Thursday, November 11, 2021

Building a lasting innovation capability

 I've been asked a number of times, by companies large and small, how to create an innovation capacity that lasts.  This is a really interesting and important question, with a distinction.  Note that what my clients are asking for is to create an innovation capacity that outlasts a product need, or market gap, or executive team member.  After all, most (probably 90%) of all innovation projects undertaken in large corporations are reactive projects trying to respond to a market threat or competitive move.  In these cases, innovation is a one and done activity, in order to respond to a new product or service, and aren't meant to be retained in the culture or processes or consciousness of the organization.

So, how do you build a lasting innovation competency in any business, of any size?

First, make innovation important to the CEO and the executive team.

If innovation isn't important to them, or seems like a distraction from day to day operations, then you can't do the real infrastructure development you are going to need to do.

  • How do you make innovation important to an executive team?  Most of them already say that innovation is important.  You need to demonstrate that innovation is not "a" strategy, but is a way to accomplish strategies - growth, differentiation, new line extensions and so on.  In fact, every strategy, every business and every product should have an innovation component.
  • Demonstrate that innovation can be purposeful, and managed through a process.  This reduces the risk of innovation and increases visibility
  • Introduce the idea of innovation portfolios and the need to innovate across the three horizons.  A company needs to make reasonable bets across the incremental, transformative and disruptive horizons in proportions that make sense based on competition and speed of change.
  • Demonstrate that innovation depends on finding the most innovative people, who by definition are rarely the more efficient people.  Efficient people run day to day operations really well and defend those products and practices.  Innovative people wonder why we aren't doing better or something new, or why we are sticking with these products long after they've been superseded in the marketplace.
  • Tie their compensation to innovation goals.  For example, you could tie their bonuses to the number of products less than 2 years old generating revenue.

Next, focus on the corporate culture. 

In reality, you should work on culture first, since the culture will be around long after the executives that start the innovation effort will move on or retire.  The average time an executive is in a role in a corporation is about 3-4 years, and significant cultural change will take much longer.  But no one will want to start all of this work focused on the culture without other changes in place that can move more quickly.

Culture is as powerful, and lasts longer, than any executive tenure, market depression or other factor.  If you have an innovative culture, deeply embedded, it will respond to any adversity.

  • How do you create a corporate culture that embraces innovation?  It actually isn't hard, just takes a lot of time and discipline.  Most cultures are like Newton's first law.  They are at rest and want to stay at rest.  Change is always difficult, and changing factors like informal decision making, beliefs and attitudes, risk taking and other factors is more difficult because it requires buy in at all levels and constant reinforcement.
  • Create a burning platform - let the company know that the existing culture - while it got you to where you are - isn't what will take you to the next level and opportunity.  Create a reason to change the culture and get people to buy in to the need for change.  Let them see "what's in it for me"
  • Show them a future vision of what the company and it's culture should be (these last two bullets are classic change management)
  • Change how people are compensated, measured and rewarded.  Today, very few companies measure or reward people based on innovation activities or outcomes.  If it is important, it will be expected, measured and rewarded.  This can go as far as incorporating innovation measurements in an annual review, requiring evidence of innovation work to get promoted into new roles.
  • Talk about innovation, communicate constantly at all levels, and follow up the communication and talk with action.  Too often, companies participate in what is known as innovation theater, where executives talk about innovation but little actually gets done.  Executives need to talk about innovation, but also engage in innovation, check in with direct reports, better yet, go do some innovation work.
  • Make it easier to take risks, to experiment, to test ideas and hypotheses.  Reduce barriers and encourage more risk taking, more experimenting with new ideas, more prototyping. 
  • Extend innovation work broadly throughout the organization - don't pigeonhole it in R&D.

Next, find the best people to do innovation work and give them the skills necessary to lead and conduct innovation projects.  

There are plenty of ways to find people who are really good at day to day operations, and those folks are vital.  There are also ways to find people who are good and passionate about innovation, and many times the Venn Diagram of these two segments leaves little in the middle.  Put the right people in the right jobs, and give them the training and development they need to do good innovation work.

