A decade of innovation teaches us this

I've been pondering for several weeks, at least since the start of the new year, the state of play of innovation in large corporations. I think I can speak with some knowledge about this, having conducted innovation activities and projects in a wide array of Fortune 500 companies, having talked and been in sales processes with far more, and having conducted innovation programs, training and presentations in Europe, Africa, the Middle East, Southeast Asia and Central and South America, as well as North America.  Thus, I've got a few bona fides where innovation is concerned, a lot of successes and a few scars as well.

After more than a decade of doing innovation work, there are some simple truths I'd like to impart.  None of them are especially shocking, but for some reason they need constant reinforcement.  Almost every new innovation activity seems destined to experience some, if not all, of the same challenges and traps that previous innovation programs encountered, so it behooves us to document and illustrate these simple roadblocks if possible, to improve innovation outcomes and help companies just starting out to avoid some pitfalls.

Where to begin

The problem with identifying common innovation roadblocks or pitfalls is to consider or define where to begin and what scope to explore.  For those who know us, we'll always start with the most divergent, expansive scope possible, if for no other reason than you never get to explore such a broad scope in any other business activity.  And this is the first lesson:

Never miss a chance to expand the scope, conduct more discovery or exploration than is anticipated or expected.

The vast majority of business activity seeks effectiveness and efficiency, which by definition requires past experience, knowledge and expertise.   This in turn leads to rapid convergent thinking and discourages or squelches creativity, exploration and discovery.  But these last three ideas - creativity, exploration and discovery - are where the really interesting and potentially disruptive ideas occur.  If you want innovation, teach people and encourage them to explore and experiment.  Encourage divergent thinking.  Start your activity with the broadest possible scope, the most interesting challenges.  Because our natural inclination is convergence, reducing variability and risk, every decision, every investment, every inclination will be to reduce scope, limit thinking, limit risk thereafter.  It is in your best interest to start as broadly as possible, because you will surely find the scope and activity increasingly limited and resisted thereafter.

Ignore the promises

In many organizations, innovation teams are assigned and directed to do something interesting long after the executives have promised Wall Street, investors and others that innovation is just around the corner.  Many innovation teams feel hemmed in by promises of new products and services, and often seek to tailor innovation activities to past corporate communications, rather than to what the company can do and its customers' needs.  If at all possible, the second lesson is:

Do the innovation that is right, in the timing that is right, based on the needs that customers have, rather than configure innovation activities to meet corporate communications.

Often it's not realistic or even possible to achieve what has been promised, and trying to do so will simply result in unimportant and uninteresting innovation at best.  Rather, create a meaningful success and build on it by focusing on innovation that matters to customers, than you can create, and that you can use as a successful illustration of the capability of the company.  I've found that executives are willing to listen to teams and revise expectations, which leads to more success, rather than simply trying to accommodate years of talk about innovation that were just that - talk.

Innovation is different

When we work with companies to conduct innovation activities, it's not unusual to find that an innovation team has already been chosen.  Typically this team is made up of people who've been very successful in the existing products and processes, and who are often doubly or triply loaded with additional work.  The lesson here is that:

People who are really good at "business as usual", efficient and effective, aren't the best people for innovation.  The thinking must change, expectations must change and different tools must be introduced.

Here again it can be difficult to say to a management team "thanks, but can we have a different team?"  But the difference between a successful outcome, and a well managed failure is the difference between people who are truly innovative, and those that understand how to manage an efficient internal project.

Innovation is innate

Many companies and people believe that "everyone can innovate".  This simply isn't true.  Everyone can have ideas and can imagine new products or services, but few are good at identifying customer needs, generating meaningful ideas and eventually realizing those ideas as new products and services.  This leads to another lesson:

Good innovation requires new tools and skills, and people who are ready to think differently, together

You wouldn't take a handful of your corporate execs and expect them to compete effectively against an NBA team without training and skill development, but we continually gather executives and staff and ask them to do important work with little or no training, no new tools and little teaming.  Even if you can find the most innovative people, they still need time to gain skills and experience.  After all, the next innovation project most people do will be the first innovation project most of them have ever done.

Passion versus Culture

No matter how good or how passionate people are about customer needs, new revenues or good ideas, passionate people cannot win over a resistant corporate culture.  Here comes the next lesson:

Innovative companies have cultures that encourage and sustain innovation.  Most likely, your culture doesn't.  Executives must get busy ensure that it does.

