The Innovator’s Guide to a Galaxy in Recession

20 11 2008

 

Don't Panic ButtonRecessions are funny things – on the one side economic horror story on the other harbinger of an explosion of innovation opportunities – sort of a “is the glass half full or half empty” coin toss really. 

I always find it interesting to watch how companies react during bad times – their reactions, whilst perfectly understandable from a human emotion standpoint – can be dreadfully short sighted at times. In fact – it’s this over reaction towards short term thinking that triggers the economic horror stories out there as people get laid off, companies post ever lower profits, and economic doom and gloom dominates the newspaper headlines. 

For example – take this typical strategical cycle that typifies corporate recessionary behavior: 

In a non-recessionary environment, people are employed; stability reigns, and people feel comfortable enough to part with their hard earned cash on non-essential items. And when times are really good – people approach their purchases in a more “cavalier” attitude looking at a wide array of factors beyond whether or not it simply “does the job” – and happily paying for things like extra “coolness”, the right brand, or a color that matches those shoes you bought last week.  In this environment, companies can lazily throw low-level innovations at the market with impunity to capture a fickle market that carefully matches their purchases with their lifestyle and changes frequently because of the easy availability and reliability of cash to the consumer. For the last 7 years or so (and some might say longer as the 2001-2002 recession was a short one) we’ve been facing just such a market. 

In a recessionary environment, consumers get jittery about spending their money as stability is no longer guaranteed – consumer mentalities change and so do their buying preferences. Top of the list of consumer preferences are now two simple elements, 1) whether or not the product can do the core job needed, and 2) price.

The net effect of that, on most markets, is to essentially commoditize all the products within because the incremental differences between competing products are no longer valued individually.  As a result, the companies able to provide the least expensive goods that still do the job begin to take on market share.

Consumer paying with coins

In order to compete, companies likewise begin to compete on price, initially by reducing their operating costs (i.e. headcount), which allows them to be able to maintain margins and profits on lower demand.  Then eventually they begin to sacrifice margin for increased market share in a bid to make up the reduced margins with increased volume.  Whilst these moves result in short term gains, they only last as long as it takes for competitors to do the same, which usually isn’t long. 

Eventually companies reach a point at which they are operating at minimal margins that barely cover their costs – and go on to the next stage – a battle of bank balances as companies continue to reduce prices at the cost of the business until only one remains…. 

Sound familiar? It should, the car industry pretty much just followed this model of competition to its demise, and current bid to be bailed out by the US Government.  There are several other similar cycles as the failure on one group of companies resonates up and down their value chains to affect the entire economy.

Who Dares Wins DVD cover

Yet out of every major recession, several companies emerge as winners.   Companies that have somehow found a way to separate them-selves from competition, found new ways to do business, or capitalized on new markets that no one new existed before. Home Depot, the iPod, the PC, even MTV have all triumphed from past recessionary environments.  In a recessionary world it really is “He Who Dares,Wins” (read this McKinsey Quarterly article for a fantastic quantification of this).

It’s easy to overlook the big obvious solution to the whole problem and get caught up in all the doom and gloom that dominates our media headlines as so many other commentators have. 

Recessions result in one certainty – BIG CHANGE – and the longer and deeper the recession, the more change there is – in your consumer/client, in your market, in your industry, in global business as a whole.   

Big Change is scary – but Big Change is good. Big change means BIG OPPORTUNITIES. Opportunities to change the game, to take advantage of weaker competitors, to find new and novel ways in which to not only survive, but to thrive. 

Innovation is all about realizing and capitalizing on the opportunities available to your company, and it’s the way out of vicious cycles like the one described above. 

The great news is that companies intent on winning the game are now forced to look at innovation with a sense of urgency previously unseen.  They will look towards innovation to revisit past assumptions, norms, and directions in a bid to become different from the competition in the eyes of the consumer/client.  To no longer be able to be compared on a like for like basis, and to compete in a market of one instead of many. 

Winners emerging from this downturn in the economy will develop an innovation strategy that looks at innovation in a very unique way from most companies. They will see innovation as something that can impact all parts of the business, in short and medium, as well as long-term time frames. 

