The Innovation Blog

I've just returned from an incredibly stimulating four days with one of the worlds premier packaged goods companies.  As with many of our clients, their ultimate objective is to transform their innovation efforts and culture in ways that will dramatically enhance their ability to stimulate growth.

As we are finding time and again, one of the critical stumbling blocks to innovation is the lack of a common language regarding innovation -- basic terms that are shared by all within the enterprise to discuss what they are working on, how to classify it, and therefore how to make resource decisions between options.

In our experience, and again in this session, it has been proven that an enterprise needs at least five basic definitions in order to succeed.  These five definitions must form the common language for discussion of innovation, goal setting and decision-making.  The five key definitions are:

1. Innovation what is it?  Is it new products and services, or is it more.  Do we expect innovation in core processes? business models? go-to-market strategies? etc.  
2. Incremental (or sustaining, or core) innovation.  The base level.  How do we define the minimum ante?  And therefore, what do we expect from riskier, larger opportunity efforts?
3. Breakthrough Innovation.  Larger opportunities that will significantly grow our business or our franchise with the customer?  Efforts in this area require different approaches, different decision tools, and normally, different resources.
4. Transformational innovation.  How do we differentiate the really huge, long-term types of innovation that truly transform not only our business, but the world?
5. Platforms.  Because platforms are often part of the differences in definitions, we need to understand what we mean by a platform.

One of the great things about being an innovation consultant, working with Fortune 500 firms is that I get a chance to participate in conversations and debates over things like this with a wide variety of smart and experienced people.  So I always learn something new.  That was the case again last week.  The experience has helped me to add clarity to my thinking about innovation terms, and hopefully to help others by sharing some of that learning.

The key to innovation definitions is not what others in the world say or think.  It is about creating a language that works for the unique organization in which you are operating.  It's not enough to create these definitions, they must be recorded, leadership must be aligned around them, and they must be communicated.  Most importantly they must be useful distinctions that fit your unique needs.  So here is my latest thinking based on these conversations:

1. Innovation

Business Innovation is the process of envisioning and successfully implementing new ways of doing anything that creates value for an enterprise and its stakeholders.

There are several keys in this definition that I hope will be useful to you.  First of all, it involves strategy and creativity ("envisioning" requires both).  Second, it is not innovation until it is successfully implemented.  Until then, it's just creative thinking or a nice idea.  Third, it must create value for someone important to the enterprise (stakeholders can be the enterprise itself, its employees, shareholders, customers, consumers, etc.).  Finally, it is a process.  There are five phases or steps in business innovation (discussed in separate blogs -Our Process >).

The next three definitions are critical to resourcing, decision-making, and creating portfolios of innovation.  To be useful, they must be:

1. Simple and easy to understand
2. Clearly distinguish one level from another
3. Useful (test them out with your own people using some list of your own projects or examples from the marketplace.  Refine them until they actually help distinguish differences)
4. Shared broadly within your organization

2. Incremental Innovation

Not all innovation achieves the same goals for an enterprise.  And unless everyone understands that there are different levels and that different levels require different resources and approaches, the enterprise will find itself "innovating" but not growing at rates it desires.  Incremental, sometimes called "sustaining" or "core" is the base level.

My recent experience helped me clarify, and simplify my own definition:  

Innovations that keep your existing offering competitive.

• Sustains (or minimally enhances) market share
• Targets primarily existing customers of your business or the category
• Extends current platforms
• Usually addresses needs the market can currently articulate

3. Breakthrough Innovation

• Creates new market share
• Targets new customers or new usage occasions
• Leads the market with needs that are clearly emerging, but may not yet be articulated by the target
• Creates a new platform (this is less part of the definition than a key criteria for most business innovation.  Breakthrough is risky and resource intensive.  To be worthwhile, it should have fertility and long-term usefulness)

4. Transformational Innovation

The third level.  Some innovation is generally recognized as "paradigm shifting".  New products, services or ways of doing things, that once the market recognizes, they will never go back to the old way of doing things.  They transform the world, our behaviors and create new purchase habits.  Electric light bulbs, automobiles, etc.  Because transformational are easier to recognize after the fact, it is difficult to plan for or to pursue them.  However, it is useful to recognize them in the conversation.

• Creates a new market
• Creates new spending
• Creates a new industry or category

Most strategies will lean toward a break between expectations for incremental and those of breakthrough or transformational.

