Category Archives: blog

Are Trump’s Budget Cuts Good For Innovation?

By | blog, Innovation | No Comments

Donald Trump might just succeed in bringing jobs and innovation back to America despite himself.

Even a stopped clock is right twice a day.
– Marie von Ebner-Eschenbach

Ian McGugan points out an interesting innovation paradox in the April 2017 edition of The Globe and Mail’s Report on Business Magazine. While as a society, we worry about the aging population and our collective ability to support them with a declining workforce participation rate, we also fret about robots taking our jobs. Are there not enough jobs or not enough people, which is it folks?

This concern about the impact of innovation is nothing new.  Throughout economic history, there have always been 2 constants when it comes to innovation:

  1. Fear
  2. Anticipated job cuts.

Economic history teaches us that that both of these feelings are usually misplaced and that technological innovation leads to an increased level of employment and wealth.  As Matt Ridley outlined in the Rational Optimist, over the recorded history of man, trade, socialization and economic specialization allowed humans to build up surpluses of goods that could be sold (or traded) at a profit, allowing humans to transition from a life of sustenance to one of wealth.

Wash. Rinse. Repeat.

The surplus of goods eventually became capital that was available for experimenting with and developing (i.e. innovation) new automated production and manufacturing processes which accomplished two things:

  1. Reduced the amount of manpower required to produce a given product.
  2. Reduce the cost of a given good or services, allowing it to become more affordable to the general public.

As a result, the general public had more disposable income, which allowed them to demand a wider variety of goods and services.   The increase in demand forced a reallocation in the supply of labor from the industries disrupted by innovation to the production of new goods and services.

This happened with the development of the plow, the Guttenberg press,  water and steam powered weaving looms, electricity and the Internet.  Despite initial fears, overall there was an increase in GDP associated with these and other innovations.

So where does Donald Trump figure into all this?

Donald Trump’s Dumb Luck?

President Donald Trump’s budget cuts, laid out in his March 2017 budget blueprint, might actually stimulate innovation. This despites claims by pundits and opponents that it could set back scientific and technological breakthroughs.

Technology experts argue that historically, government funding played a critical role in the development and commercialization of new technology. Funding cuts to federal agencies which support research and development could hurt American innovation and manufacturing,  putting future opportunities for job creation at risk.

But does government spending really promote innovation?  Or in other words, is innovation driven from the top down, or bottom up.  According to Nassim Taleb’s book Antifragile, and echoed by Matt Ridley in the Rational Optimist, top down innovation, guided by bureaucrats, academics and politicians creates fragile economic systems with little impact on GDP, while bottom up innovation, driven by real business problems and on the ground tinkering, is what creates real change and lasting economic value.

What if Donald Trump’s economic policies remove the meddling of government from the innovation process and unleashes the time proven power of bottom up innovation and job creation?

Can you say 4 more years?

The Path of Innovation

By | blog, Innovation | No Comments

Welcome to Extreme Innovations’ deep dive into the practical aspects of innovation.  Our hope is that after reading this ongoing series, you come away with a better understanding of how to address the following organizational challenges in your day to day business.

  • Balancing innovation and shareholder returns.
  • Identifying and overcoming barriers to innovation.
  • Properly defining individual innovation challenges.

“The myth of innovation is that it starts with entrepreneurs, but it really starts with people having fun. The Wright brothers weren’t trying to build an airline, they were saying, “Holy shit, do you think we could fly?” The first kids who made snowboards, they just glued skis together and said, “Let’s try this!” With the web, none of us thought there was money in it. People said, “This document came from halfway around the world. How awesome is that!”
– Tim O’Reilly

wind-turbine-1149604_500Innovation

Exactly what is it?

The one thing we can say for certain about innovation is that it is as difficult to define as it is to enact. A blanket term, a buzzword often spoken for the sake of it – businesses large and small agree that it is crucial but many fail to carry out the process of actually doing it.  This leaves us with a problem.   How do we go about doing something that we have trouble defining exactly what “it” is?  How do we get to the point where an organization understands and executes on an innovation strategy?

What Next?

Over the course of the following few weeks, Extreme plans to delve into the concept of innovation with the goal of highlighting the inherent complexities involved in “coming up with something new”.  What follows is a synthesis of Extreme’s experiences combined with research from innovation thought leaders and experienced practitioners.  Discussion topics include:

Our goal with the Innovation Series is not so much to tell you that “you are doing it wrong”, but to foster a discussion in regards to both the necessity and difficulty of purposeful innovation.

Innovation is the specific instrument of entrepreneurship. The act that endows resources with a new capacity to create wealth.

