Archive for November, 2010

Innovation in India: The Value of Constraints

Posted by Tim in business models, innovation on 10 November 2010

If you are even remotely interested in innovation (and how would you end up here if you aren’t?), then this talk by R.A. Mashelkar is worth 19 minutes of your time:

Mashelkar talks about the importance of innovating for everyone – of getting more for more for less. To do this, he talks about the importance of combining innovation, compassion and passion. He illustrates this by telling the stories of the development of the Tata Nano automobile, the Jaipur Foot, and new methods for drug development (he also mentions the incredibly inexpensive incubator for premature infants that Steven Johnson discusses in his TED talk for Where Good Ideas Come From).

The main theme in all three stories is constraint. In all cases, to successfully execute these innovations, innovators in India had to meet pricing constraints that would be unimaginable for most other firms. The Nano sells for about $2000. The Jaipur Foot costs $28, relative to about $20,000 if you’re getting a similar prosthetic in, say, California.

Faced with such constraints, many people would say that the goal is impossible and give up. That is where the compassion and passion come in – these characteristics drove the innovators to find ways around the constraints.

Mashelkar quotes Francis Bacon concerning what these constraints necessitate:

When you wish to achieve results that have not been achieved before, it is an unwise fancy to think that they can be achieved by using methods that have been used before.

Also, most innovations also require innovative business models. In developing the Nano, Tata came up with new distribution and assembly channels. The value network around the car is radically different, as are the value proposition and the target market. The new drug development process reconceptualises the source of ideas – which reconfigures the innovation process and business model.

Finally, all of these innovations adapt ideas from other contexts. The Nano uses seat and window technology originally designed for helicopters. The drug development process models natural systems (a point raised by Anil Gupta in his TED talk as well).

People always complain about constraints, but constraints make us more creative. This approach to innovation – working within severe price constraints – is one of the drivers of innovation in India, China, Africa and Brazil. We sit in the Aravind Eye Clinic too, which has done similar things with cataract surgery – so it can be done not just with products but with services as well.

There is a critical point here – it is easy to miss innovation developments in other parts of the world. But if in India Tata can make a $2000 car, and if the Aravind Eye Clinic can deliver $10,000 surgery for $200, what happens when these innovations hit the west?

What is the equivalent of the Tata Nano in your industry? Who is working on making it? Why not you?

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What do we mean by innovation?

Posted by Tim in innovation strategy on 9 November 2010

A while ago John and I did in-depth individual interviews with almost all of the senior managers of a firm about their innovation process. We ran into a striking paradox while doing so.

One person said to us “This company needs to get rid of innovation.” He said this after he had explained all of the absolutely path-breaking projects on which he was working. It was an impressive body of work, and it was all highly innovative. Consequently, we were a bit confused about why he wanted to get rid of innovation, so we asked him what he meant.

He explained that the firm’s innovation program only encouraged incremental innovations, and that by concentrating there, they were missing the opportunities to pursue the big picture ideas that could transform the industry. Therefore, in his view they would be better off scrapping the innovation program entirely so that they could devote time and resources to the more disruptive ideas.

A bit later, a different person said to us “This company needs to drop its innovation program.” We again asked “Why?” This time, the reason was that the innovation program only encouraged the consideration of big ideas – it was too bureaucratic to consider and execute small ideas that would improve performance. As a result, they were falling behind because they weren’t improving their core business fast enough.

You probably couldn’t find two more opposite views of how innovation is doing within one firm.

There are a few lessons in this:

To successfully innovate, you have to have a shared language: these two people meant completely opposite things by “innovation.” One meant incremental improvements, while the other meant big ideas. This is why I use a broad definition of innovation – you have to be able to capture both types. If you only focus on one, you will run into problems, because:
You have to manage innovation as a portfolio: to successfully innovate, you need to be good at both incremental innovation as well as at developing more radical ideas. If you only focus on continuous improvement type innovations, eventually someone will disrupt your market, and then you’re in trouble. On the other hand, if you only concentrate on developing radical innovations, you will fall behind competitors that are continuously improving right now, and you could go out of business before you get a chance to execute your big ideas. Your innovation management process must be able to handle both kinds of innovation.
Finally, people often fail to take an enterprise-level view of strategy. Both of these managers were really only interested in their particular innovation efforts. Because neither felt very supported by the innovation program, they both thought that it should be dumped, but for opposite reasons. This is a sign that the firm’s overall strategy might be communicated very clearly. You need to be able to articulate where you are going, and how innovation can help your organisation get there.

