GUEST POST from Paul Sloane

Open Innovation has been around for a while and it has now come of age. We know that OI has become a mainstream activity in most leading companies. It is now established as corporate best practice with many successes.

Eminent examples include:

Procter and Gamble’s Connect and Develop
Lego Ideas
Reckitt Benckiser’s Idealink
Innocentive
GE Open Innovation

Large companies are using OI to find agile partners who will help them to grow by co-developing innovative new products. Small companies are using OI to partner with companies that can take them to places and markets that would otherwise be out of reach. Consumer goods companies and public service organisations are using it to engage with customers and harness their best ideas. Government, education and voluntary bodies are getting in on the act.

There are still large swathes of businesses which remain untouched by the Open Innovation initiative. They refuse to join the bandwagon.

The leaders of these organisations pay lip service to open innovation and claim that their people are open to outside ideas and collaboration but the reality is very different. There appear to be a number of very real impediments.

Cultural Barriers

Many organisations are internally focused. They are certainly aware of their current customer base and its needs but the emphasis is on making the current system work better in order to deliver current products and services more efficiently. People are very busy. They have no time for frivolous distractions like networking meetings or scouting for external partners and radical joint initiatives. There is a traditional assumption that ‘we know best.’ We are confident in our own abilities. Outsiders are viewed with suspicion – they might want to take advantage of us, sell us something we don’t need or steal our intellectual property. People are not used to transparency and sharing; it is more normal to safeguard your best ideas and certainly not let them out of the company.

Process Barriers

Many large companies have layers of committees and decision makers who need to be involved in anything as important as the co-creation of a new product. There are procedures in place to protect the company from risk, fraud and unwarranted expense. The legal team has standard contracts for dealing with competitors and suppliers so it adapts one of those for an open innovation partner.

Often there is no senior executive charged with an OI responsibility. Any such task is parcelled out between the R&D and marketing departments – who already have their own rivalries and distrust. There is no budget in place for OI initiatives – it has to be found from departmental budgets which are already overstretched. No-one has been allocated specifically for collaboration projects – everyone has to find time from their already packed schedules. When the external partner gets frustrated with delays and problems there is no one person to turn to – they are sent from one junior executive in one department to another junior executive elsewhere. Everyone wants to help but no-one has the overall authority so it takes a long time to fix things.

Do these problems sound familiar? They beset many large organisations. The answer lies with the leader – the person who gives grand talks about the importance of collaboration and innovation. The CEO cannot just ask for the results – they have to will the means as well. The leader can change the corporate culture. It is a tough task but it can be done and has been done in some of the big OI players mentioned above. Through words and actions the leader has to gradually alter the atmosphere to one where openness, transparency and sharing are the norm. Competition is replaced with collaboration. We want our partners to get rich.

The leader can also mandate the change in processes. Goals, metrics and clear responsibilities are assigned. A senior executive reporting to the CEO is put in charge. People, time and budgets are allocated. Committees are kept to a minimum and decision making is accelerated.

Open Innovation is not something that can be bolted on as an afterthought. It requires a change in corporate culture and change in internal goals, resources and processes. It is absolutely a leadership issue.

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GUEST POST from Paul Sloane

Universal Pictures was founded in 1912, Warner Brothers in 1923, Walt Disney Studios in 1923 and Columbia Pictures in 1924. How have they survived and prospered for so long in such a competitive and volatile business? Movie-making is one of the few American industries which has shrugged off competition and dominated the global market over an extended period. US TV and film exports are worth around $16B a year. The big studios must be doing something right so what lessons regarding innovation and survival can we learn from them?

1. Pivot and Restructure

Hollywood has had to see off threats which many saw as potentially fatal – particularly the rise of TV, the internet and digital piracy. They have had to adjust to the vagaries of taste and fashion. They did so by understanding their customers, relentless innovation and by restructuring. The studios were once highly integrated owning cinemas and employing large permanent staffs. Now they have relatively few assets and outsource assignments to flexible talented teams.

