Wednesday, August 31, 2011

Let H-P be H-P

I've written a couple of posts recently about the importance of being earnest.  No, not the Oscar Wilde play, but the importance of understanding, communicating and simply "being" what and who you are as a company when you innovate.  The common mistake that many firms have is that they believe innovation is about a cool product.  While a cool product is interesting, unless your firm has clear goals, plans and trajectories, a product is here today, gone tomorrow.  That why I wrote about innovating your "purpose", not just your product.

Today, I'd like to further that argument by using two simple examples - Apple and H-P.  I'm writing as Jobs steps down and Apotheker steps up.  Jobs is stepping down due to health reasons, and his imminent departure leaves us wondering if Apple can be Apple without Jobs.  Will Apple sustain its ability to predict the market, perhaps even lead its customers to want its new products and services?  Well, since Jobs returned Apple has had a clear vision and purpose.  The real question is:  can Apple sustain that vision and purpose without Jobs, or does it become a more careful, cautious company?

On the other hand, Leo Apotheker takes over at H-P and seems ready to jettison the last 15 years of investment in consumer hardware.  The story goes that Apotheker wants H-P to be cool like Apple.  This, in my mind, is missing the point, and missing the entire history of H-P.  H-P has a backstory - and one actually very similar to Apple.  Further H-P had far more people who knew and respected H-P for its history, its culture and its story.  Apotheker either doesn't know, or doesn't care, about this core story and its importance sense of purpose.

H-P was Apple before Jobs was even born.  H-P was, and in many parts of its business still is, the engineer's choice of product.  Raise your hand if you are an engineer and had an HP calculator in school, or if you are in any scientific endevor and use H-P equipment.  H-P stood for something - high quality, tools for people who did important thinking work, equipment that worked and lasted, built for engineers by engineers.  For some reason, none of this seems to matter anymore, yet I suspect that even today, H-P has as big, and as loyal, a customer base as Apple, they've just forgotten about it or de-emphasized what was and still is a loyal H-P base.  H-P was never cool.  In fact H-P products sat in engineering labs, in places where real work got done, and on belt loops and pocket protectors.  But H-P products built stuff, took men to the moon, designed and ran chemical plants.  H-P products, and the loyal people who used them, designed and built the stuff that all innovators now use as platforms.

And that's the point of this post - create a story about who and what you are and your value proposition, build a loyal following and innovate with those loyal followers.  After all, they are far more likely to adopt your new products and services than prospects and strangers who don't know your products.  As a loyal H-P guy I acquired one of the first H-P handheld devices, the Jornada, even though the Palm seemed like a better product, because I was convinced that H-P made better equipment.  H-P is trying to be the next IBM, or SAP, and wants to be cool like Apple.  H-P should look back to its history and decide to re-invigorate what made it great - great, innovative products that stood the test of time for people doing serious work who needed excellent machines.

I'm sure that's not in vogue right now as Google, Facebook, Twitter and god help us, Groupon take all the publicity.  We are at another "eyeballs" inflection point, where solid firms like H-P believe innovation is about capturing more prospects through interesting interfaces, rather than capitalizing on their intellectual property, reputation and loyal customer base.  When innovating, copying someone else's strategy or persona is akin to wearing someone else's clothes and driving their car - you may borrow their look and feel for a while, but inevitably your persona shines through.  H-P was never cool, and that should be OK.  H-P was a great company, is, and will be in the future if it realizes who and what it is, and who and what it is for.  H-P needs to be itself - it's real self, only better and faster.

H-P can't adopt another firm's strategy or pretend to be a fashionable consumer company.  That's not in its roots, its purpose and not where its loyal customers are.  Right now H-P stands to risk angering its loyal engineering, technical and scientific customers who number in the tens of millions, trying to become something that it is not, a follower in consumer goods and software, a purveyor of "cool.  Those fickle customers may not accept H-P's entrance into "cool" and the die-hard H-P fan boys are losing heart as H-P increasingly seems set to ignore the stuff that made H-P what it is.  H-P needs to be what H-P was, and is, rather than what it thinks Apple is.  Only then can it be successful innovating.
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posted by Jeffrey Phillips at 6:19 AM 8 comments

Monday, August 29, 2011

Why tribes are the answer to innovation needs

A friend, whose love of life and judgement I am growing to mistrust, suggested that I participate with him in a "Warrior Dash".  He talked about it for a few weeks and finally I signed up.  This weekend, I participated in the Warrior Dash in Huntersville, NC and I am far older and wiser for having done so.  His description of the event did not do justice to the actual gauntlet that we ran.  Still and all, for an over-the-hill guy who is a weekend jogger, I was somewhat proud of my results, even if my mud-soaked T-shirt and socks will never be the same again.

I'm wiser, not just because I learned how to duck under barbed wire in a mud bog (not me in the photo) or how to climb into and out of a dumpster, but because I learned something about innovation even in the midst of the Warrior Dash.  And what I learned should be instructive to your work in a nice, safe, clean cubicle or even the more dangerous corporate environs of a conference room.

I haven't discovered the history or provenance of the Warrior Dash, but it appears to be an interesting confluence of your typical summer festival in a field, with bands, booze and general mingling, mixed with a BMX course in which you, personally, are the bike and rider.  So, right from the start there's an innovation lesson - the confluence of a number of trends to create something new.  People who are into fitness need new exploits, and those of us who would merely like to imagine themselves as the cover model for Runner's World need some new exploit to attempt.  So much more fun if the finish line includes a mud bog, getting hosed off by a fire truck, and the handy access of a large beer.

What was even more instructive to me, however, was that few of the runners in my "wave" seemed to be at all athletic.  Many were dressed in costumes or had team t-shirts, and lagged well off of my (rather slow) pace.  It seemed to be something they decided to do together, as a group, for the experience rather than for the best time or result.  Another innovation lesson - they were out for experience, hoping for the best but understanding the experience of the course would improve their knowledge or outlook.  What's more, each team, and everyone who participated, became part of a tribe, even if only for a little while.

Seth Godin wrote a book about tribes, but I think he got one thing wrong.  There were no leaders at the event, and everyone decided how to run, whether to run or walk, how to dress and so forth.  All of these people (over 6000 racers in two days at Huntersville) became part of the Warrior Dash tribe.  My wife is already talking about doing another one.  Ouch.  But what great insight for innovators!

I stood, transfixed, as the first wave went out.  Clearly very few of the people racing were tri-athletes out to win a medal.  They were there for the fun, for the difference and for the experience.  It was a new experience, a new challenge that they embraced.  These folks paid good money to roll under barriers, crawl under barbed wire, scale a rope ladder and jump over the burning chemical logs (cough, environmental hazard, cough).  For this they got: scraped knees, blisters, heat stroke, mud in every possible orifice, clothing stained beyond repair and a cheap T-shirt.  In other words, the "awards", especially extrinsic ones, didn't measure up to the pain.  There was far more intrinsic reward than extrinsic benefit, which is also very relevant for innovators.

