Innovating to Win by James Todhunter

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Are You an Innovation Sucker or Winner?

Forbes’ recent article, “Sucker Punch For Innovation,” highlights some points of great concern.  The current economic situation is putting tremendous pressure on companies, and it will take quite some time for the fiscal maelstrom to settle down.  In the meanwhile, the outlook seems bleak.  Capital is drying up, earnings are down, and companies in almost every sector are bracing for lower revenues.

Does this really mean innovation will grind to a halt?

Certainly, there are companies that are tightening their belts.  They must do so.  Demanding times like these require a return to business fundamentals.  Unfortunately, many of these companies will make the mistake of pulling back on innovation.  They will do so because they are accidental innovators with no control over their innovation process and thus no possibility to justify their innovation investments because they do not enjoy a strong return on these efforts.  These companies will slog through the crisis and with a little luck hold on.  However, they will not be positioned to take advantage of the better times ahead.

Returning to business fundamentals begins with delivering a great value proposition.  In challenging times, this becomes even more important.  Customers need more value if they are going to part with their valuable cash.  Companies must provide a compelling value that propels from begin a want to a need in the minds of their customers.  Innovation is needed to deliver such a winning and well differentiated value prop.

Returning to business fundamentals requires optimizing the operational efficiency of the enterprise.  After decades of leaning down, companies have to look for new approaches to operationalizing efficiency.  Finding the best improvement ideas the first time, streamlining the product creation process through diligent vetting, and reducing wasteful missteps are all the purview of innovation best practices. Innovation in operating models is essential in these times.

Returning to business fundamentals demands the organization drive revenues.  However traditional channels are underperforming due to economic distress.  More of the same is not an adequate response to the today’s market requirements.  Companies need to build a better path to their customers and find new constituencies that need what they have to offer.  It is time to look at business model innovation to create new sources of revenue.

Of course I could go on, but you get the point.  Challenging times require a strong response—the innovation response.  Companies that have developed sustainable innovation practices understand this and are not compromising their future by scuttling their innovation programs.  They are continuing to invest in innovation because innovation will lead them through the crisis and allow them to thrive. 

The leading companies of tomorrow are the ones that are mastering innovation today.

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Reaction to Perpetuating Innovation Myths

Scott Berkun, author of “the myths of innovation”, has responded to my post last week commenting on his book.  In fairness to Scott, I am posting his reply here rather than leaving it buried in a blog comment.  I have also included some additional commentary.  First, here is Scott’s comment (paragraph breaks inserted for easy reading).

Hi James –

Thanks for mentioning the book. I took the risk of perpetuating myths quite seriously, and I don't think I did what you're suggesting here. Take this for example, from The Myths of Innovation, Chapter 3, pg. 44: "Steve Jobs, founder of Apple and Pixar, was asked 'how do you systematize innovation?' His answer was,

'You don't'(1). This was not what the readers of Business Week expected to hear, but foolish questions often receive disappointing answers. It's as absurd question as asking how to control the weather or herd cards, because those approximate the lack of control and number of variables inherent in innovation. Jobs, or any CEO, might have a system for trying to manage innovation, or a strategy for managing the risks of new ideas, but that's a far cry from systematizing something. I wouldn't call anything with a 50% failure rate a system, would you? The Boeing 777 has jet engines engineered for a guaranteed 99.99% reliability - now that's a system and a methodology. It's true that innovation is riskier than engineering, but that doesn't mean we should use words like system, control, or process so casually.'

Our disagreement might simply be about the words system, method or methodology. The failure rates for P&G, Google, or any poster child of an "innovation system" are extraordinarily high. They throw away many projects and ideas to obtain the handful that ever become products, much less successful ones. I think this is a a misuse of the word "system" or "method". At best what these folks do is expensive, risky and unpredictable. They experiment. And while there is significant work, planning and skill involved to manage experiments well, to call it a method you'd have to have much higher success rates.

You said: "Industry practice provides many very important examples of organizations that have successful implemented innovation programs—programs built on the assertion that innovation is a discipline that can be developed as a competency." Of course. But how many other companies that tried to do exactly the same thing failed? What is the ratio of successful implementations of these "methods" to failed ones? It's very high.

It's no surprise at this point that I find your suggestion I'm propagating a myth entirely unfair and unwarranted. There's little in my book that supports the status quo in any respect, most of my claims are support by research or at least industry anecdote, and I'm baffled at how one chapter, regardless of how awful it might have been, tanks your judgment of the other 9 :)

Best wishes, -Scott

Thanks for your response, Scott.  I do believe you took the risk of perpetuating innovation myths very seriously.  However, care and diligence do not guarantee the result.