2. Experiment, fail often and learn fast

Failure is commonplace in Hollywood. Most directors and producers have experienced a big flop. But they learn lessons and move on. What’s more every movie is subject to constant internal criticism and ongoing revision. Pixar’s hit film, Up, was radically reworked as it was being made on the advice of the ‘Braintrust’ an internal group whose job was to review and improve the product as it was being made. Many corporate CEOs bristle at criticism of their policies and products but in Hollywood everyone is a critic and every take can be replaced by a retake.

3. Empower Talent

A new creative team is formed for each film and it is given enormous freedom to make its own decisions – within a budget and a timescale. There is a minimum of interference from the studio unless things go way off track. The freelancers on the team depend on their reputations to gain future assignments so they are motivated to work hard and produce great results. They take pride in their team achievements and they all get recognition on the movie’s closing credits.

4. Global Ambition and Marketing

Nearly every movie is striving to be a big hit worldwide. They use aggressive well-funded marketing campaigns with heavy use of social media from the outset. They try to create awareness and buzz in their target market. They encourage reviews and word of mouth coverage. Many high-tech startups have similar challenges but fail to get the awareness and market traction that they need. They could learn from Hollywood’s marketing methods.

Every business that has to manage new product developments, creative talent and uncertain innovations can learn from Tinseltown. The people running the big studios are hard headed business professionals who know how to manage a portfolio of risky new products. They understand the importance of having a mix of safe sequels and daring innovations. They tolerate failure and learn from it. They empower teams of brilliant people. They have survived a turbulent century and stayed on top. As far as innovation is concerned we can all learn from the place that gave us a movie which embodies their success, Back to the Future.

Inspired by an article in The Economist, Creative Capitalism, Nov 1 2014,

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GUEST POST from Paul Sloane

Use Your Ethics to Drive Your Innovation

In 1959 Nils Bohlin, an engineer at the Swedish Car Manufacturer Volvo, invented the first three point safety belt.  It was much more effective than the standard lap belt (as still used on airplanes).  Volvo, realising the importance of this invention, chose not to patent it but to share the idea with other vehicle manufacturers.  They may have lost some revenues but their action undoubtedly saved many lives and it cemented Volvo’s reputation as a highly ethical company committed to safety.

In the 1970s Anita Roddick founded the Body Shop.  She deliberately chose a radically different approach from other vendors of cosmetics and toiletries.  The Body Shop’s products were shipped in cheap clear plastic bottles with an emphasis on simplicity, sustainability and fair trade.  The retail chain differentiated itself by stating that it would never use animal testing in its product development.  The Body Shop grew rapidly. It used social and environmental campaigns to promote its business. In 1997, Anita Roddick launched a global campaign to raise self-esteem in women and to oppose the media stereotyping of women.

A modern day example of this approach is provided by the clothing manufacturer, Patagonia.  They caused a stir with a Black Friday advert saying, ‘Don’t Buy our Product.’  In an interview in Fast Company their CEO, Rose Marcario, explained, ‘What it was really saying was, “Don’t buy more than you need.”  The more you consume, the more strain you put on the Earth’s resources.  We don’t want that because we all care about this nest we’re in.  We put out a film, Worn Wear, which celebrated the durability of our product, the fact that it can be handed down from generation to generation and the fact that you can bring it back to us and we’ll repair it.’

Patagonia recently invested $13m of tax credits in installing solar panels in homes in Hawaii.  They financed an outspoken political film, Damnation.  It is a documentary which condemns the environmental impacts of the Chinese government’s actions in damming so many rivers.

Rose Mercario has practiced Shambhala Buddhism for many years.  In 2010 she organized a group of employees to provide relief in the Gulf of Mexico after the oil spill.  Patagonia has a company policy of sharing product material innovations with competitors.  Mercario’s creed is ‘I really believe that business can be an agent for change in the world.’  This approach may look like soft-hearted sentimentalism but it has led to a loyal customer base, growth in sales and profits and, most importantly, enormous respect.  This will be invaluable in their new venture, Patagonia Provisions, a company supplying sustainable food products.  Just don’t buy more than you can eat.

