Why innovation portfolios matter

At this point in business evolution, every CEO understands the need for more innovation.  After a decade of reading about it, getting pounded over the head with the Jobs/Apple story and watching new innovations disrupt entire industries, businesses are starting to react.  More and more of them are doing innovation, with drastically different outcomes.  Some are successful.  Many are making significant investments and have had little success.  Some are frankly abject failures.  What I constantly fail to understand is why innovation is treated so cavalierly, with so little regard for planning and integration to strategy.  In many cases it's as if executives throw up their hands and succumb to the idea that innovation is black magic.

Innovation does require creativity and expansive thinking.  It requires divergent thinking and exploration, the willingness to explore customer needs and market trends.  It can require creating new products or services or business models that don't align and may even cannibalize existing products and services.  It requires a new way of thinking, new expectations and often, new skills and tools.  But none of this is even remotely new, or poorly documented, or beyond the reach of many of the people you already employ.  Nothing about innovation is black magic, although many executives and decision makers continue to act as if it is - mostly from a lack of understanding or limited time to fully grasp the approach.

Language, as an example

Take for example the idea of creating a simple, consistent language for innovation.  Defining the terms you'll use to ask for and measure innovation activities.  For example, are the ideas you want "incremental" signalling small change to existing products and services, "breakthrough" or "disruptive" to signal increasing difficulty and impact.  These terms are reasonably well known and defined in the innovation canon, and using them consistently sends signals that help innovations do new and interesting things.

The definitions I've just provided also align to what many of us know as the "three horizons" model - the idea that innovations can have different impacts.  Incremental innovation is sustaining, extending the life and value of existing products and driving revenues, while disruptive innovation is transformative, seeking to create entirely new markets or segments or fill valuable but unmet needs.  The former is less risky and much easier to do with existing, conventional tools, while disruptive innovation takes far more research, takes longer to prove, is more likely to fail but when successful has outsized implications.

All of that should be relatively obvious so far.  If so, why don't more companies define an innovation portfolio and set intentional goals for the amount of innovation investment in a specific year, and how to divide that investment across the three horizons?  Certainly companies are good at product portfolio and roadmaps, making decisions on how much to invest in older technologies, how much to invest in newer products and the roadmaps and versions that should be developed.  Good product management requires that we consider the maintenance and investment to sustain older products and contrast that with the effort to develop and launch new products.  Product portfolios help rationalize opportunities and investments.  Product roadmaps help us think through how a product will morph and add value over time, to remain valuable for customers by adding new capabilities or features.  Most product management teams assign resources and plan projects based on the product portfolio, company objectives and roadmaps.  The question is:  why don't innovation teams do the same thing?  Where are the strategies, portfolios, investment plans for innovation?

Linking innovation to strategy

This last question raises several issues or objections.  The first has to do with linking innovation to strategy.  Often innovation becomes viable when companies decide that they need a compelling new product or service, to respond to customer needs or competitive threats.  Too often this is not in response to strategic planning but a reaction to something from the external market.    These reactions mean that innovation often isn't planned or budgeted, but reactions to market forces.

A number of reactions to market forces doesn't create a cohesive strategy, and usually isn't even good tactics.  Lacking a comprehensive plan or portfolio, and with few upfront financial resources, innovation is done haphazardly on a shoe string.  Without a holistic, comprehensive plan, innovation is done in fits and starts across the organization with wildly different outcomes.

Further, since there is often little definition or clear expectations of outcomes, most innovation outcomes are incremental, since that type of innovation relies most heavily on how things are done today.  This is why so much innovation work seems to fail to achieve expectations and ends up as modest changes to existing products.

Innovation Portfolio

Now, compare and contrast the haphazard approach with a company that defines an innovation portfolio plan.  In this it may determine that some portion of its innovation efforts will be incremental, some breakthrough and some disruptive.  These allocations are made based on expect competitive maneuvers, customer demands, the age and viability of existing products and so on.  Many companies use a "rule of thumb" to divide the portfolio into 70% incremental, 20% breakthrough and10% disruptive.  This ensures the majority of the innovation activity is focused on near term products that have a high probability of success but lower potential, but also ensures that the company is taking some significant risks and focusing on longer term and potentially more valuable opportunities.

With an portfolio in hand executives can ask about the importance and value of each innovation activity, and make determinations to increase the risk and uncertainty by pushing for more disruption when necessary, or identifying needs or gaps in the portfolio.  It's also helpful to use the portfolio as a way to manage product groups and teams.  First to understand if the team has done some successful innovation and if not, walk them through the steps from incremental to disruptive.  Second to measure the innovation goals they had at the beginning of the year and compare to actual outcomes at the end of the year.  Did the team achieve its expected allocation of incremental, breakthrough and disruptive innovation?  If not, why not?

Formalizing Innovation

If you are thinking that an innovation portfolio, budgeting process and roadmap seems like we are formalizing innovation, you are correct.  Innovation needs to become a recurring competency that we plan for.  We have tools like a portfolio to help frame the goals and discussion.  There's no reason to leave a valuable opportunity like innovation up to chance.  There's an important balance between locking innovation down with too much bureaucracy and overhead, and leaving it with little or no guidance at all.  The happy medium that provides guidance but leaves room for exploration is the portfolio.

Understanding innovation's past leads to incredible insight

We tend to be very short sighted, we corporate executives.  Our lifespans are relatively brief, all things considered.  There are over 240 years since the founding of the United States, and using a 20 year cycle for generations that suggests approximately 12 generations of people during that brief window.  Most of us work for approximately 40 years, but we rarely consider the events or recent history before we started working.  In fact there's very little rationale to think about history in many cases, except for some hoary old stories about the founding of a company and its emergent culture.  Most of our waking, productive time is focused on the now, the current quarter, the next quarter, because that's what we are evaluated on, compensated for.  There's little time to worry about what might happen in the future, and even less time to worry about what happened in the recent past.

