A Better Yardstick / A Better Meter Rule – Measuring Innovation Performance
April 6, 2010 by Andrew (Drew) · Leave a Comment
Just because you can measure it doesn’t mean you should
Any measurement must take into account the position of the observer. There is no such thing as measurement absolute, there is only measurement relative.
- Jeneatte Winterson
One of the great challenges for those focused on improving their organization’s innovation culture is the desire, at the end of the day, to be able to point to something and say, “that’s better than it was before.” That desire, to measure our performance against an agreed upon set of measures, is not a bad thing. The way that need is acted out in the organization is where it comes undone. This is most problematic when the push is to measure in purely financial terms.
The drive to see some kind of return on innovation investment has a strong pull. In a time when every penny, cent, fen, or kopek is being counted with scrupulous accuracy, the notion of not counting the programmatic contribution of innovation in monetary terms seems ludicrous. Unfortunately, if you were going to spend money on a program that offered fast return on your investment, spending on changing your innovation culture would not be the wisest investment. Investing on your innovation culture is a long-term play, as they say. Yet, it should be a focus for investment and it should be measured.
The key initial measures to watch for when building an improved innovation culture are:
Overall we are talking about a process that reduces cycle time.
In fact, the Boston Consulting Group’s 2009 Annual Innovation Report highlighted the fact that cycle time, specifically “time to market,” was one of the most “chronically underutilized metrics” in their survey of companies. Which they also saw as being highly ironic given that many companies identified a lack of speed as their greatest weakness.
I’ll know it when I see it
Our scientific age demands that we provide definitions, measurements, and statistics in order to be taken seriously. Yet most of the important things in life cannot be precisely defined or measured. Can we define or measure love, beauty, friendship, or decency, for example?
- Dennis Prager
Cycle time reduction is a great first measure because it can be applied across all aspects of the innovation processes at play in your organization. From decision-making, to selection of team members, applying the measure of cycle time reduction sharpens the way all innovation is approached. It has a distillation effect. In helping you to focus on speeding up the process of concentrating the right resources on the most beneficial projects, cycle time reduction also demands attention on quality, too.
Poor quality actually results in a systemic drag later in your innovation process. That initial poor quality may also have a knock-on effect, causing an escalation of poor quality further down the line as corners are cut in order to meet the initial cycle time reduction. By managing all cycle times and aligning them with quality practices your organization becomes more robust and resilient. The outcome is not only better performance but faster performance which can be seen across the whole organization.
I can count it but I can’t count on it
The only man who behaved sensibly was my tailor; he took my measurement anew every time he saw me, while all the rest went on with their old measurements and expected them to fit me.
- George Bernard Shaw
In a world of constraints, meting out investments may be a matter of short-term economic survival, but it will not build a foundation for long-term success. To create and improve and innovation culture – a culture that fosters economic expansion and delivers to the top and bottom lines – organizations need to invest in those processes and practices that change behavior. In the post, Working The Processes of Innovation – Learning to Love & Live Failure, we explored the power that comes from building a tolerance for appropriate failure. Recently this was reinforced in Megan McArdle’s piece in Time magazine, In Defense of Failure,
It sounds like a dubious aspiration, but one of the more pressing priorities for America this decade is to preserve our cherished freedom to fail in this country…America allows its citizens room to fail — and if they don’t succeed, to try, try again. Somewhere between two-thirds and three-quarters of all Americans report that they have considered starting their own business, whereas in Europe that number is only 40%.
Here McArdle talks about the power of this freedom:
McArdle on America\'s Need to Support Failure
How do we measure failure and the power of failure in moving us toward a better, brighter, more abundant future? It should be interesting to note that measuring innovation is also top of mind of one of the world’s most active philanthropists, Bill Gates. His concern is not that we aren’t measuring innovation failure, although he did popularize the concept of “fail forward fast” during his time leading Microsoft, his concern is that most people are failing to measure innovation at all.
When all is said and done – have the right satisfaction measures improved?
Without a measureless and perpetual uncertainty, the drama of human life would be destroyed.
- Winston Churchill
Once again the Boston Consulting Group’s 2009 Annual Innovation Report offers another key insight into the dynamic tension that exists in measuring innovation performance in terms of outcomes. The top measure employed by companies seeking to assess their innovation performance was customer satisfaction but the second highest measure was overall revenue growth. The expense of increasing the former measure would seem to have a direct negative effect on the latter and yet there they are parked beside each other at the top of list of robust measures for innovation performance.
The performance of any innovation truly is measured in the eyes of the customer, be they an internal customer or a market-based customer. Customer satisfaction is the end-of-the-line measure for all innovation. If an innovation cannot drive the performance of that measure then what purpose does it serve? One of the most powerful tools for revealing the impact of an innovation is the Net Promoter® Score (NPS). This concept was first widely made known through the work of Fred Reichheld in his book, The Ultimate Question.
The NPS is both a loyalty metric and a discipline for using customer feedback to directly influence behavior within an organization. One company using NPS to measure its innovation effectiveness is Logitech, the computer peripheral manufacturer, which uses it as the final consumer acceptance testing measure. By using this score Logitech can tweak late-stage products to maximize their effectiveness on release to market. They test. They measure. They tweak. They hold or go to market. It should be noted that the best performing products, with the highest NPS, are also the products with the highest revenue on release.
So, it would seem you can serve one goal with two measures, after all!
There are two possible outcomes: if the result confirms the hypothesis, then you’ve made a measurement. If the result is contrary to the hypothesis, then you’ve made a discovery.
- Enrico Fermi
What have you discovered as you attempt to measure your innovation?
Presenting at the ODN – Long Island Annual Conference April 8
March 31, 2010 by Andrew (Drew) · Leave a Comment
The ODN Long Island Chapter is hosting its annual conference on April 8, 2010 at the Marriott Residence Inn, Plainview, NY . The focus is on building stronger, better organizations so that they can not only succeed but thrive as we work our way out of the Great Recession. More details here.
