Four
years ago I wrote a well-received paper entitled A Prescription for Business Innovation:
Creating
Technologies that Solve Basic Human Needs. I've updated it,
broken it into three manageable pieces, and present the third part
below. The first part, which reviewed the history of human innovation and technology, is here, the second part, which described the current environment for innovation, is here.
Six: Prescription for an
Innovative Organization
 The
first four years of the century have seen some serious setbacks in
business innovation. The corporatist-backed Bush administration has
introduced legislation to reduce corporate liability to consumers, and
has been extremely lax in enforcing social and environmental laws.
Organizations like the RIAA and Nike have showed that the courts will
allow large corporations great latitude to sue customers (including
infringing on their privacy rights) and to lie to customers in their
advertising (about sweatshop operations, offshoring etc.) Corporations
like Enron have abused public trust and destroyed thousands of
families' livelihoods and life savings. And massive defense and
security expenditures have siphoned off funds that might have been
invested in innovation, and have made corporations and lenders nervous
about any investment while governments and corporations are so
seriously overextended and exposed to interest rate fluctuations. The
result is a climate of great animosity between corporations and
customers, and unprecedented risk aversion.
At the same time, recent surveys indicate a growing corporate awareness
that "you cannot cut (or offshore) your way to greatness", that the
limit to improving profitability by reducing costs and margins has now
more or less been reached, and that innovation must again move to the
forefront if corporations are to have any hope of sustaining that
profitability.
So corporations are looking for low-cost, effective ways to develop new
products, new processes, new delivery channels and new technologies
that will meet important human needs, provide real value to customers,
and be affordable by those customers. This challenge occurs at a time
when the distribution of wealth among customers is massively skewed,
both within and between nations, towards a tiny elite, when many
governments and most corporations and individuals are buried under a
crushing debt load, and when the need for innovation to solve critical
environmental, social and political problems has never been higher.
Simply put, we are living in an age when we cannot afford innovation,
and cannot afford to be without it. Perhaps
the most critical innovation need therefore is for creative mechanisms
to finance, price and pay for the costs of innovation itself. Funding, pricing, and cost management are now inseparable parts of the innovation process.
The prescription I propose draws on a wide variety of innovation
processes that have been advanced by thought leaders on the subject,
especially during the 1990s when the appetite for investment in
innovation peaked, including Peter Drucker's, Cap Gemini's, Credit
Suisse's, Gary Hamel's, and others listed in the bibliography below.
This prescription draws as well from several innovation processes that
I am personally aware of from my years working with Ernst & Young
and its clients, and some lessons from how nature, which has been
innovating since long before we appeared on the planet, goes about it.
This prescription has eighteen steps in eight stages illustrated in the chart above: Listen, Understand, Organize, Create, Experiment, Listen Again, Design, and Implement. The three stages shown in blue -- Understanding, Organizing and Implementing -- are analytical
processes, well-suited to the left-brained deductive thinkers who
predominate in most organizations. The three stages shown in green --
Creating, Experimenting, and Designing -- are creative
processes, better suited to right-brained inductive thinkers who are
relatively scarce in most organizations. The two Listening stages shown
in red are communication
processes, that need to involve customers and other stakeholders, and
everyone in the organization involved in the innovation process.
Assigning (or contracting) the right people for each stage in the
process is essential to its effectiveness, and to its affordability. If
it's done well, it can draw on the strengths of everyone inside and
outside the organization who has a stake in a successful innovation
effort.
Here are the eighteen steps. They are in reasonably sequential order,
but are somewhat recursive: For example, as part of creating
alternative solutions (step 12) it may be necessary to go back and scan
for some additional ideas (step 1). Who
should do each step depends to some extent on the industry and size of
your organization: Large organizations may benefit from having a
dedicated Innovation Team responsible for this, while in a very small
organization it may be a scheduled part-time task of the whole
management team, drawing as well on the diverse backgrounds and ideas
of an informal Advisory Board.
