What to innovate now

 For years, actually almost two decades now, I've been working with corporations, government agencies and non-profits to help them generate new ideas and create new products and services.  From new medical devices to new banking products, to new consumer appliances and more, I've worked on a number of innovation projects in a wide range of industries.

Over time, as innovation has matured somewhat, many innovation consultants began to reference Doblin's Ten Types model.  This is a great mode that I constantly refer back to with my clients, to convince them to think about innovation beyond product innovation.  Today, experience innovation, process innovation and service innovation is as important as a new product.

But all of this innovation activity seems somewhat quaint, like planning to take your Model T out on the highway, or bringing a pocket knife to a gun fight, in light of what's happening in the market.  Product innovation is of course necessary for survival.  You've got to create new products as older products age out, or as new competitors create compelling new offerings.  You've got to create new services and new experiences, because that's the way the market is trending.

But what may be most important right now, regardless of your innovation maturity, may be to innovate how you operate.  Getting fast, nimble and closer to customers will require that you take a long, hard look at your operations, structures and business models.  Innovating your organization may be the most important priority now.  Eventually, as well, you'll need to innovate how you innovate.

Everyone is talking about transformation

Every firm talks about transformation, and for good reason.  The pace of so many things has changed, and in almost every case change has accelerated.  Companies need to be faster, more nimble, more agile to compete in the existing marketplace, and everywhere you go, you hear the resounding phase "digital transformation".

Digital transformation is, of course, important, but in many ways the concept should be simply "transformation" - that is, how do we transform the company, how it operates, how it services customers, how it creates value - to meet modern and emerging changes?

If you need digital transformation to achieve this, then fine, it's digital transformation.  In my experience, most organizations don't really need the "digital" part at first.  What they need to do is to innovate how they work, how they structure and how they create value.  Then, and only then, should they worry about layering in the "digital" part.  Accelerating or digitizing a poor structure or unnecessary process makes the useless even faster.  

Innovating your organization

What would you change about your organization to make it more nimble, more agile, and bring it closer to customers?  Or, to put this in an innovation phrasing "How might we create a more nimble, agile organization that has greater customer intimacy?

This question indicates why transformation should be led and informed by innovation.  Too often, I fear, the goals of transformation become information technology goals and implementations, rather than solutions and outcomes that truly meet company and customer needs.  This is why "digital" transformation, while necessary, can I think lead companies astray.  Too often, digital transformation becomes framed by what you can digitize and implement in software.  And, as we've found over time, software eventually becomes a shackle, not always an accelerator.

Innovating the organization

What should be happening now, and continually, is an innovation effort focused on making the company more like what it aspires to be:  faster, if fast is the need, agile, if agile is the need, and so on.  There should be a continuous set of activities and innovation teams exploring what the company needs to change in order to succeed, and how to achieve it.  Then, and only then, should we talk about transformation, and determine which transformations need to be digital.

Of course, some digital transformation must occur, because all companies are creating and managing far more data than ever before, and there is value in that data that should be extracted.  In this case we might ask "How might we create insights and revenue streams from the data we are collecting" and the outcome might be a "digital" transformation, or we may simply find ways to generate revenue from the data we have.

What to innovate now, based on innovation maturity

So, in effect what I am saying is, you need to be doing several types of innovation (incremental and disruptive) for several types of outcomes (product, process and experience) in several different product groups or business units all simultaneously.  And, what you need to be doing beyond all those "table stakes" activities I just described is to constantly innovate your organization, hierarchy, operation and value proposition, which will lead to transformation, even digital transformation.

If your company is a "mature" innovator, then what you need to add is a focus inward, using innovation as a tool to sharpen your ability to operate. While continuing the other innovation you are already doing.  And, if your company is innovating now, you should plan to consider innovating how you innovate.

If your company is new to innovation, keep doing some incremental product innovation as a way to create new revenue streams, and begin to focus on using innovation to help improve your operations, which will in turn make you a better innovator.

