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A PRESCRIPTION FOR BUSINESS INNOVATION - PART THREEA
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| Four
years ago I wrote a well-received paper entitled A Prescription for Business Innovation:
Creating
Technologies that Solve Basic Human Needs. I've updated it,
broken it into three manageable pieces, and present the third part
below. The first part, which reviewed the history of human innovation
and technology, is here,
the second part, which described the current environment for
innovation, is here. Six: Prescription for an Innovative Organization  The
first four years of the century have seen some serious setbacks in
business innovation. The corporatist-backed Bush administration has
introduced legislation to reduce corporate liability to consumers, and
has been extremely lax in enforcing social and environmental laws.
Organizations like the RIAA and Nike have showed that the courts will
allow large corporations great latitude to sue customers (including
infringing on their privacy rights) and to lie to customers in their
advertising (about sweatshop operations, offshoring etc.) Corporations
like Enron have abused public trust and destroyed thousands of
families' livelihoods and life savings. And massive defense and
security expenditures have siphoned off funds that might have been
invested in innovation, and have made corporations and lenders nervous
about any investment while governments and corporations are so
seriously overextended and exposed to interest rate fluctuations. The
result is a climate of great animosity between corporations and
customers, and unprecedented risk aversion.At the same time, recent surveys indicate a growing corporate awareness that "you cannot cut (or offshore) your way to greatness", that the limit to improving profitability by reducing costs and margins has now more or less been reached, and that innovation must again move to the forefront if corporations are to have any hope of sustaining that profitability. So corporations are looking for low-cost, effective ways to develop new products, new processes, new delivery channels and new technologies that will meet important human needs, provide real value to customers, and be affordable by those customers. This challenge occurs at a time when the distribution of wealth among customers is massively skewed, both within and between nations, towards a tiny elite, when many governments and most corporations and individuals are buried under a crushing debt load, and when the need for innovation to solve critical environmental, social and political problems has never been higher. Simply put, we are living in an age when we cannot afford innovation, and cannot afford to be without it. Perhaps the most critical innovation need therefore is for creative mechanisms to finance, price and pay for the costs of innovation itself. Funding, pricing, and cost management are now inseparable parts of the innovation process. The prescription I propose draws on a wide variety of innovation processes that have been advanced by thought leaders on the subject, especially during the 1990s when the appetite for investment in innovation peaked, including Peter Drucker's, Cap Gemini's, Credit Suisse's, Gary Hamel's, and others listed in the bibliography below. This prescription draws as well from several innovation processes that I am personally aware of from my years working with Ernst & Young and its clients, and some lessons from how nature, which has been innovating since long before we appeared on the planet, goes about it. This prescription has eighteen steps in eight stages illustrated in the chart above: Listen, Understand, Organize, Create, Experiment, Listen Again, Design, and Implement. The three stages shown in blue -- Understanding, Organizing and Implementing -- are analytical processes, well-suited to the left-brained deductive thinkers who predominate in most organizations. The three stages shown in green -- Creating, Experimenting, and Designing -- are creative processes, better suited to right-brained inductive thinkers who are relatively scarce in most organizations. The two Listening stages shown in red are communication processes, that need to involve customers and other stakeholders, and everyone in the organization involved in the innovation process. Assigning (or contracting) the right people for each stage in the process is essential to its effectiveness, and to its affordability. If it's done well, it can draw on the strengths of everyone inside and outside the organization who has a stake in a successful innovation effort. Here are the eighteen steps. They are in reasonably sequential order, but are somewhat recursive: For example, as part of creating alternative solutions (step 12) it may be necessary to go back and scan for some additional ideas (step 1). Who should do each step depends to some extent on the industry and size of your organization: Large organizations may benefit from having a dedicated Innovation Team responsible for this, while in a very small organization it may be a scheduled part-time task of the whole management team, drawing as well on the diverse backgrounds and ideas of an informal Advisory Board. Listen 1. Listen broadly for ideas: Appoint your Innovation Team and have them set up an 'environmental scan' that systematically looks for innovations and connections not only in your industry but also outside it, outside your country, outside of business entirely. Have the Team read about, learn about, and meet with people from the broadest possible spectrum of human enterprise and natural discovery. Subscribe to journals like Innovation, and the RSS feeds of periodicals and websites that report ideas and new technologies from a wide range of disciplines. Reward members of the Team for serendipitous readings and meetings, debrief with them promptly and regularly, filter, refine and inventory their ideas and learnings for consideration at the Understand, Create and Design stages of the innovation process. Inputs: readings, newsfeeds, conferences, interviews, meetings. Outputs: a manageable inventory of ideas and insights (categorized and contextualized appropriately so that they can be simply understood and practically applied). 2. Listen to 'pathfinder' customers, competitors, and colleagues: Plug yourself in to the 'voice of the customer'. Set a minimum time quota for everyone in your organization to spend face-to-face with business customers, or with customers' customers or end consumers. Identify 'pathfinder' customers -- those who are most attuned to their organization's future direction and its need to change. Employ a 'Think the Customer Ahead' program that engenders effective listening, elicitation skills, story-telling skills, and creative thinking skills , a capacity explained in Imparato & Harari's book Jumping the Curve. Often the customer isn't able to articulate his or her needs in a way that lends itself to quick technology solution development. Listening to the customer is an iterative process, that entails learning about the customer's business, understanding the things that keep them awake at night, suggesting a lot of 'what if's', proffering opportunities, points-of-view and possibilities, not just asking baldly about needs and offering off-the-shelf solutions. Connect with customers indirectly as well, using all the media at your disposal -- phone surveys, e-mail, website surveys, customer satisfaction surveys (with lots of open-ended questions), self-diagnostic tools, videoconferences, etc., to capture as much information as you can about your customers, their customers, and their markets. Inputs: conversations, interviews, surveys. Outputs: needs, ideas, stories, industry future state visions, five-forces and SWOT analyses. 