Monday, October 31, 2011

Innovating for the early majority

Here's an interesting question - one that the folks at P&G are obviously trying to grapple with:  what segments of the customer population is your idea or innovation targeted at?  Traditionally, many firms have segmented customers in terms of geographic location, or age, or educational status.  Over time we've developed far more detailed segmentation capabilities, using more subtle psychographic segmentations.  This customer segmentation allows a firm to create products that appeal to very specific, very targeted customer segments, or at least create marketing messages for me-too products that seem to resonate with specific customer needs.

But customers and their needs aren't stagnant.  Customers change as their needs and awareness changes.  Further, a customer may exist in one of several psychographic or demographic segments, or their needs may abruptly change - moving to a new location, taking a new job, getting married and so forth.  All of these "life events" may suggest a change in segmentation.  Further, as Geoffrey Moore pointed out in Crossing the Chasm, beyond demographic and psychographic segmentation, customers also exist in another spectrum - how eager they are to adopt new technologies.  These segments range from very early adopters who are willing to bear some challenges to learn and use a new product, to the late majority and laggards who don't adopt a new product until the vast majority of the population has tried it and in many cases moved on.

So, an interesting question is posed here.  Moore suggests that over 70% of the population is in the early/late majority and laggard segments.  That means, for volume sales or acquisition, we should target the needs and wants of these customers, who, while slow to adopt new things, represent the largest portion of the market.  Many innovators, however, believe that their needs and wants represent the market as a whole and target the early adopters.  Early adopters represent that small segment of the population who eagerly await new technologies and are happy to adjust their thinking and habits to incorporate new technology. 

And, perhaps, we come at last to the true genius of Steve Jobs.  He was able to package his "iProducts" as shiny new technology for the early adopters, while creating products that were simple and accessible for the early/late majority.  With many innovations, the technology and learning hurdles are simply too great for the majority and laggards.  Thus, a good product or service experiences rapid initial adoption which flattens out, as the majority waits for more testing, more documentation, more simplification.  Jobs and Apple squared the circle by creating products that were attractive to the early adopter and easily acquired and used by the early/late majority.  Apple didn't create the iPod or iPhone or iPad for technologists, although the technologists and early adopters snapped them up.  They created them for the high school student, the soccer mom and the grandparent, who would normally be adverse to new products and technologies.

There's a lesson here.  New products and new technologies are always interesting to the small subset of early adopters, but real innovation value happens at the intersection of new technologies that are easy to adopt and use by the majority.  This means that innovation scaled to the majority of the market must be new and interesting, but also combine insights into customer experience and even business model innovation, to smooth the way for fast adoption by the early/late majority.  Far too often innovators focus on product innovation but neglect customer experience innovation and business model innovation, leaving adoption barriers for the early and late majority.

So, the question remains - do you want to innovate for the technology fan boys and get locked into a niche, or do you want to understand the needs and challenges of the early and late majority and create a new product that is easy to adopt and easy to use, which will attract the majority of the market much more quickly.
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posted by Jeffrey Phillips at 5:35 AM 0 comments

Friday, October 28, 2011

Customer Retention and Loyalty programs hamper innovation

I think one of the biggest challenges that many organizations face when they think about innovating is that innovation creates real cognitive dissonance.  Innovation is often so different, and in some cases so opposed to what seems "right" that it can be difficult for executives and managers to wrap their thinking around what they need to do to innovate.  Many times I've seen executives shake their heads when confronted with the fact that to innovate a firm must often stray from the proven path into actions or strategies that on the surface seem to reject all the conventional wisdom.  Most people aren't good at this - holding two diametrically opposed ideas in the head at the same time.  We've been trained to be effective and efficient, and trying to square the circle with ideas that seem to refute investments and training that have proven successful cause distraction and confusion.  Let's look at one example which on the surface seems absolutely correct but creates barriers for innovation - customer loyalty and retention.

While customer retention and customer loyalty are vital to your firm in the short term, a deep focus on these factors create significant barriers and obstacles for innovation.  While I'm not going to tell you to stop thinking about retention and loyalty, or that a focus on customer retention and loyalty is wrong, I am going to suggest that too much focus on these factors simply becomes a barrier to doing anything interesting from an innovation perspective.

We've all seen the data - loyal customers drive a fair amount of the revenue and often account for a substantial amount of profit in a business.  Businesses don't have to work as hard to attract and retain loyal customers and they are less likely to look elsewhere.  Loyal customers create a dependable revenue stream through repeat purchases.  But too much focus on loyal customers creates a thinking trap that is hard to escape from.

Loyal customers are, for the most part, happy with existing products and services and expect only small, incremental improvements.  To them, a radical or disruptive new product or service may introduce new methods, new technologies or new solutions that force them to learn something new, to adopt new solutions or that disrupt their comfortable understanding and lifestyle.  They aren't adverse to innovation, necessarily, they just don't want existing products and services changed radically. Think about how a focus on customer loyalty and retention impacts innovation.  As customer retention and loyalty become more important, firms narrow their focus to these "best" customers.  How can we best serve existing customers?  How do we keep them happy?  And much of the answer is:  same products and services, slightly improved customer service, all at a lower price.  Over time, focus on loyal customers means shutting out prospects and occasional but not loyal customers and their insights and needs.  Increasingly, this means blinkered feedback from a very small subset of your potential customer base, who are already fairly happy with your products and services and don't want significant change.

