Thursday, June 23, 2016

Being a good innovator is not enough

I think there are few firms that were more innovative than Intel.  Notice that I'm using the past tense.  Intel, lead by an excellent leader in Andy Grove, had a passion for being the best.  Grove's focus - "only the paranoid survive" kept Intel as an industry leader and innovator.  When I was younger, working for Texas Instruments, Intel seemed to constantly reinvent the computing industry.  Many of us in the semiconductor space could only look on with awe.

But now, the innovator has lost its chops.  Not so much because they cannot innovate, but because they failed to notice the shifting markets and demands.  Intel and Microsoft bet big on the PC, a specific platform, a specific user experience.  And while that platform dominated the industry, they could stay one step ahead of the competition.  But when the platform was no longer the dominant platform, they had fewer answers.  When the smartphone came along, Intel was far behind, because it had excellent computing processors but no one is trying to crank through enormous numbers or expects an incredible visual display on their smart phones and small devices.  Most people are really happy with just good enough, and Intel's bet on the larger platform is now costing them dearly.

Intel didn't lose the ability to innovate, although their innovation capabilities have slowed a bit.  Unlike other seemingly obsolescent innovators, Intel still retains a lot of intellectual property and claims to a significant share of the computing platform.  It's just that the audience is turning to other platforms where Intel has very little to offer, and is well behind the curve.  In this case the industry and consumers shifted in ways that should not have been surprising for Intel, but either their hubris or their innovation engines simply could not keep up.  Now, a company that still has good innovation capabilities is on the outside, looking in, at a market that has emerged rapidly but predictably. 

Modern media - TV, movies, etc - have projected for years the importance of small, handheld devices.  Dick Tracy had the high tech radio/watch thingy, Star Trek imagined the handheld communicator and health diagnostic device.  Nokia invented the concept of the smart phone and Apple entered the smart phone market in the late 1990s, yet Intel did not do enough to innovate in this space, because of its dominance in the PC market and the associated profits.  Perhaps they had some thresholds for revenue or profit that kept them from entering the market, or perhaps they simply overlooked the possibilities of a different platform.  Time and the history books will tell us.

Here's what we need to learn from this - even good innovators need to pay attention to emerging trends and be ready to shift platforms and business models as necessary.  Just as Apple took the music distribution business from Tower Records and others, then watched as Pandora and Spotify did the same to them, smart people at Intel should have (and probably did) see the emergence of the smart phone, e-readers, tablets and so forth, yet they did too little to gain traction in these devices.  It's not enough to lock up an existing market, you also have to understand how the market and customer demands and platforms are shifting, and move quickly to win those new markets and customers.  This can be hard to do when you are a leader in one market or platform and a new one emerges, but as Intel and others demonstrate, being flexible and identifying adjacencies is vital.

This lesson is especially true as the pace of change increases - this is the point that many executives know in their hearts but refuse to acknowledge in their heads.  The pace of change is increasing, which means the life span of platforms, markets and customer segments is likely to shrink.  You've got to be able to innovate, create a position and keep innovating beyond the original platform or market to stay viable.  Intel is a very capable innovator, but currently locked into an increasingly unattractive platform.  This is like having the best boat in a very small pond.  Intel should have been moving to new bodies of water long ago.


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posted by Jeffrey Phillips at 9:14 AM 0 comments

Tuesday, June 21, 2016

Why FUD has innovation all locked up

Ralph Ohr and I were exchanging ideas today via Twitter, and we were talking about a recent study of German executives that looked at why innovation failed in German companies.  The top three reasons why innovation didn't move forward came down to fear, uncertainty and doubt. Oh, those weren't exactly the words that were used, but in context for today's post they'll work nicely.

For those of you not old enough to remember when IBM was a real powerhouse, I'll need to introduce the idea of FUD.  When IBM ruled the mainframe market, it created FUD to keep its customers from experimenting with other mainframes, the emerging mini-computers like DEC and any other alternatives.  Basically, IBM sales people would introduce fear - what if you tried these new or unproven concepts and they don't work?  If that didn't work, they'd introduce uncertainty - who knows what these new computers can do?  Our mainframes are proven, and you have a big investment in them.  Or, they'd use doubt - can you really trust these guys?  IBM has a long history and we've been good partners with you for years.  Basically, IBM never got into a feeds and speeds discussion (often because they would have lost that debate).  Instead, they attacked the buyer's way of thinking, their perspectives and their status.  Can you afford to take a risk with unknown or unproven technology?  Will these guys be around for 100 years like IBM?  This is the sales tactic that they used and perfected, and is often used by any market leader who has presence but may be lagging in new development.