We’re continuing to work with this firm, and it seems like they’re making progress. But it just goes to show that often we don’t really know what we mean by “innovation”.

(photo from flickr/mrlerone under a Creative Commons License)

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The Role of Government in Innovation

Posted by Tim in evolving economic entities on 8 November 2010

Think for a minute about all of the innovations that had to take place for you to read this sentence. There are lots – computers, semi-conductors, the internet, and the world-wide web just for starters. Where did this innovation come from? Many firms have played important roles in these breakthrough innovations. But another important player in the US at least has been the government. Nearly all of the major innovations relating to computers and the internet have been the result of government funded and often government directed research.

Which is interesting since we keep hearing about how the US is all about markets, and nothing but markets.

I thought of this because of an article that I ran across called Okinawa’s Doomed Innovation Experiment by Vivek Wadhwa. After discussing investment by the Japanese government in an effort to create an innovation cluster on Okinawa, Wadhwa says:

The Japanese have it all wrong. The original clusters failed—just as nearly all the cluster development projects all over the world fail—because the basic premise is wrong: Governments can’t mandate or manufacture innovation, no matter how much they invest. Clusters happen where like-minded entrepreneurs congregate, start risky ventures, and learn from one another other by networking. Innovation is a by-product of this synergy and experimentation. What is needed is less government control, not more.

Here’s the problem with this argument – it’s false. Many cluster development projects around the world have in fact failed. But many have also succeeded. If you make either the argument that governments should have nothing to do with innovation, or that innovation should be government directed, you are making an ideological statement, not a fact-based argument.

This is a really tricky area, because there are no consistent outcomes. Silicon Valley was formed on the development firms making first integrated circuits and then semi-conductors. Both of these industries were heavily supported by the US government. This history is well documented by Kenneth Flamm in Creating the Computer: Government, Industry and High Technology. After the integrated circuit was invented in 1959,

Close to a decade passed before the integrated circuit was cheap enough to become widely used in commercial electronics. During these crucial years the U.S. military again played a key role in funding development of technology and providing a large market for these premium-priced components. Industry sources estimate that defense customers ended up paying for nearly half of all semiconductor research and development from the late 1950s to the early 1970s. …

So the success of U.S. computer firms was built on a technology base in electronic components, that, in its infancy, benefited greatly from a healthy diet of government support. …

But even today, government retains a powerful influence at the most radical leading edge of architectural innovation in computers. Research on novel types of parallel architectures and the financial backing for the first working models of these new concepts rely heavily on federal funding. And development of the largest and most powerful computers of the day – even those with more conventional designs – continues to rely heavily on demand by government agencies.

It’s the same story for computer memory, microprocessors, and the technology underpinning the internet itself.

The government role in supporting innovation is incredibly complex. Silicon Valley and the innovation that has developed there is based on government support. So are the innovation clusters in automobiles and consumer electronics in Japan, in electronics in Taiwan, in software in Ireland, and in clean technologies in China.

But on the other hand, we have notable failures in all of those countries as well – much as in the Okinawa example.

Instead of making sweeping generalisations about how governments should stay out of innovation, it would be more useful to try to figure out the circumstances in which some government-led innovation initiatives fail, while others succeed.

Anyone that says there is only one way to do things is simply not correct. Governments play complex and unpredictable roles in supporting innovation. We know a bit about some of the things that they should and shouldn’t be doing, but this is still an active area of research, with much more to learn. But the correct answer is neither “only markets” nor “only governments”. The two have to work together – there’s no way around it.

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Succeed by Failing

Posted by Tim in filter, selection on 5 November 2010

“If you want to succeed, double your failure rate.”

-Thomas Watson, IBM

That’s a pretty succinct way to say make a point that I was trying to get a couple of weeks ago.

The key point here is that you can fail at different levels. I’ve talked before about a taxonomy of economic failure. We can actually think of failure as a hierarchy that looks something like this:

System failure (the collapse of communism)
System component failure (stock market crashes)
Major firm failure (Enron going out of business)
Start-up failure (pets.com going out of business)
Product failure (New Coke tanking)
Idea failure (Apple Navigator prototyped but never launched)

As you go down that list, failure gets less expensive. When I talk about tolerating failure, I’m talking about trying to set up systems that encourage cheap fast failure. This is usually at the level of ideas.

I think that this is the point that Watson was making as well. He’s not advocating big, expensive, public failure. He was advocating quick, cheap experiments.