However, disruption rarely occurs from within your existing, happy customer base.  Disruption happens in customer segments or from prospects who are unhappy or felt that your products and services never met their needs, or didn't understand or relate to their needs and wants.  So while focusing on existing customer loyalty is right in the short run, it is devastating for the long run.  As your firm carefully monitors a small subset of the potential customer population and caters increasingly to its needs, you ignore or reject feedback from the vast population of potential customers whose needs and wants you don't fulfill. And it's in these segments and customer populations where new demands are created.  And, since you are paying attention or are actively rejecting the feedback and insights from these prospects, other innovators enter the market to fill these needs, which ultimately results in disruption of even your loyal customer base.

Happy customers rarely want to upset the status quo - they want to tinker around the edges.  Unhappy, pissed off customers or people who are simply outside the system or ignored want to bring down the status quo, and that's where real change and disruptive innovation happens.  Don't believe me?  Ask Tower Records, or any of the physical media firms, about Napster and eventually iTunes.  Ask Blockbuster about NetFlix.  People were beside themselves about late fees.  NetFlix basically delivered the same service to people who were angry enough with Blockbuster and its fee structure to make the switch.  Meanwhile Blockbuster continued to focus on its happy core customers, ignoring change in the marketplace. 

Perhaps you need some cognitive dissonance in your product management and innovation team - one focused squarely on existing, happy, loyal customers and one equally committed focus on unhappy, disaffected and disloyal customers.  The former will drive near term revenue and profit, the latter will drive insights to new innovation.  Too often we are far too happy to see an unhappy or disaffected customer go, not realizing that they carry with them the germ that will spark a significant change in our market or industry.  While interacting with customers who aren't loyal or who are unhappy or disaffected doesn't make for comfortable reading, it will open your eyes to disruptive opportunities and new innovation.
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posted by Jeffrey Phillips at 5:40 AM 2 comments

Monday, October 24, 2011

What's your CIO - Chief Innovation Obstacle?

If you studied composition in high school, somewhere along the line you learned this.  In literature all stories can be categorized into one of five or six types:

  • Man versus himself
  • Man versus man
  • Man versus nature
  • Man versus supernatural
  • Man versus society
When you think of all the stories you hear, all the books you read, this list seems almost too short, too simple.  Yet this kind of taxonomy is relatively common.  When you drill deeply into many different subjects you'll find many variations on just a few common types.

This concept is also true, and consistent, when you consider the factors for innovation success or failure.  There are perhaps four or five key plot lines when we look at the success or failure of innovation in an organization:

  • Idea versus idea
  • Idea versus existing product
  • Idea versus existing culture
  • Idea versus decision maker
  • Idea versus budget
So, the question becomes, what is your CIO - chief innovation obstacle - when it comes to innovation?  And, by the way, the CIO is not necessarily permanent and not consistent initiative to initiative.  In one initiative, good ideas may be blocked by existing products.  In another initiative, innovation may be stymied by existing culture.  In yet another attempt, innovation may be slowed by inadequate resources or a lack of funding.

It should come as no surprise that perhaps one of the most important activities a new innovation effort can entertain is to define the likely CIOs for the work they are about to do, and attempt to resolve or mitigate the CIOs before starting to innovate.  If the ideas generated threaten or cannibalize an existing product, can you bring the product managers and executives whose success depends on the existing products on board?  If limited funds or resources are likely to stymie your efforts, can you use radically fast, disruptive innovation to overcome concerns about resources and budgets?

Innovation is, in the abstract, a good thing and in the specific often challenging, because it presents so many challenges to the existing operations of a business.  Many people who are enthusiastic about innovation are often naive about the barriers and obstacles their initiatives are likely to encounter, and should spend time early in an effort identifying and finding factors to mitigate the CIOs. Chief Innovation Obstacles can be people who feel threatened by innovation, or cultures that are uncomfortable with the risks and uncertainties, or new tools and methods, of innovation.  Identify possible innovation obstacles early and pursue activities and information that will mitigate or eliminate the obstacles.  Even more to the point, create innovation accelerators, especially cultural expectations and attitudes, the encourage innovation and diminish innovation obstacles.

In any business, in any situation, a new idea, no matter how valuable or how perfectly aligned to business needs and goals will have an obstacle.  Newton's law - for every action there is an equal and opposite reaction - applies.  Your job as an innovator is to fully support your idea, and at the same time recognize the potential CIOs that will stand in the way of your idea.  For every idea there is at least one corresponding CIO.  Good innovators know how to identify the CIO and mitigate it or eliminate it.  Most innovators struggle with their CIO and blame the CIO for innovation failure, when the innovator should really blame themselves for not spotting and eliminating the CIO.
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posted by Jeffrey Phillips at 5:14 AM 1 comments

Friday, October 21, 2011

Moving beyond product innovation

Those of us who advocate innovation as a business methodology or discipline often talk about the different possible outcomes for innovation.  That's because innovation is often defined far too narrowly as a new "product".  Product innovation is the most well-known, and most consistently performed type of innovation.  However, there are other potential uses and outcomes for innovation, and several evolving changes in the marketplace that will require far more investment in these other outcomes.  Let's look at these two points and understand why they suggest far too much emphasis is placed on product innovation, and far too little on other outcomes.

