Tag: innovation

  • Here is Why Business Model Innovation is Powerful

    Here is Why Business Model Innovation is Powerful

    A Business Model Problem – Copying Everyone Else

    Business model innovation is too often overlooked by firms. I ran across a great example today of the kind of opportunity that is available. Check out this graphic from Lean Analytics by Alistair Croll and Ben Yoskovitz:

    Screen Shot 2013-07-23 at 7.05.20 PM

    This shows the response to the question – “how do you set your price?”

    The response is mind-boggling.  More than half of the firms surveyed just take prices from their competitors.  A quarter use cost-plus, which is a terrible tool too.  But at least it relates to some kind of real number from inside your own firm.  18% guessed.

    Eighteen percent guessed!

    And just over 20% based their price on data gathered from their own customers.

    At a minimum then, 70% of firms put no strategic thought at all into how they set prices, which, arguably, is one of the most important metrics in your business.

    Business Model Opportunity – Make Up Your Own!

    Innovative new products and services work best when they are supported by an innovative business model.  If 70% of firms aren’t even thinking about how they set their prices, then how many are thinking about innovating their entire business model.

    Not very many.

    This is a huge opportunity – this is a big part of why business model innovation is so powerful.

    Here are some ideas for taking advantage of this opportunity:

    • Be a Lean Startup. Lean startups turn into innovative firms, because they are built on an experimental, data-driven culture.  If you are using lean startup correctly as an approach, then you will end up as one of the 21% of firms that sets your price based on customer data.  Better yet, your entire business model will be based on hypothesis testing.  Lean Analytics provides a great set of tools for doing this.  Croll & Yoskovitz match metrics with where you are in the growth trajectory:
      1. Empathy: where you identify a real problem for people that needs solving.
      2. Stickiness: where you prove you have a solution to the problem that works.
      3. Virality: where you structure your solution so that the idea will spread.
      4. Revenue: where you start making money.
      5. Scale: where you get big.
    • Use Lean Startup Principles in an established firm. Lean Analytics suggests that intrapraneurs go through the same five steps with new innovations as startups, but with one big additional step: find an executive sponsor.  In a large firm the process looks like this:Screen Shot 2013-07-23 at 7.24.08 PM
    • Test Your Business Model Like a Scientist. The point with all of this is that you can build a new business model based on data.  The stats on pricing show that only about 20% of firms are doing this right now.  Imagine the advantage you can gain if you base your entire business model on genuine feedback from customers.

    When you get right down to it, innovation is about solving real problems for people.  That’s how you create value.  Even if your solution to a problem is genuinely novel, it’s extremely hard to get people to listen to your idea if you cram it into the same old business model that they’re used to seeing.

    That’s why copying from competitors is such a bad idea.  There’s nothing distinctive about that.

    So go out and talk to people.  Identify real problems that they face, and build a hypothesis about how to solve one of them.  Then test that hypothesis carefully.  If you do that, you’ll build an innovative business model on top of your core innovation.

    The thing that makes business model innovation so powerful is that so few people do it.  You should give it a try.

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  • Why You Need to Innovate in Tough Times

    Why You Need to Innovate in Tough Times

    How Should You Approach Innovation in a Downturn?

    These days it shouldn’t be too much of a stretch to imagine this: you’re managing a company in the middle of an economic downturn.  There are obviously financial pressures to cut costs, so what should you do about innovation?

    A very common answer is “cut it.”

    The Boston Consulting Group’s annual innovation report from 2009 shows exactly how this happens.  They surveyed more than 2700 global executives about a wide variety of innovation issues.  When asked where innovation ranked in terms of strategic importance, 25% said it was their top priority, while another 39% said it was in their top three.  And yet, a large percentage of these same executives said that they were planning to reduce spending on innovation in the coming year.

    This is bad strategy.  Innovation is cultural – and this means that you can’t just turn it on when you think you need it and keep it turned off the rest of the time.

    Four Strategic Responses to Tough Times

    This is demonstrated in a terrific piece of work by Ranjay Gulati, Nitin Nohria and Franz Wohlgezogen in HBR called Roaring Out of Recession.  In it, they outline four possible strategic responses to a downturn:

    Prevention-focused companies, which make primarily defensive moves and are more concerned than their rivals with avoiding losses and minimizing downside risks.

    Promotion-focused companies, which invest more in offensive moves that provide upside benefits than their peers do.

    Pragmatic companies, which combine defensive and offensive moves.

    Progressive companies, which deploy the optimal combination of defense and offense.

    The ones that cut innovation are prevention-focused.  Cutting costs often leads to lower quality, which leads to lower customer satisfaction.  You can see how that isn’t the smartest place to end up in a recession.  The stats from Gulati, Nohria and Wohgezogen show that this is the worst strategy to follow in a downturn.

    But going the opposite way – being promotion-focused – doesn’t work much better.  This is a strategy where you basically go all in on innovation and growth in a downturn.  In some respects, this makes sense.  If everyone else is cutting back, then there are opportunities.  But the risk here is that if you don’t improve efficiency at least a little bit, you’ll get priced out of the market.

