Wednesday, October 07, 2015

Forget products, innovate your business model

What happens when the largest, most cataclysmic change forces known to business collide with embedded, rigid business structures and models?  Which side wins, the irresistible force or the immovable object?  In my post today, I'm going to answer this age-old philosophical question.  Innovation and change destroy complacent, unchanging business structures and models.  Every time.  Every where.  In every market.

It sounds a bit over the top to argue that everything we know is changing, and many models and structures will soon crumble from the onslaught of new emerging demands, capabilities and technologies, but in short that's what's going to happen, and is already happening.  Product life cycles are collapsing - I was recently in a conference where a camera manufacturer estimated the average shelf life for a new camera was between 3 and 6 months, or less than half the product development cycle time!  For years we've talked about the increasing pace of change, and much like the proverbial frog in the pot we're still sitting in the water as it's reaching the boiling point.  The telephone didn't reach a billion users until decades after its introduction - probably almost a century afterwards.  Facebook, Google and other internet applications reach a billion users in the matter of a few years, and newer, social media driven applications will do so even faster.  Unfortunately for them they'll also burn out and disappear even faster as well.

Do old business models make sense in this new, rapidly evolving environment? Can a business define and "lock in" its business model and hope to merely sustain its business model, thinking it will weather the storm and wait until "things return to normal"?  It's almost trite to say "the new normal is change".  That almost goes without saying.  The race goes to the nimble, the agile and the swift, not to the large and slow.  There is no return to normal, in fact what's normal is more change and a faster pace.  Can slow, rigid business models that were successful in the past, in a much more staid environment offer any solace to a business, or position those businesses for success in the future?  I'm going to argue the answer is:  probably not.

At worst you need a business model that evolves at the rate of change in the environment.  You simply cannot afford to fall behind and become locked into an older business model (hello Blockbuster), no matter how dominant you think the existing models are.  Netflix obliterated Blockbuster but continued to evolve its model into streaming and now content creation.  Why?  Because standing pat on a business model once people understand the value proposition is crazy.  There are simply too many avenues to attack a business model once the value proposition is understood.  Let's look at a couple of ways to attack an existing business model.

Chipping Away
There's what I like to call the "chipping away" model, which is what retail banks in the US are experiencing.  No newcomers want to face all the regulatory burden that the retail banks face in total.  Instead they offer single solutions or products that are equal to or better than what the banks offer, in areas that are more profitable.  These startups are "chipping away" at the bank's value proposition and are much more nimble and flexible.  They can get into and out of features or products in an exceptionally short timeframe, and can attract good customers quickly.  Mint, Betterment and other firms are not subverting the entire business model as much as chipping away at the most valuable parts, while banks are locked into older models more suitable for the 1970s and 80s.

Then there's the bypass model, which is what Netflix did to Blockbuster.  Same value proposition in terms of content, just a different channel.  Blockbuster had every valuable retail corner locked up, and Netflix decided (based on the availability and capability of the web (and the US mail!)) to completely dislocate Blockbuster and its presence model.  Netflix, Uber and Airbnb did what road builders do - they looked at the crowded mess of existing highways and simply "bypassed" the congestion, which freed up consumers and previously stagnant assets.

There's also the consolidation model, which is what I like to think Apple did to the music player, music management and music distribution industries.  Remember Tower Record?  Or how about your Rio MP-3 player?  Apple consolidated a number of valuable pieces and components into a much larger but simpler business model, and drove a number of companies and channels right out of business.  Or, to continue the Apple theme, consider how many devices the iPhone has replaced:  cell phone, digital camera, GPS, music player, calculator, watch, even a slide rule if you have the right app.  Creating platforms that consolidate capabilities that other business models kept apart is exceptionally valuable.

The list goes on and on.  Zara, H&M and others are disrupting the fashion industry through a focus on speed.  Tesla is trying to disrupt automotive sales and distribution, attempting to sell directly to consumers rather than through dealers.  Older structures, business models and channels don't necessarily have to carry forward into the future.  While they may be "carved in stone" these examples and others prove that stone can crumble, or smart companies can innovate their way around, under or through them.

What should we take away from this diatribe?
Product innovation is interesting, and every company should have active, on-going innovation to spawn new products and services.  However, product innovation is easy to do, easy to copy and will require constant updating.  So, we can argue that product innovation needs to become as commonplace and consistent as day to day operations.

