Wednesday, February 10, 2016

Why business model innovation is so compelling

There's a real sense that we in the corporate world are standing on the brink of an amazing transition, moving from relatively older, static models of competition based on corporate size and mass, to new competitive realities dictated by speed, agility and innovation.  For at least a couple of centuries, as we look back over the dominant corporations of the past, we can see that size and scale were the predominant factors.  Whether we think about some of the original corporations (like those that governed the tea trade in India and England) or more modern corporations like the US automobile companies or banks, the prevailing wisdom has been to grow large and use size, mass and reach to defeat other competitors.  Embedded in this thinking, or perhaps even dictated by this thinking, is an inherent business model:  size matters.  By growing large you can distribute costs more effectively, serve more customers from the same basic set of products, scale revenues and introduce efficiencies and command market power and dominate sales channels.  In a market where size matters, only a few players dominate and the rest compete for the leftovers.

But as we know, large companies become defensive, complacent and inert, held in place by investments and past performance, overly risk averse.  Their size and their business model ultimately becomes a barrier for new innovation and new growth.  The very thinking and models that helped them grow become barriers for further development.  And, of course, the models that got them to a specific position aren't necessarily relevant as tastes, consumers and channels change.  It's strange to think that Sears was once the largest retailer in the world, and actually made a significant transition from a catalog company (in many respects the world's first Amazon) to a company that based its model on presence in shopping malls. Now that Sears is relatively undifferentiated, and consumers are no longer spending time at malls, the model based on stores in malls and a highly distributed assortment of low and mid range products doesn't work.  But Sears is locked into a business model that is exceptionally difficult to change.  They can't pull out of mall stores overnight.  What was once promising as a model is now driving Sears toward a disaster.

This is both the promise and the danger of business model innovation.  Commenters and consultants talk blithely about business model innovation as if existing companies can readily and rapidly change their business models on the fly.  For existing companies, business model innovation is important, if for no other reason that change is more frequent and more disruptive, which leads to the invalidation of old models.  Existing companies must learn to balance the efficiencies gained from existing models and the ability to constantly evolve their models to new competitive realities.  As we like to say when we talk to clients about innovation, we've got to build the plane while we are flying it.  There's no other option, and this is especially true for business model innovation.  Sears cannot suddenly change its business model, abandoning stores, abandoning faithful customers and vendors.  If you want to see how that plays out, go look at JC Penney's attempt to innovate its stores and eliminate coupons and discounting.  That experiment lasted only a year or two before Penney's brought back its former management team.

Penney's experience doesn't suggest that you shouldn't innovate your business model, only that you can't suddenly change it and lose good, faithful customers who don't understand the change.  Business model innovation is something every company should be constantly experimenting with, and communicating to its employees and customers why these experiments are taking place and what changes they are expecting and planning for.

Business model innovation is so compelling because it is so unusual (at least to date) and so powerful.  We can look at examples like iTunes, NetFlix and Airbnb as real business model disrupters.  We can also note that every one of these was a new entrant into an existing industry, not bound by convention or past investments in the industry.  Does this mean that incumbents should ignore business model innovation and simply wait to be disrupted?  Absolutely not.  In fact many of the "innovations" that these disrupters introduced were opportunities that existing incumbents could have addressed but ignored.  Take for example Airbnb.  What Airbnb offers is a reservation system to allow you to rent a vast array of properties, none of which they manage or own.  But Marriott and Hilton don't own many of the buildings they brand, and their reservation systems work just fine in those locations.  What would have happened if Marriott or Hilton had expanded the definition of accomodations to include renting rooms or condos in the same way that Airbnb does?  After all, the hotel chains have a captive audience who trust their branding and want points.  It's not such a stretch to think that Marriott or Hilton or other trusted, established brands could have done what Airbnb did.  And this is only an example of a business model change that expands the opportunities, rather than a change like Netflix that completely disrupts the existing model and market.

Business model innovation is so compelling because it is so difficult for existing companies, but that's not a reason not to do it.  Existing companies should be examining their business models and understanding the impacts of business model innovation.  Which innovations expand the market and model (like Airbnb)?  Which disrupt or destroy the market (like iTunes)?  What can/should we do to evolve, adjust, modify and move our models?  Where are the testing grounds?  How do we experiment with new models before the old models come under attack or become obsolete?

The real challenge is that most companies are barely cognizant of product innovation, which has its own challenges but isn't as difficult or compelling as business model innovation.  This is akin to going directly to high school, skipping elementary and middle school, foregoing the education and experience.  Again, that doesn't mean business model innovation should simply be ignored, because the pace of business model innovation is increasing as we get better and better connectivity, better payments tools and platforms and better information management and data analysis.  These platforms will allow completely new business models, and will shift existing competition very quickly. 

