Pacific Innovation & Leadership

Can innovation consistently lead to improved prosperity? Is there a simple path to a surge in business? Can you suddenly dominate your own little niche or category with a new product or service? Is there a reliable approach to innovation that will almost always lead to increased prosperity?

Yes, yes, yes and yes!

The purpose of this particular post (in combination with the next) is to provide you with enough information to know that the whole world of innovation is rapidly changing and that new highly-effective, proven methods have been developed that accelerate the pace and quality of innovation while radically reducing the risks traditionally associated with innovation. If you are in charge of an organization or department, you cannot afford to ignore the significance of these developments.

While the pace and effectiveness of innovation are changing competitive challenges as we know them, the traditional approach to innovation is often not worth the effort. The following highlights the scary statistics associated with traditional innovation approaches. First, though, consider this: 80% of new products fail on introduction to their market. And, about 60% of “new and improved” pre-existing products fail upon reintroduction. Second, finding a new service or product is not that easy. Dell Computer built an idea-soliciting website in February of 2007 called Ideastorm. Of the 12,483 ideas posted on the site, only 366 were implemented, less than 3%. Do you know how much sweat it was to get to just one usable idea? How much impact do you think that one idea had? Or all 366? Starbucks, with its My Starbucks Idea, had even more disappointing results with a scattershot idea generation approach: 75,653 ideas yielded only 315 implementable ideas. That’s less than half of 1%. What do you think the cost was for all the work involved in gathering, sorting, screening, evaluating, developing, testing, launching and nursing those 315 suggestions? Sadly, even major corporations can have poor innovation systems (statistics provided by “How to Fix Product Development”, Mike Shipulski, November 2011, Innovation Excellence blog).

Tinkering & Tweaking or Going Deep?

Customers, floor workers and sales personnel can generate a lot of ideas for innovation. However, most of these ideas tinker with what already is; only rarely do they show the path to a major change in the marketplace. Because customers are rarely professionals who are current on the latest advances in industry and technology, their ideas are usually confined to something they’ve seen before, perhaps similar or related products in the same or another consumer sector. In fact, developing customer ideas can be dangerous. They tend to generate bland, unremarkable, stereotyped, “me – too” solutions that are met with indifference upon launch; the waste of time, money and diligent effort can yield anything from discouragement to disaster.

However, internal and external suggestions from suppliers, buyers and curious employees can lead to some solid improvements to existing products and services. Such progress (incremental improvement) has been historically necessary to retain and grow market share. This incremental improvement is crucial only for maintaining and improving the current “performance engine” that is the lifeblood of the company. Sadly incremental innovation (or improvement) is not enough to compete in today’s aggressively changing marketplace. Incremental innovation seldom disrupts the product development cycle and only rarely leads to dramatically increased market gains.

So how do we get to BREAKTHROUGH Innovation? How do we instill GAME-CHANGING DISCIPLINES within our companies?

The new realm of breakthrough innovation is built on a foundation of corporate character which includes humility, servant mentality, and a deep, intense caring for the customer.

The opposite of humility is hubris or ego. The know-it-all, expert approach seen in too many senior managers – - and others in authority – - is what blocks discovery and turns creativity dangerous. Far too much innovation is divined from the boardroom without ever getting out and truly understanding what the users are struggling with and desperately need. There is too much assuming that they know more than the buyers about what the buyers really want. In other words, they are guessing. Those guesses are usually based on feedback (solicited or not) from customers about feature upgrades; the guesses seldom get at the unresolved problems a user would pay a great deal to fix. The net result too often is that such executives “try to create a need” by marketing some incrementally better feature that too few care about enough, at least to pay more (or any) money for. This is where many disasters happen. Humility assumes the opportunities for breakthrough are still unknown and hidden underneath the surface of casual observation. They are unknown to both the customer and the supplier. Getting to these gems requires a structured rigor to uncover what customers and suppliers have never thought about.

Secondly, a servant mindset builds on humility. It is needed to ensure the diligent effort and long, patient, hard work to approach and thoroughly, skillfully develop a deep understanding through interviewing many, many customers. Mainstream buyers need to be carefully examined. Fringe purchasers need to be identified and understood. Non-buying prospects will yield amazing insight. Potential customers – - who get their jobs done with products from other direct and indirect industry suppliers – - they give the most understanding and wisdom of all.

Further, this process of understanding the customer (driven by the interviewing process) and thinking differently about what the customer is really trying to do, cannot be delegated to underlings and especially not to salespeople who have the completely wrong agenda for this task. Steve Jobs is an excellent example of a CEO who saw this as his primary role. Interviewing seems like a low-level, laborious function but it is of the highest level of importance. It is central to a better understanding of the customer. It’s where true growth can be found. Much skill is required for the discovery. And… much caring.

When the motivation for growth is greed, power and fame, the perspective will always be warped. Those so disposed are never able to see quite right. By contrast, those that know their “why” (discussed in Step One, September 2011), their vision for a better world – - and their grassroots mission to make it so – - they are the ones who can provide leadership for the whole industry. They are the ones who become the most trusted advisor. They are the ones who can capture the hearts and minds of the people they serve.