I don't know if the people who created the Warrior Dash know what they've got, but they've got the perfect model for an innovation initiative.  Innovation will work best when people come together to face an inordinately large or difficult challenge that they have great personal interest in solving.  There won't be an easy path to the finish, with many difficult barriers, hurdles and setbacks along the way.  The only people who will complete the task will be those who were in it for more than extrinsic rewards. 

There were some key differences between an innovation effort and a Warrior Dash, however.  One notable difference was the fact that unknown strangers were yelling encouragement to me while I was hip-deep in the mud bog.  People I'll never meet face to face were cheering for my (really our) success.  In most innovation activities, there are as many people silently or publicly rooting for failure as there are for success, and much innovation is done in isolation, far from the prying eyes of employees or customers.  Another difference between the Warrior Dash and most innovation initiatives? When I see someone with the Warrior Dash shirt on I'll have instant respect and knowledge of what they went through - we are now compadres in some larger sense with respect for each other.  Innovators are often outcasts even when successful, and can hopefully form tribes with other innovators in their own organization at best and are difficult to identify in the "real world".

Yes, I recognize that a 3 mile dash over difficult obstacles in the Carolina heat is a far cry from corporate innovation, but in many ways the lessons and outcomes are strangely familiar.  Innovation is about doing something unusual and difficult, often poorly prepared, with people you often don't know that well.  The barriers and obstacles are physical, cultural and monetary, but the work plays out in air conditioned offices, conference rooms and hallways.  Perhaps one of the best activities a new innovation team could embrace before starting a project would be to participate in a Warrior Dash together.  Then, the corporate hurdles may seem a little lower, the risks a bit more bearable and the team work a lot more integrated. 

We innovators, internal and external, are a tribe.  We may not share all of the same capabilities, strengths or knowledge, but we've all been through the same fires.  Respect other innovators and acknowledge their scars and sacrifices.  We are the sharp end of the corporate spear, and carry the slings and arrows of outrageous fortune to prove it.

The Warrior Race
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posted by Jeffrey Phillips at 6:12 AM 3 comments

Friday, August 26, 2011

Innovation as self-actualization

I've been reading a number of books about how to increase engagement and excitement at work.  Two on my desk right now are Bury my heart at Conference Room B (which I have mixed feelings about) and the other is The Progress Principle (which I will be reviewing on this blog shortly).  Both books speak to the fact that businesses are more effective when they engage their people in what their values are, what the employees care about.  To boil it down, the best businesses, the most successful businesses are those that have a purpose, and that purpose resonates and is important to the people within the business.  Whether you want to call this bringing your "whole self" to work or engaging your passion at work, or another descriptor, I think the main points are correct.

What's interesting is to explore this effect on the ability to innovate in an organization.  I've often argued that most firms innovate when they are forced to, by competitors or circumstances, or when they believe they can accelerate into even greater leadership.  The first is reactionary, based on fear, while the latter is proactive, based on confidence and vision.  In my experience, firms that attempt to innovate in a reactive way often have cramped views of the future, are fearful of short term results and are limited in their thinking and creativity.  The Progress Principle has chapters that confirm this - the more stress that employees are under, the more antagonistic the atmosphere, the less creativity and the more difficult innovation becomes.

Perhaps the best way to think about this is to consider Maslow's Hierarchy of Needs.  If you've had Psych 101, you've studied Maslow.  In the early 1940s he devised a way to think about the kinds of needs we have as humans and the prioritization of those needs.  They are, in order:
  • Physiological
  • Safety
  • Love/Belonging
  • Esteem
  • Self-Actualization
Maslow's point was that we first look for our physiological needs and satisfy them - air, water, food, shelter.  Once those are satisfied we seek safety and security - in our bodies, in our jobs and so forth.  Then we seek to join groups - family, community and networks.  Then, once these needs are satisfied, we seek esteem, which he defines as achievement and the respect of others.  Finally, we seek self-actualization:
This level of need pertains to what a person's full potential is and realizing that potential. Maslow describes this desire as the desire to become more and more what one is, to become everything that one is capable of becoming.[9] This is a broad definition of the need for self-actualization, but when applied to individuals the need is specific. For example one individual may have the strong desire to become an ideal parent, in another it may be expressed athletically, and in another it may be expressed in painting, pictures, or inventions.[10] As mentioned before, in order to reach a clear understanding of this level of need one must first not only achieve the previous needs, physiological, safety, love, and esteem, but master these needs.  (Taken directly from the Wikipedia site)

In other words, we seek to develop and acquire higher order skills and capabilities once lower order needs are fulfilled.  I'll argue that innovation can help solve problems in any of these levels - certainly you can use creative thinking and innovation to find more food, which our early ancestors did, or to create more safety using weapons.  However, the culmination of human experience - self-actualization according to Maslow, is about becoming everything you want to be and can be, as innovative and as creative as you want to be, in any field or course of action you choose. Maslow's pyramid actually includes the words "creativity" and "problem solving" as examples of self-actualization.  This is the point where innovation and creativity become activities that drive ever more beneficial outcomes, rather than satisfying physical and psychic needs.

So, perhaps we are designed for creativity and innovation, but only when other, very important needs are fulfilled.  And right now, in this time and in this economy, uncertainty about basic needs is creeping in.  Many find innovation and creativity difficult to consider when issues like job security or financial security are at risk.  In this economy these lower level needs are now less fully satisfied, and this uncertainty is distracting innovators from achieving higher levels of innovation. 

We certainly can't "wish away" the uncertainties of the present, and we must acknowledge the risks to "safety" and "belonging" but everyone, in every firm, must refocus our efforts on innovation and creativity to help accelerate our economy out of these doldrums.  In effect, we are working toward achieving some of our most ascendant goals - creativity and innovation.  When we focus on lesser goals, it creates disappointment, disengagement and frustration.  Our brains are built, and our psyches are designed to dream bigger and want more, which is the basis for innovation.  Let's continue to focus on the larger goals, even in the midst of uncertain times.

What can this mean? For businesses that want more creativity and innovation, help your people, as much as possible, fulfill these lower level needs of safety, security and esteem.  Only then can they focus their efforts and their thinking on creativity and innovation.  Think specifically about "belonging" - who do your innovators "belong" to?  Are they well-respected and constantly reinforced, or isolated and considered a bit out of the mainstream?  What about "esteem"?  Is their work rewarded and recognized, or is it held in some sort or contempt?  If your culture inhibits the innovators from belonging or limits esteem, it will inevitably inhibit innovation, which in some way creates barriers that don't allow people to achieve their highest goals.

For governments, we need to establish more certainty so people are more focused on higher order needs.  This means creating and sustaining clear courses of action, so that people can plan and understand what will happen, and how they can achieve more within the frameworks.

