Archive for category time
Is Innovation Good or Bad? Yes!
Posted by Tim in innovation strategy, time on 3 September 2010
An article by Pat Lencioni in Business Week called Why Companies Need Less Innovation has generated a bit of controversy, at least in the part of the internet that I live in. His basic premise is that it is a mistake to try to make an entire company innovative – instead, it is better to just let a few people in upper management innovate, while everyone else focuses on just doing their job. Here is his argument in a nutshell:
What should leaders do? Be more open to new ideas from employees? Probably not. Better yet, they should stop overhyping innovation to the masses and come to the realization that only a limited number of people in any company really needs to be innovative.
As heretical as that may seem to those who want to believe that “innovation is everyone’s business,” consider that even the most innovative and creative organizations need far more people to be dutiful, enthusiastic, and consistent in their work than innovative or creative.
Think about a movie set. For every writer or director or actor on the payroll, there are hordes of people who have to be technically proficient, consistent, patient, and disciplined in their responsibilities. If they innovate, the project turns to chaos.
I think this argument is wrong. Just watch the incredibly extensive ‘making of’ features on the Lord of the Rings dvds to see how wrong his movie-making example is. However, Lencioni’s main argument has already been effectively answered by Steve Denning (New defense of traditional management: firms need less innovation!), Ralph Ohr (Do Companies Need Less Innovation?), James Todhunter (Why Companies Need Pervasive Innovation) and Steve Denning again (More or Less Innovation? Duh!). All these are well worth reading, and I think that the title of the second Denning piece pretty well sums up my thoughts on the debate.
But there’s one point that I’d like to add – even though I spend all of my work time researching and talking about innovation, and trying to help organisations become more innovative, I don’t think that innovation is always good. Innovation is value-neutral.
What do I mean by that?
A parallel debate is going on over the impact of the internet. Some see it as an engine of pervasive positive change, while others argue that its impact is overwhelmingly negative. The arguments between technology optimists and pessimists are nicely summarised by L. Gordon Crovitz in his article Is Technology Good or Bad? Yes. The point that he makes is that technology is value-neutral – it is only our uses of it that are good or bad:
Among the schisms between these groups: that the Web promotes personalization that can become fragmentation; creates information abundance that can become information overload; allows for the creativity of amateurs while undermining the business models of professionals; and enables the wisdom of crowds that can result in the stupidity of the lowest common denominator.
This is an important point. Technology has both positive and negative impacts – and so does innovation. Innovation leads to all of the medical advances that have extended our life expectancies from 60 years in the late 19th century to 80 years now. Innovation has also led to the creation of the novel management structures that make it easier for terrorist organizations to operate.
I’m an innovation optimist. The research data overwhelmingly demonstrates that organisations that are more innovative are more profitable, and better places to work. Most of the time, the organisations that are more innovative do in fact have systems in place that help everyone innovate, not just a handful of people at the top.
However, if we are managing an innovative organisation, the question that we must consider is what goals do our innovations support? In order for innovation to be good, we need to be doing things that are worth doing.
By definition, innovations change the world. It’s up to us to make sure that our innovations change the world for the better.
Innovation for Now and for the Future
Posted by Tim in innovation strategy, time on 17 August 2010
One of the important ideas that follows from managing innovation as a process is that to be successful at it, you need to manage a portfolio of different innovation initiatives. This means that you need to have a mix of incremental and radical innovation ideas. One good way of building an innovation portfolio is to use the three horizons model.
The three horizons model was first published in The Alchemy of Growth by Merhdad Baghai, Stephen Coley, and David White in 1999. The fundamental idea behind the model is that we need to be thinking about innovation across three time frames. Sheldon Laube recently wrote a good post on this model as well, which included a nice visualisation of it, which apparently comes from Innovation Tournaments by Christian Terwiesch and Karl Ulrichwhich. I have adapted it slightly here:
When you innovate using the three horizons framework, the first horizon involves implementing innovations that improve your current operations, horizon two innovations are those that extend your current competencies into new, related markets, and horizon three innovations are the ones that will change the nature of your industry. In general, H1 innovations tend to be incremental, while H3 are more often radical innovations. There are several key ideas that arise when using the three horizons model.
