Innovation Newsletter from OVO
A year of changes
The more things change, the more they stay the same. In the US we experienced a significant presidential and congressional election which left us with, well, pretty much the same governance. We continue with divided government in the House and Senate, and uncertain signals about financial plans, taxes and policies have many businesses holding fire, waiting to see if it makes sense to make more investments. While politicians may not think that uncertainty matters, many business executives will tell you that it does. And, since innovation is even more uncertain than regular business initiatives, disruptive innovation is less likely to occur in situations where the economic and political environment is uncertain. In the US, the political arena has been paramount, but after a long election we are left with a divided government and more bickering, more taxes and more uncertainty. Not the environment for sustained innovation. If the politicians can’t figure this out, it’s time for business to step into the breech.
Recent news suggests that the German economy is slowing or facing no growth in 2013. If the engine pulling the train stops, all the cars will slow or go into reverse. Economic and political conditions continue to inhibit innovation activities in Europe.
Yes, it’s time to consider China on its own, as a significant player in the world economy and in innovation. As its middle class continues to grow, China will have to encourage more innovation for the development of Chinese products and services for its growing middle class. China has taken steps to improve its educational system and will find it needs to improve management practices to encourage more risk taking and more innovation, but the place to look for new strides in innovation in 2013 will be in China, but primarily for innovation focused on products and services for the growing Chinese middle class.
I hold out great hope for Latin America as an emerging innovation location – depending on the country and its conditions. After a recent trip to Colombia I’m convinced that there are countries in South America – Chile and Colombia are two – that are poised for rapid innovation acceleration, while other countries – Argentina for example – are suffering economic conditions or government conditions that stifle innovation and economic activity. In this region we’ve seen pockets of growth, which will expand and accelerate, and pockets or relapse which don’t show signs of growth. Increased trade, lower trade barriers and a growing middle class in many countries will all work in favor of more local innovation.
Many people held out great hopes for changes in the Middle East after the Arab Spring. In many of the countries where governance changed, the new governments are still coming to grips with governing or overcoming past deficits in spending and investments to make a notable step toward innovating. Many are still grappling with the appropriate shape and form of government which will detract from innovation opportunities. Turkey and parts of Sub-Saharan Africa hold out the best hopes for innovation locations in this region. South African is rich with potential, in terms of people and resources, but needs a more consistent and enabling government focused on building more business opportunities and education. When these factors occur, innovation will accelerate in South Africa. Turkey is poised, as it has been, to be a gateway between the Middle East and Europe, between established economies and growing economies, between Christian and Muslim countries. Every gateway is a place where ideas and cultures mix and meet, so Turkey is well positioned to develop more innovation.
Last Year’s Trends
In our 2011 year end newsletter we wrote about four significant trends:
What’s interesting is how pervasive some of these trends have been.
As noted previously, governments all over the globe remain in turmoil, even in places where government turmoil is not allowed or appreciated. Europe faces the rise of nationalist parties and many governments in that region face severe popular disapproval. These factors will lead to higher investment and short term solutions to appease angry citizens rather than long term strategies built to improve innovation. The Arab Spring promised great change to governments in the middle east but so far change has failed to materialize, and some of the changes seem impermanent. The US government after a fractious election seems almost a mirror image of the government before the election. Even the Chinese government has not been immune. For a government that favors a more formal and placid transfer of power, several senior executives in the Chinese government have been exposed as taking bribes, and in one case as a fugitive from justice.
After years of relative consistency in governance around the globe, this turmoil is not conducive to innovation. In a period of turmoil, most governments and citizens return to conservative, proven investments over the creation of new insights and knowledge. While innovation is vital for public advancement, we believe it will suffer until the issues around governance and government policies are settled around the world.
Governments are certainly being shaken by economic uncertainty. The crisis over the Euro and the peripheral countries in Europe is a leading example, but the US has its own economic uncertainty with likely rising tax rates and a large government deficit. Business leaders in both countries are waiting to see how aggressively governments in both regions work to establish better economic and fiscal baselines, and what those decisions will do to impact profits and taxes. Recent decisions to create a European central bank governing body may provide some relief to the Eurozone crisis, but there remain many economic issues in Europe and in the United States.
In the face of political change and economic turmoil, technological change continues. Last year we talked about the impact of “big data” and the increasing ability to mine data, understand customer habits and behaviors and begin to predict needs and actions. As more and more business and social interaction move to the web, gathering data about people and their behaviors becomes ever more simple. Yet as Facebook and other technology startups have demonstrated, the technology by itself isn’t enough – there needs to be a strong, defensible and viable business model associated with the technology, and here’s where the gap is for much new technological advancement – linking a new technology to a vital customer need that drives value for the customer and the business offering the technology.