It's this lack of context and historical appreciation that makes innovation so interesting, because our short term focus convinces us that the way things are right now is a permanent condition, when in reality it's a fleeting experience that will change again shortly.

A brief innovation history lesson of the US

From its founding in the early 17th century until well after the US Civil War, the vast majority of people lived in small, rural settlements.  Many of the people who lived in that period grew the food they ate, raised the beef or chicken they consumed and had little financial resources.  Very few companies existed and most "innovation" was in the realm of transportation - primarily moving goods and/or people on waterways (canals, steamships) or rail.  Other than the military and the emerging railroad business, there were few large organizations and even fewer models for how to build and manage a business.

After the Civil War and up to the Great Depression there was a significant flowering of major industries, building on the transportation infrastructure built earlier and on the idea of mass production.  Oil, steel, railroads and other monopolies emerged, and banking and financial services grew alongside these emerging industries.  Yet still the vast majority of people lived hand to mouth in rural settings.  Innovation in these days was often focused on communication - Marconi, the "wireless", radio and other devices reduced the distances and built common stories for the American public.

World War Two changed everything.  Washington DC, formerly a very small, sleepy city, grew dramatically during the war, and the federal government grew in importance.  As we entered the Cold War, the growth that the World War created was sustained by fears of Russia and a new emerging Cold war.  Innovation during this time was focused on technology - especially weaponry.  The nuclear bomb, the ability to deliver weapons at a distance, the space race. 

The 1960s through the 1990s were boom years (discounting the Oil embargo) mostly due to dividends we reaped from the investments in technology and the space race.  The US emerged as the sole large economy undamaged by the Second World War and grew to dominate its allies.  The space race with Russia and military investments created a range of new technologies that were quickly converted into consumer technologies.

The 2000s and onward are less about product innovation and more about business model innovation and financial engineering.  Increasingly the US is becoming a high cost country in terms of labor and manufacturing, and outsourcing jobs to less costly locations.  We are focused on changing the terms of compensation and payment for services (Google funded by ads rather than licenses) and financial engineering in banking, financial services and other industries.  GM for a long time was profitable not because it built cars but because it financed them. 

Up until the 1880s the vast majority of people were farmers, mechanics, craftsmen.  They worked with their hands, with deep, innate knowledge about their services and skills.  This model changed as Henry Ford and others created the mass production line, which has in many cases reached its logical conclusion, at least as far as human workers on the line are concerned.  We retain many of the measures and metrics of an agrarian economy - taking vacations in the summer, planning and budgeting around an annual cycle, reporting on a quarterly basis - that have no real meaning in today's knowledge based economy that competes on a global basis.

What emerges about innovation from this review of history?

1. In the past, a lot of innovation was driven by the most important impediment or challenge in a specific timeframe:  transportation of goods and people in the colonial era, banking and communications during the dawn of larger enterprises, communication technologies as the country grew, defense and technology as the country fought and was threatened with a cold war, business models and financial engineering as the technology investment petered out.
2. Innovation comes in waves and as one wave is peaking, another wave is just starting to emerge.Innovations take time to proliferate but almost always proliferate faster than we might expect.
3. There is a cyclical, repetitive nature to innovation, which we ignore at our peril.  Take for example the nature of retail.  Sears grew because it had a huge selection and could deliver goods anywhere.  The Sears catalogue is an analogue to today's Amazon website.  Sears modified its business model to move toward a physical retailing model as the US expanded and as people moved to the suburbs and seems to have forgotten its mass, virtual retailer roots.  Today, Amazon and other virtual retailers dominate, but we can imagine a future where hyperlocal retailers blending virtual and physical stores and delivery emerge.
4. Business models and business conditions are temporary.  The concept of mass production is an idea that may be relevant to exactly one century - the 20th century - for the US.  The fact that mass production worked then, in those conditions, does not mean that it should and must continue to work as an operative model now, because many conditions have changed.  The internet and ecommerce make it much more possible for individuals to be craftsmen (Etsy for example) or self-employed (Uber, AirBnB), which is simply a return to an earlier model, with much more technology underpinning.
5. Technology introduces change, customers and innovators change technologies into solutions that change the market.  Technologies change but unless they can be harnessed and adapted to create benefits and solutions that customers need and want, they aren't meaningful.  The transistor by itself is interesting, a smaller, cheaper portable radio provides a huge benefit to consumers.  We innovators fall in love with technology but fail to understand that it is the customer need and benefit that is paramount.
6. Much innovation in one era is built on the investments of a previous era.  Mass production isn't all that useful unless there is a good transportation infrastructure, as an example.  The dot com boom was based on research and technologies that were sparked during the Cold War.  Currently those technologies are reaching end of life, and we see far more innovation in services, business models and customer experiences than in technologies, and far more financial engineering than is probably good for the economy.  This is because we haven't had a real flourishing of either new technologies, new infrastructure or a real competitive threat like the Soviet space race.  In other words, we've coasted for the past 20 years, harvesting previous investments without laying a foundation that future generations can build on, unless they want to bet on sub-prime mortgages.
7. A lot of innovation was created by those outside the status quo - new immigrants (Andrew Carnegie as an example) or those outside the establishment, typically on the frontiers, who sought to solve problems faced by the emerging population, while the establishment was relatively comfortable.  The median age of the US was relatively low, and few people lived into old age.

What can we predict about innovation in the near future based on the past?