The best of times or worst of times for innovation

 Lately, when I talk to people in large organizations, universities and corporations, I feel like I'm in the middle of a country western song, or a Dickens novel.  People and leaders tell me they are distracted, dismayed, disappointed, exhausted, and wondering what the future will hold.  It seems difficult to make decisions in the era of COVID, where every peak we reach seems to be a false peak.

It could be the worst of times

It's difficult to 1) find people 2) keep people 3) decide where they should work (in the office or at home).  Working with and through COVID over 18 months has been a huge distraction, but worse it has created supply chain issues.  Many companies cannot get accurate forecasts about raw materials, and some costs have gone up.  

In this environment of constantly changing factors, where it can be difficult to understand the best information or plan for the future, where markets seem to shift constantly and employees and consumers are inconstant, it seems exceptionally difficult to do more than to simply hold on.  In this moment, in the early fall of 2021, it seems that most businesses are doing exactly that, holding on, battening down the hatches, waiting out the storm.  Very few decisions about strategy, or new direction, are getting made.

Many employees have had enough, of (sometimes) low pay, or uncertain futures, or simply don't want to go back to the office, or in some cases are deciding to take on an entirely new course or trajectory in their lives.  Many service industry jobs are left open, and I worry about the future of health care, where so many doctors and nurses, and other first responders, have worked incredibly hard and without a lot of thanks or reward.

In this "worst of times" scenario, we are seeing a significant pull back in many larger organizations in regard to strategy, their future and innovation.  In very uncertain environments, it seems logical to wait out the storm, keep doing what you do best, and not spending a lot of time trying to understand a constantly shifting and evolving future.  Since most innovation only pays off quarters or even years later, few companies want to invest in costs today that may not pay off in the future.

It could be the best of times

It was recently reported in my home state of North Carolina that new company formation grew at the highest level in decades.  Much of that is because larger firms are holding the line on growth, and people are leaving larger companies to start their own new companies in response to slow growth or uncertainty.  In every economic downturn or period of market uncertainty, this same phenomenon is repeated.

What will we see from the explosion of new companies?  If history is any guide, we will see a really mixed bag of outcomes.  Many of these new companies will fail.  Some will create interesting new products, services and business models.  A few will upset the order of existing industries or markets, the way Airbnb or Uber did in a downturn not so long ago.

When many companies freeze or falter, there is always an opportunity for smaller, nimble firms that are willing to risk more to innovate.  And in this market, at this time, I think we are going to see a significant opportunity to innovate around business models and experiences.

People have learned to live differently due to COVID, and no matter how much some people and businesses may want society to shift back to the ways we were living and working before the pandemic, a lot of people have enjoyed living and working at home.  Some have even given up city life for new homes in more exurban or even rural locations.  Companies that can serve these customers may find new opportunities. 

Like boxers who have taken a hard jab to the jaw, many larger firms are swaying, uncertain, staggering just a bit.  They've lost their stride, and the opportunity for smaller, nimble firms to strike may be in the next year.  In this regard, the time is ripe for entrepreneurial firms and some small and midsized businesses to strike with innovation.  

The conditions are relatively ripe, and unlike in other downturns there is still plenty of money and venture capital available.  In fact, given what the government is doing to prop up the economy, money is probably the least of an innovator's or entrepreneur's worries.  

The wide open opportunity

I scanned the list of startups and entrepreneurial firms in my area, and the list is full of AI and ML companies, low code opportunities, and cloud opportunities.  Of course, to be a part of one of those teams you need a lot of technical skills.  I'll stipulate that there is a big opportunity right now to create low-tech opportunities as well. There are plenty of needs and gaps in the market that are waiting to be filled, and, what's more, plenty of people who have good experience and knowledge leaving larger firms and looking for new opportunities.

Components are in place and in play:  money, needs and talent.

The difference between the two views of the market is risk.  Larger firm will continue to see a lack of clarity, significant uncertainty and will consider the market too risky to invest in.  Smaller companies will see a breadth of opportunity, plenty of financial and human resources, and significant opportunities or gaps in the market place.