My topic is: Manufacturing Magic – The Hard Work of Creating an Innovation Culture
In the phrase, “we need to be more innovative”, lies a universe of misspent time, energy and political capital. As the popular media love affair with the notion of innovation continues, and leaders begin looking for answers to their businesses’ economic health beyond those actions necessary to survive the Great Recession, many organization development professionals are being tasked with making their organizations “more innovative.” Unfortunately, it seems that the concept of innovation has been coupled with that of creativity and unless we deliver something bright, shiny and magical, we’re going to disappoint.
Creating an innovation culture is not easy. As with change initiatives that have come (and gone) before, it is fraught with miss-comprehensions, false starts and dead ends. With the right effort applied to the appropriate leverage points in your organization, you might just be able to deliver the results you and your leadership seek.
This presentation, backed by current research in innovation best practices, will provide a rapid overview of the different entry points to begin creating an innovation culture. It will highlight key concerns, critical decisions, potential problems and the planning necessary to begin the process of making an innovation culture that fits your organization’s needs and wants. It will also address the business value to be obtained in terms that are clear and meaningful. While creating an innovation culture may be costly and hard work, the key question to ask is – what is the business impact and cost of lack of innovation?
Teaching a Person to Fish – Learning and Development for Innovation
March 30, 2010 by Andrew (Drew) · Leave a Comment
Why learning how to innovate is as important as the act itself
Learn everything you can, anytime you can, from anyone you can – there will always come a time when you will be grateful you did.
- Sarah Caldwell
It’s like any muscle – you have to use it or lose it
Give a person a fish and they will eat for a day. Teach a person to fish and they will eat for a lifetime.
- Chinese Proverb
Learning is physical. At its most basic level, learning is the process of changing the structure and actions of neurons so they retain information in long-term memory in both the temporal and parietal lobes of the cortex. Increasingly, neuroscience will play a larger role in our understanding of the process of learning.
This doesn’t mean to say that there is still not a wealth of information to be gleaned from cognitive psychology, behavioral psychology, and social psychology as they relate to the way in which people learn. Neuroscience will simply afford us another window into the way our minds work. And what will we do with that knowledge?
What both the behavioral observation of learning and the physical understanding of learning agree on is that for learning to be lasting it must be practiced. In fact, the best learners not only practice, they study – hard. Malcolm Gladwell proposes that for true excellence to emerge the magic number of hours required to dedicated practice and ever-increased proficiency is 10,000. Less than that and the learning may be substantial but will not result in elevated performance. The same can be said of innovation. Unpracticed innovators make fewer cognitive leaps, fewer bold choices, have fewer insights and their innovations are poorer for it.
The approach of IDEO, the design shop headquartered in Palo Alto, takes the concept of the learner even further and describes “T-shaped” people. These are learners who have not only gone deep into an understanding of a particular field of interest (the perpendicular stroke in the “T”), they have also developed a broad awareness and understanding of many subjects (the horizontal stroke in the “T”). A consistent attention to both types of learning increases the utility of these people in the design and innovation domain. Perhaps the Gladwell number needs to be an equation, i.e., 10,000 x 1000 x n? Where “n” is the number of separate domains of learning pursued?
Think differently for different results
Tell me and I’ll forget; show me and I may remember; involve me and I’ll understand.
- Chinese Proverb
Innovation fosters new thinking, including the way we learn to think. The way we create the promoters (activities or environmental factors) that support learning is a key component to improving learning and development outcomes. Did you know that there are five key promoters to consider? They are:
1. Innate learning programs (the things we just know, you know?) (Gallistel, 2002)
2. Repetition of information. (Repetition of information – get it?!) (Squire and Kandel, 2000)
3. Excitement at the time of learning (Woo Hoo!) (Cahill & Gorski, 2003; LeDoux, 2002)
4. Eating carbohydrates at time of learning (A personal favorite) (Korol, 2002)
5. 8-9 hours of sleep after learning (To sleep perchance to dream) (Kuriyama, Stickgold, & Walker, 2004)
Very few learning programs actually consciously accommodate one or two of these promoters, let alone all five. Is it any wonder that the process of learning may seem draining and even futile at times? To maximize the learning and development outcomes change the nature of the learning environment, change the perspectives of the participants, and change the delivery mechanism. All can be achieved in simple ways. Use a rapid prototyping method – what can you change in under an hour for less than $100 (or less than $10)?
When considering learning and development focused on innovation practices the inclusion of elements that actually promote learning might be worthwhile, might it not? Take two innate learning programs for example; the first allows us to rapidly associate words and labels to objects within situations, and a second enables us to compute social status and insults to social status. If we acknowledge and fold into our learning and development activities these innate learning programs we can structure experiences that capitalize on them. Improvisational activities, like improv theatre games, could help us unlock the influence resident within these learning programs so that the experience fosters increased innovative behaviors (resilience, risk-taking, generosity, etc.)
Letting go and leaving justification behind
Being ignorant is not so much a shame, as being unwilling to learn.
- Benjamin Franklin
Lessons learned are not necessarily procedural or systemic, they are predominately behavioral and social. One of the key learned behaviors is that with success comes praise and possibly adulation. Well, the process of innovation actually requires that we be less-than-successful at times. Yes, we sometimes have the glorious opportunity to fail (perhaps not the first time, bust certainly more publicly than we would like.)
There are two essential behaviors to learn and develop in order to “make it” as an innovator. The first is the ability to let go of an idea. The concept of ownership within corporate organizational life is one that people learn early. The people with the best ideas not only “win” they also receive the reward of advancement. That may mean access to things previously unavailable, i.e., the offer of increased responsibility, or even greater compensation, perks and benefits.