First of all, it is a mistake to assert that any individual who has demonstrated some success in business (presumably via innovation) is thereby an expert on innovation.  The idea that organizations must accept low success rates from their innovation efforts is one based on a fundamental failure to understand the mechanisms available to drive high performance innovation.

Let’s consider for a moment one of the organizations you mention in your reply—P&G.  Here we see an organization that was plagued by an 84% failure rate in new product launches.  They realized that they needed to approach things differently and make innovation a core functional competence.  They have implemented many aspects of sustainable innovation practice, and the impact is undeniable.  P&G now enjoy the benefits of a 75% success rate—a stunning improvement by any measure.

While you might say that this is the exception that proves the rule, my observation and experience make it quite clear that this is not the case.  Where companies have made the innovation practice a true priority and not merely window dressing, the results have been predictably very strong.

As to the rest of your book, I have not said anything to suggest that my opinion of the rest of the content is negative.  Quite the contrary, I have said: “In all fairness, this book is a pleasant read.  It is well written, and Berkun’s style connects with the reader.”

However, the issue remains that there are many companies that are not sure what to do about innovation.  Should they embrace a path forward that integrates innovation thinking into their business and operating culture, or should they continue with the status quo and be content with the lack luster performance they see from their current innovation efforts.  It is clear that in the current global market climate, companies cannot afford to be complacent, but there is also a great pressure on these same companies to manage their risks well. 

This is why it is so important for these organizations to understand that there is a better way.  This is why I feel that this chapter of your book is so pivotal to the evolving innovation conversation, and why I have reacted as I have to your book.

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Perpetuating Innovation Myths

Working my way through this summer’s reading list, I enjoyed some great books and a few not so great.  One book in particular stands out as a major disappointment.  Scott Berkun’s  “the myths of innovation,” is that book.  This book has received a lot of good commentary in the blogosphere.  So, you might ask why I found it so disappointing.

In all fairness, this book is a pleasant read.  It is well written, and Berkun’s style connects with the reader.  So, what’s wrong with it?

This book perpetuates the most destructive innovation of all.  In chapter 3, Berkun asserts that there is no method for innovation.  In this discussion of the way of innovation, the author reveals a fundamental failure to understand repeatable innovation methods.

The discussion presented jumps from the notion that many people have followed many paths to the ill founded conclusion that there are no maps to help the innovation practitioner to reliably find their way to high-value innovation.  While most organizations are stuck in the quagmire of accidental innovation, this does not establish dispositive proof that there is not a better way, nor does it mean today’s norm is the ideal for tomorrow.

Industry practice provides many very important examples of organizations that have successful implemented innovation programs—programs built on the assertion that innovation is a discipline that can be developed as a competency.  In another book on my summer reading list, “The Game-Changer: How You Can Drive Revenue and Profit Growth with Innovation” (A.G. Lafley and Ram Charan), the Proctor & Gamble program is described.  It is clear that P&G have pursued innovation with the intention of achieving demonstrable competence.  Their results give testimony to the success of their efforts.

There are many other cases which can be cited.  We are all aware of companies that have broken away from the accidental mode of innovation and which have instead pursued with alacrity the path of sustainable innovation practice.  However, for the company that is still hampered by poor innovation practices, it is too easy to feel that being part of the pack of accidental innovators is good enough.  Berkun’s book provides an easy refuge for those who want to justify their status quo.

No, I will not be recommending this book to anyone.  We need to shatter the myths that prop up the barriers to innovation.  All too often the no-innovation-methods myth is used to erect walls that prevent knowledge workers from fulfilling their innovation potential.  Equipped with knowledge of sustainable innovation best practices, these knowledge workers discover the walls around them are nothing more than a Potemkin village.

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An Open Letter & Invitation for McCain and Obama

Now that the conventions are behind us and the race to November is in full swing, people are looking for the meat around the candidates stances on a number of key issues.  One area that is on everyone’s top of mind issues list is the economy.  The global economic climate affects everyone and every business.  We are faced with challenges and conditions unlike those seen in the past.  New challenges need new solutions.

Innovation is essential in driving the solutions that will lead us to a lasting revitalization of our economy.  So, it is no surprise that questions are raised about the need for a comprehensive National Innovation Policy.  But, what should such a policy address to make it truly effective?  So Senators McCain and Obama, what do you think about this important topic? 

