| Volume 1 |
Sanjeev M. Masih consulting, Inc.
Basic Guide to Systematic Innovation
Innovation - Creating an Innovative Organization
INNOVATION- CREATING AN INNOVATIVE ORGANIZATION
A Leader’s Guide to Innovation
Sanjeev M. Masih Consulting, Inc.
27 Florida Avenue
Bay Shore, NY 11706
Phone 1.631.891.8478 • sanjeevmasih@yahoo.com
Table of Contents
Four Modules for Creating and Supporting Innovation................... 1
Creativity And Innovation................................................................ 1
Four Stage Process of Creativity.......................................................... 3
Group thinking – Why is it bad?.............................................................. 3
Competition In Markets Dynamics And Technological Changes...... 6
Push or Pull or Drive Models: Give Birth to Innovation...................... 7
Some Reasons to Implement Technology Push and Design Drive Models: 9
Step To Become and Staying Competitive:....................................... 9
Systematizing Innovation................................................................. 9
Key Takeaways to Systematize Innovation:.................................. 12
Launching Innovations................................................................. 12
Is it Real?................................................................................................ 14
Can we win?........................................................................................... 15
Is it worth doing?.................................................................................. 17
Addition Guiding Points................................................................. 19
Sources........................................................................................... 20
Four Modules for Creating
and Supporting Innovation
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his manual will explain how the creative process works, how to improve creativity and then how we must go beyond creativity to be innovative. The manual will prove the connection between market and technology evolutions and how they are interdependent. It will also cover the impact design innovation can have on production adoption and examples of how design innovation has been successful. The third step will establish guidelines on how a company can implement processes for evaluating data for experimenting and testing new ideas; then polishing those ideas for further improvements. Last step of the guidelines will focus on how the final step of launching innovation in the marketplace should be implemented.
Creativity And Innovation
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or most of us, having a reference point helps us imagine. For example, having recorded music led to innovative products like the iPod; if there was no recorded music, would iPod have been created or be widely accepted? We cannot say with 100% certainty but it’s safe to assume that having recorded music helped the iPod. As Mr. Berns puts it, “first, the way we perceive something, which is a function of the low road, depends on the way in which we categorize objects. Without categories, we do no have the ability to see features that differentiate objects. In other words, we cannot see that which we do not know to look for. Secondly, the ability to see these subtle differences depends on experience. And this means that perception can be altered through experience.”[i] (Berns, Page 8) Having these categories helps because the compartmentalization helps the brain save energy. “The efficiency principle, coupled with the consolidation of large amounts of information and experience as we get older, means that the brain needs to categorize. And yet, imagination stems from the ability to break this categorization, to see things not for what one thinks they are, but for what they might be.”[ii] (Berns, Page 8) The preset notions helps our brain work better but it hinders creativity.
The classical conditioning showed that “analogous changes at the neuronal level”[iii] (Berns, Page 10) due to repeat task leading to an expected result. The Swiss neuroscientist, Wolfram Schultz’s experiment showed that “the dopamine system adopted to environmental contingencies and essentially learned the correlation between arbitrary events…”[iv](Berns, Page 10) Imagination suffers when there are no or little preset conceptions of anything or experiences. As the brain function on efficiency principle model, conserving much energy as possible and using minimal energy to conduct repetitive tasks, the extra work required by imagination can be difficult. To imagine, we must pay attention to what we want to imagine. “…The parietal cortex plays the crucial role of integrating the effects of attention…The parietal cortex serves as the crucial intermediary between local representations in the visual cortex and global representations in the frontal cortex”[v]( Berns, page 16) The novel external stimulus start the process which creates the imagination stemming from neural networks of neurons.
Since the human brain functions very efficiently, using little energy as possible; it is helpful at times to ‘sleep on’ a problem you might be solving. By giving the brain sometime to connect the strands of data, you can get the result you want. The change in environment can be beneficial, the “jolt attention systems wake and reconfigure both perception and imagination.”[vi](Berns, Page 24) “To think like an iconoclast, you need novel experiences.”[vii](Berns, Page 24) We cannot be contained by the experiences we had if we want to be innovative but we cannot be innovative without our novel experiences. It is important to have the experiences to create a framework but we cannot live in the framework to be innovative.
The above chart illustrates the cycle we go through as we go through the thinking process. Three categories which have a profound impact on the process are: attention, experience and novelty. Attention refers to our physical make up. Novelty is how we structure our thoughts and the double edge sword, experience, has impact on our perception.
Four Stage Process of Creativity
1. Preparation : examine the problem
2. Incubation: synthesis of the data
3. Elimination: Aha! Moment
4. Verification: creativity idea is consciously verified, elaborated, and eventually applied
Time must be given between stages 1 and 2 to take their natural course. Enough time and attention should be given to achieve the best AHA! moment(s). To a greater extent, most people are products of their experience. Their ideas and perceptions are part of their past experience. New ideas arise from former experiences but we must not allow for former experiences to dominate new ideas.
Group thinking – Why is it bad?
· Inhibits creativity as consensus are built eliminating criticism and killing new ideas
· Strong participants dominate the agenda
Although group workings are beneficial, keeping the negative side effects in mind is important. Take the following steps to ensure your group does not fall into the pit.