The purpose of FUD is to create complacency, to resist change and reject uncertainty.  These factors eventually lead to "lock in", where the buyer clings to any rationale to keep from changing, no matter how valuable the new options may be.  It's easier to talk yourself out of changing when a partner feeds you the things you should be afraid of.  And this, my friends, is why it is so hard to innovate in a large corporation.

While I've described "lock in" as a problem, many executives will say they want their methods, processes and decisions "locked in" and executed effectively.  In this sense, locked in means that everyone understands, everyone is behind the decision and everyone commits their entire energy to accomplishing the task - there can be no second guessing.  And if a plan is right and the opportunity is rich, this is the way you should execute.  But it isn't the way you should experiment or discover new opportunities.  As your past becomes a framework for your present and begins to dictate your future, you lose scope and breadth for thinking.  Lock in is nefarious. In an execution setting it is valuable, in an innovation setting it is deadly.  Lock in creates a host of reasons why you cannot do something.  In an innovation setting you needs lots of reasons and support to do something new.

The fact of the matter is that we know all this and it still haunts executives.  If you asked those same German leaders if they know how to innovate, they'd say yes.  What they aren't addressing directly is how difficult it is to innovate when the nature of their thinking and what they reward is so locked in, and evident in what they focus on and reward.  In the days of IBM, we could at least point the blame at IBM, who was creating FUD against competitors.  Now, executives are creating FUD themselves, and then turning that weapon against themselves and their employees, limiting discovery, experimentation and innovation.  We have met the enemy, and he is us.  Fortune 500 executives are creating innovation FUD, whether they know it or not.  Their cultures are creating FUD.  Their reward systems are creating FUD.  In fact, given the state of FUD and our expertise to create it, it's a wonder that any innovation gets done at all.

We need to break out of self-created, self-defining FUD.  This means we need to reduce the fear of innovation by making it a more consistent activity.  We need to demonstrate that innovation is important and encourage people to try.  Doing these things can reduce fear.  We need to reduce uncertainty around innovation by defining some methods and processes, to make it more evident and simpler for people to do.  Finally, we need to remove doubt about innovation by communicating its value and rewarding people who attempt innovation activities.

Otherwise lock-in will only grow stronger, and prevent any innovation from happening.  The longer we tell ourselves that the current situation is OK and everything else is risky, the more difficult it will be to attempt something new.  Innovators must move beyond FUD, by attacking each of its components and demonstrating the value of thinking beyond the locked in perspective.
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posted by Jeffrey Phillips at 7:45 AM 0 comments

Tuesday, June 14, 2016

Making innovation less difficult and less expensive

I've made a simple drawing to illustrate what many of you already know.  Too many people in the innovation arena are apt to talk about ideas, which are relatively easy to get, but fail to consider the effort involved to move from an idea stage to an innovation stage.  I've often compared this to the amount of force it takes to get a rocket into orbit.  You can have thousands of rockets, of all sizes, launching all the time.  But until and unless one of them has the requisite amount of thrust necessary to get it into orbit, they will all crash.  There's no half way.  There's no "almost" in orbital science.  You either got into orbit or you crashed and burned.  The same is true with innovation.



You see there's a trap that's set by many innovators.  They like to talk about ideas because ideas are easy.  They are really easy to generate, and once generated we can count them, and everyone likes quantitative results.  We can count how many ideas our program generated, and celebrate this vast cornucopia of ideas.  In this horn of plenty there may even be some good ideas, worth investigating, prototyping and even launching.  If statistics holds, a small handful may break even and a few will generate outsized returns.  But you'll rarely know until you launch.  And that one really good idea that becomes the next Google or Facebook or iPhone or whatever will cause an awful lot of amnesia about the 50 or 100 ideas that failed to launch or barely got into orbit.

