Wednesday, March 24, 2010

Bootstrap Innovation - Only in a Virtual World

In a recent blog post that I was reading (by Kathy Harris from Gartner), it was suggested employees who are enthusiastic and committed to innovation, should start a “Grassroots Pilot”. It sounds like an interesting idea but I can’t help wondering if the challenges aligning personal motivations and corporate motivations would just be too much to make this a sustainable model. I’d be very interested in any examples that anyone can share about successful and sustainable intrepreneurship.

My observations and experience point to innovation being like the Middle East; what you see depends on your frame of reference. First there is Entrepreneurial innovation, driven by individuals or small teams where the underlying personal motivation is most often change (or "to make a difference”). Second there is (large or small) Corporate innovation which is most often driven by finding or protecting competitive advantage. Here, change is very often an anathema and regarded as a risk to production. Third is Economic innovation where governments and agencies are nobly seeking growth. Often breaking down competitive barriers to new entrants is applauded by economists and change is just an inevitable outcome.

The different frames of reference almost inevitably lead to problems, conflict and misalignment because of the differing motivations. Problems are inevitable where the enthusastic Entrepreneur attempts to lead innovation for the Corporation. Conflict is inevitable where the independant Corporation is left to effect Economic reform. Misalignment is inevitable where the (politically driven) Economy attempts to pick winning innovations.

So the Grassroots pilot sounds fraught. At a minimum (and from any frame of reference) innovation takes courage, and confidence (as Kathy highlights in her blog). Workers who take an independent grassroots initiative, without strategic backing from their employer for such intrepreneurship may be brave and self confident, but they also appear doomed. Sponsorship can be used to mitigate this risk of misalignment. However that necessary integration is still relying on the sometimes accidental advantages of heroic efforts and personal patronage.

While there are a few notable exceptions, today's management is founded on classic principles of a clear hierarchy, alignment to strategies and efficient division of roles and responsibilities. As discussed by Gary Hamel this classic management model may be showing signs that it not adapting to the newest demands for growth and innovation in the network world. Perhaps grass-roots pilot would be better replaced by participation in open innovation and the collaborative innovation models promoted by Roberto Verganti.

I hope this provides at least some small contribution to help the cause of better innovation.

I’m interested in feedback and views to help achieve better product development. Please contact me to share your views and thoughts.

Thursday, March 18, 2010

Has Popular Management Practice Become Dated and Obsolete?

Reading a recent blog I was struck by the confidence and clarity that Gary Hamel seemed to be identifying a critical flaw in the DNA of popular business management. He cites a recent survey that found “only 20% of employees are truly engaged in their work — heart and soul”. While the respondents laid much of the blame for their lassitude on uncommunicative and egocentric managers, the question he posed is “if there’s not some deeper organizational reality that bleeds the vitality and enthusiasm out of people at work.”

The blog provides some thought provoking observations about the (lack of) humanity of our business world.

Why is there a hole in the soul of business? Before answering the question its useful to first consider the metaphysical characteristics that a business requires. For a listed company it appears to be very simple. The stock market ensures the dominant corporate purpose remains focused on growth and protection of shareholder value. Customers, suppliers, workers, technology and capital are all engaged and employed to achieve that over arching goal. Management skills are used to apply the resources and navigate the environment so as to realise greater shareholder value. The personally inspiring leadership and “big hairy audacious goals” are only kept in place while they generate greater EPS. In some companies founding owners may have an opportunity to redefine corporate purpose and deflect the market’s myopic obsession with quarterly earnings expectations. But for the most part it appears companies have a very small soul that has already been sold to the bulls and the bears. That means (using Hamel's own delightful analogy about corporate innovation) inspiring a soul in a business may be just like teaching a dog to walk on its hind legs; it’s a great party trick but in reality its NOT really part of the corporate DNA.

So is there a different business-beast (perhaps a “net-enterprise” model) that actually does have biped DNA? If there is, I think it’s probably web based, with a collaborative business model permitting small partnerships to form and reform, using open-innovation, online manufacturing or cloud computing, open source business tools and web sales channels. This “net-enterprise” model assumes that the opportunity to build and sustain a successful vocation provides individuals with the self-actualisation necessary for meaning, purpose and a soul in their work. And it appears the “net-enterprise” model is already thriving. It can be found in many forms that range from individual entrepreneurs, to the supply chain of multinational aggregators (like Dell).