In fact, business model innovation is a lot like a terrible accident on the road, so heartbreaking and sad that you can't look, and so compelling and awe-inspiring that you can't help but watch.  We need to get off the sidelines and get involved with business model innovation, but not in the way you've been told.  Every company needs to start defining its existing business models, understanding potential weaknesses that can be exploited.  They need to start experimenting with new business models and understanding new technologies and platforms.  It's naive and wrong to assume that established business models will sustain.  Those that understand the impending changes and put in place the capabilities and mechanisms to experiment, learn and adapt will be the ultimate winners.
AddThis Social Bookmark Button
posted by Jeffrey Phillips at 6:46 AM 0 comments

Monday, February 01, 2016

One Thousand innovation posts and more to come

It seems fitting that on the first day of a new month, early in a new year I'll pen what is my 1000th post on innovation.  Looking at that number makes me think that innovation is either a vast topic or that I repeat myself quite frequently.  Happily, I believe both alternatives are true, keeping with the both/and mantra of innovation.

You'll forgive me for being a bit reflective here in the first section of this post.  I started writing Innovate on Purpose over a decade ago, as innovation seemed poised to take root in corporate America.  My colleagues and I at OVO Innovation created our consulting practice to assist large corporations in their innovation journey.  I decided to write about my assessments, my discoveries and the lessons learned along the way.  And over that time I've seen a lot of innovation, and innovators come and go.  I have to express my disappointment at the commitment to innovation that we've seen over the past decade, and I have to tell you that I believe a real reckoning is coming.  Like Jeremiah from the Old Testament I feel like a prophet of impending doom, but I also see the incredible possibilities that lie ahead of us once we finally decide that innovation is more important than efficiency and as we recognize the coming wave of business model innovation.

What's old is new again
Today (February 1, 2016) I did a quick scan of the social media sites, especially Twitter, to see what people were highlighting.  What's remarkable to me was the large number of tweets about innovation culture.  I saw this one on why the financial services, especially banks, lack a culture of innovation.  Having several large financial institutions as innovation customers, I can tell you that any company with a "risk" department struggles with innovation, and the same is true for highly regulated companies or industries.   In the same twitter stream Henry Hart Doss talks with Larry Keeley at Doblin about innovation culture, Doss taking the perspective that culture is important, and Keeley seeming to claim it isn't.

A decade on corporate leaders are still trying to get their heads around innovation, and decide whether it's a cultural phenomenon, or a process and tools issue, or something to do with design, and how it all links into strategy, all the while trying to isolate the disruptive aspects of innovation from the engine of profitability and efficiency.  At this point, many of the current leaders have missed the boat, and I believe we'll need to wait for the next generation of leaders who will recognize that these are all components of an integrated solution.  Innovation is impacted by the culture of the organization, is a process and tools issue, incorporates design and user experience and has a range of outcomes.  Until we see it as an integrated, mutually dependent whole, innovation is only toying at the margins and will always fail to deliver based on the outsized expectations that are set.  But these issues are just the tip of a larger iceberg that's appearing on the horizon.

What's going to happen
Here's my prediction about what's going to happen next.  Innovation, like a virus, mutates beyond expectation, shifting from an innocuous bug to a deadly contagion, as issues like business model innovation create significant disruption.  All we need is the emergence of a few trusted platforms upon which innovations can thrive, and major industries will quake and topple.  For example, payments is ripe for innovation, and what we lack are some basic infrastructure standards.  If those infrastructure standards are completed and a platform is created, we could witness a wholesale change in the way banking and financial services are created and offered.  We could see the rise of a real "retail" payments offering that wipes out retail banking, credit cards, payments, etc.  And that's just based on the rise of one platform.  If Uber and Airbnb can take grow so quickly based on their respective platforms, why can't we "uberize" other industries?

People will scoff, but the coming business model innovation wave will not simply topple giants, the way product innovation and design innovation humbled firms like Yahoo, Motorola and Nokia.  Those firms still exist, but as pale shadows of their former selves.  Business model innovation, the next emergent wave of innovation focus, will not wipe out individual businesses, it will rework industries and revenue streams.  We are on the cusp of a significant amount of disruption.  If you think you've seen a few disruptions, like what happened to Blockbuster when NetFlix really took off, then you get the general idea.  Except we'll be talking about industries, not individual companies, when people really understand what business model innovation can do.

So, over a decade of blogging we've succeeded and we've failed.  We are still trying to convince executives about the importance of innovation culture, and the need to build innovation skills.  I think we can safely say that there's more focus and more awareness of the need for innovation in the corporate suite, but the commitment to conduct innovation is still not where it needs to be. 

This is going to change.  People who understand a hockey stick graph, or Gladwell's tipping point model will agree - we are nearing an inflection point, where we'll shift into a new business reality, leaving behind the large, slow behemoths.  What will replace them are fast, nimble business model innovators that can morph and adapt as consumers and markets change and adapt.  To do so they'll be much more flexible, configurable and able to identify trends and change as those trends change.  These firms and their leaders will understand the coming business model disruption.  In fact they are with us today, much like the small rodents and mammals were living with the last dinosaurs, scurrying around under their feet, ready to rise as the old guard passed away.