· Make sure everyone is on the same page and create alignment of their goals
· Create an ideal situation for the members to work in
· Allow members to tinker with problems, instead of having a rigid goal
· Allow for informal communication
The managers must creative a structure to support innovation by “effectively presenting ideas to decision-makers”[viii](Levvit, Page 2), wedding out the ideas by risk assessment, balance the “organizational flexibility and rigidity.”[ix](Levvit, Page 2) The managers must not leave things to chance, because “those who declare that a company will somehow grow and prosper merely by having more creative people make a fetish of their own illusions.”[x](Levvit, Page 10)
A good manager must understand the position of their product(s) and how much lifespan a product might have.
Figure 1.1 Typical product cycle
http://www.quickmba.com/marketing/product/lifecycle/
An S-curve is “plotted on a two-dimensional plane and demonstrates how the performance or cost characteristics of a technology change with time and continued investments.”[xi](Anonymous, Page 2)
Figure 1.1 TYPICAL product cycle and s-curve
http://www.emeraldinsight.com/fig/2610290104002.png
As the market leader, you must understand your strengths and the strengths of the start-up/technology challenging your business. Established firms can take advantage of the start-ups biggest disadvantage during the early phase. “The most dangerous period for a new technology is in the early phase, when its price-performance characteristics are below that of the established technology.”[xii](Anonymous, Page 5) Understanding the early states and the critical time to jump the S-Curve is vitally important for a manager to understand. This can be effectively done by understanding your product’s position, industry, new technologies, the market and having a keen insight into unmet needs.
Here is a visual Summary:
S-Curve
http://www.quickmba.com/marketing/product/lifecycle/
Competition In Markets Dynamics And Technological Changes
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here are many great technologies available: trip to space, super computers, satellite phones, or many other technologies which are too expensive for broad market adaptation. These ground-breaking technologies offer impressive features which would excite and improve people’s lives but they do not deliver the product/service at a feasible pricing platform. In the case of mobile music, delivery service must factor in, “record labels, platform vendors and white-label music services, online music stores, handset makers, and mobile operators.”[xiii] (Merrill & Yoffie, Page 8) Different parties will have advantages and disadvantages to adopted strategies, so the challenge is to adopt a macro strategy, which aligns multiparty interest while delivering excellent service/product at a reasonable price.
The competitive landscape presents a formidable challenge in many industries for innovation to have a long lasting advantage for any company. For example, in the mobile music industry you have many key players jockeying for influence on how content is delivered and obviously who benefits from it. Currently Apple has a strong lead on competitors like Microsoft, Yahoo, Google, Wal-Mart, Amazon and traditional music delivery mediums fighting on who delivers music to consumers. The handset makers like Apple, Google, Samsung, Sony, Nokia, LG, Blackberry and others are racing to produce the best handset. While, AT&T, Sprint, Verizon and other carrier are contending to dominate the delivery channel as the music artists, executives and other parties are also evaluating and pushing for what makes them the most money. As you can see, the landscape is very crowded, complex and hyper-competitive.
The challenge is to cut through the competitive noise and produce the product via design-driven innovation. This radical method of innovation is based on the idea that “transitional objects”[xiv] (Verganti, Page 3) bridge the emotional and functional aspect for consumers. Transitional objects are “things, such as toys, teddy bears, and safety blankets, that represent the happy world when children were still united with their mothers. These objects help children move from intimate dependence on their mothers to a more autonomous psychological status, and thus these objects become almost indispensable regardless of their actual function.”[xv] (Verganti, Page 3) Simply put, if consumer can connect design of a product with their emotional experiences, they will adopt the product at a deeper level. As the transitional objects bring back happy memories, the product design should “try to answer to a desire of happiness of people.”[xvi] (Verganti, Page 4)
The success of Apple in the mobile music revolution has been its ability to produce, user-friendly functionalities with radical designs. Although at a premium price-point, the end-to-end “experiential system…allow[ed] people to produce, select, buy and share music.”[xvii] (Verganti, Page 6) The functionalities of iTune, iTune store, iPod/iPhone and accessories, gave an easy to use streamlined process that made Apple a success story in the music business. The product, infrastructure, functionalities, interface and content design has resonated deeply with consumers. It took out complications of buying digital music, maintenance, and backup via iTunes, mobility via sleek and stylish iPod/iPhone, all at a premium price and reliability. The designers at Apple “have completed their exercise-that the product is stylish, in line with the dominant language of the market…”[xviii] (Verganti, Page 8-9) Apple did not invent the phone, mobile music device, or concept of delivering music online but it enhanced all these concepts with easy to use platform. Consumers have abundance of options but “we are surrounded by a world of anonymous products, of boring objects, most often lacking any emotion and poesy.”[xix] (Verganti, Page 9) Understand this divide and creating a product which stands out has made Apple a leader in its field.
Push or Pull or Drive Models: Give Birth to Innovation
· Technology Push: Basic Research à R&D à Production à Marketing à Need
· 
Demand Pull (user centric): Basic Research à R&D à Production à Marketing à Need
· 
Design Driven: Basic Research à R&D à Production à Marketing à Need
The above models have their positive and negative qualities but keep in mind a very important point: DO NOT EDUCATE YOUR TARGET MARKET, SERVE THEM WHAT THEY KNOW.
