Archive for December, 2011
Innovation Obstacle: Gumption Traps
Posted by Tim in book riffs, experiments on 29 December 2011
Imagine that you have a great idea for how to make things work better at your job – it shouldn’t take too much effort, I’m sure you have plenty. Now think about an idea like that you had, but never acted upon – what happened? You probably thought of all the obstacles to executing the idea. People won’t go for it, they hate change, my boss won’t let me try it out, the organisation is too risk-averse, I didn’t get any recognition or support for the last idea I had, and so on. So you decided that the situation wasn’t really that bad, you could live without improving it if you really had to.
You just fell into a gumption trap.
Gumption Traps
Joe McCarthy talks about Gumption Traps in a series of typically excellent posts. The idea comes from Robert Pirsig’s Zen and the Art of Motorcycle Maintenance: An Inquiry into Values. Here is what Pirsig says about gumption and Gumption Traps:
I like the word “gumption” because it’s so homely and so forlorn and so out of style it looks as if it needs a friend and isn’t likely to reject anyone who comes along. I like it also because it describes exactly what happens to someone who connects with Quality. He gets filled with gumption.
A person filled with gumption doesn’t sit around dissipating and stewing about things. He’s at the front of the train of his own awareness, watching to see what’s up the track and meeting it when it comes. That’s gumption.
…
Throughout the process of fixing the machine things always come up, low-quality things, from a dusted knuckle to an accidentally ruined “irreplaceable” assembly. These drain off gumption, destroy enthusiasm and leave you so discouraged you want to forget the whole business. I call these things “gumption traps.”
There are hundreds of different kinds of gumption traps, maybe thousands, maybe millions. I have no way of knowing how many I don’t know. I know it seems as though I’ve stumbled into every kind of gumption trap imaginable. What keeps me from thinking I’ve hit them all is that with every job I discover more. Motorcycle maintenance gets frustrating. Angering. Infuriating. That’s what makes it interesting.
I highly recommend reading all of McCarthy’s post on this, but here is part of what he says about Gumption Traps:
Pirsig uses motorcycle maintenance as a metaphor for life, and explores a variety of gumption traps – externally induced out-of-sequence reassembly, intermittent failure and parts problems as well as internally induced traps arising from value rigidity, ego, anxiety, boredom and impatience – and ways of addressing and overcoming them.
In innovation, we have both internal and external Gumption Traps.
How to Avoid Gumption Traps
There are a few things that we can do to avoid Gumption Traps. The first is that we have to be doing something that we believe in. This provides powerful motivation to act on our ideas. As is often the case, Hugh MacLeod captures this idea perfectly:
There are also some very useful steps to follow in Nine Things Successful People Do Differently
The nine things are not really surprising, but they are powerful. The one that most directly addresses the Gumption Trap is number 6: Have Grit:
Grit is a willingness to commit to long-term goals, and to persist in the face of difficulty. Studies show that gritty people obtain more education in their lifetime, and earn higher college GPAs. Grit predicts which cadets will stick out their first grueling year at West Point. In fact, grit even predicts which round contestants will make it to at the Scripps National Spelling Bee.
The good news is, if you aren’t particularly gritty now, there is something you can do about it. People who lack grit more often than not believe that they just don’t have the innate abilities successful people have. If that describes your own thinking …. well, there’s no way to put this nicely: you are wrong. As I mentioned earlier, effort, planning, persistence, and good strategies are what it really takes to succeed. Embracing this knowledge will not only help you see yourself and your goals more accurately, but also do wonders for your grit.
Grit and Gumption are pretty much the same thing. Grit is an important part of innovation. Grit helps us learn from experiments that fail, instead of despairing. Grit helps us push our ideas even if the boss doesn’t directly support them.
Grit helps us change the world, if that’s what we’re trying to do. And we should be.
The next time you face a Gumption Trap, if you’re not finding a way around it, think of Halvorson’s nine ideas. They can help you change the world.
Are You Creating or Replacing?
Posted by Tim in book riffs, connect, networks on 28 December 2011
Are you creating something new or replacing something that’s already there? If you’re replacing, you need to do much different things than if you’re creating something new.
Every time you try to get your ideas to spread, you have to break connections. This is a lot harder if you’re trying to replace a deeply embedded idea.
