boomers capitalized on what the generations before them built, but I'm concerned they leave little behind for future generations except debt.

Millennials will take the stage, and they have very different motivations and expectations.  Remember that the Millennials were leaving college during the 2008-2010 financial recession, so many ended up with jobs and paychecks that were less valuable and less challenging than they may have deserved.  Just as they gain real traction in their careers, COVID introduces another setback.


I think their governing style and their management styles will be more generous, more inclusive and more concerned for the triple bottom line than their predecessors, but that remains to be seen.  While it is difficult to characterize an entire generation, I think the experiences of the Millennials to date, and their clear energy and passion for change will have a significant impact on the way we live, the way they run businesses and the political systems they encounter.  Concepts like the Green New Deal and organizations like the Bernie Bros are examples of how at least some Millennials think about the world.

Why this matters

The older generations - the Greatest, Silent and Boomers - lived in a period when the US was the dominant force in the world.  The Boomers rose during the post World War II era and have only known the US as an economic powerhouse.  But I think in the eyes of the Millennials, these generations - their grandparents and parents - did not do enough in areas like income and racial inequality, climate change and social safety nets.  I think they'll be less likely to project American power overseas, more likely to seek international accord, more likely to increase regulation on businesses at home and more likely to create new social programs.  I suspect they'll be less likely to deploy US troops overseas but work harder on international agreements than past administrations.

Have I got a building to sell you

Much of the strength of our economy is in the value of real estate - buildings and land.  Heck, even our current president is a real estate developer.  But what happens when at least two important legs of the real estate market weaken or collapse?

We are already witnessing the devastation of one leg - retail.  Malls and strip centers were already suffering due to the rise of online shopping.  Amazon and other online merchants have taken a significant share of retail business and led to the emptying of malls across the US.  The COVID pandemic is having its own impact: small businesses and restaurants are closing and many will not re-open. The net result:  there will be a lot of retail real estate that is abandoned or sitting empty. 

Then, consider the office real estate market.  For years, theories about the value of office space and where employees work has zigged (everyone in the office!) and zagged (no - work from home).  Just a few years ago, the emphasis was on getting people back into corporate offices.  Now, post COVID, many knowledge businesses are sending people home "forever".  What happens when many leases for office space end in 2020 and 2021?  A glut of empty office space without a lot of demand.

The housing market is the third leg, and remains interesting.  Many locations have homes and condos that are simply priced out of reach for the average buyer - look no further than San Francisco, where people with jobs live in RVs on the street.  However, in uncertain times people may hesitate to buy homes even where prices are affordable.  If mortgage rates stay low, we'll see some development, but even the housing market may suffer in the next year.

Why this matters

Real estate development has a significant "pull through" quality.  Beyond the work to build a building, there are taxes and fees, development costs, new furnishings and the economic value that surrounds new buildings.  If there is a glut in the retail and office real estate market, there will be a dramatic lack of pull through for other goods beyond construction, and a lot of empty real estate sitting on the books of REITs and other organizations. 

This impacts current spending but will also impact the value of the stores and businesses that remain, and will lead to lower tax rates.  Every empty building has a knock on effect to other buildings or stores nearby.  Property values and income streams may weaken, the tax base may suffer.

All the fine young criminals

The last prediction I'll make has to do with crime.  In any generation, there are a certain number of people who may turn to crime.  The larger the generation, the larger the number of people who may turn to crime. 

The Millennials are a relatively large generation compared to the Xers before them, so that means there are more people in the cohort.  In fairness to the Millennials, research shows that to date they've committed less crime than their predecessors.  However, the Millennial cohort is the largest cohort of people alive today, and population size and other considerations listed below may lead to more crime.


The exacerbating factor is not the size of the generation, but the conditions in which they will be raised and are currently living.  The US has significant issues with inequality, in income and in racial relations.  Add to that the dramatic loss of jobs from COVID and a large number of unemployed, possibly disaffected younger people, and you have the makings for a new crime wave.

Why this matters

The problem with this potential crime wave is that it will occur when the trust in police forces around the country is already very low.  There are segments of the population that have legitimate concerns about the equity in policing, whether those concerns are based on racial issues or legal status.  Any new increase in crime, at a time when the faith and trust in policing is low, could lead to real unrest.