As long as people are uncertain about their base needs, innovation takes a back seat in any sphere - private or public, government or for-profit.  But once we help people shore up those basic needs, we can then encourage, sustain and reward innovation that will flow naturally if we allow it to.
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posted by Jeffrey Phillips at 6:44 AM 3 comments

Thursday, August 25, 2011

CEO as Chief Innovator

So, after days of pondering exactly what's missing I realized that several of my most recent posts have had a relatively common theme, and perhaps, subconsciously I was working to a specific insight or point.  After pondering this possibility, it's become clear, at least to me, that the person who is most vital, most necessary for innovation, is the CEO.  And not just in a cheerleading role, but in an active, engaged role in all levels of the organization.  But perhaps most importantly, in innovating the "idea" of the company itself.

First, remember, that I argued that many firms need to innovate not just their products, but their purpose.  By that I mean that innovation is often demanded by CEOs and senior executives, who want the latest and greatest products and services.  If I hear one more time how company "X" wants the next iPad of their market...but I digress.  Today, many executives and firms think innovation is something that product teams do, and if they could only do it more effectively then the firm will benefit dramatically.  That thinking isn't necessarily incorrect, just misguided.  Good innovation, in products, services or even business models, doesn't happen in a strategic vacuum.  The best innovators, the ones we constantly look to as the pinnacles of innovation success, have executives who are active in innovation and set clear goals and objectives.  Merely stating that the firm needs to become more innovative isn't enough.  Firms need to innovate their thinking, their purpose, their reason for being, and to do so they need executives who are tuned in to the importance of innovation, and executives who are actively engaged in innovation.

However, most people in leadership today of major firms didn't achieve their roles through innovation success.  Most achieved their ranks through cost cutting, improving efficiency and keeping the fire of existing products and services burning.  In other words, innovation is not a skill that was emphasized as many executives climbed the ladder, and it has not been actively developed.  What's more, I believe, is that the emphasis on financial returns has led increasingly to a reduction of time thinking about strategy, and testing new strategies.  More and more, most firms in any industry follow the same, tired strategies, which makes firms like Apple or Google or JetBlue stick out.  They seem to zig while the majority zags.  I wrote about this phenomenon recently, suggesting that many organizations suffer from Strategic Exhaustion - that is, they've either exhausted all the possible strategies or the leadership has simply exhausted its imagination for new markets, opportunities, strategies and business models.

Which brings us to the crux of the post today.  Innovation is difficult at best in the absence of clear strategy, and will probably only exist at a product level.  Without clear strategic goals and the understanding of the strategic intent and purpose of a business, innovators will struggle and most innovation will be incremental.  As strategic exhaustion sets in, firms become followers of other business models or other organizations, rather than creating crisp, clear strategy and striking off where their vision leads them.  Adam Hartung has an excellent evisceration of Hewlett-Packard which describes how the last three CEOs have identified strategies that simply followed other firms, rather than staking out H-P's value proposition.  

My conclusion is that innovation can only be successful in the long term in a firm that understands its purpose and has clear, consistent strategy.  Those two factors come from the developed vision of a senior executive team, lead by the CEO.  In the absence of a vision or strategy, innovation is difficult, incremental and often futile.  This is why I say the CEO must be the Chief Innovator - not merely as a spokesperson, or cheerleader, or the individual with the deep pockets, because those belief systems take the CEO off the hook for vision and strategy.  While it is important for product managers to innovate new products, it is equally as important for CEOs to innovate the idea or purpose of the company.

In recent research I found a statistic that of the original 500 firms in the S&P 500, first developed in 1957, only 125 remain today, and of those 125 only 94 remain in the current S&P 500. Corporations and their purposes are transient, not permanent. What many CEOs and corporations fail to realize is that shifts in demand, shifts in technology, shifts in demographics create new needs and expectations.  The mere fact that an organization exists does not guarantee existence into the future, unless the corporation changes its products, its services and ultimately its purpose or its "idea" of itself.  Schumpeter's concept of creative destruction applies precisely to large firms that become locked into a business model and worldview while the rest of the world changes.  CEOs own the responsibility to create and communicate a vision or strategy, and ensure that that vision or strategy is carried out.  In the presence of clear strategy, innovation is challenging.  In the absence of clear strategy, it is almost impossible and eventually incremental, in a world where disruptions occur constantly.  The CEO and his or her executive team must be full partners in any innovation effort - supporting and engaging innovation in product groups, yes, but just as importantly innovating the purpose and idea of the organization.  Innovation isn't simply a process that's isolated in one business unit or in R&D, but a set of capabilities that must be exercised at all levels of the organization.  The executives who understand this principle are the ones who will keep their firms vital in the face of constant change.  Those that fail to grasp this concept will be left following those that do.
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posted by Jeffrey Phillips at 5:49 AM 4 comments

Wednesday, August 24, 2011

Innovation and Strategic Exhaustion

I write today about a beloved company - Hewlett-Packard, and all that it has meant to my life.  One of my first consumer electronic purchases was an H-P calculator, and as a young engineer fresh out of college we were regaled with the history of H-P:  born in a garage, during a depression, making excellent products.  The H-P story is in many ways the story of Silicon Valley writ large, or at least the story that used to be.

H-P represented the entrepreneurial story of two guys who decided to do it on their own, in a garage, developing great products, scaling up a company.  They built real products and delivered real value - not "eyeballs" or advertising revenue, but a solid business built on excellent products which created a lasting reputation.  But over the years, the company has lost its way, and become in many of its product and service lines a fast follower rather than an innovator.

I'll argue that it started with the acquisition of Compaq.  In this acquisition, H-P decided to compete with Dell and other fast growing PC manufacturers.  At the time, the decision was controversial, and now, as H-P seeks to divest some of its consumer hardware, it looks wrong-headed.  Rather than stake out a vision of what computing could be, Fiorina and others around her followed the consumer PC business, but didn't fully grasp Dell's model, which was far more efficient, or, eventually, Apple's model, which was far more profitable. 

Next, Mark Hurd entered the picture and started slashing costs, placing a premium on slimming H-P down.  From what I've heard, innovation and research took a back seat to cost cutting. Under Hurd, H-P acquired EDS to bulk up on computer services. Then, of course, Hurd left under less than optimal circumstances and Apotheker has taken over.  In less than six months H-P has announced and retracted a complete line of tablets, and switched its strategic course yet again, this time to follow IBM, Oracle and other "big system" software and service integrators.  Yet again, I suspect this is a following strategy that places H-P at the back of the line just as the trends lead to a different emerging reality.

This isn't a problem just for H-P.  Microsoft created and retracted an entire product line of smart phones.  Motorola, once the leader in handset development, is now split into two pieces and will be purchased by Google.  Many of our former innovation leaders have run up on hard times, and will seek to blame the economy, foreign competitors and fickle customers, when I think they should be examining their so-called strategies.  I think many of these larger firms suffer from what I'll call strategic exhaustion.