Here’s how I’m thinking about it:
Replacement is like trying to knock out the red target in the middle of the diagram. The triangles might be suppliers, or complementary products, and the circles might be customers. The point is, the idea is really embedded.
If you’re trying to replace something, you have to come up with an idea that is MUCH better than the one you’re trying to replace. Here is how Stowe Boyd put it today talking about the new Microsoft Phone:
The iPhone was easily an order-of-magnitude better that the shit phones we all tolerated when it launched. Microsoft had years to come up with something awesome, and it’s ok. Which means death, today.
Replacement means being an order-of-magnitude better.
More academically, here is Clayton Christensen saying something similar in The Innovator’s Cookbook, and pretty good edited volume put together by Steven Johnson:
Even if innovators succeed in cramming disruptive technology into an existing market application, the incumbents typically win. Digital photography, online consumer banking, and hybrid-electric vehicles are examples of potentially disruptive technologies that were deployed in such a sustaining fashion. Billions were spent on these innovation to beat out already acceptable and habitual technology; little net growth resulted, as sales of the new products cannibalized sales of the old; and the industry leaders maintained their rule.
In short, replacement is very difficult. You have to stand out from the crowd, which is awfully hard, and it requires a quantum leap in functionality.
If you’re creating, you face a different set of problems. When you create something new, you don’t have any connections at all – you have to create them from nothing. This is tough.
However, the payoff to creating something new can be a lot higher than replacing. And there are some ideas that make this easier.
- Not all crazy ideas are great, but most great ideas are crazy: Fred Wilson says:
When people ask me, “how do you know which companies and services are going to be the biggest successes?”, I usually tell them to look for the companies and services that are mocked and misunderstood. For some reason, that correlates highly with the biggest breakout successes.
- New ideas start out crappy: Greg Satell has a great interpretation of Christensen’s research, and he summarizes it by saying that disruptive innovations come through changing the basis of competition. To do this, you have to smart small, often with a new customer base, and with ideas that aren’t yet fully formed. This is completely different from how you approach replacement ideas.
- For new ideas, you can use things like the lean start-up methodology: this includes the concept of the minimum viable product. The basic idea here is that you get a working version of your idea out as quickly as possible, so that you can learn what works and what doesn’t. This requires clear thinking about metrics, and a good business model, which you test all the way through.
Think about the difference between coming up with something that is an order-of-magnitude better than what’s currently out there, versus putting out a minimum viable product and experimenting. They are completely different. They require different skills, different mindsets, and different methods for experimenting and testing your assumptions.
That is why you have to be clear about whether you’re creating or replacing.
Vote for the Top Innovation Bloggers of 2011
Posted by Tim in innovation on 25 December 2011
It’s time to vote for the top innovation bloggers of 2011 over at Innovation Excellence. The list of nominees is fantastic – and a great indicator of the growing community of people that are passionate about innovation.
You can vote by leaving a comment on the voting page, or by sending a tweet to @ixchat with your nominee’s name in it. And there are prizes! So vote now.
It’s depressing, but it looks like the guys that actively campaign to get votes this will probably be at the top again this year. However, there are lots of great people on the list that might get overlooked – here are a few recommendations of people that you might want to consider:
Deb Mills-Scofield: Deb is involved in innovation consulting and VC work, among a range of other things, which gives her blog great practical insight. Her recent post Status Quophiles and Quophobes is an excellent place to start.
Helen Walters: Helen has written about innovation and design for a wide range of publications. Her tumblr blog is great example of how to use that format well. Start by checking out the post on the web and serendipity.
Melba Kurman: Melba’s area of expertise is getting knowledge out of universities and into the world – a critical innovation issue. Her recent post on the best US universities for technology transfer gives an idea of what she regularly talks about.
Kay Plantes: Kay specializes in business model innovation, which is an area of increasing importance. Her great post about how Dow Corning disrupted itself is a good example of what she writes about.
Nilofer Merchant: Nilofer is awesome. She writes about a wide range of topics, and every post is incisive and insightful. Start with Are You Standing Out Today to see what I mean.
There are plenty of great choices – go vote now!
Innovation Lessons from Hedy Lamarr
Posted by Tim in connect, innovation, time on 23 December 2011
Every time you use wi-fi, bluetooth, a cordless phone (including mobiles), GPS or anything with an RFID tag, you’re using a technology called spread spectrum radio. The first version of spread spectrum was invented during World War II as a method for controlling torpedos using rapidly changing radio frequency to control their direction in a way that couldn’t be jammed. It was invented by the composer George Antheil and the actor Hedy Lamarr.