Yes, I'm being a bit apocalyptic, but when you reach 1000 posts you get the opportunity to opine about your longer range views.  The fact of the matter is that this coming disruption is an OPPORTUNITY, not a disaster, for those who see it coming and are prepared.  This isn't a nuclear winter wasteland, except for the people and firms that ignore the pending doom.

I'm looking forward to the next 1000 posts, and I'm sure they will happen, since so much is still to unfold.  Thanks for your indulgence and your readership.  I'll try to keep the flame burning in the next few years.

AddThis Social Bookmark Button
posted by Jeffrey Phillips at 6:56 AM 0 comments

Friday, January 29, 2016

Business Model Innovation: reaching and grasping

I'm a fan of Robert Browning, and really any one who can create a really pithy but meaningful quote.  Today's quote is from Browning, who said: "a man's reach should exceed his grasp, Or what's a Heaven for?".  Of course any quote taken out of context can be used in any way I choose, but I like to think that Browning was writing about innovation.  In my way of thinking, Browning was exhorting all of us to innovate in ways that stretched us beyond our capabilities and comfort zones.  That part about reaching exceeding his grasp has that in spades.  If all of our reaching is within our grasp, if everything remains close and easy, within our knowledge and comfort zones, we will never make change.  And, to use another of my favorite quotes, from Shaw, all change is due to the "unreasonable" man, because reasonable men adapt themselves to their conditions, while "the unreasonable man adapts surrounding conditions to himself." 

From these two quotes we can learn that innovation demands that we reach beyond our capability, knowledge and comfort zone (exceeding our grasp) and by doing so we may be seen as "unreasonable" and fomenting change.  But that's what innovators do.

Now to pull the rug out

After all this lofty praise for reaching beyond the grasp and fomenting change, I'd like to issue a warning.  Currently, there is a lot of talk being thrown around on the web and in business periodicals about all kinds of innovation - business model innovation, service innovation and so forth.  This is both exciting and terrifying at the same time, because innovation needs to move beyond product innovation, but there comes a time when the reach far exceeds the grasp, and innovation goals or targets become unreasonable. 

I'm actually glad to see the increasing focus on innovation other than product innovation.  We've often said that product innovation is both the easiest to do, and the easiest to copy, while other innovation types, like customer experience innovation or business model innovation are far more difficult to replicate.  That's why there are many retail stores but only one Nordstroms, for example.  But it's a far cry from doing simple, incremental innovation around existing products to attempting to innovate a business model.  That's why Airbnb can disrupt the hotel industry from the outside while larger firms can only watch and wonder.  The larger firms had simply too much invested in the status quo.  They may or may not have been willing to do the innovation, but it simply seemed too unreasonable to do it.

Gaining skills and increasing vision

Innovation of any form, resulting in any outcome, can be challenging, but the more the result becomes intangible (services, experiences) or upsets a dominant paradigm (business models) the more difficult it becomes, for several reasons.  First, it's difficult because it is unusual.  Most companies can do some product innovation when forced to, but haven't conducted any more robust or intangible innovation.  Second, by their very nature, these outcomes are intangible:  hard to see, hard to test, hard to prove.  You almost have to create the solution before you'll know if it will work.  That's the reverse of most corporate thinking, which seems to suggest you should prove it will work before you experiment.  Third, these kinds of innovation are difficult because they challenge a very valuable existing paradigm:  an industry convention, a viable business model, that few want to destroy.

While many corporations have some innovation skill, the idea of business model and customer experience innovation may still be instances where the reach far exceeds the grasp, to paraphrase Browning.  Talking about business model innovation and building expectation is dangerous when few established companies know how to do it, and further, have the unreasonableness to try.  Because it will take more than skill to innovate a business model in an existing industry.  It will require either an outsider who has no stake in the market, or an incumbent who is willing to tear up an existing convention (that they also benefit from) and start again.

Since many corporations are also public corporations dependent on shareholders, only visionary or desperate CEOs will suggest that the company slit its own business model throat and innovate a completely new way of doing business.  Talk about unreasonable!

What's likely to happen

None of this means that I don't think business model innovation is going to occur.  It's already underway, and every large corporation is watching and trying to understand what's going to happen.  A lot of investments are being made "just in case" to buy time.  GM invested in Lyft "just in case" the Millennials never make the shift to acquire cars, and the baby boomers all give theirs up.  GM hasn't yet innovated its business model, which is really a financing model, but it probably needs to.  And GM isn't alone.  Every business model is under siege.  Intel built its model based on the dominance of the PC, but tablets and smartphones are far outpacing the growth of desktops and laptops.  We can go on and on about the business models that are at risk, and how hard it can be to innovate out of an existing model.