1. We should be on the cusp of some significant new emerging innovation, but for the life of me I can't figure out what that is.  It could be a continuing evolution of business models and customer experiences.  We lack a real compelling burning platform like the Soviet Space race and are more distracted and less unified than in previous generations.  Also, corporations spend less on R&D than in the past and the government is spending less on a percentage basis on technology and R&D.  This means that future innovation is less likely to be technology driven and more focused on experiences, services and hopefully business models.
2. The older command and control hierarchies and mass production thinking may give way to new organizational models, new governance and new ways of building companies.  As we move from an agrarian calendar and mass production models, new business models, relationships and organization models will emerge and may drive new innovation in organizational structures and customer relationships.
3. The individual or small business becomes as important to the economy as large corporations.  More people can work as craftsmen or knowledge workers on their own, leveraging virtual workspace technologies and the increasing value of knowledge work.  Larger business increasingly want to outsource work to find the best value for their money, retaining only the mission critical or activities that reflect competitive advantage.  The infrastructure in terms of software and ancillary services exists to support a larger workforce of independent contractors and small businesses.
4.  Past innovations were often launched by public works or investments by the government.  Transportation was either privately financed by large groups or by the government.  Defense, aerospace and technology were funded in response to the Cold War.  Future innovations will emerge from customer needs and those that can aggregate them quickly, and less from technologies or challenges identified by the government.  Indeed the government is becoming a consumer of commercial innovations rather than a springboard for future innovation, with the possible exception of healthcare, aging and green technologies.  This means a more distributed and diversified innovation future, less focused on one large population or government challenge and more competition over standards and protocols.
5. Immigration, like it or not, will play an important role in future innovation.  The resident population is aging, and less likely to be as active innovating and solving problems because of the wealth transfer to older populations through retirement savings and health care transfers.  More innovation is likely to come from immigrants who refresh the population at the lower end of the age scale, who face more challenges and difficulties than some of the native born population.  Aging populations by definition are less innovative, so to refresh the innovation spirit and energy we need to recruit immigrants who can create compelling new innovations.  As the country ages, and boomers retire, there will be far more emphasis on innovation in terms of products and services for the boomers, who are used to having their own way and will demand far better products and services than their parents did when they retired.
6. The pace and nature of innovation will accelerate as more people in more places become part of the global economy and more consumers achieve middle class status for the first time.  There are far more competitors in far more regions and geographies, which means more competition.  However, there are far more people entering the middle class who have buying power and will want new products and services. This means, though, that innovations must be conceived for global consumers, as the markets for new innovations will be in many more markets than just the US.  Our understanding of the needs and expectations of the US-based customer is poor; our understanding of needs and expectations of newly emerging customers in other countries is virtually non-existent.  We need to move faster, with greater urgency, to create innovations that meet global needs, not just US needs.

Those who don't study the past are doomed to repeat it

I started out this post commenting on the lifecycle of the average manager, and how narrow their time focus is.  While we live out our work lives over 40 years we do so in 90 day increments, often failing to appreciate how repetitive and cyclical business and innovation are.  The more we understand about how innovation has unfolded in the past, the more we are likely to be able to predict how innovation will emerge in the future.  There are two great quotes that are relevant here.

The first is Spinoza's quote:  Those who cannot remember the past are condemned to repeat it.  And we do, quite often, repeat the experience and mistakes of the past.

The second is Faulkner's:  The past is never dead.  It's not even past.

We can learn from the past about how innovation unfolds, and use that insight to determine how innovation is likely to emerge, and what the key drivers will be.  Doing so makes us smarter and more prepared to engage innovation as it occurs, and to use those innovation drivers to our benefit.

Innovation ain't what it used to be

I'm a big fan of Geoffrey Moore's work on Crossing the Chasm, which is the idea that every market can be divided into segments: very early technology adopters, the early majority, the late majority and laggards.   It's clear from history that there are always people who will adopt a new idea or technology even while others think it is unfinished or even risky.  The vast majority will wait until the technology becomes a "whole product" and "crosses the chasm" according to Moore.  This means that instead of just a technology, the offering is now complete, with supporting services, information and support.

As a new technology matures and people become familiar with its uses, and the technology is simplified and becomes part of a solution, more and more people adopt the technology.  Any student of history can tell you this, and we believe it is a natural order - almost a requirement:

• first a technology or capability is discovered
• Adventuresome people use it in experiments
• The technology is incorporated into products
• More and more people adopt it
• The technology or capability becomes mainstream
• The majority adopt it
• The technology is eventually superseded by another technology

This is the reason many larger corporations will wait to see about emerging ideas and technologies.  They need to see that enough people will adopt it to minimize the risk of placing a new technology or capability in their products, and want enough of the unknowns to be removed in order to adopt it quickly.

That was then

From a historical perspective, this "wait and see" approach is best practice.  But what's happening right now in the innovation world is going to turn this approach on its ear, because there are multiple technologies and capabilities emerging and evolving, and waiting until they sort themselves out may leave a company so far behind that it will not be able to adopt the capabilities and solutions once they become "mainstream", assuming of course that they solidify long enough for the mainstream to catch up.

The complacent "wait and see" response to new technologies or capabilities relies on three assumptions:

1. The technology will eventually become mainstream and once it becomes mainstream has a long shelf life
2. Any company can adopt the technology or capability once it becomes mainstream and implement it effectively
3. Once a technology or capability becomes mainstream, there are still competitive positions available - companies aren't "crowded out" if they didn't adopt early.

But what if there are capabilities or technologies where this thinking isn't true?  What if the lifetime of a technology or capability is relatively short, or instead of reaching a "steady state" the technology or capability constantly changes?

Platforms and Ecosystems

Paul Hobcraft and I have been writing extensively about the impact that emerging platforms and ecosystems are having, and will have, on innovation.  As I wrote previously, we are in the same position with platforms that we were with "dot coms" and ecommerce in 1999.  Then there were thousands of alternatives and experiments to try to figure out what would work.  Now, much the same thing is going to happen at the platform level.  There's a reason Amazon, Facebook, Google, GE and others are trying to test out their platforms, and why other industries  like financial services want so desperately for their own platforms to prevail.

