Tuesday, October 30, 2012

Innovation: the flavor of the month problem

One data point defines an instance, and is difficult to project. Two data points define a line which signals continuity.  Three data points begin to suggest a trend.  Close to a decade as an innovation consultant constantly confronted with the same challenge suggests a "wicked problem" that needs to be solved.  That problem is the flavor of the month problem.

Last week I met with a company interested in building a vibrant, constant innovation capability and culture.  The first day I met with the executive team, and they were excited about innovation and its possibilities.  They have concerns about investments, tradeoffs and risks, but send clear signals to me that they are "on board" for the investment and the work necessary to build innovation into their operating fabric.  On the next day I met their direct reports and deputies.

The senior managers are excellent people.  I've had a chance to work with many of them before.  As long as innovation was seen as a tool to solve a very real and current problem, they have responded with great alacrity and sponsored innovation activities.  Now that we are talking about significant changes to corporate direction, culture and the work associated to change these factors to sustain innovation, the team has become wary.  First question:  what did the executive team say about this?

No problem, I answer.  They are fully behind it.  They want more innovation.  Next question:  what are we going to stop doing, to start doing more innovation?  What are the acceptable tradeoffs?  And that's the ultimate rub.  Innovation as a near term fix to an immediate problem simply introduces a new way of looking at a problem and generates quick solutions, but doesn't change the culture or processes.  Everyone likes this kind of momentary scope enlargement and capability development that we call sporadic, occasional innovation.  Introducing the idea of innovation as a continuous capability, training people on new tools and techniques, expecting more and more consistent innovation activities with more innovation outputs, that raises eyebrows.  Not because of the investment per se, but because of the commitments and tradeoffs necessary.

Flavor of the month

Unfortunately, the phrase "flavor of the month" is not just consultant-speak.  In the reports meeting, one of the attendees actually said:  how do we know this isn't just the flavor of the month?  In other words, does the executive team understand how much work this requires, how much investment in resources and funding, and the amount of time and attention that must be diverted from other things?  How do we, the direct reports, know that the executive team won't change their minds, or shift priorities again next month, when a new flavor of the month is presented? 

Innovation is an activity that is especially susceptible to flavor of the month thinking, because it is new, unusual, risky and uncertain, and people don't have the basic skills or experience to do it well.  That means the learning curve is far greater, and the inertia not to take on this effort is far larger than for other initiatives.  No one wants to start working with the assumption that the funding and resource commitments are there to do innovation, only to have the rug pulled out from under them.  And boy, have some direct reports played the role of Charlie Brown as Lucy pulls the football away just as he plans to kick it out of the park.

Communication, Commitment, Sustainment Gap

Between executive teams and their direct reports and subsequent management levels there are gaps in understanding, in strategic alignment, and in depth and breadth of commitment.  The direct reports want innovation just as much as the executive team, but are far more cautious because they also have direct responsibility for the day to day activities of the business.  They are pulled between the desire for innovation and the realization of the amount of work and focus necessary to get day's work done.  They cannot afford to start new initiatives that won't be supported or sustained, even initiatives that have high return. The fact that the returns from innovation are undocumented, uncertain and poorly scoped simply compounds the problem, while the fact that the organization lacks skills and faces significant inertia only builds a higher barrier to innovation.  There is no gap in desire, only in practical steps to start an innovation activity, build skills, overcome inertia and once that investment is in place, sustain focus long enough to build momentum.

Note that this gap isn't the fault of the direct reports.  I place the fault for this gap where it belongs, with the executive team.  And there are few executive teams that escape this finger of blame.  Executives are supposed to create clear objectives, provide the resources necessary to accomplish the objectives and remove barriers that stymie their teams.  If the goals are uncertain, the resources unavailable and cultural and skill barriers remain, that's not the fault of the direct reports.  They are simply doing the best with what they have.  This gap is a management gap, a commitment gap, an engagement gap.

The difference between cutting and growing

There's a reason that executives have skirted their innovation duties.  For years they've asked their teams to do the same with less.  While we talk about "more with less' in reality it's usually the same or slightly better outcomes with less resources or inputs.  These goals don't require much direction.  Cutting is far simpler than growing or innovating.  When cutting is your goal, you find the biggest cost driver and reduce it, then the next one and so forth.  That's not hard and doesn't require a lot of skill or direction.  However, when growth or innovation is your goal, the scope and range of options is almost infinite.  Growth in existing customer base or new customers?  In existing markets or adjacent markets?  With incremental change or dramatically new products?  How much growth?  How much risk?  Many innovators are stymied from the start, because scope, strategy and direction are so poorly defined that every option is valid, and the range of options is simply unlimited.

Anyone can cut, with little direction.  Just tell them how much - a 5% or 10% reduction.  Few people can innovate, and the range of options and possibilities is dramatically larger than when cutting.  Without scope, strategy and good communication, teams struggle to determine which alternatives are valid.  And often, by the time they choose a course, the executive team has given up, lost interest or shifted priorities.  So, like Charlie Brown, they approach the football Lucy has teed up with great trepidation.  And no wonder.  That football has been snatched away many times in the past, and mid to senior level managers are nothing if not good learners.

