Thursday, June 19, 2008

Innovating with Intent

So you've made it over the first hurdle - everyone agrees on the need to innovate in your business. If you are like most firms, you'll conduct a few brainstorms, investigate a few trends or new opportunities, and speak with a few consulting firms. Sooner or later it will dawn on you or your team that you don't really know what the intent of innovation is.

Most management teams view innovation as a way to grow more business and revenue, driving what's called "organic" growth (that is, growth that does not come from acquiring another company). Organic growth comes from selling existing stuff to new customers or new things to existing and/or new customers. This raises a few questions:

  1. Should the innovation team focus on developing ideas to better position the existing products for new customers?
  2. Should the innovation team focus on incremental but new ideas for the business to create?
  3. Should the innovation team seek methods or process improvements to dramatically cut costs (thus increasing profits)?
  4. Should the innovation team consider reworking the business model of the organization (using Dell as an example and changing the predominant industry paradigm)?
  5. Should the innovation team consider radical or disruptive product innovation?
After all, what does the management team actually want? If you have this knowledge, we call this strategic intent. Innovation is a good set of tools and capabilities, but needs to be guided by the strategy of the business and clarity in what the management team wants and expects. Too often, innovation teams can see many different paths and opportunities, but they aren't certain about the expectations and desired outcomes - they don't have clarity around intent.

What happens then? Safety and inertia set in. Innovation teams work on very safe, simple innovations - incremental solutions for existing customers. Instead of changing the existing market or creating new products or markets, they settle for working within the existing paradigm. After all, if there is a lack of clarity, it makes sense to work within the constraints of the existing business. Frankly, this is probably what some management teams want - a thin veneer of innovation without a lot of risk. However, many senior management teams expect more and want more from their teams. They want ideas that are going to drive real value and growth. They want to differentiate and have their firms viewed as innovators. They are frustrated because they don't see the kinds of ideas that will make a difference in the organization.

Working with a number of innovation teams, I encourage them to create their own scope and intent and play that back to the senior executives. When doing that, it is much better to stretch the scope and intent of innovation as much as possible - better to ask for forgiveness for being overly aggressive, rather than settle for a very confined innovation effort and scope. As an innovation team, if you aren't given a clear mandate and if the strategic intent isn't clear to you, then stop what you are doing and write your own ticket and have it validated by the management team. Otherwise you'll revert to innovations that are simply too safe to be considered as innovation, or you'll focus on innovations the management team doesn't view as integral to the business.

Doing a few things well at the outset of an innovation program or initiative, especially getting clarity on the expectations, scope and strategic intent, will provide tremendous value down the road. Neglecting this work only sets you up for failure.
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posted by Jeffrey Phillips at 6:07 AM 5 comments

Wednesday, June 11, 2008

You can't innovate if...

Tolstoy had a famous saying that all happy families are all alike, and every unhappy family is unhappy in their own ways. Likewise, successful innovators are usually very much alike, and firms that fail often fail for a variety of reasons. However, we've compiled a list that we believe represents a significant number of the barriers to sustainable, repeatable innovation.

As we believe you learn more from failure that success, here's a list of reasons that many firms can't seem to innovate:

  1. Leadership - while senior managers talk about innovation, the evaluation structures, compensation, investment and other factors necessary for innovation to succeed simply aren't provided.
  2. Culture - often, even if a management team wants to be innovative, and is willing to provide resources and funds for innovation, the culture can't change quickly enough. Most firms have a bias towards idea generation and innovation, or towards cost and risk control. Firms with the latter bias are rarely innovative - it simply isn't in their nature.
  3. Expectations and communication - often there is dissonance between what the executive team wants and what gets filtered down to the average worker bee. If we clearly communicate the need for disruptive ideas and that communication is received and understood, and the culture reflects those requirements, a firm can be innovative.
  4. Commitment - few firms succeed with part-time innovators. Either decide to commit or hang up the cleats now. If you are familiar with the story of the chicken and the pig at breakfast, we need "pig" like commitment.
  5. Funding and transition - many firms are able to generate ideas, but they aren't able to transition them to commercial products or services because there was no ownership in the ideas from the product teams or no funding available or the list of projects was simply too long. A defined innovation process flow - from concept to product or service - is required
  6. Fear of risk, change and failure - Innovation requires that you introduce risk into the business. It requires changing existing processes. More than likely, some ideas will fail. If your firm can't stand these risks, then become a fast follower.
  7. Lack of vision - To be an innovator, you have to have a vision for the future - what unmet needs or undiscovered markets may exist and how can we exploit them? If you don't have the vision, there are ways to acquire that insight, but you've got to have it.
  8. Thinking of innovation as a project rather than a competency. Most businesses are organized around persistent business processes. It's clear what people aligned to those processes need to do each day to make the business hum. However, many firms are very comfortable creating finite innovation projects -here today, gone tomorrow. There's no clear process and continuing effort around innovation, and given the risk and effort, as soon as the project is over, innovation is dropped.
I doubt this is an all inclusive list - feel free to add your own as you see fit in the comments. However, these are the issues that we see most often as reasons for failure when firms seek to innovate.
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posted by Jeffrey Phillips at 1:52 PM 5 comments

