Archive for the ‘Innovation’ Tag

Being a frugal innovator

Apple and Google recently created a buzz as they launched their latest phones with all sorts of new features.

Improved cameras, fingerprint sensors and gizmos to save battery life were among the offerings to win over the public.

Slick designs and major international product launches may make innovation seem like a sophisticated practice that’s easy for companies with big budgets and plenty of time, but what if you don’t have that luxury.
The reality is that some of the most successful innovators get significant results without outspending their rivals. For example, Procter & Gamble minimizes research and development (R&D) investment and time by getting product teams to tap into the creativity and problem-solving efforts of outside entrepreneurs, universities and start-ups.

Apple has launched some of the world’s most successful products despite spending less on R&D (as a percentage of revenues) than many of its competitors. And companies such as Amazon and Google have used quick, low-cost experiments to quickly gain consumer knowledge and to identify and scale winning ideas, while also to pulling the plug on white elephant projects.

Most companies need a practical approach to innovation that can be used regularly to get good results.

More than 15 years of client work and research has taught me there’s a middle way between ad hoc initiatives and building expensive innovation factories. We developed a system I call the Thrifty Innovation Engine (TIE), which offers companies an alternative approach.

It’s based on the view that innovation is simply fresh thinking that comes from inside or outside of the organization, combined with actions to create market results through higher revenue, or lower cost.

Here’s how the process worked for a software client. This firm’s approach to innovation veered from rushing emergency product upgrades for single clients to funding ‘new venture’ business units that looked well beyond a two-year planning horizon. Neither approach delivered the expected business results, but they did generate plenty of politics and expenses to boot. We helped the client implement a TIE – a 120 day innovation germination and commercialization process.

Phase 1 – 10 days

Assessment, priority-setting and getting a team together

This was vital, as management didn’t have a clear picture of spending, or accountability. A small team of product managers, programmers, financial analysts and marketers looked at ideas and bucketed them according to potential customer appeal, capabilities, financial returns and ease of commercialization. The team then chose five ideas for customer feedback.

Phase 2 – 20 days

Market validation

We introduced the five ideas to 16 strategic and prospective clients and four industry leaders through a series of sessions. Our goal was to find out how each idea met customer needs, what features were important and how emerging technological trends could be used. Two of the ideas generated significant customer interest and were placed in the commercialization pipeline.

Phase 3 – 75 days

Commercialization

A small and highly motivated group of programmers were dedicated to each idea, along with a budget and internal mandate. This wasn’t a sideline project starved for internal support. The core project group continued to be accountable and provide input but were told to use a minimalist touch. Low cost, speed and client consultation were guiding principles. For example, the team was encouraged to use lean methods such as open source tools. Each team also collaborated with the clients to minimize risk and assure market acceptance.

Phase 4 – 15 days

Final steps

The team reviewed the process and what they learned to fine tune the framework, which included committed resources, defined practices, metrics and knowledge management policies. A system was also set up to track the business results and customer feedback and to cycle these findings back into the TIE knowledge bank.

Developing an innovation engine like this won’t guarantee your firm becomes the next Apple or Google, however it can help your efforts become more productive and ensure your great ideas are market driven and not long shots.

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Overcoming the pain of Technical Debt

Many businesses are hamstrung by expensive and inflexible information technology. To wit: The average firm’s spend on IT has swelled to the equivalent of between 4 percent and 6 percent of revenue, thanks in part to neglect, poorly executed integrations and the breakneck speed of technological change.

While the exact toll of lost productivity and hampered innovation for any given firm is difficult to quantify, it’s safe to say that the true cost IT is greater than what appears on a company’s ledger. Research firm Gartner estimates the total cost of poor systems architecture, design and development will reach US$1 trillion in 2015. Put another way, that’s an average of US$1 million per organization, according to analytics firm Cast Software, and US$3.61 per line of code.

This hidden expense is referred to as “technical debt.” Reining in technical debt is an ongoing challenge for IT leaders because the cost of lost opportunities is tricky to peg while the cost of modernizing legacy systems is immediately tangible and often significant. But understanding technical debt is vital for organizations angling to improve performance through new technologies, improved agility and tighter cost controls.

I first encountered the dangers of technical debt when I did consultant work for a medium-sized manufacturer. In our search for savings, we found that maintaining one legacy system was consuming nearly 85 percent of the firm’s IT maintenance budget while rendering the integration of new applications difficult and risky. Worse, support activities were diverting scarce resources away from growth-enabling automation initiatives.

In that instance the firm was able to successfully phase out the old system while phasing in a new, more effective and cost-efficient replacement. But the question remains: Why did the firm’s IT leaders run up so much technical debt in the first place?