What's the take away?

As the longer research document I've published illustrates, there are many trends unfolding that we can predict, and others we can only make intelligent guesses about.  One area that will unfold relatively predictably is demographics.  Older generations are certainly leaving the positions of power and new generations, particularly the Millennials, will assume much of the power structure in the coming few years.  Understanding who they are, what they want, what they value and the energy and passion they bring to those leadership positions in government and in business is critical to understanding how we'll live and work in the near future.

It's exceptionally likely that the real estate market will take a significant hit as retail and small businesses are slow to recover and large, knowledge-based businesses send people to work from home.  What impact does a glut of real estate have on the economy, and what's the impact of lower occupancy and perhaps less building, especially considering the pull through effect of new buildings?

These and other questions are the ones that your teams should be asking.  In this post, and in subsequent posts, and in my published scenario, I point out factors I think business and government leaders should be thinking about now, to prepare for an emerging future.

In my next post, I'll consider three more implications and predictions about the emerging future.

What to expect in a post-COVID world

I've been working for the past two months on developing some scenarios that examine what may happen as the first bout of COVID peaks and begins to dissipate, hopefully in the summer of 2020.  I've long felt that trend spotting, scenario planning and understanding the implications of an emerging future is probably one of the best ways to plan for and prepare for the emerging future. Good innovators don't simply create good ideas, they find the emerging needs, opportunities and segments that will be created as many forces and trends converge, and create products timed to meet the convergence.

You can find my document, scenario and predictions on my Linkedin account.

Everyone agrees that we aren't going back to the old "normal", whatever that old normal was, but few people are thinking deeply about what the potential new "normal" is.  As I've written, I'm not sure we'll have a new "normal" for some time, perhaps 12-18 months after the summer of 2020, since there is likely a recurrence of COVID in the fall and winter, vaccines won't be ready until early 2021 at best, and the economy and markets will be highly volatile.  When things do "settle down" into some semblance of normalcy, I think volatility and uncertainty will remain more pronounced than in pre-COVID days.

Trends and Scenarios

To develop a view of the future - in this case looking as far as 2025, I've used a fairly standard trend spotting and scenario planning approach.  Trends are all around us, and are evident if you will look for them in your reading, in the media and in many other facets of life.  Some are simply pervasive - the Xers and Millennials will be taking charge soon, sweeping the Boomers from leadership positions in the economy and government.  Some are in the news - migration will continue from poor, dry, unhealthy, and dictatorial countries, just as it has for centuries.  Only now people are moving much more regularly.  Climate change may accelerate this movement.

PEST

For those of you who are new to the trend spotting and scenario planning work, I am starting by using a rather simple PEST model (Political, Economic, Societal and Technological) approach to examining trends.  This means that I am intentionally trying to gather insights and trends from each of these sectors, rather than simply rely on technological trends for future insight.

Baseline
To do this work well, you need to start with a baseline and project forward.  You can't really talk about the future unless you can adequately describe the now, what is happening and why conditions are the way they are.  I've spent time in the scenario defining the existing global conditions.  It's very important to establish a shared baseline in order to work toward a future story.

Mini-Scenario
I have not attempted to create a scenario that is applicable everywhere, to every geography and industry, because that's not possible.  I've provided a general scenario that can be shaped or made relevant to any geography or industry or sector by adding more context.  For example, if you'd like to know what might happen in the financial services sector based on this model, you can take the general scenarios and some of the predictions I am making and apply more rigor to just what may happen in financial services - of course you may need to do this by geography or by a specific portion of the financial services sector, because the financial services sector in the UK may react differently than the financial services sector in China versus the US, since conditions are different and regulation is different.

Predictions
I've made approximately 20 general predictions based on the scenario, and by looking back at the recovery after former recessions and pandemics, as well as using past data.  I think many of these predictions are likely, but I haven't attempted to determine or estimate how likely each one is - again, that may be dependent on local conditions.

I'll review 2-3 predictions every few days in a series of recurring blog posts, to highlight the likely changes, the emerging opportunities and the emerging threats to government, the economy, business and the way we live.

The "So What?"

