February 2011 OVO Newsletter

Innovation Newsletter from OVO

 

 

OVO Views
Conversations about Innovation
February 2011

– Vol 5, Issue 4

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Let’s face it, February is one of those months we’d like to overlook. It’s the second month of the new year, the shortest month of the year, and it stands between us and spring. But there’s no better time to be an innovator than in February, when we can comment on the State of the Union, acknowledge Valentine’s Day and look forward to spring.

First up: The State of the Innovation Union. If you followed the President’s state of the union speech you’ll know that jobs, innovation and “winning the future” were key messages. Innovation was mentioned eleven times. Let’s look at what the Federal Government is doing to back up those innovation messages. We’ll also use the President’s words and actions as examples for the messages and actions we need from our private enterprise CEOs.

Passion

Saint Valentine’s Day is in February and our thoughts turn to love, and to passion. From an innovation perspective, passion is a powerful thing. We’ll revisit the concept of finding the people with passion for innovation and giving them the room to innovate.

“Why innovation makes executives uncomfortable”

However, “passion” isn’t a word that gives executives comfort, and often, neither is “innovation”. We’ll examine one of our most discussed blog topics “Why innovation makes executives uncomfortable” as a follow up to the section on passion.

Open Innovation “typology”

We’ll preview my chapter in the forthcoming book Open Innovation and Crowdsourcing and present a “typology” for thinking about open innovation.

Why all innovation is disruptive innovation

Finally, we’ll look at the three possible innovation outcomes: cannibalization, disruption and blue oceans, and discuss why most organizations choose disruption as the favored innovation outcome.

Carolinas Innovation Conference April 15

I’m proud to chair the 2nd annual Carolinas Innovation conference which will take place in Charlotte on April 15. Our focus is on Open Innovation, and we have a great lineup of speakers. Come join us!

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State of the Innovation Union

It’s about time

Whether you agree with President Obama’s politics and policies or not, I have to say it was about time that someone recognized how important innovation is to our economy. In his State of the Union address he talked about the importance of innovation. His focus was on both how the government can be more innovative, as well as how innovation can drive more business growth. It is in our interests to see the government deploy innovation broadly to work as efficiently and nimbly as possible, and to establish the conditions that allow businesses, large and small, to create new innovative products and services.

Few people know that we owe much of our innovative spirit to the same people who helped found our government. Thomas Jefferson and Benjamin Franklin were significant proponents of the patent system, which they believed would reward innovators who created powerful new ideas but would also disseminate the ideas and concepts broadly, rather than keep them as corporate or family secrets. They felt the patent system would help create lots of small businesses and create wealth for individuals and for companies, and evidence indicates they were correct. From the start our government has had a role in how innovation was supported.

 

Winning the Future

Perhaps even more importantly, the President linked innovation to another important concept – winning the future. It’s not enough that we’ve been successful in the past. Now, more than ever, we need more innovation at every level of government, in businesses and in our academic institutions.
Nokia offers a clear example of what can happen when a firm fails to constantly consider the future. As recently as five years ago, Nokia controlled over 50% of the cellular handset market. But due to slips in its innovation and product development programs, it is now a distant laggard, overtaken by Apple and by the Droid platform. The CEO of Nokia is convinced that his firm is in danger – his recent note to employees called their situation a “burning platform”. No innovator can rest on his or her laurels for long.

Our governments – federal, state and local – need to innovate to offer the services their constituents need. As budgets shrink, these organizations need innovation to continue to offer as many services with less budget and manpower. These organizations have become far too rule driven and hierarchical, and need an injection of innovation to learn to offer services in new and different ways. Likewise, our academic institutions at all levels have led the world until recently, but are at great risk of falling behind. These organizations too have become ossified and need to innovate to reach students through many channels and for many different goals and outcomes.

Businesses have always understood the importance of innovation, but over the last decade have become fascinated by financial engineering and outsourcing/downsizing rather than focusing intently on innovation. Compounding that fact, the federal government has increased rules and regulations that have distracted businesses and slowed innovation. We must constantly evaluate the regulations and market conditions to ensure we are doing everything to establish the conditions for innovation to thrive.

