“Pulling in the future”
Two crucial questions of innovation:
- What will customers want tomorrow?
- How can we give it to them today?
The Importance Of Innovation
“In a world of ever-accelerating change, innovation is the only insurance against irrelevance… the only antidote to margin-crushing competition.” - Gary Hamel, Innovation To The Core, pg xviii
Peter Drucker poignantly emphasised that the 2 essential components of business are innovation and marketing.
“Because the purpose of business is to create a customer, the business enterprise has two?and only two?basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business.”
Peter Drucker, the father of business consulting.
So What Is Innovation?
How do we know when we have innovated? By what standard do we measure what is an ‘innovation’?
Is it enough for something to be new or different to value it? Of course not. So innovation in business must be directed towards the business objectives. (Which boils down to the Marketing function, i.e. ‘going to market’ in a way that builds sustained competitive advantage and increased shareholder value, through solving customer needs, and filling customer wants.)
I like the model that considers 3 levels of innovation:
Incrementalism (e.g. split testing changes in a company newsletter to increase click-through rates)
Iteration – alluding to a compounding effect of multiple incremental changes. Consider the waterfall model that sees a priority based set of dependencies that upgrade a project/product/process/etc to higher levels of development, each stage layering on top of the previous progress.
A Breakthrough that jumps from one state to another, creating a distinct gap between what came before. Seth Godin’s idea of a Purple Cow – something so remarkable that it immediately jumps out as noticeable and compelling.
New Product Development
A simple theoretical model…
Idea Generation > Screening > Concept development and testing > Business analysis (finances only) > Product development > Test marketing > Commercialisation and launch.
This does not include production and distribution or various aspects of the value chain and supply chain management.
The Drive for Innovation
“Innovation from Everyone and Everywhere” Whirlpool CEO Dave Whitwam, 1999
The Possibiliites For Innovation
“We argue that it is entirely possible to boost your company’s innovation perormance in a dramatic and enduring way, but it can only be done if you are prepared to make innovation a systematic enterprise capability” – Innovation To The Core, pg 15
Preconditions For Innovation
Three criticial preconditions for making innovation happen: (Innovation To The Core, pg 26)
- Creating time and space in people’s lives for reflection, ideation, and experimentation
- Maximising the diversity of thinking that innovation requires
- Fostering connection and conversation – the ‘combinational chemistry’ that serves as a breeding ground for breakthrough ideas
We must reduce distractions, and create more ‘bandwidth’.
We want diverse people, with polarised strengths, including some who are:
- divergent thinkers and convergent thinkers
- more analytical and more creative
- close to the head office and far-away
- younger and older
- lots of experience and lots of imagination
- who undersatnd technology and understand people
- from inside the firm and from outside the firm
“Don’t be afraid to add some noncomformists, some frustrated activisits, and some peole who are perhapa a little weird and eccentric… Experiment at the California Institute of Technology showed ‘diverse groups of problem solvers consistently outperformed groups of the best and the brightest.” – Innovation To The Core, pg 31-32
Building An Innovation Pipeline
Strategic Insights come from Four Lenses of Innovation (Innovation To The Core, pg 46)
- Challenging orthodoxies:
- Harnessing discontinuities:
- Leveraging competencies and straregic assets:
- Understanding unarticulated needs:
Questioning deeply held dogmas inside copanies and inside industries about what drives success.
Radical innovators are almost by definition, contrarian. Companies that are radically reinvesting customer expectations and creating most fo the new wealth are invariable the industry challengers – those willing to questiondeeply held dogmas and to be contrarian.
Find orthodoxies by…
- Surfacing the dogmas – Identify common assumptions by the use of ‘is-of-identity’ language (look up e-prime), e.g. ‘price ‘is’ key’ or ‘this customer group ‘is’ priority.
- Finding the absurdities – Look at everything through the eye of a customer to uncover policies or systems that are absurd from their POV.
- Going to extremes – Ask what would happen if we pushed this to a rediculous limit… you might find the next Amazon.
- Search for the ‘and’ – Not that it can be done this way ‘or’ that way, but perhaps it can be done this way ‘and’ that way
Spotting unnoticed patterns of trends that could substantially change the rules of the game. Radical innovators are not forecasters or scenario planners. Instead, the are aware on some deep level of things that are already fundamentally changing, as John Naisbitt puts it, ‘the future is embedded in the present’, so that we discover as Peter Schwartz puts it, ‘the inevitable surprise’.
The goal is to surf the ‘tides of history’, to find and exploit discontinuity… where patterns or clusters of trends converge in intersection points.
Focus on identifying changes in the external environment, and then influence and amplify them.
