The Reality Behind Netflix’s Amazing Success

The Reality Behind Netflix's Amazing Success

GUEST POST from Greg Satell

Today, it’s hard to think of Netflix as anything but an incredible success. Its business has grown at breakneck speed and now streams to 190 countries, yet it has also been consistently profitable, earning over $12 billion last year. With hit series like Orange is the New Black and Stranger Things, it broke the record for Emmy Nominations in 2018.

Most of all, the company has consistently disrupted the media business through its ability to relentlessly innovate. Its online subscription model upended the movie rental business and drove industry giant Blockbuster into bankruptcy. Later, it pioneered streaming video and introduced binge watching to the world.

Ordinarily, a big success like Netflix would offer valuable lessons for the rest of us. Unfortunately, its story has long been shrouded in myth and misinformation. That’s why Netflix Co-Founder Marc Randolph’s book, That Will Never Work, is so valuable. It not only sets the story straight, it offers valuable insight into how to create a successful business.

The Founding Myth

Anthropologists have long been fascinated by origin myths. The Greek gods battled and defeated the Titans to establish Olympus. Remus and Romulus were suckled by a she-wolf and then established Rome. Adam and Eve were seduced by a serpent, ate the forbidden fruit and were banished from the Garden of Eden.

The reason every culture invents origin myths is that they help make sense of a confusing world and reinforce the existing order. Before science, people were ill-equipped to explain things like disease and natural disasters. So, stories, even if the were apocryphal, gave people comfort that there was a rhyme and reason to things.

So it shouldn’t be surprising that an unlikely success such as Netflix has its own origin myth. As legend has it, Co-Founder Reed Hastings misplaced a movie he rented and was charged a $40 dollar late fee. Incensed, he set out to start a movie business that had no late fees. That simple insight led to a disruptive business model that upended the entire industry.

The truth is that late fees had nothing to do with the founding of Netflix. What really happened is that Reed Hastings and Marc Randolph, soon to be unemployed after the sale of their company, Pure Atria, were looking to ride the new e-commerce wave and become the “Amazon of” something. Netflix didn’t arise out of a moment of epiphany, but a process of elimination.

The Subscription Model Was an Afterthought

Netflix really got its start through a morning commute. As Pure Atria was winding down, Randolph and Hastings would drive together from Santa Crux on Highway 17 over the mountain into Silicon Valley. It was a long drive, which gave them lots of time to toss around e-commerce ideas that ranged from customized baseball bats to personalized shampoo.

The reason they eventually settled on movies was the introduction of DVD’s. In 1997, there were very few titles available, so stores didn’t stock them. They were also small and light and were easy to ship. Best of all, the movie studios recognized that they had made a mistake pricing movies on videotape too high and planned to offer DVD’s at a level consumers would buy them.

In the beginning, Netflix earned most of its money selling movies, not renting them. However, before long they realized that it was only a matter of time before Amazon and Walmart began selling DVD’s as well. Once that happened, it was unlikely that Netflix would be able to compete, and they would have to find a way to make the rental model work.

The subscription model began as an experiment. No one seemed to want to rent movies by mail, so they were desperate to find a different model and kept trying things until they hit on something that worked. It wasn’t part of a master plan, but the result of trial and error. “If you would have asked me on launch day to describe what Netflix would eventually look like,” Randolph wrote, “I would have never come up with a monthly subscription service.”

The Canada Principle

As Netflix began to grow it was constantly looking for ways to grow its business. One idea that continually came up was expanding to Canada. It’s just over the border, is largely English speaking, has a business-friendly regulatory environment and shares many cultural traits with the US. It just seemed like an obvious way to increase sales.

Yet they didn’t do it for two reasons. First, while Canada is very similar to the US, it is still another country, with its own currency, laws and other complicating factors. Also, while English is commonly spoken in most parts of Canada, in some regions French predominates. So, what looked simple at first had the potential to become maddeningly complex.

The second and more important reason was that it would have diluted their focus. Nobody has unlimited resources. You only have a certain number of people who can do a certain number of things. For every Canadian problem they had to solve, that was one problem that they weren’t solving in the much larger US business.

That became what Randolph called the “Canada Principle,” or the idea that you need to maximize your focus by limiting the number of opportunities that you pursue. It’s why they dropped DVD sales to focus on renting movies and then dropped a la carte rental to focus on the subscription business. That singularity of focus played a big part in Netflix’s success.

Nobody Knows Anything

Randolph’s mantra throughout the book is that “nobody knows anything.” He borrowed the phrase from the writer William Goldman’s memoir Adventures in the Screen Trade. What Goldman meant was that nobody truly knows how a movie will do until it’s out. Some movies with the biggest budgets and greatest stars flop, while some of the unlikeliest indy films are hits.

For Randolph though, it’s more of a guiding business philosophy. “For every good idea,” he says, “there are a thousand bad ideas it is indistinguishable from.” The only real way to tell the difference is to go out and try them, see what works, discard the failures and build on the successes. You have to, in other words, dare to be crap.

Over the years, I’ve had the chance to get to know hundreds of great innovators and they all tell a different version of the same story. While they often became known for one big idea, they had tried thousands of others before they arrived at the one that worked. It was perseverance and a singularity of focus, not a sudden epiphany, that made the difference.

That’s why the myth of the $40 late fee, while seductive, can be so misleading. What made Netflix successful wasn’t just one big idea. In fact, just about every assumption they made when they started the company was wrong. Rather, it was what they learned along the way that made the difference. That’s the truth of how Netflix became a media powerhouse.

— Article courtesy of the Digital Tonto blog
— Image credit: Unsplash

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Latest Innovation Management Research Revealed

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The Latest Read on the Evolution of Innovation Management

by Braden Kelley

Recently I had the opportunity to get a preview of InnoLead’s latest research report sponsored by KPMG. The report is now available to members, and I would be really interested to hear your thoughts on its findings:

Benchmarking Innovation Impact 2023

Please let me know where you agree and where you disagree by sounding off in the comments below or over on Twitter (@innovate).

Here are some of my key takeaways after rifling through the report:

1. A shift from transformational innovation to incremental innovation

There are several comparisons of data gathered for this report to data gathered for a previous edition in 2020. One might think that perhaps between 2020 much of the low hanging innovation fruit might have been picked and that companies might be shifting more of their innovation attention towards transformational/radical/disruptive innovation, but the report shows that the opposite is true. Check out the interactive chart here:

The data shows that between 2020 and 2023 respondents have shifted their mix of incremental, adjacent and transformational innovation away from transformational innovation and towards incremental and adjacent.

Some of other areas that you will find in the report include:

Team Characteristics
Budget & Resources
Collaboration & Spaces
Focus & Activities
Challenges & Enablers

2. The Greatest Innovation Challenges are somewhat predictable

Both of these embedded graphics have tabs that you can click back and forth between to compare the two data sets. In this case we’re comparing large and medium size organizations versus small organizations. There are few surprises here, other than the fact that politics/turf war/alignment and lack of budget are top of the list for organizations of all sizes.

3. Five Other Key Observations From Elsewhere in the Report

The vast majority of innovation work does not happen in person
Most innovation teams consist of people that could be counted on one or two hands
Most innovation budgets are set annually – reducing the ability of organizations to respond to new insights and technologies quickly
Organizations are more likely to engage in innovation training and internal idea challenges than running an innovation lab or working with accelerators
Leadership support continues to be the top enabler for innovation success

All of the detail, and many more insights live within the pages of the Benchmarking Innovation Impact 2023 report.

For those of you who have already read the report, where did you agree and where did you disagree with the findings?

And for those of you who haven’t had a look at it, you can download the report on the linked name above.

Image credit: Pixabay

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Delivering Innovation

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How the History of Mail Order Can Help Us Manage Innovation at Scale

Delivering innovation

GUEST POST from John Bessant

2022 was a record year for home delivery of parcels and packages. After the Covid-19 lockdowns the idea of remote shopping became an even bigger reality and changed the behavior patterns of millions. It’s a habit which is hard to break — even when there are increasing disturbances in the delivery end of things like strikes and negative publicity surrounding how packages are actually handled and delivered. Estimates of the market size for this activity vary widely but suggest that it is worth close to $500bn worldwide.