  • How do we find people who are good at innovative work?  There are a number of assessments (FourSight, KAI, some Myers-Briggs, my own Innotraits assessment) to help discover who is more likely to be a good innovator.  Rather than choose people that are trustworthy or have delivered in the day to day model, take time to find the most passionate, most capable and most motivated people who can lead change.
  • Develop real training to build skills.  By now, everyone in your organization knows how to do lean, agile and six sigma.  They have been trained in all kinds of tools and processes, but have little to no training in creativity, trend spotting, synthesizing various data points to create a new vision of the future, understanding customer needs or the customer journey, good idea generation, prototyping and so on.  Innovation is challenging and complex, moving from a very nebulous world of trends and needs and emerging capabilities to a very definitive set of features and requirements.  This process requires skills that are not being developed in the educational system or in corporate training.  
  • Develop a process or at least define a consistent set of tools.  I am a firm believer in defining a fungible innovation process - a set of steps to help ensure that innovators complete a set of activities and learnings before they recommend an idea.  We do best what we do regularly, so innovators need consistent methods and tools just like anyone in any other business process.

 The difference between one off projects and building an innovation process

So, you'll now see that the difference between an innovation project and building a process is a difference of degrees.  You'll need to do much of what is listed above to conduct a reasonable innovation process, but if you don't plan to make it permanent much of this can be stood up and executed and then folded away in little time, with little impact to the organization.  Building an innovation competency requires more investment, more impact to the organization and something that sustains this capability, which requires more time and energy from executives, a consistent budget and incorporation into strategy.

The real challenge in what I've written is in culture.  You can find great people, have great leadership, have some interesting innovation processes or tools and do innovation occasionally if the culture will alllow it.  You can have all of those things and do little or no innovation if the culture has enough resistance.  You can fail on many of these aspects and still do innovation if the culture expects to do innovation and embraces the risk.

Why is so much innovation work so temporary?

It's difficult to build an innovation capacity that lasts, for a number of reasons.  Much of the "memory" in a company is based in its culture, and culture takes time to build, and time to retrain.  We all know this, either instinctively or because we've tried to change a culture.  If your culture is not tuned and ready to embrace innovation, you will at best succeed with a few disparate innovation projects, mostly manned by people who are comfortable overcoming the resistance.

Executives can help, but are also a bit helpless.  They know that innovation is important, and realize that innovation requires a supportive culture, but most executives are in their roles for such a short period of time that they can't create the amount of change necessary to sustain innovation.  They aren't to be faulted for focusing on shorter term innovation projects or other work.

The better answer is that building a true innovation capacity takes funding, commitment, engagement from a succession of executives, and a culture that embraces innovation. 


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posted by Jeffrey Phillips at 11:12 AM 0 comments

Wednesday, November 10, 2021

The great GE innovation experiment

 GE, once a large conglomerate, has announced that it will divide itself into three companies, a healthcare company, an energy company and an aviation company. There are a few things I'd like to comment on about this announcement, but what is really interesting (at least from an innovator's point of view) is that we get to have a live experiment about the innovation capabilities and capacities of three sister businesses, all entering the market at the same time. 

Here are a few things we can learn:

  • We can discover if being relieved of corporate overhead really matters to the individual businesses. 
  • We can find out if the three companies become little GE corporate clones or pave their own way.
  • We can also find out which leaders will adopt innovative measures, and change the cultures of their businesses, and which will "stay the course".

A word about the change in the marketplace

But first, as the advertisers used to say, a brief word about what this calving of a behemoth into three still very large companies says about the market and competition.  When the pace of change was slower, and change was more predictable, getting to economies of scale and growing a conglomerate made sense. This "history" as I am describing it, takes place in the 1950s, 1960s and 1970s, and probably began to end in the 1980s. As change accelerates and there's an increasing need to be agile or nimble, getting smaller and faster is key. As several commentators have noted, the future belongs to the fast, not the large.

If you needed evidence that competition, the pace of change, the need for agility and new business models is creating profound change, look no further than the house that Jack Welch built, which is being broken down and sold for parts.  All business must be fast, agile and innovative.

This division of the company is meant to make the new, smaller companies more focused, faster and more agile.  The question in my mind is:  what do they change?  Do these firms retain their existing processes, decision making models, org structures and so on, and hope to get more done with less cost?  Do they strive for greater efficiency, or do they dramatically rethink their cultures and become more innovative?

