Tuesday, October 12, 2021

Why corporate innovation is harder than a startup

 Since innovation is a difficult and often misunderstood word, or perhaps just because it is used to mean different things in different contexts, it can be difficult to understand why innovation at an entrepreneurial company or a startup is different from innovation in a corporation.  I think the matter is obvious, but I wanted to explore the challenges and issues of innovating as an entrepreneur and contrast them with the challenges and opportunities of innovating in a larger corporation.

First, let's just get the record straight.  Both the entrepreneur and the corporate innovator have equal claim to the word "innovate".  Both, if they are doing their job well, are creating new products and services that have value for customers or stakeholders.  It's just that the conditions and context each faces is radically different.  Since I've had the opportunity to work for funded startups and for larger corporations, I've seen the differences, and, while I'd like to say it's getting better all the time (Modern English reference there), it's actually getting worse, for both parties.

Innovating as a startup

No one starts a business without a great idea.  The source of that idea may be frustration with the way things work today, or an insight about new products or feature, or observation of an emerging market that has new and unmet needs.  But every entrepreneur has an idea.  If they are doing their job well, they have exactly one idea, and they place everything they have behind that one idea and explore it until it wins, or until they need to pivot to a new idea or a new delivery model.  Note the emphasis on one idea.

Entrepreneurs are blessed with the fact that they need to focus everything - all mental time, all resources, all hopes and dreams - on one idea.  This focus is a blessing, since it allows the entrepreneur to ignore other opportunities or alternatives.  Since most entrepreneurs are building their businesses from scratch, and hope to have a significant impact on the status quo, they don't have past infrastructure or products to keep whole, and aren't worried about upsetting the existing market or infrastructure.  This is also a blessing for the entrepreneur when innovating - there are no existing investments or infrastructure or revenue streams that constraint you.

What has become more of a challenge lately for entrepreneurs is outrageous expectations.  In corporations, if you can create a new product, you are celebrated.  In startups, if you can't create a billion dollar unicorn in three years, people wonder why.  The unicorn phenomenon makes it exceptionally difficult to get good ideas funded, when everyone wants to see a "nine zero" or "ten zero" outcome.  

The recent shakeup in the workforce due to COVID, and due to a great rethink about how people want to work and live will create benefits for the entrepreneur.  I think good talent is going to be easier to obtain, since many people will leave their corporate jobs and start companies or join startups or smaller companies.

Innovating in a corporation

The corporate innovator can be just as much an innovation and an entrepreneur (or intrapreneur) as an external entrepreneur.  The internal innovator simply has to juggle different issues and priorities. 

First, within any company there are likely to be five to ten people who think they have a great idea that the company should fund and launch.  This means there are competing interests for an often limited set of innovation funds (assuming any funds are available for innovation).  Further, it's likely that each of these innovators have radically different ideas, making it hard to compare them and understand their value to the company.  Thus, an innovative company with multiple intrapreneurs or innovators should have a regularly evolving portfolio of ideas, which leads to selection and prioritization.

Not all the ideas in a company can get funded and resourced, so good internal innovators need to understand what is vital to the company and how their idea will be evaluated and prioritized.  A really great idea that can't get funded or resourced has no value.

Internal innovators also face the fact that many of their ideas will create great risk to existing operations, in one of several ways.  First, the idea may threaten an existing product or service which is already generating revenue.  This asks the company to bet on future earnings not yet proven over current predictable earnings, always a difficult choice.  Second, the idea may threaten not a product, but an entire opportunity or industry.  It may create a new business model or way of working that, while valuable to customers, the company cannot shift to meet, and threatens the company.  Third, good ideas may simply be beyond the reach or capability of a company, and while recognized as valuable, simply cannot be realized by the company except as a spin out.  There are more examples but you can see that corporate innovators have to confront the fact that the company is currently making money and has investments, and any new idea, no matter how good an idea it is, could threaten those existing revenue and profit streams.

There's another significant difference, but it is more subtle.  Entrepreneurs are naturally risk tolerant or even risk seeking, but corporations have been trained and refined over time to mitigate and minimize risk and uncertainty.  External entrepreneurs know and accept risk as part of their founding - many, many startups fail.  Failure in a funded project in a corporation is typically judged rather harshly, and over the last 3 to 4 decades with outsourcing, rightsizing, cost reductions, six sigma and more, we've trained a management cadre to dislike change, risk and uncertainty.  So any new idea is often called into question, and closely examined for risk.  Corporate cultures play a significant role in limiting innovation in large companies, but should not create nearly the same barriers for startups.