– Peter Drucker

Putting It All Together: Understanding the Innovation Value Chain

By | blog, Innovation | No Comments

thumb-1188492_1920-2Implementing an innovation strategy at a company requires a dedicated process for nurturing and commercializing
valuable ideas, much like any other production line activity; leveraging the organizational ability to deliver near-term results to invest in the research needed for perpetual results year after year.1)Govindarajan, Viyay and Desai, Jatin.  Innovation Engine: Driving Execution for Breakthrough Results

The Innovation Value Chain

The key to success in corporate innovation is using the method in the right place at the right time. The goal is to build a culture that:
– Fosters the right type of innovation in the right space.
– Has specialized innovation departments/projects.
– Avoids ad hoc innovation approaches.
– Reduces risk through iteration
– Has the framework to transfer successful innovations to the company as a whole.

What Might This Look Like?

Innovation Management

Goal: Get executives to understand that innovation is a process.
Change mindsets to understand risk in order to create future revenue.
Understand that while concepts can be found throughout the company, the refinement of these ideas into actual projects should be compartmentalized.
Encourage interactions and vetting of ideas outside the organization.

Operations

Goal: Minimize bureaucracy
Reduce operational guidelines for those involved in innovation.
Develop a process to export changes from the innovation group to the rest of the company.

HR

Goal: Find the right personnel.
Develop a compensation plan that motivates innovation processes.
Recruit from beyond the organization.

Sales

Goal: Seed new offerings with clients.
Listen to feedback from customers about the pains they are trying to solve.
Find potential customers interested in testing innovative products.

Finance

Goal: Approach innovation as an investment rather than as a cost.
Dedicate a budget for innovation.
Structure the budget like a venture capitalist portfolio.

References   [ + ]

1. Govindarajan, Viyay and Desai, Jatin.  Innovation Engine: Driving Execution for Breakthrough Results

The Micro Level: Working Like A Startup

By | blog, Innovation | No Comments

In the startup world, ‘not working’ is normal.
– Paul Graham

Tackling Individual Innovation Challenges By Playing Fast and Loose.

Despite the multitude of articles advising you to strategize like a startup, the only place where you should apply this
office-594119_350thinking is when tackling individual innovation challenges.1)www.theglobeandmail.com/report-on-business/careers/leadership-lab/think-like-a-startup-and-start-to-thrive/article19313273/2)http://www.inc.com/janine-popick/stop-acting-your-age-5-ways-to-think-like-a-startup.html3)http://www.forbes.com/think-like-a-startup/ Almost all innovation efforts have the bumps in the road. Design schedules invariably slip and that prototype ends up exceeding the projected cost. In other terms, innovation is not reactive, staged or managed. It’s proactive and unwieldy with undefined and unanticipated, though significant, outcomes, if you’re lucky.
How you innovate depends on the type of innovation you are dealing with. The best way to get some clarity on the matter is to ask yourself three questions about the challenge in front of you:4)http://www.europeanbusinessreview.com/?p=2112

1. Ask the right question

The first step towards promoting a culture of innovation is to ensure that you’re working on challenges of strategic importance

2. Ask the question the right way

After you have figured out your critical challenges, the next step is to evaluate them properly.

3. Ask the question to the right people

Innovation requires a departure from standard thought processes. You need to look at challenges and opportunities from different angles. Unfortunately, it is difficult to operate with new perspectives when you are an expert in a field. As a result, the best breakthroughs are often found by engaging with alternate sectors of expertise.
Asking these questions ensures that you don’t overlook the amalgamate nature of innovation and that you use the correct strategy when handling an innovation challenge.5)https://hbr.org/2013/07/before-you-innovate-ask-these6)http://www.innovationexcellence.com/blog/2015/11/28/how-can-you-innovate-better-with-the-3-questions-startups-always-ask A good place to start when attempting to classify innovation challenges is with a table that classifies an innovation challenge along two axis, the problem definition and domain definition.7)https://hbr.org/2013/02/before-you-innovate-ask-the-ri Once defined, you have a better understanding of the tasks ahead, the resources required and the ability to project how potential resolutions fit into the overall context of the company.

Problem Definition: How clear is the product or problem defined? Is there a clear directive to the specific problem you want to solve?
Domain Definition: Is there knowledge required to solve the problem clearly identified?

Screen Shot 2016-05-11 at 2.29.45 PM


Basic Research:
The systematic study directed toward better knowledge or understanding of the fundamental aspects of phenomena and of observable information without specific applications towards goals or products in mind. It is longview, high-reward research that provides the foundation for technological progress.8)https://www.law.cornell.edu/cfr/text/32/272.3

Breakthrough Innovation: An organization knows what they want to solve, but they don’t know how to solve it. Breakthroughs often occur by reaching outside of an organization and synthesizing knowledge across domains.9)http://www.innovationmanagement.se/2015/05/27/systematizing-breakthrough-innovation-study-results/
Examples of cross-domain innovation include:10)http://www.europeanbusinessreview.com/?p=2112

  • Airlines improved airplane turnaround times by studying race car pit crews.
  • Hospitals improved their check-in process when they consulted hotels.
  • Oil transmission companies found better ways to seal cracked pipelines when they studied the self-healing properties of capillaries.
  • Medical device manufacturers were able to better understand how angioplasty balloons expand and contract in blood vessels by analyzing automobile airbags.
  • A whitening toothpaste was developed by studying how laundry detergent whitens clothes.