3. Listen to the front lines: Talk with the people who hear directly from customers and other stakeholders every day -- people in sales, customer service, even delivery and reception staff. Ask them what they're hearing, and what they think most needs improvement or rethinking. Create 'space' -- physical and electronic -- where everyone in the organization can surface, discuss and advance problems, needs and ideas collaboratively. Let anyone 'subscribe' to the inventory of news and ideas created in step 1 above. Consider maintaining a running list of the company's Top 10 Challenges to encourage focus and creative thought from everyone in the organization. Make sure top-level executive sponsorship for innovation is visible to everyone on the front lines. Give people time off their 'regular work' to focus on organized innovation projects, and tools and process guidance to use that time effectively. Reward front-line people for new product and other innovative ideas that they surface from their conversations with customers and others. Inputs: conversations, idea & collaboration spaces, interviews. Outputs: needs, ideas, stories. Understand 4. Understand who your actual and potential customers are: Study companies like The Body Shop that know their customers, their needs, their buying preferences and criteria intimately. These are companies that spend a lot of face time with customers and have rigorous processes in place to capture what they learn, probe what they need, and explore the potential market for new innovations. And identify and get out and meet with potential customers as well, to understand why they're not already customers and what could change that. And then have your Innovation Team cast a wider net and ask who might be customers that are currently not served by either your company or your competitors. Learn the lessons of Christensen's The Innovator's Dilemma and The Innovator's Solution -- how disruptive innovations can (sometimes inadvertently) transform whole industries, and how that presents your company with both threats and opportunities that could completely change the profile or even definition of your customers. Inputs/Outputs: list of actual and potential customers and what they currently buy, could be buying, and will and won't be buying in the future, and why. 5. Understand and respect what end-consumers want and need: and based on that 6. Understand what immediate customers will need: Start with the end-consumer of your products and services, and the end-consumer of the products of your immediate customers. Their buying patterns, needs and preferences will determine the success of your customers, and that will in turn determine their buying patterns, needs and preferences. The end-consumer has the ultimate power, and, unlike corporations', their buying decisions are based on broader and more subjective criteria than business need and affordability. They buy things they want, not just things they need. If you sell to the auto industry, you need to understand why consumers, against all logic, buy SUVs. And if your company is making money from sweatshop labour or old growth forests, better come clean now. Business needs to end its abusive relationship with consumers -- overcharging them, misleading them, suing them, and selling them inferior, imported merchandise and services. Once consumers realize their true marketplace power, they will get back at adversarial suppliers with a vengeance. Business needs to respect them, respond to them, and be responsible members of the communities in which they operate. The Reputation Economy isn't here yet, but it's coming. If you cause consumers to dislike you or distrust you, you'll soon be dead. Inputs/Outputs: current state analysis and future state vision of wants and needs for both current and future immediate customers, and end-consumers, and a resultant future state vision and emerging needs profile for your industry. 7. Understand why these wants and needs aren't already met: Here's the hard part. Things are usually the way they are for a reason. You know there are wants and needs that aren't being met. The challenge is not to throw in the towel when you find out why. The technology doesn't exist? The solution would be very costly or risky to develop? The solution is not affordable to customers? The solution is too radical for customers to accept or too complex for them to understand? The organization currently lacks the capacity or competencies to produce the solution? That's what innovation is about. Take up the challenge with your eyes open about what must be overcome, but take up the challenge. If it was easy someone else would have already done it. Inputs/Outputs: list of challenges. Organize 8. Organize those with a stake in solving the problem: Now you know what needs to be done, the next step is to organize the troops. Who can help solve the problem, assess the alternatives, provide the needed resources? Outputs: project team member list, including 'pathfinder' customers and other outsiders. (Note that the project team is responsible for solving a specific problem or need, while the Innovation Team has oversight over the entire innovation effort of the organization -- they aren't the same group). 9. Organize the program for solving the problem: There are a lot of techniques and methods that you can use to break through a problem and come up with solutions. The bibliography below is replete with them. In my experience, creative minds need a very broad framework (schedule, budget, high-level process) and a lot of freedom to figure out how to solve the problem within that framework. Self-organizing, self-managed innovation project teams seem to work well in some organizations but not in others. If you insist on imposing more discipline on the process, more hoops to jump through, control points and early-stage go/no-go filters, make sure the people you're imposing it on see the value in these constraints, and that they don't squeeze the boldest and potentially most successful ideas out in the process. Outputs: project schedule, budget, program. 