December 2010 OVO Newsletter

Innovation Newsletter from OVO


OVO Views

Conversations about Innovation

December 2010

– Vol 5, Issue 3

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Greetings!

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December is the month when we review the past year, acknowledge the successes and learn from the mistakes, and begin to think deeply about the upcoming year. We’ll review our predictions for 2010 and provide several for 2011.

We’re number 2! If you’ve followed this newsletter you’ll recognize that some of the topics we explore are deeper investigations into ideas and topics that are first introduced on the Innovate on Purpose blog. That blog was recently ranked as the 2nd best blog in the innovation space. Thanks for your votes and your feedback.

First, three key strategies to pursue for innovation success. Are you a Need Seeker, a Market Reader or a Technology Driver? Find out, and find out why a combination of all three strategies is probably for the best.

Good things come in threes, so we’ll look at three factors that indicate an innovation culture: vision, motivation and metrics, and we’ll add a fourth for good measure.

Finally, we’ll look at a subtle but powerful barrier for innovation – trying to manage innovative ideas in a “business as usual” environment.

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What’s your strategy?

Every once in a while someone crystallizes a concept so well that you have no choice but to recognize their work and hopefully expand upon it. The folks at BCG, specifically Jaruzelski and Dehoff, have been writing about innovation for quite a while, and put out the excellent yearly assessment of innovation. But what I really liked in the most recent edition was the idea that all of the successful, long term innovators they reviewed seemed to follow one of three strategies:

  1. Need Seekers
  2. Market Readers
  3. Technology Drivers

This simple list packs a lot of punch and can help any firm consider its perspective on innovation. We’ll “unpack” the list and talk about each strategy, and look at what we think is the best approach – a combination of all three.

Need seekers

Need seekers refer to the companies that “walk a mile in their customers’ shoes” to understand customer needs, wants and aspirations. These firms use tools like voice of the customer and ethnography to try to understand not just satisfaction with existing products and services, but unmet or unarticulated needs that exist in the customer or prospect base. Yes, this typically happens with more frequency in firms that create consumer packaged goods, but any firm willing to understand its customer, or its customer’s customer, can learn a lot about needs that exist that are only partially filled, or not filled at all.

Note that these innovators start their focus with customer needs in mind, not necessarily the firm’s strengths or capabilities, although those factors may guide the work. What’s paramount to this strategy is to understand the unmet or unarticulated needs and create products and services that fill those needs before any other competitor does.

Market readers

Market readers are the firms that have an even more expansive view than the need seekers. Market Readers are interested in emerging opportunities and longer term trends. They use tools like trend spotting and scenario planning to identify new markets, emerging customer segments and potential threats to their existing businesses. These firms are constantly scanning the horizon employing teams of people to network widely, spot and report trends and convert all of that knowledge into useful, long term scenarios. They base their innovations on the opportunities or threats they spot in these scenarios.

Technology Drivers

Unlike the previous two strategies, which start with the environment and demands from outside the firm, Technology Drivers assert their ability to identify and implement new technologies that create solutions to challenges that customers have. Those challenges may be well-known technology problems or completely new, unmet needs solved by technology.

Technology Drivers are usually firms with a large investment in research and development, constantly seeking to extend their existing product lines and create completely new products or services based on their research and discoveries. This research can be directed to areas of customer need, such as pharmaceutical research into specific drug therapies or areas of technological advancement where new capabilities need to be mapped to customer needs and challenges, some of which may not yet be known or understood.

Using these strategies

First, we can point out that these strategies can be used to pursue incremental or disruptive innovation. Whether your firm chooses to use a “needs” approach or a “reader” approach, for example, your firm can examine the near term needs or market expectations, or pursue a longer term agenda.

Second, the strategy you pursue should align to your strategic intent. A firm that places great internal emphasis on technology leadership should probably place more emphasis on being a “technology driver”. If your innovation strategy deviates too much from your cultural beliefs and understandings, the differences will cause conflict.

