Breakthrough innovation - one step at a time

Paul McLoughlin hosted me on the Krow (that’s work spelt backwards!) Show on VoiceAmerica Business today.

You may find some of our discussion on building an innovation competency interesting, and even more interesting is the cool Pilates segment!

 

 Interview on the Krow Show [00:56:33m]: Play Now | Play in Popup | Download

Thanks Jill Totenberg for informing me of this article about a recent CEO Magazine sponsored event discussing ‘Building a Better Innovation Model’. I couldn’t keep myself from chuckling when Mr Abrams, CEO Drew Industries, remarked that‘he’d rather have one superstar than 40 teams’. I’m happy that the experiences of some organizations are once again underscoring the same point I’ve been making, again and again and again - innovation isn’t accidental.

I was teaching about innovation and new business creation this week in an Executive program at a Danish university. Eight Danish companies sent teams of 2-3 people each, expecting that by the end of the course they’ll have a jumpstart on a new business platform that will invigorate new growth in their firms via game-changing innovation. Companies sponsor teams to come into the program because they are seeking new methods for developing new businesses.

Here’s the jist of part of the conversation, which has played out in nearly every executive class I’ve taught:

Project team members are extremely concerned with being able to show senior management hard numbers, because, they tell me, ‘that’s what senior management expects.’ This means sales predictions, market share, Return on Investment….at the Concept stage of development!!! When I ask if they realize they’d be lying, since the markets they’re supposed to forecast don’t even exist yet, they laugh and admit it’s true. When I ask if senior management realizes they’re lying, they admit this, too, is likely the case. So why, I ask, do we keep doing this?

“What is the option???”

How about admitting you don’t know, I suggest, and working out a plan for learning?

“We’re supposed to know before we go speak with management”, they tell me.

How? You have no funding for the project, and learning takes resources.

“What should we do ?”, they ask.

Learn how to learn, and let senior management know what you’re doing. Get funding to learn a little, then evaluate, then decide, with senior leadership, whether or not what you need to do next.

“Ah!”, they say. “Makes sense… Who’s going to convince our senior leadership that this approach is appropriate?”

Good question. Here is one approach: We need a course for senior management as well. Not all senior leaders are clueless about this. IBM’s Emerging Business Opportunities program is run and sponsored by senior leadership. IBM states that an EBO focuses on ‘white space’ opportunities that can become profitable, billion-dollar businesses within five to seven years. Their senior leaders conduct project reviews as problem solving sessions…not as evaluation sessions. Pretty cool. Others are catching on as well. But it’s not easy when they’ve been rewarded for being decisive in the face of inadequate data. When that’s how you’re trained, the easiest response to risk and uncertainty is to kill the project before it gets off the ground.

I know that the companies that have participated in the program in Denmark have benefited, because they continue to send teams year after year. Perhaps these people will one day be the senior managers in those companies.

Some people are passionate about innovation, while others shy away from new ideas. In its recent publication the McKinsey Quarterly observes that: In some organizations managers who are most frequently sought out for advice on new concepts often have the most negative attitudes towards innovation—partly because they have difficulty balancing new ideas with current priorities.

One way around these bottlenecks is to intentionally create networks of managers charged with encouraging new ideas. This kind of decentralized team can identify promising new concepts and prioritize them so that they receive the attention they deserve.

So the question “Are Middle managers innovation bottlenecks?” is surely an interesting one. On the one hand, they are correct in recognizing that managers are burdened with current priorities, meaning, in general, day to day operations. Putting out fires. Planning for this quarter. Hiring. All of that. And that’s what their performance is measured on. They have to follow those rules to be promoted.

But it’s not that simple. And here’s where we disagree. We find, time after time, that middle managers can be very frustrated, and in fact, initiate new business creation activities in their companies. Some of them are concerned about the company’s future health. Others are brimming with ideas they’d like to see come to fruition. Still others are bored with their jobs, or have people working for them who are bored and frustrated.

Half, (fifty percent, six of the twelve) of the breakthrough innovation management systems we’ve studied in some detail over the past 4 years were initiated by middle managers. So the next time you hear that ‘it has to start at the top…’ don’t believe it. It’s true that the middle managers who initiated these innovation systems had to ultimately convince senior leadership of their worth. It’s also true that they were not all successful in doing so. But some were. And that’s what counts.

