GUEST POST from Jeffrey Phillips

In case you’ve been out of town or very busy with your workload, you haven’t failed to miss the fact that the ongoing recession (or very slow recovery, if that’s what it is) is not creating the atmosphere for a lot of hiring by larger corporations. In fact, somewhere in the neighborhood of 10 million people are out of work, and the workforce participation rate is the lowest it has been since the Great Depression.

What this means is that there are a lot of people out of work, for whom there are few options in the traditional employment pool. Large companies aren’t hiring, government is actually shrinking, the military is overachieving its quotas. So, what this means, and what it has meant in the last few recessions or depressions, is that many unemployed people will decide to start their own companies or create their own jobs. In several recent recessions, there’s been a flowering of entrepreneurship as those displaced from larger corporations started anew and created their own businesses. I guess this is a logical progression, as new industries, new businesses and new corporations are formed by those who are let go, or never had a chance in larger organizations. I suspect what we’ll also see is a large but static set of firms and a growing number of smaller, more dynamic firms less interested in size and more interested in networking, agility and flexibility.

What this means is that innovation increasingly becomes a networking and connectivity exercise, as the smaller firms need access to markets and channels that larger firms provide and larger firms rely increasingly on smaller firms for new ideas and new technology. This is the open innovation paradigm writ large, far larger than today. Today, many large firms have a handful of corporations as partners and perhaps a few dozen smaller firms in their networks. With over 10M unemployed, if only 20% start new businesses, there could be up to 2M new businesses with plenty of new ideas, products and services available in just a few months. That means the scouting and business development portions of large businesses must increase. Simply identifying the firms that have good ideas will become much more difficult, as the numbers increase and as new firms enter the marketplace. Many of these new businesses will be started by corporate outcasts, who have toiled on new ideas and new technologies for years in larger firms, only to see their ideas stymied. These new businesses will take advantage and push their long-stalled or rejected ideas forward in new businesses or as idea or technology generators for larger firms.

What’s needed in the near future for innovation to accelerate is better networks, better connectivity and better communication. As the number of new innovators and inventors grows, the number of ideas and technologies will grow as well. Larger firms must do a better job communicating their needs and goals to this constellation of new entrepreneurs, and both small firms and large firms must create a marketplace for the exchange of ideas and needs. Open innovation will get a lot more open, and a lot more interactive. I suspect that we’ll see larger firms increasingly outsource innovation to entrepreneurs, and the large firms will acquire those ideas through open innovation or through outright acquisition of the entrepreneur.

Yes, we are in the middle of a tremendous economic slowdown, and the news doesn’t look all that promising from a jobs perspective for larger firms. History tells us that many of these displaced individuals will start new businesses which will spark new economic growth, but more importantly become the catalyst for innovation in firms of every size. In fact, this has probably already started, we just aren’t aware or paying attention. It is time to pay attention, and the time for large firms to build the networks, connections and communication to identify, source and acquire the best ideas, and the means to convert the excellent ideas and technologies into new products and services. If history is any guide, new entrepreneurs will flood our markets in the next few years with new companies, new products and new technologies. Larger firms will constrain hiring to drive up stock prices, but will need new ideas to keep pace with change. Open innovation will simply become even more important, and the people who can create the networks and connections between the innovators and the corporations will profit.

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GUEST POST from Jeffrey Phillips

It’s with some sadness that I note the latest news from the United States Postal Service. Their plans currently call for the reduction of hundreds of thousands of jobs, and the elimination of thousands of post offices across the country. The Washington Post reports that the Post Office must make billions in payments for employee and retiree pensions, while mail volume has fallen over 20% year on year.

I grew up on a farm, at a time when there were three major TV networks, of which we could receive two. We had a party line telephone at first, and our contact with the outside world consisted of interactions at the country store, or when we received mail, which included catalogs, magazines and letters from friends and family scattered throughout the US and across the world. The mail at that time and in that place opened up a world beyond the farm.

We’ve watched, over the last few decades, as the USPS has been racked with competition, from UPS for packages, Fedex for overnight delivery and by the advent of email. Much bulk rate and important document transfer goes to UPS and Fedex, and we’ve become a nation of Tweeters, emailers and Facebook posters rather than letter-writers. Even many businesses have recognized the power of the internet and encourage online bill-pay, so soon all that will be left for the post office is unsolicited mail and advertisements.

It didn’t have to be this way. The Post Office, like GM, like the big steel companies fell victim to its importance and its world view. GM, recall, was happy to cede the “low end” of the market to new entrants, Toyota and Honda. In a Honda dealership recently I saw one of the earliest Honda imports to the US, and I wondered how desperate the buyers in the US were to acquire that car over US manufactured cars. Big Steel ceded the low end of the market to Nucor and other mini-mills, and the mini-mills discovered that they could do everything Big Steel could do, with better quality and lower costs. Clayton Christensen’s concept of disruption rings true in all of these stories. Could the Post Office have competed or even introduced the concept of overnight shipping a la Fed Ex? Of course it could have, but the offering probably would have cannibalized existing customers and services. Is the Post Office bound by inflexible scope and rules, having to visit every household 6 times a week? Yes, but could it turn that requirement into an advantage?