A successful innovator needs to understand that her idea may actually find greater success when used by another or in conjunction with another person’s idea. They also need to understand that while their idea might be a great idea, if there is no passion for it among the people who need to capitalize on it and bring it to market then it is as good as dead and useless to all. Letting go is an essential learning that is counter to so much we have learned in order to survive in organizations. But letting go is not the hardest lesson to learn for many.
Perhaps a more damnable habit to break is that of justification.
Justification is the hard-earned ability to defend your position in the face of withering opposition. It brooks no alternate view, nor does it easily accommodate modifications to its core or demarcated essential truth. The power of justification is that it makes ideas unassailable (especially when carried out by a master or mistress of the art.) The only problem with justification is that as a practice it allows no room for the new, the additive, or the tangential. Justification creates cul-de-sacs in which innovation goes to die.
Learning how to combat holding onto an idea too tightly and justifying an idea to the point of lunacy are essential practices. Which leads us to the role of exactly that in innovation – practicing what we have learned.
Practice makes permanent – practice with feedback makes perfect
Human beings, who are almost unique in having the ability to learn from the experience of others, are also remarkable for their apparent disinclination to do so.
- Douglas Adams
Most have heard of that old aphorism, “practice makes perfect.” My experience, and the firm word of a former business associate, Tom Doyle, is that practice does not make perfect, “practice makes permanent; only practice with feedback makes perfect.”
In order to become better at the art and substance of innovation it is necessary to work on it. In working on this skill set it is also critical to receive feedback and coaching. The application of observational assessment and associated feedback to an innovator enables them to see their mental models reflected in the words of others as well as the way a life time of habits influences how they not only see the world, but seek to change it in the present.
Having a subject matter expert observe and provide feedback, even if they are not a practiced innovator, may be of great benefit to those seeking to innovate. The critical eye is an essential ingredient in improvement. To borrow another Gladwell-popularized concept, that of the maven – a trusted specialist or subject matter expert connected to other like-minded practitioners across a community – it is a given that mavens make the best mentors. Their deep expertise, and the authority with which they can observe, mean that the feedback that they provide can not only provide clear opportunities for growth but may also provide ways to create a step-change in our approach to innovation and the challenges at hand.
After all, while it has been said that those who can – do, and that those who cannot – teach, it is preferable to think on Seneca:
While we teach, we learn.
Knowledge Management – the Engine for Innovation
March 20, 2010 by Andrew (Drew) · Leave a Comment
In advocating for innovation it seems as though “innovation happens” is the mindset carried by many mistaken adherents to the cause. You just have to trust it and it will come, they say (or not). This is the equivalent of saying “magic happens” when faced with a “Mechanical Turk”. Data goes in one end, magic happens, and a desired output comes out the other end. I’m sorry – innovation is not based in gold-pooping unicorns, nor is it something that should be left to the whims of inevitability or caprice. Innovation needs to be specifically and studiously fed a fuel of knowledge in order to succeed. And if knowledge is the fuel, then knowledge management is the engine that drives innovation.
It’s not what you know, it’s what you do with what you know
Of central importance is the changing nature of competitive advantage – not based on market position, size and power as in times past, but on the incorporation of knowledge into all of an organization’s activities.
- Leif Edvinsson Swedish Intellectual Capital Guru
When Peter Senge defined The Fifth Discipline (as opposed to The Fifth Element) in 1994, one of the tenets of embracing the concept of becoming a “learning organization” was the use of effective knowledge management. Knowledge management in his model was a way to accelerate the performance of the organization so that it might better think holistically and systemically, and thereby design better solutions to its challenges faster. It required that organizations not only attract and retain bright people, but that they harness the thinking of those bright people in such a way that their efforts could be captured and populated across the organization.
The issue with knowledge in organizations is not that it isn’t available; the problem is that knowledge is not readily available at the time and point of need. As this dilemma relates to innovation, it is an even bigger issue. Innovation places huge knowledge demands on organizations. To be truly effective it must reach across all knowledge sources both internal to the organization and increasingly, thanks to open innovation practices, external to it. Knowledge must be easily and freely available for recombinant thinking approaches and to be applied directly to pressing challenges. Unfortunately, many knowledge management solutions sacrifice ease and access to the twin overlords or taxonomy and ownership.
Permission-based knowledge management systems, the ones that sequester information into functional groups with associated administrative and rights management restrictions, do not foster and promote the kind of knowledge transfer for which the learning organization calls. They kill it. Is there a place for intellectual property protection and management? Absolutely. But knowledge management need to head towards greater freedom to be of better value for innovation.
Groups filled with big brains and bright ideas applied to thorny issues equals…
Imagination is more important than knowledge
- Albert Einstein
What is the promise of knowledge management? For one thing it enables organizations to leverage their tacit knowledge more broadly among their members. By applying knowledge management to key data sources, and capturing the experience of organization members in an explicit and coordinated manner, the opportunities to decrease the innovation cycle time are correspondingly increased.
To better coordinate knowledge management, via systems and processes not only technologies, user-led innovation communities may be created. Innovation communities when people within an organization who work together explore and create new approaches and then implement them. They are usually a subset of communities of practice or information communities (both of which are commonly tied to functional expertise.) Communities of practice are communities or networks of individuals and/or organizations that coalesce around an information commons, usually a body of knowledge that is open to all on equal terms. The Project Management Institute is one such community of practice.
Knowledge management will never work until corporations realize it’s not about how you capture knowledge but how you create and leverage it.
- Etienne Wenger
From communities of practice, innovation communities may form to directly apply their shared knowledge in new and interesting ways. As the costs of diffusing knowledge are getting steadily lower, as computing and communication bandwidth expand, the geographic dispersion and cultural diversity of these groups may increase, too. This makes the notion of having the big brains all in the same room for innovation to occur (e.g., the Manhattan Project) is no longer a necessity. But as a proponent of both knowledge management and face-to-face communication (and relationship-building) I see a place for them both to continue to coexist.