 Every time I write this, or something like it, I'm reminded of the old wisdom:  give a man a fish, he eats today.  Teach a man to fish, he eats forever.  The same is true of innovation and culture.  Any company can push an idea through to realization once, against the corporate culture.  However, the people who experience that trauma will never want to do it again.  If you want sustained innovation, you must examine your culture and make important and lasting change so that it encourages and sustains innovation.  In fact it's often better to focus first on changing the culture, then trying to innovate, than attempting innovation without addressing the culture.

More of these in latter posts as I have the energy and time...

Signal versus Noise

The post today frames a classic issue in communications:  how to improve a signal and hopefully eliminate or at least mitigate noise.  The noisier the communication is, the more difficult it is for the sender and the receiver to communicate.  Thus, we try to eliminate noise from the communication, so only the signal is received.

That sounds easy, but it is actually difficult, because there are no pure communication media.  Noise always creeps in, and conflicts or masks the signal.  This is true in electronics - the noise on your cell phone or fuzziness on your TV screen - as well as in business and life.  Our verbal communications, whether face to face or over a communication infrastructure, are full of noise.

The attempt to eliminate noise from an operating system or a business process is an interesting and perhaps worthwhile challenge, until one considers the question:  what is the real signal?  What is creating the noise?  In many businesses today, there are several signal: noise conflicts. These include:

1. What management says it wants versus what it reinforces
2. What the operating systems support versus what is needed
3. The amount of risk that is encouraged versus that which is tolerated

It begins to raise the question:  is innovation noise, or signal?

Strategic need and communication

Let's start with a classic issue:  sending a signal that isn't meant to be received or implemented, or worse failing to understand that a signal isn't correctly received.  Many executives have concluded that innovation is important and must become a cornerstone of their business strategies.  However, they have little understanding of how innovation works.  To them, innovation must seem like magic pixie dust:  sprinkle it around, encourage it and new innovative products will spring to life.  So, they take to the lecterns and advocate for innovation, but don't change deliverables or goals or investments.  So people hear about innovation but don't see the requisite change in risk attitudes or investments, so they become conflicted.  In this case, innovation is NOISE introduced to a consistent SIGNAL that is business as usual.

What actually gets done

What's worse, perhaps, is that some new, good ideas may get created by resilient innovation teams or individuals. But those new ideas will encounter all of the existing measures (ROI) and decision making gates that expect fully formed, fully proven products rather than nascent, unproven and risky ideas.  Processes that have been honed to perfection, where randomness, variability and risk have been eliminated, treat innovation as NOISE, while consistency, efficiency and predictability are the SIGNAL.  We place filters in these communication programs to eliminate NOISE (innovation) and improve business as usual (SIGNAL).

What the market signals

However, at the same time the market and customers are signalling needs for new products and services. They do this by preferring new products that meet unmet needs, expecting lower prices for products and services that become commoditized, and shifting alliances to solutions that understand their journey and expectations.  The markets and customers are constantly signalling their needs and expectations, but too often we listen through filters of 1) past experience, 2) the investment we have in existing products and 3) the risk and change associated with creating new products.

In this case there are actual signals, clear signals of the need for new products and services that are ignored or filtered out by the way corporations listen (if they listen) or respond to customer requests and market trends.  In this case clear signals are either ignored, filtered out or overcome by the NOISE of business as usual.

Many people would like you to believe that innovation is difficult.  Nothing could be further from the truth.  Innovation, creating new ideas that become new products and services is easy.  It happens all the time, across the globe, every day.  The real challenge to innovation is cultural, both on the corporate side and the consumer side.  And a real underlying issue within those cultural challenges is the inability to distinguish signal from noise - in other words, to communicate. This occurs both internally (as we've seen:  what management wants versus what it supports) in the operations (what we reinforce - efficiency and what we resist - creativity) and what we hear from customers and markets.

To succeed at innovation, there are some very simple rules:  What executives say, matters.  They must both say they want innovation and then reinforce the desire with new investments and priorities.  What business as usual dictates and expects, matters.  If efficiency matters more than innovation, you are communicating a value proposition.  What customers and markets say, matters.  Are you listening?  Or are you filtering to hear what you'd like to hear?  Can you separate signal from noise?