We need to push our failures down that list, so that we are testing ideas and finding the ones that don’t work when they are still ideas, rather than things. One of the key skills in this is prototyping – figuring out a small-scale way to test your idea.

As Diego Rodriguez says, anything can be prototyped, and you can prototype with anything.

(photo from flickr/polapix under a Creative Commons License)

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The Business Model for Doing Something You Love

Posted by Tim in business models on 3 November 2010

How do you build a business model for doing something that you love? It’s a difficult question. In most cases, it means that you need to build some sort of craft-based business model, which can be challenging. But if you do it right, you can create smarter conversations – a recent idea from Hugh MacLeod. Here are couple of things that he says about smarter conversations:

“Conversation” is a metaphor. Making your product sleek, elegant and graceful while all your other competitors make their product look cheap, plastic and clunky is a smarter conversation. Not all conversations need words.
…
If Smarter Conversations work, it’s because they help humanize the company.

For whatever reason, I’m uncontrollably attracted to firms and people that manage to do this. There are a few ways that you can do this.

One approach is Hugh’s – to turn your ideas into art. He’s actually writing some of the best innovation and management advice around these days, but it shows up in the form of art. To see how he’s doing it, check out his daily newsletter.

Another option is to take your ideas to an absolute extreme. That’s the Saddleback Leather approach – to build the strongest, longest lasting leather pieces that you can imagine. Dave is making briefcases with 100 Year Warranties! He does that by focusing on using only the best quality that he can find for every aspect of the pieces that he makes. That might sound expensive, but you can actually get a briefcase from him for a lot less than you can from many of the big name designers. And theirs won’t last 100 years…

The third option is to create a new meaning for your ideas. That’s what a company I ran across this week called the Cloakroom is doing. Their idea is to make Savile Row style bespoke suits, but in Brisbane. The problem in trying that is that Brisbane is not nearly as big a market as London, so there isn’t necessarily a ready demand for this. The approach that Andrew and Josh are taking is to create a different market for their suits by making a new meaning for them.

This is a bit of a challenge. They are targeting a younger market than is normal for this type of service – they’re actually trying to create a new set of customers. To do this they are doing several things. They are tapping into the culture and taking advantage of the interest in style that is being created by TV shows like Mad Men. They are pricing their suits very reasonably, so that they can attract people that maybe haven’t bought a lot of suits before. In addition to their bespoke suits, they have a ready-to-wear shop in the funky part of town (well, funky by Brisbane standards!). They’re writing a blog which can help educate people about suits and all the things that go with them. And they’re innovating – one idea that I particularly like is the phone pocket:

That is a contemporary touch to a classic piece of clothing.

All of these small innovations add up to a new business model. They’re trying to get younger men to think differently about what a suit means. I hope it works, because I definitely want them around long enough that I can get more clothes there!

The main point with these three examples is that in every case they have found a way to get really good at something, and amplify that into a unique value proposition. Or into a smarter conversation. That’s the best way to build a craft-based business model, and it’s the best way work out a way to do what you love.

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Work With Tim & John

Posted by Tim in innovation strategy on 3 November 2010

This is the latest page that we’ve added on the top menu:

Engaging with people that are entrepreneurs, or involved in managing innovation is one of our top priorities. Trying to help people doing these things is one of the objectives with this blog. However, you may find that the material here isn’t specific enough to solve a problem that’s important to you.

We primarily try to build deep, long-term relationships with a relatively small number of organisations. The reason for this is that in our experience, this is the best way to effectively transfer what we know to people in a way that will have a positive impact on performance. If you would like to work with us more directly, there are four ways to do so: speaking, teaching, research and consulting. These represent varying levels of involvement and knowledge sharing, and with many of our key partners we end up doing all of them.

Speaking: Both of us regularly give public talks and keynote speeches on topics related to innovation and strategy. If you need a speaker on anything relating to these topics for an event, please let us know.

Teaching: we regularly teach executive education courses on Strategy in Practice, and Managing Innovation. Keep an eye on the “Upcoming Events” box in the toolbar on the right for information on these courses. They are good ways to get an introduction to these topics, and to develop a language around strategy and innovation that you can spread within your organisation. We can also develop customised training for teaching within your organisation as well.

Research: Right now, most of our research is focused on innovation networks in project-based firms. We are trying to learn about different structures within knowledge-sharing and communication networks and the impact that these structures have on innovation and performance. We are currently working with a number of companies in several locations and in a number of countries to gather data. We are also starting to work on developing future projects where we will extend what we learn in this project. So if you are interested in learning more about how the networks within your organisation influence innovation, get in touch.