But where did this revolution begin and what’s the innovation history behind remote retailing? For that we need to go back a couple of hundred years and locate ourselves in the beautiful hills of Powys in Wales. In the valley alongside the river Severn is the small town of Newtown, a market center since the 13th century. And in 1856 the home of Pryce Jones, a draper’s assistant who rose to take over the business in which he worked. And for which he had big plans.

He renamed the company the Royal Welsh Warehouse and specialized in selling Welsh flannel. His vision grew out of a belief in the wonderful powers of the soft warm fabric crafted from wool from the sheep he could see on the hillsides all around him. But it was also sharply focused on the potential size of that market — if he could only grow it. Which he did courtesy of two key enabling innovations which reached sufficient maturity to give him the channels to reach his imagined global market.

The channels were the postal system and the railways. Neither was new by this time but they were now coming of age — and enabling hitherto unrealizable dreams to take shape. Back in 1654 Oliver Cromwell had established the idea of a state postal system but it was another 30 years before a reliable system began to operate around the city of London. And another hundred years before Parliament authorized the creation of ‘Penny Posts’ in any town or city; while the idea grew in popularity it was still expensive and local in impact. It wasn’t until the major reforms of the Post Office in 1840 that the idea of a Uniform Penny Post was established, facilitating the safe, speedy and cheap conveyance of letters. With it came the first pre-payment in the form of postage stamps (beginning with the famous Penny Black).

Pryce Jones was quick to spot the possibilities in the newly-emerging postal system and began offering his wares via mail order. The offer was simple; place your order via mail and it will be delivered the next day (effectively anticipating Amazon’s Prime service by 150 years and offering faster delivery!). To explain to his market what he had to offer he developed an illustrated catalogue from which they could choose what they wanted; he launched this in 1861.

He was able to fulfil this delivery promise because the railways had also come of age; from the ‘Rocket’ which George Stephenson demonstrated in 1829 the idea of modern railway network had developed rapidly. The railway came to Newtown and Jones was quick to exploit its possibilities, building a warehouse next to the station and opening his mail order business alongside the post office. He expanded several times and in 1879, he built the Royal Welsh Warehouse, a tall red brick building in the centre of Newtown which still stands today.

His idea paid off; within months his business had started to grow and by the 1880s he had an international operation, counting amongst his patrons included the royal houses of Austria, Britain, Denmark, Germany, Hanover, Italy, Naples, and Russia. Valuable customers not only for their purchases but also for their implicit endorsement. Because Jones wasn’t just skilled at utilising new channels; he also played the role of ‘conveyor’, someone actively encouraging and promoting the use of the new business model along these channels. His mail order catalogue wasn’t simply a price list of items, it was a form of storytelling, complete with pictures and expansive descriptions. He understood the principles of marketing, the need to get consumers to buy into a vision of something which they wanted — and then he was able to fulfil that demand.

(He was also a gifted product innovator; amongst other things he is credited with the invention of the sleeping bag which he patented in 1876 under the name of the Euklisia Rug. He exported the product around the world, at one point landing a contract with the Russian Army for 60,000 rugs.)

Pryce Jones wasn’t alone; like so many innovations the idea of mail order retailing came to several people independently and around the same time, reflecting the changing environment and the enabling technologies. For example in Austria the Thonet family began selling their furniture in 1859 using a mail order catalogue and taking advantage of postal and transport innovations. In fact Pryce Jones’ model was predated by the US luxury goods company Tiffany’s who in 1845 launched their ‘Blue Book’ — arguably the world’s first mail order catalogue though targeted at a very small, select (and wealthy) market.

It wasn’t long before other entrepreneurs began to see the possibilities beyond extending the reach into new markets for particular products. They realised that there was a second side to the new market-place — the suppliers. These days we’re used to seeing examples of ‘platform’ businesses everywhere we look — just glance at your smart-phone to see the array of apps (representing goods and services) being offered across the platform of its shiny screen. But it was 150 years ago that this kind of business model first emerged.

In 1872, Aaron Montgomery Ward from Chicago started his own single-page mail order catalogue; it listed 163 items for sale. He’s credited amongst other things with coining the sales slogan ‘satisfaction guaranteed or your money back!’ The model worked; ten years later the ‘Wish book’ catalogue listed over 10,000 items. Most important was the fact that Ward didn’t manufacture many of these; he effectively created the platform across which the market in multiple goods and services could operate.

In doing so he paved the way for many others spotting and exploiting a similar opportunity. For example in Canada one of the largest department stores was the Eaton Company originally founded in 1869 to sell dry goods, backed by a growing network of factories.

Eaton Company Catalog

Timothy Eaton saw the possibilities in mail order and in 1884 released its 32 page catalogue. He expressed his vision of a network stretching across the sub-continent of Canada in a note accompany the catalogue; “This catalogue is destined to go wherever the maple leaf grows, throughout the vast Dominion. We have the facilities for filling mail orders satisfactorily, no matter how far the letter has to come and the goods have to go.”

And down in North Redwood, Minnesota Richard Warren Sears , a railroad services agent. began a sideline business by purchasing a batch of watches which had been refused delivery and selling them on to local people. In 1886, he used the profits he earned from it to set up a mail-order business selling watches as R.W. Sears Watch Company. That year he met a watch repairman named Alvah Curtis Roebuck and in 1887 the two of them relocated their business to Chicago. In 1888 they launched a printed catalogue offering a range of luxury goods like watches and jewelry; by 1892 this had grown to a 322 page catalogue which included sewing machines, sporting goods, musical instruments, saddles, firearms, buggies, bicycles, baby carriages, and some clothing.

Sears Roebuck

What Sears and Roebuck (and a growing number of others) were doing was developing the new business model of a platform, using the catalogue as the focal point across which remote retailing could expand. But this wasn’t simply a matter of printing and distributing a catalogue; what they were doing was mastering the art of building an ecosystem for retail innovation. They recognized that simply advertising a wide range of products and services to an expectant public would be a very fast way of losing money and reputation. In order to make the system work they needed to pull together a network and get it working to deliver ‘emergent properties’ — where the whole offered more than the sum of the parts.

Making remote retailing work meant finding ways to procure (or manufacture) a wide range of products and then holding them in a warehouse so they are available for quick delivery. But holding stock takes up space and costs money so the trick is to manage the logistics of sales forecasting, order processing and stockholding, plus being able to ensure rapid and reliable delivery. Which places emphasis on reliable channels — as Pryce Jones discovered.

And underneath this web of suppliers and deliverers is the challenge of cash flow — how to ensure enough money comes back into the system fast enough to cover costs and return a profit which helps keep the supply side engaged. New models for financing and payment began to emerge — not least the concept of paying cash on delivery.

The model expanded throughout the world and was often at the heart of a move from remote shopping to direct retail. The origins of the 20th century department store include a sizeable crossover — for example Kastner & Öhler was the first mail order business in Central Europe. The company was founded in 1873 in Austria, releasing its first mail order catalogue in 1885; as it grew it opened its first department store in 1894 and went on the become one of the household names in European retailing.

Mail order was a powerful business model which worked well during most ot the 20th century — but as we’ve learned so often about innovation, nothing lasts forever. New developments opened up new possibilities and it is not always the existing players who are best placed or able to exploit them. In the early 1980s a new channel began to appear — the internet. It opened up not only new opportunities in terms of potential reach, mirroring what Pryce Jones had seen in the emergence of uniform postal systems a century before. But it also changed the underlying thinking behind some of the core warehousing and logistics underpinning the mail order model.

Jeff Bezos was aware of the opportunity and had created a list of possible sectors to target with an internet-based model. He chose books, and quickly realized that he could not only reach a huge market via this new channel but he could also service it without the high costs of actually warehousing and distributing the books. He recognized the ‘long tail’ possibilities; with his model he could reach people with highly specific needs and connect them to suppliers who could meet that need. He also saw that the underlying business model was available to anyone — the advantages would come to those who could scale early and build a platform. As the major bookseller Barnes and Noble pointed out in their submission to legal authorities in their lawsuit of 1997Amazon was not a bookseller at all, it was a book broker.