Perhaps the most important first step of any innovation activity is to ask:  what signals are important?  How are they received?  How can we amplify and clarify the important signals? What do we filter?  How can we listen, hear and respond more effectively?

Disruptive innovation: where, not what

First, a slight diatribe.  Why is it that companies think their people can do successful innovation when they don't share a common language?  In the title I've used the word "disruptive", and by this I mean innovation in the "third horizon" - incremental, breakthrough and disruptive.  I'm defining disruptive innovation as new products, services or business models that "disrupt" existing products or markets.  For example, Apple and iTunes disrupted Tower Records.  Netflix and its rental model disrupted Blockbuster's retail store model.  But I've been in plenty of places and talked with plenty of customers who don't have a consistent language.  They toss around "breakthrough", transformative, disruptive and other language without defining it, and then are dismayed when they get at best incremental innovation.  But this is just a language problem, you'll say.  And I'll say you are correct, but if we depend on language to communicate, and to direct assets, people and risk tolerances, if our language isn't right, then nothing will be right.

Ok, diatribe over.  Thanks for letting me get that off my chest.

Now, on to the real topic:  Disruptive innovation is a where question, not a "what" question.

Again, I'm defining disruptive innovation as a structural change to a product offering, a business model or a market.  Clearly, you have to have a new and compelling offering to have that kind of impact.  That means the "what" - the outcome of the innovation activity, must be fairly interesting, compelling, valuable for customers and so on.  And you'd be surprised to learn that many companies generate viable, disruptive ideas on a fairly regular basis.  It's not as hard as it seems.

It's the "where" that matters
The difficulty is in the "where".  Too often existing business models and knowledge are very attuned to existing markets, customers and segments.  Existing products generate the revenues and profits that innovation teams depend on, and that drive wealth and bonuses for product teams.  Who wants to mess with that?  Existing firms, living in their existing markets, serving customers, can't afford to disrupt their own markets, customers or segments.  They'd put their own revenue streams out of business.  That's a no brainer.  Everyone recognizes this.

But risk enters the picture when you create a disruptive idea, then recognize that you can't afford to implement it in your existing market. Clearly it needs to be implemented and launched in an adjacent or new market, where it will impact other companies and customers, but not your own.  This becomes far more risky, however, because the existing corporate assets and knowledge don't know much about that adjacent or new market, don't think they have the rights to play in that market and don't have partners or channels to access that market.  Thus, there will be a heavy investment to enter that new segment or market, and is the idea worth the cost?

Generating is easy, implementing is hard
You see, GENERATING a disruptive idea is easy.  Implementing a disruptive idea in your own market is next to impossible, so the idea, if it will see the light of day as a product, must be implemented somewhere else.  This is when the "WHERE" question comes in.  Too often, the WHERE question is asked too late in the game.  You have an interesting idea that seems to have some market validity, but no one bothered to think about where the idea should have impact before it was developed.

If you want to do "disruptive" innovation, first, make sure that everyone shares the same definition and has the same risk tolerances.  Then, define the market, customer or segment that you want to disrupt, then create ideas, recognizing that disruptive ideas will disrupt your revenue streams if you deploy the idea within your own market or segment.  Generating disruptive ideas is easy, deploying disruptive ideas, especially in markets or segments you don't understand, is difficult.

Becoming an innovative company: better late

So, after over a decade of innovation consulting, I can say without doubt that companies that are just starting to innovate have it much better than those that were attempting it years ago.  That's because as more companies try more innovation, more tools are vetted, more methods explored and exposed.  Today, there are more proven methods and more people with more innovation skill and experience, so if you are starting now you can get started on the right foot.  In this case it may be better to be late.

But if you are just starting out, here are some recommendations I'd make that may be a bit counter-intuitive based on experiences in the past.

Determine what innovation should do for you

In the past, all innovation was focused on product innovation, to create new and better products.  While product innovation is a good place to get experience, you'll want to move quickly to other forms and types of innovation, because product innovation is so well understood, and becoming very competitive.  The real impact (and real return) is in business model, experience and service innovation.  If you lack experience in innovation, then every innovation type is difficult.  Why start with product innovation when so many others are already ahead of you, and when that's where competition is the most fierce?