McKinsey suggests that the way to get around the bottleneck of middle managers is to identify those who are interested in innovation and connect them in a decentralized network fashion. Their job, McKinsey suggests, is to generate ideas and prioritize them. That’s a great start, but doesn’t it leave a lot of work on the table? For example, where’s the connection of those priorities to the strategic intent of the company? Also, who’s supposed to develop the ideas? Nurture them? Experiment in the marketplace? Access or develop the technology? Once again, we see a lack of attention to that critical incubation competency.

We’ve written a book about building an innovation function in established companies. It’s coming out in two days. Grabbing Lightning: Building a Capability for Breakthrough Innovation develops the ideas we’ve alluded to on this blog. We describe the companies we studied and their efforts to develop the Innovation Function. More about it here.

Why did we write this book? Because it became so clear to us, after having studied the twelve radical innovation projects that we discuss in our first book (Radical Innovation: How Mature Firms can Outsmart Upstarts), that companies can get better at this.

Everyone treats innovation like a mystery, like an art form, like an unnatural organizational occurrence. But it needn’t be. So, we wanted to watch companies who were focused on building a sustainable breakthrough innovation competency. That’s what this second book is about. Anyone who’s involved in making breakthrough innovation happen in their organizations over and over, or who wants to, will relate to this book.

We invite you to read it and let us know what you think!

I started reading an article on ‘Breakthroughs and the the “Long Tail” of Innovation’ and it began to blur with the Long Trail school where my husband occasionally gives video lessons. So why would I blur these two things? Well for one thing the Long Trail School focuses on building a community to enable focused, hardworking, and creative students.

The founders of the school after years of teaching in traditional schools recognized that the ‘one size fits all’ approach to education doesn’t work.

We know that the ‘one size fits all’ certainly does not work for the management of breakthrough innovation. According to Long Trail founders, talented bright young students were slipping through the cracks and not being pushed to excel, often not even being noticed. This is the same problem that managers of innovation face as described in part in the article on the long tail of innovation. How do you provide a climate for creativity and make sure it gets noticed?

The long tail of innovation refers to the fact that almost all inventions are useless, a few are of moderate value and only very very few are breakthroughs. The question then becomes what or who is the source of these rare breakthroughs. It turns out lone inventors are more likely to be the source of breakthroughs so the Long Trail school is right in encouraging creative types. On the other hand lone inventors are on average less successful. Collaboration and diversity of teams help by leading to a great number of inventions and a greater chance of producing the highest valued output. Investment in science makes the process of invention less random. Once managers more fully understand the invention process, as the authors suggest, they should reconsider their reward systems. This was a big issue for our sample of companies intent on establishing breakthrough innovation programs. They know money is good but often is not a sufficient or practical reward, celebrations work up to a point but rewards have to be tied to specific skills and to a career path. Hence recognizing the different modes and aspects of the invention process must translate into providing career paths for both inventors and innovators which brings me to another point.

In ‘Breakthroughs and the “Long Tail” of Innovation’, author Lee Fleming makes the case that many managers have little understanding of the process of invention. I agree but there is also the reality that many managers have little understanding of the process of innovation and they often confuse it with the process of invention. These processes may sometimes overlap but they are fundamentally different. It is with the innovation process that noticing really happens because here is where the intersection of markets and technology must be worked out. Ensuring that something gets noticed means ensuring a market presence. A breakthrough invention can let one do something new or unique but a breakthrough innovation changes our lives and the competitive landscape and therefore makes us notice the importance of the invention.

Breakthrough Innovation depends on an implementation process aimed at reducing market, resource and organizational uncertainty as well as technical uncertainty. The types of creativity, collaboration and rewards required go beyond that required for the invention process.

The NYTimes is all over this issue regarding novel vehicles for emerging markets that meet new energy restrictions. Besides Tata’s complete disruption of the automobile market….there’s more happening. Saturday’s article was interesting in and of itself…about how or why consumers balk at major innovations. Mr. Zachary, the reporter, claims that no one knows why the Hybrid-Electric Vehicle (HEV) is making a splash but the video phone did not. Says it’s luck, circumstance, etc.