Many other firms might understand that design is important but they don’t all understand to which extent the design should stress itself. I’m sure the cost factor limits if the design to incremental innovation or radial innovation. Before “the game changer” iPhone came to the market, most mobile phone design pursuit the incremental innovation to push new models to the consumers. The radical innovation concept at Apple gave birth to the iPhone. The phone was re-invented on how it is used and what it can do. Companies like Apple understand that “firms periodically [need to] search for dramatically new meanings, but their competitors do not. The radical innovators know that meanings in the market alternate between periods of incremental change and periods of rapid and disruptive transitions.”[xx] (Verganti, Page 10) The result is iPhone’s consistent climb with increases in market share, while its competitors suffer and struggle to find a suitable challenger. In order to pursue radical innovation, the company and leadership has to be truly confident in what they’re producing.
Some firms use design-consulting firms to implement the design driven model. Below is an example of this relationship.
The radical product will challenge the norm which people use as a reference point, thus leading to confusion. A steadfast belief can be key to success, as Apple CEO Steve Job said, “A lot of times, people don’t know what they want until you show it to them.”[xxi] (Verganti, Page 13) This line of thinking is a huge divergence from traditional user-centered innovation. As Clayton Christensen states, companies “…are so focused on chasing the needs of their clients that they lose sight of the big picture.”[xxii] (Verganti, page 14) The radical innovators “…give meaning to things…on our values, beliefs, norms, and traditions. In other words, they reflect our cultural model. And that, in turn, reflects what occurs in our personal lives and our society.”[xxiii] (Verganti, Page 14-15)
Firms like Apple employ multiple strategy models. Although just using one model of push/pull/design, will not be effective, there can be clear dominance of a specific model. To be effective, a company must keep in mind all three models and implement parts of all three. Below is an example of what Apple has done in the past.
Some Reasons to Implement Technology Push and Design Drive Models:
· Desired consumer does not realize the need
· Subconscious connections
· Dreams and aspiration the marketplace might have
· Cool and hip factor of the product
· The product meets the values and aspirations held by the target market
One cannot assume that radical innovation happens on daily scale but understand that radical innovation does take place and its impacts are enormous. The catalyst for the changes can be, “…rapid changes in the economy, public policies, art, demographics, lifestyles, and, last but not least, science and technology.”[xxiv] (Verganti, Page 15) The overlap of Technology Push Strategy and Design-Driven (Design Push) Strategy is the ‘sweet-spot’ for high performance/radical improvement and meaning/generating of new meaning.
Step To Becoming and Staying Competitive:
· Understand and evaluate markets, customers and competitive landscape to see where the market is headed and what opportunities it might present
· Keeping the future needs of customers in mind, predict and design radical innovative ideas-leapfrogging pass competitors
· Utilize design-innovation to offer ‘game-changing’ product
· The above must be offered at a reasonable price that is aligned with current economic, cultural and social needs
· Repeat process
Systematizing Innovation
| A |
n age old debate whether leaders are born or built; in the case of innovation, is innovation derived from innovative people? Or can innovation be simplified as a process which helps companies create innovative products/solutions for their clients? The third module suggests that, innovation can be implemented as a system.
Knowledge brokering is a method by which old ideas are used to create new ideas. These brokers “serve as intermediaries, or brokers, between otherwise disconnected pools of idea.”[xxv] (Hargadon & Sutton, Page 4) The brokers apply existing ideas to new fields/uses and “…implement[ing] it in a way that [is] accepted by the marketplace.” [xxvi](Hargadon & Sutton, Page 4) This cycle consists of four parts: “capturing good ideas, keeping ideas alive, imagining new uses for old ideas, and putting promising concepts to the test.”[xxvii](Hargadon & Sutton, Page 4) Understanding that having a reference of old ideas that are best business practices, models and technologies that are proven, brokers use the existing goldmine to develop new ideas. As one of the greatest inventors of all time Thomas Edison said, “First, study the present construction. Second, ask for all past experiences…study and read everything you can on the subject.”[xxviii] (Hargadon & Sutton, Page 5) Mr. Edison also said, “To invent, you need a good imagination and a pile of junk.”[xxix] (Hargadon & Sutton, Page 6) To collect this ‘junk’, companies hold internal and external forums to share, collect, and learn new ideas used in similar or different industries. The objective is to harness the imagination and methodology used by many different people.
The chaos of daily work life, dealing with personal life and other situation help us forget about the ‘junk’ one might use to create new ideas. To ward off this symptom, take field trips to different places like junk yards, toy stores, factories, etc. Also surround yourself in your office (and other places) with old ‘junk’ that helped you create ideas in the past. Keeping old ideas alive to better serve in creating new ideas can be a challenge as well. By having everyone involved in solving problems, with informal channel of open communication can allow for quicker solution and better products. Testing ideas without the presence of political pressures is a great advantage knowledge brokers bring to the table. As the final step the process, they test the idea solely on its merit and quickly move on if the idea doesn’t live up to testing.