That’s Hedy Lamarr:
not Hedley Lamarr:
The story of the invention is told by Richard Rhodes in Hedy’s Folly: The Life and Breakthrough Inventions of Hedy Lamarr, the Most Beautiful Woman in the World, which is well worth the read.
The story includes several important innovation lessons, including:
- Connecting ideas is the fundamental creative act of innovation: Rhodes interviewed Neno Amarena an engineer that discussed Lamarr’s inventive work with her in later years:
“More often than not,” he told me, “the inventive process follows a cascade of ideas and thoughts interconnected from previous concepts that for the most part lie separate, unconnected and unrelated. It takes a clear state of mind, which is usually someone thinking ‘outside the box,’ to suddenly or serendipitously see the connected between the unrelated concepts and put it all together to create something new.” In that regard, the process of invention is no different from the creative process in other fields. Scientific discovery proceeds the same way. So do painting and sculpture. So does creative writing. The results are different, because each process operates on different realities and by different rules.
That’s just a beautiful passage, which captures things perfectly.
- Innovation is a process: coming up with a great idea isn’t enough to innovate. You also have to select which ideas to pursue, you have to make them work, and you have to get them to spread. Lamarr and Antheil did all of the first three things brilliantly, but they fell over on the last bit. They figured out how to make spread spectrum work through frequency hopping, and were granted a patent for that. However, they couldn’t get the US Navy to adopt their idea. The donated the patent to the Navy, where it sat for about 20 years. It wasn’t until the 1980s that people started to realise what Lamarr and Antheil had accomplished. Which leads to the third point -
- Ideas spread slowly: and they can be ahead of their time. We like to think that the value of an idea is self-evident. This often isn’t true, and even when it is, that doesn’t mean that people will adopt it. In addition, you can be ahead of your time technologically. According to Rhodes, that seemed to be the case here:
“Lamarr and Antheil,” Price writes, “seem… to have been more than a score of years ahead of their time, considering that [frequency hopping] evidently was not used operationally against intentional jamming until [1963].”
You have to fight to get your ideas to spread, and this is a crucial part of the innovation process.
There’s also one last point that is easy to overlook: Lamarr and Antheil invented this breakthrough technology in their spare time. She was busy becoming a movie star, and he was writing symphonies while they worked out how to turn frequency hopping into a functional idea. A frequent excuse for not innovating is “I don’t have enough time.” But you do. Find the time, and use it.
Two Reasons Why You Must Change Your Mind
Posted by Tim in evolving economic entities, experiments, time on 22 December 2011
One of the frustrating things about following politics is the idea, apparently deeply engrained, that you must never change your mind. If you do, you’re a flip-flopper, or wishy-washy, and you’re clearly not to be trusted.
The main problem with this line of thinking is that it is utterly and dangerously wrong. We live in a dynamic world, and our brains are dynamic – if you’re not changing your mind all the time, it’s a danger sign.
There are two very good reasons to change your mind: the facts have changed, or you have learned something.
Changing Facts
To those of us that take innovation seriously, Joseph Schumpeter is the patron saint of economists. He was the first person to really articulate the importance of innovation and how central it is to economic growth. Just to give you an idea of how important he is, here is a picture of picking out a new kitten last year, who is now named Schumpeter!
One question that Schumpeter considered in his first groundbreaking book, The Theory of Economic Development, is this: which type of firm is more innovative – small or large?
It’s a question he kept coming back to. Here is how Adrian Wooldridge put it in The Economist (and in another signal of the regard in which Schumpeter is held, his weekly column there is called “Schumpeter”):
Joseph Schumpeter, after whom this column is named, argued both sides of the case. In 1909 he said that small companies were more inventive. In 1942 he reversed himself. Big firms have more incentive to invest in new products, he decided, because they can sell them to more people and reap greater rewards more quickly. In a competitive market, inventions are quickly imitated, so a small inventor’s investment often fails to pay off.
Now, the big or small question is still interesting, but that’s not what I’m concerned with today. Instead, look at how he phrases this – “Schumpeter… argued both sides of the case.” This idea often comes up, and people usually try to say that Schumpeter was being slippery by trying to have things both ways.