Well….hmmm. Not necessarily so.

In my earlier post on New Market Creation I described some proactive measures that companies can take to stimulate market interest and trial over extended periods of time (which is necessary for those major innovations that will cause users to have to change their behavior).

But even more interesting is this morning’s article on Israel’s experiment. Israel is promising to support a joint venture between an entrepreneur by the name of Shai Agassi, Renault and Nissan Motor company to build the infrastructure throughout the country that will sustain the use of electric vehicles. Sure, it’s driven by desperation. Gasoline is currently $6.28/gallon in Israel! Pollution is rampant. And Israel has zero energy resources and not such great relations with Saudia Arabia. Prime Minister Olmert and President Shimon Peres position this experiment among the land of truly breakthrough visionaries, as Mr. Peres notes: “Israel can’t become a major industrial country, but it can become a daring world laboratory and a pilot plant for new ideas, like the electric car.”

The entrepreneur…Agassi, came up with a new business model: sell electric car transportation in the same way that consumers pay for cell phone usage. The cars will be cheap…cheaper than gas powered vehicles. Users pay a monthly fee based on expected mileage, and if they go over, they pay a premium for the recharge. Similar to recharging your mobile’s minutes! There are charging stations to be positioned throughout Israel and easily available batteries should a changeover be required.

The point of all of this is that Agassi has been able to convince an entire government and 2 companies to build an entirely new infrastructure. And…he plans to roll it out to other countries as it’s proven. He’s in it for the money. He sees the opportunity, and he sees the enormous value that this change can bring. And he started with a country who needs this change desparately…and is willing to recognize that.

This was not our experience with the HEV team we tracked in one major American automobile company, who planned to sell HEV’s at a price premium throughout the Los Angeles area because “consumers are willing to pay extra for green products there…” (they told us).

“Why not start in China?’ our research team naively asked. “Seems as if their economy is beginning to boom, but their automobile infrastructure is yet to be built. You could work with the Chinese government to get ahead of the pollution problem, as well as the challenge they’ll face in getting their hands on enough oil reserves.” (This interview occurred in 1996).

“We would never get involved with a government as a customer,” they replied.

They didn’t….and today they are not a player in the HEV marketspace.

Now this story is about major market creation. But sometimes that is what breakthroughs require. In fact…MANY times it’s what they require. It’s amazing that Mr Agassi could convince Israel, but a major US auto company refused to even approach the government of an emerging market. Sigh….

You have got to take a look at this really great IBM commercial that brings home a point close to my and my co authors heart.

Companies often do get stuck in the ideation stage (Discussed in the post on the Discovery capability). Coming up with ideas, even good ones, is actually the easy part. At one of our workshops a company representative ended the day by repeating implementation, implementation, and implementation that is what it is all about.

Of course that is not so easy when you realize all the politics, powerbases and uncertainties you have to deal with. The way around this is continually doing and experimenting and articulating the impact and implications of the results (Gina discussed this in her earlier posts on incubation and acceleration). Developing good experiments around markets, resources and organizing as well as technology and executing these experiments thoughtfully gets you to the level where you can begin to be poised for success. The data helps build the political coalitions you need to move ahead.

This morning I was making my bed, listening to all the bad economic news – worst holiday retail sales in five years, the housing crisis, gas prices and now egg and milk prices skyrocketing– and wondering if I still had enough chutzpah to shout about the importance of innovation in such a spiraling environment.

When companies hit hard times their initial reflex is to cut down on long term risky projects, which is to say breakthrough innovation programs. Then I heard about the new ‘People’s Car’. Yes, Tata Motors of India unveiled a car that will cost $2500! That’s the cheapest car ever made. It gets 54mpg. Such a low cost car may be welcome in America if other costs keep rising as they have been.

It turns out Tata Motors is a company devoted to innovation. They adapted lighting technology used by the Indian film industry and developed the only world class crash facility in Asia outside of Korea and Japan by innovating while reducing costs. In fact Tata’s mantra is innovation around cost. This is different than the focus of new product development in the nineties around efficiency and cost reduction.