Sustaining Innovation: Improves existing technological processes but does not create new markets or value networks. Only develops existing ones with better value, allowing the companies to compete against each other’s sustaining improvements.11)Christensen, Clayton (2011). The Innovator’s Dilemma: The Revolutionary Book That Will Change the Way You Do Business. HarperBusiness Examples include improved machinery performance and improved drug efficacy.

Disruptive Innovation: Defined by Clayton Christensen as, “An innovation that is disruptive allows a whole new population of consumers at the bottom of a market access to a product or service that was historically only accessible to consumers with a lot of money or a lot of skill.12)http://www.claytonchristensen.com/key-concepts/ Disruptive innovations typically target non-consumers of a section and require a new business model, because the value they create isn’t immediately obvious.

It is at the level of individual projects where startup axioms come into play, where organizations can bypass rules and processes in order to foster creativity and experimentation, with the goal of developing new products and services, particularly those of a disruptive nature.

References   [ + ]

1. www.theglobeandmail.com/report-on-business/careers/leadership-lab/think-like-a-startup-and-start-to-thrive/article19313273/
2. http://www.inc.com/janine-popick/stop-acting-your-age-5-ways-to-think-like-a-startup.html
3. http://www.forbes.com/think-like-a-startup/
4, 10. http://www.europeanbusinessreview.com/?p=2112
5. https://hbr.org/2013/07/before-you-innovate-ask-these
6. http://www.innovationexcellence.com/blog/2015/11/28/how-can-you-innovate-better-with-the-3-questions-startups-always-ask
7. https://hbr.org/2013/02/before-you-innovate-ask-the-ri
8. https://www.law.cornell.edu/cfr/text/32/272.3
9. http://www.innovationmanagement.se/2015/05/27/systematizing-breakthrough-innovation-study-results/
11. Christensen, Clayton (2011). The Innovator’s Dilemma: The Revolutionary Book That Will Change the Way You Do Business. HarperBusiness
12. http://www.claytonchristensen.com/key-concepts/

Motivating Employees: Rewarding Innovation

By | blog, Innovation | No Comments

Oh why do I live this way? (Hey, must be the money!)

– Nelly, “Ride Wit Me”

Contrary to the musing of world renown performer, Nelly, motivating employees to innovate isn’t about the money.  In fact, motivating employees is so challenging and complex, there is an entire field of study devoted to it.

workstation-405768_500Motivating employees to to take on the risks associated with innovation ratchets up the challenge even more.

In many companies, the innovation “assignment” is often given to longstanding corporate cronies. In many executives’ minds, the idea of taking the best and brightest salespeople, supply chain managers or customer service experts and giving them a 2-to-3 year assignment to think about new ways to do old things is a non-starter. As a result, the in-house corporate innovation team is generally substandard and inclined to fail. DARPA offers an excellent model to build a reward system for innovation professionals.

One of the major issues when it comes to corporate innovation is how to incentivize high performing employees to get involved with the initiative. Compensation for innovation must harmonize the risks and rewards associated with the development of new ideas. Entrepreneurs and initial investors who launch a new company take on the risk of losing their wealth. If the venture is successful, they are rewarded for that risk. In a mature organization, employees might not be gambling with their own capital but they are risking future compensation and possibly career stability.1)https://www.shrm.org/hrdisciplines/compensation/articles/pages/usecompensationtoinspireinnovation.aspx

The evaluation and compensation programs in place in many businesses, combined with the overriding focus on efficiency and effectiveness, means innovation is difficult to sustain. Innovators are often assigned to a part-time innovation role while compensation and advancement remains tied exclusively to evaluations of the work they accomplish on their real job.2)http://www.fastcodesign.com/1669136/the-right-way-to-reward-your-employees-for-innovations

One resource to look to for insight on how to organize projects and compensate innovators is DARPA.3)http://www.nybooks.com/articles/2014/04/24/innovation-government-was-crucial-after-all/

How does DARPA do it?

First off, who or what is DARPA?  DARPA or The Defense Advanced Research Projects Agency is an agency of the U.S. Department of Defense responsible for the development of emerging technologies for use by the military and is often credited with creating the network system that would become the Internet.

Ambitious Goals

The agency’s projects are designed to harness science and engineer advances to solve real-world problems or create new opportunities.4) https://hbr.org/2013/10/special-forces-innovation-how-darpa-attacks-problems The perception of an urgent need for an application that requires developing scientific knowledge inspires greater genius.