    The strategies that work best combine some strategic cost cutting with investment in innovation.  Here is their table of results:

    R1003C_B_lg

    It’s a bit hard to read, but what it’s saying is that you get the best results coming out of a recession if you combine improvements in operational efficiency with market development initiatives and capital investment.  And the financial outcomes from pursuing this strategy are nearly double those of the strategies that are merely good, and massively better than the bad strategies.

    And if you think about this, both operational efficiency and market development are innovation-based.  In other words, the thing to do in a downturn is to invest in innovation, not cut it.

    It Wasn’t Raining When Noah Built the Ark

    There are several important points here:

    • Innovation should be continuous.  We had a Brisbane Innovation Network meeting last week, and one of the topics we discussed was the observation that everyone is looking for innovation now after cutting it four years ago.  You can’t do this.  Innovation is forward-looking, and it takes time to see the benefits from your investment in it.  It is particularly hard to realise these benefits if your innovation efforts are stop-start all the time.  As Howard Ruff said: “It wasn’t raining when Noah built the ark.”  Innovation is a competency that will prepare you to survive tough times, and it will enable you to thrive when things get better.
    • Short-term thinking kills innovation.  Jeffrey Phillips makes this point in a recent post:

      Businesses today are captivated by quarterly results, and activities or investments that don’t help achieve the quarter are candidates for defunding or simply eliminated. If a person or an activity doesn’t contribute to making the quarter, either by cutting costs or bringing in new, immediate revenue, many executives can’t fathom why they’d bother. We’ve built highly efficient organizations structured by rewards which accrue based on quarterly results. There’s no time like the present now has an ominous ring, since there doesn’t seem to be time to think about the future or lay the foundations for future products and services.

    • You have to balance small-scale innovation with big thinking: this is one of the ten tensions in innovation.  The benefit of the operational efficiency focus is that it helps us get better at what we’re currently doing.  At the same time, market development initiatives help us find new ways to grow.  It’s exploitation versus exploration, and if you can manage both at the same time, you’re an ambidextrous organisation.  It shouldn’t surprise you by now to hear that research shows that firms that manage ambidextrous innovation are more successful than those that focus exclusively on either incremental innovation or breakthrough innovation, and that all three do better than firms that don’t innovate at all.  The three horizons approach is one tool that can help you maintain a good balance.

    If innovation is one of your top strategic priorities, then you have to invest in it.  You need to invest in innovation not just when things are going well, but also when times are tough.  This has benefits: it leads to a sustainable innovation effort, which in turn drives superior returns.

    And in tough times, that’s important.

     

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  • Innovation and Serendipity

    Innovation and Serendipity

    This post was first published at Integrative Innovation.

     

    In a previous post, I have pointed out the importance of diversity for innovation and organizational adaptability. Diversity is a crucial precursor to serendipity. In the Power of Pull, John Hagel, John Seely Brown and Lang Davison emphasize the rising need for serendipity:

    We need to find ways to attract relevant innovators and edge participants so that we can discover early windows into the developments that will end up transforming how we live and work. Sure, serendipity has always been important, but in a world of near-constant disruption, it becomes essential to survival. Without the pleasant surprises of serendipity, we will instead have to cope with the unpleasant shock of unanticipated disruptions that undermine all that we have worked to achieve. (…)

    We increasingly find that we no longer even know what to seek, even with the growing power of search. (…) At times like these, the cursor blinks in the search engine’s textbox, mocking us, asking the existential question: Do you even know what you are looking for? And even if we think we do, it’s guaranteed that “unknown unknowns,” as Donald Rumsfeld memorably called them, are waiting for us, both as opportunities and as barriers.

     

    Innovation is becoming increasingly emergent

    Innovation in the future will increasingly happen in more emergent ways by bringing together seemingly disparate fields and pieces of knowledge. The value of searching for information is increasingly limited as we don’t know what to search for in many cases. In face of complex life and work environments, predefined and narrow objectives as well as deliberate strategies often turn out to be inconvenient. Serendipitous “collisions”, in turn, require building up diverse networks and connections.

    Google can answer almost anything you ask it, but it can’t tell you what you ought to be asking. Ian Leslie

    Though we increasingly interact within virtual networks and communities, physical spaces are the primary serendipity shapers. Face-to-face interactions are still most conducive to accessing tacit knowledge. We tap into this knowledge through trust-based relationships and closely working together on challenging projects.

    Virtual and physical spaces can be seen complementary to each other. On the one hand, virtual spaces are increasingly able to amplify knowledge we generate through personal interactions.  On the other hand, diverse virtual connections often create more valuable real-life opportunities.

     Collision

    Figure: Simulated collision of two protons (credit: CERN, cern.ch)

     

    In search of (engineered) serendipity

    As firms, like Yahoo and Google see it, close-knit teams do well at tackling the challenges in front of them, but lack the connections to spot complementary ideas elsewhere in the company. The sociologist Ronald S. Burt calls these organizational gaps “structural holes.” In a 2004 study he found that managers who serendipitously bridged these holes were more likely to generate good ideas.