Peter Drucker was such a visionary guru for the business community. He famously said:

“Because the purpose of business is to create a customer, the business enterprise has two – - and only two – - basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs.”

Marketing and innovation, it turns out, are closely interrelated. Understanding the market means having an intimate knowledge of the people who collectively struggle to get their work (and pleasures) done in simpler and easier ways. Innovation is not as much about giving them what they want as it is giving them what they don’t know they want. Innovation is about finding the simple button: a way of simplifying what they are trying to “do”. The outcome should be an improvement in making the “doing” easy. Easy is the difference between taking an escalator and rolling a boulder uphill.

This type of innovation is a science and a systematic process for delivering new value to users.

Apple is an example of a modern organization that has made breakthrough innovation a part of everything they do. They don’t just do innovation for their products; they do it to everything, including their stores. Apple, who for a long time never had a retail store, has re-invented retailing, achieving $6000 per square foot sales in a market where only 5 public companies exceed $1,000 per square foot – $2,000 per square foot higher than any other publically traded company.

The targeting process begins with a selection of new markets and customers based on one’s unique and distinctive skill set, and most importantly, the identification and prioritization of opportunities. These opportunities are based on breakthrough understanding of what customers are trying to do. It ends with the delivery of new and significant “outcomes” in the form of a satisfying, need-based product or service.

Harvesting service-innovation-intelligence depends upon building an “Innovation Zone”. Fashioning this Zone may mean improving our philosophy, culture and even our business model. A business model is nothing other than our method, formula, or way that we make money. Southwest Airlines changed from its industry business model by inventing unrestricted, everyday low-cost, one-way seat sales for use by everyone, not just the affluent or the compelled. They set the industry on its ear. Cultural change is often thought as difficult because while most people like change, they don’t want to be changed. When a business culture elevates to create a greater sense of appreciation, respect and empowerment, amazing things happen. Philosophical conversion about how the customer is embraced can also have dramatic impact.

“Innovation” (and creativity) is nothing other than simple, commonsense processes that a business puts in place and makes into a continuous orderly discipline, an easily understood system. Innovation is not so much about the superhuman hero-inventor as it is about the collective wisdom and processes of free-wheeling teams. Yet innovation is driven by leaders with passion, curiosity and undeniable hope. Social networks, intentional collaboration and structured idea-recombining interactions (& activities) is where leadership thrives, shifts, and rotates; as teams are nurtured, encouraged and challenged, they inevitably create unforeseen insight and extraordinary commercial value.

The “Zone” is a place where people can move ideas from concept to reality. The Zone thrives amidst uncertainty, constraint and scarcity. It is the resourcefulness by which we rethink how we create value. It’s the place where risk is carefully managed and experiments are made with small amounts of money. The zone can be a physical place in a building or it can be the building of a new open-minded passion led culture.

The Innovation Zone is a “reward” place. People find meaning there. They find individual and collective significance. They discover a new sense of identity. They expect recognition. They get feedback of a special sort. People in the innovation zone function at higher levels. They are also willing to become subservient to an important idea or those leading that idea. Some special few take on the role of Intrapreneur – - a dedicated worker on a specific project either as a volunteer of their free time and weekends, or as a laser-focused full-time employee of their initiative. Such intrapreneurs are the ones who earn bonuses and or royalties. However, most people in the zone prefer nonmonetary incentives to keep the motivational pump gushing.

The Innovation Zone requires careful structuring. It must not interfere with our company’s source of profits, “The Performance Engine”. This engine can be thought of as the every-day means by which our business makes most of its money and fuels all of its operations and plans (including our Innovation System). Most of the budget goes to improving the Performance Engine; funds for the Innovation System are relatively tiny and rightly so. However these two vehicles must be in balance, with both receiving more than sufficient time, attention and resources; the Innovation System is critical for survival in our fast-changing tomorrow.

Executive compensation needs to be tied to developing a robust Innovation System Portfolio – - but not of course to the individual initiatives within the portfolio. In other words, unless the senior executives’ and critical managers’ compensation structure is tied to developing the future, when push comes to shove, innovating the next Performance Engine for subsequent product cycles doesn’t happen, not really. Further, unless a reward system (mainly non-financial) for all stakeholders and employees is carefully created, innovative efforts eventually languish and die on the vine. The best organizations have all staff working on innovation continuously: some rotate people through on a full-time basis; others have it as a part-time responsibility in their job description; in other cases, innovating is simply made a top-of-mind-awareness in everything that is done by each and every stakeholder.

Creating an Innovation Zone is not that difficult. However, it will be unique to every company; there is no single formula or cookie-cutter that can be written out on a prescription pad. It’s a fun and critical activity. For a case study illustrating how to do this, go to http://worksystemscanada.com/WRLA
These days our Innovation Zone must be bound up in the experiences of the users, in the Customer-Adventure-Cycle. If that is not front and center in our Zone, then we might as well be doing our work off in a cave in the nether regions of the Canadian Shield. When we come out, we will be connected to nothing, know nothing, and no one will know us or even care who we are. Our Innovation Zone will work because we have critical insights into what makes our customers tick and what will satisfy their deepest urges. Then we will strike Innovation GoLD!