Many companies will be tempted to follow the wait and see approach I've outlined above, thinking that once the technologies and capabilities are selected and implemented, they'll adopt the chosen solutions and find ways to compete or scale.  Where innovation, ecosystems and platforms are concerned, that is a very risky proposition.

The only constant is change

Platforms are going to rework the way companies and industry partners integrate to provide seamless experiences for customers.  As they are formed, new, tighter relationships to customers are created, and companies that participate in the platform or as part of the ecosystem will solidify relationships.  Those that wait may find the opportunities to participate as part of a platform or as an ecosystem provider much more limited if they weren't involved early on.

Further, the pace of change in capability and technology, as well as integration and inter-operability is accelerating.  Companies that experiment and learn will be able to improve their pace of innovation and change.  Those that wait and see will fall further behind, unable to catch up with the speed and the increasing requirements to participate in the ecosystems that are emerging. Platforms and ecosystems will not reach a "Steady State" but will constantly morph, extend and grow.  Thinking that you can wait until the platform or ecosystem resolves is a fallacy.  By the time a platform or ecosystem slows or becomes "stable", it will be decaying.  Waiting to join is like showing up dressed for a wedding but arriving for the funeral.

As these platforms and ecosystems emerge and assert themselves, it is vital to start experimenting now and to keep experimenting.  Some platforms and ecosystems will succeed and grow organically, some will fail.  Innovators must hedge their bets across a range of platforms and ecosystems.  Waiting to see which ones win out may mean that there are no remaining slots in the ecosystem and that the platform has different protocols or standards than what the company developed.

Are you ready to innovate beyond the product?

Paul asks a similar question in his most recent post:  Are you ready to thrive in a world of innovation ecosystems?  Currently, many companies would be happy to generate a handful of discrete innovation activities leading to a few new products or services each year.  These innovation activities are still too inward looking, not really grasping the importance of engaging with emerging platforms and the ecosystems that will flourish around the platforms.  To be a successful innovator, you've got to fully engage your internal capabilities and insights, and mesh those with the emerging platforms and ecosystems that can provide a total, cohesive seamless experience.

As the fine print in many financial services firms reminds us, past performance does not guarantee future performance.  What was true in the past - the opportunity to wait for innovations or technologies to prove themselves and then adopt them - isn't as true anymore.  There are several reasons for this:  constant change, shorter product and even industry life cycles, fickle customers. The real take away is that you need to be discovering needs, experimenting with potential platforms and innovating constantly.  You can't afford to wait, because by the time a new technology or capability is proven, and customers have adopted it, the next iteration is already well on its way to commercial viability.  Meanwhile, waiting leaves you without any of the learning that companies fully engaged in experimenting with platforms and ecosystems are gaining, and in the end your company has its opportunities and profit potential dictated to it by the firms that have experience, and by the remaining opportunities in the platforms and ecosystems.  You will be robbed of strategic choice.

The new imperative

Call it what you want, if innovation has become a pariah within your organization, but you must be discovering needs and experimenting constantly with new technologies, platforms and ecosystems.  You must understand these capabilities and integrate them in a way that provides seamless customer experience.  If your corporate strategies don't address this urgent need, tear them up and start again.  Operating models of the past are not valid in a market where the old rules no longer apply.  Lean, fast, nimble, innovative companies who understand the totality of customer need and experience and are willing to learn and experiment will win.  This is what innovators must know about the very near future of innovation in corporations.

Why platforms and ecosystems matter for innovators

You may know that Paul Hobcraft and I are collaborating on a new blog entitled Ecosystems for Innovating where we focus on the emerging importance of platforms and ecosystems for innovation.  We've been exploring the idea that increasingly innovators must understand the ecosystems of products, services and business models that exist.  New innovations must either align to and integrate with, or must overthrow these platforms and ecosystems.  It's simply not possible to create a compelling new innovation that ignores existing platforms and ecosystems, unless that innovation also creates a completely new ecosystem.

We're making these arguments based on another idea:  seamless customer experience.  As basic product and feature needs are increasing met and in many cases exceeded, what customers want is products and services that work together effectively, cohesively and seamlessly.  New solutions or innovations must inter-operate seamlessly with the ecosystem.  Excellent features aren't enough.  Delivering a seamless customer experience requires a couple of interdependent components:

• Having an appreciation of the existing platforms and ecosystems and filling an important gap while ensuring seamless interplay with the ecosystem contributors
• Defining and understanding the customer experience journey, and understanding how all of the ecosystem contributors ensure a valuable and seamless experience across the journey, not just at the vital "touchpoints"

Throughout our posts we've examined a range of concepts, including the value of an ecosystem, detailed customer experiences journeys and the platforms that enable these ecosystems.

I thought it would be interesting to take a step back and place the discussion of ecosystems and innovation in context by examining the history of innovation, to demonstrate why ecosystems and platforms become important as a market or industry matures, and why innovators must engage ecosystems and platforms as they compete in a market.  Let's do that by examining a famous innovator and industry (Ford and the automobile industry) to see how ecosystems and platforms have changed.

Brief automotive history

 Ford was not necessarily an "innovator" as far as the automobile was concerned, since many other entrepreneurs were building cars at the same time.  Ford's innovation was really focused on the manufacturing process and mass production.  But for a moment let's consider the environment in which Ford introduced the Model T.

When the Model T and its other competitors entered the market, those vehicles were for the most part discrete products that could rely on very little infrastructure or supporting products and services.  Other than a few macadamized roads, most Model T's traveled on older wagon roads at best, and the drivers often had to become their own mechanics or hire a driver and a mechanic.  Further, there weren't a lot of dependable sources of fuel, and concepts like speed limits, insurance and other things that we take for granted didn't exist.  In other words, when the market was new and emerging, discrete products that met basic needs were valuable even when an ecosystem or platforms didn't exist.