One other challenge from last’s year’s trend. Big data is interesting, but not necessarily valuable. Data is just that, data, and regardless of its size (big or little), data has to be analyzed and placed into context in order for it to be useful. There’s still a gap between data and information or insight, and the firms that help customers translate data into actionable insight will be the innovation leaders.
Last year we discussed the graying of America, and other countries. Economic turmoil and political unrest will simply accelerate the movement of the youngest populations to locations where there is greater safety, more work available and more certainty. The people most likely to migrate are the young, which will increasingly mean that places like Spain, Greece and Russia with a shrinking population made up of older people with less education and willingness to change. The young people with energy and ideas will migrate to places that offer more opportunity and stability, and that’s where innovation is more likely to occur. Watch for regions and countries with open innovation policies addressed specifically at young people with excellent educational achievement and good skills.
Granted that we have no specific knowledge of the future, and humbled by our past experiences of predictions unfulfilled, nevertheless we venture out to make predictions about innovation in 2013.
These predictions are made based on market observations, trend spotting, talking to customers and partners, and the occasional interpretation of actions and outcomes. All predictions are subject to interpretation and variable market and environmental conditions, and should not be used for wagering purposes.
The kid at the dike
For too long many middle level managers have played the role of the kid at the dyke, plugging a hole with a finger, waiting for the right time to make the right patch or repair. Now, however, after years of plugging holes with any available patch, the short term options are rapidly drawing to a close. The old dyke can only be repaired so many times before it must be replaced. Over the last 5-10 years managers and executives have held off, waiting for better economic conditions.
Mid level managers and staff are chaffed at the need to wait for executive direction. They are frustrated on the focus on exceptionally incremental change and to sustain the status quo. They understand the needs and constraints of the marketplace but they want to create new products and services, not simply extend existing products. Executives want innovation for profit growth and to capture market share, but don’t want to jeopardize short term revenues and profits. All of these conditions will come to a head, and employees will demand a greater say in innovation activities. If the leaders don’t lead, expect the staff to start innovation activities and programs of their own, or to exit larger firms and start their own organizations.
Your government (in)action
Most governments have been working under tight constraints for a number of years due to the recession. As the recession lessens but unemployment remains high and demand for services remains high, governments are having to do more with less. They are increasing turning to innovation as a way to provide more services at the same or less cost, and in many cases embedding innovation measures and metrics as part of a delivery contract. State governments in the US, to their credit, are recognizing innovation capabilities as a differentiator and creating new programs to sponsor more innovation as an economic development goal. Colorado, Oklahoma and Rhode Island all have innovation programs worth watching. States that recognize that innovation and ideas will drive the economy will increasingly examine how to create the environment for innovation to thrive.
The education industry is perhaps most likely to be disrupted by innovation, and the industry most transformed by innovation as well. Many educational organizations, both public and private, non-profit and for-profit, are trying to sell classes and certifications on innovation. This is fascinating because many of these same educational institutions are in dire need of innovation and disruption themselves. The old saw about the cobbler’s kids is correct.
New emerging innovations like Khan Academy, Udacity and other virtual or online educational programs are drawing into question the traditional education model and forcing many universities to rethink how they deliver information and value online.
Further, and more importantly to businesses, education about and around innovation is booming, but there are few established standards, so much of the education and certification is questionable at best. While many individuals want more education, and while businesses want workers to have more skills and expertise when innovating, there are few truly well-established training organizations offering deep innovation skills and competencies. Watch for the rise of innovation training and certification, and ask a lot of questions before partnering with any organization that offers innovation education, certification or instruction.
In the US, no industry will receive more innovation focus than pharmaceuticals, medical devices and healthcare delivery. This is due to the sweeping Affordable Care Act and the impending implementation of health care exchanges in 2014. Every state becomes a laboratory for innovation, and the acts far-reaching implications mean that costs must come down, services must increase and the span of coverage must increase.
Worldwide, financial systems, banking and exchange must continue to innovate, to confront rapidly increasing trade and mobility, and to address broad disparities in economies and growth.
Finally, another key innovation industry or arena will be services and products for a rapidly expanding elderly population in Japan, the US and Western Europe. As the boomers retire in the US, they will demand more products and services attuned to their needs. In Japan, sales for adult diapers exceeded sales for infant diapers in 2012. A large and growing market for products and services configured to the elderly population is emerging.