Instead of working with an external Knowledge Broker, some companies opt to create internal departments to facilitate innovation. Innovation Program Office (IPO) at HP was one of these internal departments. The vision being IPO was to “create a business group-level separately funded organization to explore and develop innovation opportunities in adjacencies of that business group or even in entirely new areas that could extend its strategic reach.”[xxx] (Burgelman & Meza, Page 1) With 95% of the R&D budget going to existing products and only 5% going to develop new products, the IPO hoped to tap the innovative ideas from across the company and focus more on developing new products/services that will increase revenue. IPO leader Philip McKinney said, “we hoped by making an explicit focus on adjacencies and potential new growth areas, this would give R&D teams in PSG the impetus to create new businesses.”[xxxi] (Burgelman & Meza, Page 3) The structure was set up as: a project needed a champion who would have unwavering faith in the project, ideas would be submitted via Idea Central with respond and feedback in less than 30days (but typically in two weeks), after passing the initial criteria by the team, approved ideas would be provided a team to fully develop the idea and work out the financials and operational side of the idea. The idea thus develops into further stages with specialist leaders helping guide the idea further down the tube. In the entire process, no idea is prone to be dropped if it fails to live through the tests. The main objective is to improve financial results of the company, thus ideas failing tests most likely will not contribute positively to the bottom line.
Rite-Solutions used another but similar method to tap the collective innovative power of its employees. Mutual Fun was introduced to Rite-Solution employees so to harness any “idea that might help the company, either by saving money, developing a product or service, or developing new technology, the employees could create a stock that would be listed on Mutual Fun.”[xxxii] (Rao & Hoyt, Page 4) The central philosophy of trust drove this idea. The founders believed that “the currency of the company…the underpinning of everything we do.”[xxxiii] (Rao & Hoyt, Page 4) was trust. To have a open dialog, sharing of ideas, not punishing people for bad idea, rewarding for ideas that worked (profit sharing for first two years), and not applying blanket punishment of individual violations, served the company well. Along with financial incentives, the promotional structure was geared toward teamwork, collaboration and trust in fellow ‘citizens’. Although the company was mainly involved in defense contracts, it “was open to ideas for new products and leveraged extended their knowledge baste.”[xxxiv] (Rao & Hoyt, Page 6) For some companies, as is the case in Rite Solutions, decentralized company control can be beneficial. Although management had final say on which project moved forward, the choices for the direct was present by the ‘citizens’. The method of this was: employees introduce idea as a ‘stock’, everyone was giving equal amount of money to start with and they invested their money in ‘stocks’ they liked, the highest ranking ideas was given ‘seed money’ to develop and profit was shared. People were rewarded just for participating on regular basis even though they did not personally develop anything. “Mutual fun also enabled everyone in the company to come up with ideas, and to nurture those ideas without facing immediate review.”[xxxv] (Rao & Hoyt, Page 11)
A manager or a CEO can push or encourage employees by providing tools for employees to be innovative but it will not work if the entire structure and policies of the company do not support the effort. By its nature, innovation takes trials and trials can lead to failure. “Learning by experimentation is fundamental to solving problems for which outcomes are uncertain and where critical sources of information are non-existent or unavailable.”[xxxvi] (Edmondson, Page 2) The fear of failure can be economical or social.
(1) If a company encourages employees to experiment but then punishes them for failure, it does not fully support its strategy. “Normative influences, such as organizational culture and espoused values, influences employee beliefs and behaviors by establishing norms and standards that define appropriate and inappropriate forms of behavior.”[xxxvii] (Edmondson, Page 2)
(2) Second type of influences is instrumental influences, “pertains largely to formal reward systems and incentives, instrumental reward influence the ‘instrumentalities’, or costs and benefits, of experimentations behavior.”[xxxviii] (Edmondson, Page 2-3) Keeping these pressures and aligning all policies will best benefit stated goals for any experimentation a company might wish to conduct. “The finding that inconsistency leads to less experimentation among those under high evaluative pressure is consistent with the idea that multiple organizational conditions should be aligned in the same direction to support desired behaviors.”[xxxix] (Edmondson, Page 4)
Key Takeaways to Systematize Innovation:
- Provide a full structure for innovation where reward is provided and failure is accepted
- Trust people
- This can be very difficult, especially if the organization is very large.
- Keep an open mind about new idea
- Understand the pressures people face
- Support the employees to minimize pressure and reward risk taking within the parameters set forth by you.
- Observe
- Support employees in furthering their ideas
- Set up structures to review, implement and reward their ideas
- Allow experimentation
- The work on experimentations can be allowed on company time or off-work hours
- Tap the vast knowledge base of employees
- If you have a buy-in from the employees on your goals, tapping their knowledge can be a great asset. Employees will work hard to see the success of the idea.
Launching Innovations
| I |
n the previous three modules, we talked about how one can become more innovative, how to handle market dynamics and technological changes and how innovation can be systematized to better serve the organizations or persons. This final module of innovation will focus on how the final step of launching innovation in the marketplace should be handled.
