Tuesday, January 19, 2021

Two documents that tell you all you need to know about innovation

 If you believe everything you hear, or read, within your corporation about innovation, you may end up a bit disappointed.  As we've seen over the last two decades, talking about innovation is easy, but implementing it and realizing the benefits are a bit more difficult.  Plus, with all the swirling definitions of innovation, what is one woman's innovation is another woman's incremental change.

To cut through the confusion about the importance of innovation and to understand how important innovation is the your company, there are two documents that you can examine that will tell you exactly how much the organization you work for values innovation and the priority it places on innovation. 

These two documents I am referring to aren't necessarily about innovation, but what they say (or don't say) about innovation will tell you all you need to know.

One important document that doesn't matter

You may think that the "strategy" document or plan is important, but it really isn't.  Today, every strategy talks about innovation - it's a requirement, like ants at a picnic.  A strategy document or plan that does not talk about innovation will be tossed back, but writing about innovation in a strategy plan does not mean that innovation will be implemented.

The two documents that do matter are easy to access and easy to read, so anyone in a company can see where the business places its emphasis.  I'll unmask the two documents below and what they tell you.

Budgets

The first document is a budget.  In the political world, the saying is that the President proposes and Congress disposes.  That is, the president proposes actions and plans (similar to a strategy) and Congress decides and prioritizes and determines the funding.  

You can see how important innovation is by looking at your company's, divisions's, and team's budgets. Budgets are where company leaders decide to place important bets, and where they fund the important operations of the business.  If budgets don't all out specific funds for innovation, then it's very likely that no innovation will get done, and even if people manage to create new ideas, there won't be money to realize the idea or convert it to new products and services.

While a strategy that defines innovation is nice, a strategy is high level.  A budget defines what is going to be spent - where the company will place its resources. Budgets are much more definitive than strategy.  You can regularly hear concerns about going over or under budget, but rarely hear people get called out for going beyond strategy.

 While a strategy document is forward looking, and a budget is the realization of the forward looking plans, the second document(s) are somewhat backward looking.

Evaluations and Measurements

While these are two separate items, they are really tightly related, because both assess what happened and why it happened.  We evaluate people and processes based on earlier plans, and their accomplishment of the plans.  If your monthly, quarterly or yearly evaluation doesn't include explicit measurements and goals for innovation, then your company isn't really serious about innovation.

 Think about it - periodically you are evaluated, your team is evaluated, your division and its leadership is evaluated.  Are you evaluated on the amount, scope or nature of the innovation you do?

Here's where another old saying becomes meaningful:  what gets managed gets measured.  If you aren't measuring innovation activities and outcomes, then you aren't managing it, and it isn't important.

Not new news

This probably isn't news to most employees - they know that the budgets don't include money for innovation and further they know that working on innovation is more like sticking their neck out rather than something they'll be rewarded to do.

However, what these two documents say about executive teams and their focus speaks volumes.  If a company constantly talks to investors and outsiders about innovation, but internally does not budget for innovation and does not evaluate people or teams on innovation work, there is no longer any dissonance.  Employees recognize a cynical marketing messaging ploy, and are even less likely to try to innovate when innovation is important and necessary, and somewhat supported by executives.

If your company is serious about innovation, it will include innovation goals and outcomes in its strategies and plans, include funds for innovation in its budget cycles, and evaluate people and teams on their innovation work.  Anything else simply displays an unserious approach to innovation.

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posted by Jeffrey Phillips at 12:40 PM 0 comments

Thursday, January 14, 2021

Thinking about innovation and strategy

 I've been asked several times lately to write about, or perhaps more specifically, to opine about, innovation strategy.  If you are a somewhat regular reader of this blog or my work generally, you may know that I think talking about innovation strategy conflates two very important ideas that are related but not the same thing.  I find it useful to consider first the definition of these two concepts.

 Innovation Definition

Innovation, in its simplest form, is simply turning good ideas into some valuable action.  That action may be creating a new product, or developing a new channel or business model.  Of course, innovation can span a range of impacts and outcomes, from very incremental product innovation to industry changing business model innovation.

Strategy Definition

Strategy, on the other hand, is an entirely different beast.  Strategy is often difficult to define.