5. Platform

At its basic level, platform thinking seeks to leverage some investment over time and multiple revenue streams.  That investment may be technological, channel, manufacturing process or equipment, markets or brand equity.  There are many examples.  The point is, to be attractive, higher risk, more expensive efforts require leverage -- in terms of longevity and/or revenue streams.  This will frequently help distinguish between incremental and breakthrough, because incremental generally leverage some existing investment (platform), whereas breakthrough generally require some new investment (platform).

A family of related offers that leverage an initial investment, technology or assets across an envisioned roadmap of revenue streams.

They must:

• Be BIG -- whatever is big for you in terms of revenue.
• Leverage a clear asset or investment
• Be Fertile -- you must be able to envision a developmental roadmap that unfolds over time, creating multiple families of incremental derivatives
• Have long-term viability
• Further the Vision and Strategy of enterprise

There are many more definitions that are useful, and many variations on these themes out in the world.  The key is to adopt or create those that best work for you, then align all your stakeholders around them and communicate them to everyone who participates in innovation.

This is in response to a radio mention of President Obama’s plan to discuss his innovation initiative in the State of the Union address.

Dear President Obama;

Okay, I’m not your biggest fan.  You almost had me during the campaign, but lost me soon after you took office.  That said, I’m president of a boutique innovation-consulting firm that helps primarily Fortune 500 companies pursue their innovation agendas and goals.  So I have been interested and largely supportive of your initiative for “A Strategy for American Innovation: Driving Towards Sustainable Growth and Quality Jobs.”

I’m not going to quibble about the parts I may not fully support, or the places where other agendas have been rolled together under the cover of innovation.  By and large I support your efforts, and agree with much of your rationale and strategy.  We all know that government is not going to be the driver for the U.S. regaining leadership in the global innovation arena.  But $100 Billion in investments directly or loosely tied to the effort can’t hurt.  So I thank you and I wish this effort all the best.

For once, my concerns are with poor strategy, poor execution and wasteful spending in the private sector – business.  Especially BIG business.  We work with these companies all the time.  From our perspective, there are three kinds of companies when it comes to innovation:  1) Those that know they have a problem and do what it takes to fix it, 2) Those that know they have a problem, talk a good game for change but don’t do what it takes to succeed, and 3) Those that don’t even realize they have an innovation problem.  Of course there is a fourth category, those companies who already are good at innovation.  But there tends to only be a handful at any given time… and that handful changes (when was the last time you heard that 3M, Rubbermaid, or Intel was booming because of great innovation?).

We love working with the first group (which is a fairly exclusive club), hate working with the second, and only have a few minor engagement with the third.  Your white paper mentions “A short-term focus…” and “…neglected essential fundamental investments.”  Right on!  The truth is that our economic system, our reliance on quarterly numbers for Wall Street, and our focus on management rather than leadership conflicts with our ability to be innovators.  Our lack of ability in innovation can be traced back throughout our educational system, and is reinforced by how we are incented and our metrics for success.  That’s another story.

So here are a few bits of advice from the front lines of innovation. 

1. If we are truly going to recapture a leadership in innovation, our enterprises (public and private), need to understand the Nine Critical Success Factors for Innovation available at http://www.creativerealities.com/learn-the-9-critical-success-factors-of-innovation/. 
2. While they are all important, our business leaders need to pay special attention to the first five.  And business leaders must learn that to be leaders, they have to put some of their own “skin in the game”.  They have to be appropriately present in this initiative.  Senior leaders can’t try to protect top management from the initiative. 
3. They all have to realize that this involves change.  Don’t embark on creating a new culture of innovation if you are going to demand people do things the same way they have done them in the past.  That’s the point. 

The most frustrating thing we experience in working with our clients is that while companies come to us saying they understand they need to change, and that’s why they hire us, at multiple points along the way, the existing infrastructure, established process, and culture smashes down on the new thinking and continually pushes for the old ways over the new.  Business leaders who truly want innovation must constantly support the forces of change and provide “air cover” until those changes become the new norm and are capable of supporting themselves long-term.

Throwing money at this problem by itself will not achieve the desired results.  Money will help, especially in areas like basic research.  But the only way we are going to regain our position of leadership in innovation is to begin to act like leaders – creating our vision of an innovative future, setting an agenda for achieving it, putting real “skin in the game” and changing the way we operate and make decisions.  It can be done, but not without some real and sustained effort.

Good luck!

At Creative Realities, we call ourselves "the innovation management collaborative."  We do that as a result of  some brand equity research we commissioned about a year ago to find out what value our past and current clients found in us versus the competition.  We were in the midst of creating a new "Brand Expression" for ourselves with a cool company called blackcoffee.