First, let's consider the US economy.  In the early 1960s, when JFK was talking about sending a man to the moon, manufacturing accounted for over 50% of our Gross Domestic Product (GDP).  In the last 50 years, the percentage has fallen to approximately 20%, as manufacturing has become more efficient and many manufacturing jobs have been outsourced.  There hasn't been a fall off in the number of manufactured products even though the number of jobs and the percentage of our GDP from manufacturing decreased - the products now are imported.  But think about this another way - over 80% of our economy is based on services, which begs the question:  how much service innovation is underway, given the growth and importance of services in this country?

And oh, by the way, we're simply in the vanguard of a big shift toward services.  Other economies will follow this same path.  Western Europe and Japan are sure to follow quickly, and even the emerging economies will shift their mix of manufacturing and services more rapidly than we did.  So, it's not hard to see that services will dominate the economy as a percentage of GDP.  But where is the current focus of innovation?

On products primarily.  Although this is a bit unfair.  Many service oriented firms offer "products" that aren't manufactured, and those service oriented "products" require innovation.  But services haven't had the focus that manufacturing and the subsequent products have had traditionally, and this means there's a big, and emerging, opportunity for service innovation.  And for innovations beyond services.

Many of the things we think of as innovative - the iPad, for example, are still physical products.  That's because it's easier to talk about and display a tangible item and compare its features and benefits than to talk about an innovative service.  Services are more ephemeral, and exist in a moment in time. Services are more difficult to deliver consistently, because they rely on inconsistent people to deliver them.  But services, along with experience innovation and business model innovation, are clearly the next focus area for many firms, simply because of the economic shift toward services, and the overwhelming focus today on product innovation.

Of course we can combine experience, service and business model innovation and deliver it around familiar product innovations.  Experience innovation can be delivered through packaging, through channels and through marketing and support of existing products.  OXO has done some of that by "innovating" common kitchen equipment to make it more comfortable to use.  That's experience innovation in at least one dimension. Few firms have thought deeply about the concept of radically improving or changing a customer's experience of their products and services, and even fewer firms are actively considering business model innovation, yet these outcomes are all available.  They are more difficult than product innovation, yes, but they are also more differentiable and more defendable.

In the book Blue Ocean Strategy the authors argued that many firms needed to find "new blue oceans" to conquer rather than compete in the same red oceans with other firms.  Perhaps that same idea should be put forth for innovation.  Product innovation is increasingly a "red ocean" while relatively easily observable blue oceans of service innovation, experience innovation and business model innovation are available.  As our economy shifts and places ever more importance on services, innovation models and capabilities will surely follow.
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posted by Jeffrey Phillips at 5:39 AM 0 comments

Monday, October 17, 2011

Who is the archetypical user?

Hah!  Today I get to use a big, interesting word: archetype, which means "the model from which all things of the same kind are based".  This means that any random selection of a product will demonstrate the properties and attributes of every other product of the same type.  For mass produced products, like toasters or pencils, any product selected is probably a good model of any other product in the same line.

But, as innovators we don't seek to create archetypical products.  We seek to create interesting, differentiated products.  Even more to the point, when we create interesting products, we need to have customers in mind.  And often, as innovators, we use ourselves or the people we know to stand in for, or represent, the eventual users.  In many cases, this thinking leads to all kinds of problems.  Innovators often are poor choices for archetypical users.

Why?  Because many innovators see further and are willing to endure more pain and difficulty using a new product or service than the typical customer.  Look no further than Geoffrey Moore's excellent book Crossing the Chasm.  Innovators are similar to the "early adopters" who are willing to sacrifice ease of use or a completely finished product in order to gain the latest technology.  Early adopters and innovators are OK with workarounds, spotty support and occasional hiccups in the operations of their products.  The large majority of customers, however, don't reflect these values.  Using an innovator as a stand-in for an average customer is dangerous, for two reasons. 

First, innovators or early adopters care more about technology and less about what Moore calls the "whole product".  What the rest of us depend on when we use new products or services - manuals, support, interoperability - early adopters and innovators often don't use or don't value.  Consumers in the majority want to adopt technology when it is "safe" to do so, when there are plenty of other people who have "broken it in".  By then many early adopters and innovators have moved on, and become bored with the technology.  Innovators and early adopters don't reflect the needs and expectations of the large majority of your customer base.

Second, using an innovator to stand in for an archetypical user will create products that are far more sophisticated and far beyond the use of many of your potential mainstream customers, and will probably miss many of the mainstream customers' needs and expectations.  While everyone wants a new shiny object, the majority of customers are much more constrained in their spending and tend to ask themselves questions about the value of a new product or service in their lives.  Inventors and early adopters are often more interested in the newness factor and the opportunity to explore rather than the hard benefits.

Third, mainstream users don't like to learn new technologies or interfaces or change dramatically from their known interfaces or usage patterns.  Steve Jobs greatest gift to consumers was the "one button" idea on the iPhone.  Inventors, entrepreneurs and early adopters like lots of options, lots of functions, lots of services, while the majority would rather wait for a simple, clean interface that doesn't require a lot of new learning.