Where Amazon and others paved the way for a new model to emerge, putting the platform kind of business on steroids, others were slower to recognise and adapt. The German firm Quelle had grown since its founding in 1927 to become one of the biggest mail order operations in Europe, with a dedicated logistics and warehousing operation near the town of Fürth in Bavaria. It was, along with Tempelhof airport in Berlin, one of the largest industrial sites in Europe stretching over nearly 7 hectares. But a failure to adapt fast enough to the rapid changes being brought about through internet retailing meant that by 2006 it collapsed into bankruptcy. All that remains today is the 90m high Quelle-Turm (Quelle Tower) built in 1964 and now preserved as a landmark to a different industrial era.

One of the features of the model Pryce Jones developed was the stimulus it gave to local producers, enabling the region around Newtown to prosper with new businesses. And something very similar has happened with the internet-driven mail order business built across the huge Alibaba platform in China. In 2003 Jack Ma launched the idea of a Taobao marketplace where people could trade goods and services using the ability of the platform to reach a large and distributed market and display content in rich and interesting formats.

This model is comprised primarily of small businesses but has grown to be the largest digital retail platform in the country and has spawned many ‘Taobao villages’ — areas where over 10% of the population is engaged in online retailing. It has had a huge impact on the rural economy; by August 2019 there were nearly 4500 Taobao villages in 25 provinces and estimates suggest up to half of the rural population has benefitted from this. It is equivalent to around 600,000 small shops and trading businesses employing around 10 million people with an economic value of around $195 billion worth of e-commerce sales.

The story is of course not over. With the rising expectations of a growing market for instant delivery has come a challenge and opportunity around the ‘last mile’ challenge — how to move from the digital world to physical delivery of products. And whilst there are many major traditional logistics players now operating in this space there are challenges on the horizon — for example drone delivery or even 3-D printing of a growing range of physical products. The virtualisation process has only just begun though it may still be a while before the Welsh flannel beloved of Pryce Jones emerges spinning out of a 3-D wool printer in our homes.

But perhaps the best kept secret is the one shrouded in Arctic mists and dating back hundreds of years. Somehow a single enterprise (the mysterious S. Claus operation) has managed the challenge of reliable overnight delivery on a global basis to millions of expectant children; there are clearly lessons still to be learned around wish fulfilment innovation.

You can also hear this as a podcast or watch it as a video.

If you’d like more songs, stories and other resources on the innovation theme, check out my website or listen to my podcast. And if you’d like to learn with me take a look at my online course here

Image credit: Wikimedia Commons, Unsplash

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Elevating the Importance of Construction and Manufacturing

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Elevating the Importance of Construction and Manufacturing

GUEST POST from Mike Shipulski

Restaurants aren’t open as much as they used to be because they cannot hire enough people to do the work. Simply put, there are too few people who want to take the orders; cook the food; deliver food to the tables; clear the tables; and wash the dishes. Sure, it’s an inconvenience that we can’t get a table, but because there are other ways to get food no one will starve because restaurants open. And while some restaurants will go out of business, this situation doesn’t fundamentally constrain the economy.

And the situation is similar with manufacturing and construction: no one wants those jobs either. But, that’s where the similarities end. The shortfall of people who want to work in manufacturing and construction will constrain the economy and prevent the renewal of our infrastructure. Gone are the days of relying on other countries to make all your products because we now know it’s not the most cost-effective way to go. But if there is no one willing to make the products, there will be no products made. And if there is no one willing to build the roads and bridges, roads and bridges will suffer. And if there are no products, no good roads, and no safe bridges, there can be no strong economy.

While there is disagreement around why people don’t want to work in manufacturing and construction, I will propose three for your consideration.

Firstly, the manufacturing and construction sectors have an image problem. People don’t see these jobs as high-tech, high-status jobs where the working environment is clean and safe. In short, people don’t see these jobs as jobs they can be proud and they don’t think others will think highly of them if they say they work in manufacturing or construction. And because of the history of layoffs, people don’t see these jobs as secure and predictable and don’t see them as reliable sources of income. This may not be the case for all people, but I think it applies to a lot of people.

Secondly, the manufacturing and construction sectors don’t pay enough. People don’t see these jobs as viable mechanisms to provide a solid standard of living for themselves and their families. This is a generalization, but I think it holds true.

Thirdly, the manufacturing and construction sectors require specialized knowledge, skills, and abilities skills that are not taught in traditional high schools or colleges. And without these qualifications, people are reluctant to apply. And if they do apply and a company hires them even though they don’t have the knowledge, skills, and abilities, companies must invest in training which creates a significant cost hurdle.

So, what are we to do?

To improve their image, the manufacturing and construction trade organizations and professional societies can come together and create a coordinated education program to change what people think about their industries. And states can help by educating their citizens on the importance of manufacturing and construction to the health of the states’ economies. This will be a long road, but I think it’s time to start.

To attract new talent, the manufacturing and construction sectors must pay a higher wage. In the short term, profits may be reduced, but imagine how much profits will be reduced if there are no people to build the products or fix the bridges. And over the long term, with improved business processes and working methods, profits will grow.

To train people to work in manufacturing and construction, we can reinstitute the Training Within Industry program of the 1940s. The Manufacturing Extension Partnership programs within the states can be a center of mass for this work along with the Construction Industry Institute and other construction trade organizations.

It’s time to join forces to make this happen.

Image credit: Pixabay

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How to Turn Customers into Superfans

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How to Turn Customers into Superfans

GUEST POST from Shep Hyken

What do Apple, Zappos, and Chick-fil-A have in common? They are considered “rockstar” brands. Their loyal customers—and they have many—keep coming back and evangelizing these brands, singing their praises to the world. The customers are also willing to defend their favorite brand should someone say something negative about it.

There is a word to describe these types of customers. They are fans, and more specifically, they are superfans. Brittany Hodak may be the foremost expert on the concept of creating superfans in business. In her recently published book, Creating Superfans: How to Turn Your Customers Into Lifelong Advocates, she defines a superfan as “a customer or stakeholder who is so delighted by their experience with a brand, product or service that they become an enthusiastic advocate.”

Hodak’s mantra is:

If your customers aren’t telling their friends about you, you’re in trouble.

So, how do you get your customers to come back, defend your reputation, and spread compliments about you? Follow Hodak’s SUPER model. The word SUPER is an acronym. To whet your appetite for this important literary contribution to the world of customer experience, I’ll share what each letter of the acronym means, followed by my commentary. Some of this is my own interpretation of Hodak’s model, but you will get the idea. So, here is Brittany Hodak’s SUPER model:

S – Start With Your Story: Sharing your “story” is powerful. Just make sure it’s the story that will get your customer excited about doing business with you. How should it start? Ask yourself, “Why does a customer want to do business with us (instead of our competition)?” Responses that are truly different will be important to the story. Hodak says, “Your story is your superpower.”

U – Understand Your Customer’s Story: Why do customers need you? The answer is their story, and when their story intersects with yours, you have the opportunity to do business, grow the relationship and create a superfan.

P – Personalize: The concept of personalizing the experience is a hot topic. Using data about the customer (in the right way) will create a connection. Abuse the data, and the customer will disassociate from you. Hodak uses Chewy, the online pet food, and supply retailer. The company not only know its customers’ buying habits but also often knows their pets’ names—and they use that information to create a better relationship and emotional connection with the customers. This is an excellent example of personalization.

E – Exceed Expectations: People often think exceeding expectations is difficult. The reason is because they confuse exceeding expectations with going above and beyond. There are opportunities to do that in special situations, but most of the time, you just need to be a little better than expected. Even the slightest bit better. When you’re at a restaurant, and you are told the wait will be ten minutes, but your name is called in eight minutes, that’s an example of exceeding expectations by being slightly better than expected. The key is to do this consistently. You want your customers to use the word always followed by something positive, such as, “They are always helpful,” to describe their experience with you.

R – Repeat: I love the idea of repeat. Create the system with an outcome that drives a positive customer experience every time. The key word here is system. A system can be scaled and is repeatable. It is consistent, and customers love consistency. If the initial experience was good, the next time they come back, they want more of the same. When it happens again and again, the customer “owns” the experience. They can count on it happening. Their confidence about the experience is so high they not only come back, but they also tell others. Creating superfans is an everyday, never-ending effort. Do what works again and again.

