Wednesday, December 21, 2022

Will you shape innovation, or will it shape you?

 There's a famous quote about tools we use, which says that we first shape our tools, and then they shape us.  Meaning, I think, that we are natural creators, meant to solve problems, to create new things.  When we create new things, they become valuable and in demand, and to a great extent, at least initially, unattainable until produced in mass quantities.  Once attainable and proven useful, those tools change the way we live and work.  Thus, the tools we created and shaped will eventually change and shape the way we live and work.  If you doubt this is true, look no further than the iPhone.  What was an incredible innovation is now changing how we work and live.  And to some degree, creating new humans with more flexible and useful thumbs!

Through creativity and innovation, from the earliest origin of man, we have been creating and shaping tools - fire, sharpened sticks for tools and weapons, the wheel and thousands upon thousands of other tools and devices.  Now, we are surrounded by the evidence of centuries of innovation:  indoor air conditioning on a hot summer day.  Automobiles that can travel hundreds of miles on a single electrical charge.  The ability to sit and write a blog that others may read (or ignore) at their leisure.  And all of these tools and services are built on dozens of other innovations, that we all too casually accept and ignore.

The question I'd like pose today is:  when do we stop shaping innovation and when does it start shaping us?  One of my biggest concerns is that we are losing sight of the power of innovation, and its ability to constantly change (and often improve) our lives.  To a great extent, we are becoming complacent, waiting for others to change or improve or modify our lives, rather than dreaming up big ideas and developing them ourselves.  Too many times we've outsourced the development of ideas to others, waiting for them to take the risks, to scale the ideas, rather than get involved and participate in the learning, experimenting and yes, sometimes failing process.  This lack of larger engagement in innovation and creativity means that the development of interesting new products and services is left more and more to people who are willing to take risks, and those people, unfortunately, may include people who don't care about risk or who don't care about you.  Facebook, as an example, has proven to be an exceptionally valuable innovation that generates a lot of social interaction, for good and for bad, driven by Mark Zuckerberg, who, it seems, is happy to share your data with anyone for payment.  And Facebook is just one example.

When people become passive, and when we fail to innovate, we risk turning over innovation and creativity to people who don't have our best interests at heart, but more importantly we risk abdicating the act itself to others, and eventually to machines.  While I recognize that this sounds futuristic, good innovation often involves the combination of unexpected features or solutions in new or novel way.  Artificial intelligence can spot and discard thousands of connections that would take humans years to even consider.  A significant amount of drug discovery is already working in this way.  

The advent of innovation by AI does not preclude people from working in innovation and certainly won't prescribe the activity, but as long as we continue to focus our attention in the educational system on rote memorization and de-emphasize risk taking and creativity, the more and more these acts become acts of rebellion or resistance against a system, by people who do not fit into the mainstream.  This is not to suggest that there will be an "us vs them" mentality, but most good innovators are somewhat outside of the mainstream, and the current environment and movement to more automated methods of innovation may make it even more so.  

Plus, there are some innovations and some breakthroughs that simply require human involvement and innovation.  While AI can combine existing capabilities and molecules to decide if a new combination has value, AI (at least not now) can't imagine new possibilities, new services and business models, new experiences that consumers value.  There are entire vistas of innovation possibility out there, waiting to be explored and, yes, monetized, if only businesses would be more active in seeking out the possibilities.  Yet, most companies stick within a very narrow range of new product development options, unable or unwilling to shift the frame and think differently.  Little wonder, since the population seems to be moving in that direction as well.

The dystopian future of Terminator is bleak but unrealistic.  Machines and AI will become more powerful, but the relationship will be symbiotic, just not in the way of Terminator or The Matrix.  We will become more dependent on machines and AI for more of our thinking and even our creativity if we aren't careful.  True creativity and innovation are almost purely human characteristics, exceptionally difficult for machines to create, but these acts aren't always useful or beneficial.  However, in the right conditions they lead to new learning and new discovery.

The question is:  are we willing to relegate our lives, our thinking and our innovations to a small group of people who continue to work and innovate, and to machines and AI that won't explore all the innovation possibilities and options?  Will we be happy with a continuous supply of incremental and safe ideas that aren't all that interesting and fail to explore new opportunities?  If what I am saying as a warning seems to reflect the current reality, then get ready for more of it.

If you want more, if you think people and society is capable of more, then start by training your kids and students in creative thinking and innovation.  Encourage them to explore beyond the rigid academic boundaries, to combine new thoughts and new experiences.  As Heinlein said - specialization is for insects.  We need people who are open to new ideas and new experiences, who will push further into creativity and innovation, to re-invigorate innovation in society, in government and in business.

And it cannot come soon enough.  Otherwise, complacency, lethargy and satisfaction with the current state will settle in, and we'll create an entire generation of people who are completely satisfied with staring at photos and short video clips on a handheld device.  Oh, maybe we've failed this generation.  Maybe they'll recognize that life and experiences and risk beyond the handheld are out there and reject the trap of social media to go well beyond.

It's time to move beyond relying on Zuckerberg, Elon Musk, Sam Bankman-Fried and other "innovators" to create new things.  SBF didn't create, he merely masked a Ponzi scheme and bamboozled a willing press.  We, all of us, are responsible for what we want to buy, consume and experience.  Stop waiting for others to innovate, stop waiting for the next band leader to bring the music to town.  Start innovating on your own, in small groups, with your friends, with teams at work.

Start defining and shaping your own innovations, rather than waiting for someone to sell you one of theirs.