So, if you are innovating, who is your archetypical user?  Something you find useful, interesting and valuable may appeal to early adopters, but may miss the mark for the vast majority of consumers you need to buy your product in order to achieve financial success.  The product world is littered with failed products that many early adopters purchased but which failed to cross the chasm to the majority of customers.  Just because you are interested and find the concept valuable doesn't mean the majority will.  Who is your archetypical customer, and what do they want? What do they find valuable? What unmet or undiscovered need do they have?
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posted by Jeffrey Phillips at 7:11 AM 2 comments

Saturday, October 15, 2011

Innovation as a profit center

No matter what a business tells you is important, what's really important is what drives profits.  Yes, many CEOs will talk about sustainability, or being more green, or being more empathetic with customers, or a whole host of other foci and factors.  But at the end of the day, CEOs and other executives have a fiduciary responsibility to themselves, their employees and especially shareholders to create profits that allow for reinvestment in the firm or growth or dividends and a rising stock price for the investors.  That's the capitalist way.

In that regard, understanding that what drives profits gets attention, gets the best people and gets executive focus should help a nascent innovator.  If you want to know how to attract attention to your capabilities and ideas, demonstrate that you can develop an innovation capability as a profit center.

There are plenty of examples, but the one I wanted to focus on was GE and how GE treats its tax department as a profit center.  GE uses legal tax loopholes to find ways in the tax code to pay as little tax as possible.  With a tax department of over 1000 people, GE has a significant investment in its tax team, and they pay huge dividends and contribute substantially to the bottom line.  I know that there is a hubbub about GE paying so little in taxes, but they are acting in the interest of their shareholders, and following laws that accommodating politicians created.  GE is understandably proud of its tax department and treats the team as a profit center, which means it gets focus and attention from management, good resources, funding and a lot of other things that a typical "overhead" department would not receive.  Or, to put it another way, GE's tax department receives a lot of attention and benefits that many innovation teams would kill to receive.

If GE can designate a tax team as a profit center, and demonstrate the results, why can't innovation teams designate themselves as profit centers?  Sure, it's rare we can move a billion dollars around and impact the income statement in a given year merely by recognizing revenue in certain ways, but innovation teams will drive the new products, services and business models that will create the real, organic revenue.  Manipulating revenue and costs doesn't increase the top line, and while investors like firms that produce consistent profits they become concerned by firms that don't seem to increase the top line.

Certainly the challenge with much innovation work is that the costs are in the near term and the revenues and profits are in the out years, which doesn't do much for this year's profits.  This means innovators can try to work on ideas that will "pay off" in less than one year, or acknowledge that the initial "investment" is expensive but the downstream opportunities and impact on revenue and profits are substantial.  But if we allow our teams to be designated as "overhead" to the business or to a product line, we are doomed to poor staffing, constant scope reduction and limited thinking.  Sometimes the way you position a thing is as important and valuable as what the thing really is.  If innovation is considered an overhead cost, then don't be surprised when you have difficulty finding funding and talent.  What gets funding and talent?  Things that drive profits.
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posted by Jeffrey Phillips at 12:53 PM 1 comments

Friday, October 14, 2011

Give a team an idea and they'll innovate today

There are a number of old, tired sayings that actually create a tremendous amount of insight when considered in a new light.  Perhaps no phrase is as hackneyed as "give a man a fish and he'll eat for a day.  Teach a man to fish and he'll eat for a lifetime."  While probably true, the phrase has been overused and misused.  However, I think considering this phrase in a slightly different context could shed new light on a subject near and dear to my heart - innovation.

After leading several idea generation sessions for clients recently, several concepts that had been at the edges of my vision but now came into view with startling clarity.  Most of my clients think what we do for them is to help them create ideas, but I think what's more important, and often completely missed, are the tools and methods we offer to help clients move out of their comfort zones and into creative zones.  In other words, while the ideas seem important, its the process, the tools and the attitude shift that is really valuable.  Or, put another way, "give a team an idea, and they'll innovate in the short run.  Give them the tools and the time, and they'll innovate forever."

Given the attitudes and focus of many management teams, however, there are two barriers to that thinking.  First, idea generation sessions must immediately return a result - preferably one, or several, ideas that are so compelling the firm can immediately implement them for profit. These expectations exist even though these same firms have neglected innovation and idea generation for months.  Somehow a team brought together at the spur of the moment, using unfamiliar tools and with uncertain goals, is often expected to produce a miracle, what I like to call Immaculate Innovation.

Further, given the constraints on budgets, resources and funds, innovation must happen very quickly.  Learning a process that can be repeated later is less valuable than producing a result quickly.  It is this combination of short time horizons and expectations of immediate returns that result far too often in incremental innovation that is eventually yawned off the shelves by customers.  This, in turn, creates a vicious cycle of ever increasing demands for new ideas in ever decreasing timeframes, ratcheting up expectations because of unmet needs.

Increasingly, I find ideation sessions evolving into idea production sessions - with the clients turning hopeful eyes to the consultants, hoping that we have ideas that will create the next radical product or service.  This is the "give a team an idea" approach.  In some regards, this isn't necessarily a poor alternative, since idea generators and creativity consultants are free from the expectations and biases that our customers live with each day.  We are free to suggest outlandish ideas that don't conform to corporate capabilities or strategies.  However, if you desire a great idea from a third party consultant, you must immerse that individual in the capabilities of the firm, the competition in the marketplace, the emerging trends, the expectations of the customer base and much more, then be willing to implement the ideas the consultant creates.