Listen
1. Listen broadly for ideas: Appoint your Innovation Team and have them set up an 'environmental scan' that systematically looks for innovations and
connections not only in your industry but also outside it, outside your country, outside of
business entirely. Have the Team read about, learn about,
and meet with people from the broadest possible spectrum of human
enterprise and natural discovery. Subscribe to journals like
Innovation, and the RSS
feeds of periodicals and websites that report ideas and new
technologies from a wide range of
disciplines. Reward members of the Team for serendipitous readings and
meetings, debrief with them promptly and regularly, filter, refine and
inventory their ideas and learnings for consideration at the Understand, Create and Design stages of the innovation process. Inputs: readings, newsfeeds, conferences, interviews, meetings. Outputs:
a manageable inventory of ideas and insights (categorized and
contextualized appropriately so that they can be simply understood and
practically applied).
2. Listen to 'pathfinder' customers, competitors, and colleagues: Plug yourself in to the 'voice of the customer'. Set a
minimum time quota for everyone
in your organization to spend
face-to-face with business customers, or with customers' customers or
end consumers. Identify 'pathfinder' customers -- those who are most
attuned to their organization's future direction and its need to
change. Employ a 'Think the Customer Ahead' program that engenders
effective listening, elicitation skills, story-telling skills, and
creative
thinking skills , a capacity explained in Imparato & Harari's book
Jumping the Curve. Often the
customer isn't able to articulate his or her needs in a way
that lends itself to quick technology solution development. Listening
to the customer is an iterative process, that entails learning about
the customer's business, understanding the things that keep them
awake at night, suggesting a lot of 'what if's', proffering
opportunities, points-of-view and
possibilities, not just asking baldly about needs and offering
off-the-shelf solutions. Connect with customers indirectly as well,
using all the media at your disposal -- phone surveys, e-mail, website
surveys, customer satisfaction surveys (with lots of open-ended
questions), self-diagnostic tools, videoconferences, etc., to capture
as much information as you can about your customers, their customers,
and their markets. Inputs: conversations, interviews, surveys. Outputs: needs, ideas, stories, industry future state visions, five-forces and SWOT analyses.
3. Listen to the front lines:
Talk with the people who hear directly from customers and other
stakeholders every day -- people in sales, customer service, even
delivery and reception staff. Ask them what they're hearing, and what they
think most needs improvement or rethinking. Create 'space' -- physical
and electronic -- where everyone in the organization can surface,
discuss and advance problems, needs and ideas collaboratively. Let
anyone 'subscribe' to the inventory of news and ideas created in step 1
above. Consider maintaining a running list of the company's Top 10
Challenges to encourage focus and creative thought from everyone in the
organization. Make sure top-level executive sponsorship for innovation
is visible to everyone on the front lines. Give people time off their
'regular work' to focus on organized innovation projects, and tools and
process guidance to use that time effectively. Reward front-line people
for new product and other innovative ideas that they surface from their
conversations with customers and others. Inputs: conversations, idea & collaboration spaces, interviews. Outputs: needs, ideas, stories.
Understand
4. Understand who your actual and potential customers are: Study companies like The Body Shop
that know their customers, their needs, their buying preferences and
criteria intimately. These are companies that spend a lot of face time
with customers and have rigorous processes in place to capture what
they learn, probe what they need, and explore the potential market for
new innovations. And identify and get out and meet with potential customers as well, to understand why they're not already
customers and what could change that. And then have your Innovation
Team cast a wider net and ask who might be customers that are currently
not served by either your company or your competitors. Learn the
lessons of Christensen's The Innovator's Dilemma and The Innovator's Solution
-- how disruptive innovations can (sometimes inadvertently) transform
whole industries, and how that presents your company with both threats
and opportunities that could completely change the profile or even
definition of your customers. Inputs/Outputs:
list of actual and potential customers and what they currently buy,
could be buying, and will and won't be buying in the future, and why.
5. Understand and respect what end-consumers want and need: and based on that
6. Understand what immediate customers will need:
Start with the end-consumer of your products and services, and the
end-consumer of the products of your immediate customers. Their buying
patterns, needs and preferences will determine the success of your
customers, and that will in turn determine their
buying patterns, needs and preferences. The end-consumer has the
ultimate power, and, unlike corporations', their buying decisions are
based on broader and more subjective criteria than business need and
affordability. They buy things they want,
not just things they need. If you sell to the auto industry, you need
to understand why consumers, against all logic, buy SUVs. And if your
company is making money from sweatshop labour or old growth forests,
better come clean now. Business needs to end its abusive relationship
with consumers -- overcharging them, misleading them, suing them, and
selling them inferior, imported merchandise and services. Once
consumers realize their true marketplace power, they will get back at
adversarial suppliers with a vengeance. Business needs to respect them,
respond to them, and be responsible members of the communities in which
they operate. The Reputation Economy isn't here yet, but it's coming.