Many seem to have decided to avoid creating a clear strategy, or have decided to simply follow what appears to be the prevailing strategies of the current ascending firms.  Rather than break out simple innovation tools like trend spotting and scenario planning and carve off a path that is interesting and unique, and may solve customer needs or even create new customers, most seem content to follow what are already tired strategies and focus on cost cutting and right sizing. 

This strategic exhaustion can only lead to a few outcomes.  For the really large firms, like Microsoft, they will remain stagnant with little growth until they free up their smaller product teams where real innovation can occur.  Microsoft is "too big to acquire" and too stagnant to change, so only by freeing up ideas on the margins will it regain its momentum.  H-P and others like it, including firms like Nokia and Motorola, will cast about, seeking to acquire or be acquired, hopefully by others who have more energy, innovative spirit and vision.  Who knows if the Motorola/Google acquisition will pay benefits?  Will it be the Compaq/H-P merger of its day?  Finally, strategic exhaustion will lead those firms that are too small to acquire to reconsider their purpose, their place in the market and their strategies.  This re-assessment will most likely result in a flowering of innovation, because the firm will have to rediscover its focus, its purpose and its markets.  The other option is a slow withering away, gradually then suddenly slipping into irrelevance.

I've often argued that innovation happens in many companies once all other management initiatives are pursued and all other options are exhausted.  As more firms exhibit signs of strategic exhaustion, perhaps they'll rekindle their innovative spirit to identify a new purpose.  Perhaps they'll return to the garage, to base principles, to an original vision, to chart out a new direction and re-energize the organization, rather than simply follow the strategies of other, equally exhausted management teams.  Now, more than ever, innovation is the important management tool, not simply to generate new products or services, but to identify new purposes, new markets and new strategies. 
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posted by Jeffrey Phillips at 5:44 AM 2 comments

Friday, August 19, 2011

Innovation: out of sight, out of mind

There's a famous George Orwell quote that is one of my favorites, and it speaks volumes about where many organizations are with innovation today.  Orwell's quote is:
To see what is in front of one's nose needs a constant struggle.
What Orwell meant is that the obvious stuff that exists in front of us often disappears into the woodwork as we become consumed with daily activities, priorities and pressures.  I'd suggest that for big businesses, the quote could be appended to say
To solve customer problems using innovation requires constant attention
I write this today prompted by several topics.

The first is Scott Anthony's post wondering if the economy changes innovation.  My answer is perhaps the opposite - can innovation change our reaction to the economy?  Innovation is now more important than ever, but what's like to happen is that the economy and the turmoil and uncertainty surrounding it will simply cause people to lose focus on innovation, at a time when they should be more focused on innovation.  Innovation needs a constant struggle for attention.

The second prompt is the silence from one of my customers.  We are scheduled to talk about innovation projects, but I can already play the conversation in my head.
Me:  We were going to talk about kicking off that new innovation effort to (blah blah)
She:  Yes, well, I've been so busy reacting to all of the short term issues I haven't had a chance to think about innovation.
Me (in my head only, hopefully) How can innovation ever take a back seat?
Innovation needs a constant struggle for attention.

The reality is, innovation is for most organizations an occasional, strange, painful event to be avoided unless specifically demanded by executives.  It is akin to eating vegetables and ruffage - we know we should be doing it, but it is easy to put off, especially with all the other demands and tasty choices.  Unless and until innovation is constantly at the forefront of your organization's thinking, it is very unlikely to happen, and will never happen well.

At Notre Dame's football stadium, over the door the football players use to enter the stadium, are the words "Play like a champion today".  You can't go through that door without seeing those words, and the tradition is that every player touches that doorframe to remind themselves of the task at hand.  What would it be like if the words "Did you innovate today?" appeared over every door and on every screen saver in your organization?

The truth is, unless innovation is front and center, every day and in every location, constantly reinforced, it will become an afterthought, engaged only when the firm is in a commanding position and hopes to accelerate away from competitors, or when the firm has exhausted all options and turns to innovation as a last resort.  Innovation needs a constant struggle for attention.

So, what are we to take from this?  If your CEO says innovation is important, look around for the signs that suggest it will be supported and reinforced constantly.  Or, absent that, take the CEO at his/her word and put up the messaging to remind people about the importance of innovation.  Hold a meeting to recognize innovation efforts every week or month.  Include innovation activities in your weekly reports.  If innovation isn't part of the drum beat, it will be exceptionally hard to hear the innovation music, until it fades away.

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posted by Jeffrey Phillips at 7:34 AM 2 comments

Tuesday, August 16, 2011

Open Innovation is about to become a lot more open

In case you've been out of town or very busy with your workload, you haven't failed to miss the fact that the ongoing recession (or very slow recovery, if that's what it is) is not creating the atmosphere for a lot of hiring by larger corporations.  In fact, somewhere in the neighborhood of 10 million people are out of work, and the workforce participation rate is the lowest it has been since the Great Depression.

What this means is that there are a lot of people out of work, for whom there are few options in the traditional employment pool.  Large companies aren't hiring, government is actually shrinking, the military is overachieving its quotas.  So, what this means, and what it has meant in the last few recessions or depressions, is that many unemployed people will decide to start their own companies or create their own jobs.  In several recent recessions, there's been a flowering of entrepreneurship as those displaced from larger corporations started anew and created their own businesses.  I guess this is a logical progression, as new industries, new businesses and new corporations are formed by those who are let go, or never had a chance in larger organizations.  I suspect what we'll also see is a large but static set of firms and a growing number of smaller, more dynamic firms less interested in size and more interested in networking, agility and flexibility.

What this means is that innovation increasingly becomes a networking and connectivity exercise, as the smaller firms need access to markets and channels that larger firms provide and larger firms rely increasingly on smaller firms for new ideas and new technology.  This is the open innovation paradigm writ large, far larger than today.  Today, many large firms have a handful of corporations as partners and perhaps a few dozen smaller firms in their networks.  With over 10M unemployed, if only 20% start new businesses, there could be up to 2M new businesses with plenty of new ideas, products and services available in just a few months.  That means the scouting and business development portions of large businesses must increase.  Simply identifying the firms that have good ideas will become much more difficult, as the numbers increase and as new firms enter the marketplace.  Many of these new businesses will be started by corporate outcasts, who have toiled on new ideas and new technologies for years in larger firms, only to see their ideas stymied.  These new businesses will take advantage and push their long-stalled or rejected ideas forward in new businesses or as idea or technology generators for larger firms.

What's needed in the near future for innovation to accelerate is better networks, better connectivity and better communication.  As the number of new innovators and inventors grows, the number of ideas and technologies will grow as well.  Larger firms must do a better job communicating their needs and goals to this constellation of new entrepreneurs, and both small firms and large firms must create a marketplace for the exchange of ideas and needs.  Open innovation will get a lot more open, and a lot more interactive. I suspect that we'll see larger firms increasingly outsource innovation to entrepreneurs, and the large firms will acquire those ideas through open innovation or through outright acquisition of the entrepreneur.