Here’s the point – it’s often as important to innovation your “purpose” as it is your “product”. I’m sure the USPS has introduced a number of new products and services, but has it carefully thought about its purpose? The famous example being buggy whip manufacturers. Perhaps, if they had defined their purpose as “Starting Transportation” rather than “whipping horses” they might have made the transition when the car took over. Who really knows? But using the Post Office as an example, let’s explore a few concepts for purpose.

The USPS states that it has an unfair requirement to visit every home six times a week. Could that visit be used to create other services or information? Why not have the Postal Carrier help with the Census? Why not have the Postal Carrier offer to check in on the lonely or isolated people? Why not have the Postal Service read a utility meter for the utility company? Why is Google photographing homes when the Post Office visits every home every day?

Or, could the USPS have delivered something other than the mail? Could they have structured their routes to deliver groceries or other goods? After all, they have the most thorough and complex routes of any local delivery service.

Could the USPS have defined their mission as message delivery, rather than mail delivery, and entered the business of managing email systems and servers? I’m sure there were many barriers put in place to attempt to keep them out of that business, but a simple redefinition of their business and purpose could have placed them at the center of messaging. Why is a small firm called Twitter managing much of our short messaging to each other?

There were many opportunities, and perhaps some still remain, for the USPS to question its purpose and to reinvent and innovate its purpose. Historically, in our economy and society, firms had long runway to recognize societal and technological change and adapt to that change. A firm could be slow, but adaptive. Those days are over. Firms must adapt not just their products and services, but must innovate their purpose as well, because even purpose and strategy have much shorter lives than they once did.

Innovate your products, yes, and your services and your experiences. But don’t neglect to constantly question your purpose. That may be the most important thing to innovate.

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GUEST POST from Jeffrey Phillips

Samuel Taylor Coleridge wrote the Rime of the Ancient Mariner, with the couplet:

“Water, water everywhere and all the boards did shrink;
Water, water everywhere and not a drop to drink.”

He wrote this imagining a sailor, adrift at sea, who is driven mad by thirst. It’s ironic that the sailor is floating in a sea of water, literally surrounded by water, but none that he can drink.

I wonder what Coleridge would have thought of our political and business climate today, which seems shackled, stagnant and stalled, while there are literally thousands of ideas available. Following a 600 point drop in the stock market, a political system that seems deadlocked and an economy that seems very uncertain, it would appear that we are heading for 70s style stagflation, only without the inflation. So just stagnation. Yet we are literally awash in ideas, if only we have the foresight, courage and energy to start adopting them.

Recently I wrote a post that suggested that of all the critical resources or inputs that have propelled our economy (land, labor,oil, ideas) only ideas were truly inexhaustible. We have, or will, exhaust all of the arable land available for agriculture. We will exhaust our ability to add value with labor. We will exhaust our oil supplies. But the exhaustion of those inputs does not have to stymie our economy or growth. We have an inexhaustible source of creativity, ideas and innovation, which if applied correctly can create solutions to these and many other challenges.

To see just one example of human-kind’s ability to innovate, consider the Simon-Erlich wager. In 1980 two economists made a public wager about a basket of commodities. Erlich, who was concerned about increasing populations and uncontrollable demand, bet the basket of commodities would rise. Simon bet that human ingenuity and innovation would keep the prices of the commodities low. In 1990 Erlich conceded the bet. Although population grew and demand for the commodities increased, the price of every commodity but one in the basket fell. Over a much longer period of time, all of these commodities are exhaustible but the ingenuity and creativity that kept prices low for a decade remains, and will discover alternatives or replacements as the original commodities are exhausted.

Our generation is the most interconnected, well educated generation on the planet. We have access to information unsurpassed in human history – in fact we generate more information on a daily basis than was collected in the first 10,000 years of human history. We can spot trends, generate ideas and test those ideas with greater speed than ever before. We have access to a diverse pool of knowledge – from the Middle East, Africa, India, China and Europe. We are literally awash in ideas, yet stagnant in opportunity.

Further, we have the possibility of a network effect. The benefit of the network effect is that as the number of nodes in a network increases, the value of the network increases. As we have far more people who are well-educated, creative and innovative who are connected to the internet and other communication devices, we have a virtuous worldwide circle of innovators who can generate ideas, validate ideas and test ideas with ever increasing speed and accuracy. We stand on the threshold of innovation capabilities unlike any ever seen on our planet. It’s as if we have thousands of Edisons or Marconis or Einsteins waiting, with pens poised, to lavish our markets with ideas. Yet we are told our economies, our markets and our governments are stagnant. Little to no growth is forecast. The hopelessness and apathy are palpable. Markets are unsettled, many experts uncertain which way to turn.