- Innovation must be linked to strategy: tools like the 3 Horizons framework are good ways to connect innovation with strategy. As you develop strategy, it will provide some guidance about where you want to end up in the future – you can then orient your H2 & H3 efforts in alignment with these future goals.
- Think of innovation efforts as a portfolio: we need to have innovation taking place across all three time horizons. Thinking about this directly helps us ensure that we have a balanced portfolio. We need to be innovating enough in H1 to make sure that we stay competitive. H2 is the area where we use existing competencies to drive growth. To protect ourselves against disruptive innovations, we also need to be placing some small bets (or taking real options) on where our industry might go in the future – this is the H3 domain.
- A balanced portfolio does not mean 1/3 or our resources in each area: Google uses a 70/20/10 split – most of their innovation resources are put into improving what they are currently doing – H1 initiatives. They have relatively less invested in the longer-term ideas. In most cases, these seem like reasonable investment proportions. If your environment is particularly turbulent, you can increase the investments into H2 and H3 innovation – it all depends on the situation you face.
The tricky part in all of this is management. It takes different skills to innovate in H1, where most of the ideas are incremental, than it does to innovate in H3, where many of the ideas are more radical. Nevertheless, organisations that are successful over time figure out how to do this well.
Thinking of innovation as a portfolio is one good way to manage the process more effectively.
Nothing Lasts Forever
Posted by Tim in evolving economic entities, innovation, time on 21 June 2010
Nancy and I spend the day yesterday looking at what’s left of Hadrian’s Wall. It was a fascinating day. Around 200 A.D. the wall went for about 75 miles across the UK, with forts all the way along. This is what the fort at Birdoswald looks like now:
Seeing this makes me understand why it would be someone from the UK that could write Ozymandias:
Ozymandias
By Percy Bysshe Shelley
I met a traveller from an antique land
Who said: “Two vast and trunkless legs of stone
Stand in the desert. Near them on the sand,
Half sunk, a shattered visage lies, whose frown
And wrinkled lip and sneer of cold command
Tell that its sculptor well those passions read
Which yet survive, stamped on these lifeless things,
The hand that mocked them and the heart that fed.
And on the pedestal these words appear:
`My name is Ozymandias, King of Kings:
Look on my works, ye mighty, and despair!’
Nothing beside remains. Round the decay
Of that colossal wreck, boundless and bare,
The lone and level sands stretch far away”.
I think it’s important for people interested in innovation to think about the ruins of empires. Why? Because nothing lasts forever – especially in business. This means that our innovations have use-by dates – but it’s hard to know in advance how long they’ll last.
There are two ways to respond to this. One is to figure that since nothing lasts, you better get as much as you can now. Let’s call this the BP approach.
I think this is wrong. The better response to the limited life of our innovations is to try to make them as good as possible – to aim for developing ideas that will last as long as possible. Going for the quick hit is the easy way out – and, importantly, the odds of things going wrong while you’re still around are high.
As business lifecycles get shorter, we need to make sure that our ideas are built to last. We can do this by doing our best to ensure that we are meeting genuine needs, in ways that are sustainable. Not every idea will work for hundreds of years, like the plant press for botanists – and this is why we need to take people like Umair Haque seriously. The correct response to the limited life of our innovations is to aim for betterness:
Institutions are emergent: born from the bottom up, they suddenly catch fire, and then transform the fabric of economies. It’s through small changes massively distributed, like those above, that 21st century institutions are most likely to spark and ignite a great reboot. Call it a new American Dream. Its details aren’t visible yet, but it’s outline looms large. It’s about a more meaningful prosperity, that matters in human terms, and it is institutions to support and nurture meaningful work, play, and living, that the 21st century demands.