So when would we hit that evolutionary tipping point and see the fall of four legged fossils and the rise of two legged humanity? Many nations are already encouraging the change with national high speed broadband network infrastructure building out their “knowledge economy”. But what could I do to accelerate the move to more humanity in business? Evangelise the practice of open innovation, promote the success of those leading gazelles and help drive management evolution.

I’m interested in feedback and views to help achieve better product development. Please contact me to share your views and thoughts.

Thursday, March 11, 2010

Are Businesses Becoming Less Innovative?

Comparing the "Innovation Intensity" in a sample of 120 typical tier 1 companies with their "Innovation Intensity" five years ago (in 2004/05) suggests innovation has declined about 15% for an average tier 1 business.

Using the same analysis method described in an earlier blog, the results seem very clear:

The findings for the sample of 120 tier 1 companies:

  • 20% have stronger then the average Innovation Intensity and their Innovation Intensity has grown, typically 30-35% since 2004/05 - The Innovation Champions
  • 21% have stronger then the average Innovation Intensity but their Innovation Intensity has fallen, typically 20-25% since 2004/05 - The Innovation Deniers

  • 16% have weaker then the average Innovation Intensity but their Innovation Intensity has grown, typically 30-35% since 2004/05 - The Innovation Aspirants
  • 44% have weaker then the average Innovation Intensity and their Innovation Intensity has fallen, typically 40-45% since 2004/05 - The Innovation Chumps
The conclusion:
  • most companies appear to be generating significantly less innovation compared with 5 years ago.
And who have been Innovation Champions and the Innovation Chumps over the past 5 years? Well from my sample of tier 1 businesses the list is (full details will be available from my website):

The Innovation Champions:

The Innovation Deniers:

The Innovation Aspirants:

The critical question from this analysis is why. Why has Innovation Intensity declined? Is it all down to the GFC? Challenging times are expected (in some people at least) to inspire entrepreneurship and innovation , however that fighting response may not be what we see from established businesses.

I’m interested in feedback and views to help achieve better product development.

Thursday, March 4, 2010

No one innovates because it has no business value.

Sometimes, just because it’s taken for granted, the obvious becomes a really important thing to test. Maybe it was that one cynical conversation too many with the CxO about “real” priorities, operational performance, capacity expansion and business efficiency that set me doubting whether product development really is necessary or useful. A well managed RFI/RFP process controlled by Procurement may be a much better way to engage hungry and competitive suppliers and source new stuff. After all “Elite Circles” and “Consortia” are two of the Collaborative Innovation models proposed by Roberto Verganti. And they sound like an RFx process to me.

So how to check out who is really innovating and whether they are actually generating any tangible value. A rough measure of innovation intensity can be gained from surveying the web news. Pick a company and then, using Google’s News Archive Search, measure how many web articles mention their name and in turn how many of those same articles include the word “innovation”. It’s crude and simple but seems to pass the sanity check and the ratio does yield an independent measure that at least approximates a company’s “innovation profile”. I know there are many uncontrolled variables and it certainly doesn’t have the rigor of professional research but its “satisficing”.

Based on some background experience plus a few areas of personal business interest I picked 100 listed companies. I limited the survey to 2009/10 news articles to keep it current and obviously because I was also searching for the word “innovation” had to stick with English language web sites. Occasionally I found a smaller business that didn’t appear to have published any qualifying news articles and so unfortunately had to exclude them from my sample.

And what did this survey show? The full results will be available from my web site but initially this is a summary of the "top 30" companies in my sample.

  • Based on this measure of “Innovation Intensity” (II) there’s a wide range of innovation activity occurring across different companies.
  • The average company has 2.5% of their news articles including a reference to “innovation”
  • A small group (approx 5% in the total sample) are talking about innovation up to 3 and 4 times more often.
  • However there’s also an even larger group (approx 25% in my sample) that don’t appear to be associated with “innovation” much at all.
  • The firm conclusion; it’s true not every business is embracing or even interested in innovation but some really are very interested.
So who they are and why?

My simple minded assumption was that company’s innovate (or don’t) because it does (or doesn’t) add value. While product development is certainly fun in itself, I’m still searching for that tier 1 listed company whose primary business goal is just “having fun”.