If you cause consumers to dislike you or distrust you, you'll soon be
dead. Inputs/Outputs:
current state analysis and future state vision of wants and needs for
both current and future immediate customers, and end-consumers, and a
resultant future state vision and emerging needs profile for your
industry.
7. Understand why these wants and needs aren't already met:
Here's the hard part. Things are usually the way they are for a reason.
You know there are wants and needs that aren't being met. The challenge
is not to throw in the towel when you find out why. The technology
doesn't exist? The solution would be very costly or risky to develop?
The solution is not affordable to customers? The solution is too
radical for customers to accept or too complex for them to understand?
The organization currently lacks the capacity or competencies to
produce the solution? That's what innovation is about. Take up the
challenge with your eyes open about what must be overcome, but take up
the challenge. If it was easy someone else would have already done it. Inputs/Outputs: list of challenges.
Organize
8. Organize those with a stake in solving the problem:
Now you know what needs to be done, the next step is to organize the
troops. Who can help solve the problem, assess the alternatives,
provide the needed resources? Outputs:
project team member list, including 'pathfinder' customers and other
outsiders. (Note that the project team is responsible for solving a
specific problem or need, while the Innovation Team has oversight over
the entire innovation effort of the organization -- they aren't the
same group).
9. Organize the program for solving the problem:
There are a lot of techniques and methods that you can use to break
through a problem and come up with solutions. The bibliography below is
replete with them. In my experience, creative minds need a very broad
framework (schedule, budget, high-level process) and a lot of freedom
to figure out how to solve the problem within that framework.
Self-organizing, self-managed innovation project teams seem to work
well in some organizations but not in others. If you insist on imposing
more discipline on the process, more hoops to jump through, control
points and early-stage go/no-go filters, make sure the people you're
imposing it on see the value in these constraints, and that they don't
squeeze the boldest and potentially most successful ideas out in the
process. Outputs: project schedule, budget, program.
10. Organize the resources needed to solve the problem:
The project team needs sufficient tools and knowledge to be able to
understand the problem, the customer need, and the variables that could
impact the potential solutions. Inputs: all the Outputs from steps 1-7 above, redrafted into a cogent and digestible form.
Create
11. Create an environment and capability for innovation:
Give the Innovation Team and the project teams permission to fail, and
teach them how to fail early and inexpensively. Prevent executives from
pushing their 'pet' projects to the detriment of others. Don't let the
'black hats' deep-six good, hairy, audacious ideas prematurely, and
ensure that 'black hat' behaviours are not rewarded by senior
management. Help the team avoid slipping into excessive caution or
incrementalism. Keep the marketing group from unduly influencing the
process with antiquated ideas for 'creating market demand' and
launching products with press releases and self-serving promotional and
advertising campaigns -- In the emerging customer-driven market these
techniques will no longer make a mediocre product a success. Provide
rewards and incentives for team members, and for other contributors to
the innovation effort. Don't tolerate hoarding of ideas and knowledge,
or inter-department 'charges' that block knowledge transfer and
cross-functional collaboration. Share credit for good ideas and
successes, and don't make innovation an area of internal competition.
Help bright, creative, quiet people find their voice, and let people
promote 'crazy' ideas without fear of ridicule. Teach the Innovation
Team and the project teams (and others in the organization who show
interest) techniques that will enhance their creativity and improve the
innovation process, and give them time and resources to discover other
techniques and try them out. Invest adequate, patient capital and
resources for innovation. Give ideas sufficient time to find their
market but don't throw good money after
bad, no matter how well-intentioned. Understand sunk costs and learn
from failures. Consider letting those involved in the innovation
'invest' personally in return for a share of the ultimate revenues or
profits: Having some 'skin in the game'
can be very motivating and empowering. Inputs: time, training, tools, space, sponsorship, leadership and resources. Outputs: people who are inspired, capable and encouraged to contribute productively to the innovation effort.