Third, note that the first two strategies – Market Readers and Need Seekers, are essentially external oriented strategies while Technology Drivers is an inherently internally focused strategy. Using only an internally focused strategy has much greater risks, since it assumes the firm is a leader and able to remain a leader in technology development, and that the technology the firm develops is valuable and consistently meets or exceeds customer needs.

Fourth, it’s risky to place all of your innovation “eggs” in one strategy basket. While you can and should align the strategies to your competencies and capabilities, there is great value in pursuing at least two, if not all three strategic forms defined. A technology driver can only benefit from using some needs assessment and/or market reading. Pursuing several types of strategies balances the innovation effort and ensures you don’t end up in an innovation dead end.

Fifth, you may have the skills internally to pursue one strategy but may require third parties or partners to help you gain the insights you need in another case. For example, your firm may be very good at creating interesting new technologies but may lack the ability to read the market or evaluate customer needs. Combine your strengths with the capabilities and strengths of third parties to give your team the complete innovation view.

It’s also important to note that the different strategies have very different implementation requirements. A technology driver is most likely to build up a strong internal R&D team and partner with other firms to gain ideas. A Need Seeker is far more likely to use ethnography and voice of the customer to drive insights and rely less on internal technologies or technology leadership. The question becomes – should the internal capabilities and culture drive the strategy, or vice versa?

What to do now

Decide which innovation strategy of the three is best for your business, and which of the other two makes sense as a secondary strategy. Ensure your selection links well with corporate expectations and internal cultural attitudes about your company.

Next, align your people, processes and tools to the main strategy. Ensure everyone understands the innovation strategy you are pursuing, through good communication and consistent emphasis on the key points.

As we’ve written before, aligning strategic goals to innovation goals and strategies is perhaps one of the most important tasks your team can undertake. Understanding corporate strategy and perhaps as importantly, corporate psyche and cultural alignment can make or break your innovation effort. Choose the strategy or strategies that best align to the core intent and purpose of your firm.

Aligning your people, innovation tools and processes, communication and compensation strategies to your key innovation strategy is also important. Big gaps in capabilities or knowledge between your internal capabilities and strategies and stated innovation goals will become evident very quickly and shut down innovation efforts.

For More Information

I have posted a short PowerPoint on the three strategies and how we recommend using them on Slideshare. Click here to review the PowerPoint on the three strategies which you can also download.

2010 Predictions

In December 2009, following our usual practice, we made four predictions about innovation in 2010. Let’s recap those predictions and see how we did.

  1. Increased focus on innovation in education
  2. Governments grapple with innovation
  3. Innovation as a strategic objective
  4. Creating idea factories

On the whole we got a lot right. The downturn proved to be deeper than any of us thought, so our focus on education was correct. Today, more than ever, we need innovation in our educational systems for K-12, secondary and university education and training for those workers who have lost their jobs due to shifts in the economy. Reforming the educational system should be a number one priority, in the states and at the Federal level. Innovation can, and should, lead the way.

We predicted that governments would grapple with innovation, and that has also proven true. The US Government has kicked off projects in many different agencies, and a number of states have new innovation task forces, including my home state of North Carolina. Facing budget shortfalls and increased demands for services, governments have no choice but to turn to innovation for new ideas.

Last year we postulated that innovation would become a “line item” in the annual plans of many firms – that innovation would become recognized as a key driver for success. This prediction happened in some firms, but not as broadly as we would have hoped, mostly due to the continued poor economy. Rather than innovate, many firms are still trimming. Finally, we predicted that idea factories would become a more persistent concept. The idea was picked up and included in the book Intangible Capital by Mary Adams. There is movement towards the concept of an idea factory, but this prediction was the one that was the most “off the mark”, probably slowed by the economy, but still a key need.

So, let’s turn our attention to predictions for 2011. Remember, this is for entertainment purposes only, so no wagering is permitted.