Dick Brandon once said that, “documentation is like sex: when it is good, it is very, very good; and when it is bad, it is still better than nothing.” In a sense, knowledge management exists in a similar vein. Some, no matter how rudimentary, can be helpful in the development of innovation. The challenge is to “wire up” knowledge so that it is readily available to inform innovation practices, such as, design thinking, ethnographic study, and prototyping. That process is often best addressed at the human interface level.
The innovation wisdom of individuals, crowds, communities, countries
Knowledge without wisdom is a load of books on the back of an ass.
- Japanese proverb
The purpose of knowledge management is to help an organization marshal and management it’s knowledge for the best gain. Knowing who to connect and what to connect them to is a part of the wiring up previously mentioned. It takes a clear understanding of the social network at play in an organization to understand who those people might be that can most benefit from both access and connection. It takes a form of organizational wisdom that many organization’s lack.
In a previous post I discussed a variety of impacts that may be felt through an over-reliance on the formal power resident in the organization chart. Knowledge management cannot fall prey to the turf battles that organization charts so often represent. Instead it must be liberated so that the cross-pollination often necessary for the greatest innovations might occur. Because even if you manage your knowledge carefully – you organize it, structure and store it, within an inch of perfection – if people aren’t using it to help make your organization more effective, efficient, and successful, what’s the point. A better filing system is not the heart of creativity. But knowing and using what you know?
There’s genius lurking in those files. It is just waiting for the right people to use it.
There’s no such thing as knowledge management; there are only knowledgeable people. Information only becomes knowledge in the hands of someone who knows what to do with it.
- Peter Drucker
Innovation Poll – Biggest Barrier to Innovation?
March 16, 2010 by Andrew (Drew) · Leave a Comment
Braden Kelley, an innovation consultant and the editor of Blogging Innovation, is taking a measure of the relative barriers to organizational innovation. He asks, “What is your organization’s biggest barrier to innovation?”
To take the poll, go here. Results are presented immediately after your submission.
Customers in Innovation – Sound and Fury Signifying…
March 12, 2010 by Andrew (Drew) · Leave a Comment
The watch words for innovation at present are “open innovation” and “customer-centricity”. The idea that the customer should not only be invited into the innovation process, they should be at its very heart, is of paramount significance. The oft-quoted Henry Ford, “If I’d asked my customers what they wanted, they’d have said a faster horse,” for years held sway over product development. The thinking was that customers don’t know what they want until we tell them and sell them. That may have worked in the era of Mad Men, but customers’ access to data and ability to wield it to their own purposes means that that they can be excluded from product and service innovation at a producer’s peril.
We don’t know what we don’t know
If you’re not serving the customer, you’d better be serving someone who is.
- Karl Albrecht
The fact remains that most companies producing products and services have only a limited perspective on their customers’ needs (as those needs relate to their set of offerings). Which means often the stewards of innovation are flying blind. Recently April Dunford, of Rocket Watcher, posted on why it might be important to run a customer advisory board. Her directives speak to the need to include a customer perspective in the mix that not only provides insight into the customer experience of your products and services, but one that also reaches beyond the horizon to provide a glimpse into potential new markets.
Without customers’ perspectives it is very hard to know limits of what you do and do not know. Inviting them into the mix means that even if you can’t name the dragons at the end of your world (read: market) you can at least see them. The other opportunity to be created by including customers’ views in your thinking is that not only will the community that they form will feed you new ideas and innovation options, that same community will also generate the goodwill that comes from an expanded network. You can create the opportunity for customers to share and network with each other, which may not have an immediate benefit to you, but you better believe it will have a positive return.
One of my personal guides as I ventured into the world of consulting services many years, Nancy Truitt Pierce (the Founder and CEO of Woods Creek Consulting Company in the Seattle, Washington state area) was a great proponent of the customer advisory council. She actually turned the advisory council concept on its head and made networking the heart of its reason for being. She now has a model of consortia that encompass the needs of her customers: technology sector executive peers, senior executive peers, sales executive peers, and CFO’s. Each group meets to share insights, advise each other, and Nancy moderates. Long term many members have become Nancy’s clients and she brings their insights back into her firm to innovate her service offerings
Our customers don’t know but they can show us
Be everywhere, do everything, and never fail to astonish the customer.
- Marshall Field
For many companies though, the customer cannot conceive what they need because they are too close to their issues. No matter how hard they might try to articulate their concerns they fall short. This leads to poor communication and inadequate responses on the part of market to meeting their needs. This is not satisfactory for anyone.
Again, the key is to get closer to the customer so that the path to innovation is as pain-free as possible. The design power-house, IDEO, when working on product design opportunities for their clients uses ethnographic study (targeted, field-based observation) to achieve this end very readily. They have perfected a multi-layered approach to observing the customer experience, that may include questioning, but more often than not involves direct experience of customer’s challenges live, in real-time. Sometimes it involves their staff essentially moving into the home of a customer in order to glean first-hand experience. One of IDEO’s partners, Proctor & Gamble has actually adopted this concept and uses it to drive their own innovation processes.
P&G’s approach is called the “Living It” program. Living It creates opportunities for P&G’s ethnographers to live with customers (willing participants), to observe how they go about their everyday lives. The ethnographers get to rapidly identify customers’ needs first hand by seeing what their customers are trying to do, and how they might be hampered by their environment or the inadequacy of their tools. They can then use these insights to identify potential new products that would make customers’ everyday lives easier. This focus on understanding customers’ needs through jobs and desired outcomes is absent from the question and answer-based innovation process that passes for customer involvement in many companies today.
Opening innovation to the customer experience
The purpose of business is to create and keep a customer.
- Peter F. Drucker
The next step beyond experiencing the customer live and in real-time is to actually open the innovation process so that they are not passively observed; open innovation brings customers into the mix to co-create and design solutions that meet their needs without the filter of internal enterprise interpretation. This kind of inclusion would have been considered nightmarish in past generations. “Invite the customer to develop their own products?! Why the heck would I do that?!” might have crossed the mind of more than one researcher or product developer. The inherent fears at play driving that reaction were loss of control and like Nosferatu, once they were invited into the process they might never leave. The shock was that not only did customers behave themselves, but given their vested interest in the design outcome, they were enthusiastic collaborators.
