Product Managers - Need to lead with radical ideas

Product Managers - Need to lead with radical ideas

Innovation is one of the most commonly used term. The word, which derives from the Latin noun innovatus, meaning renewal or change is a part of our day to day corporate vocabulary .  A WSJ article indicates how often this word is used:

• Some form of the word "innovation" occurred 33,528 times in 2011, which was a 64% increase from five years before that

• More than 250 books with "innovation" in the title have been published in the CYQ1'2012 . Just three months…

However, a few companies actually pursue or deliver "radical innovation" .  Product managers hardly get a chance to work on innovative ideas in large enterprises since these vendors  don’t provide an environment for individuals to work on game changing ideas. Instead, small incremental improvements are labeled as "innovative" deliverables  .  I always try to get back to the basics and then see how we can leverage these fundamental concepts in our day to day business world.  So, lets start with the basics first….

Innovation - What does it mean ?

Lets look at three definitions from three leading researchers in this field and identify the commonalities :

Theory 1 :  Leading the Revolution by Gary Hamel

Gary Hamel in his book defines innovation as a "Radical Product – Has the power to change customer expectations and redefine the basis for completive advantage". Companies do focus on incremental product innovations which are focused on existing products/services/ markets but in an increasingly nonlinear world, only nonlinear ideas are likely to create new wealth.  An article for INC by Gary Hamel further describes this in detail:

• A radical idea has the power to change customer expectations : Not long ago, the PC was the ugliest thing in your home. Then Apple hired Jonathan Ive, a young British designer who turned that monstrosity into the first iMac -- a jazzy, fresh work of art that changed customer expectations. That's radical innovation at the product level.

• A radical idea changes the basis for competition: In a world of increasing income bifurcation, conventional wisdom in retailing said that shoppers would go either to a Wal-Mart and that it would get ever tougher for companies in the middle to make money. Then Kohl's proved that conventional wisdom wrong. The company has half the number of stores as Sears and one-third the number of stores as J.C. Penney, and yet its market value is greater than that of either of its two century-old competitors.

• A radical idea is one that has the power to change industry economics: By adopting a point-to-point routing system, Southwest Airlines keeps its jets in the air for two or three hours longer than most of the other airlines (which use the hub-and-spoke model), thereby using its capital more efficiently.

Executives and including product managers goals should not be to forecast "what might happen in the future but imagine what you can make happen".  A few other examples cited in his book shed additional light on "how" companies continue to drive innovation.

UPS : Getting outside the truck

• Experimentation and rapid Learning approach to new business development

• Bringing in new talents to fuel innovation.

Charles Schwab: Bricks and Clicks

• Open and rapid experimentation allowing prototyping and testing of new ideas

Theory 2 - Fooled by Randomness & Black Swan by Nassim Nicholas Taleb

In his two books , Taleb regards almost all major scientific discoveries, historical events, and artistic accomplishments as "black swans"—undirected and unpredicted.  What we call here a Black Swan is an event with the following three attributes.

• Its an outlier, as it lies outside the realm of regular expectations

• It carries an extreme impact
• In spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable

Google, Microsoft office are examples of black swan products that have fundamentally changed the way we search and forecasts our business.

Theory 3 - Blue Ocean Strategy by W. Chan Kim & Renee Mauborgne

Authors describe the concept of value innovation.  Value innovation is created in the region where a company’s actions favorably affect both its cost structure and its value proposition to buyers.  Cost savings are made by eliminating and reducing the factors an industry competes on.  Buyer value is lifted by raising and creating elements the industry has never offered.  Over time, costs are reduced further as scale economies kick in due to the high sales volumes that superior value generates. This leads to what the authors introduced as a vital concepts. Red Ocean vs Blue Ocean.

• In the red ocean, differentiation costs because firms compete with the same best-practice principle.  Here, the strategic choices for firms are to pursue either differentiation or low cost. 
• In the reconstructionist world, however, the strategic aim is to create new best-practice rules by breaking the existing value-cost trade-off and thereby creating blue ocean.

Red Ocean Strategy	Blue Ocean Strategy
Compete in existing market space	Create uncontested market space
Beat the competition	Make the competition irrelevant
Exploit existing demand	Create and capture new demand
Make the value-cost trade-off	Break the value-cost trade-off
Align the whole system of a firm’s activities with its strategic choice of differentiation or low cost	Align the whole system of a firm’s activities in pursuit of differentiation and low cost

Where do innovative ideas come from ?

This is an interesting question and something that we all wonder about.  What's the genesis of innovative ideas.  I'd recommend reading  " Where Good Ideas Come From: The Natural History of Innovation by Steven Johnson". His book provides insights into what leads to innovative ideas.  Economist article provides an excellent summary of his key concepts :

"The first of the patterns is “the adjacent possible”: the innovations that build logically on previous breakthroughs. In technology, this results in the common phenomenon of several people inventing the same thing at the same time, because it seemed the obvious next step. Similarly, life itself emerged as a cascade of increasing complexity, and the forking paths of evolution allow one innovation to lead to another, such as the semi-lunate carpal bone that made velociraptors more dexterous predators, but subsequently led to the evolution of winged, flying birds. Cultural and social life is also an exploration of the adjacent possible, as one unexpected door opens and then leads to others."