12. Create lots of alternative solutions:
Don't put everything at risk on one option. Use scenario planning and
other techniques to identify and assess alternatives. Don't reject the
really far-out alternatives prematurely -- cost/risk/benefit decisions
usually can't be properly made until the customers have had the chance
to say their piece again in step 15 below. Outputs: alternative solutions.
Experiment
13. Experiment: Try many things, learn fast from failures, tinker, iterate, combine, transfer:
Try several alternatives simultaneously in different markets to speed
up the assessment process. Use rapid prototyping and other iteration
techniques to expose as many alternatives to the market as possible. Outputs: test results.
Listen Again
14. Listen to potential customers and help them imagine:
Use prototypes and stories to make the innovative product, service,
channel or technology as concrete as possible. Beware customers'
propensity to say 'yes' at this stage when there's no required
commitment. Go back to what you learned from customers in steps 1-7 and
recite what you heard back to the customers for confirmation,
explaining how the innovation addresses the need articulated by the
customers. Listen objectively for confirmation or dissonance. Outputs: customer evaluations
15. Listen to acceptance criteria -- the ‘if’s:
If the product appears to meet the need, the next task is to assess the
customers' buying criteria: price and affordability, convenience,
options, delivery time, upgradability etc. Some of these criteria may
be show-stoppers that will require re-invention or other creative
brainstorming, while others may be able to be addressed in the design
stage below. Outputs: customer buying criteria
16. Listen to ‘what could go wrong’:
Here's where you let the 'black hats' say their piece: What competitive
threats exist or could arise? Is the innovation vulnerable to
disruptive innovation from unexpected sources? Are there unforeseen
production, quality control, political, regulatory, financial,
marketing, or servicing landmines? What's the shelf-life? Could it
become a commodity prematurely? Will it be prohibitively expensive to
produce or to buy? Will it cannibalize existing product sales? Is it a
strategic fit for the organization? Some of these 'what could go
wrongs' may require re-invention or other creative resolution by the
project team, while others may be able to be addressed in the design
stage below. Outputs: list of threats and risks, and resolution plan.
Design
17. Design: consider customer-valued attributes, cost, intuitive ease of use, ease of change, ease of enhancement:
The greatest idea in the world can still be torpedoed by bad design.
The designer has to be told, in no uncertain terms, what attributes are
important to the customer, how much at most the solution can cost, and
the trade-off between ease-of-use and power. Technology products
especially are often over-engineered because additional functions and
features are easy and inexpensive to add, but they add complexity
disproportionate to the benefits of the additional functionality, often
to the point of turning off potential customers. And in this age of
constant upgrades and inter-operability requirements, the solution must
be easy to change, redesign and enhance. Inputs: specifications based on Outputs from steps 12-16 above. Outputs: completed designs.
Implement
18. Make the final go/no-go decision, then implement:
If there are still several alternatives on the drawing board, whittle
them down to a manageable number. If necessary, send the idea back for
reinvention (step 11), re-testing (step 13) or redesign (step 17). If
the previous steps have been done properly, this step should be the
easiest. Once the decision has been made to go, the set-up, production,
viral marketing, sales, distribution, employee and user training,
partnering, after-sales service, success measurement and continuous
improvement should be problem-free, since the 'what could go wrong'
possibilities have already been considered and addressed, and people
from all functional areas of the organization should have been involved
and consulted during the Create and Design stages.
Seven: Applying the Prescription: Some Examples
To
give you a flavour for how this prescription could work in practice,
here
are eight fundamental business problems from different industries, and
some innovations that have recently been (or are currently being)
successfully commercialized to solve them. In each case, the solution
shown could reasonably have been derived using the principles and
process in the prescription above:
Customer Problem / Need
|
Innovation / Technology Solution
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Car and computer buyers can't get exactly what they want, and hate haggling with dealers.
|
Web sites let you design
your own car or computer, find the closest model to your design, find
the best price for that model, accept payment and deliver it to your
door. Some will even take a completely custom order.
|
Television watchers find most fare awful, TV guides complicated, and VCRs even more complicated.
|
The new TiVo technology
asks for and monitors your preferences, pulls e-schedules off the net
& satellites, and automatically records and indexes your preferred
shows, commercial-free, onto a hard drive.
