Innovation in Practice

Innovation Dilemmas

Innovation creates dilemmas, and these dilemmas can either help or hinder your innovation effort.  Dilemmas arise when we confront natural tensions between two apparent opposite ideas or concepts.  In business we face these dilemmas all the time:  cost vs. quality, centralization vs. decentralization, stability vs. change, short term results vs. long term competitiveness.  Dilemmas are dynamic but inevitable.  They don't go away.  They must be managed over time. 

The key is to recognize the difference between dilemmas, which are not resolvable, and problems which are resolvable.  Problems differ from dilemmas in that they are decidable.  We have independent options to address problems usually through some fixed trade-off between options.  Problems can be solved, resolved, and decided – once and for all.  Natural tensions are not solved or decided.  They are ongoing.  Professors Josh Klayman and Jackie Gnepp address this in their course, "Implementing Innovation and Change" at the University of Chicago.  The course helps students recognize the difference between dilemmas and problems.  They learn strategies to help manage and balance these dilemmas over time.

Here are the innovation dilemmas (tensions) I observe in organizations:

Innovation at the U.S. Automakers

As some U.S. automakers face inevitable restructuring, the key questions are what should they become?  What is the best way to do it?  The answer depends on what battle they think they are fighting.  In simplest terms:  should they build better cars?  Build cars better?  Build cars?

Consider the battles U.S. automakers have fought against the Japanese and other automakers.  How has Detroit done in:  design?  quality? productivity? brand building?  Given the steady loss of market share and margin, they seem to be losing.  There are a variety of reasons, some of their own making and some not.

There is one battle worth winning more than the others - the battle of ideas.  U.S. automakers need to outperform the competition in one definitive way - systematically develop and deploy a steady, uninterrupted stream of novel ideas and inventions across all aspects of their business.  At the risk of falling deep into the "easier-said-than-done" category, I offer my blueprint for change for U.S. automakers: reframe, retrain, and redeploy...a model based on my own experience.

Innovation Adjacencies

Finding adjacent market spaces is an attractive way to grow.  Adjacent markets are not too far away from your core business in terms of channels, technology, price point, brand, etc.  Adjacent means: lying near, neighboring, having a common border, touchable.  Although chasing adjacencies can be distracting, it is a much easier to sell internally.  Adjacencies seem more achievable than far out, ethereal white space opportunities.

Adjacent markets are even more appealing when you apply a systematic innovation method to it.  Giving yourself the gift of novelty in a new market space right next to your own seems like the best of both worlds.  The trick is finding the right adjacencies.

The starting point for thinking about adjacencies is to ask yourself, "Adjacent to what?"  It is much harder to find adjacent spaces when you don't have a clear understanding of your existing spaces.  For this, I recommend a framework called The Big Picture developed by Professor Christie Nordhielm at The University of Michigan.  The Big Picture outlines four quadrants that, when properly constructed, completely define any market category.  Here is a visual of those quadrants.

The LAB: Monetizing Twitter with Attribute Dependency (February 2009)

Venture capitalists could increase the value of their investments by applying a corporate innovation method to those investments.  Take Twitter for example.  It just received its third round of funding - $35 million.  Yet it has no revenue, no business model...just the promise of such.  It is the perfect time to innovate. 

I decided to take the challenge to create new concepts for the Twitter platform that have the potential to earn money.  Others are chasing this, too, including the Twitter management team.  It reminds me of the early days of Amazon when many (including me) wondered if the company would turn a profit.  The difference between Twitter and Amazon is an important one.  Amazon started with a business model in mind.  From there, it had to achieve economies of scale.  Twitter started with none.  Economies of scale do not matter until it can define a viable business model.

Let's see how innovation can help.