Temporary Project Teams

Projects at DARPA all have fixed duration and collaborators all have set tenures. DARPA structures project teams around fixed-term technical managers and collections of world-class experts from industry and academia.5)http://www.forbes.com/sites/tedgreenwald/2013/02/15/secrets-of-darpas-innovation-machine/ These projects are not open-ended research programs, but rather each has a set timeframe; the intensity and focus make them attractive to high-caliber talent, and the nature of the challenge inspires unusual levels of collaboration.
Leaders who leave when the projects end, and the scalability, diversity, and agility of contract performers have an edge over traditional captive research organizations. Building an innovation program with these guidelines in mind makes it possible to recruit high-caliber employees from a broader pool and onboard them faster.6)http://www.forbes.com/sites/steveandriole/2015/02/20/why-innovation-almost-always-fails/

Motivating Employees

People who seek a career in innovation are often not motivated by personal financial reward, as you might find with a sales and marketing executive. Do not confuse innovators with entrepreneurs who take on risk in pursuit of capital gain. Innovators are often motivated by the following :

  • Post-project fame: securing academic positions, grants, lucrative industry jobs, or other government positions
  • Bigger budgets to build other projects
  • Building inspiring and interesting products

Managing Failure

Implied in the DARPA innovation model is the acceptability of failure because no one gets it right every time. The need to willingly accept setbacks is a spinoff from the need for an innovative organization to have a more portfolio-like approach to innovation. While many organizations, government, non-profit and for profit businesses state that they’re willing to risk millions on innovation efforts, even if they fail, corporate innovators are financially and politically constrained from the moment they get the innovation assignment.7)news.ontario.ca/opo/en/2016/02/ontario-invests-nearly-100-million-to-boost-cleantech-innovation-and-create-jobs.html8)http://www.cbc.ca/news/politics/canada-election-2015-trudeau-winnipeg-innovation-1.32483919)https://www.zurich.com/en/media/news-releases/2015/2015-0825-0110)http://www.forbes.com/sites/steveandriole/2015/02/20/why-innovation-almost-always-fails/

In our next post, Extreme takes a closer look at the approach to managing individual innovation challenges and how the key there is to function like a start up by playing fast and loose.

References   [ + ]

1. https://www.shrm.org/hrdisciplines/compensation/articles/pages/usecompensationtoinspireinnovation.aspx
2. http://www.fastcodesign.com/1669136/the-right-way-to-reward-your-employees-for-innovations
3. http://www.nybooks.com/articles/2014/04/24/innovation-government-was-crucial-after-all/
4. https://hbr.org/2013/10/special-forces-innovation-how-darpa-attacks-problems
5. http://www.forbes.com/sites/tedgreenwald/2013/02/15/secrets-of-darpas-innovation-machine/
6, 10. http://www.forbes.com/sites/steveandriole/2015/02/20/why-innovation-almost-always-fails/
7. news.ontario.ca/opo/en/2016/02/ontario-invests-nearly-100-million-to-boost-cleantech-innovation-and-create-jobs.html
8. http://www.cbc.ca/news/politics/canada-election-2015-trudeau-winnipeg-innovation-1.3248391
9. https://www.zurich.com/en/media/news-releases/2015/2015-0825-01

What does Kenny Rogers know about innovation?

By | blog, Innovation | No Comments

Quitting doesn’t enter my mind.
– Jimmy Buffett

Unlike the popular folklore associated with a “never give up” attitude, knowing when to call it a day on a particular project is important in the real world. It’s not that you need to give up attempting to bring new innovations to market, but rather some ideas just aren’t meant to be. If you don’t have a criteria for shutting down projects, your organization will end up spreading resources too thin. What is important here is the understanding that shutting down a project is part of the innovation process; not everything sees the light of day. While financial milestones are an important part of the process, innovation projects require a bit more.

change-1245949_600

What might a quitting criteria look like?:

No Pleasant Surprises

The absence of pleasant surprise is a signal that something isn’t working. If the innovation idea or proposal really represents a novel value creation opportunity, there’ll be coincidences sprinkled amidst the inevitable unpleasantness. Those “small wins” may not look or feel like much but they signal new opportunities for exploitation and advancement.1)https://hbr.org/2013/09/three-signs-that-you-should-kill-an-innovative-idea/

Lack of Insights

As your projects progress through versions and user tests, are you getting a better understanding of your proposed value proposition and how it’s viewed?2)http://www.innovationcoach.com/2011/04/04/value-proposition-the-key-to-successful-innovation/ If you aren’t learning more about the market’s real needs, you might want to reconsider whether the project is actually innovative. Over the course of an innovation project, you should expect to see a change in the original idea.