This reality is absurd. It is time for innovators to push aside those with tired, outdated viewpoints and to introduce completely new concepts and ideas. I am convinced that there are thousands of good ideas available to our businesses, governments and economies. Perhaps no one idea is a game-changer, but many ideas and many experiments conducted now will lead us out of this malaise far faster than replaying the same old exercises.

Like the Ancient Mariner we are adrift in the calms in a boat, convinced that our position is stagnant, when all around are ideas full of motive power that can literally change our businesses, economies and governments. We only need to face stagnation if we choose to remain stagnant, because ideas are inexhaustible, innovation accelerates in the interconnected networks and new products, services, business models and governance will rapidly change our settings, course and speed.

So, innovators, what’s your choice? Apathy, dejection, stagnation and wasted decades of inactivity, or innovation, new concepts and ideas, new products, new services, new governance? If ever the power of innovation was more necessary, and the capabilities more relevant, we’d be hard-pressed to name that occasion. For too long the static ways of the past have stood as barriers to better ideas in all facets of life. Innovators of the world, unite and innovate, you have nothing to lose but the stagnation, apathy and fear of those who will not.

GUEST POST from Jeffrey Phillips

The story of development, at least in the US, is the story of identifying and exploiting the seemingly inexhaustible commodity, then spotting and exploiting the next one. I’d argue that right now, late summer 2011, we are still shifting to discover the next inexhaustible commodity, even though it is right in front of us. But first, a brief history lesson.

In the US, the first inexhaustible commodity was land. From the first settling of the US till the Great Depression, land and what it could produce was the inexhaustible commodity. At first there was always more land, to the south and to the west. Brave pioneers went inland to discover vast tracks of land, land that could grow crops and feed the family, crops that could be sold to the larger communities on the coasts and overseas. Even after a significant portion of the land was claimed, land was still the inexhaustible commodity to exploit – we simply found ways to get more production out of the land with the cotton gin, artificial fertilizers and advanced farming techniques. In fact we became so good at farming that the number of people necessary for farming fell dramatically, to the point where the rural population today is the smallest it has ever been.

Once the land issue was settled, manufacturing became the inexhaustible commodity. From the end of the first World War till the present day, manufacturing drove the economy, and the economy drove manufacturing. We fed a tremendous number of people into the factories to generate physical goods to local and international consumers. And, in the same way as the farm, once the easily exploitable manufacturing segments were exhausted, we found ways to improve. Thanks to Frederick Taylor, the Toyota Production System, integrated manufacturing systems and software, and many more advances, our manufacturers make more stuff at higher quality than at any other point in time. In fact the diminishing marginal return for manufacturing may be approaching. Further, we’ve discovered and exploited petroleum, what seemed like an inexhaustible source of energy. Since the first major discovery at Spindletop in Texas approximately 100 years ago, we’ve found ways to extract oil from a range of locations once thought impossible to tap. Yet we are constantly told that “peak oil” has passed us by. Oil, natural gas and other carbon-based energy systems are approaching or past peak production.

Next, we turned to financial engineering and other services to exploit. Clearly in a global economy, the markets for financial services and other services are more profound, and since the late 1970s barriers to international finance have fallen as the world’s economies became more integrated. Financial engineering has led us to ever increasing integration but exposed the gaps between fiscal probity and financial risk. We may never approach the limit of our capability to engineer financial products and services, but we may need to wait for our legal and regulatory systems to catch up to our ability to engineer financial products and systems. Yet again, we may exhaust our ability to exploit another market, as foreign competition is adept at financial engineering and foreign markets, while integrated, retain financial levers to restrict some product development and engineering. All three will follow the same trajectory, leaving us to define the next significant area of growth for our economy. Note as well the almost exponential decay in the length of time of each exploitation. It took thousands of years for farming to fully exploit its capabilities and the available land. Manufacturing, it can be argued, was fully exploited in less than a few hundred years and financial engineering and services may be fully exploited in less than 100 years. As the world becomes more interconnected and more interdependent, and as the ability to document information becomes ever more prevalent, knowledge is disseminated faster, which enables more people to capitalize on the knowledge and exploit the opportunity.

What then, is the next inexhaustible commodity? We’ve tapped the land, we’ve mastered and optimized manufacturing and we’ve exploited the ability to engineer financial products to the extent that many of the people who were selling and marketing the products either didn’t understand the implications or were actively betting against their own products.

My supposition is that human creativity is one of the last inexhaustible commodities, with ideas as the fruit of that capability and new products, new services, new business models and new experiences as the realization of the ideas. As we’ve demonstrated before, once a seemingly inexhaustible commodity is identified, it will be exploited for all the gain possible. Currently, many organizations have identified idea generation and innovation as a potential source of great return, but are uncertain as to the methods to convert ideas into value. After all, you can’t “farm” ideas and eat the fruit, and you can’t manufacture ideas and sell the ideas to others. Ideas require an additional step to exploit – they must be converted into viable technologies or intellectual property or services. At that point their value can be recognized.

