GUEST POST from Stephen Shapiro

I recently spoke with a new client who shared with me their innovation measures. When I looked at their measurement system, I immediately saw flaws.

But before addressing these imperfections, let me first provide you my perspective on innovation measures.

In general, there are three types of measures associated with “challenge-based” innovation (be sure to read this article if you are unfamiliar with the concept of challenge-based innovation):

1. Process Measures – These measure the activity associated with your challenges (e.g., 500 registered solvers, 40 submissions per challenge, 80 votes per challenge, etc)
2. Solve-Rate Measures – These subjectively measure how well you solved your challenges (e.g., 82% of challenges were partially solved, 61% of challenges were completely solved, etc)
3. Value Measures – These measure the actual value accrued (e.g., increased revenues by $25M, reduced costs by $35M, etc)

The last measure (value) is where the rubber meets the road. This is your ultimate goal. But sometimes, value realization can take years (or in the case of pharmaceutical companies, decades). Therefore, the second measure (solve-rate) is a good way to monitor progress with your program. But what about process measures?

Process measures are leading indicators that can be useful in measuring trends over time for things like community engagement, effectiveness of internal communications, and quality of challenges.

Let’s look at one common process measure: the number of ideas/solutions submitted for a given challenge. This was one of the measures that my new client used.

Imagine that you are using crowdsourcing to find a solution to a challenge. You post the challenge on your website or intranet. A month later you check to see how many responses you get. In this scenario…

Which is better:

• Getting 100 ideas/solutions?
• Getting only two ideas/solutions?

Most people intuitively think that 100 solutions is better than two. In fact, most organizations believe that more ideas equates to greater success. The reality is, however, that 100 is not necessarily better than two.

Let me re-frame the question…

Which is better:

• Getting 100 ideas where only two of them were exactly what you needed and the other 98 were duds?
• Getting two ideas where both were exactly what you needed?

Now the correct answer is a bit more obvious. In this situation, the latter is probably better. The amount of work needed to sift through the solutions is a lot less when you have only two submissions. Imagine if you received 10,000 ideas of which only two were good. You can see now that the effort to find the best solutions/ideas might be overwhelming.

Although activity is good, too many submissions can indicate that you have a poorly defined challenge. Therefore the ratio of good ideas to duds might be a more interesting measure.

The key is, make sure you understand the unintended consequences of your measurement system, especially when it comes to process measures. If done properly, process measures can help you drive higher solve rates (measure #2). And often, higher solve rates lead to greater value (measure #3) in the long run. But not always.

High solve rates with low value can also indicate problems with your innovation program:

• Poor implementation – You are unable to convert solutions into finished products/services
• Poor commercialization – Your solutions do not meet the needs of the market/customers and therefore do not generate revenue
• Poor relevance – Your challenges, although solved, are not important enough to “move the needle” of the organization’s innovation efforts

Measures are important for helping tracking your innovation efforts. And they can help diagnose potential issues. But it is important to measure the right things.

There is an old expression: “You will get what you measure.”

But the bigger question is, “Will you get what you want?”

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This week I will be leading Workshop B on identifying and removing barriers to innovation on December 2, 2009 at the Open Innovation Summit in Orlando, Florida at the Crowne Plaza Orlando Universal.

Adding a front line perspective to the workshop will be:

• Greg Fox (Cisco Systems) – Chief Marketing Officer, Strategic Alliances, WW Operations & Business Development
• Helene F. Rutledge (GSK Consumer Healthcare) – Director of Open Innovations
• Hutch Carpenter (Spigit) – Vice President of Product

The workshop will be a discussion with participants about identifying the barriers to innovation that can cripple the innovation capabilities that make organizations successful. This interactive workshop will also examine how to make immediate changes in your organization to start removing participants’ particular barriers to innovation and accelerate their organizations’ innovation capabilities.

Highlights will include:

• An examination of how successful organizations go from nimble David to sluggish Goliath
• An introduction of a framework for identifying barriers to innovation
• Group Exercise – How to identify the barriers to innovation within your organization
• An analysis of how others have removed barriers to innovation in their own organizations
• Group Exercise – How to remove barriers to innovation in your organization

There is still time to register for the Open Innovation Summit and my Workshop B for $1000 off with code YPY692 online or by phone at 781-939-2500.

After the workshop I will be covering the rest of the Open Innovation Summit on Twitter as @innovate at the hashtag #OIS09, and will be writing up some blog entries after the event for Blogging Innovation.

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GUEST POST from Stephen Shapiro

I define innovation as an “organization’s ability to adapt and evolve repeatedly and rapidly to stay one step ahead of the competition.” A culture of innovation, when done right, gives you a competitive edge because it makes you more nimble with an increased ability to sense and respond to change.

A culture of innovation has less to do specifically with new products, new processes, or new ideas. There are of course discrete innovations such as the iPhone or a battery that is powered by viruses (MIT has developed this). These are valuable and necessary in order to create a culture of innovation.

But a culture of innovation is more than new ideas. It needs to be repeatable, predictable, and sustainable. This only happens when you treat innovation like you treat all other capabilities in your business. This means having, amongst other things, a defined process.

An organization’s innovation process must achieve three things. It must:

• focus on the “right” challenges
• find appropriate solutions to those challenges, and
• implement the best solutions.