Simply accepting ideas from consultants solves a short-term problem but doesn't address the challenge of product or service development.  Even if a consultant generates a perfect idea, so beautiful in creation and so aligned to customer needs that the skies part and angels descend, that idea still must be developed as a new product or service, launched in the marketplace and supported by your organization.  This means you need both the Immaculate Conception combined with a miraculous Commercialization.  Simply having a great idea is not enough - the provenance doesn't matter if you can't get it to market.

Innovation success doesn't come to the most insightful, or the most committed, or the most desperate.  It doesn't come to those with the deepest pockets, the wisest managers or the best marketers.  Innovation success comes to those who:
  • stake out a vision,
  • encourage creativity internally and
  • partner well externally, and
  • develop a mechanism to convert excellent ideas, regardless of source or scope, into vital new products. 
Whether those ideas come from experienced internal employees who understand the tools and techniques of idea generation, or from consultants well versed in the needs of the marketplace, or from a web of customers, business partners, research universities or other sources, ideas, like the fish in the proverb, are merely the outcome.  Teaching a team to innovate and allowing them to innovate over time is, like teaching a man to fish, transferring skills and knowledge which is inculcated and reused.  And that's the real value innovation can bring.

The real question you should ask your executives, and your team, is:  what is the appropriate role for innovation in our organization?  Should ideas be generated internally or externally?  If internally, what are the important skills, methods and cultural attitudes to accelerate the capability?  How do we acquire and constantly use those skills?  If externally, who do we trust to do this with us?  And, most importantly, regardless of the source of the ideas - the Immaculate Conception - what is our capability to convert ideas into valuable products and services that exceed customer needs - the miraculous commercialization.
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posted by Jeffrey Phillips at 5:21 AM 2 comments

Wednesday, October 12, 2011

Innovation and Design: The Prefix and the Suffix

I'm trying to recall the case study we used in my MBA program.  This particular case study looked at the differences between an American car company and a Japanese car company in regards to quality.  As I recall, the Japanese workers had responsibility for quality throughout the production line, and could stop the line at any time if they found a significant defect.  Each person was responsible for the overall quality of the vehicle.  In the American car company, the production line ran, and at the end of the line there was a station called "quality" which inspected the cars and pulled them off the line if, in the inspectors judgement, the cars didn't pass a certain quality threshold.  In this instance "quality" was the responsibility of someone down the line, who could only accept or reject a finished product.  Unfortunately, many cars were being pulled out for quality reasons.  The object lesson there was that quality can be "tacked on" at the end of a production line.  To create high quality products, quality must be a part of the process from the beginning.  So firms introduced Quality Function Deployment, embraced Six Sigma, re-engineered their processes and now quality is embedded in all of the major functions of producing any product.

Why the obvious history lesson?  I look back at the lessons we learned about quality to make a corresponding point about two other very critical capabilities that aren't embedded but are simply tacked on:  innovation and design.  These two capabilities are, in many ways, in the same shape and offer the same promise as quality did as described in the previous paragraph.  Yet far too many firms are content to make innovation a prefix and design a suffix to the development of new products and services.

I titled this the Prefix and the Suffix because increasingly it seems that most firms believe that innovation is a "prefix" to the real work of product creation.  If only the "front end" worked better, then we'd create more interesting and valuable products and services.  To an extent that is probably true, but this thinking isolates innovation as if it were 1) black magic 2) an occasional effort 3) isolated to a small team and 4) very different from what the rest of the organization does.  While improving the "front end" may be a noble goal, embedding the importance of innovation throughout many functions and processes within a business is the ultimate goal.  After all, innovation in business models, services and customer experiences are just as important as product innovation.  By treating innovation as an isolated prefix to the rest of the important work, we miss its true value proposition and belittle its capabilities. 

I called design the "Suffix" because it is another very important capability that many firms isolate and seek to "tack on" at the end of the process.  Design isn't necessarily an interesting color or inventive packaging that can be slapped on as an afterthought.  Well-designed products attract attention in the marketplace and price premiums, but to achieve those benefits you have to embed (there's that word again) design thinking in the entire process.  Currently, we have Design for Six Sigma (DFSS) and I'm sure there's a Design for Lean (DFL), but where's the Design for Design?  Can't we develop an appreciation for the importance of design and build it into everything we do?  Again, design, like innovation, is not simply about products.  A firm can design its interactions with customers, its organizational structure, its processes.  Too often design is left in the "product" ghetto, isolated and simply tacked on at the end.

In my mind's eye I can see these virtual production facilities, where innovation dust is sprinkled on a robust manufacturing process, and eager designers await to apply the finishing polish at the end the process to boring, mundane products and services.  It doesn't work that way, and we have a clear example in quality to demonstrate that. 

Gandhi had a saying that I have on my wall - First they laugh at you, then they fight you, then you win.  In learning new skills, businesses have a three step learning process.  First we ignore it, then we tack it on, then we embrace it fully.  Innovation and Design are currently the prefix and the suffix of business - getting tacked on to the beginning and the end.  In the near future, it will be vital that they are embraced and embedded.
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posted by Jeffrey Phillips at 5:42 AM 1 comments

Tuesday, October 11, 2011

Book Review: Nanovation

I've come today to write a short review of a large book about a small innovation.  And if that seems interesting and convoluted all at the same time, then you'll have just an inkling of what Nanovation is all about.  Winston Churchill once suggested that Russia was a riddle wrapped in a mystery inside an enigma.  Nanovation, the new book about the Nano, the "People's Car" in India, can be as intricate and involved as Winston's description, but given time and patience there's a lot to learn from the experience.