I've developed this look into the future to act as a starting point for governments, for business and for economic and society leaders, to provoke some thinking.  In the midst of COVID, we are fighting fires and trying to resolve an imminent crisis, but we also need to be looking forward to understand what comes next.  Companies, leaders, politicians who take time to consider how the future will unfold will help the rest of us adjust and succeed.  Those companies or governments that do not understand how the future will unfold will be constantly scrambling to try to adapt to a world that is likely to change rather dramatically.

I hope you'll read my work, and use it as a starting point for your own investigation into the future.  You don't have to agree with my assessments or my thinking in order to start your own investigation, which may lead you down different paths.  As Eisenhower said, plans are nothing but planning is everything.  We need more thinking and more planning to understand the post-COVID world, because while COVID struck the match, the kindling and accelerant for change were already there.

Contact me

If you read the scenario and my predictions and like it, I'd love to hear from you.  If you read it and disagreed, or created an alternative, I'd like to know about that too.  Feel free to reach me on innovateonpurpose@gmail.com.

If your organization needs help doing this work - looking at trends and understanding what the future may hold, contact me.

Thriving in Volatility

I think it is important that we consider future competitive conditions as they are likely to be, not as we wish them to be.  Too many people are talking about "new normal", as if they know what the new normal will look like.  Just a few years ago, IBM moved almost all of its Raleigh staff from home offices to IBM buildings, with the argument that the occasional encounter or the hallway conversations created collaboration that could not occur when people worked remotely.

Now, we are hearing that many Fortune 500 companies and others (Twitter) think that people can work from home "forever".  Well, did the outcomes change or the circumstances?  Was IBM right?  Or is Twitter making a decision based on a response to COVID or based on what's best for the company and how it operates?  Time will tell.

If you think that the debate about working from the office versus working from home is the only source of volatility you'll face in the near future, think again.  Almost every facet of business life is uncertain and volatile.  Consider just a handful of factors and the changes underway:

• Travel - what will it look like to travel?  Are your employees willing to fly in an airplane?  Stay in a hotel?  Eat at a restaurant?
• Energy - oil prices are at a record low, and we are oversupplied right now.  What will happen in 3 to 6 months?  
• Inflation or deflation - as consumers buy less and save more, we could enter a period of zero growth or even deflation.  How prepared are you for consistently falling prices
• Price increases - except of course for the price increases for food and health care.  The supply chain for food looks iffy, and the demands on the health care system will hold prices constant if not increase prices
• Labor availability - the post-COVID world may see some experienced people simply check out of the workforce or go independent, while other new graduates flood the market.  It's not a question of finding workers - they'll be out there - but finding the ones who can add value almost immediately.  These will be in high demand, and may find it advantageous to shift between companies.  What does the employment world look like if we bid for employees in all industries and see little loyalty similar to the employment models in Silicon Valley?
• Financial markets - we may need to prepare for wild swings in the markets as an ongoing reality, and dramatic shifts in the availability of capital and the price of money.  Investors will be quick to rush in to markets or opportunities that seem good, but will also have few qualms about rushing out.  There will be little patience and a search for quality and returns.

Slow and steady no more

The old slow and steady approach still works, as long as the slow and steady approach is built to tolerate big swings in all of these factors.  For some time we've talked about living in VUCA, but VUCA (volatility, uncertainty, Complexity and ambiguity) has been accelerated and amplified.

What to do?  Build a company that thrives in volatility.  What does this mean?

First, stop talking about the new normal and recognize that the new expectation should be volatility, in a number of dimensions.  Almost all of your inputs are likely to change in availability or pricing in an unexpected fashion, at unexpected times.  Supply chains are stretched and were already fairly brittle.  Become more resilient in your sourcing and procurement.  Set the expectation that volatility is the new normal.

Second, create some agility and nimbleness in your organization.  Note that I am not talking about "agile" development, but true agility in your structures and culture.  When faced with adversity and unexpected change, how does your organization react?  Companies that will thrive in this environment will be able to correct course, pivot and continue working.  Companies that are too rigid, too hierarchical or too bureaucratic will flounder.  Delegate decisions, reduce communication barriers, provide flexibility in how you operate.