Many firms are seen by consumers as greedy and profit focused.  What Volvo, the Body Shop and Patagonia show is that high moral values can provide a source for innovation.  They can give a clear point of differentiation, a better image and a business advantage.

image credits: imakenews.com

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GUEST POST from Paul Sloane

In the 1990s a group of developers at Microsoft came up with an innovative device for reading electronic books. At that time no such product existed as a commercial entity. The team was excited at the possibilities for this innovation and they sent the working prototype to Bill Gates. He rapidly rejected the idea. It did not fit in with the Microsoft business strategy and the product did not have the Windows look or feel.  Microsoft missed the opportunity.[i] Amazon went on to develop a huge business based on e-books and the Kindle.

Bill Gates is renowned for being an open-minded leader receptive to radical ideas. But in turning down the e-reader he was displaying a trait common among leaders. He rejected something with an uncertain future and which did not fit in.

In the book Orbit Shifting Innovation, authors Rajiv Narang and Devika Devaiah argue that the main obstacles to radical innovation inside organizations are not a lack of creativity or ideas. They are the search for certainty and fit.

Most managers when looking at a radical proposal will try to reference it against an existing model of success. And of course it does not fit. They compare it with current products and markets. They try to use existing products as benchmarks because that is what they understand best. But if the idea is revolutionary then existing products are useless as comparisons because they are so different. To compound the problem decision-makers ask for Return on Investment (ROI) projections in order to consider the business case.  The bigger the investment that is requested the greater the demand for a bullet-proof business case.

How do you construct a business case for an e-book reader when there are no e-books yet? ‘Does it fit with our strategy and product range? What is the ROI?’ These are the wrong questions to ask.

Four far more important questions are:

1. Do the customers who have seen the prototype like it?
2. Does it solve a real problem?
3. Can we make it?
4. Does it play to our strengths (in technology or markets)?

If there are positive answers to these questions then there is a strong case for taking the idea to the next stage of development. When Amazon developed the Kindle there was no certainty, no accurate estimate of future sales. It did not fit with their existing business – they were a software business and not an electronics manufacturer. However, they identified a need which would suit their strength in the books market. They asked the right questions and came up with the right answer.

[i] Kurt Eichenwald, Vanity Fair, Microsoft’s Lost Decade https://www.vanityfair.com/business/2012/08/microsoft-lost-mojo-steve-ballmer

image credits: koganpage.com; bill gates courtesy of  dontgiveupworld.com

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GUEST POST from Paul Sloane

Whatever your product or service think of it as a piece of software. Now put it into a state of perpetual beta. This is a term used by software developers meaning that the product is never fully finished. Although it is released the software remains in a permanent state of advanced development and customer testing. A key part of its development is iterative improvement based on user feedback. According to open source advocate Tim O’Reilly, ‘Users must be treated as co-developers, in a reflection of open source development practices. The open source dictum, ‘release early and release often’, in fact has morphed into an even more radical position, ‘the perpetual beta’, in which the product is developed in the open, with new features slipstreamed in on a monthly, weekly, or even daily basis.’

Much of the software on your computer or mobile device is developed this way with frequent downloads of fixes and improvements. Think of Adobe Acrobat, Flash player, Windows, Facebook, Google etc. Software companies see themselves as continuously evolving service providers rather than producers of finished packaged products.

Two key components of the perpetual beta philosophy are trusting users as co-developers and harnessing collective intelligence. These same principles will serve you well with your product or service. Unless you are providing something which is absolutely mission critical then you can experiment. You can work with your user community to continually update, refine and improve the offering. Threadless and Lego are two celebrated examples of companies who trust their users and harness their inputs to shape new product releases.