Our 2011 Predictions

We’ve got four predictions for 2011:

  1. Ideas come from everywhere
  2. Experience is more important than product
  3. Demand speeds up as capability slows
  4. Creativity re-enters the workforce

And two recommendations:

  1. Go experience what’s happening in Hong Kong/Singapore/Kuala Lumpur. That’s where the next big thing will happen
  2. Get on Twitter and other social media even if you have to do so from home.

Ideas from everywhere

In 2011, many more firms will embrace open innovation in all of its different forms. The focus on open innovation is not based on the belief that employees aren’t smart enough, or that open innovation is the hot new thing, it’s simply that the scale and pace of innovation demands ideas from everywhere. When Jeffrey Immelt at GE and the executives at P&G admit their scientists and R&D staff can’t sustain the innovation pace necessary for growth, pay attention. These firms aren’t pursuing “open” innovation because it is an interesting fad, but because it helps them identify new and valuable ideas that drive corporate profits.

Social media and its adoption only exacerbates this trend. As more and more firms adopt the ability to create communities with their customers and partners, more ideas will be exchanged.

The implications are that your firm must explore the many different types of “open” innovation and choose the techniques that are right for your capability and culture. Don’t assume that open innovation is for other firms – it is for every firm.

Experiences Reign

After over two years of living in a recession, we’ve gotten the message. Conspicuous consumption is out. Frugality is in. People are spending less and carefully weighing their purchases. However, they want those purchases to matter, and they want an excellent, engaging experience in combination with those purchases. As consumers and businesses purchase less, they expect more from each purchase – not just in terms of more features on the product, but more engagement in the experience. Firms in 2011 must use innovation to rethink their customer experience and customer service. Until the recovery blooms in full, excellent service with good products will trump innovative products with poor service and experience.

We believe that we’ll see far more focus on innovation related to customer experience in 2011 and into the near future. The implications are obvious – your firm can use innovation to adapt its customer service and customer facing systems to improve customer experience – and that work will pay dividends and have less risk than new product innovation.

Faster, Faster

Even though there is an economic downturn, few competitors are standing still. Compound that fact with the knowledge that many people currently out of work are considering starting new businesses, some of which will compete with yours. Your existing competitors are moving fast, and the new entrants have nothing to lose. While customers aren’t buying as much, they are demanding new products and services and expect your firm to produce. Strangely, after several years of downsizing and rightsizing, the product development cycle in many firms is still exactly the same length. That means you’ll have to speed up both your idea generation process and find ways to reduce costs and time in the product development process.

2011 brings a double edged sword, and you are subject to both blades. Clearly customer demand for new products and services is increasing, and your innovation capability must speed up to keep up. On the other hand, the delay between good idea and new product launch isn’t getting shorter. In 2011 innovators will be forced to speed up the generation of ideas, and the commercialization of products and services.

Creativity Re-enters the Workplace

Time was, the single craftsman created products or services in his workshop. Those individuals were subsumed in the advent of mass production. Variances and creativity were eliminated to focus on throughput of consistent delivery. This focus has reached it’s zenith, and creativity will once again become a valued, recognized capability in many businesses, if for no other reason than to introduce badly needed new ideas and new perspectives.

The implication for 2011 is that firms must re-introduce creativity in their organizations through cultural shifts and training the existing workforce, or by hiring people with stronger creative skills.

Two Recommendations

On top of the predictions above we made two recommendations. The first is to get someone from your firm to Southeast Asia. The cities there have a palpable sense of being the “next” place, and they sit at a nexus of many forces – the rise of China and India, a cross-roads for trade and commerce, investment from the US and Western Europe and a young, increasingly educated population. This mixing bowl of cultures, markets and countries will be a spawning ground for many new trends and ideas.