It's business model change that is becoming the important focus.  If product life cycles have decreased, so too have business model life cycles.  When whole industries and channels can collapse in a matter of months (Tower Records, Blockbuster as examples) then every industry must examine and understand the sensitivity and viability of their business models.  No business model is inviolate; none will simply resist all of the change that's underway.  This means that corporations should be evolving their business models at a minimum.  Business model innovation is becoming far more important than product innovation, and yet far too many companies don't understand or do product innovation well.  How much more difficult it will be to innovate business models when the skills don't exist to innovate products.  Large corporations with rigid, complacent business models may end up like the dinosaurs, watching the small rodents run around and thinking how small and helpless they are.
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posted by Jeffrey Phillips at 6:28 AM 0 comments

Wednesday, September 16, 2015

what is your innovation legacy?

As someone who styles themselves as an innovation consultant, I'm constantly asked about the difference we've made in the corporations where OVO has worked.  Recently, in a meeting with potential clients, I was asked about past experiences.  I classify them in three categories:  unabashed successes, short term successes and utter flameouts.  Of course, as a good consultant I took credit for the first two and divorced myself from any involvement in the third!

If you are interested in what made the differences, read the paragraph at the end of this post.  Because this post isn't really about me, or OVO or our successes.  It's about how you.  Specifically, how you should be evaluated for your next role, regardless of the position or level or authority.  You see, innovation is no longer a nice to have, or an occasional experiment or a "flavor of the month".  As fast as things are changing, as quickly as industry barriers are falling, as fast as new entrants can gain access to your markets, you have no choice but to innovate.  Soon, and very soon, you won't be asked about your day to day expertise or experience.  You'll be asked about your innovation capability, and what you can point to to demonstrate that you can innovate.  In other words, you'll need to create a viable innovation legacy.

We've got some questions for you

In your next job interview, your next chance for promotion, you are likely to be asked not only about balancing budgets, increasing sales or cutting costs, but also about your ability to innovate or to lead others to innovate.  Those questions will include some or all of these:

Did you:
  • Introduce innovation tools and methods
  • Train your employees on innovation tools and processes
  • Implement innovation best practices
  • Sponsor innovation projects
  • Identify needs and convert the needs into product designs
  • Commercialize a new product your team identified
  • Commercialize a new product that a consultant recommended
  • Partner with leading technologists to commercialize IP you purchased
  • Seek to gain innovation skills or training for yourself
Or, worse, will you simply state that innovation "wasn't your job" or " your management didn't encourage it" so you didn't feel it was important?

How valid will that argument be?  Leaders, or people who style themselves as leaders, find ways to get important things done, either by taking risks or convincing others of their vision.  If you are seeking a leadership role and can't point to successful innovation, then you probably aren't much of a leader.  If you aren't vying for a leadership position, then you may be asked about your personal creativity and innovation skills. What have you done to improve your skills, learn new innovation techniques?  If you aren't actively preparing for your own future, how can you be trusted with the development of another company's future?

What will happen in your next job interview, your next chance for promotion, when the hiring manager or talent management consultant asks you the fatal question:  "describe your experiences working in or leading innovation"?  Will you have a legacy to point to?

Top down or bottom up

I can hear you now, yes, you with the steam coming out of your ears.  There are powers that are simply too strong to overcome, cultures too resistant to change, that you simply cannot overcome.  It's far easier to simply get in line than to demand new skills or attempt overt innovation.  After all there's no time, no resources and no direction.  We simply all salute and go back to our day jobs, all the while grumbling that no one ever lets us do innovation.

This attitude assumes that innovation is specifically a top-down enterprise, but as we all know corporate change and innovation can be spawned at any level in the organization by people with vision and passion.  If that assertion is true, what's holding you back?  The future is clear - people who are connectors, who have creativity and passion for new ideas, who experiment, explore and discover new needs and new ideas will be in demand.  The folks who have these characteristics and understand how to put them to good use will be highly valuable.  This isn't some mystic prognostication from the corner psychic - this is straightforward insight based on real economic and business trends.  In the future, you'll be innovative, or you'll be toast.  What innovation legacy are you creating, and what can you demonstrate that proves your innovation bona fides?  If your answer right now is:  not much, get cracking.  It will matter sooner than you think.