In a sense we are all in perpetual beta. The most dangerous people are the ones who think they know it all and who stop learning. We are not yet the finished article and never will be. So we should open ourselves to learning, to input and to feedback – especially if it is critical. The most vulnerable companies are those who think they have cracked it – with a perfect product for their marketplace.

Perpetual beta leads to perpetual innovation which leads to kaizen – continuous improvement.

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GUEST POST from Paul Sloane

Have you been to the Edinburgh Fringe?  It is a remarkable experience.  The Fringe is the world’s largest annual Arts Festival.  There are some 3000 different shows featuring comedy, theater, music, dance, magic and improv.  There is no selection committee (in their terms it is unjuried).  Any type of performer with any type of act can participate.  This means that it has become an experimental playground and launching pad for emerging talent.  At the same time many well-established artists perform at the Fringe because they love being part of it.  Something like 2 million tickets are sold for the shows over the 25 days of the festival but many shows are free.  It runs every August and attracts visitors from all over the world.  It has launched the careers of many who went on to become stars including various members of the Monty Python team, Derek Jacobi, Rowan Atkinson, Stephen Fry, Hugh Laurie, Steve Coogan and Emma Thompson.

The success of the Fringe can teach us some lessons about innovation and entrepreneurship because each show is like a small business start up.  It may succeed or fail based on whether customers and critics like the idea and the performance.  What precepts can be taken from the festival to the business world?

1.  The Fringe provides a platform for experimentation. Edinburgh in August is a place where artists can try out new, dangerous, edgy material with relatively low cost and low risk.  They are sure of some audiences and will get instant reaction and feedback.  The basic infrastructure is in place – there are venues of all shapes and sizes, a computerized booking system and most importantly lots of visitors.  The artist can focus on giving a great performance and leave the logistics to the organisers.  Every start-up needs time, space and exposure.

2.  It is a safe place to fail. Artists whose shows flop one year may return the next and try again with a different approach.  They will get support and encouragement.  They quickly learn what works for audiences and what does not.

3.  Diversity stimulates innovation. Performers from different genres, backgrounds and nationalities rub shoulders and see each others’ works.  New ideas and collaborations are spawned.

4.  The Spotlight is the reward. Very few shows make serious profits at the Fringe.  The main benefits for the successful are exposure and coverage.  Many magazines and newspapers publish reviews of shows at the Fringe and there are a number of prestigious awards.   (See the list of Comedy Award winners.) These accolades can lead to further bookings for the shows and the artists and put them on the road to stardom.  Similarly many start up internet businesses crave viral exposure ahead of revenue.

If we want more entrepreneurs and more new businesses then the Edinburgh Fringe might be a useful model to follow.  We need safe places for creative entrepreneurs to try out their great ideas.

homehouse.co.uk

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GUEST POST from Paul Sloane

Should you base your new product or service development on your technical expertise, the things that you are good at, or on the needs of your customer, even if those needs are in areas where you have little or no strength?

How should you go about new product development? Where is the place to invest your precious and limited resources? Ideally you should build new products or services that play to your competencies and meet clear customer needs but sometimes that combination is not an option. Start by making a list of all the things that you are really good at. This might include technical expertise, market experience, areas of operational excellence and so on.

In parallel you should study your customers in the entire process of how they acquire or use your products or your competitors’ products. Any difficulties or inconveniences that they experience are clues for potential innovations. Look for an overlap – something that customers need and which you can provide really well. This is potentially a worthwhile new product though there are a myriad different reasons why your efforts may end in failure – and most new product launches do.

But what if you have say a great technical idea for which there is no apparent customer need? And what if there is a probable customer need in an area in which you have little experience or competence? Which should you back? Both are risky ventures with even lower chances of success than regular innovation efforts. But that does not mean they should be written off. Let’s consider two notable examples.

When Apple launched the iPad in 2010 there was no ostensible customer need for the product. People had smartphones, which they liked, and they had laptop or notebook computers which they liked. Why, many pundits asked, would anyone want a third device to carry around? There was no clear killer application that would run only on an iPad and so there seemed no compelling reason for people to buy one.