Okay, I admit it. I’m a Brittany Hodak superfan. I fall under the category of evangelizing her brand, and recommending her to clients, and now I’m writing about her book. I’m a perfect example of one of the ways Hodak describes a superfan, which is a great way to wrap up this article:

Superfans are customers who create more customers!

This article was originally published on Forbes.com.

Image Credit: Shep Hyken

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Charting Change for an Outstanding 2023

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Charting Change for an Outstanding 2023

Wow! Exciting news!

From now until February 22, 2023 you can get a 40% discount on my latest best-selling book Charting Change – plus FREE shipping!

OR you can also save on the eBook!

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The Ultimate Guide to the Phase-Gate Process

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The Ultimate Guide to the Phase-Gate Process

GUEST POST from Dainora Jociute

While improvisation might bring the zest to a comedy performance or to your Saturday night’s Bolognese sauce, in the world of innovation a systematic approach is the way to go. And the zest here is a fitting and well-thought-through innovation management process.

It has been a hot minute since we last covered the topic. So, for the New Year, we will dust off our knowledge and insights and share updated guides to innovation management techniques.

In this guide, we will take a deep dive into the Phase-Gate process, arguably one of the best-known innovation management techniques. What is it, and why it might be just the right approach to innovation management for your organization? Let’s jump right into it.

What is the Phase-Gate Process?

A more linear, sequential approach such as the Phase-Gate process to product innovation and management isn’t all that new.

Already in the mid-20^th century, engineering companies were adapting a segmented manufacturing journey with the aim of better allocating their budgets or shutting down projects that are failing to deliver expected results.

However, a refined version of the Phase-Gate process (under the name Stage-Gate^© Discovery-to-Launch Process) was offered by Dr. Robert G. Cooper in the 1980s. It was originally introduced as a faster way to manage product innovation.

So, what exactly is the Phase-Gate process?

In short, it is a segmented (do-review) innovation management and New Product Development (NPD) technique. It is used to efficiently manage resources, prioritize initiatives, and lead the project from the early ideation steps, through development and prototyping to launch.

Cooper’s Stage-Gate process has a very specific and rigid structure, and while many use that term to refer to their management techniques, in reality, most organizations tweak the original structure and adapt it to their unique circumstances and ways of developing products.

Thus, any process that has a linear, segmented model with regular assessments and go/no-go decisions is commonly referred to as a Phase-Gate process.

How does it Work?

Since day one, the goal of the technique has been to divide a lengthy product development process into several well-defined steps (phases) to ease its evaluation along the way. Such an approach allowed managers to see whether the project is still on track to fulfill the promise of the initial idea or has it missed the perfect time to enter the market.

Just like with anything popular and well-known, the Phase-Gate process attracts a healthy amount of criticism. It is mainly criticized for its rigid structure which can stifle creativity since it is based on extensive research, detailed planning, and continuous double-checking. However, this strict structure and frequent check-ins are also the reason why the Phase-Gate is still popular, decades after its introduction.

Regular review processes allow organizations to identify and address issues early in the development stage. If any shortcomings would be discovered during the regular check-ins (gates), the project would be killed, paused, or sent back for a rework. In return, the elimination of weak projects would allow the organization to save time and money, as well as unlock more value by reallocating resources to more lucrative ideas.

Likewise, a project deemed valuable and promising would be green-lighted and would proceed to the next phase, be it prototyping, testing or launch.

At the end of the day, the Phase-Gate process gives an opportunity for the organization to manage the development of a product systematically and efficiently, minimizing risks, and ensuring that resources get allocated to the most viable projects, thus increasing the chances of the overall innovation portfolio being successful.

The objective of the Phase-Gate process is to minimize risks in product or service development, allocate resources more efficiently, and increase the overall chance of success for the innovation portfolio.

Who Can Benefit from Using the Phase-Gate Process?

The Phase-Gate process can be a great fit for big organizations where a hefty upfront investment (time /money) is typically needed to deliver a product to the market, or in industries where there are specific regulatory constraints.

For example, complicated projects like developing and manufacturing a new drug, or a smartphone device while difficult and requiring a very diligent, well-coordinated approach, are fundamentally predictable, hence they can be successfully planned out in advance and benefit from the Phase-Gate process.

So, common examples of industries where the process is used include the pharmaceutical sector, construction industry, electronics, manufacturing, and similar. Usually, as the applicable industries indicate, those organizations are quite large.

On the other hand, if you are running a low-risk project or a complex, disruptive initiative, the Phase-Gate process might become burdensome and too time-consuming.

A good example of low-risk cases might be any small incremental improvements to an existing product, a customer pre-ordering or committing to a contract, then part of the risk consideration is the customer’s responsibility, and rigorous gatekeeping becomes counterproductive.

Complex projects, on the other hand, such as creating a completely new type of business, a disruptive product, etc. are all unpredictable. It means that you can’t know in advance how changing one thing will affect another, so it’s nearly impossible to plan in advance. For these situations, more iterative and agile methods are likely to win against the Phase-Gate technique.

Thus, it is important to know when to adapt the Phase-Gate process to your own projects and when to green-light small endeavors from the get-go and just see them unfold.

While its roots and main benefits come from and for NPD processes, any complicated and time-consuming project can benefit from a well-structured Phase-Gate approach.

any complicated and time-consuming project can benefit from a well-structured Phase-Gate approach

Even in unpredictable projects, key ideas of the process can be useful, shifting focus on eliminating risks one at a time and granting funding in tiers as the team makes progress, not all at once.

To get a better understanding of what parts of the process could be used and when, let’s take a look at all its elements one by one.

The Structure of the Phase-Gate Process

To kick off the Phase-Gate process, you need to have an idea. It can derive from early-stage brainstorming sessions, a fruitful chat over coffee, or maybe even a well-planned ideation process. Either way, this idea-generation period in the Phase-Gate process is called the discovery phase or phase 0.

In an innovation process, the discovery focuses on identifying the right problem or opportunity to address. On top of all the brainstorming and creative thinking, it often includes a lot of field research.

Once you have the idea, you then work toward scoping it (phase 1), ensuring it is feasible (phase 2), developing (phase 3), testing and validating (phase 4), then finally launching it (phase 5). So, in total, the Phase-Gate process consists of six distinct idea development steps: discovery, scoping, feasibility, development, validation, and launch.

The Phase-Gate process consists of six distinct idea development steps: discovery, scoping, feasibility, development, validation, and launch

In addition, there are five continuous and one post-project review point – the so-called gates. Gates are pre-defined checkpoints where decision-makers assess the progress of the process and decide either to cancel the project or grant additional resources to it.

Viima Phase Gate 1

Thus, a review is necessary to harness the full value of your project. The gate review can also act as a short break for a difficult launch, pausing the development or sales process to implement fixes or improvements.

So, in short, the Phase-Gate process might look a little bit like this:

Discovery phase: an innovation opportunity is discovered, and the initial idea is screened for the first time.
Scoping phase: if the idea passes the first gate, the scope will be defined. The idea is thus refined into a proper concept and screened for the second time.
Feasibility: accepted idea moves to the feasibility phase, where a business case is built, and the concept gets screened at the third gate.
Development and Validation: the innovation’s first prototypes are created and evaluated, and testing takes place.
Launch: when the innovation has been validated based on pre-defined criteria, it is launched to the market. After that, a post-launch review takes place

The above is a simplified version of a typical process. However, the Phase-Gate process can be molded to your unique needs, and many organizations indeed choose to do so.

But before we touch on that subject, let’s get a better understanding of each phase and the structure of the most common gates.

Discovery

First, to kick off the innovation process, you need ideas worth developing. In Phase-Gate, this step is called the discovery phase. Discovery creates a perfect environment for the ideation process, during which you and your team are generating and communicating ideas.

For NPD, where the Phase-Gate process is used the most, the discovery phase focuses on the problem or opportunity. Here, it is crucial to know what your potential customer’s needs and wants are. So, for that purpose, an organization can employ a framework such as the Jobs To Be Done theory.