Fast forward a few decades into the 1950s, as a nation wide platform (interstate highway system) and dependable ecosystem partners (gas stations, mechanics, financing for automotive purchases, government regulations and oversight) become more important.  Suddenly there are far fewer options for motive power (gasoline wins as a fuel over electricity and others), so engine innovation narrows while other innovations expand (safety, financing, and a growing motel and fast food industry built specifically around the car).  Here we can see that the ecosystem begins to dictate innovation options or choices(gasoline over electricity) and the ecosystem expands as the base product (the car) comes to some maturity by filling gaps around needs (fast food, inexpensive accommodations) that become needs as the car enables transportation.

Fast forward to the 1990s, when I worked in the semiconductor industry at Texas Instruments.  One project I led was the examination of the electric car market and whether or not TI should put more investment into semiconductor for electric vehicles.  In the early 1990s California dictated that a specific percentage of cars sold in the state were required to be zero emission vehicles.  We had to decide how quickly the electric car market would grow.  After a few months of analysis we recommended holding off, because the gasoline powered ecosystem meant the existing engine technology had an outsized advantage.  A driver could always count on finding gas stations within a few miles of almost any spot in California, while the owner of an electric, rechargeable vehicle could not predict with any certainty whether or not they could find a recharging station.  Even today, 25 years later, it can still be difficult to find charging stations.  Fortunately battery efficiency has improved.  The electric car is stymied by the lack of standards (batteries) and platforms (recharging stations).  Plus, the existing ecosystem doesn't fully embrace the technology or platform.

Fast forward a few years into the future.  While the major platforms in the past were factors like roads, bridges and fuel stations, we can see that an emerging platform and ecosystem will revolve around autonomous vehicles.  Today there is no preferred standard - different companies are exploring different versions of mapping, sensors and command systems for autonomous cars.  If this market is like every other market, there will be a shakeout, and a dominant standard will emerge for autonomous guidance.  Until that happens we can imagine a lot of innovation and investment in a new platform (autonomous systems) and the ecosystem that surrounds that platform (mapping, geolocation, sensors, smart systems, smart grids, big data, etc).  Notice however, that the core technology (the car itself) doesn't change all that much.  The platforms and ecosystems change.

Which is more important?

As a product matures, incremental product innovation becomes important because much of the real effort is in fleshing out and extending the ecosystems and platforms.  Existing supporters of the core technology or product don't want to risk their investment, and the ecosystems is dependent on integrating to a known technology.  Radical innovation on the core product puts hundreds of ecosystem partners and their investments at risk.  If Ford were to come back from the dead today, he wouldn't find the cars we are driving all that unusual.  He'd be surprised by the ecosystems that surround the acquisition, maintenance, financing and insurance around the car, and like many of us would boggle at the idea of autonomous cars.  This suggests that the platforms the core product relies on, and the ecosystems that sustain and extend the use and experience of the core product become as important, if not more important, than the core product.  And we can see this today, as major automotive manufacturers are partnering with internet, computer companies and sensor companies.  The automotive companies don't have the experience with data, sensors, mapping, geolocation and other factors that they need in order to succeed in a new, emerging platform.

Compare and Contrast

Ford didn't have to worry too much about platforms and ecosystems.  There were few platforms other than horse-drawn wagons and dirt roads.  He couldn't count on a ready supply of mechanics and fuel stations.  He created a discrete product that eventually attracted investments in ecosystems and platforms.  Today's Ford company cannot ignore the existing (and more importantly emerging) platforms and those sustaining ecosystem platforms.  To some extent their innovations are dictated by potential platform and ecosystem partners, who in some cases have far more knowledge and experience than Ford does.

Thus we can begin to formulate a way of thinking - not quite a rule - that suggests that the more mature an industry or market is, the more likely that incremental innovation is vital in the core product or technology.  Further, we can also say that much of the innovation is governed by and constrained by the platforms and existing ecosystems. In order to do really interesting innovation, therefore, an innovator must understand the core product and service capabilities, needs and opportunities, AND understand how to leverage the existing ecosystem or how to overturn it.

Why this matters

Today, most corporate innovators are happy and rewarded if they can create incremental or occasionally breakthrough product innovations.  While there is a lot of talk about innovation, it remains in its infancy in terms of capabilities and processes in many companies.  At the same time, the level of complexity and inter-relationships between products, platforms and ecosystems is growing steadily, as fast if not faster than internal innovation capabilities.  This means that many corporate innovators aren't gaining skills and insights fast enough to keep up with consumer, market and ecosystem advances.

We need to congratulate ourselves for the strides we've made, and encourage our corporate innovators to move more quickly to expand their thinking and understand where the true value lies - incorporating platforms and ecosystem thinking in their innovation efforts.

Innovation Failure: Ignorance or Arrogance?

In my Twitter stream yesterday I found this nice article by Michael Schrage entitled Embrace your ignorance.  His slightly provocative title is meant to signal that perhaps you live in a self-satisfied bubble of assumed intelligence and knowledge about your customer, when in fact you should be happy to be humble about your ignorance, and act accordingly.

Schrage goes on to extol the values of experimentation and "big data" as methods to discover what customers really want, but here he loses me a bit.  I'd rather go back to an even simpler way of discovering needs, by asking and observing in real time where the real opportunities and pains exist, or where actual solutions fall short or have gaps.  Ethnography, getting close to the customer and their use of a solution or their experience, is what indicates where the opportunities and problems lie.  From those observations we can extrapolate and create potential solutions, which can become the basis for experiments, which will prove or perhaps disprove our hypothesis.  I worry that all the emphasis on "big data" will signal shifts that seem important but aren't, or miss factors that can't be captured in quantitative data.  As Einstein noted, not everything that counts can be counted.