The challenge that the authors faced with writing Nanovation is that there are at least three different kinds of stories embedded in the Nano story.  One is the tale of India itself, bursting with possibility yet still striving to enter the first world.  The second is the innovation tale of the Nano, an almost unimaginable product offering which has made automotive transportation much more affordable and practical than ever before.  The third story are the management lessons we can glean from the first two stories.  At over 500 pages, the authors might have been a bit more judicious in their story-telling, or have created a book about the creation of the Nano and extracted the management lessons separately.  But if you are a dedicated reader, you'll enjoy the whole thing.

The story of the Nano is really a story of asking "why not".  Ratan Tata, head of one of the largest conglomerates in India, wondered why there were no affordable automobiles for the vast majority of India's population.  Far too many people were left in the dangerous and often humiliating position of riding on a scooter, exposed to traffic, weather and other conditions.  He wondered why India, with its technology capabilities and large market, couldn't solve this problem, and put his engineers to work.  What made this project somewhat unique was his personal belief that the car must be seen by consumers as more than a scooter with a windshield, that it must be affordable and practical, and his personal commitment to the project.  Oh, and the fact that he placed an almost impossible price on the car in public to a journalist before the engineering had been started.

When Arthur Lafley stated he wanted P&G to attract 50% of its ideas from external sources, he shocked the marketplace but I am relatively certain he had already put the mechanisms in place to achieve that. Tata, on the other hand, speaking to a journalist at a trade show, suggested he could create a people's car in India that cost $2000.  He said this in an off-hand way, but the journalist published a paper with his statement.  Tata could either backtrack from his statement or use it as a stretch goal for the team.  He chose the latter.  To give you some perspective on what a $2000 car means, consider just the tires.  On a regular automobile in the US, tires comprise approximately 1% of the cost of the car - say $300 for a $30,000 car.  If the costs are scalable, that means the tires for the Nano had to cost approximately $20 - all four of them.  To many people, it seemed impossible to create a car for $2000, much less one that was safe, practical and could seat four people.  Further, everyone was sure the car would be dangerous and would pollute.  Tata and his engineers did the unthinkable, creating a car that the average consumer saw as valuable and respectable, that meets safety requirements and offers great value.  The signal that the car was seen as valuable was in the pre-orders, over 200,000 preorders - and each order had to be accompanied by an 80% deposit. 

And, oh, by the way, just as the firm was starting production, after years of engineering and innovation to achieve a great car in an impossible price point, social and political unrest caused Tata to move its primary production facility from one end of India, to the other.  Yet Tata, and the Nano, have accomplished great things.

The authors draw a lot of management lessons about innovation out of the story of the Nano.  Much of what I take away is based on the executives and their commitment.  Ratan Tata and other executives saw a need, felt strongly about the need, and committed themselves to filling the need at the price point necessary.  Once they had done that, they gave the team the resources necessary and asked them to do the near impossible.  When they ran into obstacles, like suppliers who didn't want or couldn't believe the price points, they found others who were hungry for business and recognized the opportunity in the volumes of Nanos to be made.

The book is divided into three parts.  If you are interested in the story of the Nano, read parts one and two.  If you are a management theory junkie and want to gain insights on what Tata learned from the Nano in regards to innovation, read section three, where eight "Rules" of Nanovation are listed.  These rules reflect learning that are evident in other big innovation efforts, including consistent executive support, really creative thinking, close observation of customer needs, a culture of innovation and many more.  None of these rules are unique to the Nano, but how they intertwine with a story that is almost as good as Slumdog Millionaire for its twists and turns makes them all the more readable.

I wish I could simply write that this book is for everyone, and perhaps in some ways it is.  There's a compelling drama of an almost impossible task, with the backdrop of all the change and drama that is India.  There's an engineering feat almost unduplicated in the automotive industry, which is taken on not by the large manufacturers but by an Indian firm for Indian needs.  There is a passionate executive who is politely told his vision is impossible by everyone who is an expert, and finally realized by those who decided to try.  Which book do you want to read? The drama, the Indian history lesson, the management tome about innovation in emerging economies?  Because they are all here.  And all worth reading.
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posted by Jeffrey Phillips at 3:48 AM 1 comments

Monday, October 10, 2011

Diminishing returns on innovation?

I was leading an innovation workshop last week.  In that workshop we were using a number of different tools and techniques to generate ideas.  Somehow the subject of the airline industry came up, and the debate centered around whether or not there's any innovation "left" in the US airline industry.  As someone who flies frequently, I'm not sure whether to hope for more innovation, which I always believe is possible, or to dread it.

But this raises an interesting question - does any industry face a range of factors, constraints, regulation and competition such that innovation reaches a point where innovation is nearly impossible - or, where innovation reaching some point of diminishing marginal returns?  Can any industry be so commoditized, so constrained by competition, so easily copied that innovation simply isn't worth the effort? If any industry could be, perhaps it is the airline industry.  Perhaps no other industry in the US is so vital to doing business, so liberating in terms of providing a means for people to travel, and so terrible in terms of profitability and market capitalization.

Why is innovation so rare in the airline industry?  Other than Southwest, no airline has been consistently profitable over the last twenty years.  Are there factors in the airline industry which limit both innovation and profitability?  Or, have customer expectations, regulations and business models forced most of the majors into one common business model that none can effectively escape?