Eventually, all our great stuff will look like Hadrian’s wall. We need to make sure that between now and then, we’re coming up with creative ideas that make things better – that’s the way to win with innovation these days. And that’s the way to respond to the realisation that nothing lasts forever.
(photo of Birdoswald from flickr/The Amatura Press under a Creative Commons License)
Why is the Retirement Age 65?
Posted by Tim in innovation, time on 7 June 2010
Here’s an interesting question:
Why is the Retirement Age 65 in most developed countries?
I’ll give you a second to think about it. Or google it.
Here’s a hint: the retirement age of 65 was first selected in 1880.
Here’s the answer: the retirement age was set at 65 because when it was first introduced by Otto von Bismarck, hardly anyone lived that long. Here’s a quick rundown on that:
The age of 65 was originally selected as the time for retirement by the “Iron Chancellor,” Otto von Bismark of Germany, when he introduced a social security system to appeal to the German working class and combat the power of the Socialist Party in Germany during the late 1800s. Somewhat cynically, Bismark knew that the program would cost little because the average German worker never reached 65, and many of those who did lived only a few years beyond that age. When the United States finally passed a social security law in 1935 (more than 55 years after the conservative German chancellor introduced it in Germany), the average life expectancy in America was only 61.7 years.
I’ve asked this question in classes recently, and most people choose an answer that is something like ‘because by the time we reach 65 years, we’re ready for a break.’ But the fact that most of us can now think about being retired for 15 years or so is completely an accident. The original idea is that we retired at 65 because no one was supposed to live past that age.
What changed?
Innovation, and lots of it.
There has been technological innovation, like x-rays and PET scans.
There has been a range of medical inventions that have been turned into product innovations, like penicillin, chemotherapy and vaccinations.
There have been process innovations – possibly the biggest medical invention since Bismarck’s time has been germ theory, which has led to radical process innovations like hand washing and sterilization.
There have been service innovations, like the provision of universal health care in, well, most developed and developing countries.
Basically, all of the medical services, procedures, medicines and routines that keep us alive longer have been invented since the retirement age was set at 65 years of age.
The simple fact of the matter is that the only reason we can expect to have a retirement is innovation. Remember that the next time someone tells you that innovation is just a buzzword that doesn’t mean anything.
Is All Innovation Good?
Posted by Tim in innovation, time on 11 May 2010
A simple question: Is All Innovation Good?
The simple answer to this is: No.
Which poses a bit of a problem – we know that innovation is an essential part of long-term success – as Andrew Howlett says, “The ROI on innovation is survival.” And yet, because innovations create change, and the outcome of change is always uncertain, there are innovations that destroy value rather than create it. How can we know what to do?
I thought of this question today while reading an article in UK Wired about High Frequency Trading (HFT). Here is the description of HFT:
The goal: to analyse historical financial data and spot and exploit fleeting opportunities in the market. “With algorithms and fast computing, even small firms can now buy and sell as fast as the biggest ones,” Afshar says. “Technology lets you compete with firms having billions of dollars.”
When Afshar says fast, he means very fast. What have become known as high-frequency trading (HFT) systems can execute transactions in milliseconds without human intervention — basing their decisions on information they have received electronically. Joined by high-speed data links to the trading exchange, they draw on huge databases of historical data to test algorithms offline and then quickly use that knowledge to spot market opportunities and likely profitable trades.
The algorithms identify very small variations between the expected value of a stock and the actual one, and places very quick buy or sell orders to take advantage of the discrepancy. In other words, no actual value is being created by these transactions – just a transfer of wealth to the firms doing the HFT. They argue that they provide liquidity to the market, but the actual evidence of this is pretty skimpy, and there’s also evidence that this practice amplifies swings in the stock market as a whole, particularly crashes.
HFT is clearly an innovation – the amount of creative work and intellectual effort that goes into creating the algorithms is enormous. But if, over the long run, HFT destroys value rather than creates it, should we do it?
This is a good illustration of why it is important to think of innovation as a process. Think of innovation taking place over three steps – generating great ideas, selecting and executing the best ones, getting your executed ideas to spread. Idea selection is the point where we can apply some screens to try to ensure that we execute positive innovations as much as possible.