    Firms therefore try to come up with new ideas to stimulate interaction between employees who normally do not work together. To make those connections happen, some firms are taking a scientific approach – collecting and analyzing data about their teams and mathematically computing the likelihood that employees will meet. Studies have found that having colleagues work in close proximity to each other does correlate with increased collaboration. Research recently found that when workers shared the same buildings and overlapped in their daily workplace walking patterns – moving between lab space, office space, and the nearest bathroom and elevator – they were significantly more likely to collaborate: for every 100 feet of “zonal overlap,” collaborations increased by up to 20%. Case in point: Online retailer Zappos.

    Despite all efforts: it seems to be impossible to engineer the truly valuable interactions and collisions. However, the chances for serendipity can be boosted by arranging its necessary preconditions.

     

    Shaping serendipity

    Here is what Frans Johansson advises on how to leverage diversity of thoughts in order to increase the likelihood for serendipity to occur:

    For instance, bring together people from outside your organization, or between siloed departments or between different countries or cultures. These interactions will help you find unexpected insights and opportunities — those that others might not have logically figured out. Take statistical advantage of these random moments by placing as many purposeful bets you can afford while not becoming distracted.

    What else can we do to shape serendipity? Here are some further suggestions:

    • If you just think of serendipity as an interaction with an unintended outcome, you can orchestrate pleasant surprises. Institute simple measures like positioning couches near doorways and stocking rooms with multiple types of seating to encourage lingering conversations.
    • Think about companywide lunch hours. You can leverage chance conversations and larger social networks by providing tables, designed to accomodate a higher number of people.
    • Abigail McBirnie mentions an interesting quantitative aspect of serendipity: in average, people make up one third of the participants of a serendipity story. The remaining parts are deemed to be either information or physical objects. This suggests to not just expose oneself to diverse people, but also to various information sources and novel physical environments for serendipity to occur.

     

    Serendipity as ingredient for breakthrough innovation

    Breakthrough innovation often relies on serendipity. Research from Wharton School suggests knowledge flows to be highly critical for breakthroughs. Knowledge flows involve knowledge that individuals are actively engaging in while doing a task. These flows allow information from peripheral domains to permeate. This can lead to recombination of ideas in novel and useful ways. The reason: information that is available in an individual’s short-term memory (knowledge flows) is more cognitively accessible than information stored in individual’s long-term memory (knowledge stocks).

    The researchers also provide some managerial advice: allocate a large portion of a worker’s total work time to one particular assignment or project. If work group members have more attention available to devote to the task or project, the advantages of [paying]attention to a particular peripheral domain will be more likely to outweigh the disadvantages arising from distracting attention from other domains. Hoewever, there remains a risk that workers might focus too much on domains that are actually irrelevant to their task, thus preventing their performance on the primary task. This requires dealing successfully with such tradeoffs on the part of workers and managers.

     

    Takeaway

    Innovation and adaptability require deliberate, but also increasingly emergent approaches in order to succeed. Diversity and serendipity can be considered as necessary ingredients to stay competitive in the time to come. Serendipity can’t be literally engineered, but be shaped within given limitations. The likelihood for serendipitous encounters to occur can be increased by establishing appropriate preconditions, such as

    • creation of serendipity-friendly virtual and physical infrastructures
    • build-up of diverse networks, i.e. weak ties in complement to strong ties
    • managers valuing serendipity and trust-based, encouraging leadership style
    • ability of workers to adequately balance attention between core and peripheral domains, i.e. abosorbing edge information without being distracted from core tasks
    • capability to integrate convergent and divergent thinking, or as Jorge Barba puts it: if you’re told what to look for, you can’t see anything else.

     

  • Here’s Why You Need to Build Your Innovation Capability

    Here’s Why You Need to Build Your Innovation Capability

    Competitive Advantage is Dead. Or at Least Dying.

    Our life expectancy has increased dramatically over the past hundred years.  I’ve talked a few times about how this is a pure innovation story.  Here’s another innovation story about life expectancies, but it’s less encouraging:

    lifespans

     

    The drawing is by Jay Cross from the Internet Time Alliance, based on data from Richard Foster and Sarah Kaplan’s book Creative Destruction and work from the Deloitte Center for the Edge.  It shows that while average US lifespan has increased by sixteen years from 1937 to 2012, over the same period of time, the average time that firms remain in the S&P 500 has fallen from 75 years to 15.

    That boggles my mind.

    This is one of the pieces that Rita Gunther McGrath uses to argue that competitive advantage is dead in her new book, The End of Competitive Advantage.  If your firm had a competitive advantage in 1937, you could expect it to be around for a long time – probably longer than you’d last yourself.  That’s not true now.

    Now You Have to Innovate

    McGrath argues this competitive advantages are still important, but that now they are transient rather than sustainable.  And in that environment, we need to innovate.  She uses Sagentia as one of the case studies in the book (which is well worth reading), and says this:

    At Sagentia, innovation is clearly at the top of the agenda, throughout its operations. As one senior executive noted, “Inherently, companies like ours are super agile, because we are not in control of our own destiny … We can only live off something that our clients have decided to do.” This makes Sagentia a model for where more and more businesses are headed—as competitive advantages shorten and competition comes from everywhere, increasingly firms are in the same position, that is, “not in control of [their] own destiny.” Consistent, ongoing innovation and extraordinary closeness to customers is the only possible response.

    This raises a pretty interesting point – as competitive advantages weaken, we have less control over our own destiny.  In other words, we need to get more comfortable with uncertainty.