- Look where your competitors are not – the bleeding edge
- Amplify weak signals to anticipate second and third order consequences
- Understand trends in their historical context
- Look for interactions between trends
Leveraging competencies and strategic assets:
Thinking of a copany as a portfolio of skills and assets ather than as a provider of products or services for specific markets. But most companies define themselves by what they do, rather than what they know or what they own.
- Core competence (what you do) – a unique or rare bundle of skills, knowledge, and experience that delivers a valued customer benefit and competitive differentiation. They have 5 criteria: 1. Create value for customer. 2. Unique or scarce. 3. Sustainable. 4. Important to positioning. 5. Can be leveraged into new throughput. – Innovation To The Core, pg 62
- Strategic asset (what you own) – a corporate possession that is difficult to imitate, developer or acquire and that providea a basis for competitive advantage, pg 62
Many types of strategic asset including:
- Input assets – access to suppliers, supplier loyalty, financial capacity
- Process assets – proprietary technology, standards, functional expertise, infrastructure
- Channel assets – access to distributors, distributor loyalty, distribution networks
- Customer assetrs – customer information, customer loaylty, brand recognition
- Market knowledg assets – understanding of customer, cmpetitor, and supplier behaviour
Understanding unarticulated needs:
Learning to live inside the customers skin, empathizing with unarticulated feelings and ideneitfying unmet needs.
Radical innovators are deeply empathetic; the understand and feel the unvoiced needs of customers. They bypass traditional market research methods, relying instead onf ‘getting into the customers skin’.
Customer insight: An unmet need of a customer frustration that can serve as the basis for a new business opportunity
Look for deep unarticulated needs and frustrations in an effort to uncover new and unexploited innovation opportunities. Remove the distance between you and them. Immerse yourself in their environment and make their needs, frustations, and desires your own. That means getting out of the office for:
- Direct observation – shadowing the customer from multiple vantage points
- Customer experience mapping – developing a deep empahtetic undersatnd of what it feels like to be a customer at every stage of the demand chain
- Analogies from other industries – learning from other companies that are dramatically reshaping customer expectations
“Ultimately, what you want from the disovery proces is not just a collection of insights but a common point of view. You want your discovery teams to be able to tsay, for example, “Here are what we believe to be (a) the most important orthodixies our compay can overturn; (b) the discontinuities that have the most potential to upend our indusyry; (c) the core competiences and strategic assets we can best leverage into new products markets, or businesses; and (d) the most significant unmet needs of customers – and potential customers- that we can address to creat ve new value” – Innovation To The Core pg 79.
Methods of Innovation
…that stand out in my mind right now:
Creative Process Tools
By increasing your capacity with the natural creative process (see notes on Fritz above), you become more adept at spotting opportunity for innovation.
The popular tool for brainstorming to generate new ideas. Pen and paper work great too.
Structural Tension Charting
A tool I learned from Robert Fritz that has made a permanent impact on the way I think about and approach any project. STCs have 3 elements: Desired Outcome. Current Situation. Milestones & Steps. Simple. Powerful. Each milestone can itself become a new STC. (Wiki’s provide a great way to develop STCs).
The Theory-Of-Constraints Thinking Tools
This one is a lot more detailed, and something I endorse for anyone that wants to get into nitty gritty control of Project Management.
Creative Process Facilitation
“We need people who are creative, good at idea generation, never satisfied with the status quo; the awkward ones who are never content, always challenging, questioning and trying to change things. We need rebels and troublemakers, as long as what they are doing, more often than not, is in the end productive.” – probably the best paragraph in the whole book Managing Marketing by Palmer, Cockton, and Cooper.
This can be done in various ways such as open brainstorming meetings. Team surveys to elicit creative ideas. Messages that share ideas across the team. Use of shared documents on Google Documents. Email discussion groups, message boards, etc.
One method that combines the Structural Tension Charting theory with team synergy is using a wiki for collaboration across a team.
For large enterprise, the Balanced Service Scorecard can provide comprehensive control over the key areas of business success in a way that fosters innovation.
Resources For Innovation
Again, for large enterprise I believe the Balanced Service Scorecard gives the best way to measure innovation.
Risks Of Innovation
The Ansoff Matrix
In terms of introducing new products to new markets, Ansoff recognised a possible increased business risk the newer the product to our target market, and the less experience the company has of that target market.
[widget id="ad-continue-management"]Ad: continue-management[/widget]Of course, innovation is fundamental to business development and progress, so the risks of not pursuing innovation are essentially far higher than pursuing ‘high risk’ innovations of new concept products or markets.