The first screen is to make sure that our new ideas support our strategy. But if our strategy is built around some variation of “maximise shareholder value”, that might not help. Our strategy needs to be built around something worth doing. As Russell Ackoff said, we have to be doing the right things:
Most large social systems are pursuing objectives other than the ones they proclaim, and the ones they pursue are wrong. They try to do the wrong thing righter, and this makes what they do wronger. It is much better to do the right thing wrong than the wrong thing right, because when errors are corrected, it makes doing the wrong thing wronger but the right thing righter.
Here’s one way of thinking of this – what is your Purpose-Idea? This is a concept developed by Mark Earls – he explains it in this interview with Hugh MacLeod:
Put really simply, the Purpose-Idea is the “What For?” of a business, or any kind of community. What exists to change (or protect) in the world, why employees get out of bed in the morning, what difference the business seeks to make on behalf of customers and employees and everyone else? BTW this is not “mission, vision, values” territory – it’s about real drives, passions and beliefs. The stuff that men in suits tend to get embarrassed about because it’s personal. But it’s the stuff that makes the difference between success and failure, because this kind of stuff brings folk together in all aspects of human life.
Here’s another angle – from Umair Haque’s From Business Models to “Betterness” Models:
…betterness asks how you’re making better stuff, creating better jobs, or better value — value that makes people and society, not just shareholders, better off.
Betterness models are deceptively tough to create, because most companies have only ever conceived of themselves as being in business.
Betterness, in contrast, means: 21st century companies exist to make people, communities, and society as better off as possible. They’re not just here to make money, but to make meaningful money.
So we need a strategy based on creating genuine value for people – and we use this as a filter for deciding which ideas to pursue. To do this, we need to understand what people need – we need to use empathy-driven innovation. If we do this well, that is one way to reduce bad innovation. We need to be doing the right things.
(image from The Brokers With Hands on Their Faces Blog)
When Planting a Garden is a Radical Innovation
Posted by Tim in book riffs, innovation, time on 10 May 2010
Nothing could be less innovative than planting a garden at your house, right? Maybe – but maybe not. Take a look at this:
It’s a Green Roof that’s been planted as part of an initiative put together by Sustainable South Bronx. This is initiative started by Majora Carter. The gardens do three main things. They provide food for residents, with a surplus that can be sold to stores and restaurants. The insulate the roofs of the building, which reduces temperatures in the summer and increases them in the winter, saving on climate control expenses. And the extra plants scrub toxins from the air, creating a healthier environment.
Here is how Douglas Rushkoff describes the work of SSBs in his book Life, Inc.:
Through her group, Sustainable South Bronx, she created opportunities for people to grow vegetables at home, to get paid to do environmental cleanup, and to work through local government to stop New York from using the neighborhood as a dumping site for 25% of the city’s waste. Her main innovation was to develop a new method of rooftop gardening that provides high yields of organic vegetables for urban dwellers and local restaurants.
…
Efforts like this scale up in two ways. First, they are shared with or copied by other groups in other communities around the world. Rooftop gardens can work in any city to lower energy bills and clean the air while providing food and jobs. Sharing the wealth is not a matter of Sustainable South Bronx franchising patented techniques to other cities – there’s enough work for them to do in the South Bronx, and they don’t need to extract value from other cities in order to achieve sustainability for themselves. By modeling what they do for others, they develop a network through which they too can learn new techniques.More significantly, the impacts of their highly local efforts trickle up in profound ways. Less pollution means fewer children with asthma, lower medical and insurance costs, and more time in school.
That’s a lot of good outcomes just from planting gardens. Here are some of the key ideas that are illustrated by the Green Roof program:
- If you can innovate gardening, you can innovate anything. This is another example of major business model innovation. The initiatives that SSBx undertakes, and the work that they train people to do is nothing new. The new part is the infrastructure that they have built around these basic activities. In doing so, they are creating genuine value.