Funding is both a blessing and a curse for corporate innovators.  I've rarely worked in a large company that could not afford to conduct an innovation project - most innovation projects cost at most a few million dollars, from initial trend spotting and idea generation to launch of a new product.  This is a price tag that most companies can easily afford.  The funding is available, but hard to acquire.

Funding is hard to acquire for a couple of reasons.  First is the budgeting cycle.  Most firms plan and budget on an annual cycle, so if the product group or business unit did not budget for an innovation project, they either need to wait for a new round of budgeting or need to steal or borrow funds from another project.  Which means someone's ox is going to get gored in the process.  Funding is also difficult to acquire because it's easier to spend money on cost saving activities (which impact the bottom line quickly) rather than new product or service development ideas, which may generate future revenues, but not in the next few quarters.  Third, since most organizations don't have a lot of experience developing and running innovation projects, they don't have good frameworks or models about the costs of the projects.

Development and launch can be difficult for an internal innovator, because those can be different "departments".  Even if the innovator can develop and validate an idea, there are many competing priorities to get limited development and launch time, and often an innovator in a large company does not own or manage the development and marketing resources needed to complete the project.

Differences

The entrepreneur places all their emphasis on one idea, and has little concern about disrupting a market or industry.  In fact, many ideas hope to do just that.  The entrepreneur does not worry about existing products or revenue streams or competing internal products, because they don't exist.  What the entrepreneur does worry about is funding, and especially the expectations of the funders, in a time when unicorns and billion dollar valuations are possible.

The internal innovator worries about funding, market opportunities, competing projects, the risk associated with conducting innovation in a large corporation, decision making and timeliness.  Added to this the internal innovator worries about funding but in a very different way than an entrepreneur.

Both worry about the value of their ideas, their insight into market needs or emerging markets, and the impact or power of the culture of their organizations.  Both use the same set of tools and frameworks.

Hat tip to the corporate innovator

So, here's a tip of the hat to the corporate innovator, and an explanation for what draws me to want to work with them.  They have a tremendous opportunity, and a significant number of obstacles to overcome.  Not only must they find valuable ideas, they must run a gauntlet of competing interests, difficult funding mechanisms, development and launch programs they don't own or manage, and a culture that is at best neutral to what they are doing.  All the while realizing a new idea as a valuable new product or service for customers.  They are doing everything that an entrepreneur is attempting, but with many more intangible obstacles in the way.

The one really compelling factor for the external entrepreneur is job risk - an entrepreneur is betting everything on themselves, their small team and their idea.  If the idea fails, if the market shifts, if another company beats them to the punch, then the entrepreneur may have to start all over again from scratch, with no safety net.  While the obstacles for the external entrepreneur may be fewer, the results can be either much more beneficial (an IPO) or much worse (shutting down the startup).

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posted by Jeffrey Phillips at 6:20 AM 0 comments

Wednesday, October 06, 2021

The cost of innovation

 For many years, in writing this blog, and in leading innovation projects for my clients, I tried to advocate for the benefits of innovation.  After all, as the saying goes, sell the sizzle, not the steak.  Benefits that could be achieved from innovation seemed the right way to convince business executives and government officials that they should commit to innovation projects, and eventually to innovation capacity.

The companies that do make the bet, and that do focus on innovation, often show the benefits in terms of higher profits, greater market share and higher stock prices.  But those benefits are often realized in the future.  This means it can take a visionary leader to establish an innovation project or program, who may not be in place when the benefits are realized.

Rather than discuss the benefits from innovating, I've also written about the costs of not innovating.  We don't have to look far in the corporate scrap heap to find firms that were leaders (Nokia, Kodak) but became obsolete due to a failure to notice changes in the market.  Worse, some of these, Kodak in particular, were potential leaders in innovative technologies or business models but "stuck to their knitting" and lost market share and profits.  But the cost of not innovating is a lot like the cost of not maintaining your streets.  Eventually, there will be problems like potholes, but that will be the responsibility of the next generation of leaders.  No one gets elected promising more dollars for maintenance.

But what about the costs of innovating?

What few people talk about are the costs of actually doing innovation, that is, if a company can decide to innovate, either in a one-off project or more particularly to build and sustain an innovation capability, what are the costs of doing innovation?  And, are these costs significant?

I believe there are at least three types of costs associated with doing innovation, and they rise or fall based on the type (project or building capability) and expected outcome (incremental or disruptive).  These costs are cultural or psychological (the psychic cost of doing innovation), trade-off costs (doing one project rather than another), and the actual hard dollar spending that can be associated with an innovation project.  Let's examine each in turn.