" In a similar vein Mr Johnson explores the “liquid networks” that foster innovation, whether online, in coffeehouses or in ecosystems, and the “slow hunch” whereby an idea develops slowly and often wrongly, before suddenly becoming the right answer to something. He also examines the benefits of serendipity and error, which can each lead to beneficial insights; the notion of “exaptation”, in which an innovation in one field unexpectedly upends another (Gutenberg’s press combined ink, paper, movable type and, crucially, the machinery of the wine-press); and “platforms”, from operating systems to coral reefs, which provide fertile environments for new developments."

How do you foster innovation ?

Lets review how Google's fuels its innovative engine.  Interview with Eric Schmidt in 2012 provides good insight into how companies create the right ecosystem which includes a mix of smart individuals, culture  that promotes experiments and rewards success/failure to build an ecosystem of ideas.

"Early on, “we put in a system of mechanisms,” for innovating, Schmidt said, citing the  so-called “70/20/10 system.” This was a principle that everyone should spend 70% of their time on their core job, 20% as part of another team, and 10% on something blue sky. It was often honored in name more than the event, I’ve heard from insiders – if you’ve got a critical job and a tight deadline, you don’t give it up at that 70% mark. It was however, a good way for people to see projects all around Google, and test them against their own ideas". At Google, “We don’t have a two year plan. We have a next week and a next quarter plan. Most of our successful products were built by small teams reacting quickly.”

Why do companies fail to innovate ?

When we look for innovation, we expect it to come from startups . Large companies struggle to drive innovative projects/foster innovative ideas or create an environment that helps with experimentation.   Well, there are reasons why. One of the leading HBR article summarizes the key challenges.

"The classic traps" by Rosabeth Moss Kanter summarizes the key reasons why company's fail to innovate

Strategy Mistakes

• Rejecting opportunities that at first glance appear too small

• Assuming that only new product counts - not new services and improved processes

• Launching too many minor product extensions that confuse the customer and increase internal complexity

Process Mistakes

• Strangling innovation with the same tight , budgeting, planning and reviews as existing business

• Rewarding managers to what they are committed to do and discouraging them from making changes as circumstances warrant

Structure mistakes

• Isolating fledging and established enterprises in separate silos

• Creating two classes of citizens - those who have the fun (innovators) and those who make the money (mainstream businesses)

Learning's for Product Managers- Think like a startup

With the background in place lets look at how does this impact the product managers.  As a PM, its your key "responsibility to bring the future into the present".  As a PM it is your responsibility to create the blue oceans or the black swans or define radical ideas that have the power to change the competitive  & industry dynamics and above all fundamentally change your customer expectations.

So, where do these ideas come from.  There is no one source of ideas. But, I truly believe that the right environment with individuals who are motivated and are a part of a culture that promotes experimentation and rewards success and failures can lead to innovative ideas. This kind of an environment is usually there in a startup.   Startups have no legacies, they are in search of blue oceans, do not have existing customers to guide them or lead them to solutions or existing processes that limit their thoughts. They are outside the box and thus can lead to breakthrough innovations.  Irrespective of the environments PMs may find themselves in they need to think "outside the box" and focus on open and rapid experimentation allowing prototyping and testing of new ideas with their product teams.  Develop these fluid informal networks that helps you develop pipeline of ideas .  Many product managers rely on customers for these ideas. They talk to customers, validate the concepts and ideas etc.  Talking to customers is an important step in this process but as PMs you have to identify the "difference between the customers perceived wants and the real problem". Usually, Product Managers focus on the customers perceived wants only and thus ignoring the larger picture.  You need to strike the right balance between the top down driven innovation (lead by folks who feel the force) and bottoms up approach (customer driven )validation.  Blended approach  to innovation would be the right model as highlighted in this NY times article by John Kao  at the World Economic Forum in Davos , 2012. 

Product Managers should focus on developing the ecosystem of these promising ideas. A few are near term , a few are medium term and a few are long term plans which are in their initial stages.  Develop this pyramid, present it to management, ask for building an innovation team within your team, or build an innovation team by balancing your own product budget and connect the dots with all the innovators within your team and outside your team. It's the network of all these connections lead by you that will help build the ecosystem. Scoot Cook founder and CEO of Intuit in his speech at the world innovation forum in NY highlighted the need for experimentation  -  "Don’t be afraid to constantly be experimenting, and don’t be afraid to fail at most of those experiments".  To achieve game-changing innovation, Cook says, be willing to constantly run small-scale experiments, to develop a “culture of fast cycle experiments.”