These translate into three “portfolios” an organization must create:

• A portfolio of challenges
• A portfolio of solutions
• A portfolio of projects

Let’s take each one at a time.

A Portfolio of Challenges

All companies have challenges. They can be technical challenges on how to create a particular chemical compound. They can be marketing challenges on how to best describe your product to increase market share. They can be HR challenges around improving employee engagement.

An organization’s ability to change (i.e., innovate) hinges on its ability to identify and solve challenges. Challenges are sometimes referred to as problems, issues, or opportunities. But at the end of the day, they are all just various forms of challenges. I will use these terms interchangeably here.

Where do you find these challenges? You can find them anywhere – from customers, employees, shareholders, consultants, vendors, competitors, and the list goes on.

Let’s face it, companies have no shortage of challenges.

And guess what, some of the most important challenges to solve are hidden due to organizational blind spots and assumption-making.

The “meta-challenge” for all organizations is to find which challenges, if solved and implemented, will create the greatest value. Given that organizations have limited resources and money, prioritization is critical.

My favorite quote (used many times in this blog) comes from Albert Einstein – “If I had an hour to save the world, I would spend 59 minutes defining the problem and one minute finding solutions.” Most companies spend 60 minutes of their time finding solutions to problems that just don’t matter.

Therefore, the first step in creating a culture of innovation is to surface, identify, and codify challenges. And then you must become masterful at valuing, prioritizing, and framing these challenges.

Think of your innovation portfolio much like you would handle a financial investment portfolio. You want some safe bets (incremental innovation) and some riskier investments (radical innovation). You also want a variety of innovations ranging from technical challenges to marketing challenges, and service challanges to performance improvement challenges.

Once you have the right challenges to solve, the next step is to find solutions.

A Portfolio of Solutions

Every challenge has multiple potential solutions. And there are multiple ways in which to find these solutions.

Some challenges are solved in the moment by the person who thinks them up. Most challenges in fact are solved this way. These challenges tend to be “unarticulated” in that they are not presented to the organization as a problem to solve.

Other challenges are more complex and require specialized expertise. You need to find the right person(s) with the right knowledge.

Others require less technical expertise and are solved through creative thinking.

For each challenge, you need to first determine which mechanism would best yield a viable solution. Approaches include, but are not limited to…

• Internal Individual/Team: This is the most common way challenges are typically solved. This is when you use internal resources whose job is to solve these types of challenges. For example, this would be the development team members assigned to a particular product. They are paid to solve their product development challenges. Brainstorming is often the tool of choice.
• Internal Crowdsourcing: Sometimes the best solutions are found by people who typically do not work on this problem. It might be a customer service representative finding a great new branding idea. Or maybe it is tapping into R&D people who are in different parts of the organization. Sometimes this can be achieved through company-wide competitions. Read my article on how reality TV show type competitions can be used to stimulate creativity.
• Outsourced (External Single Source): Some challenges can be solved (and potentially implemented) by a third party who takes ownership for delivering the result. Typically, outsource partners are found through some type of RFP process. eLance.com is a well-known example of a platform that matches specific challenges with bidders who are able to solve specific types of problems.
• External Crowdsourcing: Some challenges are best solved by a diverse group of external solvers who can independently work on a solution to your problem. In some circles, this is referred to as Open Innovation. InnoCentive and 99Designs.com are two good examples of this. A challenge is posted and solutions are provided by a wide variety of solvers.

These are only a few of the many approaches. If one technique (e.g., internal team) does not yield a workable solution), try a different approach (e.g., external crowdsourcing).

Regardless of which technique(s) you use, the result will be a portfolio of solutions for the given challenge. Depending on the technique you use, you may end up with a low signal to noise ratio. This is the ratio of a signal (what you want – that is, good ideas) to the noise (what you don’t want – the duds). Your success is often based on your ability to separate the wheat from the chaff.

The next step is to strengthen and select the best ideas, combining them into a comprehensive solution. If you find a solution that works, the next step is to implement.

A Portfolio of Projects

The final attribute of a culture of innovation is the ability to take all of the selected solutions and turn them into programs/projects so that they can be converted from ideas into rea
lity.

Elsewhere on my blog, I discuss many different ways of making this happen. Some of them include “Build It, Try It, Fix It” – an iterative development process where you learn by doing rather than analyzing. Other more “waterfall” type development approaches are more linear and rely heavily on analysis and testing (analyze, design, build, test, deploy).

Regardless of how you implement, without this step, you end up with lots of ideas on the cutting room floor, none of which create value.

During implementation, it is critical that you keep track of the value proposition for each project, having the courage to change direction, or, in some cases, killing ideas altogether.

Bottom Line

A culture based on surfacing, solving, and implementing valuable challenges can make innovation repeatable and predictable. This requires more than just a process, it requires an entire innovation capability [read my perspectives on the innovation capability].

My mantra is, “When the pace of change outside your organization is faster than the pace within, you will be out of business.” And as we all know, today’s pace of change is crazier than ever. A culture of innovation, when done right, can give you a leg up in a highly evolving marketplace.

P.S. There are many different “techniques” that can be used at each stage of the process. Communities, social networks, customer-feedback systems, etc. These will be addressed more fully in future articles.

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