“The challenge is twofold,” explains Mike Grossman, founder IDI Systems, an automation development firm that regularly confronts technical debt in the course of infrastructure projects. “First, how can you economically and practically support current processes and business capabilities with existing — and potentially deteriorating — code, tools and processes? And second, how and when are you going to transition these old systems to support your new business objectives?”

Think of a legacy IT system as an old clunker. The driver understands that buying a new car is cheaper and easier in the long run, but either doesn’t have the down payment on hand or can’t spare a day without wheels. So instead of efficiently getting where they need to go, they’re stuck trying to keep an old car running by repairing old parts and adding new ones.

Where the metaphor falls flat, however, is in underscoring the value proposition of abandoning the old. The difference between a messy legacy IT system and a modern, fully integrated and efficient one is greater than the difference between an old car and a new one. While either vehicle will get you where you want to go, a world-class IT system can take your firm places that your current infrastructure would never allow. This is due to the opportunities for innovation that arise from a top-notch system.

That’s not to say that eliminating technical debt is as simple as hiring a team of developers to rebuild your infrastructure from the ground up. Before any such decision is made, consider the following steps:

  • Calculate your existing technical debt. To do this, compare the capabilities of your current software and hardware to industry-leading versions.
  • Determine your firm’s goals. Consider both the extent to which your current activities depend on your legacy system and what new functionality you will require for future, growth-generating activities.
  • Identify and align around the priority areas for remediation.
  • Find and deploy talent to replace or redesign legacy systems.
  • Measure and track progress at a senior level along the way.

And remember: Even after you’ve successfully upgraded your IT systems, the threat of running up technical debt remains. This is due both to the changing nature of technology and of business. While senior leaders ought not to obsess over technical debt, keeping a vigilant eye on the efficiency and capabilities of IT operations can be the difference between running in place and forging forward.

For more information on our work and service, please visit the Quanta Consulting Inc. web site.

Iron Dome innovation lessons

The old ditty ‘when Mother Nature gives you lemons you make lemonade’ tells us a lot about about being creative, particularly when innovation is critical to your corporate strategy — and survival. In the current conflict between Israel and Hamas, the lemons in questions are the hundreds of rockets being fired into Israel on a daily basis. Israel’s ‘lemonade’ was the development of the Iron Dome anti-missile system, which has quickly become one of the most impressive weapon-defence systems of the past 20 years. What lessons can businesses glean from the development of this world-class technology?

The Iron Dome was developed by Israeli defence contractor Rafael Advanced Defense Systems. Its development from ideation to deployment took about seven years, hundreds of workers, dozens of suppliers and more than $200M in investment (much of it supplied by the U.S.). The Dome’s purpose is straightforward and exceedingly difficult; the system is designed to track and intercept incoming short-range missiles with its own missiles before the attacking missiles strike their targets. Missiles that would have hit an unpopulated area are ignored, in order not to waste munitions. To date, the system has been very successful, intercepting approximately of 90% of the threats it faces. Rafael is currently looking to sell the system to a variety of countries.

Aside from its military success, the Iron Dome is a model of innovation commercialization under tight constraints. Below are seven lessons gleaned from a variety of public sources. The quotes below are from project team members and were anonymously cited (for security reasons) in the Times of Israel newspaper.

1. Create urgency

Contributing to the protection of your nation can be motivating. However, Rafael’s leaders put wood behind the arrow by making the Dome a strategic priority. The project’s constraints — tight timelines, technical challenges, and cost limitations — were clearly articulated so there were no role misalignments or executional misunderstandings.

2. Assemble the best people

Having the right mix of capable people is vital. Rafeal’s management assembled a technical dream team. According to one engineer, “The best people in the field came together for this project.” Patriotism was not the only motivator: “Many engineers were inspired by the technological challenges and … fought to participate in the project.” As it turned out, much of the team was, through design or chance, made up of very curious and creative individuals able to sustain a high workload and quickly solve problems.

3. Optimize the team size

Given the constraints, management decided that using a “lean, mean” team of motivated experts was the right tack. The modestly sized core development team — numbering in the dozens — was much smaller than what you would typically see on major initiatives in bigger organizations. The payoff was faster project speed, less politicking and reduced management complexity.

4. Quickly evaluate issues

One pressing issue was how to collate and evaluate the numerous conceptual and technical ideas, and technology fixes. The team developed excellent screening tools to help analyze options and decide when to let go of an idea and move on. These methodologies avoided analysis paralysis, and accelerated the pace of experimentation and prototype development.

5. Experiment regularly

A culture of risk taking and continuous learning permeated the project team. Part of this culture involved running many experiments to test ideas and technology. Successful experiments were studied to distill technical shortcuts and share best practices. Failures were also systematically analyzed to avoid repetition. These practices minimized technical risk, avoided duplication and maximized speed.