10. Organize the resources needed to solve the problem: The project team needs sufficient tools and knowledge to be able to understand the problem, the customer need, and the variables that could impact the potential solutions. Inputs: all the Outputs from steps 1-7 above, redrafted into a cogent and digestible form. Create 11. Create an environment and capability for innovation: Give the Innovation Team and the project teams permission to fail, and teach them how to fail early and inexpensively. Prevent executives from pushing their 'pet' projects to the detriment of others. Don't let the 'black hats' deep-six good, hairy, audacious ideas prematurely, and ensure that 'black hat' behaviours are not rewarded by senior management. Help the team avoid slipping into excessive caution or incrementalism. Keep the marketing group from unduly influencing the process with antiquated ideas for 'creating market demand' and launching products with press releases and self-serving promotional and advertising campaigns -- In the emerging customer-driven market these techniques will no longer make a mediocre product a success. Provide rewards and incentives for team members, and for other contributors to the innovation effort. Don't tolerate hoarding of ideas and knowledge, or inter-department 'charges' that block knowledge transfer and cross-functional collaboration. Share credit for good ideas and successes, and don't make innovation an area of internal competition. Help bright, creative, quiet people find their voice, and let people promote 'crazy' ideas without fear of ridicule. Teach the Innovation Team and the project teams (and others in the organization who show interest) techniques that will enhance their creativity and improve the innovation process, and give them time and resources to discover other techniques and try them out. Invest adequate, patient capital and resources for innovation. Give ideas sufficient time to find their market but don't throw good money after bad, no matter how well-intentioned. Understand sunk costs and learn from failures. Consider letting those involved in the innovation 'invest' personally in return for a share of the ultimate revenues or profits: Having some 'skin in the game' can be very motivating and empowering. Inputs: time, training, tools, space, sponsorship, leadership and resources. Outputs: people who are inspired, capable and encouraged to contribute productively to the innovation effort. 12. Create lots of alternative solutions: Don't put everything at risk on one option. Use scenario planning and other techniques to identify and assess alternatives. Don't reject the really far-out alternatives prematurely -- cost/risk/benefit decisions usually can't be properly made until the customers have had the chance to say their piece again in step 15 below. Outputs: alternative solutions. Experiment 13. Experiment: Try many things, learn fast from failures, tinker, iterate, combine, transfer: Try several alternatives simultaneously in different markets to speed up the assessment process. Use rapid prototyping and other iteration techniques to expose as many alternatives to the market as possible. Outputs: test results. Listen Again 14. Listen to potential customers and help them imagine: Use prototypes and stories to make the innovative product, service, channel or technology as concrete as possible. Beware customers' propensity to say 'yes' at this stage when there's no required commitment. Go back to what you learned from customers in steps 1-7 and recite what you heard back to the customers for confirmation, explaining how the innovation addresses the need articulated by the customers. Listen objectively for confirmation or dissonance. Outputs: customer evaluations 15. Listen to acceptance criteria -- the ‘if’s: If the product appears to meet the need, the next task is to assess the customers' buying criteria: price and affordability, convenience, options, delivery time, upgradability etc. Some of these criteria may be show-stoppers that will require re-invention or other creative brainstorming, while others may be able to be addressed in the design stage below. Outputs: customer buying criteria 16. Listen to ‘what could go wrong’: Here's where you let the 'black hats' say their piece: What competitive threats exist or could arise? Is the innovation vulnerable to disruptive innovation from unexpected sources? Are there unforeseen production, quality control, political, regulatory, financial, marketing, or servicing landmines? What's the shelf-life? Could it become a commodity prematurely? Will it be prohibitively expensive to produce or to buy? Will it cannibalize existing product sales? Is it a strategic fit for the organization? Some of these 'what could go wrongs' may require re-invention or other creative resolution by the project team, while others may be able to be addressed in the design stage below. Outputs: list of threats and risks, and resolution plan. Design 17. Design: consider customer-valued attributes, cost, intuitive ease of use, ease of change, ease of enhancement: The greatest idea in the world can still be torpedoed by bad design. The designer has to be told, in no uncertain terms, what attributes are important to the customer, how much at most the solution can cost, and the trade-off between ease-of-use and power. Technology products especially are often over-engineered because additional functions and features are easy and inexpensive to add, but they add complexity disproportionate to the benefits of the additional functionality, often to the point of turning off potential customers. And in this age of constant upgrades and inter-operability requirements, the solution must be easy to change, redesign and enhance. Inputs: specifications based on Outputs from steps 12-16 above. Outputs: completed designs. Implement 18. Make the final go/no-go decision, then implement: If there are still several alternatives on the drawing board, whittle them down to a manageable number. If necessary, send the idea back for reinvention (step 11), re-testing (step 13) or redesign (step 17). If the previous steps have been done properly, this step should be the easiest. Once the decision has been made to go, the set-up, production, viral marketing, sales, distribution, employee and user training, partnering, after-sales service, success measurement and continuous improvement should be problem-free, since the 'what could go wrong' possibilities have already been considered and addressed, and people from all functional areas of the organization should have been involved and consulted during the Create and Design stages. Seven: Applying the Prescription: Some Examples To give you a flavour for how this prescription could work in practice, here are eight fundamental business problems from different industries, and some innovations that have recently been (or are currently being) successfully commercialized to solve them. In each case, the solution shown could reasonably have been derived using the principles and process in the prescription above:
Conclusion This presentation was itself the result of addressing an unmet need: After reading dozens of books on innovation, I was unable to find one source that explained in clear terms what innovation is, in a business context, conveyed the urgent need for businesses to become more innovative, and provided an actionable prescription for doing so. This paper was initially developed to provide the Core Innovation Team of Ernst & Young with background on the history, current state and leading practices in business innovation, and I am now using it to develop part of a core curriculum on entrepreneurship, of which innovation is a critical element. I hope this analysis has given you a better understanding of the subject and its importance, and some useful tools and ideas that you can use to make your organization more innovative as well. I would welcome the opportunity to continue the discussion on this subject, by e-mail or through the comments thread below. You can find more of my writings on business innovation in this index. While I'm optimistic that this prescription will work within business and other organizations, large and small, I am less convinced that it will work to solve some of the more deep-seated human needs and inexorable problems that plague us today, such as global warming, pollution, the energy crisis, biodegradation, endemic war, violence, mental illness and disease, animal cruelty, urban sprawl and decay, crime, unemployment, and the inequitable distribution of resources, income, wealth and power. While the process should work in principle, it is unlikely that this process can be followed with sufficient rigour or resources without (a) a willingness by governments to spend much more money (paid for by taxes) to solve these problems, (b) a political will to solve such problems creatively and by consensus, rather than leaving it to private interests to address them or dealing with them by brute force, and (c) a much greater awareness, commitment and sense of responsibility by the body politic of the urgency and opportunity to solve these problems. But just as business will be driven once again to invest in innovation in the search to sustain profitability, it is likely that private citizens and public institutions will ultimately be driven to invest together in innovation in the search for a liveable, sustainable world. The process they then use will probably look a lot like this prescription. Bibliography
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| Four
years ago I wrote a well-received paper entitled A Prescription for Business Innovation:
Creating
Technologies that Solve Basic Human Needs. I've updated it,
broken it into three manageable pieces, and present the second part
below. The first part, which reviewed the history of human innovation
and technology, is here
and the third part will follow next Tuesday. Four: Innovation & Society: How Technologies Limit Freedom, Human Nature Confounds Innovation, and Consumer Decision Tools Doom Marketing Those
of you with HR backgrounds are probably wondering why I have not
spoken
about non-individual, community aspects of civilization and why and
how
these arose if the innovative individual is perfectly able to do it
all
him- or herself. These issues are relevant because of the role of
teams, organizations and other social constructs in the process of
innovation.Let's take another look at our proto-human, now equipped with the six basic types of manually powered machine (lever, wheel, screw, pulley, plane, and wedge -- the latter in the form of flint-head arrows), plus other early innovations like controlled fire, animal domestication and crop cultivation. Like other creatures he's adopted the family unit as a social convention, but now he's experimenting with a more sophisticated social construct, the tribe. Question is, why? Is it Darwinian -- Did humans that banded together have a higher likelihood of survival than loners? Or is it purely social -- Do humans, like other creatures, have a basic need for social contact with others that goes beyond family? Whichever it is -- a survival need or a social need, it required innovations to make it work, innovations like a code of laws and behaviours to prevent and resolve disputes between individuals, and shared language. At this point, in the view of some anthropologists, a tug-of-war began between our essential individual, autonomous nature and the perceived benefits of increasingly advanced, abstract and restrictive 'technologies' like division of labour, specialization, private and communal property, governments and other hierarchical social organizations, including the modern corporation. All these social 'technologies' limit individuals' freedom, and much of our civilization has been about trying to find a delicate balance between individual 'rights' and the apparent benefits afforded by technologies that compromise them. This tug-of-war continues to play out today, in our suspicion of government, the existence of 'militias', libertarian movements, evolution of privacy laws, and struggles over property ownership. The battle is far from over, with slavery, one particularly extreme social construct favouring hierarchical efficiency over individual liberty, still practiced in many countries, and women, children and animals treated as property with no rights or freedoms whatsoever in many others. This tension also plays out in the modern corporation, itself a feudal social construct which is neither egalitarian nor democratic. Corporate efficiencies have produced technologies that have massively improved material wealth and (most believe) quality of life in the few centuries since they were invented. But these advantages have come with a huge cost of personal freedom -- In many countries employees are virtual slaves of their employers, with no hope of realizing their full personal potential. In many companies promotion and remuneration have nothing to do with performance or competency. Here are some of the consequences for innovation of this individual/collective tension, in today's companies:
Perhaps this is a universal trait that we need to consider when designing innovation programs: Everyone loves to engage in social activities that are fun, challenging and unthreatening, but when the social activity impinges on individual 'territory' or property, or on scarce resources, social and collaborative behaviour ceases and confrontational, competitive behaviour takes over. But isn't competitive behaviour exactly what business thrives on? Doesn't the rush of adrenaline and testosterone in the quest for competitive advantage and 'winning' yield high productivity, sharpened customer focus, and more new ideas? I would argue that competition is at best a neutral factor in engendering innovation, and may in fact be detrimental. Most of the books on teamwork, such as The Wisdom of Teams, stress two essential preconditions to effective team behaviour:
Furthermore, many businesses are now reaching out to involve customers, alliance partners and even competitors in their problem-solving teams, because they help bring different points of view to the creative process, and because these external partners share both the defined problem and the sense of urgency with the internal team. In a world of accelerating change, no competitive advantage is sustainable -- innovations and new technologies can almost instantly reinvent industries, products, services, and offerings, and eliminate any competitive advantage the old ones may have had. Despite massive and sustained oligopolistic efforts to prevent it, customers are beginning to wrest absolute control of business direction and success from almost every industry's producers, management strategists and marketers, and now set the agenda and reward companies that respond to their needs and build new serving capability, not those that bash the competition, sue their customers, or create barriers to competitive offerings. The Bush regime's corporatist agenda has been only a temporary setback in this inexorable trend. A side-note about branding: Many marketing people, lamenting over the passage of market control from producer to consumer, cite the increasing importance of branding as an organizational strategy, and of brand loyalty as a success factor. For this reason, they argue, aggressive, proactive marketing is not dead. They fail to appreciate that consumers, faced with the severe scarcity of (a) time to assess product alternatives and (b) objective comparative analysis like Consumer Reports, tend to use 'brand' as an unsatisfactory surrogate decision-making tool. If you as a consumer want to buy a car, or select a television program to watch, the ideal decision-making process would be:
Tools like these exist today (Consumer Reports is an example of the former; the Recommendations Lists of Amazon.com are an example of the latter), but they are not yet very robust or reliable. In their absence, brands and brand loyalty are the surrogates: 'I always buy Chrysler products' or 'I usually watch CSI on Thursday nights' is your brain's way of substituting brand for the more ideal tools noted above. Once these tools exist (and the Information Age is ripe for them), product brands will simply become community-identification brands ('I drive Chrysler products because they reflect who I am and I want others to see that and associate with me, or not, because of that identification'). At this point, brand community-association becomes merely one more selection criterion of the analytical tool. With the advent of the near-perfect consumer information these tools provide, traditional marketing has no remaining role, and the knowledge-driven transition of power from producer to consumer is complete. Five: The Structure & Culture of Innovative Organizations: Business Gets Feminine and Consumers Seize Power from Producers It is now accepted wisdom that the organization of the future must be flatter, more empowering, less hierarchical and more networked, in order to be sufficiently agile and responsive to the ever-more-powerful customer's needs. Much has been written about organizational 'ecology' and the ability of communities of practice to self-organize to solve identified common problems more quickly and effectively than command-and-control driven organizational structures. There is a growing awareness that self-organizing communities operate best when their leadership uses what are usually considered 'female' modes of operation rather than the traditional 'male' ones:
These issues are important to the future of business innovation. We must decide whether an organization saddled with the structures and controls of an old 'management' style can hope to be sufficiently agile, responsive to customers, creative and focused on new product development, to survive when that survival depends on strategic improvisation and continuous innovation. There are two huge and contradictory trends occurring in organizational structure today: globalization and fragmentation. Globalization is occurring because small organizations cannot achieve the scale and resource capacity needed to be viable, and fragmentation, the spinning off and incubation of small, narrowly focused 'best of class' companies, is occurring because large organizations are too unwieldy, inefficient and inflexible to be innovative and respond to customers' rapidly evolving needs. So we have today the worst of both worlds: large, fat, unresponsive global companies and emaciated unscalable small ones. Furthermore, because of today's concentration of money and power in the hands of increasing global corporate giants, this system is in disequilibrium, with dysfunctional non value-added consequences such as these:
Those with an entrepreneurial bent would form, or join, one or more Producer or Innovator enterprises over their working life. Those with a productivity bent would gravitate towards the Global Utilities. Many others would be self-employed, providing niche advisory services to all three types of enterprise. You may think this is a very idealistic view of how 'organizations should be reorganized', but it is also a very logical one, and one that could easily be achieved today because of growing dissatisfaction with the dysfunctionality of today's organizational structures, and the ability, thanks to the Internet and other powerful new 'organizing' infrastructure technologies, to bring this 'reorganization of organizations' about. Only a poverty of imagination, opposition from elite vested interests, and the inequitable distribution of power and resources, all of them well within human capability to rectify, are preventing us from realizing this potentially liberating, perhaps even Earth-saving, reorganization. In fact, this customer-driven revolution is already happening, quickly, quietly, and non-violently, its first manifestation being what Shoshana Zuboff in her best-seller calls The Support Economy: Why Corporations Are Failing Individuals and The Next Episode of Capitalism. The advent of a New Economy, with Innovators focused intently and exclusively on solving real human needs and problems (and not on the hyper-marketed, artificial incrementalism and 'copycat' and 'sequel' new product development that today's risk-averse oligopolies have our most creative minds fruitlessly working on) offers the potential of astounding acceleration of innovation and resolution of seemingly intractable human problems: pollution, over-population, unemployment, inequality, human and animal suffering, disease prevention, war and cruelty, biodegradation, mental illness. Some would say it's not a moment too soon. What does all this mean for today's company looking to jump-start its innovation programs and processes, and today's individual looking to participate in making his or her own, or his or her employer's, enterprise more innovative? From the discussion above we can add six principles of innovation strategy to the eight principles developed earlier:
Attributes of 'Female' versus 'Male' Organization Structures (Adapted from Imperato & Harari, 'Jumping the Curve') So now we have fourteen principles to guide us in creating innovative organizations. Next Tuesday: In the final part of this paper, a prescription that draws on these principles, that organizations can use to evolve themselves into innovative companies. It will also explain the new 8-step Innovation Process diagram at the top of this post. |
| Four
years ago I wrote a well-received paper entitled A Prescription for Business Innovation:
Creating
Technologies that Solve Basic Human Needs. I've updated it,
broken it into three manageable pieces, and present the first part