Yes, we are in the middle of a tremendous economic slowdown, and the news doesn't look all that promising from a jobs perspective for larger firms.  History tells us that many of these displaced individuals will start new businesses which will spark new economic growth, but more importantly become the catalyst for innovation in firms of every size.  In fact, this has probably already started, we just aren't aware or paying attention.  It is time to pay attention, and the time for large firms to build the networks, connections and communication to identify, source and acquire the best ideas, and the means to convert the excellent ideas and technologies into new products and services.  If history is any guide, new entrepreneurs will flood our markets in the next few years with new companies, new products and new technologies.  Larger firms will constrain hiring to drive up stock prices, but will need new ideas to keep pace with change.  Open innovation will simply become even more important, and the people who can create the networks and connections between the innovators and the corporations will profit.
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posted by Jeffrey Phillips at 4:55 AM 4 comments

Friday, August 12, 2011

Innovate your purpose not just your product

It's with so sadness that I note the latest news from the United States Postal Service.  Their plans currently call for the reduction of hundreds of thousands of jobs, and the elimination of thousands of post offices across the country.  The Washington Post reports that the Post Office must make billions in payments for employee and retiree pensions, while mail volume has fallen over 20% year on year. 

I grew up on a farm, at a time when there were three major TV networks, of which we could receive two.  We had a party line telephone at first, and our contact with the outside world consisted of interactions at the country store, or when we received mail, which included catalogs, magazines and letters from friends and family scattered throughout the US and across the world.  The mail at that time and in that place opened up a world beyond the farm. 

We've watched, over the last few decades, as the USPS has been racked with competition, from UPS for packages, Fedex for overnight delivery and by the advent of email.  Much bulk rate and important document transfer goes to UPS and Fedex, and we've become a nation of Tweeters, emailers and Facebook posters rather than letter-writers.  Even many businesses have recognized the power of the internet and encourage online bill-pay, so soon all that will be left for the post office is unsolicited mail and advertisements. 

It didn't have to be this way.  The Post Office, like GM, like the big steel companies fell victim to its importance and its world view.  GM, recall, was happy to cede the "low end" of the market to new entrants, Toyota and Honda.  In a Honda dealership recently I saw one of the earliest Honda imports to the US, and I wondered how desperate the buyers in the US were to acquire that car over US manufactured cars.  Big Steel ceded the low end of the market to Nucor and other mini-mills, and the mini-mills discovered that they could do everything Big Steel could do, with better quality and lower costs.  Clayton Christensen's concept of disruption rings true in all of these stories.  Could the Post Office have competed or even introduced the concept of overnight shipping a la Fed Ex?  Of course it could have, but the offering probably would have cannibalized existing customers and services.  Is the Post Office bound by inflexible scope and rules, having to visit every household 6 times a week?  Yes, but could it turn that requirement into an advantage?

Here's the point - it's often as important to innovation your "purpose" as it is your "product".  I'm sure the USPS has introduced a number of new products and services, but has it carefully thought about its purpose?  The famous example being buggy whip manufacturers.  Perhaps, if they had defined their purpose as "Starting Transportation" rather than "whipping horses" they might have made the transition when the car took over.  Who really knows?  But using the Post Office as an example, let's explore a few concepts for purpose.

The USPS states that it has an unfair requirement to visit every home six times a week.  Could that visit be used to create other services or information?  Why not have the Postal Carrier help with the Census?  Why not have the Postal Carrier offer to check in on the lonely or isolated people?  Why not have the Postal Service read a utility meter for the utility company?  Why is Google photographing homes when the Post Office visits every home every day?

Or, could the USPS have delivered something other than the mail?  Could they have structured their routes to deliver groceries or other goods?  After all, they have the most thorough and complex routes of any local delivery service.

Could the USPS have defined their mission as message delivery, rather than mail delivery, and entered the business of managing email systems and servers?  I'm sure there were many barriers put in place to attempt to keep them out of that business, but a simple redefinition of their business and purpose could have placed them at the center of messaging.  Why is a small firm called Twitter managing much of our short messaging to each other?

There were many opportunities, and perhaps some still remain, for the USPS to question its purpose and to reinvent and innovate its purpose.  Historically, in our economy and society, firms had long runway to recognize societal and technological change and adapt to that change.  A firm could be slow, but adaptive.  Those days are over.  Firms must adapt not just their products and services, but must innovate their purpose as well, because even purpose and strategy have much shorter lives than they once did.

Innovate your products, yes, and your services and your experiences.  But don't neglect to constantly question your purpose.  That may be the most important thing to innovate.
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posted by Jeffrey Phillips at 5:43 AM 3 comments

Tuesday, August 09, 2011

Failing to innovate while surrounded by ideas

Samuel Taylor Coleridge wrote the Rime of the Ancient Mariner, with the couplet

Water, water everywhere and all the boards did shrink;
 Water, water everywhere and not a drop to drink.

He wrote this imagining a sailor, adrift at sea, who is driven mad by thirst.  It's ironic that the sailor is floating in a sea of water, literally surrounded by water, but none that he can drink.

I wonder what Coleridge would have thought of our political and business climate today, which seems shackled, stagnant and stalled, while there are literally thousands of ideas available.  Following a 600 point drop in the stock market, a political system that seems deadlocked and an economy that seems very uncertain, it would appear that we are heading for 70s style stagflation, only without the inflation.  So just stagnation.  Yet we are literally awash in ideas, if only we have the foresight, courage and energy to start adopting them.

Yesterday I wrote a post that suggested that of all the critical resources or inputs that have propelled our economy (land, labor,oil, ideas) only ideas were truly inexhaustible.  We have, or will, exhaust all of the arable land available for agriculture.  We will exhaust our ability to add value with labor.  We will exhaust our oil supplies.  But the exhaustion of those inputs does not have to stymie our economy or growth.  We have an inexhaustible source of creativity, ideas and innovation, which if applied correctly can create solutions to these and many other challenges.

To see just one example of human-kind's ability to innovate, consider the Simon-Erlich wager.  In 1980 two economists made a public wager about a basket of commodities.  Erlich, who was concerned about increasing populations and uncontrollable demand, bet the basket of commodities would rise.  Simon bet that human ingenuity and innovation would keep the prices of the commodities low.  In 1990 Erlich conceded the bet.  Although population grew and demand for the commodities increased, the price of every commodity but one in the basket fell.  Over a much longer period of time, all of these commodities are exhaustible but the ingenuity and creativity that kept prices low for a decade remains, and will discover alternatives or replacements as the original commodities are exhausted.

Our generation is the most interconnected, well educated generation on the planet.  We have access to information unsurpassed in human history - in fact we generate more information on a daily basis than was collected in the first 10,000 years of human history.  We can spot trends, generate ideas and test those ideas with greater speed than ever before.  We have access to a diverse pool of knowledge - from the Middle East, Africa, India, China and Europe.  We are literally awash in ideas, yet stagnant in opportunity.