|
Although newspapers are a
terrible waste of paper, and hard to read on the commuter train,
reading from a computer screen doesn't work either due to poor
legibility and awkwardness.
|
Two innovations are
converging on a solution to this: Erasable paper, which allows you to
print out each day's newspaper onto the same recycled pages; and
ultrathin large screens with memory, that allow you to read one page at
a time on a crisp viewing device smaller than a paperback.
|
Clothing that gets torn or stained is cheaper and easier to replace than repair.
|
A new organic clothing
technology has been developed, modelled after human skin, that heals
and itself. There is even a 'spray-on' version that can help burn
victims to heal without scarring.
|
Banks are facing 'spread'
squeezes, forcing them to generate new revenues from user service
charges instead of interest charges, but consumers hate service charges
and see little value for money in them.
|
Progressive banks are
offering customers a 'menu' of alternative ways of 'subscribing' to
bank services, including variable rate (pay-per-use), fixed rate,
'frequent-flyer' rate (lower or no service charges for users who use
many of the bank's services), and free-if-you-handle-it-yourself rates.
They are also offering a variety of new services that use the Internet
to ignore geography (offering mortgages and business loans on-line
worldwide) and exploit existing infrastructure and knowledge (e.g.
accounting and tax services, insurance, financial planning, credit
management).
|
Retailers are caught in a
squeeze between low-cost Power Centers and consumers' dissatisfaction
with (and cost of) the 'retail experience'.
|
Car companies have
invented the concept of 'try on' centers, where competitors share a
low-cost, do-it-yourself space where consumers can try out competing
models, and then place orders electronically that are delivered, to
their specs, from a low-cost warehouse to the consumer's home. Where
the 'retail experience' requires more than just try-outs, companies
like Home Depot have created value-add services like education (how-to
sessions) and adventure (rock climbing walls at some sporting goods
stores) that now draw customers more powerfully than their products.
|
Audit firms have found
their 'product' commoditized and vilified by regulators for not
measuring what is now important to stakeholders.
|
A US University is
exploring whether 'fraud insurance' would be cheaper than audits and
just as satisfactory to stakeholders and regulators. Meanwhile, some
firms have invented a variety of new ways to measure the value of a
company, including EVA, Balanced Scorecards, and Social Responsibility
Reporting.
|
Many people are intrigued
with, and want, the benefits of computer and Internet technologies, but
don't have the time or comfort with the technologies to use them.
|
High tech companies are
inventing computer and Internet 'appliances' that perform a single task
automatically, simply and transparently e.g. refrigerator that sends a
message when items are out-of-stock, past their 'use before' date, or
too cold or too warm.
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Conclusion
This presentation was itself the
result of addressing an unmet need: After reading
dozens of books on innovation, I was unable to find one source that
explained in clear terms what innovation is, in a business
context, conveyed the urgent need for businesses to become more
innovative, and provided an actionable prescription for doing so. This
paper was initially developed to provide the Core Innovation Team of
Ernst & Young with background on the history, current state and
leading practices in business innovation, and I am now using it to
develop part of a core curriculum on entrepreneurship, of which
innovation is a critical element.
I hope this analysis has
given you a better understanding of the subject and its importance, and
some useful tools and ideas that you can use to make your organization
more innovative as well. I would welcome the opportunity to continue
the discussion on this subject, by e-mail or through the comments thread below. You can find more of my writings on business innovation in this index.
While I'm optimistic that this prescription will work within business
and other organizations, large and small, I am less convinced that it
will work to solve some of the more deep-seated human needs and
inexorable problems that plague us today, such as global warming,
pollution, the energy crisis, biodegradation, endemic war, violence,
mental illness and disease, animal cruelty, urban sprawl and decay,
crime, unemployment, and the inequitable distribution of resources,
income, wealth and power. While the process should work in principle,
it is unlikely that this process can be followed with sufficient rigour
or resources without (a) a willingness by governments to spend much
more money (paid for by taxes) to solve these problems, (b) a political
will to solve such problems creatively and by consensus, rather than
leaving it to private interests to address them or dealing with them by
brute force, and (c) a much greater awareness, commitment and sense of
responsibility by the body politic of the urgency and opportunity to
solve these problems. But just as business will be driven once again to
invest in innovation in the search to sustain profitability, it is
likely that private citizens and public institutions will ultimately be
driven to invest together in innovation in the search for a liveable,
sustainable world. The process they then use will probably look a lot
like this prescription.