Workmat as a solution

Paul Hobcraft and I developed the Innovation Workmat to attempt to create linkages between the executive team and the rest of the organization, and to create alignment across the executive team.  Unless the executive team is aligned and agrees to common language, definition and strategy, and is in full support of innovation as an enabler to strategy, innovation is difficult.  Unless the executive team demonstrates patience, engagement and provides resources, their direct reports will providen token innovation efforts while carrying on with business as usual.  The Workmat assessment helps identify gaps in linkages, in alignment, in capability and in sustainment.  Talk to us if your organization demonstrates the "flavor of the month" problem where innovation is concerned.

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posted by Jeffrey Phillips at 12:57 PM 1 comments

Monday, October 29, 2012

The ten year overnight success

Last week I was working with an executive team, leading a session on our Workmat.  The Innovation Workmat is meant to identify the actions and roles senior leaders and executives must fulfill in order to build a culture and environment for innovation.  We walked the executives through the domains that comprise the workmat, and examined organizational strengths that support or sustain innovation, and gaps within the workmat that the organization must fill in order to sustain innovation more completely.  Needless to say, it was an interesting discussion, and always is.

One of the questions we always ask is:  what processes or functions do something well that the rest of the organization should emulate?  Rather than "reinvent the wheel" we look for pockets of success that can be replicated if possible.  One executive pointed to a counterpart and talked about their "overnight" success in open innovation.  There were several good examples of tech scouting, assessing and acquiring intellectual property and using that acquired technology to improve the capabilities of the organization.  In truth, the team in question has done a good job developing third party partnerships and building a strong capability to spot new technologies and intellectual property and bring those in house.

The executive who runs the open innovation program in question smiled, somewhat sardonically.  He turned to me and said, we are a ten year overnight success, and proceeded to remind his fellow colleagues about the amount of work that was required in order for that team to appear so successful today.  In fact, he stated, it was probably more like fourteen or fifteen years of work, overcoming resistance to external ideas and technologies, learning how to assess technologies and intellectual property, and changing attitudes and behaviors to reduce the "not invented here" mentality.  What appears to his colleagues as an overnight success is really a long, concerted effort to improve skills, change culture, define processes, change reward systems and align all of that work to corporate goals and strategies.  Which is just the workmat exercise in microcosm.

What many firms don't realize is that successful innovators weren't made from the whole cloth yesterday.  The firms we hold up as icons of innovation - Apple, 3M, Google, etc - are products of years of intentional development and focus.  People forget that when Jobs rejoined Apple in the late 1990s Apple was close to bankruptcy.  Their "new found" success is based on a significant amount of work to refocus the company, slim down product lines, introduce more design and customer experience into the solutions they create.  Apple is not an innovation overnight success but a product of years of change.  Fortunately for Apple, they had three things going for them that accelerated the change:  1) no where else to go but up 2) good roots as an innovator so it was probably easier to revert back to innovation and 3) a fearless leader who was determined to be first in the market.

When your executives demand instant innovation, it may be difficult to remind them that innovation is not an overnight activity.  Teams with little skill or training don't often create interesting, disruptive ideas naturally, and may need help to broaden their thinking or revise the cultural barriers to interesting ideas.  Further, even if they can generate great ideas, those ideas often run into a log jam in product or service development, where overworked, overscheduled teams are focused on existing products and cannot fathom how to trade off the existing schedules and commitments to deliver a completely new product or service.  And this example only assumes a single innovative concept, not a continuous capability.  In many firms the span of time from idea generation to product or service launch can be two or three years.  Clearly no firm is going to become an overnight success even with one new product, much less when you consider the work to build capabilities to sustain innovation over the long term.

So, what does your executive team want - one new idea or a sustained innovation capability?  So called "one hit wonders" take several years and create a single new product.  Overnight success as a sustained innovator can take many years, but it is the only path to lasting differentiation.
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posted by Jeffrey Phillips at 5:39 AM 0 comments

Wednesday, October 24, 2012

Why corporate culture is important for innovation

A few days ago I wrote a post about why "environment" matters for innovation.  Today, in a continuing series of posts, I want to take a look at why corporate culture is such a vital barrier or accelerator for innovation.  I'm writing these posts to continue to expound on the Innovation Workmat series of articles Paul Hobcraft and I published a month or so ago.  Those articles suggest that executives have a key role to play in building an overarching framework for innovation in any organization that hopes to succeed at innovation.

Corporate Culture

Corporate culture exists at the intersection of corporate memory, corporate history, business context and operational effectiveness.  Corporate culture is what defines what a company is, why it does what it does, and in many ways sustains a presence and a facade to the outside world.  Corporate culture is what directs how people work and think, what creates tangible and intangible restrictions, establishes risk tolerances and sets attitudes and behaviors.  There's probably no more powerful intangible force in any business than corporate culture.

Corporate culture can be a positive, when it reinforces activities and thinking that matter.  3M survived a CEO who attempted to introduce GE style thinking, and remained fairly innovative in the face of stack ranking and Six Sigma efficiency focus, mostly due to a long organizational memory and a strong innovative culture.  They don't say "culture eats strategy for breakfast" in jest.