Innovating around cost can reshape the competitive landscape and change the world. Of course many environmentalists are worried that that such cheap cars will greatly accelerate global pollution levels —-and that is something to worry about. (It is reported that the Tata Nano complies with the ‘Euro III’ pollution standards that prevail in India and should meet the tougher Euro IV standards with a bit of tweaking).

But back to innovation and why companies pull back from it just when they really do need it. They are scared of uncertainty and don’t realize it is everywhere and that they need to have dedicated systems or an infrastructure to deal with it. At least three companies we studied faced a very serious decline in their mainstream businesses. When the going got really tough two pulled their breakthrough innovation programs. Of these two, one filed for bankruptcy and the other is floundering. The company that maintained its commitment to breakthrough innovation won three prestigious innovation awards last year and is viewed by some on Wall Street to be on track for a strong comeback. So what is my point? Well I like this idea of innovating AROUND cost. But it is more than that.

Breakthrough innovation is a mindset, not a luxury or something that others must think about. If you have a system that allows for opportunity identification and articulation, experimentation with technology, markets and business models and development of new business creation, given any circumstance there are opportunities to capture value from breakthrough innovation.

Found this brilliant article that I happen to agree with COMPLETELY. In fact, I believe Daniel Scocco must have read some of my papers! He says that managing, actually, CREATING new markets is distinctively different from managing current ones. He’s absolutely, positively correct.

While he focuses on reviewing the reason why MBA students don’t learn how to do the latter (because as his Professor correctly pointed out, business schools offer Masters in Business Administration rather than Masters in Business Innovation (MBI)…. The Lally School is addressing this very problem!). I’d like to focus on why companies don’t know how to create new markets.

The fact is, companies don’t have a process for new market creation. They use conventional market management techniques (The Blu-ray HD-DVD tussle is a case in point). Companies refuse to engage with the market early and often when they have a novel technology that could take them down a myriad of application paths. Look at what happened to Analog Devices when they first realized the possiblities for accelerometer technology. They had wanted to enter the automotive market (why?….because it’s BIG. Does that make it a smart choice? NO). So they found a way to make accelerometers that could detonate airbags…for 5% of the cost of the technology that was being used at the time. Now that’s a radical innovation, right?

Great. But they could not make a profit. They priced based on an estimated cost at a full volume, assuming finely honed manufacturing processes that provide cost economies.

In the meantime, they started talking about accelerometer technology. At professional and technical conferences, In the news. Everywhere.

Companies began calling them. “We see a use for this,” said the gaming industry. “How about medical applications?” said a medical instrument company. And there were more. It turned out that these smaller, niche application areas would tolerate higher prices than the automotive industry would.

It’s a phenomenon we’ve seen many times. We call it application migration. For the case of Analog Devices, it looked like this:

So how can companies CREATE new markets for novel technologies?
1. Realize that the application choices your discovery team elects to pursue are for learning the possible market landscape. Don’t focus on implementing the first application explored. Explore many applications, and explore them simultaneously.

2. Get a New Business Creation person (one with an MBI, not an MBA!)…on the technical team. This is different from a New Business Development person. People think of NBD roles as either a) those who find and vet potential acquisition/merger candidates, or b) those who find new markets to sell current products/solutions into. NBC is different. These people create new value chains, find customers for an entirely new to the world product who may never have been identified as a ‘market’ before. It’s a difficult job, but it’s extreme. Fun, that is.

3. Make sure there’s no pressure on the ultimate business unit to deliver high margin profit on the breakthrough platform before the pursuit of applications defines just that, an entire platform of product lines. Most of the time the business unit is so pressured to show profits they commercialized the low hanging fruit of a radical innovation, and then forget the rest. What a waste.

4. Talk about the technology, before it’s perfected. Talk about its promise. You don’t have to reveal HOW it works, only that it works. DuPont used to put ads in trade and science magazines describing the properties of their coolest materials. These ads asked the market (technical people in other companies) what they perceived the material could be used for. What a way to create a market! Here’s one for Biomax, a biodegradable polyester material that we studied long ago.: DuPont doesn’t run such ads anymore. But wow, they sure helped stimulate markets.