6. Collaborate closely

The Iron Dome was developed in close collaboration with the users and other stakeholders to reflect real-world needs. One team member said, “Our relationship with the people in the field was unprecedented; this was essential for adapting the system to all the constraints in the field.” Given the need to quickly deploy the system, the Dome was designed with simplicity in mind so as to improve manufacturability and ease of transport.

7. Be entrepreneurial

For a prolonged period, the Iron Dome faced criticism from many circles — vested institutional interests, the media and military experts — around cost, potential effectiveness etc. The team used these concerns as a personal challenge, and to further refine their plans. According to one engineer, “Maybe we should thank the media, because when you read a cynical article, you say to yourself, ‘Let’s show them’ and you tackle the project, invigorated.” Another said, “In retrospect, it was the constraints, which seemed almost insurmountable, that led us to develop creative and successful solutions,” including engineering lower-cost parts from scratch and using components that were discovered in a toy car sold at Toys ‘R’ Us.

The development and effectiveness of the Iron Dome teaches companies that innovation success can be more about attitude, common sense and collaboration — the intangibles — than investment and size of R&D teams. Managers would be wise to consider these lessons.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Blockbuster innovation

Companies could learn much about innovation from the Spanish general, Hernan Cortes.  In 1518, Cortes was instructed to sail to Mexico and overthrow the Aztec empire. According to the story, he proceeded to scuttle his boats after putting down a mutiny of some of his staff. This sent a powerful message to his soldiers that there was no retreat. They would conquer Mexico or die in their efforts. History judged his decision successful (if not immoral). His small army of 500 soldiers conquered the country in a mere two years.  What management lessons can be gleaned from this historical episode?

An “all or nothing” strategy seems counter-intuitive when looking at the best way to commercialize risky innovations.  Conventional wisdom says that launching small, measurable experiments or pilots is the best, lowest risk approach to introducing new products or technologies. Though this seems like a prudent tack, it has not necessarily produced market wins. Numerous studies show that the success rate for new products has stubbornly hovered around 10-20%. Fortunately, there may be a better way to commercialize innovation.

A professor at Harvard Business School, Anita Elberse, has studied creativity-driven industries like music, sports, movies and publishing.  In her book Blockbusters, Elberse found that the companies with superior financial returns had strategically focused their efforts and capital on producing movie blockbusters, recruiting superstar athletes or signing popular authors. To use a baseball metaphor, these firms always swing for the fences instead of playing it safe trying for singles and doubles. According to her data, these industries exhibit a ‘winner take all’ dynamic; less than 10% of projects, teams or entertainers produced more than 90% of industry revenue and profit.

In “winner take all” markets, the best strategy is to singlehandedly aim for blockbuster products.  The best way to do this is to focus investment and management attention on proven entities, assets or projects, like a movie sequel, a superstar free agent athlete or a popular book franchise.  Funding a limited number of major innovations is not enough. You also need to front-load your sales and marketing effort to boost initial channel distribution and trigger word-of-mouth effects. Elberse considers a blockbuster strategy a lower risk approach because it improves the odds of success early on and enables firms to cut their losses if results do not pan out.

Applicability to other markets

While Elberse studied the creative and sporting industries, other information-driven sectors may experience similar blockbuster dynamics. Industries with high fixed costs, a low marginal cost (when producing more) and a high marginal profit (on each additional sale) can quickly evolve into “winner take all” markets, particularly when digital technologies reduce customer search costs and eliminate the need for physical proximity between the buyer and seller. There are many reasons for all CEOs to consider this approach for their business:

Rallying the troops

Big innovation bets focus employee and supplier attention, create positive urgency and prevent individual or departmental agendas from stealing resources. 

Reduces complexity

Many R&D projects, particularly small ones, can develop institutional momentum making them difficult to cancel.  Managing this portfolio can generate significant complexity, increasing organizational cost and diffusing effort.  A blockbuster strategy eliminates these wasteful costs plus allows managers to best leverage scale economies in areas like media buying and raw material purchases.

Satisfy real customer needs

Movie studios concentrate investment and time on stories, actors and directors with proven consumer appeal (e.g., a sequel).  The discipline of only targeting key customer needs in profitable segments with real innovation improves the chances of market success.

Elberse’s learnings are relevant to many other industries including education, training, professional services and software. However, not every firm is a good fit. We believe enterprises should have three characteristics:

1.  Self-awareness

Companies that are good at placing the right innovation bets tend to have a good sense of what their core competencies are and where they need to partner or bypass.

2.  Decisiveness

Though having a good innovation evaluation process is important, management still needs to make tough calls quickly in periods of uncertainty.  Moreover, following a blockbuster strategy requires firms to have a culture and performance measurement system that is tolerant of failure.