Further, we have the possibility of a network effect.  The benefit of the network effect is that as the number of nodes in a network increases, the value of the network increases.  As we have far more people who are well-educated, creative and innovative who are connected to the internet and other communication devices, we have a virtuous worldwide circle of innovators who can generate ideas, validate ideas and test ideas with ever increasing speed and accuracy.  We stand on the threshold of innovation capabilities unlike any ever seen on our planet.  It's as if we have thousands of Edisons or Marconis or Einsteins waiting, with pens poised, to lavish our markets with ideas.  Yet we are told our economies, our markets and our governments are stagnant.  Little to no growth is forecast.  The hopelessness and apathy are palpable.  Markets are unsettled, many experts uncertain which way to turn.

This reality is absurd.  It is time for innovators to push aside those with tired, outdated viewpoints and to introduce completely new concepts and ideas.  I am convinced that there are thousands of good ideas available to our businesses, governments and economies.  Perhaps no one idea is a game-changer, but many ideas and many experiments conducted now will lead us out of this malaise far faster than replaying the same old exercises.

Like the Ancient Mariner we are adrift in the calms in a boat, convinced that our position is stagnant, when all around are ideas full of motive power that can literally change our businesses, economies and governments.  We only need to face stagnation if we choose to remain stagnant, because ideas are inexhaustible, innovation accelerates in the interconnected networks and new products, services, business models and governance will rapidly change our settings, course and speed.

So, innovators, what's your choice?  Apathy, dejection, stagnation and wasted decades of inactivity, or innovation, new concepts and ideas, new products, new services, new governance?  If ever the power of innovation was more necessary, and the capabilities more relevant, we'd be hard-pressed to name that occasion.  For too long the static ways of the past have stood as barriers to better ideas in all facets of life.  Innovators of the world, unite and innovate, you have nothing to lose but the stagnation, apathy and fear of those who will not.
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posted by Jeffrey Phillips at 5:59 AM 2 comments

Monday, August 08, 2011

Ideas: Perhaps the last inexhaustible commodity

The story of development, at least in the US, is the story of identifying and exploiting the seemingly inexhaustible commodity, then spotting and exploiting the next one.  I’d argue that right now, late summer 2011, we are still shifting to discover the next inexhaustible commodity, even though it is right in front of us.  But first, a brief history lesson.

In the US, the first inexhaustible commodity was land.  From the first settling of the US till the Great Depression, land and what it could produce was the inexhaustible commodity.  At first there was always more land, to the south and to the west.  Brave pioneers went inland to discover vast tracks of land, land that could grow crops and feed the family, crops that could be sold to the larger communities on the coasts and overseas.  Even after a significant portion of the land was claimed, land was still the inexhaustible commodity to exploit – we simply found ways to get more production out of the land with the cotton gin, artificial fertilizers and advanced farming techniques.  In fact we became so good at farming that the number of people necessary for farming fell dramatically, to the point where the rural population today is the smallest it has ever been.

Once the land issue was settled, manufacturing became the inexhaustible commodity.  From the end of the first World War till the present day, manufacturing drove the economy, and the economy drove manufacturing.  We fed a tremendous number of people into the factories to generate physical goods to local and international consumers.  And, in the same way as the farm, once the easily exploitable manufacturing segments were exhausted, we found ways to improve.  Thanks to Frederick Taylor, the Toyota Production System, integrated manufacturing systems and software, and many more advances, our manufacturers make more stuff at higher quality than at any other point in time. In fact the diminishing marginal return for manufacturing may be approaching.  Further, we've discovered and exploited petroleum, what seemed like an inexhaustible source of energy.  Since the first major discovery at Spindletop in Texas approximately 100 years ago, we've found ways to extract oil from a range of locations once thought impossible to tap.  Yet we are constantly told that "peak oil" has passed us by.  Oil, natural gas and other carbon-based energy systems are approaching or past peak production.

Next, we turned to financial engineering and other services to exploit.  Clearly in a global economy, the markets for financial services and other services are more profound, and since the late 1970s barriers to international finance have fallen as the world’s economies became more integrated.  Financial engineering has led us to ever increasing integration but exposed the gaps between fiscal probity and financial risk.  We may never approach the limit of our capability to engineer financial products and services, but we may need to wait for our legal and regulatory systems to catch up to our ability to engineer financial products and systems.  Yet again, we may exhaust our ability to exploit another market, as foreign competition is adept at financial engineering and foreign markets, while integrated, retain financial levers to restrict some product development and engineering.  All three will follow the same trajectory, leaving us to define the next significant area of growth for our economy.  Note as well the almost exponential decay in the length of time of each exploitation.  It took thousands of years for farming to fully exploit its capabilities and the available land.  Manufacturing, it can be argued, was fully exploited in less than a few hundred years and financial engineering and services may be fully exploited in less than 100 years.  As the world becomes more interconnected and more interdependent, and as the ability to document information becomes ever more prevalent, knowledge is disseminated faster, which enables more people to capitalize on the knowledge and exploit the opportunity.

What then, is the next inexhaustible commodity?  We’ve tapped the land, we’ve mastered and optimized manufacturing and we’ve exploited the ability to engineer financial products to the extent that many of the people who were selling and marketing the products either didn’t understand the implications or were actively betting against their own products. 

My supposition is that human creativity is one of the last inexhaustible commodities, with ideas as the fruit of that capability and new products, new services, new business models and new experiences as the realization of the ideas.  As we’ve demonstrated before, once a seemingly inexhaustible commodity is identified, it will be exploited for all the gain possible.  Currently, many organizations have identified idea generation and innovation as a potential source of great return, but are uncertain as to the methods to convert ideas into value.  After all, you can’t “farm” ideas and eat the fruit, and you can’t manufacture ideas and sell the ideas to others.  Ideas require an additional step to exploit – they must be converted into viable technologies or intellectual property or services.  At that point their value can be recognized.

We are in the midst of a shift to begin to exploit this seemingly inexhaustible commodity, and the shift is really only beginning.  Like the early farmer or first manufacturers, our systems, methods and processes are still crude.  There’s little experience and little refinement of the processes by which ideas are generated and then converted into viable, profitable actions.  Our Frederick Taylors, the people who define the systems that create efficient systems that accelerate the exploitation of ideas, have only just emerged, and many industrial leaders don’t understand the shift that’s occurring.  They remain focused on driving more efficiency from a rapidly diminishing manufacturing model or attempting to conduct financial engineering in the face of a rapidly growing regulatory administration, ignoring the potentially inexhaustible commodity at their doorsteps.
In the 1800s over 80% of the population worked in farming.  Today the number is in the single digits.  The same decrease can be seen in manufacturing.  After the Second World War over 60% of the population worked in manufacturing.  Today the number is near 20% and declining. After explosive growth in financial services, this market will become fully exploited, automated and the employment levels will fall.