It is worth noting that one should not limit themselves to ideas from their team only. Suggestions can come from outside your organization too, they can be sourced from inter-departmental brainstorming sessions, market research, collecting feedback from customers, suppliers, product teams, etc.

Scoping

In short, during the discovery, you generate a good idea, and during the Scoping phase, you map out some of the key risks and hypotheses associated with the idea and turn it into a tangible concept that you could start to develop.

During this step, the initial feasibility is considered, and market research is conducted. The Scoping phase is an excellent time to utilize SWOT or PESTEL analysis.

During the Scoping phase, it is crucial to understand the current supply and demand in the market, to determine what can be offered.

However, not every good-sounding idea is worth developing and during the scoping phase, it should be evaluated based on the organization’s priorities, not only the market fit.

Feasibility

The Feasibility phase (often referred to as Business Case or Business Viability) is the glue that pulls and holds your project together. In short, it is an important step of the Phase-Gate process, during which an actionable plan for the development of the product/service is created.

If your project gets the green light after this phase, it will move to the development step, thus use this time wisely and consider all “what ifs” in advance to avoid any possible hiccups.

The feasibility phase is complicated and time-consuming, and it is recommended to divide it into the following steps:

Viima Phase Gate 2

Product definition and analysis: one of the first steps is to determine whether the product is desirable and whether it solves the earlier discovered problem. User research during this step can help answer such crucial questions as how to satisfy customers’ needs and according to those, what features should the product have. Both quantitative and qualitative research should be conducted (i.e., interviews, surveys, and focus groups). Additional market and competitive analyses also take place during this phase.
Building the business case: a business case is a document that compares the project’s benefits against the costs, with a focus on whether the benefits truly outweigh the expenditure. It allows decision-makers to understand if the plan is realistic.
Feasibility study: While your business case analyses whether a project should be done, the feasibility study evaluates whether it could be. And at its core, it answers the simple yet key question: in case of launch, will the outcomes of the project justify the cost needed to develop it?
Building the project plan: your project plan will determine what, where, when, and by whom. Think of it as a schedule for your business plan, that overlooks all the steps that you will take to move through the Phase-Gate process. It covers resources needed to complete the project, estimating how much time it would take to develop, and test, and finally when to launch the product.

Development

The developing phase is meant to work on a “tangible” prototype of the new product or service. Design and development teams should work according to pre-set goals and clear KPIs. The SMART goals approach can be a useful tool to break down the process into actionable steps.

In addition to product/service development and design, it is time to focus on a marketing campaign and plan how to reach your target audience.

Early-stage (alpha- or lab-) testing might take place during the development phase. The ideal goal of this stage is to prepare an early working prototype, ready and set to go into the testing phase.

Validation

The goal of the Validation phase is naturally to validate your prototype and for that, testing takes place. It is important to determine whether the prototype delivers any value and did it really meet the needs and objectives defined in the earlier stages. This step is all about polishing the rough edges, testing marketing, and distribution channels, and testing processes around the product.

Early-stage testing took place in the previous phase, but now it is time to see the product in action and gather as much feedback as possible. You do not want to rush a half-operating, half-failing product to the launch phase hoping for the best. You want to be ahead of all the possible issues and during this phase, you should ensure the following tests are taking place:

Near Testing: Run an in-house test involving people who are familiar with the product and process. During this test, the focus is set on finding any issues or bugs and eliminating them before the product hits the market or even before it moves to the beta-testing step.
Field (Beta) Testing: This is the time for your project to leave its nest and get tested in a real-world setting. Typically, this testing involves your customers, partners or to play it super safe – internal staff that has never been part of the development process. The goal of beta testing is to see how testers are using the product, what features they like or find useless, and how much workload, wear and tear it can withhold. Flaws identified in this phase should get fixed.
Market Testing: Now that you have a perfected product, and you have a better understanding of how your future customers will use it, it is time to utilize this knowledge to adjust your earlier set marketing plan. Test several different marketing scenarios, positioning and messaging alternatives, different price points, and channels to see which ones seem to work the best. There is a plethora of different things to test and methods to use and the right ones depend on your unique situation and the hypothesis you need to test.

Launch

The validation step gives a chance to make the final tweaks and fixes to the project and if it passes the post-validation review step, it successfully moves to the launch phase.

However, while it sounds simple on paper, the launch phase is the step where all of the departments meet and have to work in perfect sync. Alongside the marketing department working their magic and the knowledgeable sales team, you must ensure the following are in order too: volume of production, methods, and channels for customer acquisition and delivery.

One thing that is important to plan for the launch is customer support. You might exhaust all the means of testing the product pre-launch, yet you will never be able to 100% predict how it will really behave in the market. In case your product gets a lot of attention, be it good or bad, a knowledgeable and dedicated support team will eliminate possible bottlenecks.

With that said, the launch phase is a long journey away from those first, shy ideation steps you take in the discovery phase. Your initial idea will be analyzed and scrutinized under a magnifying glass during the full Phase-Gate cycle and it will have to pass several gates first.

What is a Gate Review Process?

Traditionally, a project managed with the Phase-Gate process will go through 4 control gates (Idea Screening, Second Screening, Go-to- Development, Go-to-Market Test) until reaching the final pre-launch gate – Launch. If during the final gate, the project gets approved and reaches the launch phase, the last thing that should be done is a post-launch Review, which could be considered as the final gate.

However, the Phase-Gate process can be adapted to the individual organization’s needs and the number of gates can be increased. Or, if a company is using a simplified process for smaller scale projects – decreased. No matter which path you pick for your project, remember that the quality of your gates can determine the quality of your project.

The quality of the gate review process can determine the quality of the whole project.

Gatekeeping

Normally, people responsible for reviewing and gatekeeping the project depend on the organization’s size, type, and scope of the product. Usually, it is a cross-functional executive committee or a steering group.

In a nutshell, this group or person is responsible for ensuring that the project gets a green light to move forward or gets stopped. In addition, they provide feedback and guidance to the project development teams to help them identify risks and to avoid unnecessary mistakes.

For the gatekeeper, it is important to understand all practicalities around the project. While there is a budget to keep an eye on, the progress will be doomed if it’s just the numbers that get looked at. The gatekeeper needs to deeply understand the market, technology, and customers, not just compare business cases and pick the one with the bigger numbers.

Whether the organization assigns a committee or a single supervisor for the gate review process, the crucial part is to ensure that the gatekeeper is not directly related to the project (project sponsor, project manager), to avoid biased assessment.

During the gate review, resources, budget, KPIs, and other success criteria get decided for the next project development phase. In addition, each gate review provides the committee with an update on the status of their innovation portfolio. It also gives an opportunity for both sides of the project (the project team and the evaluating committee) to challenge one another or to have a discussion that would put them on the same page.

However, it should not become a battleground, but rather a safe space to focus on learning, and the clearer the goals and KPIs you have set, the easier to manage and more efficient the gate review process will be.

Assessment of the Quality of the Idea

Gate reviews are checkpoints for assessing the potential, risks, and progress of the project, and making the decision on whether or not to allocate additional resources to it. They also provide a great opportunity to share feedback with all teams involved. This review typically includes a few different steps:

Quality of execution: to evaluate the quality of execution of the previous phase.
Business Rationale: to determine whether the project can be fruitful considering the assessments performed beforehand. It should include a list of key assumptions or hypotheses that the idea relies upon to become successful.
If the project has issues or the assumptions are unrealistic the business rationale step in the gate assessment is when said issues get discovered, and unless a solution is found, the project gets killed.
Action Plan: to evaluate whether the expectations are reasonable and whether there are enough resources to implement all the planned or desired steps.
If the idea is feasible and just the resources are lacking, it is common to pause the project and re-assess it later.

Gate Review Components

The review process must be clear, strict, and simple to leave little to no space for maybes and to make it as easy as possible to weed out weak projects. Usually, it relies on a points-based evaluation system.

There are two groups of criteria for a gate review:

Must meet: Objectives that the project must include and meet at a certain point of the process. If the project failed to meet one, the project is killed (or paused) outright. Usually, it is a checklist of questions that can be answered either yes or no.
Should meet: Objectives that are desirable for the project to meet. While the first group is simple in its structure (no = kill, yes = greenlight), this criterion is evaluated on a point system. Each objective is given points worth and at the end of the step final points get calculated and compared to the in advance set marking system.