1) Short Term Innovation Strategies

In the short term, winning strategies look to help companies with their short-term goals of increased efficiencies.  They do this by developing new and novel ways for the company to achieve cost reductions, process improvements, and business model changes that can catapult them into a new league of efficiencies that are impossible with old-school models.  The more sophisticated the efficiency developed, the more defendable and long lasting that innovation will become.  This will give the company a short term cost edge on its competitors, which is more conducive to the long-term health of the business than simple cost cuttings and harder to emulate.  Dell’s development of their unique business model in the 90’s is a classic example of the type of base changes that can propel a company into a market of one. 

Embracing the creative potential of their employees, GE is currently using Imaginatik’s software to drive their DMP (Direct Material Productivity) Work Out process.  This looks at reducing overall costs through design changes whilst maintaining or improving quality and customer acceptance. The results will directly impact the short-term productivity of GE’s business units. 

Another client I worked with had the interesting idea of creating a marketplace to drive efficiencies in the way the company used external consultants. Rather than individual bids or blind RFP processes – they invited all the consultants into an online system (with company names suitably anonymised) where they could not only see everyone else’s proposals, but could also add on to other company’s proposals.  This allowed the client company to pick and choose the best combination of services to fit their need – and to negotiate pricing in a very transparent process! 

The key here is to focus on short-term strategic objectives, and on areas that will result in ideas developed and implemented. In many cases this means not looking to create new projects, but rather to enhance existing funded projects by providing them with new and novel solutions to the problem they are already addressing. 

For example, why not play into Six Sigma and Lean projects?  They’re all about increasing efficiency in company processes – however all of them rely on small teams of people studying a process at length and then brainstorming between themselves to come up with a more efficient process.  In today’s technology literate and collaborative environments, it seems awfully short sighted to not involve hundreds or thousands of people in the process to come up with better ideas. cardboard toilet rolls

 

 

Georgia-Pacific was a great example of this.  One of their cost reduction initiatives I worked on zeroed in on shaving the cost of the cardboard tubes inside rolls of paper towels. By embracing the collaborative innovation infrastructure at their disposal, mill workers from among the company’s 16,000 North American employees quickly responded with little changes that shaved about $1.2 million a year, or roughly 4%, off the cost of the tubes – not too shabby, eh?  

2) Medium Term 

When looking at the medium term you can start looking at how to take advantage of some of the more obvious changes in the changing marketplace. 

Starbucks Cup and WaffleI loved one story I read about how Starbucks are doing just that.  They’re currently testing out new pricing strategies to try and overcome the recessionary effects on their consumers that are much more price sensitive nowadays, and no longer want to be spending $4 on a daily “Grande pumpkin spice vanilla latte (hold the cream, it makes me fatter)”.   One idea they’re piloting at the moment offers consumers small bottomless cups of coffee (i.e. free refills, not that the cups don’t actually have a bottom, that would be just silly…) for $1.  The move ensures that Starbucks customers return to Starbucks for their daily fixes regardless of household budget changes.  It also provides Starbucks with opportunities to up sell them additional products like music and baked goods that will contribute to the overall margin per customers that they achieve while satisfying new needs for the customer. 

Several clients I’ve worked with have also had fantastic results in the medium term by looking for adjacent markets for existing products. One performance chemicals company I worked with found a multi-million dollar new market for their existing waterproofing wrap used in the construction industry.  This was found when one curious sales person found that his client was buying the product to rapidly waterproof boats they were manufacturing instead.  

Bayer Production FacilityBayer, another Imaginatik client did something similar, collecting 147 ideas from their employee base for alternative uses and markets for one of their existing products.  This resulted in Bayer being able to enter a brand new market area with a new application in less than a year. 

Finally, when looking at the medium term, don’t underestimate the benefits of working with your business partners.  One large tech company ran one event over a 30-day period on optimizing their supply chain with select partners. The resulting ideas picked for implementation realized over $2 Million in benefits and saved them over 3000 man-hours!  I think the correct terminology for those kind of benefits in my current US homeland is “There’s gold in them’ hills”! 