Stefan Lindegaard, the founder of innovation consultancy 15inno based in Copenhagen, is one of the most vocal proponents of the open innovation model. His advocacy for open innovation is breaking open the discussion about its utility for all types of companies. Previously open innovation was reserved as the practice of larger companies with the funds to develop a customer engagement model (see P&G above), yet Stefan is making the case that open innovation should not only be embraced by all companies, no matter how small, but that it should tap the widest global network possible. His reasoning, why limit yourself when who knows where you might make the best solution connection?
Not every suggestion warrants action (but they all warrant a response)
Innovation comes from the producer — not from the customer.
- W. Edwards Deming
What happens when your open innovation network comes with ideas that are not the right fit for your organization? One of the failings of inviting the customer into the innovation experience is that companies do not actively manage that experience. If you think a customer having a poor purchasing experience can cause havoc you haven’t seen anything until you have seen a customer relationship poorly managed when it is invited into a closer discussion about product development and is ignored, or worse yet, discounted.
Including the customer in your innovation processes requires just as much planning and management as your marketing and sales management processes. To neglect this preparation, or poorly implement the management of the customer experience as you bring them into your organization’s systems and processes can not only damage the immediate client relationship it can actually damage their total lifetime value to your enterprise.
Before a customer suggests an idea that you know you cannot and will not implement, develop a plan to address that potential problem. Either, remove the circumstances in which that request might be formed by developing a set of clearly defined and constantly visible expectations against which you can manage their experience. Or, develop contingent strategies that acknowledge their contribution and defuse its impact. Failure to do so might result in disastrous consequences. Losing customers while trying to meet their needs is certainly not a good result from your innovation efforts.
After all, you are trying to meet their needs not create new ones that they will seek another provider to solve!
Innovation Is Not Clockwork – The Challenges of Innovation Systems
February 19, 2010 by Andrew (Drew) · Leave a Comment
A system is a network of interdependent components that work together to try to accomplish the aim of the system. A system must have an aim. Without the aim, there is no system.
- W. Edward Deming
Everything is connected so beware the tragedy of the commons
Previously we addressed the need to create innovation processes that bear the risk of innovation. This boils down to two aphorisms, “if you can’t stand the heat get out of the kitchen” and “it is okay to make mistakes as long as you learn from them.” Not earth-shaking concepts, certainly, but creating an environment within existing business systems that might allow practicing that behavior is a true challenge.
Businesses are complex systems. They are not clockwork mechanisms. They contain myriad subsystems each of which is responsible for producing value through a series of interdependent relationships. This doesn’t even consider the ecosystem within which the business resides; such as, the external competitive market, supply chain and customer segments. The common mistake when attempting to build innovation practices within an enterprise is to “ring-fence” the practice within a functional domain. Relegating innovation to Research & Development or Product Development may provide it with a home but does not necessarily mean it will flourish. This misunderstanding, that innovation is not connected to anything else, almost always backfires as other functional subsystems respond in unanticipated ways.
Ignoring the interconnections between organizational subsystems causes havoc when innovation is demanded of all areas of the business, instead of one function, and the competition for resources becomes fierce. The heart of this conflict is called, “the tragedy of the commons” and it occurs when the subsystems in an organization are placed in a competitive relationship with each other and are forced to act in ways that are destructive to the organization overall. The current push for “innovation everywhere” is a pattern that is reinforcing this dilemma.
For example, without establishing strategic priorities, a consumer products firm I worked with decided that all departments without failure were going to improve their processes. The number of performance improvement projects proliferated tenfold overnight. As a result, project resources were spread so thin nothing was accomplished, but the effort was not canceled until six months had been burned. The result was “initiative fatigue”, a loss of support for organizational leadership, and a drop in market performance. The very opposite of what was desired.
Don’t control the players – change the rules
Is the system going to flatten you out and deny you your humanity, or are you going to be able to make use of the system to the attainment of human purposes?
- Joseph Campbell
If we cannot change the system via simple choices how can we create a better environment for innovation within our organizations? Rather than telling people what to do, guide their behavior by changing business rules within existing business systems that drive the behavior you wish to see.
In his great book, Predictably Irrational, behavioral economist Dan Ariely explores how expectations, emotions, social norms, and other embedded social and psychological forces influence our behavior. One great insight he presents is the way in which the human brain is wired to adopt certain patterns of behavior based on first impressions and decisions. These impressions are imprinted on our brains and govern our approach to similar circumstances. We have “anchored” our experience and even in the face of evidence may act against our own interests because of its influence in our thinking. I also explored this process, which is directly related to priming, in a previous post.
To change this imprinted pattern of thinking it is necessary to change the rules. Luxury goods manufacturers understand this explicitly, as Ariely explains. He notes the case of black pearls which when first introduced to market were a flop. They were gun-metal grey and looked like oversize ball bearings. It took James Assael, an Italian diamond and pearl dealer, to change the rules. He made a deal with Harry Winston to display them in the window of his 5th Avenue jewelry store in Manhattan surrounded by other precious gems. Assael also placed full page advertisements in glossy magazines to promote this new luxury item. Suddenly, black pearls were all the rage. Why? In order to make someone want something he changed the rules and made it scarce. DeBeers has done this for years with diamonds, too.
It is much more effective to change the rules of the game so that it is to most people’s advantage to make choices that are good for the whole system of innovation. What current rules of innovation could you invert, subvert or otherwise transform to create the behavior you’re looking for in your organization?
Foresight always wins and preparation trumps reaction
Everything affects everything else in one way or another. Whether you are aware of that or not does not change the fact that this is what is happening.