An experiment, hosted in real time

Scientists long for such a naturally occurring and easily observable experiment.  We've got a doozy.  Three new companies will be launched from the mother ship of GE.  They will bring with them the same people, the same products, the same culture as they had when they were operating divisions within GE.  They will also bring along existing decision and risk models, investment models, hiring structures and policies, pay scales, and more, as a legacy of the GE mothership.  In other words, they'll bring along the existing leadership and the existing corporate culture.

The folks who are the leaders of these businesses will (probably) remain the same as they were when launched, so the executives aren't likely to change dramatically.  This means that we're likely to see one of a few scenarios:

  1. The individual businesses reform themselves as mini-me's, built and organized and operating like GE did previously, with the hope that the GE brand and historical power, and some operational improvements are what is necessary to succeed.
  2. The individual businesses double down on efficiency, now that they no longer have to pay the corporate tax.  They strip down and operate as efficiently as possible, using lean practices and six sigma guidance (already well embedded) to improve operating margins.
  3. The individual businesses decide that scale is the only way to play, so they go on an acquisition binge.  It would not surprise me to see one or more of these businesses attempt to get bigger faster, since that too is a legacy of the GE business thinking.
  4. The individual businesses attempt a radical rethinking of how they work and operate in their chosen industries, and aim for more growth, driven by new products and services powered by innovation.  This will require the most radical change, since it attacks the decision making, cultural and risk factors that the organization may want to cling to from the mother ship.

The experiment we'll all watch is:  what works?  Getting smaller faster?  Getting larger through acquisitions?  Trying to become more innovative?  While I realize that the different businesses are in different sectors and therefore the competition is not the same, it won't be difficult to understand the decisions that the executives make, and see the results that occur.

What does Wall Street want?

My bet is that there is a lot of institutional pressure to grow margins, but these new companies aren't working in greenfields.  They are going up against established competitors that have competed with GE for years. Many of their competitors are much more aligned to their industries than GE as a whole was, so the competitors are more optimized to compete, and may make reaching for cost gains difficult, even without the GE corporate tax.

Michael Treacy built on Porter's work to argue that there are three interesting competitive positions:  product leadership, operational excellence or customer intimacy.  Which will the three companies choose?  The bias will be (I think) for operational excellence, since much of that is in GE's DNA, and cultures are difficult to change.  For some of the businesses, customer intimacy could be an option, but this avenue adds cost and changes the dynamic with customers.  Product leadership (the strategy most closely linked to innovation) seems possible but perhaps the most difficult to justify, especially in the short run, as there will be a lot of pressure on the new CEOs to demonstrate strong margins and to raise their respective stock prices.

Which matters most - executives, strategy or culture?

The final item that will be interesting to watch is to determine which matters most - the leadership and executives and the direction they want to go, stated strategies and how they are implemented, or how much of the legacy culture remains in the smaller businesses and how much resistance these cultures present to any change.  My bet here is that it will be difficult to change the culture, and only committed executives who are willing to create a burning platform and regularly engage with their teams will move their cultures.  And with a background and culture like GE's, it will be difficult to change, but I think necessary to change.

All in all, a very interesting experiment to watch, one in which we may witness several different strategic directions from the different corporate "sisters".  

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posted by Jeffrey Phillips at 12:52 PM 0 comments

Monday, November 01, 2021

Exploding the explosion of innovation myths

 I found an article today on the web that was published by the Wall Street Journal in September 2021, that claims to explode the myths about innovation.  I was excited to read it, because 1) I like things that explode 2) I like myth-busting and 3) I am always curious to see what people who aren't in the actual corporate innovation space believe about innovation.  Perhaps you can tell from the way I framed this set up that I didn't think all that much of the discovery.

We should separate the insights and hard work that went into the research - the authors of an upcoming paper are serious scientists and have great credentials.  Basically, what they found, at least from what I read, is that innovation is deterministic, based on the advance of underlying physics.  So, some breakthroughs are only going to happen when the physics are correct.  

I am simplifying, of course, and will link to the Wall Street Journal article here.  

Is this really news?