But here’s the thing – Schumpeter changed his mind because the facts changed. In 1909, big firms didn’t innovate at all. The largest firms were mostly extractive. Nearly all new ideas came from smaller firms. Corporate R&D was just starting at the time, in Edison’s workshop and in the labs of the chemical companies that were trying to make new dyes for clothes.
A lot changed between then and the 1940s, including the innovation process. By the middle of the century, invention and innovation both were dominated by large corporate R&D. That was the birth of the mass market, an economic environment built by and favouring large firms.
Schumpeter changed his mind because the facts changed.
Learning Something
Here’s a quote attributed to John Maynard Keynes:
When the facts change, I change my mind. What do you do, sir?
One of the implications implicit in that quote is that Keynes was always right. Unfortunately, most of us aren’t as infallible as he was. So we have to learn by being wrong.
This is a crucial innovation skill. We have a hypothesis about how we can make the world a better place – we have a great idea. The only way to turn it into an innovation is to experiment.
Often, our initial assumptions are wrong. By experimenting, we figure out which ideas work, and which don’t – we learn. And by learning, we change our minds.
Dynamics Minds for Dynamic Times
We live in a dynamic world. More importantly, we are learning machines. Both of these facts mean that we should be changing our minds all of the time. Rather than being a sign of weakness, a changed mind is a sign of someone that knows something more than they used to.
We should be learning all the time. Changing your mind is a sign of learning. We shouldn’t avoid it, we should seek it out. As Edward de Bono says:
If you never change your mind, why have one?
Three Ways to Kill a Business Model
Posted by Tim in business models, evolving economic entities on 21 December 2011
How do business models get killed?
It’s an interesting question. I was talking about business models with Jason Potts last week and he said “maybe the definition of a mature industry is one where the business model has stopped evolving.” This suggests that it’s not technological innovation that changes industries, but rather business model innovation. So maybe old business models are murdered by new ones.
Adrian Wooldridge makes an interesting point about this in an article on innovation in universities in The Economist:
Lawrence Lowell, the president of Harvard, argued that “institutions are rarely murdered; they meet their end by suicide…They die because they have outlived their usefulness, or fail to do the work that the world wants done.” America’s universities quickly began “the work that the world wants done” and started a century of American dominance of higher education. They need to repeat the trick if that century is not to end in failure.
So a business model can die by suicide by failing to do the work that the world wants done. Or it can be killed if someone comes up with a better business model (something that universities should be thinking about right now). Often, these two forces work together to kill a business model.
But sometimes, maybe a business model can only be temporary. In response to my post The Property Ladder Theory of Bubbles, my student Mathieu Halley made a great point in the comments. He said:
The question that this raises for me is something of a counterpoint: I wonder what the worth of establishing a fixed term business is?
Is it potentially worthwhile to establish a firm and specifically plan from the beginning for it exist only for the duration of a particular bubble/growth period, instead of implicitly expecting it to exist forever?
I ran across a perfect example of this the other day: websites selling off overstock from luxury brands. There’s a terrific post on by Matthew Carroll on The Business of Fashion called The Rise, Stumble and Future of Gilt Groupe’s Business Model. The whole post is worth reading. Gilt Groupe was formed in 2007, and it was one of the first websites designed to hold flash sales of luxury remainders. According to Carroll, the timing was pretty close to perfect:
The timing of Gilt’s launch couldn’t have been better. In the months that followed, fashion and apparel brands began to feel the impact of a global recession that would ultimately give rise to one of the most challenging macroeconomic environments in the history of modern retailing. Seemingly overnight, wholesale inventories became unmovable as retailers drastically reduced product assortments and orders.
As a consequence, many fashion brands were forced to liquidate excess inventory positions, causing a sudden and significant supply glut for “cut out” goods. Prior to the Great Recession, brands would have sold this excess inventory through off-price channels like Loehmann’s, T.J. Maxx and Century 21. But as the economy sank, these retailers were asking for discounts as high as 90 percent, while merchandising clothes in a haphazard fashion which did nothing to protect the high-end image brands had spent years cultivating.
Gilt has done pretty well for itself. Revenue in 2010 was $425 million, they’ve built a strong customer list, and all of their metrics are going up. Sounds great, right?