Gate Outcomes

There are 4 possible outcomes for each assessment step.

Go – the project is feasible enough to get the green light. The go phase should include an agreement on what the project should deliver in the next phase (having this in place will make the next gate review much easier).
Kill – the project is not feasible and gets shut down. If a project does not have sufficient merit – the kill decision should just put an end to it.
Hold or Pause – the project is considered feasible but not at the current time or state and gets put on hold.
Conditional Go or Rework – the project can proceed to the next phase only if it meets certain requirements and conditions after a rework.

Viima Phase Gate 3

Quite often the Phase-Gate process is seen in black and white – you either kill or launch a project. For some, the outcome is as clear as that, however, it is not the case for every project. Conditional Go is just as important and crucial an outcome as Go or Kill.

For example, some strategically important projects might be sent back for a rework several times just to make them truly viable and garner their full potential. And while to some working on the project, this back-and-forth might be seen as a challenge, it only means that the Phase-Gate process works as intended.

Remember – the gate process is not just a basic review. It is the decision-making point where the project might be completely rejected and killed and for some people, it might be a breaking point in their careers.

Of course, it is always best to nurture a safe environment at work, where a failed project is not seen as a personal problem or career killer, rather failed project should be seen as an opportunity for everyone to learn from mistakes and just improve upon future projects.

Viima Phase Gate 4

Challenges and Benefits of the Phase-Gate Process

As mentioned before, there are those who swear by the Phase-Gate, and there are those, who argue against it. If you are wondering, which camp should you be joining and whether the Phase-Gate would be the right innovation management technique for you, first consider the challenges and benefits of the process.

Challenges

The rigid structure lacks flexibility. As the traditional Phase-Gate process follows a strict flow and rigid review process, it can limit creativity, and lead some projects to spend too much on bureaucracy as opposed to solving the real problems. As development must follow a pre-agreed set of rules and creative changes might cause the project to be rejected during the gate review phase. So, at the end of the day, in some situations, the process can be too heavy and demotivating for innovators.
Can lead to a lack of customer focus. The Phase-Gate process might lead to tunnel vision both for the project developing team and the review committee. The prior might feel pressured to focus on checking off tasks on a strict to-do list before the Gate review phase, instead of focusing on the bigger picture and real customer needs, while the latter might focus too much on early-stage market research, unwilling to accept sorely needed changes later on in the process.
A narrow focus on the business case. Even if the project does fit all the business case set criteria, it means very little in the grand scheme of things. First, every business case is always wrong: some just a little, but some massively so. Plus, there is a built-in incentive for teams to game the numbers to get to work on the project and acquire more resources, so unless reviews are done well, all the wrong projects might get funded. Plus, it doesn’t really account for poor execution or scenarios like a competitor coming out with a similar product, the geopolitical environment changing, or customer preferences changing during the project.
Focus on short-term results and risk aversion. The Phase-Gate process is designed to reduce risk and increase the project’s chances of success, but that can sometimes lead to undesirable biases. It can be tempting to reject a project on the grounds that it is too costly and instead, invest money in easy-to-predict improvements on existing products. In such cases, a risky and unpredictable innovation that might generate the most profit might always lose in favor of quick, predictable, and short-term oriented projects.
Competitive and divisive approach. The Phase-Gate process might create a competitive environment where teams are battling for funding for their project against one another, as well as create “sides” – one that develops the project and another that evaluates it. So, instead of innovation being a strategic pursuit of common goals for everyone in the organization, it might create tension, division, and competition instead.
Not accepting any unpredictability. In many cases, it’s impossible to gather all the evidence before making decisions related to innovation. Some companies strive to eliminate all uncertainty or require detailed business cases for everything when it might be impossible to create it accurately early on in the process. This is highly counterproductive and frustrating for innovators.

Benefits

Eliminates “dead-end” projects. It isn’t uncommon for some projects to get lost or stuck in big organizations. By requiring regular reviews, the Phase-Gate process ensures no project will be forgotten or left pending, hogging valuable resources.
Identifies issues early on. Every idea must pass several reviews. And if the idea is good but the planning around is poor, it simply gets paused and sent for a rework. This way the organization does not lose a good idea and gives it a standing chance.
Minimizes costs and time spent. By eliminating those “dead-end” projects and troubleshooting projects early, the organization is able to save resources. Also, the earlier you can identify, eliminate, and prevent issues, the cheaper it is, both in terms of time and money spent. That is usually preferable to pushing out a broken product into the market and then having to deal with the panic, complaints, returns, brand damage, and so on.
Prevents “politics”. By entailing the same rules, requirements, and stringent review process for each project, the Phase-Gate can prevent top executives from investing too much in their pet projects, freeing resource allocation and giving a fair chance for every project.
Facilitates joint decision-making. Instead of one project manager overseeing, managing, forecasting, and deciding upon the progress of the NPD process, in the Phase-Gate process, multiple stakeholders and teams can influence the decision-making process, making it more objective and inclusive.

In addition, it is important to note that a well-planned and well-structured Phase-Gate process counters some of the challenges that many fear experiencing while implementing it.

If done correctly, the Phase-Gate process can and will:

Foster holistic thinking. When done well, it helps to make sure everyone is thinking about the problems holistically: e.g., business, customer, and technology, which helps avoid unnecessary mistakes.
Systematize innovation. The structured approach gives clarity to the process, eliminates challenges, and bottlenecks, and gives a set of rules on how to make your idea into an innovative, valuable solution. While some might find this frustrating, it can also help turn more employees into successful innovators.
Reduce risk. Making a list, and checking it twice does help avoid unnecessary waste, mistakes, and any other mishaps. In addition, the Phase-Gate approach makes you detail all of your assumptions before you move forward with the project which allows solving all the potential issues before they have a chance to arise.

Tips to Improve the Phase-Gate Process

The Phase-Gate process is an adaptable and scalable approach that can help transform your business by identifying new opportunities and unlocking more innovation. And while on paper it all sounds pretty straightforward, in reality, it requires a dedicated management team to make it work for your organization’s unique business environment and culture.

To reach its full potential, consider some of the following:

Clear gate criteria. Set clear, objective criteria to pass each gate in advance, communicate it across all the involved teams and ensure they are accepted by each team before you move on. In addition, consider if you will want to proceed with a point-based rating system or whether another type of evaluation fits your processes better.
Clear gate function. While the primary goal of your gates is to stop/green-light a project, they should also work as a guide to the teams on what to do next. Make sure each gate makes the team outline and test the assumptions built into their plans and business models. Reviews should help guide teams on the right track, not just pass judgment. Finally, discuss and determine the types of meeting you will hold in-person, virtual, or hybrid. Which one caters to the needs of everyone and delivers the best results for your organization?
Diverse and educated gatekeepers. First, gather a diverse, multidisciplinary gate review committee that understands the customers and the technology intimately. Gatekeepers will after all determine the overall success of the Phase-Gate process. And second, as the gate review process touches on every possible aspect of product or service development, make sure your review committee is knowledgeable and constantly up to date on market changes, customer needs, legal or regulatory aspects, etc.
Regular check-ins. The timeline of your process will vary depending on the project you are developing, but either if it is moving at a fast or slow pace, regular (at least monthly) meetings are important to keep all projects moving. And this applies to meetings during each phase, not just during the review steps. It will allow teams to stay aligned and on top of resources.
Customer-first. Unless you are implementing changes aimed at improving employee engagement or other internal aspects, customers should always remain the focus of your attention. Staying customer-focused through every phase and gate will help you avoid internal politics, unnecessary competitiveness, and friction that might arise between project-developing and project-reviewing teams. And of course, it will ensure that you are still working on a relevant product or service.
Input from stakeholders. Retain open communication channels. First of all, it ensures transparency and trust top-down and bottom-up, by giving a clear view of the process to everyone involved. In addition, it improves the overall flow of the process and reviews steps by providing additional insights and feedback that otherwise might have been missed.