    How long will it take to build your consistent innovation capability?  McGrath says two to three years.  That’s why you need to be working on it now, if you aren’t already.

    Steps You Can Take Right Now

    In addition to building your organisation’s innovation capability, you also need to build your own skills in this area.  Here are some steps that you can take right now to start:

    1. Think about how much you can get away with – if you manage a budget, how much discretion to you have? If you don’t have a budget, what are the parts of your job that you control?
    2. Make a list of 10 things that you can do within the current scope of your work that will make things better for the people with whom you interact – customers, co-workers, bosses, whoever.
    3. Do those things.
    4. Figure out which ones worked, and do those more.
    5. Figure out which ones didn’t work, learn why not, then forget about them.
    6. Apply what you learned to the next set of ideas.
    7. Go back to step one.

    I’ve always been skeptical of “everything is different now” type arguments.  But there’s a fair bit of evidence accumulating that the pace of business is changing.  The boundaries of your industry probably are, and your competitors probably are too.

    To meet these changes, you have to change yourself.  That means you have to able to innovate.  It’s a core skill these days.

     

     

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  • Food, Connection & Innovation

    Food, Connection & Innovation

    When firms are trying to become more innovative, they often don’t know where to start.  Here’s one idea, start by making your people lunch.

    Drake Baer wrote a terrific profile of a startup called Thumbtack discussing how their decision to hire a full-time chef has transformed their business.  Cofounder Sander Daniels lists the reasons they made this decision:

    • Meals build community: Everyone on the team eats together every day
    • Meals build networks: On Wednesdays they have an open dinner where recruits can hang with the company
    • The team is more productive: People aren’t leaving the office to wait in lines or scrounging around for food
    • Everyone is eating awesome food, so everyone is healthy

    TheaBaumann

     

    And they say this in their Food Rules for Startups manifesto:

    Often startups try to attract talented teammates by offering benefits like ping-pong tables, video games, or gym memberships. While those things are valuable, a culture of good food is an order of magnitude more important. Sharing meals around quality food builds an environment that encourages collaboration and celebrates excellence. The team is excited to come to work because they value and respect the full work environment. We believe every company can benefit from a food-centric culture.

    Baer outlines why this is a broadly good idea, but I want to talk about why this is a great innovation idea.

    If you do something like this, you are actually changing your business model.   I’ll use the Business Model Canvas version of the business model to illustrate the discussion:

    When you start cooking people lunch (and changing all the other food-related processes in your workplace) you are changing a key activity.  The first consequence that a lot of people will think of is that you are adding cost.  This is true, you are a cost.  But if your people are healthier, you are also reducing the costs that accrue from poor health.  And your productivity goes up, etc.

    More importantly, this will attract a different, probably better, pool of people that want to work for you.  So your key resources change.

    Idea generation will improve as people problem-solve together at meals – so another key activity changes.  Your key partnerships will change as more people learn about and interact through the company at the open dinners.  This may in fact lead to new channels to customers.

    As all of these back-end activities change, you will be coming up with great new ideas that can lead to new value propositions, different customers, and so on.  One change to one activity has a domino effect throughout your entire business model.  After that happens, you are running a firm that is substantially different from all the other ones in your market.

    Here are some of the important lessons in this:

    • You can innovate anything.  Not everyone can afford to invest millions in R&D.  Not everyone can start entirely new product categories from nothing.  But everyone can think about their business model and find ways to change it.  Find the things that everyone else takes for granted – like “we get our own lunch” – and change it.  It can transform the way you do business.
    • Face to face is still critically important.  Here is what Valeria Maltoni says:

      Emails, phone calls, or in person meetings are the best conversion tools for individual connections. In a post that has helped me research the question of influence more thoughtfully over the years, Stephen Downes said that rather than being a question of linkage, influence originates from [diversity, autonomy, openness and connectivity.]

    • Yes this probably will work for you. When I talk to people about ideas like this, they will often say something like “That’s fine for a startup, but that would never work here in the real world.”  Why not?  If you’re running a big company, isn’t it important to have healthy and productive people?  Every single CEO that has ever said “our people are our most important asset” should be doing something like this.  If they’re not, then maybe it’s their real estate that is their most important asset, or their fleet of vehicles, or….. something. But if your firm is built on people, you need to take care of people.

    The idea that changing one activity can change your entire business model is powerful.  It takes time to reorganize the other components of the business model to adjust to this, and that can be hard.  But it can also be an important source of competitive advantage, because innovative business models are harder to copy than innovative products.

    Give it some thought – what are the activities that everyone in your firm or industry take for granted?  If you can innovate lunch, you can innovate anything.

    [Photo of Thumbtack chef Thea Baumann by Anastasia Tumanova]

     

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  • Here is Why You Need Business Model Innovation

    Here is Why You Need Business Model Innovation

    New technologies require new business models to succeed.

    I can’t prove this yet, but the more I study the innovation process, the more convinced I am that this is true.  If you have an innovative new idea (and this can be a product, a service or a new way of doing things), if you are going to replace something directly, you need to perform at least 10X better than the incumbent.  That’s not impossible, but that’s a pretty big jump.