However, there are problems. To support that level of revenue, Gilt needs increasing amounts of name-brand goods to sell at a discount. However, in light of their success, there are now many flash sale clothing sites around, and all of them need designer clothes to sell cheap. And there aren’t that many cheap designer goods around.
Here is how Carroll frames the problem:
An anecdotal comparison of the brands and products available on Gilt today versus those available in the company’s first couple of years shows that, over time, quality level has gone down. Back in 2009, it was possible to find prestige brands like Ralph Lauren Purple Label and Porsche Design on Gilt, in stark contrast to the many unknown brands that populate the site today. This meant that each time a subscriber opened an email and the product did not communicate the excitement-to-value ratio that had originally made Gilt so successful, their inclination to open subsequent emails from Gilt, and the brand’s position as a curator of style, suffered.
He has some excellent suggestions about how to improve things for Gilt (and for the flash sale sites in general), and they could well work.
But what if this business model only really had a lifespan of 5 years? The early success was built on unusual market circumstances – you could call it a cheap luxury goods bubble. Sometimes we get exciting new business models out of bubbles that have long-term success. But sometimes the best thing you can do in a bubble is sell off at the right time.
I don’t know what the answer is in this particular case. But I do think it’s worth starting to think about the lifecycle of business models, regardless of your industry.
That’s three ways then that a business model might be killed: murder, suicide, or natural causes. Which is yours most susceptible to?
(The picture of the Gilt Groupe warehouse if from Fantabulously Frugal)
Innovation Obstacle: Most People Don’t Like New Ideas
Posted by Tim in innovation strategy, time on 20 December 2011
You have a new idea and it’s great! And yet, people are slow to adopt it. In fact, sometimes it seems like they hate it – it would actually be an improvement if they were only indifferent.
Why does this happen? It’s a common problem, and it doesn’t really matter what kind of idea it is – the same thing happens with new things, new ideas, new ways of doing things and new ways of organising a business model. This reluctance to adopt new ideas is a major obstacle to innovation.
Seth Godin talks about how strange it is, and how novel historically, for people to buy something for the first time:
If you are trying to grow your coaching practice or b2b saas business or widget shop, understand that you are almost certainly pushing against a significant barrier: most people hesitate before buying something for the first time. If you’re trying to develop trade in the underprivileged world, understand that teaching people to buy anything for the first time is a revolutionary concept.
…
And most of what gets sold to us each day at work or at home are switching products. “Ours is just like the one you already use, but cheaper/better/faster/cooler.”The potent mix of fear of loss, desire for gain and curiousity fuel the appeal of buying for the first time. But it’s magic, it’s not science, and it doesn’t often happen on schedule.
What creates that barrier? Here’s what Simone de Beauvoir said about it (from a post by Justine Musk):
The writer of originality, unless dead, is always shocking, scandalous; novelty disturbs and repels.
Novelty disturbs and repels – no wonder it’s so hard to get our great new ideas across. No wonder ideas spread so slowly.
Another problem is that just the same, but cheaper/better/faster/cooler doesn’t really work either. It takes a lot of work to get people to switch.
So what do we do?
Here’s what Umair Haque says (in a post, and in his new book
The pursuit of more, bigger, faster, cheaper, nastier too often seems to demand putting what, why, and who we love at the end of the list, the underworld of the inbox, the bottom of the heap. That’s a recipe for stagnation, whether for people, communities, cities, countries, or the globe. But the converse might just hold, too: if nations and corporations want to punch past the glass ceiling of mere opulence, to what I call eudaimonic prosperity — lives that are meaningfully well lived — well, then people might just have to begin by making if not radically, then at least marginally more meaningful choices themselves.
People resist new ideas. The only way around this is to give them ideas that really matter.
Here’s some more from Seth Godin on that:
Thirty Great Free eBooks for Innovators
Posted by Tim in book riffs, innovation on 15 December 2011
Two years ago, I wanted to give everyone that reads my blog a present. Here is how I put it:
Whenever I make a new friend, one of the first things I usually do is buy them a book. I’m not exactly sure why – probably because I really value ideas & books, and I want to share them with people that I like. So for all my digital friends here, I thought that since it’s the holidays, I would give you links to a great set of books that are all downloadable for free.
The result was the post Ten Great Free e-Books for Innovators. Then last year I wrote a follow-up called Ten More Great Free e-Books for Innovators.