- This is a great example of what Umair Haque referred to last week as a ‘betterness model’. After describing some major problems with IKEA that he encountered, Haque said:
IKEA’s problem is that it has a business model — but no betterness model. By that I mean, not a model to merely make, market, and sell more meaningless, mass-produced junk, but a model for creating authentic economic value that accrues meaningfully to society.
Sustainable South Bronx is certainly doing this. Their initiatives create significant local value, making the neighborhood a stronger community, and a better, healthier place to live. That’s quite an accomplishment – and one worth aiming for.
- SSBx is creating value by connecting. They connect ideas to create new business models and new ways of doing things. Then they connect these ideas to people when they train them – the ideas get transferred as skills. And by creating a network of similar organisations in other cities, they create value for themselves and others through sharing ideas. This is an example of building a network by connecting others, rather than trying to create scarcity by occupying the most valuable network position themselves. Innovation creates value through creating connections.
Innovation isn’t simply coming up with shiny new things. Developing new ways of doing things is a powerful form of innovation. In doing this, we need to consider the broader implications of our business model, which is what makes Haque’s Betterness Model so compelling to me. When you start thinking this way, you can figure out how to innovate something as simple as a garden.
If you’re interested in learning more, here are two interesting talks. The first is Majora Carter’s TED talk, where she discusses her background, and how she came to be involved in sustainable development:
The second is Douglas Rushkoff’s talk at SxSW this year, where he summarises some of the key themes from his book:
Electric Cars & Business Model Innovation: Better Place
Posted by Tim in business models, evolving economic entities, time on 2 May 2010
When was the first car fully powered by electricity built?
Depends on how you define it. There was a prototype built in 1835. One built in Belgium set the land speed records in 1899 (68 mph!). And a few were on sale from at least 1895 on.
In all that time, they’ve had one fundamental problem – battery life. They’ve all had restricted range. As a consequence of this, most of the recent electric cars have been small, with poor performance – making these trade-offs extends the range of the vehicle. It’s always been possible to make electric cars that perform as well as or better than petrol powered vehicles. Just look at the Belgian land speed record – or the cars from Tesla Motors today.
So electric cars have been around for a long time. Why haven’t they take off? There are a variety of reasons, but one critical one is that for the most part, they have primarily been conceived and sold using the same business model used for petrol-powered cars. Consequently, they are judged against the performance of petrol-powered cars, and in this regard they consistently come up short.
What’s the solution?
Business model innovation, of course! Watch this talk by Shai Agassi from last year’s TED Conference, and think about the business model that his company Better Place is trying to implement:
We discussed this video in class this week – when I asked how this business model stacked up against the traditional one for cars, one woman enthusiastically said “Everything is different!” She’s right. That is why Better Place is becoming a popular example among people interested in business model innovation. Mark Johnson talks about them in Seizing the White Space, Anders Sundelin has written several excellent posts on Better Place on the Business Model Database Blog, and it’s been discussed on Knowledge @ Wharton Innovation and Entrepreneurship page.
Because Better Place has already been pretty widely discussed, I want to focus on just two parts of their business model innovation: revenue generation, and their value network.
The Better Place vehicles are being sold on the mobile phone model – the hardware is pretty cheap, because it is subsidised by a usage fee. You get the car for very little, but you pay Better Place a mileage fee. This is important for several reasons. One is that dramatically changes the economics of buying a car. In Denmark, you will be able to buy a BP car for about 1/3 the cost of a petrol-powered car of similar specs, and running costs will be about the same. This introduces a new buying decision for people. It’s no longer “I’d like to be green so I’ll accept a bunch of severely limiting performance trade-offs to do so.” This payment structure actually makes BP cars attractive whether you want to be green or not.