    It’s much better to come up with something interesting, and then innovate the business model.

    I was talking about this yesterday with my colleague Jeffrey Babin.  He agreed with me, and he pointed me to one of the IBM CEO Reports that addresses this issue.  There are two key pieces of data in it.  The first shows how firms distribute their innovation efforts:

    BMI1It shows that while most organisations put some effort into innovating across the board, business model innovation gets the least attention.  But look at the impact of the three different types of innovation on the bottom line:

    BMI2

     

    This shows the effect that innovating has on profits compared to firms in the same industry that don’t innovate.  As Jeffrey said, product and service innovation is baseline stuff – you have to do it to stay in the game.  The firms that primarily tried process innovation were actually worse off!  And those that undertook business model innovation had a 5% higher compound annual growth rate over five years.

    5% higher compound annual growth – the argument should be settled right there – you should probably stop reading right now and immediately start innovating your business model if you aren’t already.

    In case you’re still reading, here are a few more thoughts.

    If you’re in a startup, innovating the business model is a bit easier than if you’re in a large firm.  The whole lean startup approach is basically built on the idea that the main objective of a startup is to build a scalable business modle.  This is a big part of the reason that lean startups turn into innovative firms.

    Building business model innovation capabilities is a bit more challenging if you are a larger firm.  Paul Hobcraft recently discussed some of the issues here.  The problem is that you will be competing against startups that are innovating your industry’s business model – if not right now, then in the future.  So you need to have this skill.  And also, it leads to 5% higher CAGR!

    Managing multiple business models within one firm is challenging.  However, you can see the payoff.  And some very large firms have done this very successfully.  I’ve spoken before about how Dow Corning did this with Xiameter, and how Hindustan Unilever did this with their Shakti initiative.

    So it’s not impossible, it’s just hard.  And that’s exactly why it pays off – there’s no reward for solving easy problems.

    I was talking late last year with the Chief Operating Officer from a company I’ve worked with for a while.  They are just now starting to benefit from a business model innovation effort that they started nearly three years ago.  They are a market-leading firm, but they have been facing increased competition recently as others have entered the market.

    First, I asked him how long it took his competitors to copy a new product or service.  He said that it used to take 18 months, but now the time was down to 6 months.  Next, I asked him what he thought the outcome of their business model innovation would be.  He said “Well, it will take our competitors a year or two just to figure out what we’ve done and how we’ve done it.”  I pointed out that even then, they’ll have to go through a 2-3 year transition just like he did if they want to copy the business model.

    Think about that for a second – product innovation gives them a 6 month competitive advantage, but the advantage from business model innovation is a few years.

    Rita Gunther McGrath argues convincingly that competitive advantages have increasingly limited lifespans.  I agree with her.  Business model innovation is one of the best ways to respond to this.  It leads to higher growth, bigger profits, and higher chances of sticking around for a while.

     

     

     

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  • 20 Things Good Managers Know About Innovation

    Everyone wants to innovate more, and many people don’t know where to start. Which is weird, since we actually know quite a bit about how innovation works.

    Here is a list of some of things that we know are true:

    1. Solutions come from empowered people. Delegate decision making as far towards the front line as you can to increase your innovation.
    2. You can’t legislate innovation.  It doesn’t work to just say to people “go innovate” – your business model needs to support it.
    3. It’s not just about ideas. It’s the process of idea management.
    4. Innovation is the best way to bridge a gap between where you are and where you want to be.
    5. Getting the great idea to spread is just as important as having it and making it work.
    6. If every idea you try works you’re not trying enough new ideas.
    7. Make lots of little bets.
    8. People are way more important than tools.
    9. Innovations can be good or bad – make sure you’re creating real value.
    10. You need a deep understanding of the problem you’re trying to solve.
    11. Ask new questions. Make new mistakes. Learn.
    12. A problem in need of a solution is worth lots more than a solution looking for a problem.
    13. Anyone can innovate.
    14. Connecting ideas is the fundamental creative act in innovation.
    15. You need top-down commitment to create a culture of innovation.
    16. If you don’t have the support of your manager, you need to innovate by stealth – how much can you get away with?
    17. Efficiency is often the enemy of innovation – you need slack!
    18. Failing is good – try to fail as small as possible, and make sure you learn from it.
    19. Innovation needs to support strategy, but every once in a while it can create it.
    20. Innovation works best when you pursue a portfolio of innovative projects.

    Innovation is not a black box. If you apply some of these ideas, you can make your organisation more effective at innovating.

     

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  • There’s No Substitute for Doing the Work

    There’s No Substitute for Doing the Work

    The Problem with the Quick Fix

    Here’s a question that I get too often: How can you build an innovation capability really fast?

    I’ve told the story before of one typical example:

    I had lunch a while back with two executives from an organisation that the Business School does a fair bit work with. They wanted to improve innovation and that’s what triggered our meeting.

    We talked for a couple of hours about what was happening in their organisation. We talked about innovation as a process, the different forms of innovation, incremental versus radical – all the big topics. It seemed like we were making some progress towards figuring out how we might be able to work together.

    Then at the very end of the lunch, the one that’s actually in charge of innovation there leaned over and said“Look, just tell me what piece of software to get and I’ll get it.”