Since it’s the holiday season again, and since I still give books as gifts to everyone, I figure that it’s time for more free e-books. The 20 on the first two lists are still mostly available. I’m adding another 12 now – 10 plus 2 bonus books just in case some of the old links don’t work. This list is the best one yet!
Have fun and enjoy the holidays! Thanks for all the time and support that you’ve given to me, John and the blog over the past 12 months.
Please note: while these are free copies of the books, they are nearly all also buy-able if you want a physical copy and/or you wish to support the authors.
One must-read book:
The Flinch by Julien Smith: in order to innovate, we have to execute our ideas. The excuses for not doing this are legion, and they are just that – excuses. Julien’s book with Chris Brogan, Trust Agents, was outstanding. This one is better. It’s easy to dismiss as self-help, but it includes a bunch of practical ideas for executing your own ideas. Essential. Get the kindle version for free here (and if you don’t have a kindle reader, download kindle for PC, Mac, iPhone, Android or iPad).
Three Innovation Books:
Exploiting Chaos by Jeremy Gutsche: Gutsche created the TrendHunter website, which is a useful resource for finding out what’s out on the edge these days. The book consists of a ton of short, snappy pieces, organised around several important innovation themes: why we must experiment to innovate, the benefits of an obsession with customers, and why we need to break our current business models to succeed over the long-term. It’s a bit short on how-to, but it contains a lot of great provocation.
Little Innovation Book by James Gardner: Gardner writes a great blog on innovation, and this book is an excellent step-by-step guide to managing innovation as a process.
Making Open Innovation Work by Stefan Lindegaard: Stefan writes one of my favourite innovation blogs, and this book is full of great, practical advice. He’s one of the leading experts on open innovation, and I’m not sure that anyone knows more about how to actually make it work. If you want a physical version, you can order it from amazon here.
From Open Innovation to Open Source, and Back:
Content by Cory Doctorow: Doctorow is mainly known for writing great fiction, but he also co-founded Boing Boing, and this collection of essays on the nature of content is outstanding. He is a great example of how to use “free” as a method for actually turning a profit. He’s tried numerous experiments in this regard, which is the essence of innovation. Question: why is it mainly authors that are doing these experiments, when it is publishers that are under threat? I wish I knew the answer…
Peers, Pirates and Persuasion by John Logie: an interesting discussion of the some of the legal and IP issues raised by sharing. This is a bit different from Doctorow’s work, which discusses free more as a strategy. It’s an interesting frame through which to view these issues.
The Daemon, the Gnu and the Penguin by Peter Salus: Salus provides an interesting history of how “free” has worked in open source software. Open source and open innovation are often confused – they are related but different. This book explains how people have harnessed massive amounts of volunteers to create some great software.
Innovation Happens Elsewhere by Ron Goldman and Richard Gabriel: this book takes us full circle – it discusses why to use open source as a method of development, how to do it, and how to build an open business model.
How-tos and Bonus Books:
Raising Angel and Venture Capital Finance by Tom McCaskill: McCaskill has written a bunch of books designed to help entrepreneurs and start-ups. If you need to finance your great idea, this book provides a very practical guide, and it’s a great place to start.
Why Projects Fail by Uladzislau Schauchenka: if you’re in a big organisation rather than a start-up, innovation often has a significant project-management component. This book outlines how projects go wrong, including case studies, and it also has a number of suggestions for managing projects more effectively.
Engagement from Scratch! by Danny Iny: because I needed at least one book with an exclamation point in the title. Written with a number of contributors (including Alex Osterwalder of Business Model Canvas fame), this book provides useful guidance for building a successful community. This is becoming increasingly important in getting your innovative ideas to spread.
Insubordinate by Seth Godin: like Doctorow, Godin has a long history of giving away some of his ideas, and like The Flinch, this book is concerned with how to actually get motivated to execute your great ideas. It is the companion piece to his excellent book Linchpin – and it contains a bunch of case studies of people that have successfully managed to innovate in situations where innovation is difficult.
So there you go. Books are great, and they can give you a lot of ideas. But remember, ideas themselves aren’t worth anything. You have to execute them to create value. That’s innovation.
Happy holidays!