Embracing your Ignorance

Good innovators are humble people.  I don't mean that they are people who grovel, or let others walk all over them.  Certainly Steve Jobs will never be known as a "humble" person in that sense.  What I mean is that they have the scars of experience, of making the wrong assumptions or even having the audacity to suggest they know what customers needed, and failing.  Humility comes when we recognize that customers decide the value and importance of our products and services.  No matter how valuable or important we think they are, customers determine the value.  The faster we understand this and learn to listen and observe, the more likely we are to create innovations that matter.

In our work we've identified a number of attributes that good innovators possess.  One of those we highlight is "beginner's mind" - that is, the ability to examine a problem or opportunity as if for the first time.  Too many times we approach a problem with the full suite of knowledge and experience, never recognizing that all the knowledge and experience narrows the potential scope of outcomes.  Knowledge and experience about candles doesn't open the door to electric light, it merely makes more effective candles.  To think differently and creatively about a problem or opportunity we need to think about it with a beginner's mindset, something that Jobs to his credit did well.  Rather than rush to apply everything we know, instead approach the problem as if for the first time.  In the absence of knowledge or experience, how might you solve the challenge or problem?

Losing your arrogance

Too often corporate innovators are guilty of unintentional arrogance.  They are guilty of assuming that they know what customers want, or worse, of simply creating new technology or new solutions with features that they either think customers want, or features that are simply better than what the competition offers.  This arrogance is often built on past successes that span years, so the arrogance can be earned, and in some cases even justified.  But increasingly the further a person is from a customer and their needs, and the longer it's been since you walked in that customer's shoes, the more likely you are arrogating - the word arrogance derives from - making undue claims in an overbearing manner.  Pride goeth before a fall, but I suspect arrogance goes shortly thereafter.

Ignorance or Apathy?

There's an old joke about education, where the individual in question responds with I don't know and I don't care (Ignorance and/or Apathy).  In the case of a modern day innovator, armed with social media, surveying tools, focus groups, big data, experiments and a host of other methods to gather insight, ignorance simply isn't plausible. There is simply too much data, too much information to plead ignorance about an opportunity.  That suggests apathy, which I'll also reject.  Most innovators I've come in contact with are passionate people, who want to do a good job and deliver value to customers.  What's left after ignorance and apathy?  Well, there are two remaining reasons why innovation discovery fails:  time constraints and arrogance.

The first barrier is a time or resource constraint.  Far too many people recognize the need for more customer interaction, more data analysis, more discovery and experimentation, but they simply cannot find the time.  Highly efficient processes leave little time and room for experimentation or new discoveries.  Thus many innovations are launched on a hope and prayer that the innovator guessed correctly, since they didn't have time to gather needs.  On the other hand is arrogance.  Too many innovators and their companies believe they know what customers need and deliver new technologies or features without ever discovering needs.  They might have the time but don't have the inclination.  This approach happens far more frequently in high tech or software industries, where adding new features is simpler, but it happens in all industries.  Arrogance is a real problem for innovators who assert that they know what customers want, or assert that new products and features are so compelling that they will override customer concerns.

Get rid of your arrogance, get rid of your ignorance

If you are willing to lose a bit of your arrogance, you can easily get rid of your ignorance.  Becoming a bit more humble, interacting with customers, understanding their needs and journeys, will open the door to new discoveries.  With these discoveries you become more knowledgeable about their needs and possible innovation opportunities, which you can test and validate through experiments.  Losing your arrogance helps you lose your ignorance.  Sustaining your arrogance sustains your ignorance and wastes valuable time and resources.

No idea is an island

The title of this post is a bit provocative, and that's on purpose.  Every company wants to innovate, and further they desire that the limited innovation they accomplish succeed wildly.  This is of course whistling past the graveyard, as most innovations, like most venture capital investments, won't return the initial investment.  Instead, most companies demand innovation results on par with the iPhone while funding innovation with the equivalent of corporate bake sales.  But this post isn't intended to deride the often inadequate resourcing of innovation, it's meant to point out the reasons behind a rather uncomfortable fact:  even good ideas often fail in the marketplace.  This skips right over the outright failure of bad ideas and bad products, of which there are legion.  Those probably deserve to die an ignominious death.  But why do good ideas and products seem to have such a high failure rate?

There are plenty of reasons for good, innovative products to fail in the marketplace.  Perhaps the customers were too aggressive in their needs statements, or not aggressive enough.  Perhaps the innovator identified the right needs but was too early or too late in the market or technology window.  Perhaps the need exists but the effort for the customer to overcome inertia and actually make the change seems too high (this is my challenge with Slack).  Perhaps the product or service actually fills an important need, but there were other, more important or urgent needs that the innovator ignored.  In other words, there are plenty of reasons why good, well-thought out innovations can fail.  But none of these is as important as what Paul Hobcraft and I have been writing about recently.  One of, if not the most important reason good innovative products fail in the marketplace is because they don't fit within an existing ecosystem or plug into an important platform.  That is, they are independent, discrete products when a customer seeks a comprehensive, seamless solution.

The problem with discrete product innovation

Let's imagine that a company identifies customer needs and does a good job generating ideas to arrive at a new product innovation, which it then launches into the marketplace.  Having done everything correctly from their point of view, the innovation team waits with expectation to see how well the product performs.  The consumer, on the other hand, encounters the product, which has a number of new capabilities, bells and whistles, but doesn't integrate usefully or seamlessly into a set of products, services, business models, channels, data and interactions that the customer has already constructed, or had constructed for them.  While the new product outweighs and outranks the product it was meant to replace, the new product ignores connectivity, seamless integration and a host of other factors that the customer cares about to get their "jobs" done.  Jobs, you see, may be broken into discrete activities, but the customer really cares about the total experience or journey.  Optimizing one step in the process but failing to acknowledge the journey doesn't create value, it creates new work for customers, or forces them to change the work they've done.