When I Google definition of strategy, this definition pops up.  It's just one of several, but I think I like it the best:  a plan of action or policy designed to achieve a major or overall aim.  

Several important things to note about this definition:

  1. It is a plan of action or a policy - that is, strategy is extenuated over a period of time.  Strategy is not a momentary action or a project.
  2. It is designed - which means that strategy is carefully considered with a significant end goal in mind
  3. It has a specific outcome - the successful execution of strategy should result in a meaningful outcome

Now, reviewing the two definitions, we can see why these words are often conflated.  Innovation hopes to achieve a specific outcome, but most often a much more tactical solution like creating a new product.  Innovation is an action, but it is not often a plan or policy.  Innovation should be designed, but is rarely so carefully considered.

How are these two concepts related

In my view, innovation is a means through which strategy can be realized.  That is, once you've identified a strategy, innovation is one of the important tools in the toolbox that may help you achieve your strategy.

One of my favorite frameworks for thinking about strategy is Treacy's 3 competitive positions, which are competitive positions that are simplified from Michael Porter's work.  The three competitive positions are:

 - Product Leadership

 - Customer Intimacy

 - Operational Excellence

Typically, you can look at a market or industry and see one clear leader in each of these competitive positions, and others simply trying to compete.  

When we consider these positions, one could argue that Product Leadership is most closely aligned with innovation, and to some extent that's true.  Note that product leadership isn't necessarily the newest or the most ornate product.  Product leadership is simply the best product, and a company can create and iterate good products without a lot of innovation.

Next, consider customer intimacy.  This means getting as close to the customer as possible and understanding their needs. In this case you can innovate the customer experience by understanding customer journeys, and create new relationships and touch points, but you can accomplish some of these results through other means.

Some people would argue that Operational Excellence is not associated with innovation, because it typically has to do with efficiency and cost reduction.  I am as comfortable innovating in this regard as any other focus, just the actions and outcomes are different.

Perhaps you'll see where I am going with this.

Innovation is a tool that may help you accomplish your strategy.

It's an interesting conundrum that the companies that have excellent strategy and use innovation as one means to accomplish their goals are very successful, but companies that lard up their language with innovation but lack good strategy aren't as successful.

There may be a few companies that have "innovation" as their strategy, but I'm not aware of them.  A singular focus on innovation as a "a plan of action or policy designed to achieve a major or overall aim" will leave a company exhausted and bankrupt.  Innovation is always important, since growth and differentiation are important, but strategy is more important than innovation, and "innovation" by itself is not a corporate strategy.  

Now, if you were to ask:  OK, where should I focus my innovation efforts?  Then I'd respond with, tell me what's most important in your strategic efforts and where innovation can make a difference.  If your strategy for example is customer intimacy, then I would ask:  how might we use innovation to create new channels, new customer journeys and new relationships to improve customer intimacy.  Note that innovation should be able to provide a major impact on customer intimacy, but it is not the only tool in the toolbox.  You can also improve customer intimacy by training your front line workers, changing how you communicate with customers, shifting corporate focus and rewards and compensation models to emphasize customer intimacy.  

That is to say:  Innovation is one tool to help you accomplish your goals, and once you have clarity about your strategic goals, you can then determine where and when to leverage innovation.

Takeaway

The purpose of this post is not to relegate innovation to a lesser role, but to place its priority and use in a context.  When executives say they need innovation, the response should be:  we need strategy.  Once the strategy is determined, (hopefully well developed and implemented successfully) then where and when to leverage innovation should become much more clear.

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posted by Jeffrey Phillips at 4:49 AM 0 comments

Monday, January 11, 2021

Conditions for innovation to succeed

 I was asked recently to write a short post about the conditions necessary for innovation to succeed.  It's actually not possible to write a short post about innovation, much less the conditions necessary for innovation to succeed, but I've tried to simplify this into nine critical factors for success.

They are:

  • Scope and opportunity framing
  • Executive commitment
  • Clear definition of the outcome (incremental/disruptive, product/service/business model)
  • Adequate resources and funding
  • Recruiting the right people
  • Understanding customer needs
  • Cultural realities - risk taking, openness to new ideas
  • Agile idea development and testing (MVP)
  • The ability to accelerate ideas into product or service development

The first question I often get when I create a list like this is - are all these criteria important?  Can we rank them and decide which ones need more development?