Lack of Customer Engagement

It’s easy for anyone to tell you that they love an idea but you shouldn’t use that as the metric for pushing a project ahead. What you want to see is how they engage with a prototype during user testing. Indifference to your project should signify its death. You would rather that users dislike your prototype alterations because that means you were initially doing something they approved. Most importantly, they want the innovation to succeed not because of you, your team or your company but because it makes their life easier and they appreciate the values your projected innovation represents.3)https://www.visioncritical.com/3-ways-customer-engagement-drives-innovation-and-reduces-churn/

In parting, we’ll leave you with some words of wisdom from Kenny Rogers, who immortalized the concept of knowing when to quit.

References   [ + ]

1. https://hbr.org/2013/09/three-signs-that-you-should-kill-an-innovative-idea/
2. http://www.innovationcoach.com/2011/04/04/value-proposition-the-key-to-successful-innovation/
3. https://www.visioncritical.com/3-ways-customer-engagement-drives-innovation-and-reduces-churn/

Internal vs External Innovation

By | blog | No Comments

Can Companies Self Disrupt?

Or why you might need to go outside your company in order to effect true change.

Given the widely acknowledged corporate innovation paradox, how do companies go about innovating? Most lightbulb-801941_500large and midsized companies are not properly organized to implement an innovation process. As one expert on the topic clearly stated, “Self-disruption is not a competency many companies have”, which is why most innovation is outsourced to those with separate vested financial interests.1)http://www.forbes.com/sites/steveandriole/2015/02/20/why-innovation-almost-always-fails/

Organism vs Ecosystem

John Geraci, Former Director of New Digital Products at the New York Times, made the observation that one of the oft missing ingredients from a company’s innovation strategy is adopting an ecosystem mentality. In his experience, many large companies function as a self-contained entity and as a result, are slow to adapt and absorb components from the outside world. A company that adopts an ecosystem mentality understands that the solutions to your challenges are beyond the organization and that you must locate and interact with them to thrive.2)https://hbr.org/2016/04/what-i-learned-from-trying-to-innovate-at-the-new-york-times

Innovating from the Outside

One question executives should ask their management teams is, where do they find new ideas? The biggest obstacles are the fear and inability of organizations to look outside their own walls.

Given the rate of technological change and the sheer volume of knowledge being generated, if you do not have a plan to to source ideas from external sources, you miss opportunities to identify radical new ideas and leverage growth from industries outside your own.

One of the solutions to this issue is to look outside the corporate structure for innovation, hence the raft of “innovation partnerships”, but that challenge then becomes how do you make sure that this isn’t just big shiny ball syndrome?

Shared employees with noncompeting companies. In 2008 P&G and Google swapped two dozen employees for a few weeks. P&G wanted greater exposure to online models; Google was interested in learning more about how to build brands.3)http://www.industryweek.com/blog/why-would-proctor-gamble-google-swap-employees

Engaged more outside innovators. In 2010 P&G refreshed its C+D goals. It aims to become the partner of choice for innovation collaboration, and to triple C+D’s contribution to P&G’s innovation development (which would mean deriving $3 billion of the company’s annual sales growth from outside innovators). It has expanded the program to forge additional connections with government labs, universities, small and medium-sized entrepreneurs, consortia, and venture capital firms.4)https://hbr.org/2011/06/how-pg-tripled-its-innovation-success-rate

Brought in external talent. P&G has traditionally promoted from within. But it recognized that total reliance on this approach could stunt its ability to create new-growth businesses. So it began bringing in high-level people to address needs beyond its core capabilities, as when it hired an outsider to run Agile Pursuits Franchising. In that one stroke, it acquired expertise in franchise-based business models that would have taken years to build organically.5)http://futureworks.pg.com/businessmodels.asp

References   [ + ]

1. http://www.forbes.com/sites/steveandriole/2015/02/20/why-innovation-almost-always-fails/
2. https://hbr.org/2016/04/what-i-learned-from-trying-to-innovate-at-the-new-york-times
3. http://www.industryweek.com/blog/why-would-proctor-gamble-google-swap-employees
4. https://hbr.org/2011/06/how-pg-tripled-its-innovation-success-rate
5. http://futureworks.pg.com/businessmodels.asp

How To Go About Innovating

By | blog, Innovation | No Comments

close-up-1224273_350Due to the general lack of clarity in regards to the actual definition of innovation, many costly programs aimed at innovating corporate products and processes result in a dead end. Here is where strategic thinking goes a long way. The common image of the saviour entrepreneur, who can turn companies around on a dime, while managing worldwide product launches, is mostly a myth.1)http://www.biztechmagazine.com/article/2013/06/innovation-business-everyone-c-suite An effective innovation program goes far beyond the now dead “20% free time project” at Google, which outgrew its utility as the company matured.2)http://www.businessinsider.com/google-kills-20-time-2013-83)www.quora.com/How-does-Google’s-Google-Innovation-Time-Off-20-time-policy-work-in-practice/answer/Ben-Maurer

Executives identify four critical attributes essential for innovation:4)Boston Consulting Group – The Most Innovative Companies 2015

  1.  Speed
  2.  R&D processes
  3. The use of technological platforms
  4. The systematic exploration of adjacent markets

The data shows that ad hoc is not a scalable nor virtuous approach to innovation. Our approach is to look at both the the macro and micro of innovation. While some innovation experts suggest approaching strategy like a VC or working like a startup, we believe that there is an appropriate time and place for both.