You see, ideas are easy, and they are cheap.  In a corporate setting, however, innovations are often difficult and expensive.  If corporations want more innovation, they should stop worrying about ideas, and start worrying about how to make it easier to move more ideas to market.  That is, they need to worry about how to make converting ideas into innovations less difficult, less expensive, or both.  Or just become really good at predicting what other startups will be successful and purchase the startup.

Difficult

Why is it difficult to move an idea from a nascent concept to a fully fledged product or service ready to be offered to customers in a corporation?  Well, there are a host of reasons and culprits:
  1. Existing products and services.  Most companies don't want to impact near term revenue streams, so they protect existing products and services from disruption.  This means good ideas are launched, if at all, in other markets or become extensions to existing products.
  2. Resource bandwidth.  Each year a plan is developed for spending on products and services.  If a good new idea emerges, and it wasn't budgeted, executive have to rob Peter to pay Pauline, postpone the idea for a while or find new budgets.  None of these are easy to do.
  3. Different skills.  Bringing a new product to market exercises the entire business process, and isn't something that's done all that often in many companies.  It requires different skills than sustaining and extending an existing product.
  4. Risk.  New products create risk, and most organizations are about risk management at best, and risk avoidance at worst.  There are more types of risk, and more considerations about risk, than anyone has time to read about.  Let's just say this is "big".
Notice that all of these difficulties are wounds that companies inflict on themselves.  No other firm or competitor is forcing them to be bad at managing new ideas or their internal skillsets.  This is an internal, institutional challenge and until they are met or overcome, it will be difficult to bring new ideas to market, regardless of their value or number.

Expensive

New innovations aren't just difficult to move through the product development process, they are also expensive to create.  It's much less expensive to create incremental changes to existing products or services than to create a new product.  New products require:
  • New engineering and design.  No matter how good the idea is, it must go back to the drawing board to be engineered and perfected.  Since most companies have experience tinkering with products but not creating products, new product design and development is often outsourced.
  • Validation.  Once a prototype is ready, companies will take it through a number of qualifying validations with potential customers.  This research is expensive and often misguided, because a really new product or service may be difficult for existing customers to evaluate or place a value proposition on.
  • Development.  Did we say early that resources are scarce?
  • Launch and marketing.  This is actually something that larger firms should do well, but often don't, because they don't understand their new products, buyers or channels.  There's some expense in getting this right.
Becoming more innovative

Now, the question becomes not "how do we get more ideas" but rather "how do we make it less onerous and expensive to move ideas to market".  This is the question that executives should be asking themselves.  Ideas are easy, and even reasonably good ideas are somewhat plentiful. Yet in the midst of abundance most companies can't point to even one or two radical or disruptive products that have launched and are driving revenue and profits.

We've got to either reduce the effort, reduce the cost to market, or both.  Reducing the effort means creating a methodology and/or pathway for new ideas that doesn't have to jump through all the hoops.  A simplified, clarified way to take good ideas to market quickly, leveraging people from all functions who understand their roles.  This requires defining a path to market and training people on how to get things done, rather than how to find problems or risks and stop the process.

Reducing costs or at least planning for the costs is a little trickier, because most companies cannot simply take all the costs out of the equation.  For new products there is design and development cost, but working to an MVP can help.  Further, planning for and budgeting these costs doesn't cut the cost but does improve access to funds.  
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posted by Jeffrey Phillips at 5:19 AM 0 comments

Friday, June 10, 2016

Research, invention and innovation

I'm pissed off today.  I'm pissed off because our elected officials continue to denigrate entrepreneurs and business people.  Yesterday Nancy Pelosi, the democratic demogoge of Hollywood, lectured people about the iPhone.  Steve Jobs and Apple, she claimed, did not create the iPhone.  If this is true you must be wondering, well, how did they get all that revenue and profit then?  Pelosi went on to say that everything in the iPhone, all the technology, design, software integration, and all the rest, was a result of investments by the government.

I pause for a minute to relate a joke that will have some meaning at this point.  Bill Gates used to crack jokes about the automotive industry, saying that if GM and others had kept up with technology we'd be driving cars that get 100 miles per gallon and cost $1000.  GM responded that if Microsoft built cars then they would all crash twice a day for no reason whatsoever.

Perhaps we'll all stick to what we are good at and let others do what they do well - you know, Ricardo's Comparative Advantage?