Steve Jobs famously disdained focus groups and customer research. He thought that he knew better than customers what their future needs would be – and this time he was right. The iPad was a colossal success and spawned a whole new category of products – the mobile tablet computer. This is an example of a new product which was based on technical expertise, novelty and beautiful design which created a market which did not previously exist.

Now let’s consider the Amazon Kindle, launched in 2007. Jeff Bezos at Amazon could see that there was a potential customer need for an inexpensive reader for electronic books. But, unlike Apple, Amazon had no experience or competence in electronic product design or manufacture. Amazon’s strengths lay in excellent web services, software and logistics. For the company to launch its own hardware product would be a major step into unknown territory. Yet that is what they did – with tremendous success.

What lesson can aspiring innovators learn? The golden rule is that you should base new product initiatives on a combination of your technical expertise and evident customer needs. But innovators are rule breakers so you can try a new product based on just one of these criteria. This approach is fraught with danger – but occasionally it produces a winner as massive as the iPad or the Kindle.

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GUEST POST from Paul Sloane

It is nice to meet and talk to happy customers. They like your products or services and often recommend them to others. As a business leader you get a warm glow from a happy customer – it seems to make all your efforts worthwhile. Unfortunately you do not learn a great deal from the happy client. They just confirm what you already knew – that you are doing a great job. They reinforce complacency. On the other hand, the unhappy customer is a mine of valuable information. They are dissatisfied with your current efforts. Consequently they are the best source of ideas for innovations and improvements in your product or service.

Each of Apple’s store managers allocates time for talking to customers who have complained. They have a target to call any unhappy customers within 24 hours. The results of these communications are fed back to other stores and to Apple headquarters where they form a vital input for developments and improvements. But there is a more immediate benefit. Analysis shows that on average the unhappy customers who spend time talking to store managers go on to spend substantially more on Apple products and services than other customers. Studies show that every hour spent in calling displeased clients resulted in over $1000 of incremental sales leading to over $25m in extra revenue per year across all stores. (Reichheld F (2011) The Ultimate Question, Harvard Business Review).

How can business leaders find and speak to really unhappy customers? One way is to spend time on the phone at your call centre or service department. Another is to search social media for critical comments and to reply both publicly to the group and privately to the individual. Find out what really bugs them, listen to their tirade of criticism and ignore the fact that they never read the manual. Do not argue; simply listen, sympathise and help them resolve their issues. If possible offer them some compensation e.g. a voucher or download. You may think that they are rude, lazy and ignorant (and you may be right) but they have given you something valuable – an insight into how customers think and act. For every customer who complains you may have ten others who have the same problem but keep quiet.

Many companies who are desperate to innovate add features to their products which their development teams think are really cool. But all this extra functionality may deter the average user. A better source of incremental innovation is the customer. If you keep making your product better and easier to use for him or her then you are adding value rather than just adding features. The unhappy customer is the place to start – so seek him out.

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GUEST POST from Paul Sloane

Many organizations are adopting Open Innovation and Crowdsourcing as ways to generate new products or services. Opening up your innovation initiatives to outsiders is seen as more effective than relying solely on your internal R&D or marketing departments. However, because this approach is so new there is a dearth of guidance on how to measure the success of open innovation activities.

This issue is addressed directly in a paper by Erkens, Wosch, Piller and Luttgens from Ernst Young in Germany and the University of Aachen. The report points out that 90% of corporate innovation efforts do not result in new products or services so a tool to help us understand how to measure success is badly needed. Furthermore companies that do measure innovation tend to use generic metrics based on R&D and product-development (e.g. number of patents filed) which are of very limited value

The authors advocate three principles:

1. Use separate metrics for each different OI method – e.g. leadusers, contests or broadcast searches.

2. Use measures for input, process, output and outcomes.

3. Use metrics in ways which are instrumental, conceptual and symbolic. (You have to read the article to understand what they mean by this.)