 

Government Innovation

There is a fair amount of innovation underway in the Federal Government, in many different departments. It’s actually unusual now to find agencies that aren’t talking about innovation. One good example of using crowds and contests to discover new ideas to existing government challenges is challenge.gov. On this Federal website you can find issues or challenges as presented by various federal agencies. These agencies are seeking your ideas to help solve these challenges. This is quite a shift from a very inwardly facing government of even just a few years ago.

There is a real push for innovation in a number of state governments as well. I’ve written before about the Business Innovation Factory, which is a spin-out from Rhode Islands’ Economic Development Agency. Another state that has committed significant resources to innovation at a state level is Oklahoma. At State of Creativity you can see the work the state is doing in several dimensions – academic, business and in the state government.

These are just a few examples of innovation in various federal and state agencies, which we innovators need to support. Further, we need to demand an even greater focus on innovation at all levels of our government, and in our academic institutions and businesses.

 

What Executives can do

President Obama has demonstrated some “best practices” for innovation that many executives can follow. There are at least three things he did in the state of the union address that we believe are critical to starting an innovation effort in a business. First, he established the importance of innovation as a strategic thrust. Second, he, the “CEO” of the company recognized the importance of innovation and demonstrated its importance by talking about it and then acting on that discussion. And third, he communicated how important innovation is to him, and to the rest of us. Setting a strategy and creating measurable goals, demonstrating the importance of innovation “at the top” and communicating innovation frequently and regularly are factors that help drive innovation in any sphere, public or private.

 

What’s Next

For all of us, whether we care to observe what happens in Washington in a federal agency or in our own businesses locally, we have to ensure that we take the next step. Talking about innovation and linking it to strategic goals is valuable, but we need to actually begin some innovation projects and drive them through to the release of new products, services or offerings. Innovation, like many new initiatives or objectives, is very easy to derail. There is a renewed commitment in our government and in our companies for innovation, and those of us who believe in innovation as a competitive advantage must do what’s in our power to see it come to fruition. We must stay ever vigilant. The forces and factors that work against innovation are powerful, and include cultural preferences, inertia, the “status quo” and the fear of change and uncertainty.

 

The Flip Side

What Obama left unsaid is what happens if we don’t innovate – either at the government level or in our businesses. The pace of change is increasing so quickly, customer demands are growing so rapidly and globalization is contracting the world so rapidly that every firm competes with every other firm on an almost level playing field, in real time. The firms that can recognize new needs, generate great ideas and fulfill those needs better, and faster, than their competitors will be the winners, regardless of where they happen to reside. The firms and countries that fail to innovate will be consigned to the dustbins of history. This is not an overstatement, this is a reality.

The US has been blessed with a number of factors that made it a unique innovator through history. Our country was based on small farmers and manufacturers and had no royalty. We fostered a very competitive open and free market, and encouraged education and competition. The US doesn’t have barriers to advancement or a caste system, so anyone willing to take risks can be rewarded. We have recognized and protected intellectual property exceptionally well, and have been able to convert that IP into valuable products and services. All of these factors have made the US an innovation engine, but none of these factors is iron clad, and none of them guarantee that other firms and other countries won’t catch up and compete with us. We must constantly renew our focus, at every level of our society, especially in these types of hyper competition.

 

The State of the Union is Strong

Every president will conclude the state of the union with the statement that the state of the union is strong – why would they admit anything else?- but we know we need to reinforce our innovation and competitive strengths, at the national level, state level and in private enterprise.

As the Federal Government prepares to redouble its focus on innovation, so to must private enterprise redouble its efforts to more innovation.

Passionate People Drive Innovation

St. Valentine’s Day Special

In February we set aside time to remember that special someone in our lives who brings us joy. They are our “Valentines” and they are close to our hearts. In an innovation setting, we also find that passion is also very important, so given the season we’ll focus on passion in innovation.

 

The “right” people

Innovation is a people-centered process or activity, perhaps moreso than any other activity or process in your business. While many activities have been automated, innovation requires people to spot needs, generate ideas, evaluate ideas, test ideas and eventually commercialize the product or service. People play a far greater role in innovation than they do in many other initiatives, especially since the innovation process is ad-hoc or poorly defined.