There's less experience and less understanding of business model, channel, customer experience and other forms of innovation, and potentially a lot more opportunity.  If you are going to innovate for the first time, go where the opportunities are more plentiful.

Determine who will do innovation for you

The old saw that everyone can innovate is true, but unless you train your teams and give them the freedom and recognition they need to take new risks, you can only really count on a small subset of your existing team to do innovation well.  That leaves you with a couple of options:

• Outsource innovation to an experienced innovation company.  Good if you plan to innovate once
• Hire experienced innovators.  Good if you want to build an innovation competency
• Learn how to leverage open innovation to use the ideas of others.

These recommendations aren't mutually exclusive.  You can, for example, leverage a good external innovation company in one product group or setting, while hiring and building innovation competencies in another group.  Both can leverage open innovation.

If you are determined to build innovation competencies and capabilities from within, be sure to find the best people within your organization, give them the training they need and free them up from day to day work.  By best people I don't mean those that do the everyday stuff well - I mean the best innovators, who may be people that aren't at the top of the list when it comes to day to day production.

Determine and provide clarity about your targets

If you want incremental innovation - small changes to existing products and services - then say so.  If you want radical disruptive change, build to it, don't attempt it at the start, until your teams have some innovation experience. If you want disruptive or radical ideas and innovation, detail where they should have impact.  While you may want to disrupt the market or segment you are in, the people who rely on revenues and profits from your existing markets will resist ideas that disrupt their bread and butter.  Disrupt someone else, increment within your existing markets and segments.

But above all, provide clarity on what types of innovation you want, what problems or opportunities your innovators should address and where the innovations should have impact.

Worry less about tools and more about culture

Too many new innovators worry about finding and learning one tool or methodology that becomes their mantra.  Whether it's lean innovation or design thinking or open innovation or whatever, the tool becomes the focus, when in reality there are a range of tools for a range of outcomes, and many paths to get to your destination.  In the midst of learning methods and tools, companies forget about the most important factor or force - the organizational culture.

For 30 years we've focused on improving efficiency and effectiveness, and spent virtually no time on risk, uncertainty, variability and exploration.  So, when the new tools ask for more risk, more exploration, the natural reaction based on years of cultural training is to resist.  If you don't focus on your culture and what it values and rewards, you will become experts in innovation tools that you can only use in very limited context.

Conclusion

If you are late to the innovation game, in some regards you may be better off, because we know where the pitfalls and traps are, and there are more people with more experience to help you on your way.  Learn from these experiences, but especially learn that innovation and its activities are leadership and cultural challenges, not something that always translates easily into discrete tactical activities.

Innovation Confidence Course

Recently I read a nice article in Inc Magazine about 10 Innovation Killers.  The author refers to a lot of factors that stymie innovation, including many of the usual suspects:

• holding a brainstorm and then doing nothing
• sustaining a fear of failure
• thinking innovation is something the technology guys do

One of the factors that caught my eye also got me thinking, however. That factor was "create an obstacle course for ideas".  Here the author was talking about making it difficult for people to work on ideas or making the process difficult.  Now, being a natural contrarian (I know, strange attribute for an innovator) I thought:  the only ideas that matter are those that can make it through a number of hoops and hurdles, internal and external.  What's wrong with an obstacle course?  Shouldn't the best ideas be the result of an obstacle course?  And then I remembered that my father, once and always a Marine, never referred to these as obstacle courses, but "confidence courses".  Young marines are put through an arduous obstacle course to prepare them for obstacles they may encounter in warfare, but the purpose of the course is to build confidence and teamwork.  In the same way, corporate innovators should expect their ideas to compete for time, attention and resources - a corporate obstacle course - but they need to know how to guide ideas through this course effectively.  What we need, it seems, are people who are versed in running the obstacle courses, who understand the issues and challenges that ideas are likely to face, and know how to get over, around or through them.  Ideas, by themselves, are never going to make it through an obstacle course.  People who don't understand the obstacles aren't going to be able to guide ideas through the course.  Companies that don't define the course and present unusual or unexpected obstacles won't be able to sustain innovation.

Two important factors

What we need is not to think of innovation as a lonely idea facing a huge set of obstacles.  Rather, what we need is either 1) a clearly defined path for ideas to follow that will assess, develop and validate ideas effectively or 2) confident idea partners who are experienced in running the obstacle course.  Frankly, the first alternative sounds wonderful:  a virtual automated assembly line for ideas.  However, this magical process doesn't and won't exist, because ideas by themselves have little momentum and without a defined pathway and workflow simply won't get to market, much less attract the resources to reach product or service development.