Startups, entrepreneurs and new entrants will conversely have a field day, because many new platforms and technologies will allow them to enter and change the dynamics of an industry or business model with relative ease.  Airbnb and Uber are two examples, as is NetFlix, and all are dependent on the power of the internet, which has become a platform for business model change.

Right now, there's an overabundance of talk about business model innovation, by people who know how difficult it can be. Those who need business model innovation most don't have the depth of skill or experience necessary, and are often too locked-in to their existing models to innovate effectively. They aren't yet willing to be unreasonable.  But the new entrants are fully willing to disrupt and subvert the business models, and new technologies and capabilities are making it easy for them to do so.  You can believe everything you read about business model innovation and its importance, but pay attention to the companies that actually do it.  They will be the ones with the skills and unreasonableness (if they are larger) or the utter lack of investment in the convention (if they are entrepreneurial or crossing industry boundaries).  Business model innovation is just emerging and will happen quite regularly, but it will be driven primarily by the new entrants and the boundary hoppers. 
AddThis Social Bookmark Button
posted by Jeffrey Phillips at 7:10 AM 0 comments

Wednesday, January 27, 2016

Moving beyond Explore and Exploit

Perhaps one of the biggest challenges innovators face is the lack of shared conventions or definitions.  This starts with the definition of innovation, which we all agree is important but no two people agree on the definition.  Moving on from there, we have different types of innovation, different tools and outcomes, differences in focus and intent.  I honestly believe that innovation teams in corporations attempting to conduct innovation suffer, because of the host of different and often proprietary innovation methods, processes and tools.

There's little I'd like more than to create shared platforms and models, and to create holistic solutions rather than increment our way to good frameworks.  One of the challenges I'll address and attempt to solve today is the emerging dichotomy currently represented as explore and exploit.  This is, in itself, an evolution, because the vast majority of work in corporations recently could be represented by a single activity:  exploit.  But I'm going to argue that while the emergence of the explore:exploit duality if a good thing, we need to go much further.  This explore:exploit duality is emerging simply to isolate two different activities with different goals and tools.  Explore seeks to discover new ideas, using high divergent tools and methods, while Exploit seeks to maximize profits using highly convergent tools and methods.  Thus we isolate and inoculate them from each other. 

Missing the Forest for the Trees

But this is a forest and trees problem, because Explore and Exploit represent key activities, not the entirety of a end to end innovation or idea process.  Yes, they are important activities, but they overlook, ignore or simply attempt to subsume important activities like Experimentation, Execution, Enhancement and Evisceration.  Let's not stop with the emergence of explore and exploit.  Let's pull back the viewfinder and take a broader look at the entire end to end innovation process, from the earliest hints of needs in Exploration to the last dying gasps of an outdated product in Evisceration.  As we define and share a common framework, we can educate our clients, remove mystery and speak clearly and directly about specific tasks and outcomes.  We can highlight what our clients do well (define and build new products, maximize revenue and profits) and what they do poorly if at all (discover new needs, experiment to find the best solutions, create a graceful end of life for products).

The proposed six phases of an idea lifecycle
We've published a new white paper entitled Beyond Explore and Exploit, seeking to define an entire end to end idea lifecycle using six "E" words you've probably already noticed scattered throughout.  Those "E" words represent sequential steps in an idea lifecycle, from birth to death:
  • Explore - to find new insights, discover new needs, create new ideas
  • Experiment - to evolve the ideas and validate the features
  • Execute - to convert good ideas into new products or services and launch them
  • Exploit - to maximize profits and gain returns on the investments in the first 3 phases
  • Enhance - to extend the life of a product or provide new features or benefits
  • Eviscerate - to create a logical, graceful end for products, rather than leave them as zombies
You can find the entire whitepaper on our website here, along with other articles and papers.  I'd like to thank my good friend and frequent collaborator Paul Hobcraft for his thoughts and comments.  Any oversights or mistakes are of course mine alone.

So, what say you, gentle innovators?  Ready to think about creating one common, shared innovation life cycle?  What did we get right with this model?  What did we get wrong?  How do we lower the barriers for our clients through shared innovation models and frameworks?  Ready to give it a try?
AddThis Social Bookmark Button
posted by Jeffrey Phillips at 7:49 AM 0 comments

Wednesday, January 20, 2016

What the GE Innovation Barometer really tells us

Like many of you I look forward to the annual reports about innovation that a number of larger corporations and consulting firms publish.   It's interesting to get a large, multinational examination of the state of innovation, and to see how the data is interpreted.  Each year BCG and other consulting firms release an innovation report.  From the business perspective,  GE does a nice job every year of interviewing a large number of executives around the globe, and analyzing the data for insights

Before I drill into what I believe the data tells us, remember a couple of factors.  First, how a question is asked matters, as well as which questions were asked and which were not asked.  There may be as much to learn from what wasn't asked as their is in what was asked.  Second, analyze the analysis.  Look at the data itself and how it is presented.  There are connections in the data that seem interesting to me that GE does not call out.  GE may refrain from calling these out because the data or conclusions differ from what GE is interested in presenting. Or, GE simply took a different perspective than I did.  There are many reasons why the analysis from the same data set may be slightly different. 