Bibliography
- Boston Consulting Group -- Innovation to Cash (annual survey of executive priorities), 2003
- Cap Gemini -- The Adaptive Imperative, in Perspectives on Business Innovation, 2002
- Chen, Eric and Ho, Kathryn Kai-ling -- Demystifying Innovation, 2002
- Chesbrough, Henry -- Sometimes Success Begins at Failure, in HBR Working Knowledge, 2003
- Chomsky, Noam -- Manufacturing Dissent, 1995
- Christensen, Clay -- The Innovator's Dilemma, 2000
- Christensen, Clay -- The Innovator's Solution, 2003
- Credit Suisse First Boston -- New Economy Forum, synthesis report, 1999
- De Bono, Edward -- Serious Creativity, 1992
- Dertouzos, Michael -- What Will Be, 1999: Although the idea of 'find a need and fill it' is hardly new in
business, an article by MIT's Michael Dertouzos in the December
1999 Technology Review on the pillars of innovation reinforces the
connection between need and innovation. Building on ideas in his book
What Will Be , he says: Perhaps
the most important ingredient of successful innovation is the
creative technological idea that serves a pressing human need. This
kind of creativity, in turn, requires a schizophrenic combination of
rationality and insanity that's outside our ordinary experience.
Imagine that all current inventions in the world and all their possible
logical extensions and uses are inside a huge balloon. People are
pretty good at extending these ideas further, using logic and common
sense. But their results, being logical extensions of what's already
there, stay within the balloon. To escape these old ideas and come up
with something that is radically new, the balloon must be punctured
with something that defies reason -- an [innovation] has been born.
Successful innovators apply their drive and flexibility toward looking
for and blending these two forces [market and technology] wherever they
crop up, always striving to zero in on the key ingredient -- a creative
idea that serves a pressing human need.
- Dixon, Nancy -- The Organizational Learning Cycle, 1994
- Drucker, Peter -- Innovation & Entrepreneurship, 1993
- Drucker, Peter -- Management Challenges for the 21st Century, 1999
- Fast Company magazine -- various online and hard-copy articles on Innovation, 1999-2004, notably the Business at its Best series
- Gehl, John and Douglas, Suzanne -- Innovation (weekly e-magazine)
- Gladwell, Malcolm -- The Tipping Point, 2003
- Hamel, Gary -- Leading the Revolution, 2000
- Handy, Charles -- Age of Unreason, 1998 and Age of Paradox, 1995
- Ichimura, Elliott -- Virtuous Cycle of Innovation, 2001 (unpublished)
- Imperato, Nicholas & Harari, Oren -- Jumping the Curve, 1996
- Kelley, The Art of Innovation, 2001
- Leifer, Richard et al -- Radical Innovation, 2000
- Leonard-Barton, Dorothy -- Wellspring of Knowledge, 1995
- Meadows, Donella -- Places to Intervene in a System, in Whole Earth magazine, 1997
- O'Mara, Kevin -- Five Innovation Best Practices, in ZDNet, 2003
- Payne, Cyndy -- WL Gore & Associates, Case Study in Innovation, in Foundation for Enterprise Development online magazine, 1998
- Peters, Tom -- The Circle of Innovation, 1999
-
Robert, Michel -- Product Innovation Strategy, 1995 suggests
looking for innovative ideas where there are: unexpected successes,
failures or events; process weaknesses; changes in market structure,
demographics, and perceptions; high growth areas and convergences; new
knowledge or technology; changes in economic, political, regulatory,
legal or social environment; changes in markets, customers, resources
or delivery channels.
- Schrage, Michael -- Serious Play, 1999
- Senge, Peter -- The Fifth Discipline, 1990
- Tucker, Robert -- Five Steps to Business Innovation, Business + Strategy Magazine, February 2003
- Von Hippel, Eric -- The Sources of Innovation, 1997
- Wheatley, Margaret -- Leadership & The New Science, 2001
- Zuboff, Shoshana et al -- The Support Economy, 2003
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