What you can do depends to some extent on your position, your role and your industry.  At a minimum, ask to get all the training you can get and focus that training on creativity and innovation.  Implement the skills you learn even on day to day tasks.  Be known as the "innovation" guy or gal.  Establish yourself as an innovator.  Identify others within your organization, or better yet outside of your organization who share the same passion or zeal for innovation.  Build your legacy right where you are.  Volunteer for any interesting, innovative or creative assignments.  Propose new projects based on innovation themes or concepts.  As the man said, do something, don't just stand there!

Successes, short terms success and flameouts

If you've read this far, then here's the answer to what I consider an outright success, a short term success and a flameout.

To us at OVO, outright successes are clients who embed innovation in their everyday practices and processes, who train people to become better innovators and who conduct innovation long after we are gone.  They have adopted the knowledge and skills and are capable to do it for themselves.  They are successful not because OVO consultants are geniuses (in truth they are) but because the client personnel and their management had a deep desire to become more innovative and were willing to invest the time and energy to gain the skills.

Short term successes are those clients who have asked us to help them with one specific project - not to transfer knowledge but to simply create new ideas for one specific need.  We never consider this a total success, because we know that most of those clients do not have the skills to repeat the activity successfully, but some clients only want innovation as a project, rather than as a capability.

Flameouts happen, and we've experienced them, when innovation is a box checking exercise that was dictated by a senior executive who needed to demonstrate to someone that they were "doing" innovation.  Everyone understands that the innovation activity is for show, and they go through the motions until the budget runs out.  And yes, we've had the unfortunate experience to be part of these kinds of projects as well.  And we've gotten a lot better at sniffing them out so we can avoid them if possible.
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posted by Jeffrey Phillips at 6:08 AM 0 comments

Monday, September 14, 2015

Why Musk and Branson are the vanguard of new innovation

I was thinking over the weekend about cavemen.  Recently, archaeologists discovered a cache of bones in a cave in South Africa that could represent an entirely new hominid.  While the discovery itself is interesting, what I'd like to think about is how cavemen innovated, and what that may tell us about how we innovate today, both in terms of the nature of innovation and the pace of innovation.

Think about our first ancestors.  At some point they were without tools, using their hands or fists to defend themselves. Then one day a long time ago one of them picks up a bone or a tree branch to defend itself, and the club was created, probably one of the first tools ever invented.  But here's where it gets interesting:  how long did it take to invent the club, and how long before another invention was created?  I'd like to argue that the nature and pace of innovation is always accelerating, and is evolving more rapidly as we have more and more information around us.  But there's another point to consider:  the nature of incremental versus disruptive innovation.

Take this last point for example.  If all our ancestors pursued was incremental innovation, then we'd have constant small improvements in clubs, and no other tool or weapon.  Today we'd go to war with highly evolved clubs.  Innovation happened when the first ancestor created a club, but it didn't stop there.  Eventually another ancestor decided to sharpen one end of the club, which made it better for poking rather than swinging, which led to a handheld spear and eventually a throwing spear.  Each of these are discontinuities in the existing technology, to offer more benefits or fill an unmet need.  With a simple club our ancestors improved their odds against large mammals, but probably lost a lot more fights than they won.  With spears they increased their odds of success while decreasing their own odds of injury.

Yet the club and the spear were dominant technologies for eons, until someone came up with the idea of the bow and arrow.  Why did so much time pass before the bow and arrow come into existence?  Probably because experimentation was difficult and expensive, and there was little need to develop new technologies quickly.  Yet once the bow and arrow, and other technologies like metallurgy were created, innovation accelerated.  Further, it accelerated as distant people and cultures interacted through trade.  Gunpowder is introduced in Europe from China, and what we think of as Italian food is created by the introduction of the tomato to Italy.  With this in mind it's easy to see that innovation is accelerated by interactions with disparate groups with different cultures or technologies. 

What happens next is the rapid acceleration of innovation, due to first global markets and global trade through the 1960s and 1970s, and then global information exchange and instantaneous information access due to the web.  At no time in history have we had the potential to connect as many disparate information sources, cultures and technologies, or to examine the results of rapid experiments in less time. Everything we need from an innovation point of view regarding information or interaction is in place and fully connected, yet valuable innovation output seems to be slowing.  Some component of this is based on diversity of outputs.  In the past, when innovation was focused on a few things, like better weapons or more food production, more great minds were focused on fewer things.  Now, innovation is harnessed to pursue a plethora of outcomes, rightly so, but that risks watering down the output or solving problems for smaller populations.