Compare and contrast the airline industry - clearly a services industry, with other services industries.  For example, many of us who fly also stay in hotels.  If we look at hotels, especially defining it as "short stays" we can say there remains a significant amount of innovation, from couch surfing to micro-hotels to chains that span room offerings from bare minimums to the Taj Mahal.  Why is it that Marriott can offer a range of hotels from Fairfield to the Renaissance, from Residence Inn to Courtyard, something for virtually every traveler niche, yet United, Delta, US Air and American offer basically the same product to every flier.  And no, "first class" isn't a real differentiation anymore unless you are flying internationally.  The airline industry offers one commoditized product, where prices are quickly matched, and has done little to distinguish service in the air (actually all have reduced services by removing food).  Rather than innovate their offerings, they've participated in a race to the bottom - who can be the most cost effective and anger the customer the least seems to be the motto.

Does it have to be this way?  Could Delta or United or American offer differentiated classes of service on the same plane, or offer different benefits on different flights to the same location?  If we argue that because of external factors the product is undifferentiated could they differentiate around services (baggage, food, linkages to other travel services, friendly service, etc)?  Could they innovate around the business models - developing different mechanisms to charge customers or offer a "fee for service" model?  If regulations were lower could a start-up airline offer more "point to point" flying for executives not yet ready to purchase or lease a plane?  Could an airline allow passengers to manage their own bags, since many of us are forced to do this anyway?  Or better yet, could an airline create a partnership with Fedex or UPS to deliver bags, so passengers simply drop bags at their Fedex location and pick them up at their hotel?

I suspect, dear reader, that even in a highly commoditized industry, laden with union rules and regulations, with a high focus on safety and reliability, that there is plenty of room for innovation.  What we passengers need are some stark differences between the airlines so we can demonstrate our preferences by voting with our feet.  I don't think there is a diminishing return on innovation in the airline industry, any more than I believe there's a lack of need for innovation in that industry.  Every industry, every market has the potential for innovation.  We customers simply need to demand more innovation and accept less of what is now a barely acceptable product.

While we're talking about airline innovation:
I'd like an airline with either far more overhead space, or absolutely none, so boarding is simple and fast, and there's no reason to worry for the people boarding last about whether or not their baggage will "make it" on the plane. 

I'd like an airline with multiple entrances and exits.  Why do we have cars with four doors and planes with only one entrance and exit?  If large international flights can board on multiple doors, smaller planes can as well.

I'd like an airline that guarantees the lighting and air conditioning works.  In the last few weeks I've flown on two planes where the overhead lights didn't work - limiting what I could do on the plane, and on one airplane where the AC didn't work in 90 degree heat.  Unacceptable, and with a few sensors an easy fix.

I'd like a plane that offers a snack machine onboard.  Why can't I simply purchase snacks on the plane the way I can in my office?  I'd pay a premium for the snacks and it wouldn't take up much room.

I'd like a plane with far more comfortable seats - I'm not even asking for more knee or leg room, just something that is more supportive or comfortable.  Perhaps the airline could have three different seat types scattered throughout the plane, and when you select your seats at ticketing you could indicate firmness, lumbar support or seat depth options.

I could go on, but I think you get the point.  There are hundreds of ideas that are possible in even a highly regulated, highly competitive marketplace.  Would many of these be instantly copied?  Perhaps, but we need to kickstart more competition around innovation to stop the spiral of ever decreasing service.  If the airline industry can innovate, any industry can innovate.  I refuse to believe in diminishing marginal returns where innovation is concerned.
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posted by Jeffrey Phillips at 5:47 AM 0 comments

Friday, October 07, 2011

What's your day job?

Working with an innovation team that was formed to create a new product, I was detailing the type of work the team would need to do, and the likely timeframes for the work.  One gentleman, in particular, demonstrated some discomfort through his facial expressions and body language.  When we talked about the amount of time each week that should be dedicated to the effort, and the number of meetings likely to be necessary to complete the work effectively, he finally exploded.  Don't they know we have day jobs?  he asked.

While his statement was a bit abrupt, it wasn't unsuspected.  In every innovation project I've lead, or coached, or participated in, someone has raised the question about priorities and time commitments.  It's a fair question, and one that is unfortunately left exceptionally vague. That question is:  where should I spend my time - doing an excellent job completing near term priorities (my "day job") or doing the best I can, using unfamiliar tools and techniques, to generate ideas that may, or may not, be successful?

This is an unfortunate, and unfair, dilemma to place an individual in.  Both current work and innovation work are extremely important, so executives expect and demand both.  Executives want and need perfect near term execution, to achieve quarterly forecasts.  However, they also know that unless interesting and valuable new products are generated on a consistent basis, growth will slow and differentiation disappear.  So, rather than force themselves to choose, they simply tell employees that both are exceptionally important, and leave it to the innovation team to decide how much work will be committed to each task.