The changes in the value network are driven by these changes in the revenue generation mechanism as well. Better Place is not manufacturing cars – they are assembling an electric vehicle ecosystem. Here is the description from the Wharton piece:
Just like telecoms operators established a wireless network to enable mobile phone communication, Better Place established a network, but in its case to enable mobile transportation with electric vehicle charging spots and battery exchange stations powered by renewable energy. It is creating an ecosystem of companies, which will produce electric cars with batteries that can be exchanged or recharged at the stations, manufacture batteries, set up electric-car dealerships and more. Just like telecoms customers paying for minutes used on a wireless network, its customers pay for miles driven. The vehicles become the means of generating revenue for Better Place.
“The company thought about a novel way to [change] the automotive industry in a way that alleviates a reliance on fossil fuels. It’s good for the environment, good for national security, good for consumers,” Amit notes. Better Place “may even give customers a car for a nominal fee because it makes money from renting a battery, just like the cell operator gives you a free phone to use on their network.” The Better Place business model, he says, has turned much of what the auto sector does on its head. “Right now, when a dealer sells you a car, he doesn’t make money when you drive it. The Better Place revenue model is based on car usage. This is a different business model.”
By approaching their business model this way, Better Place accomplishes two important things. One is that they establish an ongoing relationship with the car buyers. For as long as you are driving one of their cars, you’re connected to the firm. The second accomplishment is that this extended recharging and battery-swapping network gets around the range problem that has been the critical issue for electric cars for well over 100 years. By taking that out of the equation, they eliminate the primary reason for not driving an electric car.
Finally, this business model positions Better Place to take advantage of what will be substantial falling costs of producing electricity for their cars. As Agassi notes in the talk, the cost of producing and storing power will drop in half about every five years. This is staggering – it means that these savings can either be passed on to consumers, or held as extra profit. Either way is good Better Place.
As my student pointed out, all aspects of the Better Place business model are different – not just these two things. This is a great case study of business model innovation. It shows how new business model can reinvent an industry. It’s pretty easy to see how the auto industry will change enormously if this approach works. It also demonstrates how all of the elements of a business model need to be integrated. I didn’t talk about all of them, but you can see in the talk how the market being served, the problem being addressed, and the firm’s place in the value chain are all different too – and that everything fits together.
Business model innovation is a powerful, yet often overlooked form of innovation. Innovating your business model not might have results as radical as Better Place’s, but it is an option that is open to all organisations. And it’s one to which you should give some thought.
Outsource Remembering to be More Innovative
Posted by Tim in book riffs, innovation, time on 13 April 2010
What do you think of this?
[It] is a device in which an individual stores all his books, records, and communications, and which is mechanized so that it may be consulted with exceeding speed and flexibility. It is an enlarged intimate supplement to… memory.
…
[It has] slanting translucent screens, on which material can be projected for convenient reading.
…
Most of the … contents are purchased… Books of all sorts, pictures, current periodicals, newspapers are thus obtained and dropped into place. Business correspondence takes the same path. And there is a provision for direct entry. On top… is a transparent platen. On this are placed longhand notes, photographs, memoranda, all sorts of things. When one is in place, the depression of a [button] causes it to be photographed.
The author then goes on to describe how the built-in camera will work.
Sounds pretty cool, doesn’t it? When they go on sale, I may well buy one. So what is it?
It is the Memex (MEMory EXtendor) – described by Vannevar Bush in his article his essay in The Atlantic As We May Think, published in 1945 (and you should definitely read it). Bush was primarily concerned with how to cope with what he saw as an overwhelming amount of information available to people, especially researchers.
There is a growing mountain of research. We are being bogged down today as specialization extends. The investigator is staggered by the findings and conclusions of thousands of other workers – conclusions which he cannot find time to grasp, much less to remember.
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The difficult seems to be not so much that we publish unduly… but rather that publication has been extended far beyond our present ability to make real use of the record… [It] must be continuously extended, it must be stored, and above all it must be consulted.
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Creative thought and essentially repetitive thought are very different things. For the latter there are… powerful mechanical aids.