They carried out a survey among major European companies in different sectors and analysed 117 responses. They propose three different scorecards with up to 14 metrics on each depending on the type of OI initiative being used. Each scorecard has sections for initiation, implementation and overall KPIs with metrics for inputs, process, outputs and outcomes. Some of the metrics are numeric such as percentage of external ideas that turn into company projects. Many are subjective such as increase in company reputation.

The two most highly rated metrics on each scorecard might seem obvious but they are absolutely telling:

1. The degree to which top management is committed to Open Innovation.
2. The customer benefit from the innovation provided.

The report is a valuable addition to the OI literature and the scorecards are very useful even if they are little over-engineered in my opinion.

Also recommended is my earlier work, A Guide to Open Innovation and Crowdsourcing.

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GUEST POST from Paul Sloane

A rather shocking finding in report by the Kaufmann Foundation is that only 3% of technology start-ups are led by women. There are many theories for this remarkable gender discrepancy. Girls are less likely than boys to study science, technology and computing. Only about 18% of patents are filed in women’s names. It is more difficult for women to get startup funding. But a bigger factor seems to be that men are more likely to be risk takers and women to be risk averse. Whether this difference is due to nature or nurture is open to debate. According to a study by Alison Booth of the Australian national University and Patrick Nolen of the University of Essex teenage girls at girls-only schools were less risk averse than girls at mixed schools. They ascribed this difference to the absence of ‘culturally driven norms and beliefs about modes of female behavior.’ Upbringing and experience seem to encourage girls to play it safe and boys to take risks.

A controversial new book, The Confidence Code, by Katty Kay and Claire Shipman argues that men are naturally more self-confident than women. Women outnumber men in higher education and are well represented at middle management ranks but men are promoted faster and earn more. Kay and Shipman say that the main reason for this is women’s lack of self-confidence. They claim that women are more likely to:

• Carry criticism around for too long

• Stay inside their comfort zones

• Fail to voice their opinions

• Fail to take risks because of fear of failure

Furthermore Shipman says, ‘Testosterone probably gives men more of a natural confidence boost because it increases risk-taking.’ The authors cite various supporting evidence but their views are disputed by those who argue that discrimination is the main culprit.

The four traits listed above all militate against innovation in a corporate or a start-up environment. Innovators are risk-takers who move out of their comfort zones, strongly argue their case and shrug off criticism. So if Kay and Shipman are correct then it looks as if innovation as it is currently set up is a sport designed for men and not women. This might mean that we are excluding a large proportion of the best ideas and best talent from our innovation processes.

What can be done about this? At a national level there are steps in place to encourage more girls to study STEM subjects (Science, Technology and Mathematics). Also we need more women’s business networks and funding sources for women entrepreneurs. At a corporate level maybe we need to change the rules of the game in order to persuade more women to play. Can we make our new product and innovation processes less competitive and more collaborative? Many brainstorm meetings are poorly facilitated and dominated by the biggest egos (usually the alpha males). Radical ideas are subjected to fierce initial criticism so that only the thick-skinned or powerful continue to pursue them. Innovation projects are given to aggressive young cadets who are expected to fight their way through the corporate defences.

We could make our innovation efforts additive rather than competitive. We can use advanced brainstorming techniques that encourage everyone to participate rather than taken over by the noisiest. One such is the Nominal Method.

Above all we need more female role models who can talk about the risks they have taken.

Although there are far fewer women-led private technology companies there is some evidence that the ones that exist are more successful. They are more capital-efficient, achieve 35 percent higher return on investment, and, when venture-backed, bring in 12 percent higher revenue than male-owned tech companies.That’s according to new research presented at a recent conference in San Francisco organized by Women 2.0, a media company devoted to women founders in the tech industry.

If we want more and better innovation in our firms and across our economy then we have to face up to the innovation gender divide and find innovative ways to remove it.

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