Second, get connected. If you know how to find them, there are more good ideas on Twitter in an average half-hour than in most corporations in an entire year. Communities are conversations and you are missing out on the conversation if you aren’t participating in social networks, especially those networks where other innovators are engaged. The conversations are “out there” – are you on the outside, missing the discussion? Strangely, many firms have cut themselves off from the information and insights available on social media platforms. If you can’t get engaged at work, find some time to do so at home or after hours.

Continuing the Theme

In our previous article we gave you four predictions for 2011. Rob Shelton recently spoke about the three factors of an innovation culture, and well, we couldn’t help but write about that, given our appreciation of the importance of innovation culture.

In his talk Rob provided three attributes of an innovation culture: vision, motivation and metrics. We’ll add a fourth: communication, to round out his list.

Vision

I know what you are thinking. “We don’t do that “vision” thing.” Vision often seems so ephemeral, so inconsequential to the day to day activities of a business. And that’s perhaps true – vision is not necessarily important to day to day activities, but is vital to innovation, especially disruptive innovation or innovation that takes a long time to come to fruition.

Since most innovation other than very incremental innovation is about solving customer needs or creating new markets or new customers in the future, innovation demands clarity about where the firm is going and what it hopes to be far more than day to day operations. No innovator wants to pursue ideas that when realized aren’t aligned to the direction of the business. Without a clearly defined and communicated vision and corporate strategy, innovators have far too much horizon to scan. Every idea is equally viable and also may be equally untenable by the time it can be realized. Without a clear vision and strategy, innovation beyond the merely incremental is almost impossible, and very frustrating for the participants. As I wrote in my blog post about this issue: no vision, no innovation culture.

Motivation

Beyond vision, what motivates people to innovate? In most firms, there are a handful of people who are motivated just for the opportunity to do something new and different. Beyond these self-starters, the majority of the workforce needs different motivations. They need to know their ideas will be heard, respected and acted on. They need to know that the time they spend away from their regular “day jobs” is recognized and that there are corresponding rewards for that work. They need to know that their evaluations, and ultimately their progression and advancement, are based somewhat on their engagement in the innovation process. If any of these factors are missing, the firms sends conflicting messages about innovation that are eventually interpreted as “keep doing what you are doing”. Ultimately this topic is about evaluation, compensation and recognition. Does your firm actively recognize and reward innovators? What happens to those whose ideas don’t achieve great success? Perhaps you are demotivating your teams without realizing it, but these factors drive a significant amount of engagement, and influence the culture of the organization.

Metrics

Anything we intend to do well in an organization should be governed by a set of milestones, goals and metrics. In fact most people can recognize how serious an executive team is about an initiative based on the number and type of metrics they place on the effort. Innovation should be measured and managed just like any other initiative, but we’d prefer to see a different set of measures and metrics than are applied to most corporate initiatives. Trying to impose an “ROI” too quickly on an innovation effort will usually result in the termination of all disruptive activities and many incremental ideas as well. This is not an argument to eliminate measures and metrics, just a statement to recommend measures and metrics that are situationally appropriate for innovation efforts, rather than applying the same measures and metrics to new and different kinds of work.

Communication

Rob did not explicitly include communication as one of his attributes for an innovation culture. He may have simply assumed that good communication exists. Our experience indicates that excellent communication about innovation is an absolutely essential part of an innovation culture. Even if you have a great vision, excellent motivation and good metrics, if the executive team doesn’t communicate the vision, and the innovation team doesn’t communicate its goals and strategies, the work isn’t going to be successful.

Our emphasis on communicating about innovation is less about quantity or channel and more about quality and emphasis. A regular communication from the executive team, highlighting successes and valiant attempts at innovation, which directs the team to its innovation strategy and goals, reinforces the idea that innovation is important and the senior leaders are involved and engaged in its success. Silence on these matters indicates the direct opposite.

Innovation is ambiguous, uncertain and risky. Clear, consistently communication about the scope of the work, its goals and expected outcomes, can dramatically reduce the uncertainty and the risk. There’s no good reason not to actively communicate about innovation, yet many firms fail to communicate effectively about innovation.