The answer is, yes, you can rank them - I think good scope, executive commitment and the right people are the most important criteria for success - but really good ideas can be killed by other factors.  For example, one of the biggest idea killers is the inability for many companies to take really good ideas and get them prioritized in the existing product development process.

 If I had to choose, I'd prioritize the right people with the right support and give them the right problem.  With those basics in mind, you can do a lot of good innovation.

If you are interested, here's a brief definition of each of the factors that contribute to success.

Brief explanations

I'd like to provide a brief explanation of these criteria and explain why I think they are important for innovation success.

Scope - too often executives ask for innovations, but can't describe or won't identify the scope of the work, what they hope the innovation activity will produce (see clear definition of the outcome) and what investment or risks they are willing to endure.  Without this clarity, or in absence of a defined scope, the teams adopt the business as usual thinking and infer a narrow, limited scope even if the executive team wanted more disruptive innovation.  This is why so many "innovation projects" result in incremental or "me too" ideas.

Executive commitment - It's hard enough to get the existing products or services to market, let alone try to create new solutions in an uncertain innovation process. Plus, some good ideas will require that businesses rethink their existing offerings or channels.  And, the work isn't free and requires air cover. Executive involvement and commitment in an innovation activity is critical for success. As the old saying goes, at breakfast the hen is involved and the pig is committed.  Innovation needs really deeply involved executive involvement and commitment.

Adequate resources and funding - I'll deal with the funding here and the resources in the next bullet.  Discovering needs, testing ideas, conducting research and getting new ideas through the development process and then launching a new product costs money. Starving the teams to get more creative solutions isn't necessarily wrong, but failing to invest small budgets when the potential payoffs are huge is simply misguided.

Right people - I've written extensively that the right people for innovation are typically NOT the "best" people in the current processes.  That's because they are wedded to the existing products and processes.  You need to find the creative thinkers, the outliers, the people plugged into customers and markets.  I think this is so important that I wrote an entire white paper and personality analysis called the Unusual Suspects.  Getting the best innovators involved, rather than the "best" people, will definitely accelerate your innovation work.

Needs - most innovations solve current but unfilled or unmet needs, or anticipate and create solutions for needs that customers don't yet know they have.  Your current market research is mostly focused on your existing customers and existing products.  Discovering new opportunities and needs requires a refocusing of your research and a new way to interact with customers and prospects.

Culture - The old saying is that culture eats strategy for breakfast.  Guess what's for lunch?  A highly optimized, cost conscious culture that is moderately risk adverse and focused on the short run will not conduct expansive innovation projects, and will not carefully consider risky, unproven ideas.  Want more innovation?  Make your culture more welcoming to innovation.

Idea Development and validation - you need a really good, agile and rapid MVP development process to bring an MVP to customers and prospects for testing.  This is NOT a complete product but provides a tremendous amount of insight into what the product or service should be and...

Solution Development - You've got to figure out how good ideas are going to get converted into new products or solutions.  Most companies have products and product development pipelines that are overtaxed and not prepared to accelerate new ideas.  So good ideas often languish in the decision making process just trying to enter product or service development

Other conditions

There are other conditions of course.  Two that should be relatively obvious but not covered here are:

  • The ability to launch a new idea - new ideas may reach new customers through new channels.  This can require rethinking marketing strategies and channels
  • Legal and regulatory issues - there are ideas that require the development of industry standards or regulatory programs.  If the standards aren't complete or regulatory frameworks don't exist, some new products, no matter how promising, can't be realized

Why would anyone try

In light of all of these criteria, why would any reasonable executive try to innovate?  The answer is that many don't.  Instead, they wait for smaller firms and entrepreneurs to create new ideas and simply acquire the company or technology.

In fairness, other companies have skunkworks or separate organizations that seek to become the innovation engine of the organization, so innovation is isolated from a lot of cultural and decision making overhead.

Some organizations, like 3M, Apple and Google, rely on a deeply embedded corporate culture which encourages innovation and risk taking.  I wrote about this approach in Relentless Innovation.