Toxic Culture

The challenge in many firms, though, is that the culture is not based on an organizational memory of successful innovation, but on an organizational memory of tooth and nail survival.  When the culture adopts and sustains short term thinking, incremental improvements and an aversion to risk and uncertainty, it can be difficult to introduce even modest incremental innovation concepts, never mind larger disruptive innovation or the risks associated with "open" innovation.  And, since corporate culture is largely intangible and made up of attitudes, behaviors and past experiences, it is exceptionally difficult to change.  That means that the firms that often need innovation the most face corporate cultures that are the least open to change.  Firms that have viable corporate cultures that help them sustain operations in a competitive space often find those cultures are resistant, or even worse, toxic when it comes to making the significant changes necessary to embrace innovation.

What is an "innovation" culture

A culture that sustains and supports innovation is one that encourages reasonable risk and uncertainty in the goal of larger, more profitable products and services.  It is a culture that is based on experimentation and discovery, because many good ideas or insights exist outside the corporate boundaries.  That suggests as well that innovative cultures have porous boundaries - people, ideas and concepts flow into, and out of, the organization constantly.  Innovative cultures understand that generating and developing new ideas is an iterative discovery process, which isn't perfect and certainly doesn't always create the product or service that customers want.  Innovative cultures also understand that when failure occurs, rather than sweep the failure under the rug, the firm attempts to extract learning and new insights so that the "failure" leads eventually to a new success.  Innovative cultures understand intrinsic reward systems, encouraging innovators to work on their ideas and to stay involved and engaged.  They don't "pay people for ideas" but recognize involvement is its own reward.  Innovative cultures sustain innovation as a way of operations, rather than thinking of innovation as an occasional, sporadic process.  Innovation cultures welcome different points of view, different perspectives and seek to association disparate ideas and technologies into new products and services.  It will be rare to hear someone in an innovative culture say "we've never done that before" as a way to shut down ideas - rather, it will be considered a challenge worth pursuing.

How do we shift an existing culture

Corporate cultures respect Newton's laws.  They like to remain at rest, comfortable in their inertia, and will remain that way until acted on by a powerful force.  Likewise, culture will resist the change force as a matter of course.  That means that to change a culture you need constant force in a positive direction for a long period of time.  This means that change to a corporate culture must be slow and steady, and the best change is change the culture wants to make, not feels forced to make.  This means change begins by creating a vision about the future and telling a story that the culture can adopt.  Once the culture and those individuals who keep and shape the culture believe the story, they will work to weave the new story into the fabric of the existing culture.  Factors like what is recognized and rewarded, what executives say, and well as what they do, matter.  Early in the shift, the culture will examine early successes and especially early failures to see what is rewarded and what is buried.  Actions speak louder than words.  Saint Anthony of Padua said it best:  Let your words teach and your actions speak.  Shifting a culture requires a significant commitment from senior leadership, but also buy-in from the people who are keepers of the culture.  These are the people who collect and tell stories about the culture and reinforce the culture through their decisions, commitments and investments. 

The three "R"s
We often talk about the three "R"s when shifting a culture:  reward/recognition, recruiting and retraining.  If we want people, and therefore the culture, to do new things, we need to improve the skills and capabilities of the people who are on board (training) and recruit new skills and perspectives to help the company and the culture think in new ways (recruiting).  Which is why your human resources or talent management team must be a vital contributor to the work of changing the culture.  Recognition, rewards, evaluation, training and recruiting are all activities they are actively involved in, and which influence the corporate team and the culture.

How long does this take?

We are constantly asked by clients - how long will it take to change the focus and intent of our culture, to make it more innovative?  This is not a change you can force in six months.  After all, your corporate culture has been constructed and reinforced since the business began.  You can't simply whipsaw a culture in a new direction and new focus in a few months.  GE famously attempted to shift from Jack Welch's priorities (Number one or two in an industry or out) to Jeff Immelt's (more innovation) by establishing corporate innovation funds to the tune of several hundred million dollars.  In the first year of funding, not one business unit accepted the innovation funds, because the existing culture that Welch left was so predominant. 

The answer is: it depends.  It depends on the continuity and focus of the executive team.  It depends on the vision you create and how the story associated with that vision is reinforced and propagated throughout the organization.  It depends on how the people who are the keepers and reinforcers of the culture are willing to change and adapt.  It depends on how risk and uncertainty is tolerated, on how open the organization is to change.  It depends on introducing new perspectives, new skills and new techniques.  It won't be fast, but it can be effective.

Corporate culture is the most powerful and most intangible barrier to innovation.  Place Thomas Edison or Albert Einstein in a corporate culture that resists innovation and we wait another decade for electric lights or special relativity.  A good idea in a resistant culture is a scream in a vacuum.  It simply won't be heard.  As an executive, a leader, a manager who wants more innovation, there's no more important aspect to focus on, and none more difficult to influence.  Nailing jello to a wall is probably an adequate metaphor.  But it must be done.  You can't sustain innovation without changing the culture, and your business can't thrive without sustained innovation.