It's clear what's important to GE - examining the report suggests a couple of areas that GE wants to highlight, including business to business collaboration, data analytics and support for innovation from governments.  GE also covers a wide array of innovation topics, and the overall report and analysis they provide is reasonably good.

My analysis

Here's my analysis of their report and the subsequent data they provided (charts/figures noted by page number).  This analysis is based on the 88 page PowerPoint I downloaded from the main Barometer site:

Page 5 - 2016 Key Findings.

GE presents four key findings (Welcome Revolution, Embracing new models, Disruptive Innovation and Everybody's starting up).  Within these findings two concepts caught my eye.  First, while executives recognize the need for "disruptive" innovation (never really defined as far as I could see), 81% worry about being left behind, or have fear of becoming obsolete (a new acronym:  FOBO).

But here's the question:  does this "fear" translate into any action?  Do executives communicate this fear to their organizations?  More importantly, do the executives allocate resources or investments based on these concerns?  We don't know from the research.

Second, the research states that "Inertia and risk aversion are growing".  God help us if this is true.  Inertia and risk have traditionally formed some of the biggest barriers to innovation.  If inertia and risk aversion are growing, as the report states, then together we face an immense struggle to innovate.  Large corporations face enough challenge to innovate without an increase in inertia and risk aversion.  The report says nothing about how to overcome these issues.

Page 22 - Increased Financial Return

According to this slide, firms in leading innovation countries are recognizing growing innovation return from collaboration.  Almost 90% of the firms surveyed are growing innovation collaboration, with the global average at 77%.  While innovation is growing and collaboration is increasing, this data is overstated or does not represent the average company in the countries where the research was conducted.  In our experience "open innovation" is still a buzz word for many companies, and while collaboration and open innovation can be game changers, the vast majority of companies are not actively collaborating for innovation success.

Page 25 - Being disruptive is the gold standard

Again, other than defining disruption in the previous slide as "creating a market that didn't previously exist" we don't have a good definition of disruption.  Moreover, 60% of the companies surveyed have difficulty coming up with radical and disruptive ideas.  47% say the development of new products and services "contributed" to business performance, but doesn't mention what the contribution was.  Companies can label any new product and its associated revenue as "innovation", and this statistic doesn't equate to "disruption", merely to new products or services.

The entire analysis argues for more disruption, but doesn't address how difficult it is or what firms are doing to grow the skills necessary to innovate effectively.  Later we'll see another conundrum, the concern about working on disruptive projects versus the need to get to market quickly.  Conversely, the report doesn't talk much about what's causing industry and segment disruption.  Disruption is increasing - look no further than Airbnb or Uber for examples - but many industries don't understand the disruptive forces or how to defend against them.  Most larger corporations would be better served to learn to understand the potential disrupters and purchase, block or co-opt them.  If inertia and risk are big barriers to every day innovation, what kind of barriers will larger corporations encounter when they try to "disrupt" something?

Page 31 - The majority of business executives continue to favor a "safer" approach

Here's research that simply confirms what we already knew.  Executives prefer innovation that doesn't interfere with day to day operations.  But what we actually need is a "both/and" approach:  the ability to conduct excellent day to day operations to drive revenue and profits while simultaneously conducting innovation to create new products.  Currently, almost two-thirds of the respondents note that they intend to protect the core business as much as possible, which will starve innovation activities.

Page 32 - Many businesses innovate incrementally...

On this slide we see what appears to be a logical tradeoff:  63% of respondents favor incremental innovation because they want safety and low risk, while recognizing they need to get to market quickly.  What they miss is that innovation can be disruptive AND rapid, they just don't have the processes or skills to conduct innovation in that way. And, when new entrants with the ability to be both disruptive and rapid emerge (look at Zara, or Uber, for example), there will be disruption in their markets and industries.  It's not enough to recognize what the disrupters are doing, corporations have to adopt these skills and capabilities or they will be disrupted.  Corporations must become more capable innovators, must become more agile, more able to make quick decisions and become proactive rather than react to market conditions or competitive actions.

Page 36 - Having an innovation strategy...

This slide suggests that two thirds of the firms surveyed have a "clear innovation strategy", which is probably true but almost certainly irrelevant.  What is relevant is having a clear strategy, that is regularly and capably communicated to the entire organization, and is backed by executive commitment, new funding, project prioritization and other factors which ensure innovation is actually done.  You can see how little having a clear innovation strategy matters when you read that 62% of those firms with a clear strategy "struggle to come up with radical and disruptive ideas".  Ultimately this chart tells us that over 60% of the firms that responded (62% of 68% and 57% of 32% = 60%) struggle to come up with radical and disruptive ideas.  This is further reinforced by the next slide...