    The problem with questions like this is that they demonstrate a profound misunderstanding of how organisations work.  People want quick fixes – the problem with the quick fix is that it doesn’t exist.

     You Have to do the Work

    Two posts this week make the same point in very different ways.  First, James Altucher takes on the idea that getting rich playing poker is easy.  The whole post is worth reading – Altucher recounts a conversation he has with a friend who wants to start earning money playing poker.  Altucher tells him that he has to learn scrabble first:

    Me: It takes 1000s of hours to learn Scrabble. Every great poker player I know is a stone-cold killer. You have to kill or be killed. Most great poker players I know are great at all other games and have been since they were kids. A friend of mine spent 20 years becoming a chess master, another 5 becoming a great backgammon player, and it took him 10 years before he made a dime from poker. Now he’s made about $5 million from poker.

     

    English: Quads Aces, to represent poker games.

    10 years, and thousands of hours.  To win at poker, you have to do the work.

    Seth Godin comes at it from a different angle though.  He says that you can’t just have the good parts of a job – you have to welcome the tough parts, because they’re what show that you’re doing something worthwhile.  This is his conclusion:

    You don’t get to just do the good parts. Of course. In fact, you probably wouldn’t have chosen this path if it was guaranteed to work every time.

    The implication of this might surprise you, though: when the tough parts come along, the rejection and the slog and the unfair bad breaks, it makes sense to welcome them. Instead of cursing or fearing the down moments, understand that they mean you’ve chosen reality, not some unsustainable fantasy. It means that you’re doing worthwhile, difficult work, not merely amusing yourself.

    The very thing you’re seeking only exists because of the whole. We can’t deny the difficult parts, we have no choice but to embrace them.

    The Difficult Parts of Innovation

    If you want to innovate more, you do have to put in the work.  There is no quick fix.  Here are some of the difficult parts that you have to contend with:

    1. Every new idea doesn’t succeed.  You’ll have to live with some failures.
    2. You don’t get everything right the first time.  You have to experiment with your business model to figure out what works best.
    3. New ideas spread slowly. Once you figure out how to solve a particular problem, it takes at least the same amount of time to get people to adopt your solution.
    4. You have to build the innovation skills over time.  You need to give the people in your organisation the tools they need to innovate, the time to use them, and the opportunity.  Again, this doesn’t happen overnight.

    These are all things that slow you down when you’re trying to innovate.  It’s part of what makes it hard to be more innovative.

    The good news is that when you run into these obstacles, it means that you’re already ahead of everyone else that isn’t even trying.  Imagine how far ahead you’ll be once you get over them.

     

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  • There’s No Innovation Without Uncertainty

    There’s No Innovation Without Uncertainty

    Here is one of the biggest innovation obstacles around: the need for certainty.

    Dwight Towers posted a great quote from Frederick Douglass over the weekend that gets at the problem:

    If there is no struggle there is no progress. Those who profess to favor freedom and yet deprecate agitation are men who want crops without plowing up the ground; they want rain without thunder and lightning. They want the ocean without the awful roar of its many waters.

    Plowing the field

     

    Douglass was obviously talking about bigger issues than I am, but the same principle holds.  You can’t innovate without uncertainty.

    Here is how Jeffrey Phillips puts it in his book Relentless Innovation:

    Everyone understands from the beginning how difficult it is to create compelling new ideas in any sutation, much less to convert those ideas into viable products and services. To compound the difficulty, executives are asking for disruptive ideas while expecting the business to continue to operate at full effectiveness and efficiency. Middle managers receive these messages and understand the unspoken dichotomy in the request: create radical, valuable new products and services but don’t upset the status quo.

    You can’t manage that way.  To gain the benefits of innovation, which are substantial, you have to learn to live with some uncertainty.

    Sacha Chua addresses this issue in the context of figuring out what you should do with your life in a really good post on passion and uncertainty:

    When people wish for passion, I think what they’re really wishing for is certaintythe knowledge that this, here, is exactly what you are meant to do, that intersection of what you love, what you’re good at, and what the world values. The certainty that this is the best way to spend this moment in time, and the ease of not having to make yourself do something or fight distractions.

    This is why I think that the single most important management skill to develop is a tolerance for ambiguity.

    Just as you don’t get crops without plowing the ground, you don’t get innovation without creating uncertainty.  In some respects, tolerating uncertainty isn’t enough – you have to actively invite it in.

    There is no innovation without uncertainty.

    Sacha asks a really good question: what happens if you let go of the need for certainty? What if you don’t know that what you’re doing will work?  What if people hate your idea?  What if there’s a chance you could be embarrassed? And worse, what if it happens in front of your peers, or your boss?

    If you have to have certainty, none of these bad things will happen.  But you won’t innovate.  You won’t learn what you’re capable of doing, and you won’t get better.  In fact, it’s impossible to learn without making mistakes.

    Learning is the way around this problem.  If we actively court uncertainty, then we put ourselves in a position to learn.

    In a complex economy, the way to think about the future is this:

    • We can’t predict the future – there is no certainty.
    • But we can learn about the patterns from which the future will emerge.
    • In fact, while we can’t control the future, we can influence it.
    • The best way to influence the future is by innovating through experiments.