Each seemingly inexhaustible commodity experienced the same exponential growth, the same diminishing returns and the same investments in efficiency, process definition and skill development.  The future growth in this country and in the world economy depends on identifying the best possible new ideas, converting those ideas to relevant products, services and business models, and scaling our capabilities to produce more and better ideas at an ever increasing rate, which requires new innovation methods, new processes and new innovation skill development.  This industry is no different than farming or manufacturing – we are simply at the early stage of a shift into a new paradigm in our economic development, and the faster we make this transition, the better.
One especially salient point to make about innovation:  unlike land, ideas are not constrained by physical continents, local weather patterns or the richness of the soil.  We cannot exhaust our creativity.  Unlike manufacturing, we cannot ever exploit every idea in every market sector and cannot outsource our creativity and innovation to countries with lower costs.  Innovation and creativity is the one inexhaustible commodity if we will only understand it and begin to become more effective deploying the existing skills and talents that we have, and building new skills and talents to fully exploit the capability.
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posted by Jeffrey Phillips at 5:59 AM 2 comments

Thursday, August 04, 2011

Experience your product like a customer

Did you ever have the feeling that everyone around you knew something that you didn't?  An experience like that leaves you convinced that you've missed out on something - some experience or insight that may have brightened your day or given you more insight or enjoyment. I suspect that far too many product developers and managers know far less about the actual use of their product or service than they expect.  That lack of insight and knowledge means that the products and services never achieve the outcomes that are possible.

Take, for example, the building where I work.  We have a fine office space in a building managed by a large management company.  This summer, we've experienced very hot weather, and the temperature in the building has been hard to maintain.  The management, to their credit, installed new HVAC equipment and to some extent the building is now more comfortable.  Except for the fact that you could hang cattle carcasses in the restrooms.  The temperature in there must be in the low 60s.  That's good for productivity, since no one is going to spend much time in there, but terrible from an energy use and conservation point of view.

Now, I am certain that everyone on our floor is aware of how cold the restrooms are.  In fact, passing people in the hall we often comment on it, and I've seen several people wearing jackets or sweaters (when the outside temperature is in the mid 90s) to the restroom.  I'm also willing to bet that while we all know about the problem, no one has reported it, since everyone knows that it is a problem but it's not an important problem.  Further, since the management group hasn't had reports or complaints, they assume there are no problems.  Everyone is a little less better off, but no one is severely damaged either.  In the absence of critical feedback, the management team thinks everything is fine, while we sit here, wondering why they waste so much energy cooling a restroom, when the rest of the building has traditionally been problematic.

What would fix this problem?  The best result would be for the management team to regularly visit the building and enter as many offices and common areas as possible.  It's clear that no one from the building management group has entered our restrooms in several months, because they would take action if they had visited.  A second option would be to regularly poll the tenants, asking about the services and also seeking information about even small concerns or issues.  But we've been trained to avoid knowledge of these issues rather than request them and seek alternatives.

Perhaps the best answer would be if the person responsible for managing our building had an office here - and had to experience the baking heat and freezing temperatures along with us, her customers.  The absence of complaints does not signal that all is well - it merely signals that we've either given up asking or are tired of having small issues ignored.  We'll be voting with our feet later in the year, leaving this building to move to another location, hopefully one that can manage the simple art of HVAC.  But that building has an added benefit - the management team for the building resides in the building.  Instant feedback!

What's this got to do with innovation?   Everything.  Far too often we are guilty of creating products and services that we don't consume, don't use or don't need, so we don't experience them from the customer's point of view.  Every business should require its employees to use some of its products and service and listen carefully to feedback - small complaints that many would choose not to even voice, and large concerns as well.  Small problems cause barriers and resistance just as much as large problems, but the small problems fly under the radar screen, rarely reported or rising to the attention of product developers who don't experience the problem first hand.  If you don't experience your product or service the way a customer does, how can you expect to find interesting innovations or important gaps?

And I don't mean that you simply deploy the product in a lab and pretend to use it in the way you believe a customer would use it.  I mean take it home, use it under all conditions, without the support of the product development team.  Then, report on what works well, what things didn't work the way you expected, and what quirky or uncertain behavior exists.  Next, what would you change if you had all power?  Do this with your own products and services and innovation opportunities will be obvious, as well as the issues and challenges your product or service creates for others.

I know from working in the banking industry that many people who work for large banks (Wells Fargo, Wachovia, Bank of America) have accounts with ING and other web-only banks.  Why?  Why would a bank employee have accounts with a competitor?  Because ING solved problems or offered service that the larger banks couldn't or wouldn't.  If your own employees acquire products and services from competitors, how much more likely is it that your customers and prospects will?  Why not simply ask your employees if they acquire goods and services from competitive offerings or companies, and if so, why they take those actions.

Being blind to customer needs or expectations is a dangerous place to be.  Willful blindness, not wanting to see or not taking the time to discover, is even worse.  But it happens every day, and is how so many products and services are disrupted.
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posted by Jeffrey Phillips at 11:00 AM 4 comments

Wednesday, August 03, 2011

What is a "culture of innovation" anyway?

I read a significant amount of material on innovation.  Even though I'm deep in the trenches of innovation, and have written a fair bit about it myself, I think many of us (self included) are guilty of asserting positions without diving into them very deeply.  When we talk about the importance of culture, especially when we advocate a "culture of innovation", we often write or say these words as if there is a general agreement as to what it means.  While I suspect that everyone has some interpretation of that statement, I thought it would be interesting to write a post that describes what I think a "culture of innovation" is, after all, and ask you, gentle readers, to append your thoughts about my oversights or areas of over emphasis.

After all, the more we define our methods and clarify our approaches, the better we'll communicate and the simpler it will be to actually implement this stuff rather than simply talk about it.  Herewith, my dissertation about "a culture of innovation".

To define this, we should start first with what is "corporate culture".  To me, corporate culture is the set of assumptions, beliefs, practices, formal and informal rules and attitudes about how a company operates.  Corporate culture evolves over time, and is both formal and informal.  Corporate culture often shifts over time as well.  Young entrepreneurial firms and startups have a culture that thrives on risk, speed and change.  Growth is paramount.  Older, established firms have a culture more typically based on rules, hierarchy, achievement of predictable milestones.  While many firms have elaborately detailed organizational hierarchies and established workflows, corporate culture is often much more informal, and more powerful than any individual, and often more powerful than senior executives appreciate or expect.

In an organization with a strong corporate culture, people learn to fit in quickly, adjust their thinking to the predominant culture or are quickly ostracized.  Corporate culture, more than any other factor, details how people think, what they believe is important and valuable, and dictates how work should get done.  It is difficult to change, especially under duress, and often communicates much about the values and intentions of a business.  For a blog post, that's as far as I'll go to define culture.  There are plenty of other resources that, given time and space, will do a better job defining culture.