The quotes from the Bush article are from the book Total Recall: How the E-Memory Revolution will Change Everything by Gordon Bell and Jim Gemmell. The book is about using technology to extend memory, much as Bush was. The description of the Memex made me think of what people are currently saying about the iPad (though I’m obviously not the first one to have this thought). Although, it sounds like it would be a lot easier to get data into a Memex, so the iPad is maybe only half-way there. That’s one of the reasons that I’m not so excited about it. I don’t need a portable library. Well, ok, I do, but that’s not the most important thing that I need. More importantly, I need a portable digital memory – and that requires data input.
The larger point is one that I’ve made before: information overload has been around for a long time. Bush’s worries sound pretty familiar to us right now – there’s too much stuff to keep track of.
And the problem started even before World War II – junk mail was invented in the 19th century. Check this out from the NYT:
But a decade or so later, when Britain and the United States introduced cheap, flat postal rates, without regard to the number of sheets or distance traveled, correspondents enjoyed something like our unmetered broadband today. Communication became more frequent, and ties were strengthened among families and friends. But cheap rates also led to junk mail and postal scams.
In Victorian London, though service wasn’t 24/7, it was close to 12/6. Home delivery routes would go by every house 12 times a day — yes, 12. In 1889, for example, the first delivery began about 7:30 a.m. and the last one at about 7:30 p.m. In major cities like Birmingham by the end of the century, home routes were run six times a day.
That’s why I think that As We May Think is so prescient – the idea that we should outsource remembering things that are easily written down so that our brain can concentrate on creating novel ideas is exactly right. Creative thinking is how we make new connections between ideas – and this is the source of innovation, and the source of value. Anything that frees up cycles in our heads for this is valuable. That’s why I’d buy a Memex. I’m looking forward to someone actually building one.
Managing an Innovation Portfolio
Posted by Tim in innovation strategy, time on 10 April 2010
Yesterday I talked about how inertia is the biggest obstacle to innovation. One way to get around this problem is to explicitly incorporate innovation into your strategy. One key aspect to doing this is to manage innovation as a portfolio.
To do this, you need to invest in innovation across multiple time horizons. We tend to use the Three Horizons model to frame this type of thinking. Horizon 1 concentrates on innovations that improve your performance in current markets, Horizon 2 innovation looks for ways to extend current skills and products into related fields, and Horizon 3 innovations are those which will make your industry obsolete. A recent post from Insead explains how Google manages investment across these three time periods:
Girouard concedes that not every idea may bear fruit, but says there is internally a “formula” to assess new ideas. “We have a 70/20/10 model which Sergey Brin came up with several years ago, which is 70 per cent of our efforts are to be focused on our core business, 20 per cent should be focused on related but new areas that we’re developing off of that, and 10 per cent we should reserve for ‘crazy’ ideas, some of which may turn into great advancements and many of which may not pan out at all,” he adds.
I ran across another example of managing an innovation portfolio today on the blog for the Palo Alto Research Center (PARC). In case you’ve not run across PARC before, that is the research lab that Xerox formed in the 1970s, and they invented, well, everything. The mouse, the graphical user interface, ethernet connections and networking, portable document format and many other things. Many of those innovations were not successfully commercialised by Xerox, but PARC persisted. They were set up as an independent subsidiary of the firm about 10 years ago, and now they do research that is sometimes commercialised by Xerox, and sometimes they seek other partners to bring new technology to market.
Here is the diagram that shows how they think about their innovation portfolio:
And here’s how they describe the process in another post:
PARC manages its research investments from a portfolio perspective. We have deep scientific understanding that supports all our fields of research. And we make little research bets to test if big bets are warranted. We try to test assumptions quickly to learn fast and optimize our market timing. But it’s not a question of balancing basic vs. applied research here — we ascribe to Pasteur’s Quadrant of “use-inspired” basic/exploratory research. Value is created from what you can do with what you know.
That idea of making small bets is a perfect example of taking an options approach to innovation. You invest small amounts to find out if it is worthwhile to invest more.