SUGGESTED INNOVATION PROJECT: Begin by jotting ideas down about how to create an innovation zone in your company. Just brainstorm; stay away from evaluation or feasibility. Deal with the emotions of what would make your best people, your average people and your underperforming people, happier and more excited about their work. Think about what you could do to get your suppliers and customers talking more intimately to you. Don’t kill your ideas by figuring them out. Go for flow. Emotions are not intellectual neither are they subject to logic and reality testing. The goal here is to get you to be gut level connected with all the stakeholders inside and outside of your company. Compile a list of how they can become more creative and open-hearted. More on what to do with that list will be explored later.

Managing several important changes simultaneously threatens to overwhelm growing companies. “The greater the number of such changes occurring at once, the more we multiply the agony”. (1) New product innovation compounds the awkwardness not only on internal resources but also in dealing with resource scarcity and competitor reaction/retaliation. As organizations make important changes, strategic advantages are often gained but the changes carry with them critical disruptions. The greater the number of simultaneous changes, the greater the hazard of organizational failure.
Arming the organization with both anticipation and resources allows corporate wide mobilization to seize opportunities and evade threats in good time. The opportunity is found in detecting signals early, before they become clear. Such opportunity often becomes the basis for innovation.

1 See Barnett, W.P. & Freeman, J. (2001). Too much of the good thing? Product Proliferation and Organizational Failure.

Disruptive innovation and breakthrough designs tend to flourish in hard times. So if our businesses have been staggering a little bit more than we are comfortable with, then maybe, just maybe as we dig down deep, we are looking to our experience to save the day – - and that might be the worst thing we can do. It’s counterintuitive to not look to what we have done best in the past. We tend to want to consolidate, retrench and go with our “core”. The problem is our past “core” no longer serves the present as it once did; it could actually exacerbate things.

Even as we see glimpses of hope in this global economy of ours, no one can doubt that in the last three years, we have gone through the worst dislocation since the Great Depression. Currency problems have only compounded the effect of tight money, manufacturing job deportation, and recessionary batten-down-the-hatches thinking. Yet we are witness to many companies putting out incredible results under some of the most trying conditions imaginable.

What do these companies know that others don’t? The ability to suffer, at least temporarily, in a personal, psychological business-hell and come out stronger. Turbulent times – - like these we have been living in – - are precisely the right time to explore the hard work of recognizing the brutal facts and moving forward to make big change.

Defaulting to caution and conservativism – - in other words doing more of the same but with less confidence and conviction than before – - more often than not is a precise formula for deadly business disaster. Turtling in turbulence only works for turtles. The world is not going back to the way it was, ever.

It’s easy to become conservative and risk-averse in our business decisions as we resist needed deep-seated change. In today’s business world we need to embrace change and to view our structural problems as more than the crisis they seem to be; if we see a crisis, then we need to look a little deeper to see the opportunity. As William C. Taylor (Inc. Magazine) put it, too many leaders are learning the wrong lessons and this is a terrible way to let a crisis go to waste. We all know crisis means opportunity but too many of us fail to run to the opportunity.

Economic trauma and the problems it brings is the exact prescription that can inspire creative responses that can reshape our markets for decades to come.

The radical shifts and new ways of looking at our markets are nothing but a simple direct challenge to convention, prevailing wisdom and breaking with the status quo. It is about seeing crying needs at the edges of our marketplace; it is about finally hearing the heartfelt wishes of our prospects and patrons; it is recognizing we are the ones, possibly the only ones, who can do something about those wishes and needs right now. This means becoming realists of the first order.

Creativity tends to thrive within limitations. Vastness tends to disperse while restriction promotes laser like focus not unlike the idiot savant we read about. We need to utilize the limitations within our company, within our colleagues and coworkers, and within ourselves. Within those limitations we truly can bring new ideas to life.

Radical shift means transforming our company, breaking up compromises within our industry, and challenging ourselves to place hope over our past business experience. Triumph means finally being able to see in new ways and then acting with courage to meet all the new emerging needs.

To dismiss innovation as reckless rebellion in pursuit of an esoteric dream is to completely write off our company’s future. So yes, in our pain and fear, many of us – - perhaps helplessly – - are beginning to acquiesce or even embrace the process of innovation. However, traditional innovation is itself heading for obsolescence. The parameters for innovation have completely changed and even unsuspecting companies with innovation programs may be swept away if they do not take a more expansive view of their markets and marketplace. Innovation is not hard, it just requires a different way of seeing and believing.

Jon Leatherbury of Hewitt Associates said “if a business can be destroyed, then eventually it will be destroyed. It is only a matter of whether you do it to yourself or a rival does it to you.”

Learning to do more with less – - for more people – - that is the innovator’s dream. It’s time to put on our thinking caps and see with the eyes of a child.