Tuesday, April 24, 2012

Stop Blabbing About Innovation And Start Actually Doing It

---- by Aaron Shapiro is CEO of Huge, a digital agency.

These days, every established company is at risk of having its industry--and its own business--disrupted by a startup. Cognizant of this, companies devote a lot of time to talking about how important it is to innovate. But here’s the truth: most companies can’t innovate because everyone is paid to maintain the status quo.

This is the single biggest reason companies fail to do anything new or exciting. You and everyone else are maxed out making sure your company is doing what it’s supposed to do; innovation is what the weekends are for.

Despite the real risk involved, this actually makes sense. Companies are set up to do one thing very well. That’s the business they’re in. All of the roles in the company are defined and structured to create the best environment for doing that one thing as efficiently as possible. The number of people employed by the company fluctuates with the workload. More work, more people. Too many people and too little work means layoffs or mismanagement. Success is doing the same thing you’ve always done, just a little bit better, achieving just a few more sales or shaving a hair off of costs. Change is discouraged by time constraints and the stifling number of approvals needed. Failure is punishable by pink slip. Every day is the same.

Yet, today, your entire industry can change in the space of a headline. If your business can’t innovate, it won’t survive when the startup in the garage across town that doesn’t have to answer to your shareholders does all the things legal has been telling you that you can’t do, all the things that you don’t have time for. It’s never been more urgent to stop talking about innovation and actually start doing things differently. And, with digital, the opportunities have never been greater. Instead of innovating on your weekends, overcome the structural impediments and time constraints to real change by approaching innovation from two directions: outside-in and inside-out.

“Outside-in,” when not based on acquisition, often comes in the form of a skunkworks project. It’s colloquially defined as a startup funded by the parent company, but kept separate from the dysfunction and sluggishness of the whole, in order to incubate great technological advancements. I’ve referenced this tactic before, as the first step big businesses should take to evolve their organizational structures. Google, JetBlue, NBC Universal, and News Corp. have all used the strategy.

Here’s the recipe:

Set the right goals. A skunkworks project should be tasked with developing a new, specific tech product or service.

Give the team freedom to create. Bureaucracy, office politics, and the aforementioned requirement to keep the ship sailing straight ahead all slow down and inhibit big advancements. To succeed, the skunkworks team must be kept free from these deterrents.

Appoint separate senior management. Management by committee is not an option. The quickest route to failure is slow decision making. The skunkworks team should report directly to a senior-level executive who is authorized to green-light initiatives that are separate from the company’s main purpose and to implement these new solutions.

Choose a separate location. The team should not be housed in the corporate headquarters. Ideally, it should live nearby, but in some cases, it needs to be in a completely different location to be able to access the right talent. When Johnson & Johnson decided to build a unit oriented to design, creativity, and technology, the division planted a flag in an old industrial building in a trendy neighborhood in New York. Its corporate headquarters are in suburban New Jersey.

Mix up the staff. The staff should be a healthy hybrid of high-performing internal employees and newbies, so that some participants are familiar with the company’s core business while others have an open mind and fresh ideas.

Give it time. Really well-developed products often take a year from the time people start working on them until launch. You can get things done in six to nine months, but it’s unusual, especially if the team refines it with iterative improvements.

Bring it back into the fold. Once the project is complete, skunkworks team members should move back in with the parent company. They either become a distinct department or are dispersed throughout the company, in order to effectively run and manage the particular product.

On the other hand, “inside-out” innovation is all about incentivizing existing staff members to be revolutionary within their own jobs. The most important ingredients are largely cultural:

Freedom to fail. Traditionally, companies are averse to risk, so if you fail at something, it hurts your career. But to innovate, you need to be able to try new things without risking your livelihood. As Thomas Edison said, “I have not failed. I've just found ten thousand ways that won't work.”

Free time. Performance evaluations for managers should include assessment of the volume and quality of new ideas they brought to the table. If the company’s priority is solely productivity, no one will have time to think about creating something new, let alone bring it to life.

Training. An office that encourages and facilitates education openly admits there’s room to grow and inspires people take that leap.

The risk involved in these changes is less than the risk of not making them. Innovation is outside the comfort zones of most businesses--but so is Chapter 11.

Thursday, April 19, 2012

Choosing where to innovate

The business decision network exposes all the decisions creating value for the business, making it easy to see where innovation might create or enhance value for the business. Types of innovation are identified by the type of decision being made. For example, a target market decision would be the source of market innovation opportunities. Similarly, a brand strategy decision would lead to brand innovation opportunities.

The innovation frameworks above focus on different elements already included in the decision framework

Category lifecycle points toward which decisions in the business strategy are likely to generate value for a product or service category.
Industry patterns suggests decision groups that might generate new value in a given industry.
Impact or scope suggests the potential change impact innovative decisions can have on the business. Innovation in strategic decisions will have greater impact, while changes lower in the network are more likely to generate incremental value. In either case, the decision framework enables an evaluation of potential impact, including positive or negative changes to current markets, profits, or competition.
Internal or external focus is a consequence of which strategic decisions are considered when innovating. For instance, choice of a strategic partner would imply an external focus.
Innovation measurement is enabled by the decision network where outcomes can be traced to the sources of innovation, the decisions that created new or sustained value.