3.  Nimbleness

Rigid plans lead to risky, binary decisions. Even in the movie industry, extensive consumer research still takes place.  Producers don’t hesitate to make edits or change endings based on focus group research.

Utilizing a blockbuster approach goes against conventional wisdom.  However, there are many examples of hurting companies like AppleIBM and Xerox that followed this strategy and have re-emerged as winners.  Managers should understand their operational dynamics, consider the strong financial business case, and analyze the impact of digital tools like search bots or recommendation engines that create “winner take all” effects.

For more information on our services or work, please visit the Quanta Consulting Inc. web site.

Create categories and profits

Many CEOs grapple with a fundamental problem:  how do you profitably build revenues in low growth, hyper-competitive markets?  Grabbing business from a competitor is a difficult and expensive proposition.  Raising your prices — unless delicately handled — can be risky.  Driving incremental product innovation is a common strategy but one with low odds of success when the value-add is minor and the product remains comparatively undifferentiated.  There is a better approach to reigniting growth:  create your own category.

Pursuing incremental innovation is a tough road to travel.  Various estimates put the success rate of each new product or upgrade at only 10%-20%, resulting in wasted investment, unhappy customers and damaged careers.  However, there is a superior alternative for exploiting innovation.  It is called Category Making (CM).  This proven innovation approach combines cutting-edge product and business model innovation to create an entirely new offering, which by itself establishes a new category. There have been many successful examples of CM including ultra-low-cost, portable ultrasound machines for the Chinese market (GE), Minivans (Chrysler), Xbox Live Gaming system (Microsoft), Greek-style yogurt (Chobani) and iTunes/iPad (Apple).

According to research published in the Harvard Business Review, category makers generate much higher financial returns than incremental innovators.  Specifically, 13 ofFortune’s 100 fastest-growing U.S. companies between 2009 and 2011 were considered category creators.  They alone accounted for 53% of incremental revenue growth and 74% of incremental market capitalization growth of the top 100 over those three years.

Category creators do many things right to produce their industry-leading returns.  First and foremost, they appeal to consumers by:

  • Providing a unique offering that delivers compelling packaging, convenience, functionality or experiential benefits.  Xbox, for example, enables friends to play each other over the Internet.
  • Creating a new pricing model that is attractive to consumers.  For example, iTunes allows consumers to buy only what they want (i.e. individual songs) at a low price.
  • Re-engineering how a product is delivered and distributed.  Consider how Netflix revolutionizes the delivery of movies by leveraging internet-based, home delivery.

Secrets of their success

As a go-to-market strategy, pursuing CM innovation makes a lot of sense for companies:

Less competition

Most incremental innovations launch into existing categories — and right into the teeth of competition.  Category makers seek to outflank competition by introducing a new product into new market space.  This enables the innovator to secure ‘first mover advantage,’ thereby rapidly attracting customers while establishing barriers of entry around distribution, brand image and business partnerships.

Differentiated value

Incremental innovation often comes up short because it does not add enough extra value (or incentives) for consumers who are typically reluctant or unwilling to change behaviour.  On the other hand, category makers rely on a novel customer offering and value proposition. These products can more easily get the market’s attention and deliver compelling benefits previously unavailable.

Better use of scare capital & time

Often, the scope of innovation is dialed back in order to minimize capital outlays, limit market risk or because of managers’ risk aversion.   This  “penny wise and pound foolish” approach can hamper the initiative, reducing its chances of success. Category makers see risk but cope with it differently.  They focus on fewer but bigger ideas, and make sure they are properly supported by the organization’s culture and systems.  Raising the internal stakes ensures adequate investment, diligence and management attention.

Making it work

Becoming a CM requires firms to alter their visions, change the way they view risk, and allocate sufficient resources and capital.   Not surprisingly, they will look at innovation in a comprehensive fashion.  For example, category creators:

  1. Use financial, distributional or technological constraints as a catalyst for breakthrough thinking (GE)
  2. Investigate offerings that exist at the intersection of different but complementary technologies and business models  (Apple’s iPad).
  3. Look beyond existing consumer requirements to explore unmet or emerging needs, future trends and adjacent segments (Chobani, Chrysler, P&G).
  4. Seek out the best delivery and distribution model, either by building in-house, purchasing another company or partnering with a complementary firm.  It is not uncommon for organizations to leverage all three (Microsoft)
  5. Think creatively around how they generate profitable revenues without alienating consumers (Apple iTunes)

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Co-create products with your customers

Contrary to what your parents told you, it often does pay to follow the crowd.

Many companies are using crowd sourcing strategies to gather new ideas or provide operational support.  Crowd sourcing involves the harnessing of dozens if not thousands of people through specialized techniques and intermediaries to address a specific business opportunity or solve a research problem.  Some leading companies have taken crowd sourcing to the next level, collaborating with customers and key stakeholders to co-create new products or troubleshoot perplexing problems.  This new approach can spark breakthrough innovation and solve difficult technical challenges much faster and at lower total cost than deploying expensive R&D teams or buying risky start-ups.