Platforms and Ecosystems

The English poet John Donne wrote that "no man is an island".  He meant that we are mutually dependent on each other.  Likewise, in a highly integrated, hyper connected word, no product is an island.  It relies on other products, services, business models, channels, data and standards in order to operate.  There are two key ideas at work here:  platforms and ecosystems, and these must matter and shape innovation.

Platforms are simply agreed connectivity standards that become a backplane or common operating infrastructure to allow disparate products, technologies and services to interact.  Google, Amazon and others are creating these platforms where innovators will be able to plug in, interoperate and gain value from the other goods and services residing on the platform.

Ecosystems are comprised of the other vendors, technologies, data and ancillary products and services that offer the customer the full, integrated, cohesive and seamless experience they want. 

Ignore these at your peril

So, back to the lone innovator.  Too often innovators, individual and corporate, are too myopic.  They identify one "job" to be done, and focus narrowly on accomplishing that task with more features, skills or elan.  While doing so the customer plays a role in describing the job or task, but often failing to connect the job to other jobs or tasks that are mutually intertwined or dependent.  Unless the solution sustains the seamless experience or "journey", the customer isn't likely to switch to a new product simply because it is slightly better in the abstract, but deteriorates the rest of the activity, journey or experience.

To be a successful innovator, one must understand the totality of the customers' needs, observe the platforms and ecosystems that provide the comprehensive solution that customers want, which is a total, comprehensive and seamless experience, and then decide what the key needs and features are that the innovator can contribute, and how the idea must be shaped to either fit within an existing ecosystem and platform, or how to radically disrupt the existing ecosystems and platforms and create something new and more compelling for the customer.   Placing a new and interesting discrete product that does not align to the expectations of the customer for a seamless experience or worse interrupts or detracts from an otherwise comprehensive solution is worse than not innovating at all.

Increase experience or reduce friction in the journey
The eventual failure of most good ideas isn't because of market windows or customer needs.  It isn't because the product fails to meet specific targets or price points.  It's because innovators don't open their apertures to understand the totality of customer needs, and in a very connected world don't understand the important platforms and ecosystems that the innovative product will enter.  Once you understand the interconnectedness and create products that sustain or improve that, or reduce friction in a customer experience or journey, your innovations will succeed.  No man, or idea, is an island, and in markets where connectivity and interrelationships are increasing and platforms and ecosystems are ever more tightly woven together, your innovation cannot stand alone.

New innovation realities require new mindsets and tools

Paul Hobcraft and I have been writing a series of blog posts about innovation, ecosystems, platforms and what we believe customers will ultimately demand:  seamless experiences.  As products and services proliferate and basic needs are met, customers become more sophisticated and more demanding, desiring products, services and business models that work together and don't require configuration, integration or effort by the consumer to "make them work".  Customers and consumers increasingly expect a seamless experience when using a new product.  If the product or service requires the customer to combine products, read manuals, acquire other products or services to make the solution work, the new product is likely to receive far less acclaim.

Understanding that, we should understand also that the tools that once helped innovators create new products aren't the same tools that we need today when customers demand seamless experiences.  Or, put another way, those original tools are still valuable, but by themselves they solve only a small portion of the overall challenge.  Take, for example, "jobs to be done" methodologies.

Jobs to be done

First developed by Clayton Christensen and expanded on by Tony Ulwick and others, "jobs to be done" is a nice methodology to understand customer needs.  Christensen and Ulwick propose the idea that customers hire products to do jobs for them.  If a product does the job well, it is "hired".  To help customers accomplish tasks, we need to understand the jobs they are doing.  This methodology has worked well for years to help innovators find unmet needs that can be addressed.  However, the focus for today's innovation needs may be too narrow. Traditionally, the "jobs to be done" were relatively discrete and narrowly focused, often leading to product features or benefits.  In a market where seamless experiences become more important, a too narrow application of "jobs to be done" risks solving only a fraction of the total customer need. 

Paul and I have suggested that perhaps we should move from "jobs to be done" to "experiences to be had" - that is, widening the aperture of the question to encompass the entire experience, rather than narrowly focusing just on discrete jobs.

Whole Product

This is an "oldy but a goody" as my father likes to say.  Geoffrey Moore developed the concept of the "whole product" in the 1980s and the concepts are still true today, especially in high tech fields.  Whole product refers to the idea that the majority of customers don't want to buy untested, unproven technologies.  Early adopters and tech enthusiasts will buy new technology, but the larger market waits for demonstrated proof of viability, compatibility, product support, complementary products, good support services.  Thus, Moore suggests that a "whole product" is one that combines all of these capabilities and features.

We'd like to adopt this thinking by saying that customers want more than "whole products" they want "whole experiences".  The product focused thinking is valuable, but must be combined with the larger context of what the customer is trying to accomplish, what experiences they want or need from a new product and the ecosystem in which the new product or service must operate.  A fantastic stand alone product that fails to work within the customer's ecosystem of products and services, or one that forces the customer to make compromises or work diligently to integrate to other solutions is not going to be successful.

Customer Experience Journey

This methodology is increasingly gaining popularity because it requires an innovator to think about the entire "life span" of a customer's interaction with his or her products.  The journey considers the awareness, acquisition and use of a product, and done well also considers aspects like omni-channel experience and the eventual disuse and discarding of a product or service.  Customer experience journeys highlight "touchpoints" or moments of truth where the use of the product can be combined with experiential factors like additional material, contact by a support center, access to the product's web site and many other interactions that build the experience of the product.  Those touch points can improve a customer's experience or degrade it.  The customer experience journey is a valuable step toward understanding the experiential aspects of the product in the customer's life.

However, even this isn't enough because the customer experience journey can be a very narrow perspective, taken from the aspect of the product and not fully considering how the customer views the product in relation to its ecosystem and the experiences the customer is hoping to achieve overall.