- John Woods
Innovative solutions to problems affecting complex systems take time to design, develop, test and implement. If we wait until the problem develops before applying our resources to addressing its root cause, we may be too late to take meaningful action. In the previous post on processes I addressed the notion of anticipatory behavior. That kind of foresight applied to present need can be a powerful tool for ongoing successful innovation.
Too many organizations pull the innovation trigger when faced with a crisis. Be it a market crisis or, more commonly, a product crisis the circumstances reinforce reactive behavior. If not outright panic, this scenario does not foster the use of structured and reasoned thinking to guide decision-making. Instead rapid fire solutions to address the changing conditions on the ground don’t solve the problem in the market and they may make the effects of the problem worse.
Across an organization’s innovation systems, looking ahead to anticipate problems is key. In the current pharmaceutical marketplace, many larger firms were faced with greatly diminished drug development pipelines yet they carry large commercialization operations. Blockbuster drugs are increasingly few and far between. With this realization, the action that most firms have taken is to re-double their development efforts in R&D as well as to identify as many smaller firms with potential marketable drugs as possible to acquire. What if their leadership teams had decided that, rather than reinforce their old business model (shoot for the blockbuster), they were going to anticipate changing market conditions and transform their companies from drug manufacturers to providers of comprehensive health services or another alternative business model. Would they not be better off heading off problems before they disrupt their market (and cash flow) entirely?
Why no great change? Because change is often painful, awkward and a dreadful inconvenience.
Don’t be fooled by system cycles – it’s not the climate it’s the weather
As human beings we love stability. Many of us are simply unable to recognize cyclical patterns around us, especially when they take years to unfold. The boom/bust cycle in the US economy is one such pattern which seems to elude many. This cycle seems to be on a fairly regular 20 year cycle and yet, during the peak (just prior to the bust) many people only see the positive “upside,” regardless of the Cassandras crying in the wilderness about the impending doom. And then the inevitable happens – the dip, slip, or worse yet, crash.
On the other side, when at the bottom of an economic recession, many struggle to see positive signs that economic systems might manifest. Their pessimism is only countered when they feel the positive impacts of the expanding economy directly. This cycle is present all around is. When job categories are oversupplied or undersupplied the negative feedback loops that cause people to go into a particular career usually lag the changing market needs. It’s also present in the climate. With recent record snows on the East Coast of the USA many were heralding the end of global warming. However, it is not case. The weather system is not representative of the climate system, it is a subsystem, and its cycle-time can be measured in months, weeks and days. The climate system is measured in decades, centuries and millennia.
As with the economy, the best time to capture the market is when everyone is contracting. When the present hoopla about “innovation everywhere” dies down those organizations that have embedded innovation into their business systems will find the opportunities ripe for capitalizing on others’ short-term thinking and rapidly fading memories.
Working The Processes of Innovation – Learning to Love & Live Failure
February 12, 2010 by Andrew (Drew) · 1 Comment
Failure is simply the opportunity to begin again, this time more intelligently.
- Henry Ford
Creating A Structure To Support Things Not Yet Seen
The crucial variable in the process of turning knowledge into value is creativity.
- John Kao
To talk about innovation and processes in the same breath seems oxymoronic. While most organizations are designed to take inputs and convert them through a series of conversion efforts into products or services for sale, they are singularly ill-prepared to bring new things to market. Why?
Existing organizations apply functional expertise in the form of departments like; Design, Product Development, Sourcing, Manufacturing, Marketing, Sales, Customer Support, HR, IT, and Finance, etc. They take known inputs, apply existing business processes for conversion into value, and produce recognizable outputs. Where’s the point of inflection? Where is are the processes that foster innovation? The whole enterprise is an inherently stable system designed to retain that stability.
To create innovation there must be a structure that can support the exploration, the risk-taking, the resource expenditure without direct monetary return. A structure that supports innovation must capture and support an organization’s ability to reach beyond what it produces in the present to what it might produce for the future. It demands a structure that can seek and use unknown resources, to build the unknown for unknown customers (or at least meet current customers’ unknown needs!)
The challenge is to reach into that unknown and pull some sense of meaning into the present. To use questioning and learning to first understand, then conceive, then sketch, then model, then prototype an innovation into existence. Part and parcel of that process is to be resilient enough to survive the inevitable hazards of the associated failure.
A Framework For Failure
Half the failures in life arise from pulling in one’s horse as he is leaping.
- August Hare
When planning for innovation how we create space for and manage risk (and the possibility of failure) is a primary factor in long-term success. Creating an organizational framework that not only can accept that risk is a primary ingredient in development of the truly new, but one that also has the operational flexibility and resilience to survive the unanticipated failure, is crucial. Yes, the desire to create more first-time successes is strong and should be recognized and valued. But nothing in innovation is ever perfect. Chaos and failure must be expected regardless of whether or not their extent might be anticipated.
A basic process model for innovation might be the following:
At each step there are a series of actions that happen, some sequential and some parallel, but all requiring a vigilance in terms of risk. The paramount question used throughout this process is not framed by “What” or “How” or “How much” but by “Why?” The inquiry contained within “Why?” demands that we constantly test our thinking through every step in the process of innovation. It helps us look beyond the expected and the commonly understood data embodied in the embedded business rules, behavioral norms and measures of our success. This inquiry generates awareness of the wider system of interdependent elements around a design challenge. It also gives us comfort in that it helps us frame possible responses to potential failures. It inoculates us against the pain of failure, keeping us strong for the next attempt.
Beyond High Reliability Organizations
One very important aspect of motivation is the willingness to stop and to look at things that no one else has bothered to look at. This simple process of focusing on things that are normally taken for granted is a powerful source of creativity…
- Edward de Bono
One of the off-shoots of social psychology and organization theory explores the concept of “sense-making”. One of pioneers in this area is Karl Weick. He noted that people try to make sense of organizations, and organizations themselves try to make sense of their environment. They are both navigating an ever-changing situation. What does this mean for innovation processes? Weick asks us to focus our attention on questions of ambiguity and uncertainty in this sense-making. Sense-making is the process of creating situational awareness and understanding in situations of high complexity or uncertainty in order to make decisions. This is a process of inquiry and seeking understanding in a dynamically changing environment. In terms of innovation the environment is the formed by the process of creating something new.