Co-creation is well suited to better deliver on customer needs, at lower product development costs and risks.  Some notable examples of co-creation (as highlighted in the Harvard Business Review) include:

FedEx

Problem: How to ensure on-time, zero-defect delivery of live tissues for organ donation.

Solution:  With external medical staff and suppliers, FedEx developed a sophisticated logistics technology that manages key variables like location, temperature and pressure.

General Electric

Problem:  How to extract Alberta’s heavy oil in an environmentally friendly, low-cost way.

Solution:  GE, government officials and customers collaborated at a shared innovation centre to develop a new water filtration system that reduced water consumption.

Microsoft

Problem: How to improve the performance of a call centre.

Solution: Working with customers and call centre agents, Microsoft redesigned the customer experience to make it more personal and responsive.

A variety of innovation projects have used co-creation in diverse areas such as new product design, content creation, software development, video games and mobile app development.  Interestingly, some companies and entrepreneurs are using new crowd sourcing models like Kickstarter or Indiegogo to finance new products and TV and movie production.

To exploit co-creation’s potential, firms must pay attention to five key ingredients:

1.   A willingness to open up and interact

Collaborating with customers and stakeholders is not easy for many companies, even ones that purport to be customer-centric.  Since Co-creation is a creative and problem-solving process, it requires all employees to be good listeners and collaborators.  For inward-looking cultures, leaders may have to encourage openness by tweaking management systems, launching change management initiatives or bringing in outside facilitators.

2.   A big but specific problem

Leaders will get the most out of co-creation strategies when they target big problems and opportunities that the firm cannot deal with on its own.  Open-ended problems are rarely successful, given the challenges of engaging participants and vetting the ideas.

To effectively manage the process, management should craft a number of hypotheses for the crowd to explore.  Furthermore, the firm should anticipate that prospective solutions would evolve as different stakeholder groups provide input.

3.   Make it easy for the right people

Leveraging dozens if not thousands of stakeholders across many organizations and regions can be complicated. To keep the co-creation process controllable and productive, managers must carefully consider the makeup of the internal team and extent of outside collaboration.  Firms should cast a wide net to attract the right number of external experts, in areas like the supply chain and customer ecosystem as well as universities and startups.  Moreover, organizations need to make sure they have the right data, rules and IT systems to foster rich interactions.

Numbers matter; for some problems, the input of a dozen experts can be more valuable than hundreds of amateurs. Furthermore, the number of submitted ideas will be proportional to the ease of participation. P&G’s Connect + Develop program requires only a name, email and physical address to submit an idea.

4.   The right platform

To properly engage the crowd, companies should carefully consider which online or physical vehicle they use.  In some cases, web-based platforms like Crowdspring or InnoCentive will work best.  In other cases, firms should consider building their own specialized co-creation model like GE or 3M’s customer innovation centres.

5.   Evaluate well

Even when using hypotheses, companies can still get inundated with many interesting ideas.  To understand which solutions are feasible and have the greatest potential, managers should undertake quick online experiments, computer simulations or launch first in virtual worlds like Second Life.

Utilizing the crowd can be problematic. Like executing other key business strategies, prudent leaders will ‘measure twice and cut once,’ to ensure they design the right program for the right challenge – and can leverage the raw value of the biggest ideas. For those that do, Co-creation will be a game-changer in terms of better tackling customer needs and improving the pace and efficiency of innovation.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

The curse of expertise

Conventional wisdom says that possessing deep subject matter expertise is a prerequisite for organizations looking to innovate. Yet, when product managers, technologists or innovation gatekeepers have too much knowledge their preconceived notions or experiences can prevent breakthrough solutions from emerging.

This common psychological state – we call it the ‘curse of expertise’ – is considered by psychologists and behavioral economists to be a harmful cognitive bias, preventing some individuals and teams from finding and implementing ‘out of the box’ innovations. Companies looking to be more innovative can preempt these effects through organizational change, new staffing practices and the use of specialized facilitation tools.

Every person has cognitive biases. They arise from our need to make sense of a situation before deciding on a course of action. Contextual understanding and subsequent actions are typically shaped from past experiences, knowledge as well as likes and dislikes. Our automatic and practical response to difficult business challenges – which is what innovate thinking is all about – is first shaped by our understanding of ‘how we’ve always done it here.’ If we have done it (or seen it done elsewhere) in the past, that’s the way, it probably is going to be done — rightly or wrongly — in the future. This bias is closely connected to another organizational predisposition, the NIMBY effect. The ‘not invented in my backyard’ bias also makes it difficult for external ideas or technologies to be accepted and business challenges to be met.