Design Thinking

Increasingly, design thinking is percolating into the innovator's toolbox.  IDEO and others have been proponents of design thinking for years, and I'm happy to say that design thinking is growing as an innovation input.  The risk with design thinking is again that it becomes "product design" thinking, focused on the design of products, rather than design thinking meant to help innovators and customers design products, services and experiences.

A seamless experience is almost by definition a designed experience.  There are very few accidents that result in a perfectly seamless experience that meet or exceed customer expectations.  To do this effectively, we need to understand the customer's "whole experience" expectations and map customer journeys, and then use design thinking to craft the anticipated experience.

Once we understand the designed experience, we can then begin to understand how, or even if, such expectations can be met by the existing ecosystems and platforms.

Ecosystems/Platforms

Unless your company name is Apple, you are very unlikely to build a completely integrated, designed experience that is a closed ecosystem.  Apple did accomplish this by creating a small range of products (iPod, iPhone, iPad, etc) that are basically extensions of the same core product and surrounding them with the same sets of features and services (iTunes as an example). 

Without this defined, closed ecosystem, most innovators must rely on third party partners, channels, data streams and other capabilities to provide the aspects of a seamless experience. This means that innovators must 1) understand what the existing ecosystem can offer and 2) reach accommodations and  partnerships with third parties to create more seamless experiences.  Thus, innovation isn't just about a new widget, its also about understanding the role the widget plays in a consumer's life and how to make that role as seamless as possible.

Innovating in the new expectation

All of this explanation ultimately means that any one of these tools simply provides a narrow glimpse into what customers actually want - we need to use them all.  Further, we need to move quickly beyond the narrow focus of product innovation to experience innovation, because that's where customers are moving - if they aren't already there.  The shift in the use of tools and techniques isn't overly difficult.  What will be difficult is the shift in mindsets, as innovators recognize that products play only a small portion in the expected experience.  This will mean that product organizations and budgets may give way to experience organizations, where companies craft experiences that products must fit into, rather than the other way around, which is the norm today.

Automobiles demonstrate the path to seamless experience

In an earlier post on the Ecosystems 4 Innovating site I suggested that innovators must understand the expectations of customers.  As such that's not new or especially insightful.  Innovators are supposed to find new and unmet customer needs, and solve them for customers in ways that benefit the customer and create value for the innovator.

What's important about this idea is that innovators must begin to understand the maturity and expectations of their customers.  Henry Ford could offer an exceptionally basic black Model T Ford because there were no other options.  He was fulfilling the most basic sets of needs for his customer - efficient transportation.  When people didn't have cars, they didn't care much about the color or other features.  As other automobile manufacturers entered the market, they realized that the basic needs were met, and began to add features, colors, options and eventually a family of models and styles.  We can look back over 100 years ago and realize that customer expectations and needs morph as basic needs are satisfied.  Ford was overtaken by Billy Durant, who created a range of options and models.  Durant recognized that many consumers wanted more than basic transportation, so he solved those needs.

Over the years, automobile manufacturers created a wide range of different types of cars - convertibles, trucks, vans, SUVs, etc to meet the expanding needs of consumers.  Other factors became important - safety, as seat belts became an option, and then a requirement.  Or gas mileage, as the oil embargo of the 1970s forced customers to care about gas mileage. Or quality, as the Japanese manufacturers demonstrated a much higher quality vehicle in the 80s and 90s.  Today, we have very different expectations about our cars.  They are more customized to our needs, offer a wider range of choice and are more reliable, dependable and predictable than ever before.  What they don't yet do is meet expectations for seamless experiences.

As consumers move from basic product needs to elaborate product needs, they take another step up the needs hierarchy and shift from product needs to service and experience needs. GM, Ford and others are waking up to this now, and in fact have done some service and experience innovating before.  For years GM has made more money from financing and leasing cars than from building and selling cars.  Financing was one of the first and most logical steps the auto manufacturers addressed as the tangible products matured.  Strangely, they haven't gone much further.  Today we see the inklings of the next steps - lifetime maintenance, so the customer doesn't have to worry about servicing the vehicle. Why should a consumer care when the oil is changed?  Why don't the experts at the dealership do that for them? And we can go much further.

A truly seamless experience for a car owner would be to consolidate all of the aspects of car ownership, car financing, car maintenance, even car insurance, into one seamless experience. Why bother to shop for maintenance or insurance?  Why can't the dealers (or another firm) offer these features, along with roadside assistance?  What about parking for city dwellers?  A seamless experience would mean the car finds its own parking nearby.  Eventually, a seamless experience will be a car on demand, ready to take you to where you need to go.  Fractional ownership, billed by the mile or the hour, transportation as a service, with different vehicles available depending on your needs.

A truly seamless experience is increasingly what customers expect and what innovators need to strive for.  Providing a discrete product into a customer's life and asking them to integrate it with their other products and services simply frustrates the consumer, who expects more from product and service developers.  Apple and others have taught them the power of seamless experiences, and they've grown to expect the ability to "plug n play" anywhere and everywhere.  The companies that understand this desire and have the ability to "build, catalyze or join" ecosystems (to quote Stephen Elop) that provide these seamless experiences will be the winners.

Tesla could lead the way to this nirvana of seamless experiences.  Already they are changing the dynamic between company and owner, removing or at least attempting to remove the dealer.  As they experiment with autonomous vehicles one can imagine a day when your car picks you up, takes you to work and then goes for maintenance.  Or perhaps goes to serve someone else as part of fractional ownership, staying productive while you are at work, rather than parked and unused in the company parking garage.  Innovators who aren't tied to the past concepts of product-driven innovation, who understand the consumers' expectations for service and experience, will radically alter the nature of competition, and will do it by innovating services and experiences, leveraging ecosystems.