The Macro Level: A high level framework that integrates “Innovation” into the firm’s overall operations, rather than as an add-on. This includes dealing with economic incentives, budgeting and the process of rolling out changes.

The Micro Level: The approach to tackling individual innovation challenges.

The Macro Level: Organizational changes required to foster innovation

 

Structuring Your Innovation Portfolio: Thinking Like A VC

Quality vs Quantity

Most companies have difficulties pre funding ill-defined innovation – they want to “manage” innovation the way they manage a construction project. Most companies despise the idea of investing in “luck”.5)http://blogs.wsj.com/cio/2015/12/07/cios-time-to-start-thinking-like-a-vc/

Venture capitalists use a portfolio method so that they balance the risk of losers with the upside of winners. Inherent in the VC model is the knowledge that many of the ideas they back will fail. Venture capitalists place additional funds in investments that are reaching goals and stop funding those that aren’t thriving.6)http://www.innovationmanagement.se/imtool-articles/to-be-more-innovative-think-like-a-venture-capitalist/ The goal is to generate a return on the portfolio as a whole.

Typically, in a corporate environment, decision makers try to pick the “best” ideas; a small number of new business proposals are considered, selected and then every effort is made to help them succeed. Failure is not an option. Extra resources and efforts pour into the pet project even when the product is not breaking into the market.

Have a Set Criteria to Green Light Projects

Most VC firms have a semi-standard criteria that they apply to their investment opportunities. It’s typically a 3 to 5 question screen to determine which ideas are worth advancing to the next level. Typically, they should include the following:

Total Addressable Market: How big is the market in dollars? What is the minimum required market share for success? How does each individual project compare against another? What is your process for comparing projects so they complete on a level playing field?

Potential Early Adopters: Are there any early customers willing to sign on even before the product is delivered? This is especially critical in B to B initiatives as the typical sales cycle is so long.

Sustainable Competitive Advantage: There should be a few large competitors or well-funded new entrants already in the target market. Ideally, an innovation should have a technology or a business model that will provide a sustainable advantage for the business.7)https://www.marsdd.com/mars-library/what-investors-look-for-in-a-technology-investment/

R&D, Manufacturing and Supply Chain Feasibility: How much R&D is required to bring the new initiative to the state where it can be sold? How much modification do you have to make to your manufacturing and supply chain infrastructure to bring the product on line?8)https://www.sopheon.com/innovation-project-management/

Sales and Distribution Factors: How is the new offering going to be sold? Can it leverage existing corporate sales channels or is a new method of distribution required?

In our next post, Extreme explores the wisdom of “knowing when to fold’em“.

References   [ + ]

1. http://www.biztechmagazine.com/article/2013/06/innovation-business-everyone-c-suite
2. http://www.businessinsider.com/google-kills-20-time-2013-8
3. www.quora.com/How-does-Google’s-Google-Innovation-Time-Off-20-time-policy-work-in-practice/answer/Ben-Maurer
4. Boston Consulting Group – The Most Innovative Companies 2015
5. http://blogs.wsj.com/cio/2015/12/07/cios-time-to-start-thinking-like-a-vc/
6. http://www.innovationmanagement.se/imtool-articles/to-be-more-innovative-think-like-a-venture-capitalist/
7. https://www.marsdd.com/mars-library/what-investors-look-for-in-a-technology-investment/
8. https://www.sopheon.com/innovation-project-management/

The Paradox of Corporate Innovation

By | blog, Innovation | No Comments

When it comes to innovating within the structure of a larger corporation, a number of readily identified issues come to light:

  • Innovation always seems to fail
  • Corporations, with good reason, are designed not to be innovative.

Innovations always see to fail

The Pessimist vs The Optimist

A cursory Google search of the phrases, “why innovation succeeds” and “why innovation fails” reveals a startling discovery, articles about innovation failure outnumber articles about innovation success by 80 to 1, but like almost everything else in life, failure and success is all about how you define them and the whole failure/success argument can be view through either an optimistic or pessimistic point of view.

Why innovation succeeds Why innovation fails

 
A pessimist might say that innovation, in and of itself, is not a predictable process and most of the time, you start the process being unconsciously incompetent, you do not know what you do not know. So if you don’t know where you are going, how do you know when you get there?