Most companies focus on incremental changes over radical innovations. “Minor innovations make up 85% to 90% of companies’ development portfolios, on average, but they rarely generate the growth companies seek.”[xl] (Day, Page 3) To the determent of the promises radical innovation offers, “From 1990 to 2004 the percentage of major innovations in development portfolios dropped from 20.4 to 11.5-even as the number of growth initiatives rose. The result is internal traffic jams of safe, incremental innovations that delay all projects, stress organizations, and fail to achieve revenue goals.”[xli] (Day, Page 3) A study showed that, “only 14% of new-product launches were substantial innovations, but they accounted for 61% of all profit from innovations among the companies examined.”[xlii] (Day, Page 3) Companies should pursue projects “that push the firm into adjacent markets or novel technologies and can generate the profits needed to close the gap between revenue forecasts and growth goals.”[xliii] (Day, Page 3)
Although the risk of failure increases as new innovations are pursued, being totally risk-averse will be detrimental to future growth of a company. “The solution is to pursue a disciplined, systematic process that will distribute your innovations more evenly across the spectrum of risk.”[xliv] (Day, Page 3) Using two very helpful tools can break down this tall order: the risk matrix and the R-W-W screen. The first allows the user to graphically review risk “across an entire innovation portfolio.” [xlv] (Day, Page 3) The second tool, R-W-W “can be used to evaluate individual projects.”[xlvi] (Day, Page 3)
FIGURE 4.1 THE RISK MATRIX
“The less familiar the intended market (x axis) and the product or technology (y axis), the higher the risk.”[xlvii] (Day, Page 4) Channeling new markets with innovative products or technologies presents risks that can be determined by a few factors: target market behavior compared to current customers, brand relevance, and “how applicable its technology capabilities are to the new product.”[xlviii] (Day, Page 4) A competent management team will access all aspect of the risk; evaluate if the new product/technology fits the brand expectation from the customers point of view. Does the product or technology delivery timeline coincide with what customers are expecting? Is the product or technology vastly different than what customers expect? For example, the fast food company McDonald’s, attempted to add pizza to their existing menu but failed. This was due to customer expectations and the increased product delivery time. Quick service, coupled with standardized burgers did not accompany pizza well; the failure to deliver pizza less than one minute left was not favored by the market. To manage your project better than the example mentioned above, consider asking the following after the risk matrix is completed: are you able to manage the project(s) well? And, is “the distribution of Big I and little i innovations lopsided?”[xlix] (Day, Page 4) (Big I innovation refers to radical innovations as little i innovations refers to ambidextrous innovations). The danger is to have a lopsided mix favoring incremental innovations. In most companies, majority of the R&D budget is drained by incremental innovation, which allows for steady sales and meeting short-term goals but ignoring the crucial long-term health of the company. The use of risk matrix gives a quick view of product portfolio but R-W-W screen provides “a simple but powerful tool built on a series of questions about the innovation concept or product, its potential market and the company’s capabilities and competition.”[l] (Day, Page 4) The tool is not a magic bullet to kill bad innovations but it allows the user to see the “expose[d] faulty assumptions, gaps in knowledge, and potential sources of risk, and to ensure that every avenue for improvement has been explored.”[li] (Day, Page 4)
The R-W-W screen model forces the development team and management to ask some key questions: “Is the market real? Is the product real? Can the product be competitive? Can our company be competitive? Will the product be profitable at an acceptable risk? Does launching the product make strategic sense?”[lii] (Day, Page 7) For most companies, a no answer to first five questions would allow for discontinue of the project but many overlook a no answer to ‘Does launching the product make strategic sense?’ It is my belief that a company should follow its strategic goals, if the product has strong support/promise, company’s strategic goals should be re-evaluated or altered. A good example of this would be Apple’s reach into the iPod and iPhone markets. To align Apple’s future aspiration, the company changed its strategic goals and even changed its name to Apple Inc from Apple Computers.
Is it Real?
· Is the market real?
o Is there a need or desire for the product?
o Can the customers buy it?
o Is the size of the potential market adequate?
o Will the customers buy the product?
· Is the product real?
o Is there a clear concept?
o Can the product be made?
o Will the final product satisfy the market?
“The robustness of a market is almost always less certain than the technological ability to make something.”[liii] (Day, Page 7) One of the key concepts of the risk matrix model states that, “product failure becomes greater when the market is unfamiliar to the company than when the product or technology is unfamiliar.”[liv] (Day, Page 7) A study by consumer product company Procter & Gamble found that 70% of product failures happen when the market is not correctly assessed and understood. It is always better to understand the market instead of doing costly technology pushes. This leads to my second point on why market should be well understood. Technology pushes can be costly and be detrimental to a company’s image and bottom line. It is important that problem solving focus should be on what “problems should be solved or what customer desires need to be satisfied.”[lv] (Day, Page 7) In the “Marketsoft” case study, Greg Erman followed the right steps to determine which problem needs to be solved while keeping in mind is there will be market for his future product. Erman conducted “twelve in-depth customer interviews to validate the product concept.”[lvi] (Lassiter & Gardner, Page 5) The next goal is to ask: Is the market real? If the answer is yes, these four conditions should be satisfied: “The proposed product will clearly meet a need or solve a problem better than available alternatives; customers are able to buy it; the potential market is big enough to be worth pursuing; and customers are willing to buy the product.”[lvii] (Day, Page 9) In the Marketsoft case study, the company used Language Processing (LP) Method to understand information from potential customer interviews. To make the process standard, the company divided the process into three steps: preparing the teamwork environment, create the physical environment to encourage teamwork. Making uniform quality language, as different people use different language styles, all communication is unified. Lastly, the data is structured from abstract to high levels. (a) Product desire can be assed by “observational, ethnographic [research] and other tools to explore customers’ behavior, desires, motivations, and frustrations.”[lviii] (Day, Page 9) After this, (b) determine if consumers can buy it by studying barriers that might limit their abilities. Next ask, (c) is the market size adequate? If the market is too small, the product should not be produced. After all of this, the critical question is, (d) will the customer actually buy the product? Study their barrier to purchase, competitive products, substitutes, value proposition, cost, etc. The consumers might not be willing to give up the familiarity of the existing product thus refusing to purchase the new product. These are only some examples of variables to assess but the important point being that all aspects must be reviewed and discussed.