Page 37 - We see polarized views in approach to innovation strategies

France, Indonesia and India lead the way in responding to the question:  Does your company have a clear innovation strategy, yet I think few experts would claim that these countries or the preponderance of firms in these countries are excellent innovators.  On the flip side, Japan is noted earlier in the research as an innovation champion, and we can easily toss in Israel and Sweden, all three at the opposite end of the scale, lacking clear innovation strategy.  Either having a clear innovation strategy doesn't matter (which it does) or it is not enough (having a clear strategy is useful only if other conditions, like executive commitment, funding, resources and other factors are also put in place).  Further, we need to move away from the reliance on countries and governments.  Too often governments create incentives and hope to pick winners and losers, rather than simply creating conditions where the best ideas and industries succeed.

Page 41 - Identifying best practices and integrating them...

I especially like this chart, but I think the developers of the material missed a key opportunity here.  If we look from left to right we can identify key factors that become barriers to innovation. They are:
  • a lack of PROCESS (to have a clear process and structure in place)
  • a lack of PEOPLE (to encourage and reward innovative people)
  • a lack of innovation CULTURE (to create a connected culture) and (to reward those...)
  • a lack of GOVERNANCE (to create a set of metrics..)
  • a lack of CUSTOMER INSIGHT (to rely on consumer research...)
These factors have been innovation challenges for years.  To see them show up in this research is almost reassuring, but ultimately damning.  For these to show up in this way, in this order means that for over a decade corporations have known what the challenges are and haven't moved the needle very much.  We know these are problems.  When will leaders arise who will focus on them and fix them?

 Page 42 - The Informed Public think internal inertia and lack of leadership...

Here's a real conundrum.  The factors that keep firms from innovating effectively (business models, integration, inertia, lack of investment, lack of skill sets) are all factors that are internally controllable.  None of these arise from external competition or are unobtainable or unchangeable.  All of them are within the purview of the executives who were interviewed to change!  Let's get to it!


GE has once again done a great job surveying a broad population of executives, who have indicated that innovation is important and who recognize that their companies must get better at doing innovation consistently and in a more disruptive fashion.  Yet these same executives, who recognize the key challenges and skill gaps, don't have answers to basic changes necessary in order to innovate.  In this regard, there's nothing new under the sun.  We are still faced with issues like risk, uncertainty, the tradeoffs between day to day operations and innovation, and everyone recognizes the skill gaps, cultural barriers, inertia and other innovation blockers.

The real problem identified by this report is how uncomfortable most corporations are with the types of innovation they need to be doing.  The report confirms that most respondents are uncomfortable with radical or disruptive innovation, while recognizing that these factors pose significant challenges to their current business prospects.  Change is accelerating and disruption is accelerating.  Executives understand this but don't seem to have plans to address them.  At a minimum, larger firms should be paying close attention to potential disrupters, and taking a proactive yet defensive stance to block the disrupters, delay the disrupters or create conventions or regulations that stymie them.  Better yet, the corporate leaders could learn from or acquire the disrupters.  The best possible scenario is that larger corporations become far more proactive, creating new solutions and identifying emerging markets and needs before the disrupters do.  But this will require a change in culture, rewards, focus, business model and ultimately, leadership.

This should be a wakeup call to new managers and junior executives who are climbing the corporate ladder.  Now is the time to build these skills, to put new processes and mechanisms into place.  The pace of change is accelerating.  Disruption is occurring.  FOBO (obsolescence) won't occur on the current management watch.  It will occur just as you reach the top, unless you are prepared to make changes to the way your company operates.

AddThis Social Bookmark Button
posted by Jeffrey Phillips at 6:15 AM 0 comments

Monday, January 18, 2016

Innovation in the file cabinet

Not long ago our innovation team was asked by a client to lead an innovation project to create a new product.  As always when we are asked in by a new client, we did a quick survey.  It's important to understand what the client knows about innovation, what they have learned or attempted previously.  Innovation can be strange and new, and if other tools or methodologies are familiar or in use, it's often valuable to incorporate them into our processes if possible, rather than ignore them.

In this case we were told that Yes, the client had adopted another consulting firm's innovation methodology.  In fact when we met with the client team, they provided a binder of information on a step by step innovation process, that from the looks of things was relatively straightforward and complete.  Of course every consulting firm has its own ways of doing things, and there are factors and characteristics that will differentiate one consulting firm from another, but at the heart of the matter innovation is always about defining challenges, understanding future market needs and conditions, gathering customer insight on unmet needs or jobs to be done and generating solutions.  That's the basic "front end" in a nutshell, and no matter how you spin it or package it, all innovation programs have some flavor of these steps.