3) Long Term 

Long-term strategies are all about changing the game – finding new products, new markets and taking advantage of concepts such as Blue Ocean Spaces, Disruptive Innovations, or Lead Adopters (depending on whom you choose as your academic guru of choice).  There’s no shortage of proof of the potential that a good innovation program and process can deliver to your business.  Whether it’s the ability to take your business to new heights (i.e. Apple or Google for several over publicized examples of innovation programs of different sorts at work), or more importantly, its ability to provide longevity to your business, even if that means changing the nature of the business Nokia N-Series(i.e. Nokia– originally a forestry company, then rubber products (they still make tires bizarrely), and now a telecoms giant – what could be next?).  

However, success in the long term has to be driven by success in the short and medium term. Their ability to drive real value will give you the credibility and time to drive the big changes that will propel your company into the next generation. 

After all, winners emerge from recessions and innovation is what will make you one of those winners. 





“The State of Innovation” on InnovationTools.com

28 10 2008

For those of you who have read and enjoyed my recent “State of Innovation” posts will probably enjoy reading my guest post on Chuck Frey’s excellent Innovation Tools website – which gave me the opportunity to revisit some of the thoughts originally posted on this site and to expand upon some of the arguments.





Innovation meets Adolescence (Part 2)

7 10 2008

 

So what are the signs of the continuing development of enterprise use and adoption of innovation tools and techniques? 

We already covered in a previous post (see “Death of the Chief Innovation Officer”) the first of these signs – that of the increasing presence of dedicated innovation roles.  People dedicated to ensuring the company is innovating effectively, sustainably, and in the direction the company needs to go in – ensuring that a constant stream of new sources of competitive advantage and shareholder wealth are being discovered. 

Innovation has also achieved cross functional awareness – and whilst in the past Innovation would’ve been the sole domain of R&D or Marketing – we now see innovation happening in multiple parts of the company and even in between companies.  Companies are expecting innovation everywhere and looking across multiple Innovation Dimensions (read my previous paper on Innovation Dimensions which goes into this in more detail)  in search of differentiating factors which will set them apart from their competitors. 

In the past, companies would be pleasantly surprised if they achieved new sources of value. The price points for trying innovation was low, and the expectations were similarly low (I remember one FMCG company I worked with back in 2002 whose idea of a success story was pointing to the new names for the conference rooms that their employees had collaboratively devised). The same can definitely not be said for today’s innovative enterprise. 

Companies are also moving quickly up an innovation target maturity curve, each time tackling more complex projects that have an increasingly high potential impact on the business (see Innovation Complexity Curve post for more). As usual , it is the industries that face a quicker pace of change that are leading the charge up this curve as their need for innovation is equally strong. 

All of this points to an enterprise landscape where innovation is seen as a critical element of business strategy. This is no longer an experimental venture, but a strategic CEO supervised initiative. It has senior process leadership and senior project sponsors for each individual project run. There are now explicit goals and metrics tied to the bottom line welfare of the company. Failure is no longer an option – and the failure to create new forms of value for the company is a matter for very serious concern – not least of which because it is now a much more costly failure to endure. As a result experienced innovation heads are becoming increasingly valuable and companies are also increasingly looking for external advice and guidance from consultants and vendors who can lead them by the hand to demonstrated success.  

So there you have it – my observations on where the innovation industry is at this point in time – if I’ve forgotten to address any elements, or you just want to throw me a curve ball – by all means leave a comment and I’ll try my best to address it – Happy Innovating! 





Innovation meets Adolescence (Part 1)

30 09 2008

 

Following on from my previous post on the Death of the Chief Innovation Officer (and the forthcoming rise of the VP, Innovation!), I’ve had several people now ask me about the rest of the contents of that presentation I gave on the “State of Innovation” – where is Innovation today?  

I personally believe that Innovation is continuing to mature – if we looked at the track of the adoption curve for Innovation as a sustainable business process, my feeling is that it looks somewhat like this:

 

Back in 2001 when I first got involved with Innovation and Idea Management – we were most definitely selling to the Innovators out there. They behaved in typical Innovator fashion – looking for shiny objects, reading up research to get the latest and greatest in whatever business tools are out there, very little sensitivity to risk, and generally regarded as mavericks within their companies. 

What we’ve gone through in the last 7 years is the maturation of that market – and with that a change in not only who’s doing innovation, but also how they’re doing it, and what they’re looking for.  It’s also signaled large scale changes in the market and how innovation is perceived and marketed by vendors.  