Innovation is important, so that means that the people assigned are identified and recruited by senior executives, who want to ensure that only the best, most experienced people work on an innovation effort, to improve the chances of success. So executives understand that people play an important and crucial role in the success of innovation, yet they often place exactly the wrong people on an innovation effort. Let’s examine why.

 

People without Passion

Talking about passion in a business setting sounds a bit ridiculous. After all, passionate people are usually completely “sold out” on a topic, or cause, or idea, and don’t always think logically or rationally. In a business setting, we prefer people who are reasonable and rational in their beliefs and goals. Yet in an innovation initiative, passion often spells the difference between success and failure, for these reasons:

  1. Can’t find good leaders willing to take on the roles
  2. Resources and funding level commitments are uncertain
  3. Unexpected and difficult hurdles

Let’s review each of these in turn.

Leadership Issues

Everyone recognizes that innovation is difficult in most organizations. That means it is paramount to have a good leader for innovation. However, many innovation projects fail due to poor leadership, for at least two reasons. First, consider how we assess the power and prestige of people in an organization. Powerful people typically manage large teams. Innovation projects, on the other hand, have small teams. Thus, it can be very difficult to attract good leaders to innovation, since the position can be viewed as a “step down”. Next, consider the risk associated with innovation. In many organizations, failure or even poor achievement against a stated goal ensures that your train leaves the “fast track”. What good, successful manager will risk their advancement to work on a project that’s likely to “fail”?

These two facts – small teams and the high possibility of failure – mean that experienced leaders stay away from innovation efforts. Many innovation leaders are either junior executives who were willing to lead the project when no one else was, or people who were available. None of these leadership attributes will inspire trust, much less passion, in the innovation team.

 

Commitments and Hurdles

In the previous section we identified poor leadership as one reason why passion and engagement are often lacking. Now we’ll look at two other reasons: Commitments and Hurdles.

Commitments

Unless the innovation team is made up of people who have been relieved of all their regular duties, people on the innovation team will have their “day job” responsibilities on top of their innovation tasks. Even people who are exceptionally engaged in the innovation effort will find it difficult to keep up their enthusiasm and commitment as the work they will be evaluated on and compensated for – the day job – slips. Too many competing commitments, too many distractions mean that even the people who are passionate about the idea find it hard to keep the focus and commitment levels high.

Hurdles

In every initiative, there are unexpected issues, changes in plan and other hurdles to clear or barriers to remove. Where innovation is concerned, these issues or barriers seem far more onerous, often because they haven’t been encountered before and there’s little experience about how to eliminate them. Every project will encounter these distractions, but in an innovation effort the number of barriers and hurdles seems far larger, and the team typically has less experience overcoming these hurdles. As the barriers mount, it’s easy to lose heart. Those who don’t have deep passion for the idea are likely to abandon the effort given the number and complexity of the hurdles.

For these reasons, and many more, it is exceptionally difficult to establish and to maintain the passion necessary for an innovation to succeed.

 

Remember the Alamo

In the John Wayne film about the events at the Alamo, there’s a scene where Colonel Travis recognizes his small forces are likely to be overrun. Everyone else in the fort recognizes it as well. Travis draws a line in the earth, and asks anyone who will stay with him to step over. In the movie version, everyone does – they have either given up hope for escape or believe the idea of freedom from Santa Ana was worth dying for. Of course this is probably apocryphal, but it is instructive for innovation teams.

Who on your team wants to be part of the innovation effort? Who on your team has unbridled passion for the idea? Conversely, who on your team was assigned to the innovation effort and doesn’t buy in or doesn’t want to be there?

Too often innovation teams are composed of people who were available or had the “right” skills, but aren’t passionate about the effort or the idea. When the project encounters the inevitable barriers, hurdles or setbacks, the team quickly folds, leaving the passionate people on the sidelines, angry that their ideas haven’t been effectively pursued and cynical about the efforts of the organization in general.