We are in the midst of a shift to begin to exploit this seemingly inexhaustible commodity, and the shift is really only beginning. Like the early farmer or first manufacturers, our systems, methods and processes are still crude. There’s little experience and little refinement of the processes by which ideas are generated and then converted into viable, profitable actions. Our Frederick Taylor, the people who define the systems that create efficient systems that accelerate the exploitation of ideas, have only just emerged, and many industrial leaders don’t understand the shift that’s occurring. They remain focused on driving more efficiency from a rapidly diminishing manufacturing model or attempting to conduct financial engineering in the face of a rapidly growing regulatory administration, ignoring the potentially inexhaustible commodity at their doorsteps.
In the 1800s over 80% of the population worked in farming. Today the number is in the single digits. The same decrease can be seen in manufacturing. After the Second World War over 60% of the population worked in manufacturing. Today the number is near 20% and declining. After explosive growth in financial services, this market will become fully exploited, automated and the employment levels will fall.

Each seemingly inexhaustible commodity experienced the same exponential growth, the same diminishing returns and the same investments in efficiency, process definition and skill development. The future growth in this country and in the world economy depends on identifying the best possible new ideas, converting those ideas to relevant products, services and business models, and scaling our capabilities to produce more and better ideas at an ever increasing rate, which requires new innovation methods, new processes and new innovation skill development. This industry is no different than farming or manufacturing – we are simply at the early stage of a shift into a new paradigm in our economic development, and the faster we make this transition, the better.

One especially salient point to make about innovation: unlike land, ideas are not constrained by physical continents, local weather patterns or the richness of the soil. We cannot exhaust our creativity. Unlike manufacturing, we cannot ever exploit every idea in every market sector and cannot outsource our creativity and innovation to countries with lower costs. Innovation and creativity is the one inexhaustible commodity if we will only understand it and begin to become more effective deploying the existing skills and talents that we have, and building new skills and talents to fully exploit the capability.

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GUEST POST from Jeffrey Phillips

Did you ever have the feeling that everyone around you knew something that you didn’t? An experience like that leaves you convinced that you’ve missed out on something – some experience or insight that may have brightened your day or given you more insight or enjoyment. I suspect that far too many product developers and managers know far less about the actual use of their product or service than they expect. That lack of insight and knowledge means that the products and services never achieve the outcomes that are possible.

Take, for example, the building where I work. We have a fine office space in a building managed by a large management company. This summer, we’ve experienced very hot weather, and the temperature in the building has been hard to maintain. The management, to their credit, installed new HVAC equipment and to some extent the building is now more comfortable. Except for the fact that you could hang cattle carcasses in the restrooms. The temperature in there must be in the low 60s. That’s good for productivity, since no one is going to spend much time in there, but terrible from an energy use and conservation point of view.

Now, I am certain that everyone on our floor is aware of how cold the restrooms are. In fact, passing people in the hall we often comment on it, and I’ve seen several people wearing jackets or sweaters (when the outside temperature is in the mid 90s) to the restroom. I’m also willing to bet that while we all know about the problem, no one has reported it, since everyone knows that it is a problem but it’s not an important problem. Further, since the management group hasn’t had reports or complaints, they assume there are no problems. Everyone is a little less better off, but no one is severely damaged either. In the absence of critical feedback, the management team thinks everything is fine, while we sit here, wondering why they waste so much energy cooling a restroom, when the rest of the building has traditionally been problematic.

What would fix this problem? The best result would be for the management team to regularly visit the building and enter as many offices and common areas as possible. It’s clear that no one from the building management group has entered our restrooms in several months, because they would take action if they had visited. A second option would be to regularly poll the tenants, asking about the services and also seeking information about even small concerns or issues. But we’ve been trained to avoid knowledge of these issues rather than request them and seek alternatives.

Perhaps the best answer would be if the person responsible for managing our building had an office here – and had to experience the baking heat and freezing temperatures along with us, her customers. The absence of complaints does not signal that all is well – it merely signals that we’ve either given up asking or are tired of having small issues ignored. We’ll be voting with our feet later in the year, leaving this building to move to another location, hopefully one that can manage the simple art of HVAC. But that building has an added benefit – the management team for the building resides in the building. Instant feedback!

What’s this got to do with innovation? Everything. Far too often we are guilty of creating products and services that we don’t consume, don’t use or don’t need, so we don’t experience them from the customer’s point of view. Every business should require its employees to use some of its products and service and listen carefully to feedback – small complaints that many would choose not to even voice, and large concerns as well. Small problems cause barriers and resistance just as much as large problems, but the small problems fly under the radar screen, rarely reported or rising to the attention of product developers who don’t experience the problem first hand. If you don’t experience your product or service the way a customer does, how can you expect to find interesting innovations or important gaps?