Can we win?
· Can the product be competitive?
o Does it have a competitive advantage?
o Can the advantage be sustained?
o How will competitors respond?
· Can our company be competitive?
o Do we have superior resources?
o Do we have appropriate management?
o Can we understand and respond to the market?
Can the product be competitive? Before the development starts, (a) ask if the product concept is clear. It’s crucial that everyone understands what is being developed. “As the project progresses and the team becomes immersed in market realities, the requirements should be clarified. This entails not only nailing down technical specifications but also evaluating the concept’s legal, social, and environmental acceptability.”[lix] (Day, Page 10) Once all of this is determined, (b) find if the product can be made.
There are some key questions to evaluate:
· How will the product be made?
· Does it require new technology or can existing technology and materials can be used?
· Will it be profitable?
· Can it be produced cost-effectively and delivered without a loss?
· Will it meet consumer friendly price point?
· Will the technology/materials used create a barrier to entry for competitors or can they easily create the same product?
There might be a market for it and the consumers might be willing to buy it, but if the product is a money loser, it doesn’t warrant its product. During the various stages of development, the product evolves. “Trade-offs are made in performance attributes; unforeseen technical, manufacturing, or systems problems arise; and features are modified.”[lx] (Day, Page 10) With each trade, the original concept erodes and the leftover product might fall short of original intentions. The inevitable erosion of original concept must be monitored as it might lead to a defunct final product.
Can we win? Can we defend the castle? Odds are that if there is an opportunity, you’re not the only one trying to utilize it. The establish market players will either copy your innovative product or create something even better. Three reasons for product failures are: ‘new product didn’t achieve its market-share goals, prices drop much faster than expected and market was small, or grew more slowly than expected.’[lxi] (Day, Page 10-11) Keeping these in mind, I will discuss what managers should do to test product’s competitiveness. (a) Does the product have a competitive advantage? Research to find if the utility provided by the product is unique or can it be fulfilled by other offerings in the marketplace. Seek possible cheap alternatives and see “whether the product offers additional tangible advantages- such as lifetime cost savings, greater safety, higher quality, and lower maintenance or support needs- or intangible benefits, such as greater social acceptability….and the promise of reduced risk that is implicit in a trusted brand name.”[lxii] (Day, Page 11) (b) If you do have the advantage, can the advantage be sustained? Although patent is the first line of defense, there are many other tactics one can use to lock in advantages. If your product is knowledge based, what insurances do you have that people with the knowledge wouldn’t leave and join/become competitors? “Can the company lock up scarce resources or enter into exclusive supply contracts?”[lxiii] (Day, Page 11) Although all of these tactics might seem harsh, seeking legal means to preserve ones competitive advantage is necessary for the product and company to be relevant in the marketplace. In certain industries, “products [are] relatively easy for…competitors to copy…but having an innovative business-model design isn’t something that’s so easy to replicate. The more layers there are to your competitive advantage, the better your chances of maintaining it.”[lxiv] (Sucher & McManus, Page 5) After employing all possible strategies to shore up your advantage, you must still question (c) how will competitors respond to your product. A competitor might never be able to challenge your product but management must have a strategy in place to deal with this threat. It is important to have a strategy in place to bare the effects of price drops.
If all the above are in place, a manager must now ask, can our company be competitive? “The team must determine whether or not the company’s resources, management, and market insight are better than those of the competition.”[lxv] (Day, Page 11) If the answer is not yes to all, the company will have a difficult time holding back the competition and remaining competitive. (a) Superior resources refer to “superior engineering, service delivery, logistics, or brand equity can give a new product an edge by better meeting customers’ expectations.”[lxvi] (Day, Page 11) An old Indian proverb states, ‘only stretch your feet as far as your blanket can cover them’. A great product, accepting market, competition at bay but if you do not have enough resources to cover consumer expectations; you will be left in the cold. A good example is Herman Miller’s restructuring of its resources. The company determined that it is vitally important to “share innovative business practices, which necessitated moving human resources, product development, production resources, and ideas across the organization.”[lxvii] (Sucher & McManus, Page 6)(b) Appropriate management talent and support is needed for the project. “Success requires a passionate cheerleader who will energize the team, sell the vision to senior management, and overcome skepticism or adversity along the way.”[lxviii] (Page 12) Although there must be a shared vision and passion, there must be room for constructive criticism so ideas can be refined. (c) Going back to importance of the market, a manager must ask ‘Can we understand and respond to the market?’ There are many methods to seek answers. Best way is to “repeatedly [seek] the feedback of potential customers to refine concepts, prototypes, and pricing ensures that products won’t have to be recycled through the development process to fix deficiencies.”[lxix] (Day, Page 12) The goal is to understand the pricing point earlier in the process and adjusting the price to make it market friendly. It is safe to say, “As customer size increase[s], typically so [do] the volume sold, product complexity, product price, and length of time between order placement and order fulfillment.”[lxx] (Sucher & McManus, Page 10) The processes and controls in place should be flexible enough to effectively take on the challenges as the market forces.