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posted by Jeffrey Phillips at 6:03 AM 1 comments

Monday, October 22, 2012

The new buggy whip makers

Pity the poor buggy whip manufacturers.  Not only was their business disrupted by the advent of the automobile, but for over 100 years academics and business professionals have held them up for easy laughs as business people who missed a shift in the market.  If only, we tell ourselves, they had defined their business as "transportation starters" rather than horse annoyers, they might still be in business today.

Leave aside the arrogance and 20/20 hindsight that a broad historical view allows us.  There were a range of firms that experienced the transition from buggies to automobiles.  Some failed in the transition, and some were moderately successful.  But we are about to experience a period of disruption that will make the advent of the automobile seem like a small blip on the ever-upward progression of technological advancement.  And as this disruption starts, it will simply compound itself, accelerating over time as disruption builds on disruption, a sort of Moore's law of change.

Defense in Depth

Perhaps the best way to describe what's happening, and how it will unfold, is to describe it in military terms.  For decades most businesses have relied on what I'll call "defense in depth" - that is, the territory they've decided to defend is open and flat, and they are able to see attackers forming and moving toward them from a long way away.  This gave the businesses time to amass their forces and determine their defensive strategies and put in place enough offensive soirees to keep the attackers at bay.  Many businesses today are organized on a broad defensive strategy, defending markets and customers, building higher and higher barriers of entry and rarely attacking new markets.  This strategy relies on a couple of strategic givens:  that attackers are visible for a long time and must cover much of the same ground, that the attackers will require a lot of time and a lot of mass to attack, and that it is safer to defend than to be constantly on the offensive.

Guerilla Tactics

Anyone who is a student of warfare, from The Art of War and forward knows that the best way to defeat a larger enemy is to use his strength against him.  A guerrilla must do the unexpected, and attack in ways that the strong defender does not expect.  Mass and inertia must become problems for the defender, while the attacker chips away at weak spots or attacks in unexpected locations.

Change is the ultimate weapon

Which brings us back to the issue of the buggy whip makers.  They missed or failed to adapt to a disruption in technology when they were few and far between.  What is unfolding around us right now is a constant tsunami of technical, societal and political disruption unlike anything we've seen, and it's likely to continue.  Businesses, governments and societal institutions built for defense in depth will be disrupted, by smaller attackers acting as guerillas, but also simply by the rate and pace of change.  Think for example about these changes:
  • The unity and harmony of the Euro-zone.  Built over 50 years to reduce the likelihood of war in Europe, it may lead to either a fracturing of Europe or a tightly regulated and centralized Europe.
  • The "Arab Spring".  Tensions bubbled under the surface under dominant and totalitarian leaders in Algeria, Libya, Egypt and Syria for years.  No longer.  The state of play in every dimension in the Middle East and North Africa is up for grabs
  • Rapprochement with Russia.  Remember the "reset button"?  Russia is newly assertive and seeks to regain much of its former hegemony at the same time...
  • China seeks to establish itself as a major player in the Pacific
  • The US Government's ability to sustain borrowing 40% of its budget.   We have to get our own fiscal house in order
  • The impact of the internet on business, education and information.  The internet, by itself, has created significant shifts in retail, in higher education and in the availability of information.
These are just a few of the significant shifts happening simultaneously around the world and impacting every market.  If your organization is built to sustain attacks from slow, ponderous attackers and considers the terrain and environment as consistent and stable, you'll soon be held up as the modern buggy whip manufacturers.

Need proof this is already happening?

Do you wonder if these assertions are true?  There's an interesting graph in an article written for Forbes which demonstrates that the Return on Invested Capital over the last 50 years for 20,000 large US corporations has fallen from approximately 5% to just over 1%.  There are a number of reasons for ROIC to fall, but one is that returns are falling while invested capital is held constant.  Returns fall when businesses see their margins fall due to new competition, substitutes and alternatives, or when they can no longer command high prices.  All of these are signals that the firm is focused on defense and cost cutting while its market is shifting.

Firms that are innovating are taking the offensive, not content to rest comfortably behind defensive walls. They are creating new products that command higher margins, and forcing other firms to respond, rather than waiting for new products to emerge and quickly attempting to copy them.  This is why innovation must become a core capability or competence rather than an occasional activity.  When the average lifespan of a Fortune 500 firm is 15 years and falling, you don't want to build defenses, but build a firm and a culture that is constantly on the offensive.  The only way to stay on the offensive is to innovate, all the time and in every dimension possible.

The new core

Time was, efficiency, size and market share were the goals and innovation was a peripheral concept - nice when it works, but something attempted only sporadically.  With the amount and rate of change in the environment, innovation must become the core principle of the firm.  Once the firm is adequately structured to sustain innovation, margin, market share and efficiency will follow.  While this perspective may seem to border on paranoia, Grove was right when he said "only the paranoid survive". 