Third, start thinking ahead.  Try to anticipate what may happen by examining trends and developing short scenarios to help understand complex behaviors in the market.  You may not be able to exactly predict the future, but you can definitely establish and identify signals that indicate volatility may occur and prepare for a breaking wave. Designate people to spend time examining trends and developing future scenarios to signal your best paths.

Fourth, become proactive rather than reactive.  With the insights you gain, move to segments or markets that you think will be favored before the crisis hits.  Find adjacent markets, pivot your capabilities to new customers or new needs. 

Burning boats or building canoes?

The old story told about the conquistadors comes to mind.  Supposedly, one of the Spanish conquistadors arrived in the new world, and to demonstrate his commitment to conquering the new territory he burned his boats so there would be no turning back.  This is akin to doubling down on your existing business models and structures, waiting for the new normal conditions to emerge.

What I always wondered was:  why didn't he use the boats to build canoes.  Sure, he didn't need ocean going vessels as he was headed inland, but I have to believe he could have used other means of transport.  For your consideration - what are you doing to ensure your business stays healthy, even if it means new business models or new more flexible and agile business operations? 

New and sustained volatility means becoming adaptable to situations, anticipating and reconfiguring on the fly.  Rather than expect a stable and consistent environment with predictable inputs and outputs, plan for and build for volatility.  Build a flexible, adaptable and resilient organization that can respond, if not take proactive action, in a volatile market.

This is the best way to thrive for the coming few years.

Open innovation resurgence during COVID. Why?

There's been a resurgence lately in the concept of open innovation.  I'm not quite sure why open innovation as a concept has received more press and more attention lately.  It's not as though we have new open innovation methods or mechanisms, or that open innovation has demonstrated more effective outcomes.

Rather, I think, open innovation becomes interesting when we are distributed and looking for new ways of working.  Right now, during the COVID pandemic, there is a big push to engage everyone, and tools like Zoom, Teams, Slack and others seem to provide the means to involve a lot of people simultaneously to address key challenges. For some people, there's always been the sense that getting "more voices" involved will lead to more innovation, and I suspect that's leading to more open innovation now. But - simply because we can engage a lot of people at once, does that mean innovation activities benefit?  I think that depends on the type of innovation you hope to achieve, and where the decision making lies.

First, some definitions

Open innovation has traditionally meant getting ideas or technologies from individuals or teams outside your company.  To my knowledge, the phrase "closed innovation" hasn't ever been a thing, but if it was, it would define doing idea generation entirely within a company, with no input from the outside world.  Of course, as any experienced innovator could tell you, that is almost nonsensical, since gaining customer insight and understanding customer needs is important to innovation.  So, at almost any level, almost all innovation has some sense of "open" in it.

Most innovators will say that "open" innovation involves receiving ideas or technologies from individuals or companies outside your organization.  Of course you can go further, collecting needs, insights, and opinions about what you should innovate, or obtaining help ranking the most important challenges and problems.    In the open innovation world you can decide how "open" you'd like to be - can literally anyone participate?  Or only existing customers and partners?  Or perhaps qualified experts, which is how a lot of open innovation was done in the 90s and 2000s, leveraging panels of registered experts.

Why now?

I think open innovation is gaining a resurgence for several reasons.  First, most of us are at home, and we are collaborating over a distributed platform.  Our context and our experiences are different than they were when we were all in one location  Second, the conditions have changed.  No one is quite certain what the new reality will be, so getting more insight and feedback seems logical.  Third, it doesn't cost anything to add a few more people to an idea session over Zoom or Skype, or to query consumers or partners over a teleconference.  People are more willing to share ideas and opinions now than they were before.

But just because the work is easier doesn't necessarily make the outcomes better.  Open innovation has its strengths and its weaknesses.  What COVID and the distributed workforce have done is make it easier to do open innovation in some respects.  However, these changes have not impacted the value proposition of open innovation. 

Open innovation challenges

The biggest problem, at least as I see it, with open innovation, it that it almost by definition is democratic and must satisfy a lot of people.  We know that the value of a network increases as the nodes increase. However, the value of an open innovation program probably decreases as the number of people involved increase, because their ideas and opinions will differ, and often the goal will be to satisfy many people, which leads to incremental innovation.  If you are familiar with the saying that a camel is a horse designed by a committee, you'll get the idea.