Now, to our main question:  what is a culture of innovation, and is it very important?  If corporate culture is as overarching and powerful as I've described above, if it can dictate how people think and what people do, then culture is clearly either a significant barrier to innovation or a significant enabler to innovation.  And yes, it is binary.  Most cultures, especially in larger companies, are focused on consistently achieving quarterly goals, eliminating risks, reducing variances.  These corporate cultures make perfect sense - they are tuned to achieve what the markets tell the firm is important:  consistent quarterly achievement against financial goals, with few hiccups or surprises.  However, in most firms these cultures are at best resistant to innovation if not actively fearful of the implications:  change, uncertainty, new tools and skills, variance, failure and risk.

A culture of innovation, therefore, indicates that an organization is at least willing to embrace many of the tools and techniques that innovation requires, but moreover is able to endure the potential outcomes.  For every innovation success there are many attempts and several failures.  Every innovation is potentially cannibalizing an existing product or service, and innovation forces constant change - not just to products and services, but to experiences and business models.  This means that a culture of innovation is agile, nimble, constantly adapting and learning, open to experimentation and many points of view.  A culture of innovation tolerates and learns from failure, incorporating the best parts of the failure into new efforts.  A culture of innovation understands that innovation is a continuous, consistent process rather than an occasional effort.  A culture of innovation seeks out internal and external viewpoints and perspectives that are different from what the team "wants" to hear, and works closely with customers, partners and even the disinterested to understand future needs.  A culture of innovation has as much invested in understanding the future as it does in delivering value in the present.  A culture of innovation constantly generates ideas but also has the ability to commercialize the best ideas and ships valuable products.  A culture of innovation isn't just an idea machine, it is a commercialization machine.

So, how does a firm shift its culture to become more innovative?  Just as it takes miles and a lot of space to turn a battleship, a corporate culture doesn't shift overnight.  A culture of innovation is enhanced by leadership that reinforces it, but as 3M demonstrates a resilient culture of innovation can bear leaders who aren't supportive of innovation, and rebound when new leaders are announced.  Strong cultures are more powerful than strong leaders.  To build a culture of innovation, establish clear, consistent innovation goals, hire people with broad perspectives and interesting networks, encourage collaboration internally and externally, seek out new needs and new customers or market segments, train your teams on innovation tools and techniques, shift reward systems, compensation systems and most importantly evaluation systems.  Make innovation as important as whatever the culture once thought was the most important thing - and do all of this over an extended period of time, because cultures have great inertia, a lot of patience and much resilience.  A half-hearted approach won't work, and once a culture feels threatened it will simply burrow more deeply into the fabric of the organization.

We are simply too blithe about "a culture of innovation" as if this concept is simple, obvious and well-defined, as if we can take the red pill and suddenly our culture embraces innovation.  Most cultures are actually resistant to innovation - at least its implications and many of its outcomes - so we need to move beyond the throw-away lines and recognize how important a culture of innovation is, and how difficult it is to achieve, and also how valuable it will be to have a culture of innovation when innovation becomes one of the few differentiable competencies left to us.
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posted by Jeffrey Phillips at 6:01 AM 6 comments

Tuesday, August 02, 2011

Taking your eye off the innovation ball

I'd like to tell you a parable about an innovation effort.  This parable has the additional benefit of being true, though the names and descriptions have changed to protect the innocent.  As many of you will know, a parable is a story that instructs or informs.  I hope this parable will instruct and inform many of you.

The parable has to do with choices and blinders.  It has to do with what is an unfortunate but common approach to management in many organizations.  That management philosophy believes in whittling down ideas to solve one very specific problem, and failing to pursue viable alternatives or ideas.  I've written about this before - what we call the idea gauntlet - the slow stripping away of interesting options, valuable attributes and potential markets to arrive at one final concept that doesn't seem to meet any of the original objectives.  Here's the parable.

Several years ago a young innovation consultant was approached by a company that wanted far more growth and differentiation in a specific market segment.  The segment had experienced little growth and little product innovation, and there was significant room for innovation and for change.  The focus of the innovation effort was to create a new component in this market that would radically change the final product offering.  After some scenario planning and customer insight gathering, the consultant and team went to work, generating some truly interesting ideas.

One involved creating a radically new product, so new that there was no known way to create it mechanically.  But if the product could be made, it could reduce costs by significant amount and create benefits that the staid market had never seen.  So, the new idea was approved and research went to work.

That's where the whittling down began.  Rather than consider every market that had a need for the new product, the team focused on just one industry.  Rather than focus on several potential partners in that industry, the team focused on just one partner, and not one of the leading players.  Rather than consider a range of end products in which the new component could be introduced, the team selected the entry level product which competes on price, not value or benefits.  With just a few decisions, the team narrowed the field from many potential applications in a range of industries to one application in one industry with one (middling) partner, and their lowest priced offering.

Further, during the time the research and development of the new product were underway, the economy changed dramatically.  The needs and wants of the customer base changed as the economy got worse.  People's buying habits and expectations were lowered, meaning that the new product had to deliver even more value than originally expected or cost less than originally expected.  However, the shifts in the market conditions did not get communicated to the research team, which continued to develop the product for the market and customers as originally envisioned.

When the product emerged from research, focused only on one potential partner customer in just one of several potential industries, and after a radical dip in the economy, the firm was surprised to discover that while everyone praised the new product, it didn't meet the needs and expectations of the market NOW.  Of course with a little scenario planning and careful communication of the shift in customer needs and expectations, these insights could have been filtered into the research and development group, which may have been able to shift components or manufacturing concepts to lower costs or produce more value.

The morale of this parable?  First, time and customer expectations wait for no firm.  If your idea takes time to develop, ensure you understand what's happening in your target market.  If the market is changing, you need to feed that information back to the development team to ensure the concept is relevant.  Just because you identify a need and opportunity at one point in your investigation doesn't mean that your idea will remain viable if the market shifts, especially if it shifts dramatically.

Second, don't trim your idea too narrowly and focus too specifically on only one industry, customer segment or outcome.  In the parable above, several potential industries and applications were recognized but ignored by the team, which quickly focused on just one application, in just one industry, with just one partner.  While the concept generated had a lot of potential in several industries, no research or business development was conducted, placing all of the eggs in one industry basket.  When those needs became less important as the economy shifted, other potential opportunities that were passed up earlier on now appear far more interesting, but will require new investigation.

Final morale:  innovation is a continuous process, not a once and done effort.  Even after a good idea is generated, innovators must continue watching trends, forecasting scenarios and understanding what the future will look like when the idea is ready for consumers.  Snapshots of the future are interesting, but the future is always in motion.  While we can't predict the future, we can assess the potential for many different outcomes.  Selecting one outcome based on a snapshot while ignoring the continuous stream of activities, trends and scenarios can leave even a really promising product missing the boat.
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posted by Jeffrey Phillips at 5:38 AM 1 comments