 

Stop looking for the right people

Stop looking for the people with the right qualifications or skills. Do what Travis did – find the people who are willing to put themselves on the line for an idea. Find the people who have passion for innovation and then support them with access to good processes and expertise as necessary. The right people for innovation are the ones who have the passion for it, and often aren’t the people you would have chosen otherwise. Stop assigning people who don’t want to participate and start recruiting volunteers who are excited to be a part of the effort, who won’t skip town when the inevitable hurdles and barriers present themselves.

Why Innovation Makes Executives Uncomfortable
Unexpected Reactions

This article expands on a blog post I wrote in early January entitled Why Innovation makes Executives uncomfortable. You can read the original blog post here. That blog post generated a significant amount of conversation and interaction, and I thought it would be helpful to continue the discussion here in a longer format.

The point of the original blog post was that innovation, while often propounded by senior executives, in reality makes many executives uncomfortable for a number of reasons. It’s instructive to understand why innovation makes executives uncomfortable so that you can more easily convince them that innovation is beneficial when you need to do it.

 

Qualitative not Quantitative

The first reason innovation makes executives uncomfortable is that innovation is more qualitative than quantitative. Most of us have become accustomed to managing our businesses based on hard facts, numbers and statistics. One good example is Six Sigma. Six Sigma is a pervasive management initiative and is based on the concept of statistics, standard deviations, and a reliance on “hard data”. Innovation, on the other hand, is not always quantifiable. It relies on insights and intuition, customer interactions and experiences. Needs and opportunities are defined by small changes and small data sets. Innovation relies on different tools that don’t created deep, rich and statistically significant data sets. Innovation requires drawing conclusions from qualitative data rather than identification of an answer from a statistical analysis. It’s this squishy nature of innovation that makes many executives uncomfortable, since most organizations want hard data to back decisions. To some extent, innovation is a return to “seat of the pants” management. Of course innovation tools provide some data to support conclusions, but not nearly as much as is available in other projects.

Nothing makes a manager who relies on data and statistics more uncomfortable than small sample sizes and qualitative data. Most will never be comfortable with qualitative results and will demand “hard data” and evidence to support the conclusions you draw from your innovation insights.

 

Predictable

Beyond a reliance on quantitative facts, we’ve bred a generation of managers who appreciate and enjoy predictability. Every person reading this has been to a pre-meeting to discuss an eventual meeting, simply to eliminate any surprises in the final meeting. Managers like projects, products and initiatives that are predictable.

Unfortunately, innovation isn’t predictable. While we can typically identify market opportunities or customer needs, the exploration and discovery phase of an innovation project means that we often discover much more than we expected. In fact one could argue that if you aren’t surprised by what you find in an innovation project, you’ve set your sight too low and aren’t really innovating. If innovation only confirms what you already know, your firm is either exceptionally insightful or your scope is far too small. And it’s this unpredictability that makes executives uncomfortable because the lack of predictability may lead to our next topic, loss of control.

 

Loss of Control

Perhaps the worst thing that can happen to an executive or manager in a large organization is to suggest they don’t have “control” over the work that’s being done in their organization. That would be to suggest they aren’t “on top” of things, or that projects or initiatives have gotten out of scope or out of hand, or that the manager can’t predict what is going to happen or is surprised by the results.

If an executive exerts too much control, then innovation is difficult to achieve. On the other hand, an executive who exerts no control allows his or her team to explore any idea, any topic, and suddenly he or she has abdicated the strategic goals of the group to the innovators in the group, who now choose where to invest. Clearly there is a fine line between too much control and too little control, and we believe most organizations err on the side of too much control. This keeps the internal house in order and working to expected norms, but limits innovation.

 

Inefficient

For all the reasons described above, and many more, innovation is exceptionally inefficient. Teams don’t have deep experience innovating, or converting ideas to new products. They stray from standard patterns of work. They have new and different expectations. The more innovation in an organization, the less efficient the organization can be. Managers and executives, of course, want optimum efficiency and effectiveness. Innovation is viewed as a threat to their efficiency goals.

 

But wait, there’s more

The reasons stated above – inefficiency, loss of control, lack of predictability and the focus on qualitative rather than qualitative tools and outcomes – are all reasons why innovation makes executives uncomfortable. Knowing this, then, we as innovators must understand that executives are uncomfortable with innovation and also understand how to alleviate their concerns if we are to innovate successfully.