However, as we can see from examples like AirBnb or Uber, 3M or Apple, different organizations with different philosophies can successfully innovate and relentless innovation does drive a market premium over companies that do not innovate.

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posted by Jeffrey Phillips at 10:38 AM 0 comments

Tuesday, December 08, 2020

Why Christopher Columbus was a master innovator

 We all know the old rhyme - "In 1492 Columbus sailed the ocean blue".  Further, we know the story - or at least some of it.  We know that Columbus was mocked for wanting to sail west to arrive in India.  We know that some of the experts in the time were certain he could not return, because either the distance was too great, or he'd sail off the edge of the world.  We also know now that Columbus discovered something other than what he had intended, but what he discovered had far more value than he and his patrons first believed.

What we may not appreciate is how similar Columbus's journey to success is to many who are trying to innovate in corporate settings.  Strange as it may seem, while we know a lot about Columbus' successes, we don't really fully appreciate the challenges of a relatively visionary innovator.

What Columbus shares with corporate innovators

Columbus was actually a stranger in a strange land.  He was originally from Italy, and moved to Spain, and then to Portugal, as a sailor, navigator and map maker.  At the time Spain and especially Portugal were leading the known world in navigation.  Portugal, under Henry the Navigator, was opening up the coastline of Africa and rounding the Cape of Good Hope.  But through all of this success, Columbus was on the sidelines.  He wasn't Portuguese or Spanish, and was not of the nobility.  In fact, for most of the time Columbus was chasing his dream of sailing west, he lived in monasteries or with people who supported his ideas.

  • In this way, Columbus is like a corporate innovator.  They are often strangers to the people and teams around them, seeking to create new ideas.  Many innovators aren't necessarily "at home" in any function or division, and need the support of others.  They often work with few resources and beg and borrow what they can get, much like Columbus.

Columbus managed to get the ear of royalty in Spain, in Portugal and even in France.  He shared his ideas about sailing west to reach India and other countries, seeking the blessings and support of the different royal families.  All of them entertained the ideas, but few seriously supported him.  They had other fish to fry.  The Spanish monarchs were busy with the Reconquest of Spain.  The Portuguese king was busy discovering and claiming Africa, and trying to keep Columbus from sharing his ideas with others.  They were happy to listen and entertain Columbus but were not willing to support him.

  • Corporate innovators share this experience with Columbus as well.  It can be strangely easy to get an audience about new ideas with executives, but equally difficult to get anyone to act on the ideas.  Many commentators have called this phenomenon "innovation theater".  Too often current issues or existing products grab the lion's share of attention, leaving innovation as an interesting sideshow.  As his story indicates, it can be difficult to get a sponsor and even more difficult to get a sponsor to act.

Columbus had no wealth, wasn't a native citizen and did not own a boat.  He had never sailed to the places he claimed he wanted to sail to.  He was completely dependent on others.  All he had was an idea and a significant amount of passion and commitment.  He met with the kings and queens of Spain and Portugal for over six years before they finally agreed to support him.

  • Corporate innovators can learn from Columbus in this way as well.  Columbus did not have the experience most people would think was necessary to do the work he was proposing.  He did not have the resources to do it.  All he had was commitment, passion and the desire to stick with his ideas until someone decided they would fund them.

One other interesting thing to note about Columbus' search for patrons:  the king and queen of Spain were not on the hook to fund the expedition!  Their funds were already depleted by the war against the Moors.  For several years a count in Spain had offered to give Columbus three ships and crew.  What Columbus wanted was the ability to claim land in the name of the King, and, unfortunately for his mission, he wanted a title and claim to the wealth.

  • Corporate innovators face the funding question as much as Columbus did.  What's always surprising to me is how little investment is required to generate and test new ideas, and how often a lot of funding is poured into existing ideas without good return, while innovation withers without funding.  The Spanish King and Queen invested almost nothing in Columbus' journey yet Spain had a windfall for several centuries after the the discovery of the New World.

Columbus had to gather a crew, some of whom were no doubt afraid to sail west into the unknown.  The Spanish sovereigns were so concerned about Columbus' ability to recruit sailors that they made it know that any criminals who signed up to sail with Columbus would receive a pardon.  He and his crew were going out in three very small boats, typically designed for sailing along a shore line, across an unknown amount of ocean to reach a destination many thought impossible.