And I don’t mean that you simply deploy the product in a lab and pretend to use it in the way you believe a customer would use it. I mean take it home, use it under all conditions, without the support of the product development team. Then, report on what works well, what things didn’t work the way you expected, and what quirky or uncertain behavior exists. Next, what would you change if you had all power? Do this with your own products and services and innovation opportunities will be obvious, as well as the issues and challenges your product or service creates for others.

I know from working in the banking industry that many people who work for large banks (Wells Fargo, Wachovia, Bank of America) have accounts with ING and other web-only banks. Why? Why would a bank employee have accounts with a competitor? Because ING solved problems or offered service that the larger banks couldn’t or wouldn’t. If your own employees acquire products and services from competitors, how much more likely is it that your customers and prospects will? Why not simply ask your employees if they acquire goods and services from competitive offerings or companies, and if so, why they take those actions.

Being blind to customer needs or expectations is a dangerous place to be. Willful blindness, not wanting to see or not taking the time to discover, is even worse. But it happens every day, and is how so many products and services are disrupted.

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GUEST POST from Jeffrey Phillips

I read a significant amount of material on innovation. Even though I’m deep in the trenches of innovation, and have written a fair bit about it myself, I think many of us (self included) are guilty of asserting positions without diving into them very deeply. When we talk about the importance of culture, especially when we advocate a “culture of innovation”, we often write or say these words as if there is a general agreement as to what it means. While I suspect that everyone has some interpretation of that statement, I thought it would be interesting to write a post that describes what I think a “culture of innovation” is, after all, and ask you, gentle readers, to append your thoughts about my oversights or areas of over emphasis.

After all, the more we define our methods and clarify our approaches, the better we’ll communicate and the simpler it will be to actually implement this stuff rather than simply talk about it. Herewith, my dissertation about “a culture of innovation”.

To define this, we should start first with what is “corporate culture”. To me, corporate culture is the set of assumptions, beliefs, practices, formal and informal rules and attitudes about how a company operates. Corporate culture evolves over time, and is both formal and informal. Corporate culture often shifts over time as well. Young entrepreneurial firms and startups have a culture that thrives on risk, speed and change. Growth is paramount. Older, established firms have a culture more typically based on rules, hierarchy, achievement of predictable milestones. While many firms have elaborately detailed organizational hierarchies and established workflows, corporate culture is often much more informal, and more powerful than any individual, and often more powerful than senior executives appreciate or expect.

In an organization with a strong corporate culture, people learn to fit in quickly, adjust their thinking to the predominant culture or are quickly ostracized. Corporate culture, more than any other factor, details how people think, what they believe is important and valuable, and dictates how work should get done. It is difficult to change, especially under duress, and often communicates much about the values and intentions of a business. For a blog post, that’s as far as I’ll go to define culture. There are plenty of other resources that, given time and space, will do a better job defining culture.

Now, to our main question: what is a culture of innovation, and is it very important? If corporate culture is as overarching and powerful as I’ve described above, if it can dictate how people think and what people do, then culture is clearly either a significant barrier to innovation or a significant enabler to innovation. And yes, it is binary. Most cultures, especially in larger companies, are focused on consistently achieving quarterly goals, eliminating risks, reducing variances. These corporate cultures make perfect sense – they are tuned to achieve what the markets tell the firm is important: consistent quarterly achievement against financial goals, with few hiccups or surprises. However, in most firms these cultures are at best resistant to innovation if not actively fearful of the implications: change, uncertainty, new tools and skills, variance, failure and risk.

A culture of innovation, therefore, indicates that an organization is at least willing to embrace many of the tools and techniques that innovation requires, but moreover is able to endure the potential outcomes. For every innovation success there are many attempts and several failures. Every innovation is potentially cannibalizing an existing product or service, and innovation forces constant change – not just to products and services, but to experiences and business models. This means that a culture of innovation is agile, nimble, constantly adapting and learning, open to experimentation and many points of view. A culture of innovation tolerates and learns from failure, incorporating the best parts of the failure into new efforts. A culture of innovation understands that innovation is a continuous, consistent process rather than an occasional effort. A culture of innovation seeks out internal and external viewpoints and perspectives that are different from what the team “wants” to hear, and works closely with customers, partners and even the disinterested to understand future needs. A culture of innovation has as much invested in understanding the future as it does in delivering value in the present. A culture of innovation constantly generates ideas but also has the ability to commercialize the best ideas and ships valuable products. A culture of innovation isn’t just an idea machine, it is a commercialization machine.

