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.”