Another significant factor inhibiting innovation is less experimentation and less risk tolerance.  When you live your life in the open, subject to the elements and to predators, experimenting and learning to defend yourself is paramount.  Innovation was all about risk reduction.  Now, however, since we've climbed Maslow's hierarchy, innovation is often discordant, uncertain and runs the risk of toppling the environments and features we enjoy.  The more established the offering, the less risky the innovation efforts are likely to be, and innovation will arise only from new entrants with nothing to lose.

Which takes us full circle back to the original point:  why did early man innovate the club, then the spear, then the bow?  It was probably because each provided a solution to a need that was unfilled.  Today so many of our needs are filled that it can be hard to imagine what the next innovation should be, and I think we overlook innovations that are based on factor like experience.  Too often we worry about improving a product, innovating to add new features, when what's really needed is innovating the experience, thinking about the whole product and the use of the product in context of its setting and environment, where it interacts with our lives and the other products and services we acquire.  No longer do our products exist in a vacuum, they interact with us and increasingly with each other and the web.  This means innovation isn't just about the features of the discrete product or service, but about the product's ability to interact with its surroundings, context and the expected customer experience.  For example, I recently bought a new Honda Pilot Touring, a very nice new SUV.  The technology embedded in the car is amazing.  Honda offers technology to help the car stay in its lane, identify blind spot hazards, offer voice commands and a host of other really amazing technologies.  Imagine my disappointment when I placed the owner's manual CD in my home PC and I saw a flat file PDF, basically porting the old user's manual into a PDF document.  No interactivity, no videos, few links to the web.  It's as if Honda placed all its technology in the car, but forgot that most of us expect interactivity and information about our cars to be as easy to use and ubiquitous as an Amazon experience (or hopefully better).  What's increasingly missing in innovation today is the context in which the new product or service will be used, the other technologies or products that surround a new offering and the customer's expectation that the technologies will all work together and provide a high level of interactivity and easily accessed information in a format people want to use, and be entertained by. Honda, like it or not, is in the information business, both in the car and out of the car, as much as it is in the transportation business. 

So, what are we to say?  Innovation pace and capability have accelerated over the eons, bringing us to the point where information and interactivity should create thousands of opportunities for new innovation.  Yet in some cases it seems that innovation isn't nearly as productive as we think it should be.  Some of this lack of productivity is simply the diversity of innovation and the number of solutions and markets to be served. But I think a lot of it is market rigidity, comfort in long product cycles, concerns about introducing new products and the risks that entails.

What does this all mean?  Well, for one thing we should prepare ourselves for more people like Branson and Musk, who are fully capable of synthesizing information and interactivity to discover new innovations, and who have little vested interest in the status quo.  The best innovators now and in the future will be people who capitalize on the vast availability of information, human capital and interactivity, to disrupt or upset existing markets or industries, innovating where incumbents can't or won't.  Branson, Musk, Jobs and a few others are merely the vanguard of a new wave of innovators who could ultimately rework our economies if they fully grasp the opportunities in front of them.  These individuals will be boundary spanners, not content to innovate or disrupt one industry or market, but constantly seeking to win in multiple markets or industries simultaeneously.  Since they have little investment in existing markets, it's in their favor to disrupt existing conventions.  Further, these innovators will focus more on profit share in a market or industry rather than market share. They will skim the best portion of the market in terms of profit, without worrying about the total number of customers they acquire.
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posted by Jeffrey Phillips at 7:47 AM 0 comments

Wednesday, September 09, 2015

When past experience doesn't matter anymore

Today I am leading a panel at the Sports and Fitness Industry Association leadership meeting in New Orleans.  I had the chance to sit in and listen as Jim Carroll, the futurist, talked about a number of trends that will force changes in the way we make and sell products.  Jim's presentation was very interesting and let me to think about what happens when past experience doesn't matter anymore.  I'll explain what I mean by that shortly.  Jim and I share an appreciation of trend spotting and scenario planning.

Jim touched on a few reasonably well-known trends and their implications.  For example, he talked about the fact that most industries don't understand the power of transformation, or where new disrupters will come from.  For example, disruption in the automotive industry is much more likely to come from Tesla or Google than from GM or Ford.  He also talked about the increasing pace of change.  Again, for automotive manufacturers the disrupters will come increasingly from Silicon Valley, where they are used to really rapid change and short product cycles.  How will relatively stodgy companies compete when customer demands shift to expectations of interesting new products and experiences that are more like consumer goods expectations than automotive industry product development cycles?