Is it worth doing?
· Will the product be profitable at an acceptable risk?
o Are forecasted returns greater than costs?
o Are the risks acceptable?
· Does launching the product make strategic sense?
o Does the product fit our overall growth strategy?
o Will top management support it?
Being in-tune with the market at all stages of development process can help the product become a success upon launch. But we must still ask, ‘is it worth doing?’ (a) Will the product produce revenue or are the costs too great? If the forecast lacks profit, the product should be discontinued. Historically financial projects have failed to accurately predict launch financial performance. To gain a better perspective, management “should depend on rigorous answers to the prior questions in the screen for their conclusions about profitability.”[lxxi] (Day, Page 12) (b) Next, it is important to understand the risks: “How will small changes in the price, market share, and launch timing affect cash flows and breakeven points?”[lxxii] (Day, Page 12-13) The smallest change in any particular number can have an enormous impact on the financials, while over-looking any potential threats or competitors can be harmful. The company Herman Miller uses Economic Value Added (EVA) tool to drive innovative idea decision-making using financials. The leadership team used this tool to better distribute and allocate resources across the organization. “To make business decisions, projected impact on sales and cost of capital were evaluated, and those projects that resulted in a positive EVA evaluation would be then be accepted.”[lxxiii] (Sucher & McManus, Page 5) Clear guidelines help employees clearly understand the idea evaluation process. EVA also spread business literacy across the organization and helped in performance evaluation.
As stated earlier, companies take on products without clearly evaluating how the product fits into over all corporate strategy. A good manager must ask, ‘does launching the product make strategic sense?’ The product can be a blockbuster product but it might cause harm to other products in the portfolio and alter brand image.
Evaluate:
· Does the product fit our overall growth strategy?
· Will top management support it?
On the first point, how will the product contribute to “driving the expansion of manufacturing, logistics, or other functions? Will it have a positive or a negative impact on brand equity? Will it cannibalize or improve sales of the company’s existing products?”[lxxiv] (Day, Page 13) A short-term spike in sales might not be worth negative impact on the company. The product might have negative reaction from other stakeholders and it might harm their businesses. In the E Ink case study, the company had a great technology push product but with little success at mass-market adoption. To sustain the cash flow, management decided to enter into the retail sign sector. In the end, the idea failed and the retail sign business flopped. The desperate move to provide liquidity; the company abandoned its core strategic goals. All spectrum of the impact of the new product must be evaluated. To the second point of management support; if the development team rigorously go through R-W-W screen, they will have an easier time gaining top management support.
Addition Guiding Points
Ambidextrous Innovation
· Incremental- small changes to portfolio based on customer feedbacks, doesn’t change the architecture
· Discontinuous/revolutionary- you make completely different product
· Architectural reconfiguration- change your process of production
Issues blocking the innovation progress
· Not enough deviation
· Incremental strangles
o Incremental is rather safe, less risky, requires less budget, keeps shareholders happy, focuses on the known instead of unknown, keeps in line with creativity, as failure/risk is low-institutional hostility is limited or removed
Key Element to achieving integration
· Clear, emotionally engaging and consistent vision
· Senior team with diverse competences
· Simple core values that span innovation streams
· Common-fate reward system for all senior team members
How do you innovate in the downturn economy?
Work under one roof and under one management team to take advantage of resources and leverages while working independently of each other but sharing information and ideas. If there is no leverage to be had, then separate the divisions.
Supporting Innovation Internally
· Zero tolerance policy on failure is bad for innovation
· Intelligent failure (ground rules)/out of control failure
· Internal sponsorship
· Internal culture support risk taking
Guideline for intelligent failure
o Start with prior assumption to learn from prior mistakes
o Start small so the calculated risk is manageable
o Keep the feed-back loop short to make it relevant and timely/failing fast
o Focus on learning while allowing for mistakes instead of focusing on excellence
o Freedom to fail “should not be confused with a license to commit foolish mistakes.”
o Psychological safety net: using intelligent learning instead of making mistakes
The 7 points to innovate in the downturn:
1. Don’t panic, no layoffs
2. Plan of ambidextrous innovation
3. Focus (going back to your core)
4. Plan for intelligent failure
5. Keep an eye out for opportunities- peripheral vision
6. Stop digging- if you have a bad project, abandon it.
7. Understand processes and innovate all around to better use resources
Sources
[i] Gregory Berns. From Perception to Imagination-How Iconoclasts Free Themselves from Conventional Thinking. Boston: Harvard Business Press, 2008.
[ii] Gregory Berns. From Perception to Imagination-How Iconoclasts Free Themselves from Conventional Thinking. Boston: Harvard Business Press, 2008.
[iii] Gregory Berns. From Perception to Imagination-How Iconoclasts Free Themselves from Conventional Thinking. Boston: Harvard Business Press, 2008.
[iv] Gregory Berns. From Perception to Imagination-How Iconoclasts Free Themselves from Conventional Thinking. Boston: Harvard Business Press, 2008.
[v] Gregory Berns. From Perception to Imagination-How Iconoclasts Free Themselves from Conventional Thinking. Boston: Harvard Business Press, 2008.