Unless and until the executive team changes existing compensation patterns, however, this isn't a real decision for most people.  Compensation is based on completing the day job effectively, so the first bias is toward doing that work well.  There are other factors that place a heavy thumb on the side of the scale that tilts toward the "day job".  Those include familiarity with the work, expertise and knowledge that can be immediately applied, low risk, low uncertainty, and the reasonable certainty of success in the short run.  Against these, stacked on the other side of the scale are:  uncertain outcomes, risky procedures, little or no new compensation, the risk the project will be cancelled or abandoned, the risk that good ideas don't produce compelling new products or services, lack of expertise and many other barriers.  So when an executive says innovation is very important, then neglects to change compensation schemes, neglects to reduce risks and uncertainties, and, most importantly in my mind, neglects to reduce short term responsibilities and burdens to free up appropriate bandwidth and time, he or she merely gives lip service to innovation, in the hope that a serendipitous idea will spring forth.  Because certainly the executives know the dilemma that confronts the innovation team members.

When an innovation team debates about spending 4 to 8 hours a week to generate ideas to create the new product or service that's supposed to differentiate the company and spark new growth, you know that the team is conflicted with its short term and long term mission.  You cannot adequately pursue an important "day job" and effectively develop ideas for radical or disruptive change.  One of the responsibilities will simply not receive the time and attention it deserves.  If innovation is important to your company, make it the "Day Job" of a significant number of people, at least during the innovation effort, or don't distract your team from their short term goals.

What's your "day job"?  If innovation is important, will differentiate your company and will drive new revenues and profits, why wouldn't innovation be the most important "day job" in the business?  We'd never think that people can close the books on a quarter on a part-time basis, or conduct basic R&D for just a few hours a week with any hope of creating a valuable new compound.  Yet many organizations develop and deploy part-time innovators who have important day jobs, and wonder why innovation struggles.
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posted by Jeffrey Phillips at 4:51 AM 0 comments

Monday, October 03, 2011

The Incremental Innovation trap

I'm a bit grumpy today, returning to work after a nice weekend.  When you are an innovator, it seems you never really escape your work, or perhaps your vocation.  Everything one sees or experiences seems to call into question  - couldn't this be done better, or differently?  I suppose a really committed innovator could drive himself or herself absolutely crazy wondering about all the potential improvements and new products that are possible just within the things he or she experiences.  But those experiences drive what we do and what we focus on, and are perhaps limiting the way we think about innovation.

Consider, for just a moment, my simple taxonomy about the "types" of innovation many firms will consider.  There is, of course, the innovation that improves an existing product, which many of us call "incremental" innovation.  There is, further, borrowing ideas from other industries, products or concepts that exist in one industry but not in another, which is still relatively incremental but sometimes a "breakthrough" idea.  There's a "mixing" innovation - peanut butter and chocolate - which combines two capabilities or benefits that haven't been combined before.  Again, often interesting but rarely disruptive.

Further along the "interesting and valuable" spectrum we'll find Blue Ocean kinds of innovation - spotting unserved markets with a different new product or service, for example.  Further along still is innovating around customer experiences or business models, and further still is creating a product or service completely new to the world.

I suspect that many of us who call ourselves innovators are constantly engaged with the products and services that we experience every day.  We are wondering - what, exactly, could make this product or service better, more interesting, less costly, more engaging?  This is the mental "busy work" that seems to advance the cause of innovation but I think often traps us in a dead end alley of innovation - the incremental trap, focused on improving existing products and services.  That's not to say there isn't some value in incremental innovation - just that the work is frequently contemplated by a wide variety of people.  The "winner" in this regard is often the firm that acts first.  When many people or organizations are aware of a problem or opportunity, it's the firm that understand the problem in depth, and produces a reasonable solution quickly that wins.

However, far too much of our time as innovators is spent in the incremental alley.  We're captivated by improving existing products and services, rather than focused on balancing incremental innovation with other forms of innovation.  These other forms include identifying unserved markets, innovation focused on management hierarchies or business models, creating products that combine powerful capabilities not combined previously, and so on.  These innovation "types" are implemented far less frequently, because there's less extant evidence of the need, and less "proof" of the value.  Once again, we innovators are like the drunk who lost his keys in the dark alley, looking under the street light, simply because the light is better there.  The keys are still in the dark alley, much like many good ideas simply waiting to be discovered if only we'll move out of our fascination with the here and now and explore broader ideas and opportunities.

And, yes, I know that the preference in many organizations is limited to incremental, but that's because we innovators have allowed ourselves to be boxed in to a incremental innovation ghetto.  If we can demonstrate the value and opportunity of broader innovation thinking, and the potential realities of innovation that's focused on combination, or introducing ideas from other industries, or business model innovation, then we gain credibility and the scope of innovation expands.

If we aren't careful, innovation is simply an interesting side show trotted out when the executives want a magic show and some incremental gains.  What we need to demonstrate is that we are "investing" in a range of innovation possibilities across a spectrum of risk and return.  Incremental innovation offers low risk and low return, while business model innovation and "new to the world" product or service creation is high risk but high return.  Placing these concepts in terms that financial folks understand and value improves the chances that we can innovate in more than just the incremental space - and that there's reason to do so.

Incremental innovation can become a trap.  Innovators are lured in by the promise of innovation, only to discover that the boundaries of what's acceptable are so limited that they can never do more than simple, incremental innovation, and all other types and possibilities are excluded from the scope of effort.  Innovators must define the breadth and depth of innovation opportunities and outcomes and assign risks and potential returns.  No firm places all of its investments in government bonds - financial managers spread investments across a portfolio of investment options, timeframes and risks to ensure the best possible return.  We innovators need to ensure the same method is take when considering innovation initiatives.
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posted by Jeffrey Phillips at 5:52 AM 3 comments