So, how does a firm shift its culture to become more innovative? Just as it takes miles and a lot of space to turn a battleship, a corporate culture doesn’t shift overnight. A culture of innovation is enhanced by leadership that reinforces it, but as 3M demonstrates a resilient culture of innovation can bear leaders who aren’t supportive of innovation, and rebound when new leaders are announced. Strong cultures are more powerful than strong leaders. To build a culture of innovation, establish clear, consistent innovation goals, hire people with broad perspectives and interesting networks, encourage collaboration internally and externally, seek out new needs and new customers or market segments, train your teams on innovation tools and techniques, shift reward systems, compensation systems and most importantly evaluation systems. Make innovation as important as whatever the culture once thought was the most important thing – and do all of this over an extended period of time, because cultures have great inertia, a lot of patience and much resilience. A half-hearted approach won’t work, and once a culture feels threatened it will simply burrow more deeply into the fabric of the organization.

We are simply too blithe about “a culture of innovation” as if this concept is simple, obvious and well-defined, as if we can take the red pill and suddenly our culture embraces innovation. Most cultures are actually resistant to innovation – at least its implications and many of its outcomes – so we need to move beyond the throw-away lines and recognize how important a culture of innovation is, and how difficult it is to achieve, and also how valuable it will be to have a culture of innovation when innovation becomes one of the few differentiable competencies left to us.

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GUEST POST from Jeffrey Phillips

I’d like to tell you a parable about an innovation effort. This parable has the additional benefit of being true, though the names and descriptions have changed to protect the innocent. As many of you will know, a parable is a story that instructs or informs. I hope this parable will instruct and inform many of you.

The parable has to do with choices and blinders. It has to do with what is an unfortunate but common approach to management in many organizations. That management philosophy believes in whittling down ideas to solve one very specific problem, and failing to pursue viable alternatives or ideas. I’ve written about this before – what we call the idea gauntlet – the slow stripping away of interesting options, valuable attributes and potential markets to arrive at one final concept that doesn’t seem to meet any of the original objectives. Here’s the parable.

Several years ago a young innovation consultant was approached by a company that wanted far more growth and differentiation in a specific market segment. The segment had experienced little growth and little product innovation, and there was significant room for innovation and for change. The focus of the innovation effort was to create a new component in this market that would radically change the final product offering. After some scenario planning and customer insight gathering, the consultant and team went to work, generating some truly interesting ideas.

One involved creating a radically new product, so new that there was no known way to create it mechanically. But if the product could be made, it could reduce costs by significant amount and create benefits that the staid market had never seen. So, the new idea was approved and research went to work.

That’s where the whittling down began. Rather than consider every market that had a need for the new product, the team focused on just one industry. Rather than focus on several potential partners in that industry, the team focused on just one partner, and not one of the leading players. Rather than consider a range of end products in which the new component could be introduced, the team selected the entry level product which competes on price, not value or benefits. With just a few decisions, the team narrowed the field from many potential applications in a range of industries to one application in one industry with one (middling) partner, and their lowest priced offering.

Further, during the time the research and development of the new product were underway, the economy changed dramatically. The needs and wants of the customer base changed as the economy got worse. People’s buying habits and expectations were lowered, meaning that the new product had to deliver even more value than originally expected or cost less than originally expected. However, the shifts in the market conditions did not get communicated to the research team, which continued to develop the product for the market and customers as originally envisioned.

When the product emerged from research, focused only on one potential partner customer in just one of several potential industries, and after a radical dip in the economy, the firm was surprised to discover that while everyone praised the new product, it didn’t meet the needs and expectations of the market NOW. Of course with a little scenario planning and careful communication of the shift in customer needs and expectations, these insights could have been filtered into the research and development group, which may have been able to shift components or manufacturing concepts to lower costs or produce more value.

The morale of this parable? First, time and customer expectations wait for no firm. If your idea takes time to develop, ensure you understand what’s happening in your target market. If the market is changing, you need to feed that information back to the development team to ensure the concept is relevant. Just because you identify a need and opportunity at one point in your investigation doesn’t mean that your idea will remain viable if the market shifts, especially if it shifts dramatically.

Second, don’t trim your idea too narrowly and focus too specifically on only one industry, customer segment or outcome. In the parable above, several potential industries and applications were recognized but ignored by the team, which quickly focused on just one application, in just one industry, with just one partner. While the concept generated had a lot of potential in several industries, no research or business development was conducted, placing all of the eggs in one industry basket. When those needs became less important as the economy shifted, other potential opportunities that were passed up earlier on now appear far more interesting, but will require new investigation.

Final morale: innovation is a continuous process, not a once and done effort. Even after a good idea is generated, innovators must continue watching trends, forecasting scenarios and understanding what the future will look like when the idea is ready for consumers. Snapshots of the future are interesting, but the future is always in motion. While we can’t predict the future, we can assess the potential for many different outcomes. Selecting one outcome based on a snapshot while ignoring the continuous stream of activities, trends and scenarios can leave even a really promising product missing the boat.