In the graduating classes of MBA schools around the country in the near future, professors will provide case studies of firms who became the new "buggy whip" manufacturers - those firms that missed the disruption and become obsolete overnight.  Many firms are currently candidates for that high honor.  Don't be one.  Stop talking about innovation, stop whistling past the graveyard.  You know the changes are out there and what they can mean.  Now is the time to take action to refocus your business and make innovation central to your strategy.
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posted by Jeffrey Phillips at 8:30 AM 0 comments

Friday, October 19, 2012

Why environment matters to innovation

I'd like to write today about the concept of environment, and why it matters so much to innovation.  This blog post and others that will follow are meant to expound on the Innovation Workmat that Paul Hobcraft and I developed and published in Innovation Excellence.  Within the "workmat" we identified 7 domains that executives and senior managers can influence which accelerate or limit innovation.  One that I've dealt with recently, even this week, is the concept of "environment".

In this context, environment has several meanings.  The first is obvious, the environment in which you work.  Is the physical environment conducive to innovation?  The second context is the intangible environment erected by your corporate culture.  This creates barriers and limits to thinking, to risk and uncertainty.  Does your intangible environment block innovation?  The third context is an internal/external environment.  How "far" does your environment reach?  Do you have extensive interactions and networks with external partners, customers and prospects?  The fourth context examines the fluidity of your environment.  Does your organization have porous borders?  Can you find a good idea or technology outside the boundaries of your organization and bring in "inside"?

Physical Environment

If physical environments didn't matter to the human condition then we'd all live in the most simple, unadorned caves.  Designers, architects and people concerned with interior design, spaces and human interaction understand that spaces and environments impact the thinking and behavior of the people in the environment.  A dull gray regimented environment leads, more often than not, to dull gray regimented thinking.  I had the chance to lead an innovation session with a client this week in a space purpose built for creativity and innovation.  Several of the people commented as they entered the space "I feel more comfortable and creative already".  Their work environment (where the environment is built for efficiency) doesn't support or sustain creativity.   Space, environment, design of the physical meeting and idea generation space matters.  Every firm that seeks to create more innovation ought to either create a more creative space in which its innovation teams can work, or find local partners who offer such spaces.  Some we've worked with include Catalyst Ranch and the Magellan Idea Center.

Intangible Environment

While we interact with the physical environment - walls, floors, halls and cubes - we also interact with the intangible environment.  By intangible environment I mean the attitudes, perspectives and organizational thinking and history formed by corporate culture.  These create intangible "walls" as rigid and unyielding as physical walls.  A risk averse, highly efficient firm can create an interesting new physical space, but it must also change its intangible environment - its culture.  Any sufficiently powerful culture can impact how people think, the depth and breadth of their ideas, the amount of creativity they are willing to embrace and the kinds of ideas they can create.  The intangible environment must be addressed at least as much as the tangible environment.

Reach of your networks

In the book the Innovator's DNA the authors describe five qualities that many innovators share.  One of them is the breadth and diversity of the individual's network.  Your corporate environment impacts the breadth and depth of your network, and by extension your ability to generate interesting ideas.  It's been demonstrated that good innovators have larger, more extensive and more diverse networks.  They are influenced by ideas and technologies within their industry or geography, and by ideas that exist outside their industry or geography.  These insights are refreshed by conferences, trade shows, customer interactions and their personal and professional networks.  When companies limit travel or restrict access to trade shows or conferences, or provide marketing information on paper rather than as an engagement with live prospects, they limit the experience and the external environment, which limits the range and depth of insights and ideas.

How porous is your boundary?

Henry Chesbrough popularized the idea of "open" innovation, and it continues to be a source of great discussion.  The real question for your organization and its "environment" is - how porous is your corporate boundary?  Has your executive team come "on board" to the idea of open innovation?  What types or approaches are acceptable?  What potential partners or customers can contribute ideas, technology or intellectual property?  What happens to the ideas as they cross the organizational threshold?  Good ideas exist outside your organization, and may be within your innovation "environment" but your organization and its leadership must define the best partners and approved approaches, and must demonstrate that the origin of an idea is less important than its potential.

Environment matters

We live and work in a petri dish of physical walls and intangible expectations.  Beyond our regular petri dish are other teams in other dishes working on similar and wildly different ideas and technologies.  Realizing that the environment matters, adjusting both the internal and external environments to achieve more innovation, and integrating both environments for greater innovation exchange will drive far more innovation in your business.

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posted by Jeffrey Phillips at 8:52 AM 1 comments

Monday, October 15, 2012

The end of "either or" innovation

When I describe the challenges of innovating in a "business as usual" environment, many of my clients and the people who attend my presentations ask:  what can we do?  There is an increasing recognition that firms must be more innovative, and a growing realization that all of the management philosophies of the last 30 years, including quality, Six Sigma, Lean, outsourcing and right-sizing have created operating models that are inflexible, risk averse and highly efficient.  Or, in other words, very resistant to innovation.

Changing the process or changing the ideas

Einstein said that the definition of insanity is doing the same things over and over again and expecting different results.  That's a fair analysis of many innovation efforts.  If you attempt to innovate in a business as usual environment, using processes, workflow and teams that are steeped in efficiency and small bore thinking, you are insane if you expect anything other than incremental ideas.  Far too often teams are confronted with this "either or" proposition:  either we change the ideas to fit the mental models and operating processes, or we change the mental models to accept the risky ideas we need.  Since innovation often appears as the flavor of the month, and doesn't appear to be a lasting focus, it is far easier to change the ideas to fit the business as usual model rather than change the operating models and processes that have been perfected over 30 years.