For example, when innovators use qualitative tools, we need to demonstrate to executives WHY the tools are valuable and useful and where they’ve been used successfully before. A good example is Bank of America and their Keep the Change program. Their teams used ethnography and noted that moms rounded up their checks when they recorded the checks they had written in their check registers. From this they created an offering to allow people to gain rewards for doing what they were already doing. We at OVO used this example to convince other firms that qualitative research tools like ethnography have been used effectively by other firms. For every reason that innovation makes executives uncomfortable, we need to be prepared to demonstrate that we understand those concerns and have thought through methods to alleviate concerns or at least reduce the concerns, so executives are more comfortable with innovation. Acknowledging that executives can be uncomfortable with innovation isn’t enough; good innovators understand the need to go further and provide information or examples to help reduce concerns.

 

Conclusion

In this article we discussed why innovation makes executives uncomfortable and what you can do to reduce that discomfort. This article and the previous one – how to find and use the passionate people in your organization – will do a lot to develop more commitment and buy-in when you start an innovation effort. More than anything else, the commitment to innovation and the work involved will assist an innovation effort or will perniciously chip away at the support for the effort until it is terminated.

Open Innovation Models

Open Innovation and Crowdsourcing

I’m pleased to have been part of a team that developed a new book that will be published in March 2011 called Open Innovation and Crowdsourcing. Paul Sloane was the editor and requested book chapters from a number of noted innovation specialists who focus on open innovation. You can find the book on Amazon here.

 

Open Innovation Models

My chapter considers open innovation as a “generic” term, which stands in for a number of tools, approaches and methods. Open Innovation is simply a catch phase for a number of methods to interact and engage with customers and business partners to generate, manage and develop ideas into new products. What’s interesting from my perspective is that the approach or “model” that you choose has implications on the kinds of ideas you’ll generate, who owns the intellectual property and the resources necessary to support open innovation.

 

The Open Innovation Typology

Look at the graphic at the top of this article. It represents an X-Y plane. The X axis represents the number of external entities that can participate in your innovation initiative, from zero to “everyone”. The Y axis represents how you indicate or direct what you want them to submit, from their own suggestion to answers to specific problems you want them to help you solve. With this framework in mind, we can identify four different open innovation models:

  • Anyone suggests anything
  • Anyone responds to a specific need
  • Few people suggest anything
  • Few people respond to a specific need

Each of these approaches or models is different, requires different strategy, different staffing and will result in different outcomes.

 

“Anyone” model

Some open innovation approaches allow virtually “anyone” to participate. Perhaps the best known of these are sites like IdeaStorm or MyStarbucksidea. Lately the federal government has entered the idea management space with Challenge.gov, which allows citizens to suggest ideas to government agencies. In these applications, anyone with a web-browser can submit ideas, and can typically rank the ideas that have been submitted and often can comment on the ideas as well.

In these models the customer or partner controls the input and decides what kind of idea to submit and the scope and impact of the idea as well. This means there is a wide range of ideas on a wide range of topics. Additionally, any idea management system exposed externally takes on many of the characteristics of a social media platform, so your innovation teams must engage and communicate with the idea submitters. If there’s no engagement, the idea management site will suffer, since customers have grown accustomed to interacting with each other, and with employees on social media sites.

 

Invitational Model

Many companies favor the invitational model. In these models participants are selected for their relationship and knowledge. Proctor&Gamble’s Connect+Develop proprietary network is probably the best known example of this approach. In this model companies partner with a few customers or business partners to develop ideas and sometimes to co-develop products. Since the number of participants is small and controlled, there are few IP issues and the information exchanges have far greater depth.

In the invitational model the number of participants is far lower, and the focus is typically on one very specific need or opportunity as defined by the firms in the network. This means that the participants are well-prepared, understand the opportunities and challenges and can develop several ideas very quickly, rather than spend a significant amount of time generating ideas and evaluating ideas that don’t matter.

 

Implications

Probably the most important aspect to grasp about “open innovation” is that it is simply a label applied to a lot of different approaches and techniques. At the most basic level, open innovation is simply working with external firms, partners or customers to generate, manage and create new ideas and products. As we’ve attempted to demonstrate, however, there are a number of different tools, techniques and methods that a firm can use to pursue “open innovation” and these different approaches have radically different implications and outcomes.