You are respectfully invited to respond here, or better yet contact me to record a podcast on the subject to share your vision for driving innovation in America with our community of innovation practitioners and other members of the internet community.  Should it help get your thoughts percolating, here are some of my views on the subject.

Education
Let’s face it.  The most important resource in the new age of global innovation competition is brain-power, and our educational system is failing.  We need to stop flapping our gums and begin transforming our educational system with the objective of producing the type of innovation workers that future economic success requires.

Infrastructure
While there are several potential dimensions to this, here I simply want to highlight the area of high-speed data connectivity.  The rumors of the death of the information age are highly premature.  The growth in demand for information transmission is causing our current infrastructure to creak. It is definitely time to get ahead of this looming problem.

Intellectual Property
We need to ensure that our intellectual property is adequately protected abroad.  At home, we need to retool the PTO to keep up with the volume of applications.

Bayh-Dole Act
This 1980’s legislation should be reconsidered.  It has its staunch defenders, but it wasn’t the right way to accomplish its goal and hasn’t really done so.  For more on this, see "Time To Rethink The Bayh-Dole Act."

Basic Research Support
Funding for basic research support should be strengthened for public research, and R&D credits protected for private research.

Immigration
This is a delicate issue that must be examined carefully.  We just don’t have all the skilled innovation workers to fill our needs today.  So, we do need to provide access to global resources to fuel our innovation engine.  However, any policy must also consider the transportability of innovation skills and the phenomenon of brain-drain.

Open Markets
We provide the most open markets in the world.  We must work to ensure that we have a level playing field and encourage other markets to move in the direction of becoming more open.

Personal Data Privacy
A growing segment of innovation is built on data.  A looming threat is a meltdown in this sector based on poor data protection and personal security provisions.  We should act to fend off this threat before it becomes a difficult problem to address.

Well Senators, we await your response.

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Kyoto Musings

I am taking the bullet train this morning from Tokyo to Kyoto to go speak at the 2008 Japanese TRIZ Symposium.  While in Japan, I have also had the chance to meet with several members of the Japanese innovation community.  It is interesting to note the differences and similarities in attitude and approach to innovation that can be observed as one touches different geographic regions.
 
Some things are very consistent.  Japan is feeling an economic slowdown after five years of growth.  This has companies thinking about many of the same issues as their Western counterparts.  Companies globally are coming to the realization that innovation is at the core of their competitive sustainability.  But whereas innovation has been only the domain of R&D in looking for new technology and products, some Japanese companies are rethinking their innovation agenda.  The possibility to push innovation skills to production engineers as a way to spur a new wave of efficiency gains is gaining attraction to these organizations.

This is an interesting trend, but these companies should be expanding their vision.  Innovation touches all aspects of what a company does in delivering value to the most important customers in the value chain.  While it is easy to consider the discrete innovation actions as independent event during the product lifecycle, such a viewpoint is self limiting.  Product creation, delivery, and service are interconnected elements of a complex corporate ecosystem of value creation.  As such, companies should consider how to encourage and leverage the connectedness of these activities.

Another trend that I have seen recently in Europe and the US which has been validated in my discussions with Japanese companies is a shift in thinking about knowledge management and its role in innovation.  There is a growing awareness of the fundamental importance of connecting knowledge workers with information.  But, traditional models of knowledge management are viewed as being failed systems.  While thinking in this area is still lagging globally, more and more companies are beginning to understand that a new metaphor of design intent and role based knowledge enablement is needed to break the barriers between knowledge workers and the information they need to formulate new concepts of innovation.

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Internal Promotion of Innovation

In our company, there are many aphorisms that our CEO is given to saying.  One of these is very apropos in a discussion of innovation—“If you don’t believe, you gotta leave.”  The idea is very simple; you can’t give your best contribution if you don’t believe in the mission, the opportunity, the team.  If you are charged with establishing an effective, endure, and value building innovation culture, you have not done your job unless you have also addressed the fifth pillar of sustainable innovation culture: internal promotion.

People need to see that the efforts of the enterprise are having a meaningful impact.  Designers want to know that their efforts are making a contribution to the corporate goal.  Executives need to see the return on the investment in innovation.  These and other messages of enfranchisement must be constantly communicated and reinforced.  A properly executed internal marketing campaign is essential to maintaining momentum in the innovation program and fostering champions of innovation across the enterprise.

There are many forms of internal promotion.  The successful architect of the high performance innovation culture uses all of them.