I used the Attribute Dependency template of Systematic Inventive Thinking, a method of innovation that works like no other I have found.  Attribute Dependency (or AD for short) differs from the other templates in that it uses attributes (variables) of the situation rather than components.  It is a powerful tool and more challenging than the others in some respects.  It yields amazing results.  You start with an attribute list, then construct a 2 x 2 matrix of these, pairing each against the others.  Each cell represents a potential dependency (or potential break in an existing dependency) that forms a Virtual Product.  Using Function Follows Form, we work backwards and envision a potential benefit or problem that this hypothetical solution solves.  Innovation!

Mapping the Innovation Gap

Once you have a systematic and routine way to innovate, you are confronted with a new problem - how to decide how much innovation is enough.  For many, this is an odd question.  If innovation is essential for survival and growth, most people would want all the innovation they can get.  But that is oversimplifying.  Too much innovation can overload the system, confuse the organization, and lead to ideation fatigue.  So how much is enough?

Here is a useful analysis that can tell you how many ideas are needed to reach your specific growth targets called "Mapping the Innovation Gap."  The steps are:

1. Determine your revenue goals in each year over a specific time horizon.  Base this on your firm's strategic planning time horizon (usually 3 to 10 years depending on the industry).  Use the actual revenue targets from your company's business plan. 
2. Break these annual revenue targets down over a mix of products, new and existing, in each year.  Some firms call this a revenue cascade or revenue waterfall.  It shows for each year how much of the revenue comes from existing products and how much comes from new products.
3. Estimate your Innovation Yield (number of new ideas needed to produce one new product).  This varies by industry and by company depending on factors such as level of investment, core competencies, and access to technology.  Various think tanks and consultancies have estimates such as the curve pictured above.
4. Estimate your typical idea-to-launch Lead Time (how much time it takes to develop and launch a product once it is conceived).  As with the Innovation Yield, this will vary.  Take a look at past product development experience and determine an average time (in years).
5. Plot the number of new ideas needed in each year to produce the necessary new products in subsequent years.  Take the number of new products needed in a specific year and divide it by the Innovation Yield.  Then plot this number back in time by the amount of Lead Time to develop ideas.

What you end up with is the number of new ideas that need to be generated each year to have a realistic chance of achieving future revenue growth targets.  It can be a sobering number depending on how aggressive your targets are.  With this number, a general manager can then task the team to "schedule" innovation, and then hold them accountable for generating the necessary number of ideas. 

The bottom line:  to grow, companies need a systematic innovation method, and it needs to be applied systematically.

Download "Mapping the Innovation Gap" here.

Complementary Innovation

Companies are enamored with chasing "white space opportunities."  White space is the nickname for new, undiscovered growth segments.  It spins the notion that opportunity lies just ahead of us.  Telling colleagues you are working on white space opportunities suggests you are doing really important stuff.  It is the ultimate growth endeavor, the risk worth taking.  White space will save the day. 

I'm not so sure.  I have two problems with white space.  It is neither white, nor a space.

White space has come to mean many things: 

• WhiteSpace (Resource Scheduling), name used since 2002 to denote available time for People or Resources when scheduling time
• White space (visual arts), or negative space, the portions of a page left unmarked
• Whitespace (computer science), characters used to represent white space in text
• Whitespace (programming language), an esoteric programming language whose syntax consists only of spaces, tabs and newlines
• White space (telecommunications), unused radio frequencies in the VHF and UHF bands allocated to television transmission.
• White space (education), term used since 2007 in the Singapore Education System to denote time reserved for teachers' personal reflection and planning.
• White Spaces Coalition, a group of technology companies aiming to deliver broadband Internet access via unused analog television frequencies
• White Space (business), the part of a market or segment that is available to a business or entity for new sales or customers
• White Space (Process improvement and management), the area between the boxes in an organizational map, often an area where no one is responsible.

The common theme seems to be the notion of white space as a void, untapped and unused, free and clear - like powdered snow yet to be skied.  If only we could find it (or get the government to give it to us as Google is seeking)!