Let’s look at the most obvious indicator – the market landscape: In 2001, there were really only a few very small vendors out there – they were highly fragmented and tended to focus on niche elements of the innovation arena. I remember speaking to an industry analyst from Forrester at the time who told me that despite the fact that they loved our product “if you don’t have competitors, you don’t have a market”.   We were missionary sellers to a market that didn’t know what we had or how to use it – and when they did use it, they tended to focus on using it to replace the old school system of paper based suggestion boxes and Excel spreadsheets.  It was hard to find someone who could understand the potential in what vendors were trying to sell them – and even harder to find someone willing to look at committing the time, energy and resources into making it sustainable. Only serial entrepreneurs and mad men would dare enter the market at this point (and yes, we were both ;p ) .

By 2004, several more vendors had shown up on the scene – the market became more identifiable, people began to string applications together to make more robust products that the client could understand, and I had that same analyst now tell me that “consolidation will happen in this marketplace – I know of a company who is going to buy you soon”.  At this point there started to be people who “got it” on a more regular basis – although they still tended to be predominately mavericks or “movers and shakers” in the company who were out to make an impact and saw an opportunity to do something no one else had.  Of course, this led to a boom and bust period for corporate innovation programs as these maverick leaders would make a big impact in the business world and then have to face the consequences  – namely they would either:

a) Get Promoted
b) Get given more areas of responsibility in order to kibosh their rebel rousing ways
c) Get hired by someone else in their industry who wanted the magic formula
d) Retire (because another frequent profile of sponsor were near-retirees looking to make a last ditch impact and had nothing to lose

The market today is very different yet again – with a multitude of small vendors starting to flood the markets but ultimately the main market sticking to the few bigger vendors who serve defined markets but have multiple unique selling points to differentiate themselves as they try to find what the mass market that’s coming ahead really wants and needs. Financing is becoming easier because institutions are beginning to actually understand what is meant by the various terms that are used in the marketplace, and what the business proposition is.  Enterprises as a whole are starting to understand – and nowadays, if they aren’t actively approaching the vendor market in some way, it doesn’t take them long to figure out how it can be useful to them.  The market is rich with options – both from the software world and from the consulting world – big and small – local and global – there’s a vendor who can satisfy the market’s needs.  Prices are high, but so are the rewards for sustainable innovators – and the current recession is only going to strengthen the innovation agenda (see my entry on this topic for more on recessions and innovation). 

My personal feeling is that we’re about to begin tapping into the Early Majority stage of the adoption curve now having crossed the Innovator’s Chasm (the make or break point for any concept or product where you have to bridge the gap between the Early Adopters and the beginning of the mass market that is represented by the two majority groups) at the beginning of 2007. 

Of course the most interesting changes are happening at the enterprise level – and there are several major trends that are also pointing to this upcoming maturation in the enterprise application of innovation tools and techniques.  But that’s a story for another posting… 🙂 





Innovation Complexity Curve

26 09 2008

 

About a month ago I got asked by a colleague if I thought that there was some sort of maturity model for how are clients address and utilize innovation tools and it got me thinking on.  What I came up with is a model based on how I’ve observed our clients taking innovation as a new concept and tool and how that usage has grown over time:

When addressing a new concept, the first stage is to see if you can use it for Cost Reduction Purposes. It’s low risk, easy to do, can generate some marginal value that you wouldn’t have otherwise achieved and if you fail, no one will notice. 

Having achieved success at that, you then start looking at finding ways in which to improve your existing processes to become more efficient and to start adding some original value to the company. 

Success in that area leads you to look at how you can begin to use the concept/tool to gain some sort of competitive advantage with your product line – at first by looking at Incremental changes to your existing product line, and then by looking for alternative adjacent offerings you can develop to complement your existing product line.

Finally you start looking to the future – first by envisioning what your product line will look like in future generations and then ultimately by opening your mind to what sort of blue sky / breakthrough opportunities the company could capitalize on in the future. 

The further up the complexity curve you go, the more potential impact on your business a project will have. However, as the complexity is rising so does the risk of failure (naturally – if it was easy everyone would do it well!) and so your attitude towards failure needs to be likewise massaged and toughened if you desire to reach the top. 