Anyway, back to the client.  As I noted, the client team pulled a binder out and showed us another consulting firm's methodology.  They presented sample deliverables.  They presented a sample workplan.  And at some point I began to wonder:  what do they need us for?  All the step by step instructions, all the information necessary to innovate was here.  Had they adopted this methodology, I asked?  The answer, as you might have guessed, was sheepish.  No, the client team responded.  The other consulting firm had built the process for them, given them "training" on the process and the client team had agreed to "take it from there".  A year later, no innovation had been completed, because no one was there to reinforce the innovation process, too many other priorities had sprung up to compete with innovation, and it seemed a bit unusual and risky.

Needless to say, I was both shocked and relieved.  Shocked that so much effort had been expended to develop a reasonable innovation program that had not been implemented.  And relieved to note that virtually none of it had had an impact on the team or company.  Which meant we could ignore it as part of our effort, much as the client team had ignored the existing materials.

Innovation in the file cabinet

While the client shall remain nameless, this is in fact a situation that occurs quite frequently.  From an innovation methodology or process point of view, there are very few companies that are truly "green fields".  Most have heard of innovation, many have purchased books or sent people to innovation training, and a fair number have partnered with one or more innovation consulting firms.  Yet far too often when we do our initial reconnaissance to determine what a client has done from an innovation perspective, all we find are old methodologies that reside in a binder, somewhere in someone's file folder or file cabinet.  Do they have innovation processes or methodologies?  Sure, if what's buried in the file cabinet counts.  No one wants to appear unprepared, but many simply haven't implemented what they have.

Why would firms pay for innovation training, advice, methodology and consulting and then shelve all of the knowledge?  There are a number of reasons, but the most important ones have to do with priorities and risk.  Steven Covey introduced the idea that managers spend time on things that are URGENT or IMPORTANT.  Innovation falls into the category of IMPORTANT.  It is important that a company create new products, or develop a new business model.  Most day to day operations fall in the category of URGENT.  It is urgent that we respond to this competitive move or that new piece of legislation.  And, as Covey noted, the URGENT always beats the IMPORTANT.

Good innovation knowledge, methodologies and training ends up on the shelf because the teams in question don't have the bandwidth, the resources, or the approval to pursue new and interesting ideas.  Heck they can barely keep up with the day to day stuff they are tasked with, much less add on new projects.  Innovation training and inspirational speeches amp up enthusiasm which is quickly overturned by business realities.

General aspiration or firm commitment

Here's what you need to know if you hope to do any innovation, at any level of the company:  is innovation a general aspiration, or a firm commitment?  Aspirations are important, but often lack the resources and investment necessary to implement.  Further, Aspirations talk about change but don't have the commitment to make the change a reality.  Innovation requires a firm commitment, from senior executives who are willing to change the status quo, and who will resource interesting challenges and projects immediately, with the best people.  Firm commitments are signaled when innovation projects get top billing, when the best people clamor to join those projects and when they are adequately resourced and regularly called on to report advancement and achievement.

You'll need to quickly work out each innovation request, to see if it is a firm commitment.  There are a few signs that can signal the breadth and depth of commitment.  First is the level and commitment of the person who demands it.  CEOs demanding innovation are a dime a dozen: they all demand innovation but don't follow up.  Executives who demand innovation and strip their best people from other activities or redirect resources and funding to innovation create a much clearer picture.  A second opportunity to demonstrate clarity is by defining an interesting and valuable scope.  Rather than simply ask for "innovation", people with true commitment ask for a new solution that's X times better than what's in the market, for a specific set of customers.  Innovation without scope is boiling the ocean.  Finally, you'll get a sense of the depth of commitment by the way activities are measured.  If no one every bothers to understand how innovation is proceeding, if there aren't frequent assessments of the effort, then you know that the effort isn't serious.

The reason so much innovation methodology, process and knowledge ends up in binder on bookshelves and file cabinets is that there's exceptionally little follow through on the part of executives. These individuals want innovation, but don't want to disrupt the status quo, so their innovation becomes aspirational rather than a firm commitment.  And when that signal is received by a designated innovation team, the materials go back on the shelf, to wait for another day when the commitment is higher.

Out of the file cabinet

The problem with innovation in the file cabinet is that it isn't being exercised.  If you have a method or process, implement it, learn it and perfect it by doing innovation.  It will be difficult and messy at first, but like any human endeavor you'll get better with more practice.  Parking the information in a file cabinet does nothing for anyone, in fact it is a waste of time and develops internal cynicism when people know they've received training or been introduced to a process they aren't encouraged to use.