How can a firm create disruptive ideas?

Here's another "either or" proposition.  How can a firm develop disruptive ideas?  There are two paths: the firm can work to shift its models and processes to accomodate more innovation in its regular work, or it can isolate innovation in a "skunkworks".  The first activity - reworking the operating processes and mental models - is time consuming and is only practical if innovation becomes a consistent activity.  The skunkworks seems less confrontational, less risky, because it isolates disruptive ideas from the rest of the business.  This is also the challenge.  Even if a skunkworks or an isolated team creates a really radical idea, the business must still adopt the idea, produce it and commercialize it.  Often a disruptive new idea changes far more than the offering - it demands changes to channels, to marketing and to business models as well.  So even a good idea conceived in a skunkworks can easily find barriers to commercialization.

The end of either or thinking

We are rapidly approaching the point where either or thinking will have to end.  Management teams are gradually becoming aware of the unintentional barriers that efficiency, risk aversion and short term thinking have erected for innovation.  Indeed, management teams are recognizing the need for more continuous innovation activity and the handcuffs that have been placed on the organization through efficient processes and cramped visions.  The "have your cake and eat it too" approach of focusing on efficiency and attempting periodic innovation is rapidly coming to a close.  Soon we'll see the mantra of "both and" - we need efficiency, but not at the cost of effective, consistent innovation.  Today, management teams are making tradeoffs between efficiency and innovation - and innovation usually loses because it is risky and uncertain.  But firms that "stick to their knitting" and focus on efficiency are rapidly losing pace with new entrants, market shifts and competitive pressures.  Innovation as a core competency is the answer.  What are you willing to sacrifice in terms of efficiency is the question.

Incremental or Disruptive, Product or Service

The tradeoffs that face innovators are many.  Should we pursue incremental innovation or disruptive innovation?  What are the best outcomes - new products or new services?  Who in the business should innovate - R&D or marketing, business units or geographies?  Note that all of these assume tradeoffs and mutual exclusivity.  That thinking is out of date.  Your firm should pursue incremental AND disruptive innovation, simultaneously.  It should pursue new products, new services AND new business models as innovation outcomes.  Every team, every function should be involved in innovation activities.  This is the end of "either or" innovation.

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posted by Jeffrey Phillips at 6:11 AM 0 comments

Thursday, October 11, 2012

Innovators have short memories

I see the disappointing news today that Lance Armstrong has been accused by his entire team of doping, and providing performance enhancing drugs to his teammates.  While this is a serious accusation, with a lot of evidence to support it, don't worry if you are a Lance fan.  America has enormous redemptive powers.  If he does the right things and focuses on positive outcomes, he'll be back in favor in no time.  That's because as a nation we have short memories.

Do you listen to the NBA?  Like Marv Albert as a sportscaster?  Do you recall his career was "finished" when he was caught in a very compromising situation?  Many thought he'd never call major sports again.  Yet today he is a fixture.  Even Richard Nixon was rehabilitated late in life to become a trusted elder statesman.  Why am I spending all of my innovation blog post talking about people who were disgraced and fought their way back to prominence?  Because as innovators, we need to adopt the mantra of short memories and redemption, just like these individuals have demonstrated.

We tried that before

Perhaps no statement does more to hamper innovation than the phrase "we tried that before".  This phrase is limiting because it suggests that the idea failed previously and doesn't deserve another chance.  It demonstrates long memories, resistance to redemption or the recognition that circumstances change, and what may not have worked previously may work in a different time and a different climate.  Previous failure does not predict future failure.

We have strange decision making and thinking processes, reinforcing past successes and downplaying past failures as if circumstances and market conditions remain the same.  Those forces are in fact changing at ever increasing rates.  Ideas and concepts that may have failed in the past may become much more relevant as circumstances change.

Failure is not an option

Another favorite quote, and an enemy of innovation.  We tend to remember failures far longer than successes in business.  But may "failures" can lead to better ideas and better insights.  Rather than branding something a failure, perhaps we should identify it as a learning opportunity and incorporate the learning into new ventures, rather than returning again and again to the fact that something "failed".  Ideas fail for many reasons - timing, market sentiment, technology, marketing, channels and many more factors.  Any one can cause a "failure" of a viable idea.  We need to learn and exercise the power of short memories and understand how to redeem ideas and people who are trying to innovate, in much the same way that Marv Albert or Richard Nixon were habilitated.

Classic "Failures"

Einstein was a failure as a youth and could have been easily ignored.  He was considered slow in school and was working as a lowly clerk in a patent office when he did his best work.  Edison's first major invention was a financial failure, and he went on to be quoted as saying "I have not failed.  I've just found 10,000 ways that don't work".  This quote is apocryphal, but another similar one isn't: "I am not discouraged because every wrong attempt discarded is another step forward".  Edison and Einstein knew that failure wasn't terminal, and that good innovators have short memories.

Organizational Memories

Unfortunately for innovators and innovation, organizations like elephants have long memories.  These are embedded in corporate culture, a pervasive and powerful force.  Organizational memory is strongest about failure, and reactionary when failure is revealed and examined.  Organizational memory teaches others to avoid incidents, ideas and people that have failed, rather than recognize the power and necessity of short memories.  Long memories are valuable when product cycles are long and competition is low.  Short memories are important for innovators.