The world of innovation has become extremely crowded since we opened our doors 20 years ago.  From single practitioners who focus on facilitating a meeting or session, to large global consulting firms who have taken interest in this space and believe their model translates here.  Many of our clients have experience with a wide range of innovation consulting resources.  So we wanted to know why they continued to come back to us, some for our entire 20 years of business life.  What is our unique value proposition?

Innovation, Management, Collaborative

Those three words defined our unique value proposition.  This morning, the "collaborative" part is on my mind so I'd like to share some thinking with you.  Innovation is nothing without collaboration.  It is the extremely rare situation where one person has all that's needed to identify an opportunity, conceive the solution, and successfully implement it without help.  Some entrepreneurial situations come close, but everyone needs help.  In large organizations, collaboration is absolutely essential.  It begins with an internal collaboration.  A team of people with diverse expertise, points of view and who impact and can tap into the organization in different ways and different places.

The M.A.S.H. Mentality

It's about how you organize your group into a team and then how you work and think together.  Here's some tips for creating an innovation team:

Diversity isn't just an Human Resources term.  A powerful team will have a range of diverse perspectives.  We all come from different backgrounds, which create different contexts through which we hear and filter information.  A key ingredient for innovation:

• Diversity of function/expertise.  The ideal small New Product or New Business team has at least one technologist, one marketer and one business manager.   Why these three?  In most situations the new solution will be addressing an unmet or unexpressed need (the marketer), with some form of technical solution (the technologist), in a way that creates a successful business (the business manager).  If technology is not as critical, then it may be operations or some other relevant expertise that occupies that seat.  The point is that your core team should have necessary and relevant expertise and be able to tap into others within the organization of similar bent.  Networking influence is critical.
• Naivete.  I can't begin to tell you how often the breakthrough for innovation comes from the person who doesn't know why they are involved, because they "don't know anything about this."  But the so-called experts are too often bogged down by all the things they tried and failed at previously, or too caught up in what they think the idea is to see a somewhat different, very elegant solution.  (Quick story:  In a session with all double and triple PhD's from places like Sandia Labs, Bell Labs, etc.  we once brought in a 70+ year-old Grandmother.  When the client asked "Why?" we said "Don't know."  In one day, 25 patent applications were completed.  The client credited 20 as being driven by insights from the "Grandmother.")
• Demographic diversity.  Yes, the HR aspect is at play here too.  Age, race, gender are all important.  We find this to be true everyday.  I'm a Boomer, I see things through the eyes and the historical experience of a Boomer.  It amazes me how differently my Generation X or Y colleagues see things and the very different types of connections they make.
• Diversity of thought process.  Here's where you need your "Klinger."  Regardless of demographic, or expertise, you need at least one person who out and out thinks differently!  Someone who says something that makes you go "Huh?"  Klinger's are constantly shaking you up, forcing you to think again, try a new perspective.  The last thing you want is to have everyone thinking the same way, going to all the same places, etc.  Klingers often don't fit well within large, bureaucratic organizations.  They tend to get "weeded out."  Sad, but true, one of our largest clients just a few years ago, in answer to the question "Who are your Klingers?" responded "We don't have any.  We killed them all."  It took a little while, but they've got a few again!

With diversity often comes communication issues.  Frankly, we all see and hear things differently.  And too often, we talk right past each other.  We are communicating based on how we process information.  Meanwhile, the other person is listening the way they process information.  We don't even know we aren't communicating.  People get upset that the other one doesn't listen.  There are a number of personality profiling techniques that can help us understand this and adjust our team communications accordingly.  There are several you can use to help with this team communication building.  One we like to use, because they even have a "game" that you can use to generate some beginning insights is HBDI (Hermann Brain Dominence Instrument™).  We use it in our early team compact meetings to help point out the differences and begin to help members understand the various communication needs of the team.

Along with the composition of your team, you're going to need some different ways to make decisions.  We favor "Championed Teamwork" which I'll leave for another day.  We also have a range of "groundrules," tips and techniques for helping the M.A.S.H. unit work like a well-oiled team rather than an ad-hoc group.  Check out the article listed on the side of this blog titled "M.A.S.H. Mentality: Prescription for Success for more helpful information.

Some years back I wrote an article for R&D Innovator on this subject: M.A.S.H. Mentality: Prescription for Success.  You can also find the article on our resources page.  As I'm blogging this morning, it came to mind, so I searched it out and read it again for current relevance.  I was pleasantly surprised by how well it stood the test of time.  So I made a few changes to the introduction, and am republishing it here.  If you're getting ready to start an innovation effort in your company, building a team, or having some collaboration struggles, I'm hoping something in this article will be of help to you.