Cultural or Psychological costs of innovation

Innovation is often such a new idea (once we get beyond the concept of incremental innovation, or adding a new feature to an existing product or service) that planning and conducting an innovation project can be psychologically difficult or better, culturally challenging, to many organizations.  And the more the innovation work is aimed at building a capacity rather than a one-off project, or the more the innovation work could disrupt or transform an existing market or current product, the more resistance will build.

Why is innovation so expensive culturally or psychologically?  Because anything beyond incremental innovation threatens the status quo of the industry, or another product or revenue stream in the business.  These ideas may indicate significant changes are required in the existing business model.  They may point out blind spots in how the company is structured or goes to market.

In the end, everyone wants the new revenue a new product will generate, but few people want the cultural change that could be required.  Note that this cost is relatively "high" but not based on dollars - this cost is calculated by the amount of time and energy senior executives need to commit to changing perspectives and culture.

Alternatives or Trade-off costs

In any business, executives make choices across a range of project opportunities.  When, or if, an executive chooses to fund an innovation project, or better to build an innovation capacity, they are choosing NOT to do something else.  One definition of strategy holds that strategy is illustrated by what executives say "no" to.  When making a choice, one project or activity gets funded and another one or more than one does not.  This is a trade-off cost.

What always strikes me is how low most of the trade-off costs for innovation projects are.  That is, when executives are presented with several projects and one is a promising innovation project and others are routine existing product extensions or other activities, the times executives select something other than the innovation project, the costs and benefits seem so low.

The reason for that is that even those exceptionally small potential benefits from known projects are easier to obtain than larger benefits from a risky innovation project.  We've educated generations of managers and executives to make safe, small bets. In a climate where change was incremental and most organizations moved slowly, that logic was solid.  I'm not so sure that logic holds any more.

There is always a cost for any project, both in hard dollars and in resource allocation, so making a choice for innovation projects or capabilities is not easy, but we should always examine the alternatives and ask, just how high or low is the hurdle for the alternative?

We need to find ways in our organizations to make not pursuing an innovation project the risky bet or the lower cost alternative.

Actual Spending

What isn't always appreciated by most companies is that actually conducting an innovation project is relatively inexpensive from a spending perspective.  I've run dozens of "front end" projects ranging from a few months to over a year and a half, and I can say that we've never had a project cost more than about $1M.  For larger firms, I've seen so many competing projects produce far less outcome with much larger budgets.

The actual hard dollar cost of innovation - the actual outlay on consultants (if they are required), training, tools, market research, and so on - is not high.  Getting good ideas, and even evaluating them, prototyping them and getting market feedback is simply not that expensive.  To be fair, costs generally rise as the goals (disruptive innovation) become more challenging, but even in longer term disruptive or transformative innovation work, these projects are still relatively low cost in comparison to other projects that businesses consider.

What can be expensive is new product development - that is, taking a new idea and running it through a product development process and then launching it in the market.  The "front end" of innovation - what many firms aren't that good at - is not that expensive.  The "back end" or product or service development and launch - which most corporations should excel at - can be more expensive, but this should be where the company's expertise lies.

So it is strange to me that while innovation has a high upside (with some failure risk clearly involved) and a relatively low cost (at least in monetary terms) that companies don't do more innovation, more consistently.  The issue cannot be financial.  Other projects are far more expensive to conduct.

Structural and Cultural Problems

The problem has to be both structural and cultural.

Structural in that our budgets and team structures are designed in annual time slots and for business siloes, when innovation doesn't acknowledge either.  Most organizations aren't organized or structured for this type or work, and we don't budget this way.

The problem is cultural because managers and executives are educated to make small, safe bets rather than support larger or more interesting innovation projects.  The problem is also cultural because most interesting innovation work challenges or threatens existing structures, hierarchies, business models or existing products.  Interesting innovation will always create change, and few organizations are nimble enough or open to change in order to embrace innovation.

The cost of innovation, low and high

The data is in.  Innovation has a fairly low monetary or financial cost, but often has a very high cultural cost.  Until we 1) lower the cultural or structural costs and 2) demonstrate that innovation is the low cost, low risk alternative, innovation will most often be the project on the back burner.

For anyone who is interested in doing innovation in a corporation, recognize that the actual monetary cost of doing an innovation project is low, but the psychic cost can be much higher.  Therefore, work on the psychic costs early and broadly across the organization, before worrying too much about the monetary costs.  I've rarely seen an innovation project curtailed for lack of funds, but often seen them curtailed or ended by lack of commitment or concerns about risk.

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posted by Jeffrey Phillips at 6:05 AM 0 comments

Monday, September 27, 2021

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.

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posted by Jeffrey Phillips at 10:32 AM 0 comments

Friday, September 17, 2021

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.