At any rate, Pelosi, like a broken clock, is occasionally and partially correct.  The federal government, through a number of different research grants and, of course, a huge military budget that she abhors, drives a lot of primary research.  Some of that research led to things like software and hardware, although much of the semiconductor research that she claims for the government was done by Robert Noyce and Jack Kilby, working for private companies whose customers were primary the military.

So, as anyone who relies on the internet or semiconductors should readily admit, federal government investments in science and research are vital to driving new discoveries, and we rely far too heavily on investments made in the past and are shortchanging those research dollars now.  If Pelosi is so concerned about claiming the rights to new technologies and products perhaps she'll work more assiduously to fund more research dollars.

But I display my spleen and miss the larger point:  so what?  The Soviet Government paralleled the US Government during the space race.  It had thousands of its own scientists creating fascinating new research, as well as a number of German scientists it kidnapped (we did the same) after World War II.  The Soviets got to space first, which pushed the US into greater research.  If governments are responsible for innovation, we would all have thrived in the Soviet Union in the 1960s and 1970s, right?  Hmm.  History doesn't seem to reflect that.

The point is that good research and even basic discoveries, while valuable, are inert without individuals and companies to convert them into valuable products.  Discovery of the transistor and semi-conducting materials isn't valuable unless someone takes a risk and creates new products or services based on those discoveries.  This is the difference between research, invention and innovation.

Pelosi and others may grind their teeth when Jobs claims to have invented the iPhone.  Well, as far as I can tell, he and others did, by combining a number of basic elements of science and integrating them into a package of solutions that people desired.  While Jobs may or may not have been particularly nice, he did create a product people wanted and were willing to spend money on.  Instead of denigrating him, she and others should celebrate the success and seek thousands of other innovators to translate raw science and research into new products and services.

What people like Pelosi don't understand is the distance from raw research to a product that people can use or purchase.  The government funded some research into semi-conducting materials, but private companies created the first transistors.  From there, other research indicated how to put more transistors on a chip, allowing engineers to shrink the package so we can actually carry equipment around with millions of transistors on it.  Of course there was also research into screen technology, battery technology, cooling technology and many other technologies.  None of this research is valuable until someone combines it into a product or service that people can use or benefit from.

And doing all that combining and integrating, as well as offering a product to the market, requires funding and risk.  Just ask Nokia, which had a perfectly good little near monopoly on cell phone handsets until Apple came along.  Apple took a big risk, bringing a product to market that competed with the largest firm in the sector at the time.  Like Jobs, hate him or be neutral about him, he saw an opportunity and created a product that stole share and claimed outsized revenues against an embedded competitor. 
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posted by Jeffrey Phillips at 8:08 AM 0 comments

Wednesday, June 08, 2016

Innovation circles the publishing industry

There are a few relatively hide-bound industries in the US that have to date been somewhat impervious to real innovation.  If you've followed this blog you know that I believe traditional retail banking is one of those industries.  Retail banking is already dead, it just doesn't know it yet.

Another industry ripe for innovation is the book publishing industry.  Sure, self-publishing is on the rise, and I published my last book (shameless plug alert!) OutManeuver with Xlibris, after finding out that the traditional book publishers would take nearly twice as long, and provide about the same amount of marketing support:  zero.  And before you accuse me of not fully understanding the traditional book publishing genre, let me also note that I had the good fortune to work with McGraw-Hill on a book (another shameless plug) entitled Relentless Innovation.  If you've ever tried to read a quarterly financial reconciliation from a book publisher, you'll know the definition of obfuscation.

But we've been down this road before.  Self-publishing was going to revolutionize the industry.  In reality it made it easier for more people to publish books, but does not increase substantially the amount of books bought or read, or reviewed for that matter, since EVERYBODY knows that only books that progress through the traditional publishing process deserve to be recognized and reviewed.  Fully tongue in cheek territory here.

Further, ebooks, e-readers and other technology were going to innovate and disrupt the industry.  The e-readers have had an impact on how and where people read, but I'm not sure they've really had an impact on the industry, other than to introduce new pricing and new distribution.