Managing innovation is hard. Stimulating change and overcoming inertia are major challenges, in any kind of organisation. One way to get better at doing this is to make sure that your innovation objectives and your strategy are integrated. To do this, you need to think about innovation across different time scales, like they do at Google and PARC. Managing innovation as a portfolio is one of the best ideas you can implement. I try to avoid making one-size-fits-all type recommendations, but this is an idea that will work for nearly everyone. The one possible exception is if you are in an incredibly turbulent market.
With that caveat in mind, my recommendation today is to start thinking about your innovation program across multiple time scales. Use a portfolio approach to integrate innovation with your strategy.
Putting in the Hours
Posted by Tim in filter, innovation, time on 26 March 2010
When I was in university I spent a whole lot of time at the campus radion station. I started out as a trainee DJ in the first semester. I was in the practice studio constantly, spinning records, making segues from one cut to the next, talking on the microphone and taping it so I could try to get better. And I hung out with the experiences DJs while they were on the air – watching how they did things and learning everything I could through osmosis (and asking a lot of questions). Whenever the trainees were asked to volunteer for something, I was there – cleaning up the station, and doing all kinds of little crummy jobs that no one else wanted to do.
At the end of my semester as a trainee, all that work was rewarded in two ways. I was given my own show for second semester (Mondays from 12-3 pm!), and I was given the position of Assistant Music Director. AMD was a lousy job, but it had some good parts to it as well. Every day I had to walk over to the post office to pick up the mail (which mostly consisted of vinyl records – so hauling them back to the station was a pain), and I did any other crummy jobs that we couldn’t find eager trainees to do. I also reviewed 5-10 new records a week. The Program Director and the Music Director had first pick of the really good records to review, so I had to sort through all the stuff that no one had heard of before. There were a few gems in there, but there was an unbelievable amount of crap too. That’s when I first started thinking about the importance of filtering.
I kept working hard (and having a lot of fun), and over time I did a lot of stuff at the station. I was a DJ all the way through, and a few people seemed to enjoy my shows. After my time as AMD, I was Program Director and then Station Manager. After a few years, I really felt like I had accomplished a fair bit at the station.
Then I took a break of a couple of years from university. I worked during that time and saved up money to pay for the last bit when I went back. While I was doing this, I went to see about maybe getting involved with the college radio station in my home town. I hung around a bit, asked about how to get a show. The answer was pretty much the same as it was the first time around – volunteer to do a bunch of the crummy work that no one else wants to do, do that for a while, and then I’d eventually earn my shot to get on the air.
I started doing that – going in once a week to add up stats on how many times the new releases got played. And I hated every minute of it. I just didn’t have the stomach for working my way up the pecking order all over again. I was 20 years old, and thought that I’d earned some respect. Back then, in a lot of ways, I was pretty stupid.
I was reminded of all of this recently because there have been a couple of situations recently where I’ve had to earn respect – where I’ve figuratively had to go back to doing the crummy work that no one else wants to prove that I’m worthy. Since my time in radio, I’ve learned how to do that a little bit better. Social networks have been a useful part of that learning process. Every time I enter a new one, I’ve realised that I’m starting at 0, and have to work my up. It took nine months of writing this blog before it really started to click with people. There were plenty of chances to give it up in that time. But we kept writing, and kept telling one person at a time about the blog. We put in the hours and the blog has grown.
It’s a useful lesson to have learned.
So what does this have to do with innovation? Plenty. The main lesson here is that I think it’s important to never assume that we have already earned respect or someone’s business simply because we’ve already had some success with others. Every time we ask someone to adopt our idea, whether it’s a proposal for a new product, a new service, or a new way of doing things, we are starting at 0.
We can’t assume that they already know how great our idea is, or that the value in it is self-evident. This is a particularly important lesson if we are trying to cross domains. If you are a lab scientist trying to commercialise your great discovery, out in business your reputation starts at 0, no matter how much reknown you’re held in as a scientist.
It’s easy to get caught up in how great our ideas are – but when it comes time to get them to diffuse, we have to win people over one at a time. And with every one of them, we’re starting at 0. A little humility goes a long way when we’re innovating. Every time we start something new, we have to put in the hours.