The Lance Armstrong idea

So, what's the current "Lance Armstrong" idea in your business?  How do you react to the idea and the people who championed it?  This isn't to say that all bad ideas were really good ones - there are after all really bad, noxious ideas.  But the real insight is discovering when and why an idea "failed" and understanding how and why it can be rehabilitated or what to learn from it.  Innovators need short memories in companies that often value long memories and reactionary thinking.

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posted by Jeffrey Phillips at 7:39 AM 0 comments

Tuesday, October 09, 2012

Innovation "killers" never play by the leader's rules

I was perusing my Twitter stream today when I noticed that one of the Tweeters I follow has decided that the new Nexus tablet from Samsung isn't an iPad "killer".  Yet again another tablet has failed to unseat the iPad from its position as the leader of the tablet pack.  But what concerns me isn't whether or not a new tablet will "kill" the iPad, it's the concept that new products should "kill" the leader in an industry.  In my estimation, that's a misreading of history and the wrong target for innovation.

If we examine what Clayton Christensen said about innovation, especially disruptive innovation, he argued in the Innovator's Dilemma that most disruption happens from products that offer less feature or benefit than the existing expectation.  Further, anything that is going to knock the iPad out of its leadership position is going to do something dramatically different than the iPad is doing, not simply doing what the iPad does on a larger screen, or with more memory.  That's what I think has gone missing in the "killer" discussion.  To win in an established market, you don't want to do more of the same, you want to shift the rules entirely.

Any innovation that overturns a dominant market position in hindsight will appear obvious, but in foresight will seem dramatically new and different.  That's because the innovation doesn't extend the strengths and capabilities of the leader, but often plays judo against the leader, playing off of its strengths.  Take, for example, the American car industry in the 1960s and 1970s.  GM, Ford and Chrysler didn't lose to Honda and Toyota because the Japanese imports made larger, faster, less fuel efficient cars with more extended tailfins.  No, they lost because the Japanese made sensible small cards that eventually offered high quality and excellent gas mileage just as the price of fuel increased.  You don't double down on what the leader has to disrupt - you change the rules entirely.

What will this mean for the eventual iPad killer?  It won't mean a larger screen, or more memory, or better sound quality or higher resolution camera or video.  That's eventually a zero sum game that every one of the tablet providers is playing.  What we all need is ubiquitous computing but we are all still encumbered by a physical device.  The eventual iPad killer will offer some mechanism to access content and basic computing with virtual commands - like Tom Cruise in Minority Report - using a heads up display on special glasses and a computing device that easily slips into your pocket.  It will be far smaller, far less intrusive than the iPad.  What it won't be is a complex, multifunction device.  We've finally reached the point where cell phones are sold on the basis of their cameras rather than on the quality of the voice connection, which was the original, and sometimes still the basic purpose.

Of course I could be wrong - not about how the iPad will be killed but about the mechanism and design that will kill it.  Perhaps it is overtaken by a simpler device, perhaps by a Dick Tracey wrist computer, perhaps by a complex multifunctional device.  But I can assure you that it won't be "killed" by offering more of the same, which is what many tablet providers are offering.  Innovation isn't about constantly extending the limits of what benefits are offered, but about thinking about the offerings in new and different ways.  One interesting concept that could upend the iPad would be to change the business model - offer tablets at no charge that reap benefits from more ads.  I'm a bit surprised that Google hasn't at least pursued this concept.  But that demonstrates that more innovation is possible outside the physical framework of the iPad - business model innovation, customer service and experience innovation, channel innovation - are all possible but so far neglected by tablet manufacturers locked into the dimensions, pixels and weight of the device.

Disruptive innovation almost never originates from within an industry, and rarely starts from the rules and expectations set out by the leader.  Disruptive or "killer" innovation in any industry happens when someone changes the rules entirely, or innovates in a completely different way that matters to customers.  Who is playing judo with the iPad - using its strengths as a weakness?  Who is overcoming the most significant issues that the iPad presents when it is used?  That's where the killer lurks.
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posted by Jeffrey Phillips at 5:52 AM 2 comments

Friday, October 05, 2012

Who says innovation has to be expensive?

I'm a bit frustrated with existing management think.  We've all allowed ourselves to be sucked into the belief system of the zero-sum game.  If I take a little bit from one program to augment another, then the taking and receiving balances out.  The pie stays the same, we just cut the slices differently.  This is a static reading of strategy and outcomes - assuming that the investments now are static and to some extent the outcomes are static.  It assumes that a few dollars spent in service of innovation is a few dollars that can't be spent in other areas of the business.  When viewed from that perspective, it is always difficult to find funds for innovation.

But what about the outcome?  If I find those few dollars for innovation and the work spawns an entirely new set of products that propel the company into new markets with higher profits, isn't that a demonstration that markets and companies aren't static?  That perhaps innovation is an investment worth the risk?  Too often managers are willing to invest in what they know, comfortable with historical data rather than forecasting results.  The problem with this comfort level is that history is increasingly meaningless as the pace of change accelerates and competition multiplies.  You cannot make "safe" bets anymore.