A useful mantra is that “the success of innovation is ultimately judged by the market”; through things like competitive differentiation, brand reputation and premium pricing. Financial accounting is an industry that’s knee deep in metrics quantifying the market valuation of a business. So after some thought the metric chosen to quantify the relative value of innovation was the simple P/E ratio. The market is certainly the arbiter of a company’s P/E and Nobel prizes have been won showing these markets are informed and efficient. So, all things being equal, it’s expected that more innovation would help generate higher P/E. While (as ever) all things are never equal, exceptions can become obvious and, after all, I’m only searching for some hope, so even a trend would be useful. To avoid some of the “exceptional market valuations” the stock market creates, my sample of companies was restricted to a mid-range market valuation of 5<>30.

So what happens if this Innovation Intensity (II) is now correlated against a company’s current P/E? Because the II Index was captured using only 2009/10 news articles there’s an implied assumption that innovation “released” to the market over the past 12months it will influences the current market’s view of a company’s P/E ratio.

And what did the correlation show? Well as expected it showed a range of results but the analysis indicated (with some relief) greater Innovation Intensity (II) is associated with higher company valuations (P/E).

In the Telecoms and Communication services sectors this trend was the most positive:

In the Technology and IT services sector (which often brings much of the technical innovation to the rest of the market) the trend was also positive:

However in some sectors including Consumer Products and Financials the correlation between a company’s Innovation Intensity (II) and its market valuation (P/E) was actually negative. The implication is that more innovation for these company’s may actually erode market value.

Perhaps innovation becomes a distraction or a disruption from the more necessary stability, security and control:

So, what does it all mean? Well with some personal relief it does appear to provide reassurance that new product development is worthwhile, at least in some of the more technology or design based industries. But it’s also a reminder that innovation is not valued by the market in every industry. That’s not to say innovation isn’t important to Banks (for example) but the analysis does suggest any innovation they undertake may be more internal and unseen to the market. The analysis also raises a variety of other questions about trends and profiles to further qualify the insight into innovation.

And the winner? Well in my searching at least I couldn't find any company with a higher Innovation Intensity than Amdocs Limited. Almost 1 item in 10 from their 2009/10 web news references "innovation". Now does that sounds like fun?

I’m interested in feedback and views to help achieve better product development.

Wednesday, March 3, 2010

“It’s important to get the balance right!" Or is it?

Over the past couple of weeks I’ve been working on a small new product development challenge posted by one of the Open Innovation forums. It’s a really inspiring initiative; designing a 6,000 litre rain water storage system costing less than $100 that families across rural communities in a region of south west India can build and maintain.

Circumstances at the time meant I was tackling the work solo. So I found myself swinging between the practical world of structural analysis, high level design, detailing, cost engineering, etc, and then switching my mind into the creative world of cultural empathy, problem solving, invention etc.

As a result I was left questioning whether a cross-functional team with individual expertise in each of the key disciplines would be more likely to achieve an optimal result. But then it occurred; herding cats has its limitations and that significant insight or the special break-through are more likely to be achieved when only one or two people take up the challenge.

So if I’m looking for a safe and effective incremental development, the traditional project team probably offers more advantages (although it needs the discipline of the project management process to maintain cross-discipline coordination and team alignment). However if new or radical rethinking is needed then the individual designer or architect is essential to provide that break-through thinking and to direct the thought leadership.

And it looks like this observation is supported by the science. An innovation model researched by Roberto Verganti appears to validate this difference. Apparently based mostly on studies of Italian innovation success, it appears individuals with their supporting hierarchies are more successful at driving radical innovation, while flat teams with their project management coordination achieve better incremental improvements and adaptations.

For me, the really fascinating epiphany offered by this model is that radical innovation and break-through meaning can come in two flavours. The first is a Design Driven flavour where the radical innovation is based on inventing form, meaning and value. The second (possibly) more familiar flavour is Technology Push where the innovation is based on inventing function, purpose and utility. Occasionally it’s even possible for these two radical innovation drivers to align.

And the research appears to show this radical innovation is not achieved through user centred requirements analysis. Instead it is achieved by external interpreters (designers, architects and thought leaders) observing the environment from outside and seeking to find new meaning or capability that can then be proposed to the market.

So back to the self doubts inspired while working solo on my water storage challenge. It appears Open Innovation methods may offer an advantage when searching for break through solutions. Inviting participation from across the global community allows individuals to take part without imposing the constraints of a corporate cross-functional project team. While the result remains simply a proposal for evaluation, the open innovation approach appears to bring better opportunity for radical prototypes (just like a fashion parade or a motor show) where buyers and subject matter experts can experience the “what if”.

I’m interested in feedback and views to help achieve better product development.