Obstacle or Confidence?

Every new idea, product or service, whether it is based on existing capabilities or introduces new solutions or technologies, faces an obstacle course.  If creating new, valuable products and services were easy, then everyone would be a millionaire.  The fact is, it is difficult to create even incremental new products and services.  Every new product or service will face an obstacle course:  competing priorities, limited bandwidth and resources, conflicting goals.  The question is:  will the ideas have confident mentors or supporters who can move through the obstacles and address important questions?

The answer to this is:  it depends.  Ideas and products that are very similar to existing products and services will face fewer hurdles and have more support to go through the evaluation and product development process.  New, interesting or divergent ideas will face larger hurdles and find that few people know how to navigate the process, or even that the process doesn't exist.  This is why so few new, interesting ideas become new products or services.

People who have been through the obstacle course and know how to navigate the barriers and hurdles have confidence, and can accelerate even disruptive ideas through the course.  We don't need to worry about creating barriers to ideas - many exist for good reasons.  What we need to do is create confident people who understand the pathways and obstacles and who have the confidence to move through the appropriate decisions and gates.

Consistent Course / Experienced Guides

This means there are at least two important factors that must be implemented to accelerate good ideas to market.  The first is that there is some consistency to the obstacle course.  That is, ideas must clear certain thresholds or hurdles, and those remain reasonably consistent, not changing with the whims of decision makers.  The second is that there are people who understand the reasonable and consistent hurdles or obstacles and can find ways over, through or around them, or who can invent an entirely new way to move through the path.  These are experienced, confident people who've been there and done that before.

Ideas need to, in fact must face, reasonable, consistent obstacles within your decision making process, because the products and services they'll become will face obstacles and objections in the marketplace.  We can't create a frictionless path for ideas inside the organization any more than we can create an objectionless product for customers.  What we can do is define the path, ensure the obstacles are well-defined and reasonable for the variety and range of ideas, and support the ideas with people who have been through the obstacle course before.  If ideas can make it through an internal confidence course scale to the value and impact of the idea, then they can make it in the "real world".

Idea Obstacle Courses

In fact the idea of an idea obstacle course - or confidence course - is brilliant.  If an organization wants to innovate, and recognizes the issues and challenges associated with innovation and acceptance of new products in the market, it will create a defined set of hurdles, obstacles and challenges that ideas must meet or achieve.  Further, it will train people to be able to understand and clear the obstacles, giving them confidence that they and their ideas can move through the course.  We don't want a frictionless system, which means the ideas won't encounter real world objections, but equally we can't leave the maturation and testing process for ideas to random chance.

What we need is a defined obstacle course for ideas, complete with defined objections and hurdles, "drill instructors" who push teams to move through the course at speed, and experienced guides who have been through the course before.  Then, and only then, can we say that we have a good pipeline and process for ideas.

Riding the whirlwind

One of my favorite apocalyptic texts is the saying that if you sow the wind you'll reap the whirlwind.  This is from the Old Testament, where the prophet Hosea is telling the people that they need to change their ways.  Obviously the passage has a rather negative connotation.  I think, however, we are the brink of some seismic changes and those firms that are ready will be able to ride the coming whirlwind, surf the tsunami, or benefit from the size and magnitude of the coming change.

Change is coming

Dylan said you don't need a weatherman to know which way the wind blows.  Right now, the wind is at our backs, propelling us forward.  That wind is the increasing pace and nature of change - technological, societal, governmental, economic, ecological, you name it.  There are only a few times in history when so many different forces were converging, and so much change was accelerating at the same time.  This consistent breeze at our backs which nudges us along will soon freshen into a real gale, pushing many firms into competitive spaces they didn't intend to pursue, creating situations they didn't anticipate.

Change is coming in the form of new entrants, new business models, new competitors.  And all of this change is arriving just as customers are growing restive, consumers aren't quite sure of the future, our economies and even governments are reacting to powerful movements against the status quo and the perceived failure of economic integration.  Look no further than Brexit and Monti's failure to reform the Italian government.  The EU, once seen as the great unifying force is now seen as a millstone on the neck of Europe.  Many countries will want to renegotiate their relationship with others in Europe.  The Euro and the European Union economy is stagnant, virtually lifeless.  Voters have noticed and are changing their governments.