Sooner or later, no matter how obviously brilliant your idea, someone is going to ask "how big is it?"  And in too many situations, this question will be asked way too early in the process (but that's a subject for another day).   As a result, I'm even hesitant to provide folks here with a way to answer the question.  Because providing a financial estimate too early in the process is more often a Kiss of Death than a useful bit of information.  Why?  Because if the topic under discussion is an incremental innovation, everyone probably already knows the answer (whatever 1-2% more of the existing sales would be).  In the case of breakthrough innovations, the answer is a much more subjective question because there is no existing frame of reference for the answer.  New ideas have new markets, new customers, new value propositions, new purchase behaviors, etc.  So at best, providing financial information is a S.W.A.G. (Silly or Scientific Wild Ass Guess).  Breakthrough innovation should be looked predominantly through a strategic lens in the early stages.  Stay Loose until Rigor Counts!

But sooner or later, continued development of even Breakthrough ideas will require some sense of "is this going to be worth it from a sales point of view or not?"  That's where S.W.A.G. comes in.  We've done a lot of work with S.W.A.G.s over the years, and recently while surfing the net to stay current on the existing school of thought on this, I ran across a posting from Christian Buckley of Red Hill Partners on The "Defendable Swag".  Basically, he raises six important questions, and frames the question for people who are seeking venture capital.  His logic runs very closely to our experience.  So I've taken the six questions and turned them into a nifty little spreadsheet in Excel that allows us to work with our client teams to think through a defendable financial estimate or S.W.A.G. 

Here's a summary of Chris' questions and our financial estimation formula.  Remember, for breakthrough, with no frame of reference, you're going to have to look for a place to begin with some logical support.  It may be some similar product or service in an adjacent world, or some other financial metaphor or analogous world.  Once you have that, you're ready to start Swagging!  In my view, using a multi-level thought process helps make this approach "defendable."  Here it is:

1. What is your Total Applicable (or Available) Market -- TAM.  You're looking for the big segment here.  Large enough that there is usually some form of data available.  If not for your exact market category, then for the one you are using as an analogy/stalking horse.
2. What is your SAM (Served Available Market).  That portion in which you are actually competing either with someone else, or alternative, "lead user" ideas (ideas developed informally to solve the problem because your product isn't available to them).  In the formula, assign it a percentage of the TAM.
3. Geographic Reach.  We have used this two ways.  In the normal case, you may be limited to the U.S. market and your information is Global.  So determine what percentage of the global market is represented by the U.S. for this or a similar category, and use that percentage to modify the global data.  Recently, we went exactly the other way.  We had TAM and SAM data for the U.S., and we had a useful analogy for the Global markets we expected to play in, so we inserted a formula that "plussed up" the U.S. data.  Depending on what your TAM database is, you may wish to place this above the SAM percentage in your formula, using this as you maximum modified TAM and then reducing that by a competitive number.  Either way, the thought process helps you understand your potential.
4. Primary distribution within that reach.  There's an old saying in retailing:  "You can't sell from an empty shelf."  That's how distribution affects the next part of your calculation.  In packaged goods, we use percent ACV - All Commodity Volume.  ACV is the term that represents the total annual sales volume for retailers in a geographic area.  It's not just about your product category.  It helps account for big stores versus little stores, etc.  So in packaged goods when we talk about distribution as a percent of ACV, what we're really describing is that percentage of the total "shelf space" we will reach in a geography with our distribution partners/system.  
5. Who are your key Partners for sales and marketing within those channels.  Good question.  It will be important to know and plan this, especially as you look to scale your business.  Do you have the necessary relationships to scale by developing the needed channels of distribution.  It's a great question when preparing a venture capital brief.  We don't include this in our SWAG number.  We would consider it more as a discussion point.
6. Anticipated Share.  Christian uses the question "What will it cost you to capture 10 to 20 percent of that market?  Again great question.  It goes to other parts of our financial model.  For our purposes, identifying how big the revenue could be for this innovation, we're more concerned with adjusting our numbers by a reasonable percent share.  Emphasis on the word reasonable.  Unless you are a monopoly, your consumer/prospect has other places to go.  Be reasonable here.  10-20 percent is normally as big a share as you should plan on for your base.  Then you can apply Christian's question to later business plans indicating the size of additional investment needed to capture larger shares.