Self-evident? Perhaps. In our consulting experience, many companies and their leaders often don’t recognize there is bias in their thinking or processes. Even when they acknowledge the predisposition, the effects may be too strong and institutionalized to enable breakthrough thinking. To overcome the bias, some organizations will try to bring the outside in by pursuing Open Innovation strategies or acquiring innovative start-ups. While often successful, these strategies can still fall victim to the curse. New ideas, approaches and technologies still need to be filtered, evaluated and disseminated through the organization. Not surprisingly, the role of innovation gatekeeper and cheerleader often falls to knowledgeable and experienced managers – the very people with the ‘curse of expertise.’ Alas, great ideas will get to the front door, but typically not inside.

The curse is not always apparent. Also problematic is how the curse influences analytical and decision-making practices. For example, managers often write detailed requirements and desired specifications for new innovation projects based only what they have seen work in the past, not what may actually be possible or viable. In order to make this process manageable, some R&D leaders will inadvertently limit innovation by creating exclusion lists that routinely ignore certain companies, industries or technologies from their consideration.

It is not a foregone conclusion that a company full of experts will suffer from the curse. Many innovative companies – usually stock full of knowledgeable people – are able to mitigate the curse through their processes, policies and cultural norms. Our innovation-focused consulting work leverages many of their best practices, including these 4 strategies.

Get recognition

The curse is most dangerous when no one recognizes or challenges it. One way to recognize the 800-lb gorilla is to approach the business challenge in an agnostic and objective fashion, by defining up-front the real problem to be solved and the solution’s ideal benefits and characteristics.

Find the right data

Innovative thinking often gets kiboshed by experts based on their – nebulous, out-of-date, or unverified – opinions. Indeed, gut feel has an important place in decision-making. Highly innovative companies, however, emphasize the primacy of holistic and credible data, especially that from consumers, over opinion. Two effective ways of getting good data is through undertaking proper qualitative and quantitative research, and conducting ‘quick and dirty,’ measurable experiments.

Foster diversity

Staffing innovation teams with diverse roles, knowledge, and cultures is a proven way to enhance problem solving, avoiding groupthink and inciting breakthrough creativity. Diversity-enhancing measures should also cover hiring and job rotation practices, corporate education programs and cultural initiatives.

Leverage specialized tools

Our firm employs a variety of facilitation tools that help firms challenge conventional wisdom and push innovation boundaries. These tools vary from specialized analytical techniques like problem restatement or divergent/convergent thinking to establishing an internal or external ‘devil’s advocacy’ group to tackle the business challenge in a totally different fashion.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Lean Innovation

It is commonly accepted that launching a new business or product is very challenging — so challenging, in fact, that roughly 75% of new product innovations fail to meet expectations.  Obviously, the chances of success will depend a lot on product and marketing decisions as well as customer interest.  Less attention, however, is paid to the process of commercialization or shepherding a new idea from concept to customer. Having a poor commercialization approach is guaranteed to increase failure rates, waste capital and stress the organization.  One way to improve your odds is to bring inside the “lean” start-up structure and lessons of Silicon Valley.

The typical approach to launching innovations or new businesses is to commercialize it using existing structures, processes and capabilities.  Though an internal focus can be appealing, this method has some major drawbacks.  For example, most firms and people display a bias towards the short-term and proven.  Higher risk innovation initiatives will always compete for resources, focus and capital with existing operations. When the going gets tough, innovation is often the first area to be cut. Moreover, though many companies pay lip service to breakthrough innovation, their culture, structure and management systems are often too rigid and siloed to deliver anything but modest improvements. But there is a better way.

Our experience and research with large organizations and high-flying start-ups show revamping the commercialization strategy can improve business performance and reduce risk.  Benefits include:  faster time to market; a tighter compliance between new products and customer needs; and, more efficient use of capital.  We call this improved model “lean innovation”. Below are four of its key features:

Intrapreneurialism

At the core of innovative companies is a diverse team of high performing individuals.  These people will be inherently entrepreneurial and customer-focused with strong learning competencies. Lean innovation seeks to find them in key functional areas, refocus their roles, foster collaboration and establish proper team and individual incentives.  Leaders, however, should be wary of creating renegades. Along with maintaining their intrapreneurial spirit, the team must continue supporting existing corporate values and goals.

Start up structures

There is an axiom that structure follows strategy. To foster lean innovation, firms should structure their teams like a venture capital-backed startup. In this model, teams have significant autonomy to target unmet customer needs and get-to-market fast (and if necessary pivot to a new offering or business).  To ensure proper governance and guidance, the team should be accountable to an internal board, which should include expert external advisors.  The board would provide a strong organizational mandate plus exemption from speed-killing (most, but not all) corporate practices and norms.