Lastly, consider your organization’s unique culture. It can take time and sometimes even resistance to introducing a completely new innovation management process.But patience, planning, clear communication, and internal support will set you on the right track to successfully implementing the Phase-Gate process.

Conclusion

Overall, the Phase-Gate process is a valuable tool for managing the development of new products and services, and it can help your organization to be more efficient, effective, and innovative.

For some, the Phase-Gate process might work great, while other organizations might need something a little different.

The Phase-Gate approach might have the biggest name in the group, but it is not the only innovation management process out there. If after reaching the end of the article you are still not sure whether it is the right fit for your organization, you can check our past entries on Innovation Management. Maybe it will help you discover just the thing you’ve been searching for.

But, if you are curious to proceed with the Phase-Gate process, you can try it on for size for example via the Viima app. To make your onboarding experience smooth, and your innovation project management easy, we have created a Phase-Gate process template ready to be used just after a few clicks.

This article was originally published on Viima’s blog.

Image Credit: Viima, Unsplash

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Using Limits to Become Limitless

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Using Limits to Become Limitless

GUEST POST from Rachel Audige

While it dates back to the 1970s, the expression ‘think outside the box’ is still in vogue. Yet the idea of creativity being best when unrestrained is at best a bit of a fable and at worst, unhelpful – particularly when we are confined to the four walls of our home! What is really helpful is when people actually impose constraints on their thinking. It’s counter-intuitive but creativity loves constraints.

So, what sort of constraints does it love? In my experience, there are five. The first — contrary to popular belief — is to artificially create a frame or a ‘box’. In her inspiring TEDx talk at Newark Academy, Tess Callahan spoke about “the love affair between creativity and constraint.” We all admire people who think outside the box but how do they do it? What if the key to thinking ‘outside the box’ is to create a box to think outside of?”, she says.

For many, thinking ‘outside the box’ means exploring new paths and “being open-minded” and “brainstorming without judgement”. This makes sense but how to do this is not very clear. Subject to the rigour of the facilitator, brainstorming sessions are likely to generate a huge list of ideas that are more or less out of reach. I call these ‘aromatherapy ideas’ (inspired by an ad where the brainstorm led to aromatherapy candles in the hire car putting everyone — even the driver! — to sleep). The team feels empowered and hyped but months later when nothing has happened to their ideas, they are cynical and will boot out the next person who wants to talk innovation.

In workshops we illustrate the difference between outside and inside-the-box thinking by asking people to go create a piece of exercise equipment that we’ve never seen before. Faces look blank, the buzz is low but the pairs come up with a few nice ideas. In a second round we ask them to do the same but to make it exercise equipment that we can use at the wheel of our car. The noise level trebles, ideas fuse and even those who had nothing have some interesting ideas (along with the odd aromatherapy one!). We then ask them ‘Which exercise was easier?’. 95% will say the second (there’s always an outlier or two…). Give people the context; the box. Zoom in and work from there. This gives people focus and avoids the blank canvas syndrome.

The second constraint loved by creativity is the natural corollary of the first: once you have a defined ‘box’, you should follow a path of most resistance and limit the resources you can use to ideate or create.

Systematic Inventive Thinking (SIT), the Israeli company and innovation method that I believe really enhances creative thinking (as opposed to simply providing a process) is grounded in this belief that constraints foster creativity. The founders were so convinced of this that they imposed an artificial constraint on the creative process so that you have to strive to only use resources that are inside what we call the ‘Closed World’. The key to this is being systematic about how you go through the ‘inventory’ of this closed world. If you’re not, your cognitive biases will blind you to some great ideas…

That brings us to the third idea: once you have limited your frame and your resources, creativity is enhanced by drawing on inspiration; on templates. These help bust these biases and take a different path through our minds. When artists want to paint, they often learn by copying the masters. Likewise, in creative thinking and innovation it is powerful to draw on the most inventive ideas. There are countless templates to draw from. Biomimicry is based on the templates tried and tested by Mother Nature. The Speedo swimsuits inspired by shark skin to reduce drag were banned in the Olympics were seen to be a nice example of this. TRIZ (the inspiration for SIT) covers 40 patterns that not only inspire but are said to serve as predictive models for future innovations…

In SIT we work with five inventive thinking tools that come from five patterns present in the 80% of the most inventive ideas (‘surprising for some but there is a sort of DNA to creative ideas). They include removing an essential component (like Apple did with the Shuffle) or dividing up a process or product and moving a component in time or space (like H&M did when they moved the step of paying from the end of the shopping process to the moment the decision is made in the fitting room). The brilliant thing is that these templates not only increase our chances of coming up with something exciting but they help bust the cognitive biases that may lead us to miss resources that are right under our nose.

The fourth constraint is to diligently follow a workflow. In design thinking we have learnt to start with our customers’ needs and pain points (the “function”) and develop a solution (the “form”) to fit. This has been a crucial shift that taught organisations to stop product push but what if we could learn another workflow? And what if this workflow could help us suspend our embedded thinking so that we can unearth more original ideas?

Back in the early 90’s, a group of psychologists made an interesting discovery. When it comes to creating, people are innately better at uncovering the potential benefits of a given form than creating a new form to satisfy a given need. Or, to put it differently, we struggle to come up with a solution to a problem more than a problem for a given solution. Those of us who work with this find that this “back-to-front” approach is great way to stop ourselves from default thinking and embedding the structures, functions and relationships that we are used to into the new idea.

In SIT we call this ‘Function Follows Form’ and the more strictly we apply this workflow constraint, the more impactful it is on our creative thinking. We start by defining the closed world and listing the resources we have available. We then apply a template (depending on the most likely cognitive fixedness). This manipulation leads to a ‘virtual’ process, product or ‘situation’. This is when our resistance is greatest and if we are not strict about limiting our thinking to this oddly manipulated virtual form, we are likely to reject it and possibly miss the opportunities it offers. Once we have visualised it and described how it could work, we then explore its desirability, feasibility and viability, make any necessary adaptations and then test the idea if it warrants it. It is invaluable to know how to think both form to function as well as function to form.

The last constraint is that of embracing unchosen limitations. Phil Hansen (TEDxKC) tells a beautiful story of how he harnessed the power of embracing a ‘shake’’ to create even more extraordinary art.

After years of painting with a method of tiny dots, Hansen developed a shake in the hand that made it impossible to paint as he was used to doing. His dots “had become tadpoles”. It was good for “shaking a can of paint” but for Phil it was “the destruction of his dream of becoming an artist.” He left art school and he left art.

This didn’t work for him, however, so, after a while, he went to see a neurologist who diagnosed him with permanent nerve damage. This wasn’t great. What was great though was what he said to him: “ Why don’t you just embrace the shake?”

So he went home and started making art with nothing but scribbles . He then limited himself to his feet. He then moved to wood… He moved to larger materials where his hand wouldn’t hurt. He started with a single way of painting and ended up with endless possibilities. “This was the first time that I encountered the idea that embracing limitation could actually drive creativity,” he says.

He finished up school and got a new job. This enabled him to afford more art supplies. He explains that he “went nuts” buying stuff and took it home with the intention to do something incredible. He sat there for hours and nothing came. Same thing the next day. And the next. He was “creatively blank”; paralysed by all these choices that he never had before. That was when he thought about what the neurologist had said…

He realised that if he ever wanted his creativity back, he had to quit trying so hard to think outside of the box, and “get back into it”. In fact, he started exploring the idea that he could get more creative by actually looking for limitations? “We need to first be limited in order to become limitless,” he says, very poignantly.

He took this approach to being ‘inside the box’ and did a series of artworks where he imposed tight constraints: he could only paint on his chest, or he could only create with karate chops or what if he created art to destroy after its creation (an image of Jimmy Hendricks made out of 7000 matches — crazy!), what if he used frozen wine…“What I thought would be the ultimate limitation turned out to be the ultimate liberation as each time I created the destruction brought me back to a place of neutrality where I felt fresh to start a new project,” he explains.

He found myself in a state of constant creation “coming up with more ideas than ever…”

We don’t all have the honed creative skills of my new artist friend or of the astonishing Phil Hansen but that’s all the more reason to boost our creative potential. As individuals and in organisations, we need learnable, robust, repeatable tools to be more skilled inventive thinkers — and to be able to harness this on demand. We need methods that impose limitations. So try getting back inside the box and embrace the constraints!