BRIC, CIVETS and MINT
Where in the world is innovation likely to happen in 2013? For years we’ve heard about the BRIC countries, Brazil, Russia, India and China. Brazil offers great possibilities, but Russia doesn’t. India and China are interesting but are so large that innovation can get lost.
CIVETS is an acronym created by one of the investment banks to track emerging economies, and stands for Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa. While these countries were identified in 2010 and 2011, with the possible exception of Egypt all are primed for more innovation. Each plays a vital role in their respective geographic regions, each is posed for growth.
Another investment group tracks MINT – Mexico, Indonesia, Nigeria and Turkey. You’ll notice Indonesia and Turkey show up in both CIVET and MINT. We’d agree – these two countries have a critical role to play and seem poised to play it. Mexico is intriguing – if Mexico can control drug violence, it’s border with the US, its population, both in the US and at home, its proximity to the US and reasonable manufacturing capabilities could propel it into a closer relationship with the US as Chinese and other labor costs increase. More cooperation could lead to more innovation.
Determine Corporate Strategies
First, recognize that innovation is not a strategy. Innovation is a tool or an enabler to help your team achieve its strategic goals. If the goals aren’t clear, then even the best innovation tools and techniques won’t help you succeed. Start by prioritizing your corporate goals. Do you want to:
If these are your goals, innovation can help.
Next, decide “how much” innovation you want, how disruptive or truly innovative you want the new products and services to be, and determine and communicate the acceptable depth and breath of the innovation outcomes. Innovation doesn’t have to be a new product, and often innovation is best applied to new channels, new business models or other attributes or characteristics beyond the product. But only if the strategies and directions are clear.
Read the Trends and Understand Scenarios
One of the most commonly used words in an annual report is the word “surprise”. This in an era where we attempt to eliminate surprises, and always achieve the stated quarterly goals. Surprises occur because of unanticipated changes, poor decisions, unexpected competitive offerings and shifts in consumers or markets. Yet all of these activities happen with great frequency. Why should they be surprises?
In an era of ever-shrinking product life cycles, increased competition and falling barriers, understanding how the future may unfold is paramount. Yet few firms conduct trend spotting and scenario planning exercises, and even fewer are able to use the insights gathered effectively. Scenario planning is the proverbial “low hanging” fruit in the innovation world. Taking the time to understand how your competitors, markets and environments will evolve based on significant trends will help you understand emerging threats, emerging needs and emerging customer segments. This activity becomes more vital as the pace of change increases.
Build innovation competencies
Understand the distinction between innovation as a discrete project and innovation as an internal core competency. Virtually any firm of any size can conduct an innovation activity or exercise. Most of these “one off” projects lead to incremental new ideas at best, and are often greeted with skepticism or outright cynicism.
Discrete innovation projects have a very low probability of success because they are infrequent, conflict with existing capabilities and processes, introduce unfamiliar tools and techniques and introduce risk and uncertainty into a well-oiled efficient process. Building innovation competencies – selecting and training personnel, defining innovation capabilities and processes, changing how the organization thinks about innovation, adjusting rewards and recognition systems – these are the activities that create an environment in which innovation initiatives and projects can thrive. Focus on building the capabilities, then conduct the projects for far greater innovation success.
Choose your products and markets
Increasingly, emerging economies with growing middle classes will demand products and services tailored for their markets. This may mean more “in-country” innovation and the potential for “reverse” innovation – developing new products in smaller or emerging economies for export or use in developed countries. Recognize as well that well-developed economies suffering from economic uncertainty or government instability will demand fewer disruptive innovations. Europe, Japan and the US will experience less innovation for their home markets, except in specific industries under high duress. In Europe, innovation in financial services and banking is likely. In the US, innovation in healthcare provisioning, delivery and medical products is likely in response to the Affordable Care Act.
Free your staff and customers
The pressure cooker of ever increasing efficiency demands, coupled with the desire to do new and different things is reaching a critical boiling point. Your staff and your customers want new products and services after years of holding fire and improving cost efficiencies. The frustration level in many organizations is growing. Employees want to do more, expand their skills and capabilities. They will either start innovation projects on their own or leave to create firms that develop new products to address emerging needs. Customers, too, are tired of waiting and will start creating their own solutions or will seek out organizations that will listen to their ideas or even co-create with them. It’s time to do more – even simple projects that engage more staff and middle managers, and potentially engaged customers.
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