Where do companies look for white space?  Jim Todhunter at Innovating to Win has published a survey with some very important insights to this.  Most noteworthy is how low respondents rated Complementary Products, a mere 6.3% as a source for white space opportunities.  Jim's advice:  "Reconsider how to look at the red ocean opportunity spaces to expand your market footprint through complementary offerings.  This could be a great less traveled path to revenue growth."

I agree with Jim, but what is curious to me is why this path is less traveled in the first place.  My sense is that companies overlook these complementary innovations because they are too focused on new opportunity defined as a market space rather than a boundary or frontier.  White space is not a space at all.  It is the fringe of what your are currently doing.  The term - adjacency - seems to be a much better way to define it.  White space is not white either.  Complementary innovations are deeply colored by what we know and have experienced.  There is always an old idea buried in a new one.  This is why tools such as S.I.T. and Goldfire are so effective at innovating at the fringe of the current business model - they leverage what is known.

Fortune 100 companies will find more growth opportunities at the margin of what they are doing than by chasing far-flung, ethereal market voids.  Leveraging at the margin takes advantage of existing core competencies and strategic assets.  It yields innovations that stretch the portfolio and the brand.

Stop chasing white space and look for the brightly colored complementary innovations right next to you.

Innovation through Co-opetition

How do you innovate a business model?   You can create new products and services within the current business model to drive growth.  Or you can create a new business model and open up a whole new world of possibilities for the firm.  Either innovate within the current game, or change the game.  But how?   

Several books address this, from Clayton Christensen's "The Innovator's Dilemma," to a more recent offering, "Innovation to the Core: A Blueprint for Transforming How Your Company Innovates"  by Peter Skarczynski and Rowan Gibson.  When Professor Christensen presented his disruptive innovation model to our company several years ago, I remarked that what is needed is NOT so much a disruptive product, but rather a disruptive business model.  His book is a good historical account of a few industries that suggest disrupting (innovating) the business model is what really counts.  While these books and others do a good job of exposing the issue, neither give a prescriptive "how to."  The most recent book suggests a holistic approach.  "To build a breakthrough business model that rivals cannot easily emulate, you'll need to integrate a whole series of complementary, value creating components so the effect is cumulative," the authors note.  Fine, but there are no step-by-step processes how to do it once you have unpacked the original business model.

My answer comes from combining two existing concepts (a Medici Effect as described by Frans Johansson).  Those two existing concepts are Systematic Inventive Thinking (S.I.T.) and Co-opetiton.  S.I.T. is a proven process for generating innovation on demand.  Co-opetition is an idea described by Barry Nalebuff and Adam Brandenburger in their book called, "Co-opetition."  It means cooperative competition, and it is a way to see your industry not as a zero sum game, but rather as a group of participants that can behave in a certain way that benefits all.  They coopetate rather than compete (legally, of course).  I met with Professor Nalebuff and had him "school" me on the concept.

The trick is to apply S.I.T. templates to the Value Net model of co-opetition.  Here's how.  List the activities of each Value Net participant (Company, Supplier, Customer, Complementors, Competitor).  Rotate each specific company in the Value Net model so that each takes a new role (competitors become suppliers, suppliers become complementors, etc).  Use each S.I.T. template on the new list of activities, starting with Task Unification.  Using Function Follows Form, envision how the new role and role player can benefit YOUR company.  Here is an example, using Nintendo as the company of focus:

Now imagine each player rotates clockwise one position.  Applying S.I.T. Task Unification, we ask what roles could Atari perform as a customer to Nintendo that would be beneficial to both.  (For example, could Atari and Nintendo cross license software code to each other, perhaps making some features of their games work on the other's game box?)  Apply all five templates systematically to each role and each player within the context of their new role.  This will generate many new, innovative business model components and themes.

Disruption doesn't have to be uncooperative.

Innovation Follows Strategy

Innovation that is done in the context of business strategy tends to be more focused, efficient, and business-model relevant.  Innovation should not be viewed as a way to take the organization off its strategic track and in new directions.  Rather, innovation should be applied in a way that makes the current strategic track more successful and profitable...true growth.