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posted by Jeffrey Phillips at 1:06 PM 0 comments

Monday, December 05, 2022

Innovation Portfolio Gymnastics

 There's been a significant number of posts on LinkedIn and other social media about innovation lately, especially focused on the type of innovation that companies perform.  The traditional way of thinking about this, which is really just a loose rule of thumb, is to suggest that companies SHOULD plan for 70% of their innovation efforts (and hopefully, results) to be focused on incremental innovation, and 20% on transformative innovation and 10% on disruptive innovation.  The 70/20/10 allocation was originally created by one of the big strategic consulting firms and seems reasonable on its face, but was never intended to be a fixed proportion, but a signal that every company should be innovating across all three horizons. 

The idea of diversification across the three horizons was the key point, not the amount of innovation in each horizon.  There may be companies or industries where the appropriate division is 70/20/10.  More than likely, there are a few companies where this is the correct investment across the portfolio.  However, there are several issues with this allocation.  First, it isn't gospel.  Clayton Christensen didn't carve it on stone and hand it down to the rest of us.  It is a rule of thumb that should be understood as such, and then modified by every company based on competition, the pace of change in the marketplace, the amount of impact or disruption the company wants to create and so on.  It is lazy thinking to believe that your innovation investment should be the same as every other company.

Second, the original 70/20/10 split really only addresses one dimension - that is what new products should we create.  I think more than ever, it's reasonable to ask what the portfolio of new services, new customer experiences and business models we should be creating, and across all three horizons.  We need to free ourselves from a limited way of thinking about innovation outcomes.

Third, we need to recognize that few firms will ever fully embrace or realize the third horizon.  While some firms may espouse the goal of innovating to disrupt their market or other markets, the near-term incentives to protect what exists, and the risks associated with disrupting a home market are too significant for the vast majority of companies.  There's a reason most if not all disruptive innovation happens from outside an industry.  The upstarts and external actors don't have an investment in the status quo.  So, it's generally been my rule, let's call it the Phillips rule, that all disruptive innovation will be realized by companies innovating in an industry they hope to enter or to create.  This does not mean you should not plan for third horizon innovation, but if you do, you must ask how the innovation will be realized.

Building a real innovation portfolio

If you want to truly understand the power and depth of an innovation portfolio across these horizons, then we need to examine what criteria are important.  

First, it is clearly important to sustain and extend existing products and services.  Thus, the incremental segment of the three horizons is important.  What is critical here is knowing which products and services are worth extending or adding on to, and which should be culled from the portfolio.  Most companies are loath to cull products and services, so they spread too few innovation dollars across the entire portfolio, making meager changes that do not thrill customers.  The best action in the existing portfolio is first to go on a zombie hunt, to remove the weakest products and services to free up more innovation dollars for the best remaining products.  All incremental innovation should first begin with subtraction, to free up room and funds for future growth.

Second, you need to consider what new products and services and business models you'd like to create to add to your existing portfolio.  This will represent the second horizon of innovation, the transformative horizon.  It's in this segment that you create new products, introduce new technologies or target new customers.  In all of these cases, learning is involved.  You must invest in exploration, in learning and in engaging customers and prospects.  You should also do a good amount of work in trend spotting and scenario planning.  This segment is where you make the most important bets on your mid-term future, so the more you can learn, the better off you'll be.

Third, you will want to understand what disruptive innovation looks like, while recognizing that disruptive innovation can and will happen in your industry (likely by an upstart or outsider) AND that you can be a disrupter to other companies or industries.  It helps to understand how your industry might be disrupted, so you can anticipate the entrants and significant changes that could occur.  It's also valuable to see how your capabilities, products and services could disrupt another industry, opening up new markets and new customers.  It is important that you do both - understand how your market or company could be disrupted, so you can defend against it or prepare to move if necessary and examine where your capabilities could allow you to enter or disrupt other markets.  As Eisenhower said, plans are nothing, but planning is everything.

Who should do this work

The challenge with all I've identified above is that there is no one person or even one function that can do all of this work.  Few companies have competent planning departments that can spot future trends and build scenarios or spot important competitive movements.  Most innovation happens in R&D or in isolated product groups, so forming a true innovation portfolio means cobbling together different innovation pipelines from vastly different organizations, and most of those will be product innovations since customer service or business model innovation is rarely considered.

What this points out is that while innovation seems important, it is not well-organized, often not strategic and not carefully planned or executed, and does not have a single point of responsibility or accountability.  I've been in the innovation space for over 20 years, and I've seen a lot of improvement in corporate innovation but compared to the way many other business processes operate, there's another 20 years' worth of work before innovation gets the kind of attention it deserves.

What to do now

Where to start?  Define a corporate-wide innovation portfolio, to get a sense of all the innovation work underway.  Classify it as incremental, transformative or disruptive.  Determine the ratio of the three.  Gasp when you realize that the vast amount of innovation underway is incremental and unlike to move the needle.  Examine your markets, your competitors and your customers to determine just how much innovation you should be doing.  Cull your innovation portfolio and enforce the right ratios across the three horizons.  Invest in learning, discovery, customer engagement to gain more insight for transformative innovation (horizon two). Research disruptive innovations that you can create to attack other industries.  Research the disruption that is going to happen in your industry.  Learn, adapt and then change your innovation portfolio.  Make sure to track not just product innovation, but services, customer experience and business model innovation as well.

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posted by Jeffrey Phillips at 11:45 AM 0 comments