Which, of course, raises the final question:  should corporate teams even try to innovate internally, or should they simply rely on external consultants to help generate ideas, or acquire other technologies or companies?  The simple answer is that doing innovation well is difficult, so perhaps we should outsource innovation.  But that leaves aside the question of integrating new ideas, technologies and products built by others into an existing portfolio of products and services.  Which can easily become a jumble of disparate solutions with no common theme, when you constantly seek to purchase ideas from the outside.  Innovation can be outsourced, but the transition of new products and services into the existing corporation can be very difficult.  With this in mind it is always better for a firm to build innovation capabilities, even if most of the work is outsourced, because when ideas originate internally there is a practical transition path to new products and services that is developed, which can help external ideas and products as well.

Getting innovation knowledge and expertise out of the file cabinet and into every day activities is important, and the importance increases daily, as new competitors enter the market and old industry conventions crumble.  Building on investments you already have or knowledge and skills already developed will be crucial for long term success.
AddThis Social Bookmark Button
posted by Jeffrey Phillips at 7:04 AM 0 comments

Friday, January 15, 2016

The Big Short demonstrates customer research

I don't know if you've seen the movie The Big Short, and if you haven't I won't spoil it for you.  It's a good movie, and gets to the heart of the financial meltdown attributable to CDOs and sub-prime mortgages.  If you lived through the stock market issues of the last decade, and are living through what the stock market is doing right now (feels somewhat similar, no?) then you can recognize that there was a shift in perceptions or reality.  At that time, the "given" that was suddenly no longer so certain was the idea that housing prices were firm, and would always go up.

The Big Short is interesting as a movie about the financial crisis, but what I enjoyed (as an innovator) is the fact that one small hedge fund group recognized something wasn't quite right.  And rather than stand around in their offices in New York assuring themselves that the facts all lined up, they did their own research.  In this case they decided to go see for themselves whether or not the data suggesting that defaults were increasing was true.

In one of the most moving scenes in the movie, two of Steve Carrell's team go to Florida as the new home market is melting down.  They are stunned to see empty houses, even empty neighborhoods.  When they find one house that is occupied, it is a rental, and the guy living there claims to be paying rent regularly to his landlord.  Later, the two guys drive around and go into an empty house that has been abandoned.  The residents had left the mail on the counter.  The two guys go outside and see a pool, only to find an alligator in the water.  That's symbolic of nature taking the neighborhood back once it's been abandoned by people who can't pay their mortgages.

Customer Research / Ethnography

Now, the movie is illustrative of a larger point about the sub-prime meltdown.  There were signals in the data that the market for sub-prime mortgages was terrible and getting worse.  People in Wall Street and other financial services firms should have paid more attention to the data.  But anyone willing to leave NYC and go to Florida, or Nevada, or Arizona, or Southern California at the time could have interpreted what was going on. In other words, if more of the financial community had done some basic trend spotting and customer research, we might have been experienced less of a tragedy than we did. 

What did it take to confirm the problems with sub-prime lending?  Riding around for a day or two in abandoned subdivisions. Driving around with a real estate agent who is very keen to move houses, that simply aren't selling.  In perhaps the most interesting instance of ethnography I've seen, Steve Carrell's character finds out that, let's call them exotic dancers, are buying homes.  During a personal encounter with an exotic dancer (keeping this PG for the kids), Steve Carrell is shocked to discover that many of these individuals have multiple mortgages, because, what could go wrong?  I've never done ethnography quite like that, but Carrell and his team discover a lot, for very little cost, by simply going and finding out.  While this seems evident, you'd be shocked at how little actual interaction with customers, in their settings and in their environments, is actually conducted.

Carrell and his crew discover that the signals in the data are true, and in fact the underlying leverage is worse than anyone in the financial markets seems to know about.  This allows them (and others) to short the market, because they've got insight on a coming crash that the majority of the market either doesn't care about or ignores.  While this isn't necessarily an innovation story, it plays out like one, because a small team of people discover something that's emerging, discover an opportunity that will arrive soon, and use interactions with customers to understand and validate the opportunity.

Lessons for Innovators
Too many times corporations are just like the Wall Street bankers and financiers portrayed in the movie. They believe that everything is OK, that existing products and services are adequate and don't need to be radically changed or modified.  All the while little signals, trends and other data contradict those assumptions, and no one goes to find out the truth.  If the movie tells us innovators anything, it is to beware of commonly shared assumptions that are too good to be true, and to go find out the truth for yourself, which is easy, and shockingly, few people actually do it.

Movie Review

As an aside, I really liked the movie, which did a good job of explaining what caused the market expansion and crash.  The pacing was good and the human side of the crash was explored as well.  It doesn't hurt that some of the arrogant financiers got taken down a peg or two.  Frankly we are still feeling the effects of that market meltdown, and housing prices are in many places just returning to pre-meltdown values.  You should see this movie, if only to get a better understanding of how interrelated all facets of the financial market are, and why you should pay more attention.
AddThis Social Bookmark Button
posted by Jeffrey Phillips at 7:38 AM 0 comments