So if how books are published and how books are consumed haven't had an real impact, what other methods of attack will innovators create?  James Patterson, the prolific author of the Alex Cross series and many other books, has a potential answer:  shorter books.  Patterson is working with his "traditional" publisher on a new type of book, 150 pages or less, with the same plots and action.  Patterson believes that people want to read, just don't have the time for long books.  He calls these shorter books "bookshots" and several are ready to be published.  Now, this sounds good and I'd be happy to read some shorter books that get to the point quickly, because the industry has always said, especially for non-fiction business books, that they HAVE to be at least 200 pages, but as you and I can both attest most Malcolm Gladwell books were good for the first 40-50 pages and then were merely filler after that.  In fact many business books could be much shorter and to the point, but publishers have resisted this idea.

But this still raises the question:  is readership declining because books are too long, or for other reasons?  Will shorter books attract more readers?  I think the bookshot ideas toys at the margins, rather than attacks the real problem.  This is a case of inside-out innovation, where the traditional provider (Patterson and his publisher) spot a problem (declining book readership) and attempt to solve a symptom of the problem (no time or attention span).  They miss what I believe is the real problem:  interactivity. Through social media, especially Facebook, Twitter, Snapchat and other platforms, people are used to reading, but expect to drill deeply into links and hope to co-create on the fly.  To my way of thinking, traditional reading is simply too stodgy for many people who were raised on the screen and expect a level of interactivity that simply isn't possible on the printed page.

You may rebut this by pointing at the e-readers, but the level of connectivity and interactivity is limited and the traditional publishers shy away from co-creation, like links, comments and feedback.  When book publishing becomes a bit more like a Facebook page, with far more interactivity, co-creation, links to relevant information and other factors, that might force an entire rethink of book publishing.  I'm not sold on Patterson's shorter books philosophy, but hand it to the man, he's experimenting, and that's what a lot of these stodgy industries need - someone to force them to experiment.
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posted by Jeffrey Phillips at 7:59 AM 0 comments

Monday, June 06, 2016

Muhammad Ali an analogy for innovation

I'm a sports guy.  I like all kinds of sports.  Grew up playing baseball, football and running track.  When my kids came along naturally they adopted other sports than the ones I was familiar with so I've learned to "love" swimming and soccer.  If you know swim meets you'll appreciate the joke we pass around our family:  I hope my last day on earth is at a swim meet, because they never end.

I grew up in an era where boxing was first a BIG DEAL, full of outsized characters, but eventually became a pariah, because boxing can be so brutal and bloody.  No boxer (at least not one played by Sylvester Stallone) commanded more attention, and moved people more than Muhammad Ali.  But, we come to praise Ali and not to bury him, as we remember his contributions to sport and to the way we live.  Today I'll argue that Ali embodies innovation, and his life is symbolic and perhaps an analogy for what innovators live and do.  Consider:

  • Ali was born an African American in Kentucky during segregation, and was a boxer by the time he was 12.
  • He refused entry to the draft during Viet Nam, ensuring the rage of many of his fans
  • He converted to Islam under the instruction of Malcolm X, becoming Muhammad Ali
  • He could "float like a butterfly" at a time when heavy weight fights were toe to toe slugfests
  • While he had a powerful punch he could take punches as well, creating the rope-a-dope fighting style to wear out opponents
  • At a time when most heavy weight fighters were stoic men of few words, Ali was his own publicist.  He held his own with Howard Cosell, something few men could do.
  • After a lifetime of fighting, he became a figure beloved by many for his actions to help his fellow man.
I'm not Ali's biographer, but it seems to me that Ali chose a different path in every opportunity, choosing to break with convention and to reinvent himself, his sport and if it's not too much to say so the American experience. Ali invented or perfected a lot of new boxing techniques but also was a master of people outside the ring as well.  Yet every break with convention led to difficulties.

His choice of a new religion, especially under Malcolm X, was problematic for many.  His rejection of the draft was respected by younger people but rejected by many older people and many of his fans.  His brashness and outspoken behavior went against the mores of the time when there was still a lot of oppression of the African American community. In all of this Ali demonstrates the traits and potential outcomes of an innovator.

He created his own path, often to his own betterment and eventually the betterment of others.  His decisions we often misconstrued or unpopular, going against convention.  He had confidence in himself when others doubted his purpose.  He suffered for his decisions - losing several years of boxing during his prime because of his decision about Viet Nam.  Hundreds of boxers, other sports men and women and entertainers in general owe a debt to him that cannot be repaid, because he created a completely new way to interact with the public.  A man who had a lot of promise and who was constantly counseled to stay on the straight and narrow often took his own path, often bearing the burden of creating something new, seeing things that perhaps others could not see and maintaining confidence in himself.