Change is coming in every region. The Middle East is in turmoil and will take years to shake out.  Old leaders like Syria and Egypt have lost clout.  New leaders like the UAE and Iran are rising and will have different priorities and relationships with the West.  China will claim the sea lanes between itself, the Philippines, Japan and Indonesia as its own, asserting and expanding control over a wide area and as a naval power.  None of these countries individually, and perhaps not even together, can stand in China's way.

Change is coming in transportation, communication, business structure and models.  We'll finally get the car that drives us to work, the smart assistant that has all the answers.  We'll automate more and more of the jobs that blue collar workers used to do.  All of this knowledge and automation will increase uncertainty for people with less than a college education, while creating more profits and opportunity for people with IT and finance skills.  Increasingly no one makes things, and no one will own things. 

Change is coming in business creation.  A firm started by three guys seeking to rent out a spare bedroom has a larger market value than a hotel chain with over 75 years of experience. Companies claim outsized market valuations with no real assets or infrastructure, while those with significant investments, tooling, and cash on hand fall in value.

Something is going to give

For students of history, we can look back and see that these conditions have existed in prior generations.  For example, just before WW I the world was as integrated and traded as aggressively and extensively as we do today.  Movements seeking to overthrow the status quo were oppressed but eventually won (in Russia especially with socialism).  People were leaving the rural areas to move to the cities in one of the first major population movements.  Economies were integrating. Yet through a series of misunderstandings and linked alliances, a few critical acts threw the entire world into war.

We aren't suggesting that the world is a few steps short of war now, but many of the same conditions exist as they did then, and at other critical points in time.  History has a way of repeating itself, and we have a habit of building the same infrastructure and expectations as in the past, expecting that the conditions and rule we set will sustain, and that disruption is difficult if not impossible.  Yet our rigid but fragile relationships, structures, financial models are coexistent and interdependent.  Pull the wrong Jinga block and everything collapses - remember the housing debacle from 2008?  Think we've fully recovered from that?

Just the opposite.  We face even more change and uncertainty than in that time frame, we've just done a better job papering over the issues.  Greece is still Greece and dependent on the EU while thousands of migrants move in.  Northern Europe pushes away from Southern Europe as the UK pushes away from both.  Russia moves in to fill the void and take advantage of the chaos of both Europe and the Middle East. The US has pulled back, moving toward greater isolationism.  There is no concordance of action or responsibility.  No global policeman.  In fact increasingly it's every country or region for itself, at least economically speaking.

Are you ready for the change?

If this sounds dire or ominous, it's not.  Fear is allowing uncertainty and the unknown to cause panic or doubt.  Confidence is predicting the future and taking advantage of the opportunities.  When everyone else is selling, will you be buying?

Understanding the vital forces at play in your markets and in our economies and world is important.  Significant change is going to be unleashed. Those that are nimble and agile, those that have the insight to see what's happening and those prepared to act will benefit, tremendously.  Those that can innovate to create not only new products but new markets, new experiences and new business models will win outsized rewards while those that "stick to their knitting" will be viewed in the same way we talk about Blockbuster or Tower Records today.  It's just that there will be more of them to use as case studies.

Right now you should be gathering the trends and assessing the scenarios, predicting what you think will unfold in 2017.  It will be more dramatic than you think.  Donald Trump and his like don't get elected to sustain the status quo.  There will be change.  Understanding that, preparing for it and anticipating it, and building the skills to surf when the wave breaks will be the difference between the firms that are lampooned in the coming case studies and those that grow and expand in the coming gale forces.

Sure, we can't tell you when the gales will break or exactly where, or which Jinga block will collapse the structure.  Each industry or geography will have a different assessment.  Understanding that it can happen and it is likely to happen, and playing out the scenarios to respond effectively as it happens, and having the innovation and agility to morph as it happens is what matters. 

We aren't sowing the wind as much as we are simply neglecting or ignoring the tensions that are building.  Coming markets will experience a whirlwind, and you have the opportunity to reap that whirlwind or to ride it to new places.  The choice is yours, the skills and knowledge are evident, the investment decisions must be made.