Monday, February 03, 2014

Innovation is rarely a gap filler

I had a call from a potential client last week.  It was a new client but an old story.  For months, maybe years some executives had expounded on the need for more innovation and the potential value it could deliver.  Everyone nodded and went back to business as usual, because it was safe and comfortable.  A few weeks ago, the government issued new regulations in their business, and suddenly millions in revenue is at risk because existing products and services don't align to the new regulations.  So what does the management team decide?  It's time for that innovation magic you've been talking about.  How quickly can we "innovate" a new product that can fill that gap?  By the way, it would be nice if we can recoup that lost revenue this fiscal year...

There are several issues I'd like to discuss in this (not) apocryphal story.  The first is the concept that far too many businesses are resting safely in their comfortable business models, never realizing how fragile those models are, how susceptible to small changes.  The second is the idea of the "burning platform".  The burning platform is what is required to get people to move from existing comfort to an unknown position that seems risky and uncertain.  After all, it may be better to jump from a burning platform than to wait to burn to a crisp.  But last, and most important, I want to discuss the fact that innovation is rarely adequate as a "gap filler", and it's almost impossible to kick off an innovation project with the goal of replacing $X amount of revenue within one year.

Live by the regulation, die by the regulation

I remember just a few years ago working with health insurers, who were confident that the Affordable Care Act would never pass or impact their businesses.  Needless to say, regulations that define your business can change, and when they change can impact a business dramatically.  Too many times businesses and industries act as if regulations are permanent and unchangeable, and build business models that assume a permanence to regulations and customer expectations that are unrealistic.  In a classic David vs Goliath move, many innovators use these fixed positions to attack the incumbents.  Sure, form you business model to conform and profit from existing regulations and expectations, but ensure that your model is flexible and nimble enough to change when the regulations or expectations change.

Burning Platform

Why, oh why, does the platform always have to be set on fire by external entities or forces?  A burning platform is the reason to move, but those reasons are too often external rather than internal.  This means that most businesses change only when forced to by external agencies, forces or actors.  If that's the case, what role do executives and their strategies play?  If all change is thrust upon a business, then build a business that is like tumbleweed - able to nimbly move as the winds of change push it.  For many reasons, businesses seem to change more rapidly and more effectively when the impetus is external rather than internal, but whatever causes the recognition and need to change, act quickly.

Innovation isn't a gap filler

There's one statement as an innovation professional I never want to hear.  That statement is:  we need to replace $50M in revenue this year with an innovation project.  In this case, innovation is being used as a gap filler to achieve current year revenue.  There are several problems with this:
  • First, innovation is being used in an emergency setting to recover planned revenue
  • Second, we aren't innovating to solve a customer need or challenge but an internal revenue gap
  • Third, we are placing a very high return bar on a very short term activity
  • Fourth, there are very few innovations that can be imagined, developed as a product or service, launched in the market and achieve significant revenue in six months or less
One of the first activities we undertake with our clients is to understand their typical development cycle.  That is, how long does it usually take to move a product concept from early design to launch? This cycle is typically anywhere from several months to several years, and that assumes the organization has a really compelling new idea just waiting for development cycles.  When there are no strong ideas in the queue, the development time for ideas can be several months or more.  The reason we focus on this seemingly mundane activity is to ensure that everyone understands what innovation can deliver, and the time frame in which it can deliver.

While innovation is often implemented in an emergency situation, it is not a tool or method well-adapted to emergency operations.   Innovation requires careful assessment of the situation, examination of trends, gathering customer needs and identifying unmet needs or expectations and generating and development viable concepts.  In a corporation where these skills are well-tuned, these actions can take several months.  In a setting where these skills are new, and every warning light in the building is flashing because a huge chunk of revenue just went missing, trying to get people to focus on the actions necessary for good innovation is virtually impossible.
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posted by Jeffrey Phillips at 7:18 AM


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