Jim talked about meeting a senior executive of a camera manufacturer, who claimed to be measuring product life cycles in months or quarters.  That is, the vast majority of the life cycle of some of the products could be measured in a handful of months.  For gaming systems, he claimed, some games garner 60-70% of their total revenue in just the first few weeks after launch.  Finally, Jim mentioned a stat he had heard that suggested that of the scientific information that a college student learns as a freshman, half of it will be obsolete by the time that individual reaches their senior year.  I didn't catch the reference for that statistic, but it's definitely possible in the scientific community.

So, if product cycles are shrinking to months, and the science you know is obsoleted every four to six years, who do you turn to or where do you turn when you have to create a new product?  For most corporations, creating something new has traditionally meant staffing a team that has deep experience, built around people who've "been there, done that" and have the t-shirts and scars to prove it.  What happens when the facts are moving so quickly, when change is occurring so rapidly, that no one on your team has enough experience to qualify to be on the innovation team?

There's a sports analogy that's applicable here.  In the old days, traditional football coaches believed you should run the ball a majority of the plays.  Passing, they felt, was risky because too much could go wrong.  You could have a quarterback sacked for a loss, or an incomplete pass, or an interception.  The only good outcome was a forward completion, but to many of those coaches it seemed like a 1 out of 4 proposition, so they favored the run.  Likewise, many executives look at innovation as a risky proposition, and increasingly they are aware that no one on their team has the experience or skills to lead an innovation activity, so they resort to one of a handful of alternatives, most of which are bad:
  1. Focus more on the "core", cutting costs and improving efficiency, growing the "bottom line" while the top line shrinks
  2. Waiting to "buy" innovation from smaller startups where there is more creativity and energy rather than risk doing innovation internally
  3. Outsourcing innovation to consultants rather than gaining the skills themselves.  This is outsourcing what should be one of the few sustainable competitive advantages
  4. Realizing that virtually no one has any experience, so the people who experiment the most, the fastest will have an advantage. 
The reality is that no firm has a definitive stake on innovation, and we are all struggling to understand.  The innovation winners will be the people who simply admit they don't know what they are doing and don't have experience, but are willing to experiment and learn.  The ones that experiment, learn and repeat the fastest will be the ones who win.  In an era where change happens so fast that past experience may not be as valuable, what will be valuable is gaining experience on the fly, exploring, discovering, experimenting, prototyping and learning.

In the past we didn't expect employees to learn much, we expected them to apply their past education, training and experience to problems as they arose.  In the future, we'll hire people who are blank slates (metaphorically speaking) who are fast learners, experimenters and willing to try new stuff and able to gather the learning in any situation and apply it.  These are the people you need on your team, they'll drive innovation in the absence of experience.
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posted by Jeffrey Phillips at 11:50 AM 0 comments

Monday, August 31, 2015

The most common innovation project failures

I had the opportunity to speak to a leadership team that is considering building an innovation capability in their business.  I was asked a question I get infrequently, but one I enjoy answering.  The question is:  what keeps businesses from innovating effectively?  The answer that I think most leadership teams want is:  good ideas.  After all, it's easier to explain away the lack of innovation if you can say that most teams lack good ideas. But a lack of good ideas is almost never the appropriate response to the question. Most companies teem with reasonably good ideas, and in some cases great ideas.  No, the reasons that corporate innovation fails are many and varied, almost as differentiated as the number of industries and business models and management styles that are in evidence.

But there are a number of factors I can describe which severely curtain innovation success when corporations decide to do more innovation.  Those factors include:
  • Failure to adequately define a customer need or business opportunity before deciding to innovate
  • Failure to place the right people on an innovation task and providing them the tools and skills to succeed
  • Failure to define what the word "innovation" means, and what type of outcome they expect:  incremental or disruptive, product or service or business model
  • Failure to encourage any divergent thinking, allowing the innovation teams to quickly converge around ideas that resemble existing products and services
  • Failure to allow time for discovery and exploration, allowing innovation teams to worry about the amount of time they invest in learning new things, always pushing for an answer as quickly as possible
  • Failure to understand the customers' needs and expectations, substituting what internal employees believe that customers want
  • Failure to provide the innovation teams with the appropriate compensation and reward models, and dividing their time between an important innovation activity and urgent everyday business
  • Failure to think through how to transition a good idea (if one can emerge from such a poorly defined process) to product or service development and commercial launch
These factors occur and recur in almost every innovation activity I've ever been a part of.  Note that they have very little to do with "good ideas" and almost everything to do with management commitment, definition, resource allocation and other things that executives and managers are supposed to do well, regardless of the setting.