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posted by Jeffrey Phillips at 6:32 AM 0 comments

Tuesday, September 14, 2021

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.

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posted by Jeffrey Phillips at 5:21 AM 0 comments

Thursday, August 26, 2021

Innovation project or Innovation Capability?

I've been writing, speaking and consulting about innovation for over 15 years, and I'm constantly amazed by the different perspectives and definitions about innovation.  What can be a real positive force in an organization often turns into a neutral or even negative, because it is over-hyped, or does not deliver on unrealistic expectations, or is considered a one hit wonder.

Today, I'm not going to write about "innovation theater" - that is, the concept of talking about innovation and moving some pieces around but failing to achieve any meaningful benefits.  Innovation theater is very similar to what ecologists call "greenwashing" and both are bad for their respective movements.  Innovation theater happens when companies and executive talk up innovation but fail to do anything.

No, today I want to talk about the differences and problems when companies focus on innovation as a discrete project, versus what they really need, innovation as a competency or capability.

Innovation as a project

Of course, almost all innovation is a project - starting with a specific need or desire to create a new product or service, or to generate new revenues or gain new market share.  Then, a problem or opportunity is defined, a team designated, and the proposition is defined as an innovation activity.

Lack of organization or preparation

One problem when innovation is considered a one-off project is that there is frequently a lack of good organization or preparation, and the teams are often brought together to work on innovation as a side job, on top of their regular work.  This means their focus is divided and their loyalties lie with their day jobs.

There's some rationale to this "as a project" approach, because most executives want innovation now, and don't want to wait to build competencies, or are afraid to miss a market window or simply don't want to be seen as falling behind.  Plus, innovation as a project demonstrates some investment in innovation but controls for cost and risk. 

Lack of training/skills or experience 

Another problem with innovation as a discrete project is a lack of training.  Most innovation teams have little experience in innovation work, and while they've sat through brainstorming sessions (most of which were poorly executed) and can recognize ideas, they don't have training in innovation tools and approaches, and lack experience running innovation projects and programs.  In fact, the main metric for most innovation projects is how quickly they can get through the work, so the team can go back to their day jobs.

In most discrete innovation projects, the ideas generated are not distinguished from existing products or services, and thus many times the activity is deemed unsatisfactory or even a failure.  This is because there is little management engagement or support, a lack of preparation and skills, and a narrow definition of discovery and risk.

Emphasis on speed and risk reduction

When your main goal as an innovation team member is to get through and finished with the activity as quickly as possible, you aren't likely to introduce new thinking or expand your scope.

Innovation as a capability

Frankly, given the pace of change and the amount of competition in most markets, I think it is vital that all companies invest in building innovation competencies as a core capability. Just as most companies are really good at purchasing, or order management, or other functions, it is vital to be as capable in innovation work as it is in other functions.  Innovation can't be a distraction or an occasional discrete project, it needs to be a capacity that can be called on daily.

This means that several components are required:

  • Management engagement to support more frequent and recurring innovation activities
  •  Innovation skill development - training people to think differently, to use information more creatively, to reduce risk and uncertainty
  •  A defined innovation process - as much as possible, create a step by step approach that people can learn, master and follow, rather than every innovation project becoming a new experience
  •  Rethinking rewards, compensation and recognition - let's reward people who bring new ideas to life
  • Recognition of the time and resources required to do innovation work well

Projects within a capability

Ultimately, you are going to have many innovation projects, some of which will generate new products, or services, or even business models.  Some will be short and focused on incremental change, while others are longer and focus on more disruptive ideas.  All of these ideas need to operate under and within the umbrella of innovation competencies, and you will need to do more innovation in the future than you do now.

All of this means that you need to be good at innovation as a project, but more importantly you need to build the skills and knowledge to DO innovation more frequently and more capably, and you need to build the CULTURE of the organization to sustain and encourage innovation, and executives need to FUND and ENGAGE in innovation as both a competency and a project.

Without an existing innovation capability or competency, all innovation will struggle as a one off activity or project without the proper tools, language, structure and governance.  With these factors in place, with a well developed innovation capability or competency, it will be easier to start and complete innovation work, which will return more interesting ideas that drive more value, in less time and with less cultural resistance.

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posted by Jeffrey Phillips at 11:48 AM 0 comments

Friday, August 20, 2021

The innovation and collaboration strawman

 I have friends who work for IBM and other large corporations in the Research Triangle Park, some of whom are experiencing whiplash.  After all, they've been sent to work from home, returned to the office and then sent back to work from home several times.  All before Covid struck.  Covid has only caused the process to repeat.