If ideas are really good, and really transformative, why would people share them in an open setting?  Those ideas are much more likely to meet resistance from people defending the status quo, and if they are that good and that valuable, good innovators probably don't want to share them.  Instead, they'll find ways to capitalize on the ideas themselves.

In an truly "open" innovation activity, you'll attract people who are truly interested in solving the problem, observers of the process, possible suppliers of solutions, lurkers and a few cranks who are interested in simply taking potshots at the process.  You may also attract your competitors and new entrants who will seek to subvert the process.  This creates a tradeoff between openness and diversity and vetting the participants and the risk of closing off input.

There's a reason that many really transformative ideas and products have been built by really small teams, in some secrecy or in a skunkworks.  The reasons have to do with expert experience, resistance to change and protecting the status quo.  The more people become aware of an idea that threatens the status quo, the more likely they are to either reject it outright or seek changes to make the idea more palatable. 

Lucky number 7

I've long believed that if you want to engage your customers, obtain insights and ideas from them, and source new ideas, you should engage in an open innovation activity for idea generation, but when it comes to trying to create really transformative or disruptive ideas, the largest team you should have should be seven people.  Why seven?

Well, seven is enough people to get diversity of thinking and experience on the team if you can recruit well.  Seven is a good number to resist dominance on the team or group think.  Seven people can represent a lot of different capabilities and functions.  Seven people can keep secrets and work together effectively without a lot of coordination and administration.  Plus, seven is a lucky number.

When should you use open innovation?

Open innovation - real engagement with a large group of prospects, customers and others - is useful when you want to gather and rank needs, understand trends, receive ideas and test ideas in the marketplace.  Most ideas generated and developed in this way will be anchored on existing products and services, so open innovation is an approach to developing incremental ideas.  Open innovation helps you listen to customers and prospects, engage them and demonstrate that you can hear and respond to their needs and ideas.

Open innovation can draw in your existing partners or attract new partners, but the best exchange of IP won't be in an open setting.  Open innovation may create new relationships, but the best exchanges of ideas, technologies or IP will be in a closed setting.

So, understand what open innovation is good for, and what is isn't so valuable for.  Just because the settings seem to encourage more open innovation doesn't mean that what it can create has changed.

Innovation skills that are critical now: empathy

I'm writing a series of posts that discuss some of the most important traits and skills that are needed to support innovation now, in the midst and in the aftermath of the COVID pandemic.  I've written about beginner's mind and why that skill will be vital.  I've also written about being comfortable in ambiguous settings.  Today I am writing about another rare capacity - the ability to have empathy with prospects and customers.  These traits follow from research I conducted and published some years ago, in which we examined the skills and traits of some of the best innovators.  You can find the white paper supporting these traits and others here:

Unusual skills in a business setting

If you've followed along, or even if you've just joined the blogging thread, you'll note that beginner's mind, comfort with ambiguity and empathy aren't typical business skills or traits.  For the last two or three decades, we've focused on cost-cutting, improving efficiency, reducing risk and variance, which means looking at problems with a fresh perspective, or finding comfort operating in uncertain environments are not skills or traits that have been emphasized.  In fact, these and other skills or traits have been pushed to the periphery, if they exist in many businesses at all.

Today we are going to talk about empathy, which many design thinkers incorporate in their approaches, but empathy has for many years seemed a soft skill in a hard nosed business world.  But in the aftermath of the COVID pandemic, businesses which can demonstrate real empathy, and find people with the ability to listen to and hear consumers' needs and wants from an empathetic standpoint are much more likely to be successful.  And this is a skill that is difficult to fake.

Empathy

The textbook definition of empathy is:  "the ability to understand and share the feelings of another".  This means being able as an individual to listen to another person, understand how they feel and then share their joy or burdens.  True empathy is rare in many people.  While we are often trained to understand the feelings of others, we most often do this from an objective viewpoint, not wanting to get involved or tip our hands or show emotion.  Empathy is for the caring professions, not for business or science.  At least that's the way it was.