How to Build Business Metrics – revised
Posted by Tim in complex systems, innovation strategy on 14 December 2011
We’ve written a few posts criticising some of the more common innovation metrics in use, so I thought it would be smart to outline some ways that we can actually develop more effective metrics. Here’s a story that might help:
A while ago I was in charge of managing student recruitment for a tertiary education institution. One of the first things I looked into when I started the job was metrics – how did we measure how well my section was doing? The answer was one number: total number of enrolled students each year. The job that I was given was to increase that number by as much as possible (which begs all kinds of questions about quality, teaching and so on, but let’s set those aside for now…).
The problem was that managing that number as a standalone was hard. Well, impossible, actually. So I looked into what other numbers we had, and I found a that we had measures for total applications received, and total enrolments. I worked with my teams to figure out the path that people took to become students, and we then also figured out a way to measure enquiries. Once we had these numbers, here’s what we did:
We made three metrics: total number of enquiries, the ratio of applications/enquiries, and the ratio of enrolments/applications. Then I made the marketing team responsible for enquiries, the information team responsible for applications/enquiries, and the enrolments team responsible for enrolments/applications.
When my boss told me to increase enrolments as much as possible, he was hoping for a 5% increase. By breaking down the process, developing new metrics, and making people accountable for the measures, we were able to increase enrolments by 12%.
There are several lessons from improving innovation metrics in this:
- Innovation is a process not an event: many things that we often think of as an event are actually processes. Enrolments is a good example – previously my institution only considered the end point, enrolled students. By breaking down the process that we went through to actually get an enrolled student, we were able to improve our ability to get enrolled students.
I think of innovation as a process too – this is the diagram that I use to describe it:
To improve our innovation metrics, we need to first think of it as a process, then build metrics to measure the intermediate steps as well as the outcomes.
- Use multiple metrics: in the enrolments story, we used three metrics that led to the one that we were most interested in (total enrolments). We can do the same for innovation. Once we think of it as a process, then we need to develop metrics for each of the steps that lead to the outcomes that we are looking for from innovation. Innovation is a complex process, and to manage it we need to use multiple metrics.
- Link Your Innovation Metrics to Your Strategy: my tertiary education institution saw increasing enrolments as a central part of its strategy. At the time, the educational sector in New Zealand was fairly turbulent, and there was a strong message from government that it wanted to see the sector consolidated. Increasing enrolments was seen as a way to signal that we were a thriving institution, making it less likely that we’d get absorbed by a larger polytechnic.
We need to do the same thing with innovation – link it to our overall strategy so that it can help drive success. There are a number of broader strategic goals that can be supported by innovation – we just need to be clear about which ones we’re targeting.
- Improve the part of the process that is weakest: when we started tracking the enrolments process, we discovered that we were pretty good at generating enquiries, and very good at converting applications into enrolments. The weak link was converting enquiries into applications.
The information team had been given some sales training before I arrived, which they strongly resisted. They saw their role as helping people, not selling them. We implemented a lot of ideas, but the one that had the greatest impact was getting them to ask at the end of each enquiry that they handled “if you’re interested in the course, would you like to put in an application?”
When they started doing that, the applications/enquiries ratio shot up from about 12% to 18% in a couple of weeks. And we weren’t forcing people to apply for courses they didn’t really want to take – the enrolments/application ratio held steady. If the quality of applications had decreased, this metric would have gone down. It turned out that a lot of people really did want to start studying, but they just needed a small nudge to get started.
In looking at our innovation processes, we need to do the same thing: find the weak link, and figure out how to best improve it. As we’ve said many times before, usually the problem in organisations is not that they don’t have enough ideas, but rather that they need to get better at selecting ideas, or at getting them to spread. In any case, once we have identified the part of the process that is most in need of improvement, then we can figure out to best go about making it better.
Getting innovation metrics right is a challenging task. There is no single number that will tell us everything we need to know to manage innovation. I hope these ideas help you figure out how to measure it better in your organisation.
Note: There was also a good series on innovation metrics by Boris Plukowski on Innovation Excellence a while back: Part 1, Part 2 & Part 3.
Use Your Value Proposition to Avoid Fatal Business Models
Posted by Tim in business models on 13 December 2011
What do you think of when you think of Swiss Watches?