    Here’s my prescription for tomorrow: let go of the need for certainty.  Try an experiment.  Learn.

    I’ve got my experiment planned – what’s yours?

    (photo from flickr/Ecoagriculture Partners under a creative commons license)

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  • Here’s One Good Way to Kill Innovation

    Here’s One Good Way to Kill Innovation

    Encountering an Air Sandwich

    I was teaching exec ed this week and I saw a textbook example of an air sandwich.

    Here’s how Nilofer Merchant describes it:

    An Air Sandwich is a strategy that has clear vision and future direction on the top layer, day-to-day action on the bottom, and virtually nothing in the middle—no meaty key decisions that connect the two layers, no rich chewy filling to align the new direction with new actions within the company.

    I was working with a group of future leaders that had been identified by the management of their company.  The firm is in a pretty conservative industry, but they are starting to try to differentiate themselves through innovation.  This vision has been articulated from the top.  And the young managers in the class had been asked to think about how to embed innovation within the organisation.

    They came back with a series of pretty interesting ideas, and they presented them in our workshop, with a number of senior leaders from the firm present.  And every new idea that the young guys put forward got shredded by the senior leaders.

    Air Sandwich.

    Air-sandwich-200px

     

     

    How Should You Respond to New Ideas?

    There are two ways in which you can respond to new ideas.  Your first response can be “no, that won’t work, here are the problems.”  Or, you can say “that’s interesting.”  And with the second one, you can find ways to build on the idea, or connect it to other ideas to create an even better idea, or at least figure out some way to support the idea.

    The firm I’m working with is in a pretty tough industry, and I suspect that the guys giving the rough feedback would say that’s important for the younger managers to harden up – that if they want to make it in this industry they’ll need to be tough.  And that may well be true.

    But still, if you are trying to build your innovation capability, you can’t take ten of your bright young managers, ask them to come up with creative ideas to help build that capability, and then just absolutely tear those ideas to shreds when they show them to you.  This is particularly important for this firm – because they have set themselves a tough challenge.  But their overall objectives are admirable, and it’s important that they succeed.

    How Should You Respond When Your New Ideas Get Shredded?

    So what can you do if you’re the bottom layer of bread in an air sandwich?  You can’t control how others respond to your ideas, but you can exert some control over your own actions.  Here are some ideas:

    • Learn from it. Getting our great ideas to spread is an important part of the innovation process.  Overcoming resistance is a big part of that.  Every criticism of your ideas contains some element of truth – even if it’s based on a misunderstanding, that shows that you need to get your point across more clearly.  We have to learn from this, and improve the deliver of our new ideas.
    • Don’t take it out on others. One big danger in a situation like this is that the young managers will learn that this how to respond to ideas in their firm, and react the same way when the people working for them come up with new ideas.  This will completely kill off innovation.  Instead, we have to use these experiences to build our empathy.  This way, when others put new ideas in front of us, it might help us respond by supporting the idea, building on it, and connecting it to other good ideas.
    • Change your culture. The culture of a firm is not an unchanging fact of life that simply acts upon us.  We re-create it every single day through our interactions.  Just because our managers act in a particular way doesn’t mean that we have to.  We have the opportunity to start re-shaping a culture by changing the way we respond to things.  If we accept new ideas and build on them, others will start to do so as well.
    • Band together. It’s hard to change a firm’s culture on your own.  So another good idea is to find others that are also committed to driving change, and band together.  Cultures rarely change through edicts – it is one thing that is especially open to bottom-up change.

    This is Why Innovation is a Challenge

    Innovation is hard – if it weren’t, everyone would be doing it.  The environment that we create for new ideas is an important part of building an innovation culture. One of the big problems with shooting down ideas immediately is that doing so assumes that we can know in advance which ideas will work and which won’t.  But we can’t.  This is why experimenting and prototyping are such critical innovation skills.

    The best way to figure out which ideas are good is to try them out.  If they work, scale them up.  Here’s how Saul Kaplan puts it:

    Learn by doing. Constantly test new ideas. Learn, share and repeat. The world is ever changing — stay ahead of the curve. Embrace the art of discovery.

    We need to try more stuff. Innovation is never about silver bullets. It’s about experimentation and doing whatever it takes, even if it means trying 1,000 things, to deliver value.

    My main piece of feedback to the teams was: “how could we prototype your ideas?”  If we test an idea, gather data from the test, and learn, that is the best way to combat a culture that shoots new ideas down on sight.  It’s a lot harder to argue with data.

    Testing your ideas, and making evidence-based decisions are two more ways to change your culture.  That’s my new idea for the day.  How will you respond – will you tell me why it won’t work, or will you build on it to make it better?

    (the air sandwich picture was included in a nice post by Adam McKibben)

     

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  • More is Better, Until It’s Not

    More is Better, Until It’s Not

    Collaboration is an important part of innovation.  The days of the lone inventor are gone (if they ever really existed at all) – now, it takes a network to innovate.

    But how much collaboration do we need?

    This is one of the questions that Keld Laursen and Ammon Salter  looked at in a landmark article on open innovation in 2005.  This graph shows the key finding:

    Screen Shot 2013-02-18 at 1.44.33 PM

    The vertical axis shows the innovation effectiveness in the firms they surveyed, and the horizontal shows the number of innovation collaborations they have.  It shows that adding innovation partners makes firms more innovative, up to about 11 partnerships.  After that, adding more partners erodes performance.