I’ve seen many companies follow this curve – it offers a balanced way to try out the new concept/tool whilst all the time building credibility and tolerance to risk in exchange for reward. 

I’d be interested in any thoughts people have – so feel free to leave them!

Oh – and yes, I realise the “curve” isn’t actually a curve – but somehow “The Innovation Complexity Straight Line” didn’t have the same ring to me as I was writing this – and I vaguely remember an A-level maths professor say something to me about how even a straight line is a curve of sorts mathematically (although I could be wrong)… 





Death of the Chief Innovation Officer?

17 09 2008

I recently did a presentation to a large nationwide insurance company around “the state of innovation” today. it was an interesting opportunity to reflect upon some of the major changes that I’ve been noticing going on over the last year. 

As this was a pretty senior audience, it was no surprise that one of the items that caught their attention was the state of innovation leadership and how innovation is staffed and led in the modern enterprise. 

One of the biggest changes I think is the death of the Chief Innovation Officer (CIO) role. As unusual as it sounds for someone like me to be proclaiming that – I have good reason for my assertion – other than the evidence of numerous high profile CIOs leaving their employment over the last year or so. 

In reality – it’s not that companies don’t have the need for the CIO role – but rather that I think innovation has become such a critical part to most company’s future that it has been rolled into a much more important role – that of the CEO.  Try finding one CEO statement on any financial report that doesn’t mention innovation nowadays – and I absolutely applaud that approach.  Innovation has the capacity to make big – no HUGE – changes to a company. Take Nokia – innovation has taken it from being a forestry company, to a rubber products company, to a telecoms behemoth – without complete executive support for the type of changes required to innovate, it simply wouldn’t have happened. Innovation has to be about helping the organization achieve a direction and goal that it WANTS to achieve – and ultimately there is only one person in the organization that has the ultimate responsibility for that – the CEO.  

That’s not to say that organizations can get away without some sort of senior leadership – far from it – that leadership is as important, if not more important, than ever before – but it now is coming from a position that is junior to whomever leads the major change directions within the organization – in some orgs that comes under a Chief Strategy Officer, in Consumer Products companies that is typically the Chief Marketing Officer, in  Pharmas and other research intensive companies it falls most likely under the R&D department – and in some cases it’s a position that reports directly to the CEO. 

This new role – most frequently then an SVP / VP of Innovation – is the guardian of innovation within the company – ensuring processes are devised, targeted and executed to enable the org’s strategic goals to be achieved. They are the ultimate problem solving expert in the company – helping to not only define the problems that must be overcome, but then also to define the methodology by which they can be solved and ensuring that the organization’s resources are made available to do so. They are the champions of change, the focusing lens of innovation, and ultimately the secret to a successful program. 

The CIO is dead! Long Live the VP, Innovation! 





Parallel or Serial?

2 09 2008

So I’ve been working on this concept for some time as a result of an Open Innovation process that I put together for two of our clients – both major international food companies – who are taking the brave first steps towards collaboratively innovation. I say first steps, but they’ve actually already been at this for over a year – and it’s only just recently that the legal teams on both sides have put together and signed enough agreements with three letter acronyms (NDA, CDA, JDA, etc) to justify their retainers and satisfy every eventuality that this collaboration might produce – cue the ability for the business teams (and me) to start formulating a way to actually work with each other. During this two day working session I got to thinking that there are several ways in which to collaboratively work on a specific problem – mainly either in parallel or serial modes. 

The classic way of working is in Serial mode – that is – you first pose the question to one team, then pass the results to another team for further building and idea gathering, then to another team to develop further, etc – one after another until you have a finished product.  This is also the model you follow if you simply put everyone in the same room and let them at the problem.

The alternative Parallel mode gives the same question to both teams and has them both ideating in isolation – only to share the results with each other after the end of the ideation period. Whilst it would seem to be a duplication of effort and ideas (and you’re right to think so) there are actually times when that would make sense – and even be preferable. 

Of course people then also are able to mix the two approaches – first a Parallel process, followed by a Serial process to get the desired result and I thought I’d spend a little time this week to explore some of these concepts.  As these aren’t fully formed yet – bear with me if in future posts I then continue to add more – but I figure if I don’t get started somewhere, it’ll be ages before I get around to explaining what I think is a pretty interesting process question. More to come later 🙂 








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