A more optimistic way to view the innovation failure/success argument is to rehash the Thomas Edison quote “I have not failed. I’ve just found 10,000 ways that won’t work” and accept the fact that failure and success are not mutually exclusive. Most organizations do not “get it right” the first time, but the point of the innovation exercise is to take measured risks and iterate through various states of failure until you have a product that meets a market need. Viewed in isolation, most individual attempts are not successful, but hopefully you learn from your mistakes. Looking to other endeavors for parallels, most successful poker players lose way more hands than they win, they just know what to do with their winners.

Our position is that Edison had it right and laid some clear direction on how you should be structuring an innovation process. Viewed in more abstract terms, Edison laid the foundation for the approach to venture capital as it is practiced today. We will cover this in more depth when we look at how venture capitalist deal with the challenge of managing innovation.

Corporate cultures are designed to be repeatable, consistent, predictable and profitable.  You do not want your front line employees improvising or your marketing department changing it up simply for the sake of it.

Or do you?

Corporations are not designed to innovate.

Corporations have begun to see the value of internal innovation but there is an inherent obstacle for large architecture-22039_500businesses aiming to capture the inventive, entrepreneurial spirit. Imagine if you owned a piece of manufacturing equipment designed to make pens, only it randomly made different types of pens or sometimes, it even made pencils. That would be a pretty bad piece of equipment and a terrible waste of your money. Now imagine this wasn’t a piece of equipment, but an entire company, how successful do you think it would be?

There are those who argue that innovation is not a set of defined activities but rather an attitude, a culture, supported by a set of loose processes and even less-defined outcomes.1)http://www.forbes.com/sites/steveandriole/2015/02/20/why-innovation-almost-always-fails/ If that is your company’s approach to innovation, your company might be having trouble with the whole concept of innovation. While a specific group of people within the company might require that sort of environment to foster innovation, it is no way to introduce an innovation to the rest of the company and its customers, and it flies in the face of any reasonable approach to management.

Startups want to become corporate as fast as possible.

Another observation is that while many executives and pundits point out that established companies need to become more like startups, the reality is that the startups are attempting to make their mindset more corporate. The whole purpose of a startup is to invest money in finding a product market fit, and once that product market fit is found, growing as fast as possible. This is partly why startup founders are often supported or replaced by a cast of experienced corporate operators whose strength is building scale.

Corporate Innovation is not dead.

With the tenure of companies in the S&P 500 index falling to 18 years, and the projection that by 2027, 75% of the S&P 500 is due to be replaced, you might think all companies are doomed.2)http://seekingalpha.com/article/2651195-increasing-churn-rate-in-the-s-and-p-500-whats-the-lifespan-of-your-stock The reality is that there is nothing to say that innovation can’t take place within a large organization if the environment is structured properly. 3M, the company that invented scotch tape and post-it notes, receives up to 30% of its revenue from products released in the past 5 years.3)https://hbr.org/2013/02/before-you-innovate-ask-the-ri Using a strategic approach to innovation, Procter & Gamble’s Tide revenues have nearly doubled in the last 12 years, helping push annual division revenues from $12 billion to almost $24 billion.4)https://hbr.org/2011/06/how-pg-tripled-its-innovation-success-rate

The takeaway from the corporate innovation paradox is that the innovation multifactorial process must be managed appropriately, not with a broad imperative. Executives need to manage a number of factors when setting up a comprehensive innovation strategy:

1. Alignment of innovation investment resources

Within many organizations, different groups compete for the same funds, which leads to inefficient duplication of resources. The challenge isn’t a lack of innovation resources but rather, how to use them in the most efficient manner.

2. Under-utilized and disengaged creative resources

As an organization grows and its products achieve greater adoption rates, the internal pace of change slows as many people within the company are focused on delivery and execution. This creates economic disincentives to innovate, as those with more creative skill are not necessarily compensated adequately to take what are seen as career-ending risks in a deliverables environment.

3. Promises of ubiquitous delivery capabilities

The needs to be instantly available anywhere has become standard in many industries in order to meet the needs of a large and segmented customer base, despite the fact that it dilutes focus on emerging disruptive opportunities. A typical company has gone from a handful of delivery channels to 15-20 channels (mail, internet, etc.) while expanding its product offerings tenfold. This often evolves into a mentality that if a product can’t be rolled out everywhere, don’t roll it out anywhere.

4. Organizational history

Every organization has organizational memory which can create complacency and prevent progress. When memory becomes the standard, it holds back creativity and unorthodox solution development.

In the next post, we will explore the differences between internal and external innovation and which is more effective for a large corporation.