Most innovation is far too poorly defined and scoped, faces far too much pressure to move quickly and narrow its focus, rarely engages with markets or customers to discover new needs or expectations and actually encourages a divisive setting for team members, where people with passion for new ideas fight for oxygen and momentum with people who are on the team because they were assigned to it, and have no comfort doing work they aren't prepared to do and aren't compensated or rewarded to do well.

Oh, you'll say, what if we actually do all of these things well, and the ideas aren't all that good after all?  What if it really is an issue of bad ideas rather than culture and definition and management.  My response is that most companies have tried innovation without addressing any or most of the items I've identified.  I suspect (in fact I know) that if we can engage good people in the right setting with the right context, good ideas will flow.  We've just established such a negative petri dish for innovation and ideas that only poor ideas can possible dribble out.
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posted by Jeffrey Phillips at 7:53 AM 0 comments

Tuesday, August 25, 2015

Should you welcome or fear disruption

I was scanning through my Twitter feed when I came upon a tweet where someone was excitedly welcoming disruption in the financial sector.  Strangely, it was from an individual employed in the traditional banking sector.  This made me think of the old Simpson's show where Kent Brockman, the news broadcaster, is announcing that there are new alien beings taking over the earth, and that he, for one, welcomed the new overlords. Much like the traditional banker who welcomes financial disruption in his industry, this welcoming of your own destruction seems a bit unlikely. My response is that disruption is something you want to create or anticipate, rather than welcome and react to.

Just ask Tower Records if they "welcomed" a disruption in the distribution of modern music.  Tower and other retailers owned music distribution until Apple decided to disrupt the market by changing the media (physical to digital) and the channel (retail stores to web downloads).  As interested bystanders, some of us were winners, and frankly some were losers.  If you don't like listening to iPods or MP3s, if you are an audiophile, then in some regards you may consider yourself a loser, as higher quality music is now harder to find. In any "disruption" there are winners and losers, but few people are completely isolated from impact. The truth is that we don't fully understand disruption, and it's far better to be the disrupter and able to anticipate where the bull you are riding is likely to go, than the disruptee or in many cases even the innocent bystander, who gets gored without ever trying to actually interact with the bull.

Schumpeter explored this idea when he wrote about creative destruction.  Innovation creates entirely new ways of solving customer needs and new value propositions, but almost always destroys existing means of creating value.  Look no further than Blockbuster if you want to understand disruption, by both Redbox (positional disruption) and NetFlix (technical disruption).  Every act of creation by one party is an act of destruction to someone else.  That's not to suggest we should fear innovation, but in fact we should respect its power, and harness it to our benefit, rather than simply expecting it to work on our behalf.  Innovation doesn't work that way; you are either the innovator, the intended beneficiary of the innovation, or you are what the military often politely calls collateral damage.  In this case collateral damage specifically refers to the business model or value proposition the innovation was meant to undermine, but it extends to the network of solutions or adjacent products and services that are no longer as valuable once the innovation is realized.  For example, it wasn't just Tower Records that was disrupted, but a whole value chain of suppliers, merchandisers, packagers and so forth, with ripple effects even to the music producers.

Rather than cavalierly "welcoming" disruption, you should fully understand its power:

 - Welcome its potential
 - Respect its power
 - Understand the blast zone associated with disruption
 - Be the disrupter or at least allied with the disrupter
 - Disruption is a blunt instrument with no sympathy for its victims - it does what it does, regardless of the impact or circumstances.  Therefore it's much better to be on board with the disruption rather than sitting by and welcoming it.
 - Become more proactive rather than reactive 

Welcoming disruption to your industry is naive and foolish.  Bringing disruption to your own industry is risky but can have benefits.  Disrupting an adjacent industry, doing what Apple did to Tower or Netflix did to Blockbuster, is the ultimate disruption position.
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posted by Jeffrey Phillips at 5:56 AM 0 comments

Tuesday, August 18, 2015

Barely scratching the surface

It's funny to me to read about the impending death of innovation, or how innovation doesn't add any value, or how often you can read about new innovation methods or techniques when most people haven't ingested the basic tenets yet.  For all the talk about innovation, for all the "I'm so over" innovation eye-rolling, it would be nice to admit a really simple fact that is as plain as the nose on your face:  80% of the people in most organizations simply don't know that much about innovation.