below. The remaining parts will follow on successive Tuesdays. Introduction: Why I'm Here My modest objective in this presentation is first, to tell you some new, interesting and useful things about innovation, and, second, to persuade you that innovation is the most important determinant of every business' success, and perhaps even the quality of our lives. I want to convince you that in your business, whether it employs one person or one million, innovation is probably the solution to whatever is currently keeping you awake at night -- whether that be sales growth, cost control, customer satisfaction, employee retention, or maximizing shareholder value. And if you, like me, spend some of your sleepless hours worrying about things more altruistic than your personal and business success, I want to convince you that innovation is probably also the solution to most of the problems that have befallen our suffering planet, in part because past innovations have created many of these problems. And finally, if I'm successful in this evangelical task, I want you to leave today not only with renewed hope about the future of your company and our world, but with some new tools to make innovation happen in your business. I would like to ask you to listen to these ideas with an open mind, suspend briefly your disbelief, and give this your full attention. If this was that easy to explain, someone much smarter than I would have done it years ago. One: Learning from our past: How Need Drives Innovation The advent of a new millennium has recently given many business, political and economic thinkers pause to consider what will be, as most put it, the 'Next Big Thing':
Technophiles who favour the Acceleration Model tend to be infatuated with artifacts of the last thirty years: more digital, faster, smaller, lighter. Advocates of the Chaos Model, on the other hand, believe there are no rules for our brave new world of the 21st century. Their advice for business and other leaders is to be opportunistic and think short-term. I lean towards the Evolutionary Model. I believe that using an understanding of the past, with the right perspective, can help businesses anticipate the future with exceptional clarity and probability of success. There are two reasons I hold this belief, and they form the basis for much of the rest of this presentation:
 Figure One: How Fundamental Needs spawn Innovations & Technologies (Adapted from Credit Suisse First Boston New Economy Forum 1999 Synthesis) According to this model, innovations like crop cultivation, the printing press, and the harnessing of solar energy, have always arisen in response to an urgent human need -- overcoming the sudden food scarcity after the Ice Age, bringing literacy to the masses, and solving the energy crisis respectively in these three examples. Technologies are applications of these innovations. The intriguing organic-looking ovals for each technology are also from the Credit Suisse Synthesis, which proposes are technologies are best developed using the following process:  Figure Two: Development Process for Technologies (from Credit Suisse First Boston New Economy Forum 1999 Synthesis) Let's now take a look at this synthesis model in more detail, to test whether it represents the way in which historical innovations have occurred, and then what this might tell us about innovations of the future. Two: Man's Earliest Innovations: A Brief History of Technology The first humans to walk on our planet, according to most anthropologists, were not the mighty hunters most of us might picture. In fact we were particularly disadvantaged, lacking both keen senses and a hide adapted to changing climates and weather. As a result, early humans were scavengers, ignominiously surviving off the leftovers of creatures with better innate hunting 'equipment'. In the first scene of 2001: A Space Odyssey, Kubrick & Clarke hypothesize that a carrion bone was the first human tool. Marshall McLuhan explained in his book Understanding Media that this early human was using the bone, this very first tool or technology, as an extension of his hand, giving it strength, reach and durability his hand alone did not have. McLuhan argued that all technologies are extensions of the human body and the human senses, and it is these technologies that have allowed the poor, badly-pelted, sensory-deprived human species to buck Darwin's odds and survive. So picture our poor shivering proto-human looking among the bones of a wolf's recent meal for new tools beside the greasy bone, and thinking, in true McLuhanesque and 20th century economics terms: 'If the bone as an extension of my hand helps me to compensate for my competitive disadvantage in the hunter-gatherer marketplace, why can I not use other tools similarly? Then, lacking the appropriate scientific training but still intoxicated over his first innovation, he or she comes across a dead wolf and considers the following applications of this technological insight:
Without animal domestication and crop cultivation, we as a species might well not have survived to come up with newer and more sophisticated innovations like the wheel, paper and the computer. Three: Six Principles about the Innovation Process The first humans used precisely the process shown in Figure Two to develop and 'commercialize' the technology applications of the innovations of animal domestication and crop cultivation. It is the same commercialization process taught in business schools today. However, the success of the process is only as good as the idea, the innovation, that lies at its front end. Business schools are actually very good at explaining the recipe, but they, and most educational and business institutions, are absolutely terrible at teaching people how to find the essential new ingredients -- the 'grey matter' at the left side of Figure Two, the ideas & innovations that make the recipe work. The problem isn't a scarcity of good ideas either -- it is the lack of rigour and investment in infrastructure to surface, capture, develop and qualify new ideas prior to commercialization. Figure Two also recognizes that many innovations and technologies are derived from other innovations and technologies, and often come from applying an idea or a technology from one application domain, or from nature, to an unrelated application domain. The BBC/Discovery program Connections made this point very powerfully, and its author James Burke continues to develop both examples of such non-obvious connections, and exercises to help us learn to discover more -- in essence, to become more innovative. Burke's latest book explains how a problem with the irrigation of Italian gardens led to the invention of the carburetor, for example. Furthermore, Figure Two acknowledges the importance of the story in the successful commercialization of innovations. It is hard to pick up a business book or attend a business conference these days without being lectured on the importance of story-telling, but the idea is neither new nor complicated: Stories convey the context for the application, they explain how it can be used in the user's or developer's day to day life. Knowledge transfer is an essential precondition to commercialization. The easiest way to transfer knowledge, i.e. to explain or persuade, is to do so in a way that lets the learner internalize what they are hearing i.e. to fit it into their own mental models of how things work. And the simplest way to enable internalization is by telling a story, be it a Utopia or Future State Vision, a parable with a built in lesson, or a simple recounting of processes and events that lets the learner relive the teacher's experience as if it were their own. From all this we can derive six basic principles about the Innovation Process (again, the names given to them are mine), to add to the two espoused earlier about cultural resistance to innovation:
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After three years of obsession with cost control and outsourcing, there are some mixed indications that business might once again be realizing that you can't cut your way to greatness, and that companies can only survive by continuous innovation, developing brilliant, creative new technologies that solve important human needs. That innovation will hopefully be directed at solving the root causes of disease, crime, violence, mental illness, waste & pollution, urban decay, bio-degradation, unemployment and inequitable distribution of wealth, rather than the design of yet another sneaker. An annual survey by Boston Consulting Group is the latest indicator. The survey of 236 executives in 30 countries found that 20% rated innovation their #1 priority and 90% listed it in their top five priorities. Technology plays a role, but its role is in enhancing and enabling the innovation process, rather than serving as an engine of innovations per se. Expect to see a lot more discussion of what this 'innovation process' is (the charts above and below are three depictions of the process that I have personally found useful), well before you start to see an uptake in actual investment in innovation. And expect to see businesses thinking more broadly about innovation than just new products and services. As customers become both more demanding and more savvy -- and recognize incremental improvements and 'sequel' products for what they are -- not innovations -- companies will realize that innovating their internal business processes, their delivery channels, the technologies they use in operations, collaboration and connection, and even innovating the very business model that determines how the business operates and makes decisions, are at least as important as innovating the things the company actually produces.  And in this age of corporate scandals, greed, hostility to customers, disenchantment with untrammelled corporatism, and recognition that corporations are inherently psychopatho logical, we might even see some innovative new forms of business. Another recent BCG article from James Andrew & Kermit King entitled Boosting Innovation Productivity looks at some of the frustrating obstacles to innovation -- long lead times, high failure rates, preference of risk-averse executives to 'buy' rather than 'build' innovations -- and ascribes these obstacles mainly to lack of discipline in both the process and measurement of innovation itself. BCG's study of existing innovation processes and track records suggest that:
 The authors' advice follows naturally, and is fairly obvious: Add discipline to the process, and especially to the evaluation, prioritization and measurement process. Make the innovation team cross-disciplinary, and make innovation people's full time job. Draw on top outsiders both to feed the idea database and to provide expertise in evaluation and development of innovations. The authors select one of the traditional project screen/hurdle models to ensure ill-conceived and premature ideas are caught and stopped early. In my experience, however, there is a huge danger in such screen/hurdle models -- they tend to block the boldest innovations and encourage 'creeping incrementalism'. In what I think is the most useful section of the article, several innovation 'traps' are outlined:
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 Graham Westwood of ProCarta gave me a copy of Bill Jensen's Simplicity, a book that claims
most business problems are a result of unnecessarily complex
decision-making processes. I recently
wrote
that if Knowledge Management were relabeled Work Effectiveness
Improvement, both the requirements of the job and the customers'
expectations would be much clearer, and we might finally get the job
done. Jensen's book offers a prescription for WEI.Jensen's thesis is that poor decision-making is the root cause of business error and ineffectiveness, and his diagnosis of the four causes for it is shown at right. Most employees, he says, want to do good work, but are impeded by these four causes, which produce unnecessary complexity in each of our jobs. I concur with this diagnosis, though I'm not sure large organization have either the capacity or the will to fix these four problems. At the individual and team level, Jensen suggests* five behaviour or learning changes that could alleviate these problems:
These are useful suggestions for improving work effectiveness and hence decision-making in organizations, but none of them is new. Those that would take up WEI (or KM) as a career need to understand why these techniques have not worked in the past, before they attempt to implement them in their organizations. In many companies, both employees and managers raise their eyebrows at 'soft skills' courses like time management, effective communication and story-telling. We know how to do that, they will say, the problem is more systemic, more entrenched than merely teaching common-sense skills can hope to solve. These critics are half-right. Many problems in business are structural, strategic, or systemic, and raising people's hopes by suggesting that these basic work management techniques are suddenly going to work bottom-up when they didn't work before, will merely create disappointment. Excessive size and hierarchy, poor managers, and inappropriate success measures (that reward executives more for cutting staff than for making staff more effective, for example) are at the heart of much work ineffectiveness, and need very different solutions. But these critics are also half-wrong. Each of us today is increasingly in charge of our own careers, our own jobs, and hence our own work effectiveness. The five skills listed above are critical skills for every entrepreneur and every front-line worker, and we should each ensure we have these 'core competencies'. If the big, cumbersome organizations we work for do not allow these skills proper exercise, then the answer is either to leave them or reform them, not to revel in our ineffectiveness and just blame management (even when they are to blame). The remainder of Jensen's book prescribes some higher-level organizational 'disciplines' that can enable improvements in work effectiveness:
Nevertheless, this book provides some of the much-needed definition for WEI, which I believe will be the next wave of organizational change, and will accomplish much of what reengineering and knowledge management failed to do. The #1 purpose of management must become empowering people to know and do what's important to achieve the organization's goals, and enabling them to stop doing the other stuff that, today, takes up most of their time. * Jensen uses different words for these, and for many of the key ideas in this book. As much as I liked his messages, I found sometimes his choice of labels for his key concepts confusing. |