Despite being anchored in the mother organization, internal startups should relentlessly look outward.  This is not just about getting more market and customer exposure.  It is also about finding and leveraging external partners that can improve time to market, share risk and provide key learnings. Lean innovation is not about creating spinoffs or “skunk works” projects;  a prudent amount of internal collaboration is needed to take advantage of scale economies and other intellectual property.

Hypothesis-driven

Management typically looks at innovation strategy the same way they deal with traditional initiatives — inside-out, based on a formal business plan, metrics and implementation roadmap.  Conversely, lean innovation starts with a new product or business model hypothesis and goes directly to the customer, seeking to quickly validate the innovation’s appeal, demand and assumptions.  In many cases, the firm may want to co-create or co-market the new product with the customer.   In addition to traditional metrics like ROI or payback, Lean innovators focus on longer term measures such as lifetime customer value and viral appeal.

Agile practices

Optimizing the commercialization effort requires more than a startup structure and mentality. Like agile development principles, the team’s practices and policies need to support the goals of speed, pragmatism and learning.  As an example, product development should be undertaken in parallel with customer research (as opposed to serially).  Prototypes need to be developed quickly and deployed immediately into customer’s hands early to gain feedback and market experience.   Innovation teams should have the ability to tap external funding sources  (as opposed to waiting for budget cycles) in order to ‘fund on the fly’ and cement strategic alliances. Finally,external partnerships should be sought out to bring in new insights, add complementary functionality and increase market coverage.

Within large organizations, new business or innovation units can improve performance if they meld the best of start up learnings and organizational discipline.  Of course, this will not be easy from a cultural or management systems perspective.  However, those of our clients who have pulled this off have significantly boosted their innovation success rates while delivering better financial results and higher levels of customer satisfaction.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Innovation from left field

Most companies are on the hunt for breakthrough ideas and technologies that will enable them to leapfrog competition. Increasingly, the big innovations are found outside of their existing products’ or technologies’ domains.  Usually this is a result of serendipity but it doesn’t have to be. New research out of Wharton Business School (published in the Knowledge@Wharton newsletter) outlines how creative problem-solving techniques can be used to bring new innovation to products and service categories.

There are many examples of innovation that have seemingly come out of left field.  Semiconductor firm Qualcomm’s unique colour display technology is rooted in the microstructures of the Morpho butterfly’s wings.  The cushioning in Reebok’s best-selling basketball shoe is based on technology borrowed from intravenous fluid bags. Design firm, IDEO, leveraged technology from a shampoo bottle top to create a leak-proof water bottle.   How can other firms efficiently find and exploit innovation from the outside?

Wharton management professor, Martine Haas and doctoral student Wendy Ham, studied how to harness ideas from the “periphery”.  Their conclusion — supported by our client work — is that there are two ways to bring in peripheral knowledge to advance breakthrough innovation: Idea transplantation and perspective shifting.

Idea transplantation is the leveraging of technologies or practices from outlying areas into core product domains, with or without some modification. This is what IDEO and Reebok did.   Perspective shifting occurs when a R&D team’s know-how or experience in a tangential area leads them see a problem in their core category differently, thus revealing new solutions.  The researchers cite the example of Israeli entrepreneur Shai Agassi and his mission to commercialize electric cars.  Agassi borrowed the concept of contract-based leasing from the mobile phone industry and applied it to battery purchasing and consumption, one of the barriers to consumer acceptance.

Both idea transplantation and perspective shifting rely on individuals paying attention to and filtering seemingly irrelevant information in a systematic fashion. This can be a time consuming task fraught with many false starts and dead ends.  Some of the challenges include information overload, not choosing enough peripheral domains to study, and neglecting the importance of idea filtering criteria.

As with other complex undertakings, using a disciplined analytical framework can help improve the chances of success.   The authors along with our innovation generation model recommends a number of strategies including:

Consider multiple external domains

Initially, there is often no way of knowing whether one external domain will yield breakthrough innovation.  The odds of success improve when the team considers a range of peripheral areas and where these might be compatible with the current technology set.

Naturally, companies that already compete in different product categories will be at an advantage (although internal silos may scuttle this advantage).  For single-domain firms, managers should look outside through open innovation strategies and regularly engage in collaborative outreach.  A word of caution:  studying too many peripheral areas can result in diminishing returns.

Focus matters

Since exploring new domains is not easy, companies can maximize the effectiveness of the effort by increasing organizational and individual focus like adding more people, raising the percentage of the day focused on key domains, and lengthening the mandate.

Yet, sustaining this focus can be a challenge.  Firms need to ensure their R&D initiatives have the appropriate internal priority and time to conduct a proper assessment.  Furthermore, managers can institutionalize  “patience” by tweaking management schemes.  Still, being focused is not a sufficient condition by itself.