It begins with selling up.  Have you ever noticed how a good salesman always compliments your judgment when you decide to buy?  As you build the organizations innovation capability, never forget that establishing a strong innovation capability require significant, on-going investment.  Naturally, such investments are subject to review as are any investments the organization makes.  This means that clear and measurable return on the innovation investment must be shown to ensure the long term health of the program.  Soft ROI metrics are useful, but you also need to identify hard metrics to really cement the commitment to the path of innovation.  (See “Thinking About Metrics” for some ideas in this area.)  But, metrics alone are not enough.  You need to make sure that the achievements and ROI of the innovation have strong visibility at the C-exec level.  Arm your C-level innovation champion with the anecdotes and data to represent the program in executive forums.  Conduct periodic Innovation Program Reviews for the benefit of the executive team.

Selling outward is just as important.  As much as innovation workers need to have visibility to the corporate goals, they also need feedback to know when their efforts have hit the mark.  Information about innovation success needs to be promulgated throughout the innovation community so that innovation workers can see the impact that they and other innovation teammates have had on the organization.  This sort of information sharing is a very powerful tool of enfranchisement for people.  When employees can see the value of their work, they feel more valuable themselves, they feel a part of something more important, and they feel inspired to reach higher.

Don’t forget to make it personal.  Give individuals and teams that have made a special contribution public recognition.  This reinforces the message that the company values innovation in a very tangible way.  When appropriate, recognition systems should also integrate into the compensation system.

Internal promotion is critical to building the lasting, sustainable innovation program corporations want.  Yet, it remains the most frequently neglected of the Five Pillars of Sustainable Innovation Culture.

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Internal Networks for Innovation

Continuing in the Five Pillars of Sustainable Innovation Culture discussion, let’s consider pillar number four: Network for Innovation Mentoring & Facilitation.  In this context, I am not referring to an open innovation network.  While open innovation has its role to play, the greater need is for internal organizational structure and process that creates a network within the enterprise to support the full scope of innovation activity.

There are many aspects to innovation best practices, and there are many types of innovation problems.   Innovation isn’t a point event that happens at a well defined place in the product lifecycle.  Innovation happens throughout the value creation chain.  Very early on, it is first seen as the identification of new opportunity space.  Subsequently, innovation may involve finding the concrete strategy to convert the nascent idea into a commercially deliverable offering.  Further on in the process, we may be faced with unforeseen technical or quality challenges that must be overcome if we are to meet customer satisfaction and profitability requirements.  Often, new products may require new thinking around production or logistics.  It doesn’t take much effort to understand that there are opportunities for innovation to create new and higher value at every point in the product delivery process.

Different problems yield more readily to different solution paradigms.  Some types of innovation tasks are performed frequently.  Other innovation tasks are only undertaken occasionally.  A designer may need to look at evolutionary changes to an existing offering regularly.  On the other hand, considering options to create an entirely new product line is something that is done much less frequently.  How can knowledge workers keep their head down in weeds of routine innovation and still have facility with the specialized skills that may be called for when they need to pursue a more esoteric project?

Innovation workers have different roles to play in the organization.   The intellectual property analyst performs a very different function than the quality planner.  The design engineer has a different job than the product marketing person.  How do these disparate functions come together harmoniously when a cross-functional team is assembled?

All this variability in the many aspects of innovation leads to the conclusion that organizational über-processes must recognize that innovation skills will not be uniformly distributed in the organization.  Thu, innovation leaders must be leveraged within the enterprise to help knowledge workers bridge the gap between personal innovation skill level and problem solving skill need.  An organizational structure to maintain and optimize the leverage of a mentoring and facilitation network is required.

This can be accomplished in many ways.  A common model is to build an innovation skills pyramid.  At the base of the pyramid, knowledge workers are trained in the fundamentals of innovation.  These include basic skills of problem analysis, solution identification, and concept validation.  At the top of the pyramid, innovation experts are cultivated as highly leveraged corporate resources.  These experts are tasked with leading others through the more intricate processes of innovation that are less frequently traveled as well as cultivating general innovation skills by working with other knowledge workers to help make the entire organization more effective.

Isolation of innovation expertise, the internal outsource group model, is usually not a good approach.  It works against the need to enfranchise all knowledge workers in the innovation agenda.  More effective is to disperse the innovation skills throughout the enterprise and cultivate innovation experts within groups.