You probably think of high-end brands, that have been making well-crafted watches for many years. Brands like Rolex, or Patek Philippe, or George Clooney and his Omega:
Or maybe you think of innovations, like the perpetual calendar, or 24 hour timezone watch, or the tourbillon from Breguet:
For centuries, watchmakers in Switzerland made hand-crafted watches. And the competed on craft – inventing things like tourbillons to improve the accuracy of their watches.
Then quartz watches showed up. And for a fraction of the price, suddenly you could get a watch that was 10 times more accurate than the best, most expensive Swiss watch.
That innovation blew the business model of most of the high-end watch firms out of the water. Many of the top brands actually stopped making mechanical watches completely – Hamilton, which had dominated US manufacturing disappeared. So did Baume et Mercier in Switzerland. Rolex and Omega hung on, but they did it by changing their value proposition from “we make the most accurate watches” to “our brand tells people something about you when you wear our watch.”
The Swiss brands that survived continued to innovate, but only at the high end. Until Swatch came along with a business model innovation. Building on the idea that watches had really become fashion accessories, Swatches value proposition was “we sell fashionable watches that are so cheap, you can have a bunch of different ones for every occasion.”
Swatch was quite successful with this new value proposition, and this led a resurgence in the Swiss watch industry. By 1984, employment in the Swiss watch industry had fallen from a peak of around 100,000 people down to about 33,000. In the years since, it has climbed back up to nearly 50,000.
It’s likely that when you think of Swatch, you still think of flashy looking plastic watches like the ones in the picture. But as they’ve become more successful, they’ve led an astonishing concentration in the industry. They bought up many of the brands that had gone out of business, like Hamilton, Longines, Breguet the inventor of the tourbillon and even Omega. And they started manufacturing mechanical movements in bulk, selling them to smaller watchmakers – often very high-end ones.
Swatch now owns several movement manufacturers – ETA, Frederic Piguet, Lemania, and Nouvelle Lemania. Which means that nearly every major watchmaker in the world now uses movements manufactured by a Swatch company. Some exceptions include Rolex, Zenith, Seiko, Lange and, ummmm, not many others.
One consequence of this is that you can buy high-end mechanical watches that cost from $500 to over $10,000 using the movement in the picture, the ETA2824.
So what’s the value proposition for these brands?
That question just became a whole lot more important, because it turns out that Swatch may now need all of their movements for their own brands. There is a fascinating story about this in the NYTimes.
Swatch is being sued for taking advantage of monopoly power. But this is really a story about building suicidal business models. If you’re making a watch that sells for $10,000 why would you try to cut the price of the movement in half by buying it from Swatch? That’s the choice that was made by all of the watchmakers that are now upset about this latest move.
There is enormous risk involved in outsourcing a key part of the value chain – this is one of the things that you must consider when building a business model.
Olivier Müller, an independent watch consultant who also runs Laurent Ferrier, a boutique watch firm, said he expected Swatch’s arguments to prevail.
“This whole battle is the result of people completely underestimating the risk that at some stage Swatch could cut off rivals, which is a legitimate decision to make in a free market,” said Mr. Müller, who was a Swatch executive until 2001.
Swatch, he added, established “a quasi-monopoly not because of any ambition to control the market,” but because “everybody else was perfectly happy to spend everything on marketing rather than building up their own production.”
One company that realised this was a bad choice is Hublot:
Thanks to Swatch, “there is no other industry with such cheap entry costs,” said Jean-Claude Biver, who spent 12 years on Swatch’s executive committee before becoming chairman of Hublot, which is now part of LVMH Moët Hennessy Louis Vuitton, the world’s largest luxury goods company and one of Swatch’s main rivals.
Hublot has been using Swatch components, but since 2007 it has invested 40 million francs to develop its own manufacturing capacity. It is on track to ensure that 75 percent of its revenue will come from watches made entirely in-house within three years, compared with 37 percent now.
The real problem here though is in the value proposition. If you have built a watch brand based on making watches with parts that are identical to those of 90% of your competitors, what sets you apart? What unique value are you delivering to customers?
There may be a bit of schaudenfreude in seeing this happen to big luxury brands. But those two questions are essential for every organisation to answer. If you can’t answer them, your business model is suicidally fatal.
What sets you apart? What unique value are you delivering to customers?
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Tim was named #5 in the Top 40 Innovation Bloggers in 2011 at Innovation Excellence.
Tim and John were both named in the Top 40 Innovation Bloggers in 2010 at Innovation Excellence.
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