Next, though, is the argument that innovation is "expensive" relative to other activities.  It is expensive only if the work doesn't achieve outcomes, in the same way that any activity in a business is expensive if it doesn't achieve stated goals.  The reason innovation is expensive is that it is frequently conducted in a poorly planned, ad hoc fashion by people who aren't motivated by passion but by fear.  Many innovation activities aren't launched proactively but in reaction to some market shift or some new introduction.  That means innovators often are focused on catching up to or copying a competitor rather than seizing new ground for themselves.  Innovation is very expensive when done ineffectively, without process, without tools, and by people who are frightened of both potential outcomes.  They are afraid to "fail" because that often has career limiting issues. They are also afraid to succeed, because really interesting and valuable ideas are often too strange for their executives to agree to.  So all ideas tend to clump around what seems practical and reasonable, but which has little distinction or differentiation.  Therefore, innovation doesn't produce big results, and has a high cost for little return.

This argument is a bit like complaining when you ask your teenager to invest your retirement plans for you.  He or she may choose to spend it all on a new car, or may spend a lot of time investigating alternatives only to pick the wrong ones.  When you want high returns, you embrace risk but find advisors who can help you achieve your goals.  Why don't we do the same with innovation?

Contrary to most opinion, innovation can be accomplished in very inexpensive ways, and can deliver outsized results.  We have the opinions and beliefs about innovation exactly backwards, believing that it requires a large investment and will only return small benefits.  That's not a failure of innovation as a tool or competency, it is a failure of definition, scope and engagement.  We've met the enemy of practical, valuable innovation.  It is our own conservatism, fear of risk and uncertainty, lack of tools and methods.  When you commit to innovation proactively, develop the capabilities and skills internally and engage your people and your culture, innovation is a renewable resource that delivers value far beyond its investment.
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posted by Jeffrey Phillips at 9:19 AM 1 comments

Wednesday, October 03, 2012

Innovation: Reach beyond your comfort zone

Lately I've met with a number of potential clients who are frustrated that their innovation efforts aren't creating a bigger splash in the market.  It can be difficult to identify the limiting factor in any new product or service.  Perhaps the customer need wasn't as strong as we anticipated, or we built features and attributes to appeal to the wrong need or client base.  Perhaps the product is too early, and difficult to adopt, or too late and missed the market window.  Or perhaps the concept was too narrowly conceived from the beginning.

Reach and Grasp - the Alligator Arms effect
The idea of reach is one I talk about often with my clients.  In many organizations we have what football commentators call "alligator arms".  You've seen the phenomenon:  when a wide receiver runs a route over the middle of the field and a pass is thrown his way, he may make a half-hearted attempt to reach out and catch the ball, but then immediately retracts his arms to protect his body.  Rather than leave his torso exposed and catch the ball, he makes a quick but futile attempt to snatch the ball and then protect his body.  All too often innovators have alligator arms when it comes to their vision.  They know a big, interesting concept matters, but aren't willing to push the idea for fear of rejection.  So they pursue ideas that are less than compelling, and given the time, energy and resistance to overcome to commercialize a new product, they are never happy with the results.

Reach should exceed Grasp
Robert Browning wrote that "A man's reach should exceed his grasp, or what's a heaven for?"  His concept is that people should constantly reach further than they think is practical or safe, or risk living a life that is unsatisfactory and cramped.  In the same way innovators should constantly have visions of ideas that exceed their grasp.  If you know exactly how you will implement a new idea or concept today, then your idea is too practical and too easily copied.  If your idea doesn't face some internal skepticism and headwinds, it is already too incremental.  One of my other favorite sayings in this regard is:  Don't worry about someone stealing your idea.  If it is truly new and original, you'll have to ram it down their throats.

Houston:  we have a problem
Many corporate innovators suffer from alligator arms, or have limited reach, which is unfortunate, because there is an increasing gap between what is expected and needed by senior executives and the market, and what is produced by innovators and product development teams.  Many times I hear CEOs explaining that their staff must not be very innovative, because all they produce is safe, incremental ideas.  We recently led an innovation activity in the insurance industry where the CEO kicked off the event expounding the need for real "game changing" ideas.  Once he left the team to its devices, they reverted to real "small ball" concepts.  Mid and senior level managers have been taught to pull their punches and rely on small, incremental changes, but the expectations and markets have shifted.  CEOs desperately want interesting, differentiating ideas and products, but our reach is completely within our grasp.  Many innovators and product developers are frustrated by the limited reach, but don't believe new, interesting, disruptive ideas will be well received.

We have a solution
So we have a quandary:  executives are asking for the big idea, the reach beyond the grasp, while innovators and product developers are still locked into small ball and incremental innovation.  Paul Hobcraft and I developed the Executive Innovation Workmat to address the root cause of this issue:  executives saying they want innovation but failing to put the frameworks and programs in place to ensure its success.  If your reach is limited to your comfort zone, if you are frustrated by the incremental ideas your team creates, contact us.  We can create a framework that bridges the gap between expectation and capability.
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posted by Jeffrey Phillips at 6:11 AM 1 comments