  • Corporate innovators are exceptionally familiar with the experience of working with people who may not be fully "on board" with an innovation project or who were coerced into participating, and who are working with limited supplies with an uncertain aim.  While many innovation team participants aren't literally risking their lives to sail off into unknown waters, working on an unfamiliar and risky innovation project can seem like a career killer.

What Columbus got wrong as an innovator

The one area that Columbus got wrong as an innovator was his desire for wealth and titles.  As an individual who had been mocked for his low birth, and who faced obstacles throughout his life, his requests for titles and for wealth upon the discovery of the new world led many to think he was a charlatan, or simple a social climber.

Corporate innovators can avoid this issue by demonstrating that their ideas are for the success of the company, rather than for personal aggrandizement.  Columbus' demand for titles and wealth before he set sail was probably unreasonable and may have caused concern from the monarchs and the royalty he dealt with.  

What they discovered

There's one other item I think is important to mention, because it happens quite frequently.  Columbus was hoping to sail to India, but instead sailed to a western continent.  He did not find a new trade route to India to corner the spice market.  Instead, he discovered a new continent that the Spanish were able to exploit for centuries.  At first the discovery did not seem all that fantastic - there was little gold or jewels or spices that Columbus had promised.  But the discovery was far more valuable over time.

  • Corporate innovators need to set these kinds of expectations.  Good innovation often leads to new ideas and new discoveries that may be different from what was originally envisioned at the start of a project.  Findings and new ideas or newly discovered needs may not fully align with what was expected, but can prove even more valuable than what was originally intended.  Don't end the project because you failed to discover exactly what you set out to find.  Instead, ensure you review everything you learned and discovered to find all the value in the discovery.

Recap

To recap, Columbus was an unlikely hero, a stranger in a strange land, with no resources, limited backing, no experience and proposing a significant risk for a significant reward.  His executives and patrons were distracted by other important tasks and unwilling (or even unable) to fund the expedition. He fought through years of ridicule from people at court, royal geographers and navigators who rejected his ideas.

When he finally got the OK, years later, the patrons did not have funds and so another individual stepped forward with three boats, which were ill-suited to the purpose, but better than nothing.  Columbus sailed with a crew that in some cases was coerced into sailing with him, and several feared for their lives.  He discovered an unknown continent but failed to bring back what he had promised (gold and spices).

His entire story is entirely a metaphor for corporate innovation, and should give every corporate innovator the rationale to carry on.

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posted by Jeffrey Phillips at 7:37 AM 0 comments

Friday, November 20, 2020

Preparing for the Roaring 20s

 One of my favorite quotes is from a philosopher named George Santayana.  He said that those who cannot learn from history are doomed to repeat it.  I think we are at the cusp of repeating the past, so it makes sense to review a similar episode in our past so we can better prepare for the emerging future.

A quick look back, about 100 years ago, would suggest that our populations and economies may be on the brink of repeating the Roaring 20s.  Only this time it won't be Gay Paree, flappers and jazz music celebrated by World War 1 veterans.  It will be an entirely new crop of veterans - young adults who have been locked down in COVID induced misery, who bear some economic and psychological scars, and who have lost time and loved ones to a deadly virus.

Mark Twain also had something to say about history.  He said history does not repeat itself, but it does rhyme.  I think he meant that many of the characteristics of the past recur in our present times, in similar fashions if not in exactly the same way.  What I am calling the Roaring 2020s may demonstrate that rhyming characteristic that Twain described.

Why the "Roaring 2020s"?

The original Roaring Twenties were a result of the end of the First World War, the end of the Spanish Flu pandemic and a reaction to an economic depression that followed the war.  Millions of veterans returned home to live new lives. Some experimented with new lives in new locations.  One of my favorite books - The Razor's Edge - describes a young man who was injured in the war and it changes his life and perspective forever, much to the dismay of his friends.

In those days, attitudes and perspectives were radically changed.  The old hierarchy was being challenged.  Governments and generals - entire generations of leadership - were being called into question.  People did not want to live the lives that had been originally set out for them. After living through the war, people threw off the old ideas and expectations and lived out loud.  It was a short boomlet in reaction to the previous conditions that ended in the Great Depression in the late 1920s.