Moving from situational awareness in individuals, to shared awareness and understanding, to collaborative decision-making is a socio-cognitive activity. This approach considers that the individual’s cognitive activities are directly impacted by the social nature of the exchange and vice versa. This is, in a form, a process of co-creation. And the culmination of that sense-making process is one that Weick was also one of the co-developers of, the concept of the “high reliability organizations”. (Others involved in this development were, Karlene H. Roberts, Herbert Simon, and James March.) As noted in Wikipedia.org, “A High Reliability Organization (HRO) is an organization that has succeeded in avoiding catastrophes in an environment where normal accidents can be expected due to risk factors and complexity.” In short is an organization that can be best described as resilient in the extreme.
Organizations that must be successful all of the time continually reinvent themselves. For example, an aircraft carrier uses its functional units slightly differently depending on whether they are on a humanitarian mission, a search and rescue mission, or are engaged in night flight operations training. The same can said for an organization that delivers robust innovations time and time again. They may in fact be termed “highly reliable innovation organization”. They continually reinvent themselves. They build flexible systems that marshal their resources, via their innovation processes, to capitalize on opportunities as they arise. They take great risks, fail often, and yet they endure.
Life is a process of becoming, a combination of states we have to go through. Where people fail is that they wish to elect a state and remain in it. This is a kind of death.
- Anaïs Nin
The Politics of Innovation – Dodging the Seagulls in “Finding Nemo”
February 4, 2010 by Andrew (Drew) · Leave a Comment
…Business is not a sporting event. Victory for one company doesn’t mean defeat for everyone else.
- James Surowiecki
Playing Games With Innovation
Let’s be blunt, innovation has become the latest political football in many organizations and the competition around owning it has become fierce, if not ugly. For those organizations who do not know how to address their current poor market performance, the concept of innovation is one that is being firmly embraced. It’s hot. 
There is widespread media attention. So many senior leaders have grabbed it with both hands. But, like the dog who doesn’t know what to do with the car once he catches it, these organizations struggle to define what innovation means to them and what it might deliver in terms of improving their fortune.
Due to its popularity and high visibility in the marketplace, the ownership of innovation has become a part of many organizations’ power struggles. Not necessarily innovations themselves. Mostly the levers and resources that may (or may not) drive innovation outcomes. Whoever controls the conversation about the concept also ends up controlling, if not outright budgetary and expense authority, a certain amount of power that comes with the imprimatur of being responsible for the “new and sexy.” Innovation has become something to be batted about and the result is a poorer focus on outcomes.
It’s Not Bi-partisan – It’s A-political
Those who understand innovation also understand that breakthrough products can transform business. True innovations are greater than the desire to improve existing business practices; innovation can drive positive transitions into the future. They enable an organization to achieve a growth trajectory beyond its present state. They unleash huge revenue and profit potential. Because of this inherent capacity for disruption they also often foster competing objectives among an organization’s leaders. Each leader might view innovation from their unique perspective and lose sight of the overall value the business might derive. The result is a breakdown in cross-organizational support due to a reinforcement of functional silos. Within innovation resides the potential for enormous power. Is it any wonder there is a struggle to control it?
Mine. Mine. Mine. Mine. Mine. Mine. Mine. Mine. Mine…
- The Sydney Seagulls in “Finding Nemo” (Pixar)
Much like the Sydney Seagulls in the Pixar animated classic, Finding Nemo, everyone has declared innovation, “Mine!” The battle for control over innovation is not unique to any single organization. Within that struggle, and just as pedestrian, is that fact that many senior leaders are hard-pressed to define what they are wrestling over. There are no organized parties around innovation. In fact, the factionalism that occurs is often driven by territorial concerns rather than growth outcomes. The turf battles over the control of innovation-focused resources and the portfolio of innovation initiatives is also hampered by other political matters. One of which would be, the “tyranny of the urgent over the important.” The objective of which is not necessarily to be focused on creating value, but to be focused on the appearance of making a contribution.
The Politics of Survival
This is the politics of self-preservation; which is completely at counter-purposes to the risk required for true innovation. For the sake of political expediency, innovation is often sacrificed as the organization’s attention turns to other, seemingly more important, concerns. In publicly-traded firms, the omnipresent attention of the “market” drives concerns into 30 day-defined horizons. Or, for the longer-minded, that might be stretched out to the end of each quarter. Where the demands of the business require control and systematic delivery of results, in order to meet the market’s demands for consistency and reliability, innovation is quite another animal altogether. It requires an acknowledged risk and the commitment of resources with the desire to deliver a future unknown benefit.
Fortunately, there are a few individuals in some organizations who have come to understand that by neutralizing organizational politics they might better facilitate first a breakthrough idea’s acceptance into development, and then develop that concept into a viable product. They start with a thorough understanding of the social network that exists within the organization. With this in mind they can knit together a coalition of supporters who can provide cover and guidance that exists separately from the organization structure as it is defined in purely functional terms. This gives them the ability to dodge the leadership seagulls. If innovators became more aware of the political actions that contribute to successful project acceptance and became more capable of motivating and taking such actions, perhaps more break-through products would be developed. Politics may make for strange bedfellows, but unless organization politics are either neutralized or circumvented the likelihood of innovations making their way to market may be severely impeded.
How do you navigate the seagulls of your organization to bring your innovations to life?
Innovation Economies & The Benefit Of Creative Destruction
January 29, 2010 by Andrew (Drew) · Leave a Comment
…Business is not a sporting event. Victory for one company doesn’t mean defeat for everyone else.