Consulting: If there is a specific strategy or innovation problem within your organisation, we can also work with you on a consulting basis. We have experience on projects in the areas of: innovation audits, merger and acquisition strategy, digital innovation strategy development, innovation network surveys and innovation project reviews.

If you think that we can help your organisation, we would love to hear more about your situation. The best contact method in all cases is email: t.kastelle at business.uq.edu.au

Our corporate partners include: Rio Tinto Coal Australia, Queensland Health, Hatch Engineering, Brisbane City Council, Teys Australia, GHD Engineering, GroundProbe, Laing O’Rourke, CSIRO, Fairfax, Meat and Livestock Australia, Deloitte and QMI Solutions.

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More Bang for the Innovation Buck

Posted by John in innovation on 2 November 2010

I’ve written a series of posts over the past year about connecting innovation to strategy. Looking back a these there are two main points that keep jumping out.

The first of these is to recognize which of the three horizons the business is in. Innovating in Horizon 3, with the development of speculative but potentially disruptive businesses is different from horizon 1 innovation where the objective is to improve margins and efficiency in current business to improve profitability or grow market share.

The second point is that innovation in horizon one is about delivering a particular value proposition. In a post from a few weeks ago I wrote about generic value propositions in lowest total cost, best product offering and solutions based on customer intimacy. Having clarity around the value proposition is important becuase the business activities, culture and performance management for delivering each of the value propositions is very different. In a best-product company, there is heavy emphasis on technology and product innovation and the culture of the business is very entrepreneurial. In a lowest cost business, process innovation and tight control over operations is important. The problem occurs when companies try to combine value propositions without understanding the choices and tradeoffs that are needed to excel in each of them. Doing everything invariably puts companies in a ‘zone of medicority’. They become OK at every thing but have competitive advantage at nothing.

One way to visualize how a company excels in a particular value proposition is to set out business processes in an activity map that shows reinforcing links between operations. The example shown below is a well known activity map of Ikea done by Michael Porter.

It’s pretty clear from the activity map that these activities are all working together to deliver a lowest total cost value proposition. However, if you look at it as a network then it becomes apparent that some activities are more central and connected than others. For example, having a lot of inventory on site helps several other activities in the map.

Visualizing a value proposition as a map of activities is useful for innovation managers because it helps to prioritize innovation projects. Again, when faced with a choice to allocate funding, it is more likely that investments is innovation in inventory management or modular furniture design will enhance the value proposition of the business because they are lynchpins within the activity map.

Linking innovation to strategy is important but to get this right we need to understand the processes within the organization that are critical to delivering the strategy.

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Innovate Through Appreciation

Posted by Tim in book riffs, connect on 1 November 2010

One of the critical parts of the innovation process is getting our great ideas to spread. Diffusion is often the stumbling block for innovative new ideas. There is a section towards the end of Making Ideas Happen by Scott Belsky that provides some interesting insights into how to attack this problem.

Belsky describes a storytelling workshop that he took which was run by Jay O’Callahan. One aspect of the workshop that is striking is that all of the feedback in it was given in the form of appreciations. After each person told a story, the other participants were not allowed to criticise either the story or the delivery – instead they were all asked to comment on what they appreciated.

Here is a terrific talk from O’Callahan in which he explains this and few of his other key ideas. Well, he doesn’t explain them, he tells us some stories that make the points:

Jay O’Callahan: The Power of Storytelling from 99% on Vimeo.

Here is how Belsky describes the benefits of this approach:

The exchange of appreciations is meant to help you build upon your strengths, with the underlying assumption that a creative craft is made extraordinary through developing your strengths rather than obsessing over your weaknesses. And I noticed that a natural recalibration happens when you commend someone’s strengths: their weaknesses are lessened as their strengths are emphasized. As my storytelling compatriots recounted their stories a second and third time, the points of weakness withered away naturally as the most beautiful parts became stronger.

Or, as O’Callahan says in the talk, quoting cellist Pablo Casals – “we have to leave it to the ignorant and the stupid to just point out flaws, we have to be glad about any bit of beauty.”

There’s an important innovation idea in this. Take a look at this cartoon from Tom Fishburne:

That’s what happens with criticism – we chip away at anything that makes our idea unique or interesting, until there’s nothing left. That’s where I think appreciation could help.

Take a new idea, and instead of looking for weakness, thing about what makes it great. How could you emphasize that even more? Well, do that. Don’t patch up weakness, build on your strengths. Be great at one thing, not average at everything.

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