I think we are primed for a new Roaring 20s, which will be ignited by the wide distribution of a COVID-19 vaccine.  Like many of the people in the 1920s, we will emerge from a long period of turmoil and lockdown, ready to get out from under the unrelenting pressure of the virus and the lockdowns it has created.   

What are the parallels?

The original Roaring 20s were sparked by young people who were ready to live an entirely new life, tired of war, disease and old ways of thinking.  They live life to the max, breaking with traditions and creating new music, new literature and new fashion.  At the time, many older adults felt the younger generation were living too fast and too loose, too ready to toss away convention.

I think by July or August, 2021, we'll see much the same thing occurring.  The Millennials and Gen Z feel, rightly or wrongly, frustrated by difficulty finding new jobs even in the relatively booming economy in the late Obama and early Trump administrations. Further, they and others have had opportunities denied to them by the COVID outbreak.  They (and frankly a lot of the rest of us) are anxious to get out, go out to eat, to go to a ball game, get together with friends, travel and explore.

As vaccines demonstrate their effectiveness, and travel bans are lifted, we may see an explosion in the consumer market.  The most obvious places to watch for this are airline and hotel bookings.  What's even more interesting is how attitudes and behaviors about work and careers may change.  There were already rumblings that the younger generations have a very different attitude about work/life balance than the Boomers and Gen Y.  Many have experienced the gig economy and working from home and may want to work to live, rather than live to work.

Some simple predictions

If we play out these ideas, several scenarios are possible.

First, the travel and tourism industry could explode in the second half of 2021.  Destinations could be less important than the simple desire to go somewhere, anywhere, and experience something new.

The workforce participation rate, already declining due primarily to the fact that women are leaving the workforce to care for children, may decline some more as people decide to live life and put college or careers on hold for a year or two in reaction to the pandemic.

More people decide to start their own companies, in order to have more control over their lives, to work where and when they want to, rather than working for a large bureaucratic company.

Consumption follows a forked path, with some people deciding to live a much simpler life, and others deciding to live and spend as much as possible, since the future may not be promised to them.  Our consumption-driven economy may experience some fits and starts as it adjusts to a barbell-shaped economy.

Fewer people decide to attend four year colleges.  The cost and eventual benefit of a four year education simply does not align for many people, who will pursue other opportunities.  Traditional college and the value of the experience of residential colleges has been questioned for years, and COVID demonstrated that some people can get as much value from attending virtually.  College costs will have to stop rising for more people to believe there is value.

Governments may need to rethink how they raise funds.  In the US, we have income taxes, sales taxes, capital gains taxes but few consumption taxes.  When people are more open to new work and new experiences, income taxes may not be the best way to maximize tax policy and revenue.  Instead it may make sense to alter our tax policies to consider consumption taxes, to encourage people to think about what and how they consume, rather than what or how they make their income.

Getting ready for the deluge

I can't tell you exactly when this will happen, but I feel fairly confident it will happen.  I moonlight as an adjunct professor in a graduate program, and I can tell you that my students are ready for change.  They are frustrated that they cannot control their lives, cannot travel and cannot find good jobs, and when the situation changes I expect they will want to celebrate, at least for some period of time - say a year or two.  We may not see an instantaneous change in the economy or in markets, but I think it will happen, and we'll really experience it by the beginning of 2022.

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posted by Jeffrey Phillips at 7:17 AM 0 comments

Tuesday, November 10, 2020

Most good innovation is offensive

 If you are a football fan, the way I am, you know the old adage:  defense wins championships.  For years, decades even, defense held sway in the coaching ranks.  Everyone seemed to believe, and it was often proven out, that the teams with the best defense would win the championships and the Super Bowl.  There's another phase you'll often hear:  the best offensive is a good defense.

With this in mind, many teams and coaches built strong defenses and just OK offenses.  Over the last decade or so, however, rules were adjusted and new offenses emerged that proved that good offenses will often beat good defenses.  No longer is football a game of "three yards and a cloud of dust". Even in the college ranks we are seeing games where the aggregate score is often over 80 points in a game.  Needless to say, good offenses (and the rules changes that made them possible) now hold sway.