References   [ + ]

1. http://www.forbes.com/sites/steveandriole/2015/02/20/why-innovation-almost-always-fails/
2. http://seekingalpha.com/article/2651195-increasing-churn-rate-in-the-s-and-p-500-whats-the-lifespan-of-your-stock
3. https://hbr.org/2013/02/before-you-innovate-ask-the-ri
4. https://hbr.org/2011/06/how-pg-tripled-its-innovation-success-rate

Three Innovation Truisms

By | blog, Innovation | No Comments

“When was the last time you, as a customer, called the support line for a product you own to complain about its lack of innovation? Or sent a meal back to the kitchen at a restaurant because it wasn’t innovative enough?”1)https://hbr.org/2008/07/why-innovation-is-overrated
– Scott Berkun

Fact: After the discipline of “thought leadership”, “Innovation” is the source of more cliches, buzzwords and jargon than any other field (OK, I made this up, but there is probably some truth to it).

Innovation is a word that has been bantered about by corporate executives for decades and much like a surrealist painting, it is a word left up to the user to define. “Innovation”, as a term represents a multidimensional concept whose very definition represents the keystone challenge in developing any sort of “innovation” process.

While much has been written on the topic of innovation, there seems to be a lack of agreement as to what the exact definition of innovation is.  We’ve cut through the hype, sorted the data and cut out the buzz words in order to come up with 3 truisms that can shape your thoughts as you consider “what comes next”  for your company.

business-561387_500Truism #1: Innovation represents your future top line revenue. 2)Discovering top-line growth through innovation; http://www.cio.com/article/3038876/leadership-management/discovering-top-line-growth-through-innovation.html

This definition gives you the goal of coming up with a profitable idea. Almost every product you use in your everyday life started out as a simple idea, the car, the cellphone, the toaster etc. Another reason needed to make the the concept more defined is to make it more relevant to the objective of business – profit generation. If you disagree with this definition, remember that consumers don’t buy “innovation”, they buy the benefits and solutions that your products provide.

Truism #2: Everyone has an innovation problem

America is in a constant innovation crisis

Lack of innovation is often blamed on investors’ focus on short term profits and stock market returns. The reason for the neglect of innovation is due to a relentless focus on maximizing shareholder value as reflected in the stock price. And despite ongoing denunciations of this objective by the CEO, boards endorse it and CEOs are compensated for pursuing it. Investors base their decisions on it and analysts unthinkingly endorse it. As a result, innovation suffers.3)http://www.forbes.com/sites/stevedenning/2015/02/27/is-there-an-innovation-crisis-at-us-firms

Americans aren’t the only ones concerned about their lack of innovation.

Despite its reputation as a primary innovator, Japan’s startup scene has yet to make an impact abroad. “This is because this sector is the most under-supported in Japan,” says Terrie Lloyd, an Australian entrepreneur and commentator based in Tokyo. As the global digital economy grows, this puts Japan, a former worldwide electronics leader, at a disadvantage. America and South Korea continue to come up with the technology and smartphone services that consumers want. Japan’s large, unwieldy corporations like Sony cannot match the quicker foreign competition and fall behind.4)http://www.bbc.com/future/story/20130820-plugging-japans-start-up-gap

Recently, Europe has also fallen behind. Larry Moffett, the founder of the European Young Innovators Forum, has said that Europe’s poor performance in the global innovation index was a crisis for the whole region; “Sadly, year after year, Europe does not score well in that comparison. In 2011, Commissioner Quinn called it an innovation emergency and we are still in that emergency today”5)http://www.irishexaminer.com/business/europe-lags-behind-japan-us-in-midst-of-innovation-crisis-234804.html

Truism #3: Successful innovation takes a long time and is always obvious in hindsight.

The Wright brothers’ craft took its first flight in 1903 and only a handful of newspapers reported. It took five years for the press, and the rest of the world, to pay mind to what the Wrights’ invention was. Not until the second World War did the significance of the airplane become appreciated.6)http://www.fool.com/investing/general/2015/06/26/why-it-feels-like-were-falling-behind.aspx

So, in summary, what can we be sure of when it comes to innovation?

There is an economic framework that governs businesses, certain rules by which we must all abide:

– The primary directive of a corporation is to create value, measured in dollars.
– Investors require returns on investments.
– It is impossible to accurately project the outcome of innovation and often, the solution is only obvious in retrospect.

The question is, how does a company spark the development of its future revenue, despite the constant focus on short term profitability?

References   [ + ]

1. https://hbr.org/2008/07/why-innovation-is-overrated
2. Discovering top-line growth through innovation; http://www.cio.com/article/3038876/leadership-management/discovering-top-line-growth-through-innovation.html
3. http://www.forbes.com/sites/stevedenning/2015/02/27/is-there-an-innovation-crisis-at-us-firms
4. http://www.bbc.com/future/story/20130820-plugging-japans-start-up-gap
5. http://www.irishexaminer.com/business/europe-lags-behind-japan-us-in-midst-of-innovation-crisis-234804.html
6. http://www.fool.com/investing/general/2015/06/26/why-it-feels-like-were-falling-behind.aspx