I have to remind myself of this constantly, because I'm not going to be surprised anymore by "innovators" in organizations who don't know who Alex Osborne is, or was.  Or can't tell me what Doblin's Ten types of innovation are.  Or cannot adequately define the difference between incremental innovation and disruptive innovation.  Recently at a professional association meeting we were talking about helping our colleagues understand "best practices" in innovation.  As lofty and potentially arrogant as that sounds, my advice was to start more simply:  how about if we just ensure they know the basic practices before we worry about "best practices"?

To me it seems the best analogy for the state of innovation today is something like this:  We are like the 49ers, the Americans in the middle of the 19th century rushing to California, because it's been reported that there's gold in the streams.  A handful of people are getting rich finding gold nuggets in the streams, simply there for the finding, never realizing that seams of gold lie just below the surface, waiting for someone with vision and passion to dig a bit deeper.

Where innovation is concerned most organizations have a similar experience to many of those who rushed to California.  They make finding the gold sound simple, they send people with no mining experience into the field to find the "nuggets" lying around, and everyone gets frustrated when the exercise doesn't pay off.  Eventually, most of the 49ers end up in other roles, settling down in a new territory rather than continuing to look for gold.  We are all guilty of flirting with prosperity, toying at the edges of innovation possibility, never fully committing to discover all the value locked up just below the surface.

There are good reasons for this willful ignorance.  When confronted with a virtual "sure thing" that maintains a moderately successful status quo or risks something for a potential windfall, managers and executives will almost always bet on the "sure thing".  Sustaining day to day operations, making the numbers each quarter, not rocking the boat pays off.  Meanwhile we are expected to do some "innovation", so we send out the unprepared to search for ideas in the wilderness, never surprised when they fail to find value, even when it was right there in front of them.  Later we are shocked when competitors or new entrants mine the same fields and find seams of gold.  But by then the executives and managers who provided only lip service to the exploration are long gone, safely ensconced in new roles where they'll reinforce the status quo in the face of unrelenting change.

Where do we place the blame? And, more importantly, how do we encourage people to explore innovation beyond the surface?  There are a couple of places we can explore to create change.

First, the business schools.  Many executives and managers have business school experience, either undergraduate or graduate.  In those programs they receive training in accounting, finance, marketing, operations management, sales, human resource development and information technology.  They learn to be managers, not explorers.  We need to radically rethink the education programs for our future business leaders, who will need to combine management skills with exploration and experimentation skills.

Second, the risk-reward spectrum.  From 1945 until today, western businesses have lived in a bubble of their own design.  The US and to a great extent western Europe dominated international business and set the stage for how things got done.  With the rise of China and other countries, and the slow decline of Western Europe, the competitive landscape is changing.  The pace of change is accelerating.  While older management tools still hold true, they only hold true as long as markets and competitors respect them.  We need to innovate management philosophy just as fast as we learn to innovate new products and services.

Third, and related, is business culture.  Culture and bureaucracy create their own realities.  Like it or not these are living, breathing entities that have their own opinions about change and can enforce those opinions over a longer cycle than the average tenure of a CEO.  This means that visionary CEOs and leaders need to partner with customers and investors to shift the culture of organizations over time, with buy-in from everyone, so that the culture is forced to change, rather than ignore the signals and slowly wither.

This should be a golden age of innovation, yet in many regards we are barely scratching the surface, content to pick up the small nuggets we stumble across while just below our feet there are seams of gold ready to be dug up, if only we'd truly commit to the work necessary to innovate regularly and consistently.  Whether we look at the Federal Government, where agencies like NASA used to regularly turn out new science and discoveries, or universities, where new science and creativity is increasingly stymied, or corporations, which have the bandwidth and the power to do far more innovation yet shy away at the investment, every constituent could easily do more, and with only a little investment and commitment unlock so much more value.  Are we content with this level of innovation?  Are we as consumers, as taxpayers, as participants in the educational systems, OK with this half-hearted commitment, resulting in mere trickles of innovation when there's an entire aquifer of ideas and innovation under our feet?
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posted by Jeffrey Phillips at 6:02 AM 0 comments