So the formula becomes:

• TAM x % = SAM
• SAM x % Geographic reach = Geographic SAM
• Geographic SAM x % Distribution (or ACV) = Total Solution Opportunity
• Total Solution Opportunity x % Share = Your Anticipated Business Volume

We add another level to our SWAG to estimate "ingredient" products/services.  We call it "Client Interest."  So if the Anticipated Business Volume is for a total product or service, and we are providing a piece of that, we need to again reduce our SWAG by understanding what piece we provide.  Are we 50% of the Value/Cost or is our interest limited to 5-10% of the finally delivered product/service?

Remember it's called a SWAG for a reason.  As your innovation process progresses, your guesses need to get more rigorous and better supported by new information.  In the meantime, it's an "educated guess" and it's a nice defendable SWAG because of the thought you put into it.

Timber! 

This is my first post and I feel compelled to share why I'm doing it, and why I've never done it before.  The headline for why I'm doing it is that I have been shamed into doing it by a client.  The headlines for why I never did it before are that a) I didn't think anyone would really care what I think, b) I'm uncomfortable sharing personal information, c) I have so little time for all the other things I love, I'm unsure if I will be able to maintain a fresh, timely blog, and d) I'll have to be very careful what I share because so much of what I am doing at any given time is proprietary and confidential.

Shamed into it?  

Yeah, shamed.  On Monday, I'm sitting in the outside courtyard of a hotel in the Napa Valley, soaking up some precious sunshine (I'm from New England, where it's been a bit too cold and snowy for relaxing outside lately), when my client strolls up to me.  This is the guy that arranged to have me come to Napa to be his guest speaker on innovation to engage his company in new ways to grow.  We've talked several times in the past about innovation, about trends that drive it, etc.  This morning we got into toys and gadgets.  I was showing him my new Kindle which can hold up to 200 books, etc., and working on my Mac Powerbook.  His creative guy walks over and we get to talking about technology for creative types and I get directed to his blog (http://tevis.net).  Cool guy, cool blog (what do I know, I'm new at this, but I liked it).  One thing leads to another and the next thing I know, my client is telling me that it's nuts that I don't have a blog.  I'm in the business of new, of trends, of staying in touch.  I study and leverage trends all the time.  I'm a gadget freak.  I'm from the generation of "He who collects the most toys before he dies wins."  Then he says, people like him want to get to know guys like me, especially if they are looking for help or considering hiring us!  He shamed me into it.  So okay Tom, here it is.  Let's see where it goes.

Why not before?

Who cares?  I'm a Boomer.  I would have been all over this in my younger/college/marching in the streets/social activist days.  But then we became the "me generation."  We moved into business and became big-time competitive.  Sharing became somewhat selective.  Later, we moved into the "cocooning trend."  We began pulling back into the nuclear family.  

I'm uncomfortable sharing personal information.  

The idea of broad social networking simply has not been a big need/want/desire for me or for many of my generation.  We tend to work things out quietly, by ourselves, or with a shrink, not by airing it out for the world.  Frankly, I'm amazed at the growth of social networking among younger generations.  Facebook, Youtube, MySpace, etc.  I'm learning, but as with anything new, if you are going to get involved, you have to find ways to make it your own.  So this blog isn't going to be highly personal, except as I touch the world of innovation.  It's simply not me.  Hopefully you will see the passion I have for what I do, but we'll keep the personal life stuff out of here.  I'm also going to engage the help of some of the younger Business Innovationists here at Creative Realities to try to help me decide what you might be interested in.

Time.  

We'll see.  Right now, I have great intent.  My partner Mark loves to talk about the "Say Do Ratio."  Generally people and organizations do a whole lot more "saying" than "doing."  I can begin to envision sharing some of the cool stuff I come across just about every day as I move from one industry to another.  I find it extremely interesting.  Hopefully I'll take the time to share it and you will too.  Right now, I'm moving between the worlds of alcoholic spirits, building and construction materials, chemical ingredients that enable other products to work, things that cool, and things that generate electricity.  Each one has something new and interesting to learn from.  That's my mission.  To share with anyone that's interested,  some stories from the field, tips and techniques, trends, etc.   

Most specifics must remain Secret

Much of this must be presented without brand name.  The work we do involves proprietary thinking, ideas, concepts and business models that are in development.  So until they hit the market we can't share a lot.  Right now, I'm thinking that the best way to handle that is to combine some real-time experiential stories with some announcements and stories of how we got there after the results of our collaboration has hit the market and can be discussed.

So, if you're out there, your interested in the practitioner's view of innovation, stay tuned.