When using a decision network as an innovation framework, each decision provides the basis for creating ideas focused on a real business problem, making each idea a potential innovation.

Choosing where to innovate

Finding new opportunities to innovate and create value is often a routine expectation of research and development. However, the types of innovation exposed in the frameworks above suggest multiple sources for innovation across the business, function, organization, or industry.

Ultimately, value is created in the decisions made for the business. A decision framework provides the complete environment for innovation. It simultaneously identifies the type of innovation, along with the context to evaluate the potential value, impact and scope needed to make an effective investment choice.

Coming up next: Disruptive Innovation Stories from India

Innovation & Types

There are many different types of innovation but the two most popular types amongst innovation specialists are incremental innovation and radical innovation. This can be further classified as 

Incremental: Sustaining & Break-through
Radical : Disruptive & Transformational. 

Here are the definitions to make the concepts clear:

Sustaining products and services are the kinds of innovations companies often need to develop just to stay in the game. These incremental innovations can be thought of as variations on a theme. For example, in the category of household cleansers, a sustaining innovation might involve making the cleaning agent 10% stronger or pairing it with a new scent.

Breakout offerings are those that significantly up the level of play within an existing category. The sleek Motorola Razr, with its boundary-pushing design, was a runaway success for Motorola. Seeing it, customers couldn’t help but want it--over time making it the best-selling line of clamshell phones ever. That said, it was still a clamshell phone, sold and used in much the same way as previous cell phones.

Disruptive innovations are the sort of big ideas that many of us have in mind when we think about an innovation. They are called disruptive because they disrupt the current market behavior, rendering existing solutions obsolete, transforming value propositions, and bringing previously marginal customers and companies into the center of attention. The iPod, which radically changed the way we listen to and buy music, is one such innovation.

Transformational is the most difficult because it changes the way we live and often makes big companies, even whole industries, obsolete in a short period of time. Most organizations are loath to pursue ideas that will make themselves obsolete. Unfortunately, this is one of the reasons that they die. The computer and entertainment electronics industries have been prime examples of this. How many of us have audio 8-track machines, cassette players, videotape cameras, recorders and players, bag phones, clunker desktop computers, etc. sitting in our basements? In most cases transformational innovation starts in someone's "garage;" by a visionary outsider. It rarely happens within the walls of an organizational structure.

Breakthrough innovation falls between incremental and transformational on the innovation spectrum. It requires significant change on the part of the innovating organization, both in terms of cultural and systems support. It creates true competitive advantage for a sustainable although increasing shorter period of time and it involves significantly more risk-taking, which is why the decision-making that results in true breakthroughs must in many ways be the opposite of the decision-making that supports incremental innovation. It must be sponsored at the top. Breakthrough ideas create new markets and business opportunities that did not exist before. Therefore, there is no "frame of reference" upon which to deliver the metrics called for by a Stage Gate process. Customers don't have a frame of reference by which to easily judge the idea, business analysts have no track records - no sales numbers, no relevant trial or repeat data, etc. upon which to build volumetrics. For this reason breakthrough needs the higher level of consideration and judgment.

If transformational innovation sits at one end of the innovation spectrum, then the opposite end is Incremental Innovation. This is the kind that most of us are used to pursuing. It focuses on the kinds of improvement that keep a product, brand or company in the game. They tend to be line or brand extensions, new bells & whistles, new packaging, new improved ingredients, etc. In fact, an Advertising Age innovation study several years ago concluded that over 60% of innovations claimed by the consumer products industry were nothing more than packaging improvements. Nevertheless, it is instrumentalism that fuels most of the competition experienced in any industry. And it is this type of innovation that requires:
Multi-disciplined, cross-functional collaboration
Strong, definable metrics at each decision-making point 
Consensus-based decision making between multiple stakeholder functions
Internal competition for people, money, and operational resources, such as: R&D
Packaging development
Qualitative and quantitative market research
The interruption of production lines for short, unprofitable test market runs
Distribution channel support in small test market geographies where channel competition is fierce enough for the established brands (who has the bandwidth to push the new ones [sales] or hear about them [buyers])
Promotional and advertising development, etc.

The amount of resources that are made available for this type of innovation are almost always tied to current business performance; available in the good times and one of the first things to be cut in the bad times (right after the ad budget).


Because disruptive innovations have the potential to yield the greatest benefit to a company, firms often make the mistake of thinking that disruptive products should lead to immediate market success. Even worse, some firms unwittingly begin to classify their products purely on the basis of their immediate market forecast, calling likely big hits “disruptive.” In fact, the opposite is true. Because disruptive offerings differ significantly from the status quo, they often test poorly and require time to gain market acceptance. Indeed, one should actually be suspicious of so-called disruptive innovations that show immediate widespread success.

The typical profile of revenue performance is:

• Sustaining: Immediately moderate, then tapering off.
• Breakout: Rapidly strong, then quickly dropping to a lower level.
• Disruptive: Longer gestation period leading to exponential growth.

There often tends to be confusion between innovation (the ability to make new things actually happen) and creativity (the ability to have original ideas / see a different way of doing something).

Creativity is the thinking, innovation is the implementation.

Innovation is not just about brand new products. There are many places where you can be innovative and often the context helps define innovation.