A broadly participative innovation effort like IdeaStorm encourages many people to participate and results in an enormous amount of ideas. Additionally, these sites begin to take on many of the aspects of social media – customers see this as a way to “talk” to the company and expect the company to talk back. Invitational programs require a much more capable intellectual property management capability and business development and relationship management capability. These programs typically generate fewer ideas but take the ideas much further down the development path. They require a completely different set of skills than more participative open innovation models.

The point we are making is that open innovation is a very general term. If your executive team decides “open innovation” is something your firm should pursue, understand their goals, and commitment levels and investment options, then choose the approach that best aligns to your goals and strategies.

Three Innovation Outcomes
Why most innovation looks the same

There are three outcomes that innovation can create. Innovation can radically change an internal issue or product, which we’ll label “cannibalization”. Second, innovation can radically change an existing market, whether you participate in that market or not. We typically call this action “disrupting” another industry or market. Third, innovation can create a new market or customer segment, what the authors of “Blue Ocean Strategy” called a blue ocean. In this case you may create a product that serves the needs of a completely unserved market.

Whether your innovation is a product, a service or a business model, it will result in one of these three outcomes. What we’d like to do now is explain why so many innovations are “disruptive” and why so much innovation work seems so similar.

 

Challenges

The reason so many innovations and so much innovation work seems so similar is that of the three outcomes, disruption is the choice over 80% of the time. Most organizations arrive at that decision through a process of selection. Let’s look at the innovation outcomes that confront an innovator and examine why disruption is often the course selected.

Cannibalization

It’s easiest to cannibalize an existing product or service, since you are replacing an existing product or service and you know the market and customers. The challenge with cannibalizing existing products and services is that you are undercutting an existing revenue stream. Further, by undercutting an existing product or service, you are directly impacting some executive’s quarterly result. So while cannibalization is possibly the easiest innovation model, it is rarely used. Since it is rarely used, many firms are often “surprised” by disrupters who deliver products or services that disrupt their “sacred cows”, doing what internal innovators couldn’t.

Blue Ocean Strategy

The Blue Ocean strategy, defining a product that meets the needs of unserved or underserved customers, is probably the most compelling approach, but it is also the most uncertain. It combines two risky attributes: creating a new product or service and defining a set of customers whose needs aren’t well known, and who haven’t been well served previously. While every firm would like to create a “blue ocean” offering, few do so effectively because of the risks involved. Those risks include understanding customer needs, especially since we aren’t familiar with those customers, and creating a new product for these customers. These risks don’t exist in isolation; they compound each other, making the risk profile too high for most firms to tolerate.

After reviewing these two innovation outcomes, most firms turn to “disruptive” innovation as the last remaining option, given the risks and uncertainties of cannibalization or “blue oceans”.

 

Disruptive Innovation

We define disruptive innovation as introducing a distinctive new product or service in a market or industry controlled by some other firm. We seek to “disrupt” their market the way Apple disrupted music distribution, as an example. This outcome seems less threatening to executives because 1) it does not impact the firm’s own products or services that are currently generating revenue, unlike cannibalization and 2) the customers targeted are reasonably well understood and already exist as a market. This validates the market rather than having to create a new market following a Blue Ocean strategy approach.

When every firm follows the same innovation strategies and chooses the same innovation outcomes, then it is no wonder that many innovation outcomes, products and services seem very similar.

 

What you can do

Every innovation project should begin with a careful consideration of outcomes. Most projects immediately reject internal disruption and will toy with “blue ocean” but ultimately will settle for “disruption”. Too often these same firms are surprised when a competitor or new entrant disrupts the products and services they chose not to cannibalize. Rather than make quick decisions, think strategically about your needs and your competitors. New entrants to your market and new competitors will be quick to disrupt the products or services you are afraid to cannibalize, and in every market there are underserved or unserved populations waiting for the right product or service. Don’t decide too quickly about the outcome, and make sure you are intentionally deciding the outcome rather than settling for a disruptive approach.

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