A man who was often despised for his decisions in the moment, who stayed true to himself and his beliefs and who became beloved for his life and his actions.  If this isn't the experience of many innovators I'm not sure what is.  Bill Gates and the guys from Google may have had a shorter run to fame and riches, but they experienced the same ups and downs along the way, working under cover in a technology lab.  Ali did all that they did in a dangerous sport, in the public eye.  He's proof that innovation isn't just about new products, but about creating new experiences and new ways of thinking about life.
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posted by Jeffrey Phillips at 6:07 AM 0 comments

Tuesday, May 31, 2016

Innovation is a feature

As a marketer who was first an engineer, I am often guilty of larding up my marketing content with facts about features.  As we used to say at Texas Instruments, I can quote "feeds and speeds" all day long.  We can talk about faster processors or larger memories, more sophisticated storage devices and the ability to stream video at close to the speed of light.  And so on.  Marketers should get pilloried for this nonsense, because we are selling the steak and not the sizzle.  Marketers who talk about product features forget that people buy products to solve problems or to achieve some stature.  They buy the benefits, in other words.  I've often said that in the end few people care HOW something gets done as long as it gets done effectively.

This marketing problem has now fully transitioned into an innovation problem.  The reason this is an analogous problem is because executives are moving through their organizations and talking to their boards about innovation, as if innovation is a deliverable, an outcome or a benefit.  It is, in fact, none of those things.  Innovation at its best is a continuous process, at worst an occasional activity, but in either sense it is the HOW of something, not the WHAT.  Innovation is a feature, what it creates should deliver benefits to someone.  Yet how quickly we forget.

To many organizations, the idea of innovation is enticing.  They look at other companies that are "innovative" and gaze admiringly on all the new products and services that drive more revenue and profit.   It seems that all one must do is claim to be innovative and more profits and revenue will accrue.  When that fails, the nascent innovator then decides to actually become more innovative, trying to generate new ideas and move them into product or service development.  This is when they discover that innovation is not a deliverable, and during the implementation of an innovation capability or culture it certainly isn't a benefit, because attempting to "bolt on" an innovation process to a competent efficient culture is like dropping a modern 8 cylinder engine into a Model T.  In theory it should work, but the results often aren't all that appealing.  And in case you were wondering about the analogy, the modern 8 cylinder refers to the existing corporate processes and practices, which operate on "all cylinders" efficiently.  The Model T is the structure you try to build to use the existing processes in a new way, to innovate, and it typically ends badly.

Innovation is a feature of an organization or a culture.  It is not a benefit to customers.  In fact to many customers new innovative products aren't benefits, because these new capabilities require existing customers to change.  Some will change gladly, some will change if forced and some will never change.  So innovation may require that you piss off a portion of your existing customers and acquire a bunch of customers who have been ignored or overlooked, or who never considered your solutions before.  You get these customers because the innovations you create have benefits that they want or need.  And, it's also necessarily true that more innovation does not lead to more benefits.  Incremental innovation extends existing benefits to some degree, so lots of incremental innovation does not guarantee a lot of new benefits.  This is why so many corporations consider innovation a failure - there's a lot of activity but not much motion, because all of the effort is constrained to such a small space. 

Like any compelling phenomenon innovation has reached and passed its apex of awareness and promise and to some extent collapsed into the trough of disillusionment.  Now, new carnival barkers are promising better rewards through hyphenated innovation:  agile innovation, rapid innovation, design thinking innovation and so on.  Clearly, simple, general innovation is a significant disappointment, so we are working to re-categorize it rather than look at the misplaced expectations and lack of commitment.  Instead, simply strip it back to its base elements.  Ask:  what is innovation for?  What are we trying to deliver to customers?  What do they want or need?  Can we create that within our business, or must we rethink or re-imagine what our business is?  How disruptive must our thinking become?  What benefits does the customer need?  What problem must they solve?  What unmet needs could be addressed?  If you'll revert back to a simple question driven methodology, always keeping in mind that innovation is an activity or a feature, and not a deliverable or benefit, then innovation will take the place it rightfully occupies.
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posted by Jeffrey Phillips at 11:42 AM 0 comments