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Is Futurology a Pseudoscience?

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Is Futurology a Pseudoscience?

GUEST POST from Art Inteligencia

Futurology (aka Future Studies or Futures Research) is a subject of study that attempts to make predictions and forecasts about the future. It is an interdisciplinary field that draws from a variety of sources, including science, economics, philosophy, and technology. In recent years, futurology has become a popular topic of debate, with some arguing that it is a pseudoscience and others defending its validity as a legitimate field of study.

One of the main criticisms of futurology is that it relies on speculation and extrapolation of existing trends, rather than on scientific evidence or principles. Critics argue that this makes futurists’ predictions unreliable and that futurology is more of a speculative activity than a rigorous scientific discipline. They also point out that predictions about the future are often wrong, and that the field has had a reputation for making exaggerated claims that have not been borne out by the facts.

“Futurology always ends up telling you more about you own time than about the future.” – Matt Ridley

On the other hand, proponents of futurology argue that the field has a legitimate place in the scientific community. They point to the fact that many futurists are well-educated, highly trained professionals who use rigorous methods and data analysis to make accurate predictions. These futurists also often draw on a wide range of sources, such as history, economics, and psychology, to make their forecasts.

Ultimately, the debate over whether or not futurology (aka future studies or futures research) is a pseudoscience is likely to continue. Some may see it as a legitimate field of study, while others may view it as little more than guesswork. What is certain, however, is that the field is still evolving and that the ability of futurists to accurately predict the future will be an important factor in determining its ultimate validity.

Do you think futurology is a pseudoscience?
(sound off in the comments)

And to the futurists and futurology professionals out there, what say you?
(add a comment)

Bottom line: Futurology and prescience are not fortune telling. Skilled futurologists and futurists use a scientific approach to create their deliverables, but a methodology and tools like those in FutureHacking™ can empower anyone to engage in futurology themselves.

Image credit: Pixabay

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Our Fear of China is Overblown

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Our Fear of China is Overblown

GUEST POST from Greg Satell

The rise of China over the last 40 years has been one of history’s great economic miracles. According to the World Bank, since it began opening up its economy in 1979, China’s GDP has grown from a paltry $178 billion to a massive $13.6 trillion. At the same time, research by McKinsey shows that its middle class is expanding rapidly.

What’s more, it seems like the Asian giant is just getting started. China has become increasingly dominant in scientific research and has embarked on two major initiatives: Made in China 2025, which aims to make it the leading power in 10 emerging industries, and a massive Belt and Road infrastructure initiative that seeks to shore up its power throughout Asia.

Many predict that China will dominate the 21st century in much the same way that America dominated the 20th. Yet I’m not so sure. First, American dominance was due to an unusual confluence of forces unlikely to be repeated. Second, China has weaknesses—and we have strengths—that aren’t immediately obvious. We need to be clear headed about China’s rise.

The Making of an American Century

America wasn’t always a technological superpower. In fact, at the turn of the 20th century, much like China at the beginning of this century, the United States was largely a backwater. Still mostly an agrarian nation, the US lacked the industrial base and intellectual heft of Europe. Bright young students would often need to go overseas for advanced degrees. With no central bank, financial panics were common.

Yet all that changed quickly. Industrialists like Thomas Edison and Henry Ford put the United States at the forefront of the two most important technologies of the time, electricity and internal combustion. Great fortunes produced by a rising economy endowed great educational institutions. In 1913 the Federal Reserve Act was passed, finally bringing financial stability to a growing nation. By the 1920s, much like China today, America had emerged as a major world power.

Immigration also played a role. Throughout the early 1900s immigrants coming to America provided enormous entrepreneurial energy as well as cheap labor. With the rise of fascism in the 1930s, our openness to new people and new ideas attracted many of the world’s greatest scientists to our shores and created a massive brain drain in Europe.

At the end of World War II, the United States was the only major power left with its industrial base still intact. We seized the moment wisely, using the Marshall Plan to rebuild our allies and creating scientific institutions, such as the National Science Foundation (NSF) and the National Institutes of Health (NIH) that fueled our technological and economic dominance for the rest of the century.

There are many parallels between the 1920s and the historical moment of today, but there are also many important differences. It was a number of forces, including our geography, two massive world wars, our openness as a culture and a number of wise policy choices that led to America’s dominance. Some of these factors can be replicated, but others cannot.

MITI and the Rise of Japan

Long before China loomed as a supposed threat to American prosperity and dominance, Japan was considered to be a chief economic rival. Throughout the 1970s and 80s, Japanese firms came to lead in many key industries, such as automobiles, electronics and semiconductors. The United States, by comparison, seemed feckless and unable to compete.

Key to Japan’s rise was a long-term industrial policy. The Ministry of International Trade and Industry (MITI) directed investment and funded research that fueled an economic miracle. Compared to America’s haphazard policies, Japan’s deliberate and thoughtful strategy seemed like a decidedly more rational and wiser model.

Yet before long things began to unravel. While Japan continued to perform well in many of the industries and technologies that the MITI focused on, it completely missed out on new technologies, such as minicomputers and workstations in the 1980s and personal computers in the 1990s. As MITI continued to support failing industries, growth slowed and debt piled up, leading to a lost decade of economic malaise.

At the same time, innovative government policy in the US also helped turn the tide. For example, in 1987 a non-profit consortium made up of government labs, research universities and private sector companies, called SEMATECH, was created to regain competitiveness in the semiconductor industry. America soon retook the lead, which continues even today.

China 2025 and the Belt and Road Initiative

While the parallels with America in the 1920s underline China’s potential, Japan’s experience in the 1970s and 80s highlight its peril. Much like Japan, it is centralizing decision-making around a relatively small number of bureaucrats and focusing on a relatively small number of industries and technologies.

Much like Japan back then, China seems wise and rational. Certainly, the technologies it is targeting, such as artificial intelligence, electric cars and robotics would be on anybody’s list of critical technologies for the future. The problem is that the future always surprises us. What seems clear and obvious today may look ridiculous and naive a decade from now.

To understand the problem, consider quantum computing, which China is investing heavily in. However, the technology is far from monolithic. In fact, there are a wide variety of approaches being championed by different firms, such as IBM, Microsoft, Google, Intel and others. Clearly, some of these firms are going to be right and some will be wrong.

The American firms that get it wrong will fail, but others will surely succeed. In China, however, the ones that get it wrong will likely be government bureaucrats who will have the power to prop up state supported firms indefinitely. Debt will pile up and competitiveness will decrease, much like it did in Japan in the 1990s.

This is, of course, speculation. However, there are indications that it is already happening. A recent bike sharing bubble has ignited concerns that similar over-investment is happening in artificial intelligence. Many investors have also become concerned that China’s slowing economy will be unable to support its massive debt load.

The Path Forward

The rise of China presents a generational challenge. Clearly, we cannot ignore a rising power, yet we shouldn’t overreact either. While many have tried to cast China as a bad actor, engaging in intellectual theft, currency manipulation and other unfair trade policies, others point out that it is wisely investing for the long-term while the US manages by the quarter.

Interestingly, as Fareed Zakaria recently pointed out, the same accusations made about China’s unfair trade policies today were leveled at Japan 40 years ago. In retrospect, however, our fears about Japan seem almost quaint. Not only were we not crushed by Japan’s rise, we are clearly better for it, incorporating Japanese ideas like lean manufacturing and combining them with our own innovations.

I suspect, or at least I hope, that we will benefit from China’s rise much as we did from Japan’s. We will learn from its innovations and be inspired to develop more of our own. If a Chinese scientist invents a cure for cancer, American lives will be saved. If an American scientist invents a better solar panel, fewer Chinese will be choking on smog.

Perhaps most of all, we need to remember that what made the 20th Century the American Century was our ability to rise to the challenges that history presented. Whether it was rebuilding Europe in the 40s and 50s, or Sputnik in the 50s and 60s or Japan in the 70s and 80s, competition always brought out the best in us. Then, as now, our destiny was our own to determine.

— Article courtesy of the Digital Tonto blog
— Image credit: Pixabay

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