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GUEST POST from Jeffrey Phillips

I had the opportunity to sit in on a meeting with the president of a leading consumer goods company late last week. I had been invited to the meeting to introduce some open innovation concepts, but I was there more for support and encouragement than to lead the discussion. The president of the firm we were meeting with welcomed us graciously and explained some of the concepts his organizations was pursuing to find and manage new ideas.

Then, he said something that I wrote in the margins of my notepad. Unprompted by us, he looked at us and said:

“In this business, you innovate, replicate or evaporate.”

Truer words were never spoken.

His business is a fast paced consumer business, driven to a certain extent by market trends and customer whims. His business is constantly bringing out new products and working with large retail establishments to understand how to meet the demands of fickle customers.

Think with me for a minute about his statement: either innovate, replicate or evaporate. What he is saying, and I confirmed it after the discussion, is that firms in his business either create really interesting new products that meet customer needs, or they compete by replicating what the innovators do. In his market you are either an innovator or a very fast follower, or your firm is out of business. There is no third option. Like the role Alex Baldwin played in Glengarry Glen Ross, the third prize is you lose your job.

This trinity that our client identified is true in every industry, all that differs is the timing. Whether you evaporate in a few months in a rapidly moving industry or market or slowly wither away in a market where customer demand evolves a bit more slowly, you really only have two choices. And, what’s even more difficult to grasp is that the “replicate” option is slowly dying away as well.

As new innovators come online across the globe, product life cycles and customer attention spans and loyalty are shrinking. We are becoming an online, all the time, consumer, and we want what is new, valuable and exciting now. Even fast replicators will have a hard time driving sales, as consumers shift their allegiances to the latest trend, fashion or look.

I wonder how decisions would be made if in every corporate boardroom in America these four words were posted in large font on the walls: Innovate, Replicate or Evaporate. Would that mantra drive new decisions and more innovation?

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GUEST POST from Jeffrey Phillips

I had the opportunity to go fishing over the weekend, at a pond on my grandfather’s farm. I love to fish, and want to pass down the pleasures of fishing to my kids. Whether it’s fishing for salmon in Alaska, for trout in the mountains of Virginia or simply tossing a worm into a pond, there’s something magical about fishing. And, since I am neck deep into innovation, I am constantly thinking about what the activity I have underway has to do with innovation. Fishing, a sport or livelihood almost as old as time, has a lot of things to tell us about innovation.

First, a good fisherman scouts the scene. That may be a lake, a river, a pond or a likely spot in the ocean. It is a waste of time to put good bait into a spot where there are no fish, unless your idea of fishing is absolutely no distractions and no catching either. Scouting the scene helps you determine where the fish may be, their likely habitats and their habits.

Second, once you’ve scouted the scene you need to determine if the fish are biting, and if so, what they are biting. Different fish feed at different times of the day, and on different baits. Trout fishermen are notorious for matching the hatch. That means they are trying to decide what bugs are hatching currently and how they can present lures or flies that look like the bugs that are hatching in the water. Timing is everything – even if the fish are in the water, fishing when they are more likely to be dormant (heat of the day) is a waste of time, as is fishing with bait that doesn’t align to their diets or interests.

Third, if you’ve got the right spot and the right bait at the right time, then placement is everything. You don’t want to spook the fish, and you want to place the bait in the right place without disrupting the normal activities. A loud splash or a poor cast disrupts the habitat and spooks the fish. Good placement and presentation is paramount.

Fourth, you’ve got to know when you are getting a bite, and when that bite is a commitment and not simply a test. Many wily fish will nibble your bait but are almost impossible to hook, because they take small bites rather than swallow the bait entirely. Only when a fish commits to the bait do you stand a good chance of reeling him in.

Fifth, and most difficult for my kids: fishing requires patience and experimentation. Perhaps the bait isn’t right. Try a new bait. Perhaps the fish are lying deeper in the water (where it is cooler) on a hot day. Lower your bait. Try, try, try and then move to a new spot. Experiment, use what you know, learn and incorporate. While we’d all love to see the fish bite immediately, good fishermen know that it can take time and patience.

So, if all of these things are true about fishing, what do they have to say about innovation?

First, scouting is important. Is there a viable market opportunity? If so, where? How important is that need or opportunity, and when will it arise? Is the customer or market aware of a need? Knowing your customer or prospective customer and understanding his or her need is important. Scouting (trend spotting) and scenario planning helps define the best opportunities.

Second, what do the market, environment, technology conditions look like? A great idea ahead of its time is simply another failure in the making. You need to identify the right opportunity, in the right timeframe, with the right solution in order to be successful. You also need to generate lots of ideas within your scope or context, just as a fisherman has many different baits at his disposal.