 I love the work of photographer Dav id Lorenz Winston, so when I saw what looked to be an original oil painting by him entitled "Solitude", at an unbelievably low price, I couldn't believe my eyes. I was right not to -- it wasn't an oil, but a giclée print of a photograph on a textured gloss or surface-treated canvas, so it looked, at least to my untrained eye, like an original oil. It glimmers in the light and reflects light off the sides of the pigment as you move, just like hand-painted oil or acrylic. Giclée (invented by rocker Graham Nash) is like inkjet on steroids -- 12-colour hi-res inkjet copies produced one-off from a digital master. By contrast, most prints use lithography -- an upscale dot-matrix technology but with only four colours used and relatively poor resolution. The combination of giclée and gloss/surface treated canvas is a great example of innovation, and I commend the studio, Northland Art Company, for using it. The photo above (excuse the warp -- my lousy photography) is taken from the giclée-on-canvas print; a plain print by Winston from his website is below. You can get an idea by comparing them of the richness and three-dimensionality that this ultra-high-resolution colour and stippling effect adds.   Winston's
work looks almost surreal, as if it were photoshopped, but the
giclée-on-canvas (close up sample at right) seems to restore
its
'authenticity', by psychologically transforming it from a photo (a
mechanical reproduction), to a painting (a man-made reproduction). When a photographer doctors his shot, unless it's very clever and artistic we're inclined to call it fraud. But when an artist uses paint or watercolour to portray something in a distorted, exaggerated or surreal way, whether it's real or imagined, we call it art. The distributor at Northland said the process can double the walk-by sales of a print. And the process can make a poor art collector look like an affluent collector of originals. Now I'm wondering if it would be possible to take some of my 'flat' prints and either surface-treat them, and/or re-print them onto textured canvas, so they look like the original watercolours, oils or acrylics instead of just prints. Any artists tell me if that's possible? And what are the ethical issues of re-printing (for personal use only) or surface-treating a signed print -- does this open up the same issues for the art world that digital copying and file-sharing have produced for musicians and film-makers? |
The
Conference Board of Canada recently conducted a survey that revealed
six common features of "highly innovative" firms (those that get more
than 20% of their revenues from new products).. The six features:
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 Gartner Group has a wonderful new o nline interview with Clay Christensen, one of the few consultants out there wisely focused on innovation. Here are some of the highlights: For those who haven't read The Innovator's Dilemma or The Innovator's Solution, he recaps the definitions of the two main categories of innovation:
Not only will disruptive innovations eventually kill market leaders, he says, but those that want to survive will have to create new, autonomous organizations or business units to compete in the new 'disrupted' marketplace -- the inertia of the 'old', disrupted organization is deadly, and cannot hope to transition to the new market reality fast enough to survive. IBM was the only survivor of the mainframe PC companies, he says, because they did exactly that when they entered the Mini-computer and PC markets -- they established completely separate, autonomous divisions headquartered in different cities. [An interesting aside for regular readers of this weblog: Christensen, in the process of discussing how disruptive innovations take over a market, suggests something that may be disheartening to entrepreneurs who want to take a low-risk, low-sweat Natural Enterprise approach: The race is to the quick, meaning the entrant who can bring in a lot of new investment quickly to commercialize the innovation will likely dominate the market. Big risk, big return. Entrepreneurs need to recognize their limitations -- trying to bit off more than you can chew is more likely to lead to bankruptcy than the brass ring. There are still lots of opportunities for natural entrepreneurs to make a very comfortable living, without significant risk, by innovating on a scale they can manage and which they can finance organically. There is much to be said for modesty in business.] Christensen goes on to suggest, as a corollary, that going, or staying, private can be a better route to sustainable innovation than being a public company. While an IPO can be a great way to raise cheap money, it then exposes your company to the insatiable and unreasonable expectations of passive shareholders, forcing you to take your eye off both innovation and strategic vision, in pursuit of short-term profitability targets that, in the long run, are often dysfunctional. That creates a great quandary -- because private companies have much less access to cheap capital, they are also less equipped to capitalize on innovation, even though they are better equipped to produce it. Now Christensen gets to the most important point in the interview, though he does so strangely. He starts by saying it is dangerous to listen too much to your customers, because they are, by definition, satisfied with what you do now, and hence won't force you to be innovative. But his real point is that it is by talking to prospective customers (who he calls non-customers) that you discover why they are not buying from you today, that can lead you on the path of innovation (by finding out why). I think that's a bit black-and-white: It suggests you have either 100% 'market share' of a customer or none. In my experience there are lots of opportunities to sell more to existing customers, and since you have strong relationships with those customers they may be able to help you identify opportunities to sell more to them through innovation, than 'non-customers' who don't know your capabilities and with whom you don't have a relationship that can buy you time, trust and candour from them. But there are still three important points here:
He recommends two techniques for honing in on such needs:
The interview includes a wonderful quote from Ted Leavitt in a 1960 HBR article called Marketing Myopia: "People don't buy a quarter-inch drill. They buy a quarter-inch hole. You've got to study the hole, not the drill. The drill is just a solution for it." Rob Paterson recently made this point with similar eloquence, coining the word "coolth" for what people were really buying when they bought an air conditioner. Christensen didn't seem to be prepared for the final question -- where to look for unfilled needs. I guess I need to tell him about my post of last week. Thanks to the always-excellent Innovation Weekly for the link to the Gartner article, and to John Wark at New Dog Old Trick for the link to KJ diagramming. John also has an interesting recent post suggesting one of the main values of a blog is as a place to organize and store our memories. For the explanation of my Innovation Process chart, above, please see this article. |