To really understand a customer, you need to do more than research their needs, more than listen to their complaints.  You need to walk the same walk in their shoes, share their challenges, fully grasp their needs, burdens and barriers.  Most people don't do this well, so it is a given that most companies don't do it well, and they will need to radically increase their ability to listen and respond with empathy as COVID winds down.

People, consumers and prospects, are going to be exceptionally sensitive to companies that don't listen or don't hear their needs and complaints.  When patience and money are tight and nerves are on edge, which will be true for quite some time, people will resist new purchases and will do a significant amount of research before buying.  Companies with a take it or leave it mentality will not be successful.  Trying to create new products, services or business models in this environment will be exceptionally difficult - unless you can demonstrate that your team and your product or service was designed with the customer and the customer can see that empathy drove the identification, development and deployment of the solution.

From push to pull

For years, marketers have described the transition between companies and their customers as either a push or pull model.  Previously, companies would push products and technologies into a market and customers would accept them - the "any color as long as it is black" thinking.  We've matured from this to a balanced push/pull model, where customers increasingly pull products they like into the market.  But the more technical the product, the more "push" there is from the producers.  Still today, many products are created based on corporate research or insight little informed by consumer behavior, and even when consumer needs or behavior are taken into account, it is at best a surface understanding.

When, as after COVID it will be true, consumers are uncertain, uneasy, lack excess funds and need products that meet not just technical needs but social and emotional needs as well, empathy in discovery, research and product development and rollout will be vital.

Which people in your organization have the ability to listen deeply, discover unmet or unarticulated needs and fully emote with your prospects and your customers?  These capabilities are needed in product development, service development, customer interactions and support and in marketing.

Finding people with empathy

For years, businesses have operated on a new "any color" model, except it's no longer color that is limited, it is price, service and engagement.  Big box stores and Amazon have taught many businesses to care about offering the lowest cost product, not the service or solution that meets all the requirements and needs of the consumer.  Therefore, empathy in the workforce is in short supply.

Finding people with empathy in our organization isn't that hard - look for the people who constantly worry about customer reception and interaction.  Look for the people in your organization who are consumers of your product - what are their concerns?

Try out some true ethnography - go spend time with your customers and prospects.  Experience what they experience.  Struggle with what they struggle with.  Don't correct or explain, just participate, listen and learn. 

Find third parties that can help.  Sometimes, operating at an arm's distance can help.  People who are not vested in the current products or services won't try to make inadequate products work for the customer.  Instead, they may try to discover with the customer what is really needed.

The people we need in times like these

In the aftermath of COVID, when we will face entirely new circumstances, entirely new operating models and business models, very volatile and uncertain conditions, and a customer base struggling to understand the new realities, traits like beginner's mind, to look at problems with a fresh perspective, and comfort in ambiguous settings will be valuable.

But perhaps no skill or trait will be more valuable than empathy, truly understanding a customer's challenges in a way that goes beyond hearing and understanding, to deeply grasping at the same psychological, emotional and physical level.  Do you have people who can do that?

If you need help or would like to discuss, please contact me.

Innovation traits that are critical now: comfort with ambiguity

I'm writing a series of blog posts that examine what skills are necessary to innovate in a post COVID pandemic environment.  In the first installment, I wrote about the importance of "beginner's mind", because in the post-COVID future, some past experiences and knowledge may not be meaningful, and looking at new challenges with a fresh perspective will be valuable.

Innovating in a new construct, especially trying to create interesting and new products and services, means moving beyond traditional incremental innovation.  That means that you'll need new ideas, new perspectives and people who are capable of connecting outside your company and even your industry.  I'm making the argument that your traditional new product development and innovation approaches may be too limited, and that you'll need to find new people to participate who have skills that are critical to innovating in new settings.  As we examined in the beginner's mind segment, many of these skills aren't pertinent to traditional day to day efficient operations, but they are vital for transformative and disruptive thinking in new environments.

Next Trait:  Comfort with Ambiguity

Experts will tell you that we live in a VUCA world - volatile, uncertain, complex and ambiguous.  This sounds very impressive but often leaves me a bit cold - what, exactly, does that mean, and how should I respond?  It's true that post-COVID we will experience more volatility - if by volatility we mean sudden shifts in the economy or in markets, or if by uncertainty or ambiguity we mean the inability to gain more stability and work with certainty.