While large firms argue with their employees about where they should work, and when they should be in the office, and continue to focus on short term goals and outcomes, smaller firms and entrepreneurs should have a field day.

Why innovation must become the new core competency

 I've been thinking a lot lately about innovation in corporations, first, because that's what I've been doing for close to twenty years, and second, because I kept wondering when the switch would flip and we'd see more consistent innovation from large corporations on a continuing basis.  After all, innovation isn't really all that hard - good ideas will pop up all the time.  But recognizing, validating and implementing new ideas IS hard, and this is why innovation will always be the strange uncle corporations keep in the attic.

Don't get me wrong.  Every company wants more innovation, to drive better revenue, profits and market share.  But what most companies get wrong is that they want to create an innovation and then make it palatable and safe, to fit within the standards and norms of the existing business, like capturing lightning in a bottle.  New ideas that are at first radical become profitable, then draw competition, and then become mainstream ideas.  So the cycle must repeat if a company is going to stay ahead or even abreast of the competition.

Here's where the issues start.

It's difficult to create a process, a culture and a trained set of people who can create innovations, migrate them into current product or service portfolios, and then return to start new innovative ideas all over again.  Once a company finds and implements a good idea, they are far more concerned with driving as much revenue and profit from that idea, rather than sending the team back for new ideas, or sending a new team off for an entirely new opportunity or market space.  Innovating once is easy, innovating consistently over time is difficult.

The reason innovating over time is difficult is because companies are engineered for efficiency, not for change, not for flexibility or variability.  When good new ideas emerge, they will typically have one of several impacts:

• They replace an existing, profitable product, which creates resistance from the team managing the existing product
• They target an adjacent market or segment, which requires new marketing and launch investment, drawing marketing dollars away from other existing products
• They are so interesting or revolutionary that they could threaten the very business model of the company.

If one good idea can meet this much resistance, what will a stream of good ideas encounter?

Cultural, strategic and process imperative

After 20 years of working in innovation, I can say that it will be difficult to create a sustaining innovation capability, one that constantly creates new ideas and brings them to market, unless innovation is a cultural imperative (the culture believes and desires innovation), a strategic imperative (the strategy of the business, reinforced with funding and governance, encourages innovation) and a process imperative (there are methods and processes ingrained in how the company works).  In other words, innovation must become a core competency.

This means that companies that are innovative now are likely to become less innovative over time (think entropy) unless new energy is added to the company.  Companies that don't have a deep investment in innovation will talk about innovation and will attempt a few innovation projects but will never master the idea of continuous innovation.

Innovation is more important than ever before

All the talk of agile, nimble organizations powered by data and operating in new, flat hierarchies with excellent communication means nothing if companies cannot remain relevant to customers.  With so many new competitors and new entrants, older firms that cannot adapt to new innovative models will become rapidly obsolete.  Even newer, agile companies, while fast, will falter if they cannot create new  and meaningful ideas and bring them to market.

We need to stop evaluating companies based on size, or cash hoard, or patents, and start evaluating them on how they can identify, evaluate and bring new ideas to market quickly, even ideas that may disrupt themselves or their industries.  For years, great companies like IBM promoted stability and longevity, and when the pace of change was slower that model was useful.  Now, companies need to demonstrate agility, speed and adaptability to be able to compete and to stay relevant.  

Creating an innovation core competency

We need a new way of thinking and organizing our businesses to ensure that the core capability of a business is to create interesting ideas and bring them to market quickly, and to be able to repeat that process. 

Instead of operating in siloes, which create barriers to innovation, businesses could organize around customers or processes.  Instead of focusing only on product innovation, companies could expand their innovation definitions to consider services, processes and business models.  Instead of rigidity in structure and operations, companies need to become much more nimble and adaptable to changing market conditions.

Starting with the idea that the purpose of a company is to create a customer, then the organizing principles should be to understand what the customer wants and needs (marketing/research), the ability to develop interesting and valuable ideas (innovation) and the ability to develop ideas and bring them to market (product/service development and launch).  But don't take this from me - Peter Drucker had this idea decades ago.