Dabble outside

The Wharton study reinforces the problem-solving and brainstorming value of taking breaks and engaging in outside activities (like a hobby or project) while undertaking innovation-oriented work.  However, it is unclear how much outside activity is too much or too little to stimulate the identification of peripheral innovation. The research suggests that breakthrough innovation will be more quickly generated by input from seemingly irrelevant areas, such as creative industries, product design or entrepreneurship” – as opposed to fields that have “rigid problem-solving paths,” like engineering or accounting.

Some of the innovative companies we work are successful at bringing outside creativity in.  They maintain a variety of policies including deliberately looking for hires outside of their industry or technical domain; encouraging employees to pursue outside interests during company time, and teaching creativity and problem solving skills as part of corporate training.

At the end of the day, you often don’t know where the big idea will come from.  Firms that can be optimistic, patient and deliberate in their approach will maximize their odds of success. They should also be mindful that tapping peripheral innovation is as much about the journey as the outcome.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Innovate better

Much has been written about the challenges of generating and commercializing innovation.  It is a truism that any company that can translate more innovations into commercial success will be able to outflank competition, improve financial performance and better meet customer needs.  By leveraging new technologies and practices, firms can build new experimentation capabilities that will improve their odds of success.  However, these approaches would have to be baked into the innovation generation and commercialization process.

Most companies make fewer but larger innovations bets – often missing key data on customers, costs and competitors.  An experimentation-focused company, on the other hand, looks first to place more, smaller bets or experiments.  The role of these tests are to generate critical internal and external learning around consumer uptake, usage etc.  As such, they must be quickly designed, deployed and measured  Innovations that pass muster have fewer data gaps and will more quickly secure management attention and resources, thereby increasing its chances of success. Like any significant change, however, building an experimentation capability will often require a process and cultural shift within the organization.

Below are 3 ways firms can use experiments more to develop better ideas, faster and at lower cost.

Open up the innovation process

Managers can increase the intake and vetting of new ideas by opening up their innovation and R&D effort through ‘Open Innovation’ strategies that foster linkages with entrepreneurs, suppliers, universities and other firms.  Many companies have successfully deployed this approach including P&G, 3M and Eli Lilly. To successfully implement this practice, organizations need to adopt an ‘open innovation’ mindset as well as ensure there are supporting management systems.

A good first step for managers should be inward, by breaking down internal barriers like geographic, departmental or data silos that limit the cross-pollination of ideas and technologies.  Firms can also implement a variety of innovation-enabling strategies such as deploying gamification systems, fostering horizontal job mobility and creating collaboration platforms.

Exploit enabling technologies and processes

New tools now give managers the ability to perform quick and dirty, yet feedback rich, experiments in real-time.  For example, Amazon has the capability to quickly run and measure a number of different online marketing, design and functionality tests aimed at different customer groups.  In the consumer and industrial goods sectors, rapid advances and falling costs in 3D-printing technology gives managers the ability to quickly ‘print’ prototypes and test market small batches of customized goods.  This capability avoids the cost and time of developing tooling and sourcing bulk product orders.

The emergence of online virtual worlds such as Second Life, Eve Online and Habbo give enterprises a new channel to test new products and get intimate with their target consumers. These environments are ideal for measuring innovation interest, simulating retail conditions and exploring competitive reactions. By using Avatars to represent themselves online, consumers can provide rich feedback on their needs, especially in sensitive areas like healthcare.

Leverage the crowd

A number of new operating models are exploiting the power of the ‘crowd’ to deliver concept or product feedback, provide decision making support or raise capital.  Organizations like Netflix, IBM and the X Prize Foundation have used crowdsourcing to leverage a large number of people (often through online collaboration tools) to address specific tasks that can benefit from collective wisdom or effort. Crowdsourcing practices have proven to reduce the cost of software testing, spark creativity, raise fund for early stage ventures, and solve difficult technical challenges. Despite its value, crowdsourcing practices should be used prudently.

Predictive markets are another method to forecast the success of an innovation.  Predictive markets are based on the notion that the buying decisions of many individuals within a speculative market can produce an accurate prediction of a development or an event’s occurrence, success or failure.  The current market prices are interpreted as predictions of the probability of the event (e.g, product launch) or the expected value of the parameter (e.g., the likelihood of its success). These tools are considered sufficiently accurate for many businesses like Siemens, Pfizer, and GE to use them internally for product planning, innovation assessment and evaluating marketing ideas.

Building a core competency in experimentation does not happen overnight. Leaders may need to re-tweak their management systems, workflows and cultures to more willingly tolerate failure, share information better and leverage external input, partners and resources. However, those that can embed experimentation within their organization will gain a significant competitive advantage.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.