Better still is to use a hybrid model.  Build wide spread general innovation competence that is complemented by a horizontal team of innovation experts.  This is a concept that I have seen work very successfully for organizations.  For more on this concept, see “The Case for an Innovation Center of Excellence”.

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Where Do You Look For Whitespace Opportunities?

Poll results:

Creating complementary products: 6.3%

Defining an entirely new product: 37.5%

Repurposing a technology for disruptive entry: 31.3%

Finding a new audience for an existing product: 43.8%

Evolving current products to expand existing markets: 31.3%

Our most recent innovation poll suggests that there are big differences in how we approach the task of finding white spaces opportunities.  Four of the five selections attracted strong voting, but no one area garnered votes from a majority of the survey respondents.

One interesting observation is that less than 40% of respondents look for opportunities to create entirely new products.  This suggests there is a bias toward minimizing the risks of innovation by sticking to one’s knitting.  Companies leverage existing competency in a product or technology by finding new channels of opportunity or maintain market value through incremental innovation.

While some may criticize management for this tendency, it is important to consider that one reason for this bias is the effectiveness of the approach.  Many organizations have found that the waters of blue ocean opportunity can be very choppy, and after making massive investments in such opportunities they have found themselves wondering, “Who peed in my blue ocean?”

Another point of interest is the low response rate for complementary product creation.  This suggests a strong impression that innovation must be either very closely aligned with a current product or technology, or it must be off in totally uncharted territory.  Complementary product are often thought of as being betwixt and between and hence the poor cousin of more interesting innovation avenues.  However, this thinking may be a strategic mistake.  A complementary product that ties back to an unanswered aspect of the core opportunity space of an existing market represents a dual opportunity.  It can be a strong new product with a ready audience for a proven use model.  The complementary product can also be the thing that creates a bridge to new audiences because of an intersection in the objectives of opportunity spaces.

So, what should innovation practitioners extract from this survey?

With strategies for leveraging current product and technology being so heavily relied upon, it is essential that innovation workers have well defined best practices to drive these initiates quickly and effectively.

Companies that are looking for the next big thing should be developing the specific sustainable innovation approaches that mitigate the risks of innovation and thereby improve the return on innovation investment.  Best in class companies consistently enjoy higher innovation success rates than other companies.

Reconsider how to look at the red ocean opportunity spaces to expand your market footprint through complementary offerings.  This could be a great less travelled path to revenue growth.

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Idea Generation or Selection

Drew Boyd has posted an interesting item on Innovation In Practice.  In Ideation vs. Prioritization, Drew suggests that too much is made of the question of how to select the right ideas to pursue rather than how to generate lots of great ideas.  In fact, he argues that prioritization of ideas doesn’t belong in the innovation discussion.  Drew is both right and wrong in this position.

Where he is right is the notion that too much focus is often placed on idea management and selection at the expense of quality idea generation.  This decision making angst is not surprising.  With the low success rate of innovation experienced by most organizations and the high cost of failure, it is natural for people to feel great pressure to make the right decisions.  But if the ideas in the pile of options being considered are all of marginal quality, one can hardly expect good selection discipline to make a silk purse out of a sow’s ear.  On the other hand, if every idea in the opportunity pipeline is high quality, well aligned with the company, and properly qualified, then almost any choice will lead to success.

This concept is a very simple, but often overlooked, aspect of innovation and business opportunity development.  Because people forget this principle, a lot of time, effort, and money is wasted on idea management solutions when the real issue to be addressed is the process of getting good ideas in the queue at the front end of the process.

This is where I think Drew’s view is off (at least if taken literally).  Selection should not be ignored in the innovation process; it is an integral part of innovation.  Innovation is not generating ideas; innovation is generating value.  Value is relative to the objectives of the company and metrics that map back those objectives.  Good, sustainable innovation practice incorporates the notion of objective targeting and alignment.

When innovation workers understand the metrics of concept validation and collect evaluation metrics along the way, implementing fast failure disciplines is easy, and ideas that survive to the program selection gate have a much higher value potential and probability of value realization.  Companies that have achieved a high performance innovation culture integrate these concepts in to their best practices and achieve these benefits naturally.

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Market Whitespace Poll

Our informal poll on where people look for whitespace opportunities closes this Friday.  So if you haven’t cast your vote yet, you better hurry!  You can cast your vote by visiting http://www.innovatingtowin.com/innovating_to_win/2008/08/market-whitespace-poll-closing-soon.html and using the Vizu poll widget in the side bar on the left.

A new poll will start on Monday, August 18th.

Thank you for your participation.