Yet the tendency is to view this approach as incrementalism and not disruptive enough in the Christensen sense.  Some would say that starting with your current situation is not bold and is risk adverse.  "We're not thinking outside the box" is the usual incantation at this point.  Instead, there is a preference to chasing "white space" and "open source" innovation as a source of growth.  Some executives prefer the lure of white space and opportunity spotting, and they readily acknowledge that it is "low yield by design."  The Scarcity Principle tends to make these opportunities seem more valuable than they really are.  White space chasers position themselves as fighting the heroic fight.  Resources come pouring in.

The best Fortune 100 companies pursue high yield, organic innovation efforts... not "low-yield-by-design" efforts.  High yield innovation comes from tying innovation directly to the strategic marketing context of the firm.  Ideas generated this way help the organization stretch its model in a way that is achievable and internally-sellable.

How do you tie innovation to strategy?  Professor Christie Nordhielm from the University of Michigan has developed what I consider the best single contribution to marketing thought since the 4P's.  Her Big Picture framework of the marketing management process provides the context for innovating across the entire business model.  Applying systematic innovation tools to each aspect of her Big Picture model can yield amazing insights at both the strategic and tactical levels of the business.  It is the intersection of these two ideas...Big Picture Strategy and Systematic Inventive Thinking...that will yield consistent, profitable results.  Innovation follows strategy...not the other way around.

Innovation Subversives

Jim Todhunter offers sound advice for innovation champions who are feeling lonely in their efforts to evangelize:

"This is where many innovation evangelists fall down.  Too often, we are so wrapped up in our own world of high performance innovation practice; we forget that many people don’t have the frame of reference to get what we are describing.  We need to slow down and articulate the message more clearly and use clear examples that demonstrate how sustainable innovation practice builds the company’s value."

This strikes a familiar chord with my colleagues in the Fortune 100.  Not only can innovation champions feel lonely, they can become extinct if they are not careful.  The Association for Managers of Innovation studied why corporate innovation champions struggle to survive.  The study looked at what actions and behaviors put these managers at risk in their efforts to evangelize.  Of the 15 innovation champions in the study, 10 left their organizations and became consultants, 4 joined smaller or start-up companies, and 1 retired. None returned to a Fortune 500 company.  Most of the consultants have as their clients Fortune 500 companies and, in some cases, their former employers.

My advice: stop evangelizing and start doing.  Use a proven innovation method on a mainstream issue or product and let the results speak for themselves.  Don't ask permission.  Don't call it innovation.  Don't preach the "..see, I told you!" message. 

And then...do it again.  I take advice from Thomas Bonoma's classic HBR article from 1986, "Marketing Subversives:"

"I found that under conditions of marketplace change, success depended heavily on the presence of marketing subversives in a company.  Subversive marketers undermined their organizations' structures to implement new marketing practices....And no matter what higher management had decided to allocate to various marketing projects, the subversives found ways to work around the official budget.  They bootlegged the resources they needed to implement new, more appropriate marketing practices."

The same can be said about innovation. 

Are you feeling lonely as an "innovation champion?"  Forget it.  Get suited for subversion.

When to Innovate

People often ask when is the best time to innovate: early in the pipeline process, middle, or late.  Teams tend to resist innovation late in the process when they are busy launching a new product.  Teams tend to resist innovating in the middle of the NPD process because they are too busy developing the next generation product.  Teams tend to resist innovating early in the process because they are too busy developing franchise strategy. 

So when is the best time to innovate?  Anytime. 

Early in the process, you need innovation to develop a large stock of potential novel product ideas.  Tie these early ideas to your franchise marketing strategy.  This makes your strategy more robust and believable.

Early in the process, you need innovation to trigger modifications or enhancements to the product now in development.  This gives you potential differentiating features that you can still build into the new product. 

Late in the process, you need new concepts just when launching a new product to show your company and your customers that you have a sustainable pipeline of ideas behind you.  This gives you credibility.

Innovating is like putting in golf.  Never leave yourself short.