[vi] Gregory Berns. From Perception to Imagination-How Iconoclasts Free Themselves from Conventional Thinking. Boston: Harvard Business Press, 2008.
[vii] Gregory Berns. From Perception to Imagination-How Iconoclasts Free Themselves from Conventional Thinking. Boston: Harvard Business Press, 2008.
[viii] Theodore Levvit, Creativity is not Enough. Boston: Harvard Business Press, 2009
[ix] Theodore Levvit, Creativity is not Enough. Boston: Harvard Business Press, 2009
[x] Theodore Levvit, Creativity is not Enough. Boston: Harvard Business Press, 2009
[xi] The S-Curve and Its Strategic Lessons-What Curve Are You On. Boston: Harvard Business Press, 2009
[xii] The S-Curve and Its Strategic Lessons-What Curve Are You On. Boston: Harvard Business Press, 2009
[xiii] Travis D. Merrill. David B. Yoffie, iPod vs. Cell Phone: A Mobile Music Revolution? Boston: Harvard Business School, 2008.
[xiv] Roberto Verganti, Radical Pushes: Placing Design-Driven Innovation in the Strategy of a Firm
[xv] Ibid
[xvi] Ibid
[xvii] Ibid
[xviii] Roberto Verganti, Radical Pushes: Placing Design-Driven Innovation in the Strategy of a Firm
[xix] Ibid
[xx] Ibid
[xxi] Ibid
[xxii] Ibid
[xxiii] Ibid
[xxiv] Ibid
[xxv] Andrew Hargadon, Robert I. Sutton, Building an Innovation Factory Boston: Harvard Business Review, 2000.
[xxvi] Ibid
[xxvii] Ibid
[xxviii] Ibid
[xxix] Ibid
[xxx] Robert A. Burgelman, Philip E. Meza, Innovation at HP: The Role of the Innovation Program Office (IPO)
[xxxi] Ibid
[xxxii] Hayagreeva Rao, David W. Hoyt, Rite-Solution: mavericks Unleashing the Quiet Genius of Employees Stanford, CA: Stanford Graduate School of Business, 2006.
[xxxiii] Ibid
[xxxiv] Hayagreeva Rao, David W. Hoyt, Rite-Solution: mavericks Unleashing the Quiet Genius of Employees Stanford, CA: Stanford Graduate School of Business, 2006.
[xxxv] Ibid
[xxxvi] Amy Edmondson, Promoting Experimentation for Organizational Learning: The Mixed Effects of Inconsistency Organization Science, June 2004.
[xxxvii] Ibid
[xxxviii] Ibid
[xxxix] Ibid
[xl] George S Day, Is It Real? Can We Win? Is It Worth Doing? Managing Risk and Reward in an Innovation Portfolio Boston: HBR, 2007.
[xli] Ibid
[xlii] Ibid
[xliii] Ibid
[xliv] George S Day, Is It Real? Can We Win? Is It Worth Doing? Managing Risk and Reward in an Innovation Portfolio Boston: HBR, 2007.
[xlv] Ibid
[xlvi] Ibid
[xlvii] Ibid
[xlviii] Ibid
[xlix] Ibid
[l] George S Day, Is It Real? Can We Win? Is It Worth Doing? Managing Risk and Reward in an Innovation Portfolio Boston: HBR, 2007.
[li] Ibid
[lii] Ibid
[liii] Ibid
[liv] Ibid
[lv] Ibid
[lvi] Joseph B. Lassiter III, Diana S. Gardner, Marketsoft Boston: HBR, 2006.
[lvii] George S Day, Is It Real? Can We Win? Is It Worth Doing? Managing Risk and Reward in an Innovation Portfolio Boston: HBR, 2007.
[lviii] Ibid
[lix] Ibid
[lx] Ibid
[lxi] George S Day, Is It Real? Can We Win? Is It Worth Doing? Managing Risk and Reward in an Innovation Portfolio Boston: HBR, 2007.
[lxii] Ibid
[lxiii] Ibid
[lxiv] Sandra J. Sucher, Stacy E. McManus, Herman Miller(B) Creating Innovation Streams
[lxv] George S Day, Is It Real? Can We Win? Is It Worth Doing? Managing Risk and Reward in an Innovation Portfolio Boston: HBR, 2007.
[lxvi] George S Day, Is It Real? Can We Win? Is It Worth Doing? Managing Risk and Reward in an Innovation Portfolio Boston: HBR, 2007.
[lxvii] Sandra J. Sucher, Stacy E. McManus, Herman Miller(B) Creating Innovation Streams
[lxviii] George S Day, Is It Real? Can We Win? Is It Worth Doing? Managing Risk and Reward in an Innovation Portfolio Boston: HBR, 2007.
[lxix] Ibid
[lxx] Sandra J. Sucher, Stacy E. McManus, Herman Miller(B) Creating Innovation Streams
[lxxi] George S Day, Is It Real? Can We Win? Is It Worth Doing? Managing Risk and Reward in an Innovation Portfolio Boston: HBR, 2007.
[lxxii] Ibid
[lxxiii] Sandra J. Sucher, Stacy E. McManus, Herman Miller(B) Creating Innovation Streams
[lxxiv] George S Day, Is It Real? Can We Win? Is It Worth Doing? Managing Risk and Reward in an Innovation Portfolio Boston: HBR, 2007.
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