Thursday, June 05, 2008

Innovation waits for no man

There's simply no time to rest as an innovator. This was brought home to me yesterday when I purchased my first Flexplay DVD at an airport. Stuck, with little internet access, I purchased a movie and watched it on my PC. Nothing unusual about that, except that the DVD I purchased cost only six dollars and is a one-time use DVD. After 48 hours of opening the package, the DVD is no longer readable.

So, if you are Blockbuster or Netflix, two innovators in the movie rental space, you must be scratching your head right about now. No matter how innovative your products and services, there is always another firm seeking to disrupt your market or open up a completely new one. There also seems to be some rule at play here, in which an industry is very stable for a long period of time, then experiences not just one disruption, but a consistent series of disruptions over a short period of time. Stick with me on this for just a little while.

Using the movie rental business as a model, if we go back to the dark ages of movie rentals (Mid/late 80s and early 90s), Blockbuster was considered an innovator because it scaled the movie rental business. Formerly movie rental firms were small and had a very limited selection. Blockbuster was the first national "chain". It scaled the original rental model but did not disrupt the model. Then, along comes Netflix. They retained the rental model (less the late fees that were a big part of Blockbuster's profits) but changed the distribution - now the movies are mailed to you, rather than you going to get them at the neighborhood Blockbuster. Once the Netflix model took off, Blockbuster was doomed. Note that Netflix only changed two things about the model - they eliminated late fees and changed how the movies were distributed. This is something that Blockbuster could have done if they were interested in consistent innovation in their own space, but they defined their business as a distributed chain with physical locations, so they were probably unwilling to cannibalize their own market, and Netflix did that for them.

Now, there are several other distribution models - on demand to your PC from Netflix, which demonstrates that Netflix is trying to innovate consistently, and the time limited, throw away innovation from Flexplay. What Flexplay is doing is returning to the point of sale model - but the point of sale can be literally anywhere, since the DVD are watched once or twice then discarded. Now as a consumer I don't have to manage my movies or even worry about returning them. In point of fact, while I personally enjoy watching a lot of movies, I don't need to own them or worry about returning them. Why didn't Netflix innovate in this part of the distribution channel? And why is there suddenly, within the last 10 years or so, so much innovation in this space? It seems like there are a number of different ways to acquire and watch movies, whereas only a few years ago there were not nearly this number of range of options.

Netflix missed this business opportunity because it is still in the "rental" model business -sending and receiving the DVDs. It is a membership model business as well. I have no relationship with Flexplay - they are selling a one time product that I can use and discard. Again, an innovation around the business model for this industry.

Another interesting question - why does an industry sit pat for many years, then suddenly go through a broad and consistent range of innovation over a relatively short period of time? The movie rental market was relatively stable through the 90s until digital cable, Netflix and now Flexplay have all entered and disrupted a piece of the market. Netflix recognized a distribution model opportunity and capitalized on it. Flexplay introduced a new technology and created a different relationship with the customer and capitalized on it. Next, I predict, will be a streaming video opportunity to handhelds and cell phones that will include digital rights management, so I can download and watch movies on my cell phone.

At one point in the early 90s, Blockbuster looked indestructible and king of the movie rental business. Now it is closing stores so quickly that it can be hard to find a local place to rent a movie. Blockbuster and Wal-Mart both tried and failed to mimic the Netflix service, but I suspect that some retail giants may be able to copy the Flexplay model. The point here is that change is coming to your industry or market. No matter how defensible your market or position may be, innovators are seeking to dislodge or disrupt you.
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posted by Jeffrey Phillips at 5:51 AM 7 comments