This represents a classic tension, between a proven, safe, conservative approach and the more aggressive, risk taking approach.  Strong defenses and safe, patient offenses are the conservative approach, winning with better field position and stopping the other team's offense.  Most coaches and teams have practiced a conservative brand of football. In the same fashion, many corporations play defense, and have very conservative management philosophies.

How executive management is like football coaching

While many coaches in the NFL are happy to manage the game, control the other team's offense and work their way patiently down the field, winning with small margins and field position, the same can be said about many executive teams in corporations.  The game is actually easier to play in large firms, because the bar for "winning" is set by the company through a whisper campaign about revenue and profits.  Then, the company merely needs to meet the goals it has set for itself.  You'll rarely see a company miss its numbers to the good or to the bad to any great extent.  If a company is going to exceed its numbers, it will hold some of that revenue back for the next quarter, just in case.  A company that cannot meet its own whisper numbers over several quarters (outside of an epidemic like COVID) will soon have a new management team.

With this in mind, it pays to play it conservative and safe, building on existing foundations and rarely straying from safe models and channels.  In other words, managing like a defensive minded coach in football.  So you can see why most innovation is incremental, building on existing products and channels, rather than disruptive or transformative, because that innovation becomes offensive and risky.

Why innovation is offensive

Innovation seeks new opportunities, to address emerging needs, customer and markets.  It is inherently aggressive, risky and growth oriented.  Rather than building on existing foundations and channels, it seeks to create new opportunities and new ways to engage with customers.  Therefore, it is offensive-minded, and runs head-long into a defensive minded mentality in many corporations.

Which is why I say innovation is often offensive (in multiple senses of the word).  It is offensive rather than defensive minded, meant to win new markets and opportunities rather than protecting and defending existing turf.  It is offensive to those who prefer a more defensive mindset, because it introduces risk and uncertainty.

Why the NFL changed

The NFL looked around about a decade ago and realized it was losing viewers to other faster paced, higher scoring sports like basketball.  Defensive games where the teams push each other around in the middle of the field may be tactically interesting, but fans want scoring.  New players and new rules have created the opportunity for far more scoring.  In the NFL, becoming more offensive minded was a reaction to the marketplace.

In corporations, there is a strong preference for managing and controlling, playing it safe, so a strong bias toward defensive-minded thinking.  While the market does reward innovators - those who are more offensive minded - the risk to reward ratio is not large enough for many firms and executives to shift their thinking.  Most true innovators in the corporate world come from the two ends of the success spectrum:  they are either far ahead of competitors and can afford the risk, or behind competitors and risky actions are all that's left.

Why companies remain defensive minded

And the key point in that last paragraph is "shift their thinking".  An NFL team needs only a new coach or owner and a few new players to shift the emphasis from defense to offense.  A corporation needs a shock to its systems, a top down philosophy change that changes not only management and compensation but also the inherent culture.

And if culture is a determinant for innovation, then it should be relatively easy to see which firms can innovate or have the capability to make shifts to more offensive minded thinking, and which will remain defensive minded until forced to change.

Further, being defensive minded is easier and more straightforward than being offensive minded.  In a defensive stance, you must defend what you already have, protecting familiar customers, markets and channels.  You compete on ground that you know.  In an offensive action, you compete on new ground, with new competitors and for new customers that will be unfamiliar to you.

Lastly, inertia makes it easier to compete over the same ground and for the same customers rather than reaching new markets and customers.  At some point in every company's life, the legacy of past experience and the amount of inertia that builds up makes it difficult to do new things.

Innovation can be offensive

For these reasons and many more, I think good innovation is often offensive.  Disruptive and Transformative innovation seeks to solve unmet needs or address customers who aren't happy with existing products and services, or who aren't served at all.  That means going beyond merely protecting the status quo.  It means going on the offensive.

And, since innovation introduces risk and uncertainty, the mere action can be a bit offensive to those who prefer safer bets and less risk.