Third, match your offering to the spoken or unspoken needs and demonstrate its benefits in a way that doesn’t cause disruption to the customer. Yes, you may cause significant disruption in the market, but the customer must be able to find and adopt your solution easily. No matter how great your solution is, inertia says that customers will stick with a simple but inadequate solution rather than a more elegant solution that requires them to change or learn something new. The best ideas are easily adopted, require little learning and seem obvious in hindsight. The worst ideas are difficult to adopt, require a lot of change or learning and disrupt the user to gain a benefit.

Fourth, everyone is interested in new stuff, but not everyone is committed and will acquire new stuff. You have to distinguish between interest (nibbles) which you will receive a lot of, and commitment (acquisition) which is valuable and a step beyond interest. Few people will tell you your idea stinks, but don’t use compliments to suggest the idea is valuable. Value is indicated when they acquire your new product or service, not when they praise it.

Fifth, just because an idea doesn’t pan out immediately, be patient. Conduct lots of prototypes and experiments. If you are on to some key need but can’t break through, revisit your assumptions and change your hypothesis. In other words, experiment within the scope of the product or solution or market set. Know “when to fish and when to cut bait”. Sorry, couldn’t resist. Don’t assume your idea will take off dramatically, immediately. The “hockey stick” curve of growth we all want to achieve is exceptionally rare, except on PowerPoint slides pitching the idea.

Finally, both innovating and fishing are proactive activities that engage the mind and the body. Good fishermen are good thinkers, always planning, moving, experimenting. They are engaged and passionate about their sport. Good innovators display the same characteristics, and do it without the worms. Who knew fishing and innovation had so many commonalities?

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GUEST POST from Jeffrey Phillips

When I was a kid in the halcyon 60s and the crazy 70s, we knew that while there was a “Cold War” the US Government, and many European governments were active, working to protect us from the Communist threat. Millions, no billions of dollars, pounds, francs, marks and other currencies were expended in scientific and military research that formed new offensive and defensive weapons. Much of that research made its way into the public sector, where it became the basis for new electronics, new semiconductors, new medicines and other new innovations.

Once, in the not too distant past, faced with threats from clearly identifiable and significant enemies, our governments invested heavily in R&D. After the end of the Cold War, a “peace” dividend was declared. Many countries in Western Europe and the US decreased military spending, which led to lower rates of government sponsored research. Further, aging populations and the demand for improved services from the populations led to shifts in investments and budget allocations. Primary R&D, a key driver for many innovations, has taken a back seat to many other government programs. Our NATO allies, fighting a war with Libya, have admitted that in the next 30 to 60 days they will have exhausted their armaments. Many European governments leading the air war in Libya will have to decide how to continue to fund the air battle, as many have allowed their militaries to atrophy. Britain, once the most powerful naval force in the world, no longer has an active aircraft carrier. While the peace dividends may be welcome and the specter of war diminished, at least large scale land war, the downgrading of military research and the fall off in government R&D has left governments as innovation laggards rather than innovation leaders.

Some will argue that this is what “should be” – governments should not dictate industrial policy or pick and choose challenges to solve, technologies to promote and so forth. However, few organizations do long term basic research better than governments, because they can take on problems over a much longer span of time than private enterprises, and can invest in challenges that may not attract funding or investment from private organizations. Yet much of the basic R&D work a government does leads to new innovations and new products once the ideas are commercialized. The knock-on effect of basic research is tremendous.

We risk losing a significant portion of our longer term research as national governments in Europe, the United States, Japan and other countries focus increasingly on other investment priorities – improving medical care, caring for their aging populations and so forth. Everyone benefits from strong governmental R&D funding as those concepts filter out into the market as new products, new services and new capabilities. While I have some concerns about the overt focus on sustainability and green technologies that the Obama administration favors, we in the US need to continue to support R&D investments in all phases of our government spending, and seek new methods to convert that research into new products and services, which will create new jobs.

Europe is waking up to this problem. Witness the latest report from their Innovation Union, which points out many of the problems the European Governments face from an innovation perspective. While the EU is in fact larger than the US and creates more PhDs, it lags the innovative power of the US, even as the US is losing its innovative edge to places like China.

It is almost inevitable that in these dire economic times that funding for the military and for basic research across the board will be cut, and basic government R&D has fallen over 5% just in the last few years. This lack of investment has a knock-on effect, as private industry is also suffering through some difficult years, and new policies make investments in private R&D less attractive. Large enterprises in the US currently have stockpiles of cash that should be translated into new research, but we need new tax incentives and less regulation to encourage these firms to get that cash working on new research. As the US government continues to shift its focus from R&D investments to cash payments for medical care, health care and other benefits, private industry must step in and take up the R&D slack, working with universities and research institutions. A significant engine of prosperity is slowly fading away with little to replace it. Something must step into the breech, or innovation in the US will suffer. The European commission report is a wake up call for all taxpayers in the US and in Europe. Basic research drives innovation, which drives new products and new job creation. Don’t let government R&D die, and press to extend private enterprise R&D tax credits.

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