- James Surowiecki
Innovation As An Economic Mover And Shaker
Today innovation sits at the heart of economic value creation. If the 1980’s were all about productivity, the 1990’s were about quality, and the 2000’s about globalization, the current decade will most likely be about the capacity of organization to harness the controlled chaos inherent in innovation to create value. With the acceleration of globalization process, innovation is more and more seen as the appropriate tool to create business value. We recognize that innovation within an enterprise occurs in a framework of economic production and diffusion.
That framework is governed by (Porter’s) five major forces:
1. Customers Buying Power. Towards them must be oriented all the efforts of the firm, particularly concerning modifications of switching costs, manufacturing processes, or the positioning of the products and services. Innovation in the way the customer sees your industry or product may directly shift the balance of their buying power. Consider the commoditization of the flat panel TV industry as one area in which that balance has shifted in the space of a couple of years.
2. Suppliers Bargaining Power. Due to their huge power of negotiation, especially when they may be sole supplier in an innovative new industry sector, they are able to use their influence to shift supply chain economies causing disruption.
3. Threat of Substitute Products. Firms must pay attention to the threat of substitutes, and to the fact that followers do not have to support the R&D costs in the production process, and thus are able to implement the innovative service or product at a lower cost.
4. Threat of New Entrants. Anticipating and managing if necessary the different entry and exit barriers should be one of the major preoccupations of the firms operating on the market.
5. Intensity of Industry Competition. Rivalry among competitors has numerous consequences on the level of activity, as well as on the value chain, by increasing or lowering one or several structural elements of the market. Innovation may enable an enterprise to insulate from direct competition due to a technological advance for example.
This microcosm in which a firm survives requires constant surveillance and response as it continuously shifts and changes. What makes an awareness of these forces more important is that the timescale governing observation and impact has shifted; due to marketplace innovations the pace of change and rate of response has accelerated. The undercurrent at work here is that it is not enough to be aware of the environment in which innovation occurs; the effectiveness of the implementation of an innovation is critical. That is what drives economic growth.
It’s Not What You Know – It’s What You Do With What You Know
As a direct response to the neoclassical economics-fostered reasonable allocation of scarce resources, innovation economics focuses on spurring economic actors (the individual, the organization or firm, industries, cities, and even entire nations) to create value through increased productivity and implemented innovation. Innovation is a mighty lever for change and value creation. It disrupts existing systems and plays havoc with what we think we know, creating new paths for the exchange of goods, services but, more importantly, new ideas. It also provokes and promotes growth through expenditure.
Entrepreneurial profit is the expression of the value of what the entrepreneur contributes to production.
- Joseph Schumpeter
As new products are developed, new materials requiring new sourcing capabilities may be required. This creates employment opportunities, which impacts local communities. If those products become viable in the market, a whole microcosm of support is required to support the new endeavor. In the service sector, innovation practices create opportunities through the elimination of wasted time, freeing resources to be applied to other more fruitful activities. All of which is in support of value creation. Yet in order to achieve these ends innovators must forcing critical decisions in their organizations – what do we need to stop doing to make this innovation a reality? Without answering that question, innovation may become stuck.
To Make Something New You Might Need To Blow Something Up
In innovation economics, innovation lies at the center of value creation. Innovation economists recognize that innovation and productivity growth take place in the context of institutions. Indeed, it is the “social technologies” of institutions, culture, norms, laws, and networks that are so central to growth. In the eyes of conventional economists these are the elements that are too difficult to model or study. For a neoclassical economist, the focus is on the use of scarce resources to produce valuable commodities and distribute them among different people. Innovation economists view innovation as an evolutionary process in a market where firms act on imperfect information and where market failures are common.
Economic progress, in capitalist society, means turmoil.
- Joseph Schumpeter
Which leads us to one of the elder statesmen of innovation economics, Joseph Schumpeter. In his seminal work, The Theory of Economic Development (1911, 1934) Schumpeter did more than any other economist to increase the understanding of the role the entrepreneur plays in the capitalist economy. In particular, he defined the crucial role of the entrepreneur in the process of innovation and creative destruction – today it is virtually impossible to conceive of a dynamic capitalist economy in the absence of Schumpeterian entrepreneurs.
The startling thing is that Schumpeter also saw that the capability of the lone entrepreneur to significantly change the world would, over time, be supplanted by innovation through larger collaborative efforts. Schumpeter claimed that due to the application of modern techniques and modern modes of organization the innovation process would become more and more automated. Innovations would increasingly become the fruits of the organized effort of large teams. This would be done most effectively within the framework of large corporations.
Schumpeter foreshadowed, the destruction of the role of the solo inventor, and the subsequent rise of the “wisdom of the crowds” and “open innovation” before we even recognized the larger economic benefits of collaborative innovation. No matter how it is accomplished, Schumpeter clearly saw the case for the chaos and failure that innovation creates.
In fact, successful innovation is normally a source of temporary market power, eroding the profits and position of old firms (disrupting if not destroying their viability), yet ultimately each innovation succumbs to the pressure of new creations being commercialized by competing entrants. The creative destruction resulting from innovation practices is a powerful economic driver because it explains many of the dynamics of industrial change. The ongoing, dynamic transition from a competitive to a monopolistic market and back again, speaks to the impact of innovation economies.
Twitter: DrewCM
- If you haven't seen "Exit Through the Gift Shop" I recommend it. Great view of creativity & appropriation. http://ht.ly/2BCzC
- RT @brainpicker: The Mona Lisa Curse – how big money distorted the art world in the past half-century http://is.gd/f1Q0i
- @AndreaMeyer I know - the unbearable cuteness of being. Hope this morning finds you and Dan safe and sound. I worry for you both.
- Don't misbehave in my absence - just going for a walk with a friend. http://is.gd/f1Kyo
- Hey @missamykr Thank you for making me smile with your Money Tree - brilliant! http://is.gd/f1Kuh