The reason the idea of VUCA is so important to traditional business operations is that we've built processes and systems that rely on reducing uncertainty, reducing variability and reducing risk.  Finely tuned operations that rely on just in time deliveries expect certainty.  Managers who have taken every step to eliminate or reduce risk hate uncertainty or ambiguity.  Yet for the next 24 months or more I think we'll see a lot of volatility and ambiguity.

Which means that you need to find people in your organization, or recruit or retain people from outside your organization who can operate with some comfort in ambiguous settings and situations.  The future is murky, and we can't know exactly what new emerging opportunities or threats will spring up.  Creating new products and services in this environment will require that your new product and new service development teams operate in a very ambiguous and uncertain future, discovering opportunities and making bets before the facts are certain.  This was true before COVID if you were doing transformative or disruptive innovation.  This new environment only makes the future more ambiguous or uncertain.

The choices you have

This volatile, ambiguous and uncertain future leaves you with choices.  You can ignore the future and stick to your knitting, anticipating that the eventual future gets back to some semblance of the "past normal".  All you need to do in this scenario is hold on and gradually improve existing products and services.  Frankly, this choice is a selection for obsolescence.  We aren't going back to the old normal, and your competitors and new entrants are framing new products and services for the new normal.

Or, you can split your teams, leaving one team to continue to develop existing products and another team to start exploring opportunities, discovering needs and making bets about new products and services that will be needed post COVID.  This discovery team has the potential to help you create meaningful new products and services that consumers may demand in a "new normal", but there are no guarantees, only uncertainty and ambiguity.

If you choose the second path, you'll need to identify the people on your team who are most able to operate in an ambiguous and uncertain future.  Far too many people have become accustomed to a black and white operating environment, where options and risks are knowable and where risk and variance are avoided.  After all, that's what makes operations efficient and effective.

In a VUCA world, we cannot simply wait for more information or more clarity, because the volatility and uncertainty may not clear up for quite some time.  And, by the way, all of your previously existing competitors are still out there, trying to understand the new opportunities.  You aren't competing against your own reluctance.  You are competing against established competitors, and hundreds of new entrants who were formed as companies laid off their workers.  Even thought you have less information and less clarity, you may need to work at higher speeds than you did previously.  Only people who can work in uncertain and ambiguous environments will be able to move quickly in this new environment.

Who are these people?

Finding people who can operate in an ambiguous or uncertain environment is not easy, but it will be important.  First, try to find people within your organization who are more entrepreneurial, more willing to take risks and who have traditionally been the people to conduct discovery or explore new markets or new opportunities.  But ensure that this isn't just a data gathering exercise - it's entirely reasonable to collect and analyze information but this also requires people who are self-starters, who are willing to go into a somewhat unknown market and figure things out.

These individuals are often those that push the envelope internally, intentionally moving faster and further than the informal rules would suggest.  They are likely to have tried and "failed" before, and are not too worried about the implications of failure.  While they may be risk takers, they understand how to moderate the risk, how to explore and how to operate in uncertain conditions.  The problem many of these folks have is that they often can't understand why others don't enjoy working in these conditions, so they can be a bit condescending to people who want more data or more clarity before committing.

In other words, like the people who possess beginner's mind attributes, people comfortable with ambiguity often operate at the margins of a business, especially a highly efficient business.  They are valuable but often not trusted with core processes and products.  They often run special investigation projects but when the project is validated the scaling activity is entrusted to someone else.

If you have these kinds of people, you need them to start working on what's next after COVID.  Teaming people who are comfortable working in a VUCA world with people who possess other valuable traits like Beginner's Mind will position your company to take advantage of the innovation opportunities that will emerge in the next 12-18 months.

If you need help

If you need help finding people with Beginner's mind or comfort with ambiguity in your organization, I can help.  Based on years of innovation experience and a lot of research, I've identified a number of traits to help you find the best innovators in your organization.  Contact me to discuss.  If you think you don't have these skills internally or need an extension of your team, I can help with that as well.

Read the white paper I developed on these core innovation skills and traits for more information.