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posted by Jeffrey Phillips at 10:19 AM 0 comments

Wednesday, November 04, 2020

I don't want to live in a Ready Player One world

 I'm working with a startup, focused on the future of nutrition.  This is not my first startup, or as we used to say in Texas, my first rodeo, and I doubt it will be my last.  I've had the good fortune to work in several startups that had different trajectories.  One, a consulting firm, grew rapidly but never went public.  Another software firm I worked with got just big enough to get acquired by a larger company, and yet another software company received funding from Softbank but failed to get another round just after 9/11.

I have a small book about these experiences that one day I'll get organized and published.  But what was relatively common about these experiences is that the ideas were relatively scalable.  The software ideas are of course almost infinitely scalable, while consulting is somewhat scalable.  In the past, when selling time by the hour was popular, consulting firms could not get enough people to join.  Now, of course, consulting is shifting its business model, looking for revenue streams outside of the billable hour because the model is no longer deemed scalable.  But all of these ideas seem scalable when you consider what it takes to scale a physical idea.

Tangible versus intangible assets

Software is scalable because I can license it or provide it as a service to as many people as I can find that need it.  With new cloud services, I'm no longer constrained by IT or to some degree even by human assets.  Eventually, software will provision itself, and even sell itself, so two of the biggest issues for scalability will be reduced.  With AI, it's possible that even much of the support necessary for software will be conducted by machines rather than people.  Think the person on the other end of your chat sequence is friendly?  Dollars to donuts it's a chatbot.

Intangible assets and ideas are scalable because they don't require a lot of work to sell, to provision, to implement or to support.  A fully automated, self-provisioning and self-service software application hosted on servers in the cloud is perhaps the best example, but there are more.  Tangible assets and ideas, on the other hand, can lack scalability, and increasingly I think big, physical ideas will become increasingly more difficult to imagine, fund or implement.

Impact on innovation

This idea of the significant difference between tangible and intangible ideas and the challenge of innovation is deeply concerning. What it means - and what we are seeing - is an increasing focus on innovation in intangible ideas, and less and less innovation in tangible ideas, assets and products.

While this is great for industries like gaming, financial services and software, it becomes a big issue when people need tangible products and services.  As companies look for a quick way to gain new inexpensive revenue, innovating around intangible products and services promises less investment and faster returns than innovation around physical products.

So, what we are increasingly left with is better and better intangible offerings and less choice and less value in the physical products we acquire.  Have you noticed how poorly designed and manufactured many products are?  Why invest in engineering, design, manufacturing and quality parts when the products are break even at best?  IBM didn't decide to split into two businesses for any other reason than the hardware side is rapidly becoming a commodity, but the software and cloud side of the business (intangibles) could have a bright future.

Tangible innovation is difficult

It's not just that intangible innovation is easier to do, it is also easier to realize.  Intangible ideas are usually software based, and while good developers are at a premium, software is still relatively easy to build.  Contrast that with the challenges of building say, a new car or a new medical device, where safety concerns, manufacturing, engineering and many other constraints and requirements come into play.  Plus, if the tangible products must fit within an existing infrastructure and work within accepted norms then the range and scope of innovation is narrowed and innovation becomes even more difficult to do well, and is easily copied.

And, even after you have a tangible idea, the ideas have to work their way into product development streams where they face competition from limited resources and other existing products.  It's often easier to re-use existing systems or components and sacrifice some of the differentiation for lower costs and speed to market.  And, once in the market, you still have to sell these products to consumers in a more traditional sales cycle.  There aren't too many tangible products that are available for free when you watch the advertising.

But not everything can be software

In the end, though, some level and amount of tangible innovation is required.  We can't (at least not yet) wear or eat software.  We can't transport ourselves using bits and bytes.  No matter how good Microsoft and Amazon are at cloud services, we can't all live in data houses.

This means that we innovators need to start creating programs and pathways that make tangible innovation easier, more practical and more affordable.  There are plenty of innovation opportunities in the tangible world, and none of us want to spend the rest of our lives cutting the costs of existing tangible products (and getting less and less value from them) while optimizing and innovating the online experience alone.  

If we keep going at the pace we are moving, we'll end up a little like the people in Ready Player One, who live in hovels but spend all their time jacked into video games. 

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posted by Jeffrey Phillips at 3:02 PM 0 comments