When they were sent home, the argument was that it did not matter where people worked and the company could save money by downsizing buildings.  When they were brought back to the office, the rationale was that hallway conversations and unexpected interactions would lead to better communication and innovation.  Some of the to-ing and fro-ing that happened is inexplicable, at least to me, but I am sure there was some "strategy" behind it.

Now, the NY Times has a recent article (sorry there may be a paywall) that suggests that working in the office, with the ever present water cooler conversations and random interactions, is not necessarily better for innovation.  The fact that this appears to be "news" suggests how little innovation must happen in the NY Times news room.  Innovation in any corporation is difficult.  It is not a question of random hallway conversations, because that's not what drives most innovation.

Narrow and brittle

The reason that most random hallway conversations don't produce innovation in a lot of corporations is because the organizations are narrow and brittle. By this I mean that most of the people you interact with represent one of two categories:  they are either working in a job or industry that is exceptionally similar to the one you are in, and therefore unlikely to introduce anything new to you, or they are likely to be working in a job or geography so different from yours that they may as well speak another language.

In the first instance, meeting with people who have similar jobs, the random interactions will always return to common challenges and issues that you've hashed out before. The range and scope of ideas and options is exceptionally limited.  In the second instance, if and when you meet people in your company from really different functions or jobs or locations (which is rare), you share so little with them, and have so little incentive to explore new opportunities, that in most cases you may as well be two different species.

The best opportunity for innovation will happen in these instances in a truly cross-functional team with people selected from different functions, industries and geographies, but the challenge is that none of these people work for the same VP, and the VPs don't have any incentive to commit good people to a cross functional project that does not benefit their team directly.

Innovation and collaboration

If Edison showed us anything, he demonstrated that intentionally mixing people with different skills from different fields, and focusing their attention on specific problems, could definitely lead to better outcomes than people working on their own.  

Edison's Menlo Park lab included people from a number of backgrounds, functions and industries, put there intentionally to interact and to bridge technologies and ideas across industry or technology boundaries.  They created hundreds of patents and dozens of ideas, sometimes creating new solutions from the ground up, and sometimes making radical improvements to existing technologies (the light bulb).

So, there are a couple of issues with the idea that collaboration and innovation aren't helpful.

First, having a bunch of unaffiliated people who do not share compensation models and do not work on the same issues randomly running into each other in  the hallways is not a recipe for innovation, it is a Brownian motion experiment.

Two, sending people who share a focus on solving specific problems (senior sponsorship and strategic direction) to work within their fields and to INTENTIONALLY cross pollinate with each other has real potential to create interesting and radically different solutions.

Key Factors

What we can see from this is that whether the innovators work in a distributed fashion, work in a hybrid fashion or all work in the office, is not the key issue.  There are a couple of factors that will determine if and when collaboration and interaction can add to an organization's innovation capacity:

  • Strategy - Why are the interactions valuable?  Most interactions that cross business functions, geographies or technologies will be transformative or disruptive, so they need a helping hand from the top. 

What problems or opportunities do you hope to solve?  Edison did not leave this to chance.

  •  Intentionality - Which people with which experiences or knowledge should interact?  Rather than random interactions, create interactions and collaborations that have an intent.  Mix the technologists from several fields together if there is a potential for a new opportunity, or mix technologists and marketers together but do so intentionally.
  • Shared goals - if the people running into each other, on purpose or accidentally, have shared goals, shared compensation models, they are much more likely to explore opportunities that mix my peanut butter and your chocolate, to use an old saying.
  •  Openness - this only works if the whole idea of collaboration and cross pollination is exposed and open to everyone, and no one needs or wants to claim sole credit for an idea.  If the expectations aren't established, then all the interaction will lead to a number of separate projects, with each group or team declaring their version of the idea the best.

  • Variety - Edison mixed people from radically (at the time) different industries and technologies, seeking to bridge capabilities from one industry or technology to another.  The best innovation teams are often heterogeneous, and it is in their diversity (diversity of age, race, experience, industries, functions, technologies) that creates real value.

Random collisions or carefully considered interactions?

So, the choice is yours.  Whether your teams work from home or the office, you can send them into a billiard ball's path of random collisions with people they don't quite know and don't quite understand, who don't share common goals and who want to claim the glory of any idea for themselves.

Or, you can plan their interactions with strategy in mind, with intention, building to specific goals and outcomes, with a shared context.  

The latter is far more likely to create interesting outcomes, but requires a lot more engagement from senior executives and change management.  So, too often we'll end up with the random collisions which appears to be a solution, but is simply window dressing, or an argument to bring everyone back to the office.

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posted by Jeffrey Phillips at 7:10 AM 0 comments