    This provides a strong argument in favour of open innovation – up to a point.

    The key question is why does it turn back down?  This upside-down U shape is actually a very common research finding.   You frequently see it in systems that require attention.  Keld and Ammon think that in this case, it means that if you have too many partners, you can’t pay enough attention to each, and your results start to get worse.

    Edith Penrose found a similar effect in her great research back in the 1950s.  She showed that there is a limit to managerial attention.  This is what makes it hard to manage more than one business model within the same firm, why teams work best with no more than 8-12 people in them, and why there is a limit to any span of managerial control.

    In his new book To Sell is Human, Dan Pink talks about similar findings in the research of Adam Grant.  Grant looks at sales results relative to a person’s level of extraversion.  Everyone knows that extraverts make the best salespeople, right?  Well, wrong, actually.  Check this out:

    GrantExtraversion-e1359528308233

     

    Pink says:

    As you can see from the chart, the folks who fared the best — by a wide margin — were the in the modulated middle. They’re called “ambiverts,” a term that has been in the literature since the 1920s. They’re not overly extraverted. They’re not overly introverted. They’re a little of both.

    He adds more detail in this post, and also has a test where you can test whether or not you’re an ambivert too.

    This is interesting for a couple of reasons.  One is that we often search for black and white answers – but business rarely offers them.  Is collaboration good?  Yes, but only up to a point.  Is extraversion good if you’re a salesperson?  Yes, but only up to a point.

    Figuring out where that point lies is part of the art of managing.  And being comfortable with the ambiguity in this is an even bigger part of that art.

    So just remember: more is better, but only until it’s not.

     

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  • Innovation Happens in the Gaps

    Innovation Happens in the Gaps

    What are the connections between these three things?

    First: Comics – the magic happens in the gaps between panels

    In his terrific book Understanding Comics, Scott McCloud explains that comics are special because all of the real action occurs in the gaps between panels – this is the part that readers fill in using their imagination.

    ScottMcCloud

     

    A huge amount of effort and creativity goes into making the comic, but then the reader finishes the story in her head.

    Second: Tools Don’t Solve Problems, People Do

    Here’s an apocryphal story making the rounds of various photography sites:

    A well known New York photographer goes to a socialite party. On his way in the hostess says to him, ‘Oh I love your photos, you must have an amazing camera!’. They have dinner and at the end of the night, on his way out, the photographer comments to the hostess, ‘I really loved the food, you must have an amazing stove.

    Third: Seth Godin on helping people be more perfect

    Check this out from Seth Godin:

    Most people in the US can’t cook. So you would think that reaching out to the masses with entry-level cooking instruction would be a smart business move.

    In fact, as the Food Network and cookbook publishers have demonstrated over and over again, you’re way better off helping the perfect improve. You’ll also sell a lot more management consulting to well run companies, high end stereos to people with good stereos and yes, church services to the already well behaved.

    The Story: Creativity Happens in the Gaps

    I see the same story in all three pieces: Creativity happens in the gaps.

    I’m a lousy cook.  So if I go out and buy The Fat Duck Cookbook, and follow each recipe as closely as possible, I still won’t be cooking like Heston Blumenthal.

    Why not?  Because I don’t know enough to fill in the gaps.  As much as I love Scott McCloud’s book, I disagree with him when he says that “what happens between these panels is a kind of magic only comics can create.”  I actually think that applying creativity and imagination in the gaps also explains the other two stories.

    We can only sell cookbooks to people that are already great cooks because they have the skills needed to be able to fill in the gaps in a recipe creatively and with imagination.  And this is why, as in the case of the photographer and the cook, focusing on tools can be incredibly misleading.

    Innovation Happens in the Gaps

    A couple of years ago, I met with the senior management team from a really large organisation in Brisbane.  They wanted to talk to me about being more innovative.  We started by talking about what innovation is, and then quickly went through managing innovation as a process, and a few other key ideas.

    Then one of them said: “We tried a big innovation initiative a few years ago and it didn’t work.”

    There were nods around the table.  I said something like:

    “Let me guess.  You asked everyone for their ideas.  Lots of people submitted innovation ideas, but there was no mechanism in place for choosing the best ones.  You didn’t have any budget attached for execution either, so nothing much came out of it.  And in the end, everyone that put an idea in ended up feeling disillusioned and morale actually went down.”

    As I talked, there were sheepish nods around the table.

    They didn’t know enough about innovation to fill in the gaps.  They wanted to buy the innovation version of the expensive camera, or the great stove.

    They had the same problem that Seth Godin outlines: they’re actually not good enough innovators to benefit from the tools that are available to them.

    What Should You do If You’re Just Starting Out?

    Forget about tools.  You have to build your basic innovation skills.

    Once you’ve done these things, then you can go out and start buying expensive tools to support innovation.  But only then.

    There are no innovation short cuts.  You have to build your skills first.

    Once you have, then you’ll have enough knowledge to really use your imagination.  Then you’ll know that innovation happens in the gaps.

     

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