Having worked in the semiconductor industry, and knowing something of Moore's Law, this finding is not a surprise to me.  Almost all technical innovation is driven by the advance of underlying science, whether it is the number of transistors on a chip, or the amount of data we can send in a packet.  For any science or technology advancement that is based on the constant evolution of a technology, or an advance in physics, this is good news - the future is somewhat predictable, and all of us who do innovation work should be constantly monitoring - and forecasting - how these technologies will advance.

The first signal that all was not right from a big "I" innovation point of view was the counting of patents in the algorithm.  Counting patents is a favorite of many companies - the more patents, they claim, the more innovation.  If you stop to look at a lot of patents, and what happens to those patents, you'd recognize that we are counting what is countable, but that they don't always count.  Many patents are put in place to block competitors from creating new products, not to create new technologies or products, and thousands of patents are filed and never acted on.  So, while counting patents seems logical, we need to ask what is the purpose of the patent, and will the patent be converted into new products or technologies.

Not all innovation is technology based

Further, while a lot of tangible products are reliant on advances in physics and other technologies, that portion of the overall "innovation" marketplace is small and getting smaller.  Product innovation is just one of at least ten types of innovation Doblin defined decades ago, and most of the rest of the types aren't overly reliant on advances in physics.  Service innovation, experience innovation, business model innovation and other types of innovation either don't rely on technology at all, or aren't as dependent on advances at the nuclear or physical level as innovations in, say, high definition televisions.

Uber, for example, or Airbnb, did not need advances at the physical layer in order to create new innovations, and the model the scientists created, while valuable, would not say anything about the opportunity they addressed or the need for technology to provide the solution.  In these cases, the opportunity was there for the taking for incumbents, who could have addressed the markets with existing technology.  They simply did not see, or did not look, at the market opportunity.

Market and customer shifts

Then, of course, there are the shifts outside of the technology that also matter.  While the article points out that nuclear power will lose out to solar power because the cost per watt is rapidly decreasing for solar, there are literally dozens of reasons why really great and valuable technologies do not achieve market dominance.  Our regulatory, oversight, and legislative processes will determine winners or losers many times, far more than a good technology by itself will.  We are getting very close to the potential of autonomous vehicles.  What will limit the use of these vehicles is not the technology, but the overlapping legislative areas, the complexity of regulation, the concerns about insurance and risk - in other words, what will limit autonomous cars is not the technology, but the regulatory, insurance and administrative oversight and buy in.

And, if technology alone was the main driver, then we'd all have standardized on Betamax tapes rather than VHS, since Betamax had better sound quality and a better picture.  What made VHS more popular was consumer demand, because most Betamax tapes did not last for two hours, while many movies and other popular shows did.  So the consumer was faced with a dilemma:  switch the tapes half way through the show to ensure everything was captured, or accept a less onerous, but slightly less high quality recording.

 Hero Worship - the other myth

I really love this sentence about corporate innovation in the article - "Looking at innovation this way, as an almost mechanistic, deterministic process, might not be as romantic as our countless hero-worshipping stories of daring inventors and entrepreneurs taking huge risks to bring us the next breakthrough".  It's just that any experienced innovator will tell you that while the stories are great, they are stories we tell to engage ourselves, but most innovators know that innovation happens when any of us work to understand trends, understand customer needs and blend in emerging technologies (when necessary) to create solutions that meet or exceed customer needs.  There is no hero-worshipping, but more getting down to work in your overalls, to paraphrase one of the individuals the article would seem to suggest that we deify.  (Edison's quote about opportunity)

Most innovation happens every day, through hard work, by people in all kinds of companies, who are combining insights, needs, technologies and market openings to create new products, new services and new business models.  We celebrate the pioneers of innovation (like Edison or Jobs) but don't expect to innovate the way they did, or necessarily need to work they way they did.  To suggest otherwise is to signal that you don't know or understand corporate innovation, or entrepreneurs.

No explosions, no myths

So, in a nutshell, the research the scientists did is excellent and should be an input to trend spotting, scenario planning and technology forecasting.  The technologies that are reviewed will drive a small portion of the overall portfolio of innovation outcomes.  We innovators respect the early pioneers and we stand on the shoulders of those giants, but we are as capable and do innovation every day.

Let's get rid of these myths and recognize that innovation is happening in many places, simultaneously, driven by many different people in large and small companies, in research labs and universities, without mystery or hero worship.

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posted by Jeffrey Phillips at 1:14 PM 0 comments