Innovating by Making the World a Better Place

Structuring Experiments for Success

Christian Terwiesch of the Harvard Review zeroed in on the Nobel award. This touches on an important aspect of innovation as it is about stopping the attempt to predict the long-term success of new ideas. The focus, Christian argues, should be on ensuring there are enough diverse ideas being generated. We couldn’t agree more.

Christian then puts forward four guidelines when you’re launching your next idea:

•    Seek uncertainty and variance in pay-offs. Most parts of management shy away from variance – we prefer things that are stable and in control. As a marketing manager, I prefer to have 10 sales associates with good results as opposed to having one being a star and the other nine being dogs. In tournaments, however, variance is your friend. You seek victory and prefer winning once (and being last several times) over consistently being second or third.
•    Kill early and often–even with “good” ideas. Winners of tournaments are not good, they are outstanding. Yet, most processes, recruiting university professors or funding R&D projects, are rewarding good work. Academic journals publish good papers and universities promote good professors. Similarly, stage gate processes in innovation advance good ideas. Nothing wrong with this – except that you fill your tournament with good contestants, contestants that will end up second or third, but will not win. And, as you fill the pipeline with good contestants, you leave no room for the outstanding ones. If you want to win, good is not good enough. Free up capacity, even if that implies killing something that is good.
•    Look for contestants from the outside. Some top universities, especially those in sunny regions, have a simple strategy. Wait for the star researchers to emerge and then lure them to town with money and a house close to the beach. Not a bad strategy, and one that has potential in the R&D world as well. Too often, executives in R&D feel that the best ideas come from their internal labs, missing opportunities that could be brought in from the outside.
•    Balance near and far horizon. Just like companies can come up with incremental and radical innovations, so can researchers. Many scholarly articles are rather incremental. Unfortunately, many others are what we might politely refer to as esoteric. They are so far at the horizon that they simply are out of touch with reality. And, again like in the corporate innovation world, the weak spot is right in the middle. No company forgets to launch its next line extension and there always exist some engineer dreaming about really wacky stuff. It is the middle ground that remains empty.

Video – Innovation & the Economy, Carngie Mellon

Innovation takes priority at the Clinton Global Initiative

BusinessWeek has published an article on innovation taking top priority at Clinton Global Initiative. Business leaders are beginning to focus on profitable ways to address humanitarian issues and spurring economic growth.

The CGI, a nonprofit nonpartisan arm of the Clinton Foundation welcomed 960 guests from 84 countries to address this issue.

Innovation, listed first in all program materials and the theme of many of the panels and networking sessions, is clearly the top-of-mind topic. In speeches and hallway conversations, the word is name-dropped as a means for tackling the three other action items.

Bill Clinton opened the event by saying “Innovation is a term that’s used a lot—and often overused. But often it is not fully understood,” Kao says. At the beginning of the panel, he defined it as “not just creativity. It is specifically about creativity that has value.”

William Drayton, founder of an association of social entrepreneurs added that for companies to remain both creative and competitive, they need to accept the 21st century model of invention.

What the first step is in rethinking offshore services

Recent research from McKinsey has found that more than 70% of offshore delivery centers have narrowed their global operations to India, China, and the Philippines. This lack of differentiation has introduced new risks including abrupt currency fluctuations, intense competition among the workforce, and regulatory limits.

The locations are chosen for the availability of highly skilled labor and low labor cost. While lower cost may result in the outset, the McKinsey research finds the overall risks to be higher than most understand them to be.

It seems offshore service providers largely have ignored the traditional investment rule of diversification. The McKinsey paper is arguing for an investment by BPO providers to make a portfolio approach. Countries such as Romania, Egypt, Russia, and Brazil are quickly on the rise of building a capacity comparable to China and the Philippines as a new choice.

A next-generation strategy for offshore operators should focus on the added benefits that come from multiple sourcing locations such as improved governance, process standardization, workflow transitions, and contingency planning. Combined with development of specialist skills to enhance innovation and IT project delivery, over the long term it is an investment in lower costs and improved performance.

Why the ability to innovate is tied to market leadership

In a recent INSEAD interview with Craig Barrett, the chairman of Intel, he articulates why the US needs to improve its innovation capacity to maintain its lead role in the world. “We’re not doing enough to get our own citizens interested in the skills and mindset required to retain a leadership role.”

Emerging economies around the world are focused on the necessity of well educated people required to pull their economy ahead of the pack. Our standard of living and economic standing in the US and Europe can only be maintained with investment in education and R&D. Lately it seems, points out Barrett, the greater the level of poverty in a country, the greater the government focus on high-tech and innovation education. The wealthier the country, such as the US and Canada, the inverse seems to take place.

In Barrett’s words, the best education system needs to be coupled with industry input. The people coming out of education institutions must be competitive in the world’s growing talent pool. Societal attitudes need to make sure the environment is suitable for investment and innovations.

Businesses must also take it as a high priority to educate their own workforce and focus on closing the gap between the unmotivated cog makers and the enthusiastic innovators within their company, not isolating sections of the staff due to organizational cultural misconceptions.

Barrett ties into the idea that in entrepreneurship, intelligent risks are a reality and that failure leads to learning something. South America still has yet to learn this lesson but it is beginning to embrace the idea. A direct result will likely be product and service innovation to meet the growing demand of an increasing South American middle class.

Over 50% of VC investment from Intel is targeted at Asia as it is quickly becoming as competitive as any opportunity in the US. Under closer analysis of graduate numbers, India and China far exceed high-tech graduation numbers than the US and Europe, but the US and Europe still hold the innovation card, for now, with the skills to connect the dots and hold onto the cutting edge utilizing foreign resources for innovative ideas that will continue to define the next paradigm.

Investment in innovation education needs to be made today to see the results in 10 years. Investing in a company’s talent can be the best internal investment a company can make. Talent investment ties into a recent report from  Booz & Company on The Talent Innovation Imperative. In this article, the authors argue “any company that competes on the global stage must, in light of today’s changing workforce, rethink the way it manages the skills of its people.”

The other recent publication on the topic also comes from INSEAD professor Guenter Stahl called Talent management: Building and sustaining a strong talent pipeline. In his paper Gunter recognizes what works for one company may not work for another. He concludes that while there are some effective practices for attracting, developing and retaining talent, these will only be successful if they’re in line with the company’s business strategy and the firm’s value system.

What areas of talent investment should business leaders be looking at? According to Booz: differentiated capabilities, performance acceleration, leadership development, and talent culture are essential to supporting an organization’s business strategy.

An investment in innovative thinking processes and culture can help ensure a brighter future for any company willing to take the chance.

How to exploit the innovation in chaos

Failure is something we all do, some better than others. It is also a key component to innovation. Creating a culture that accepts failure as an attempt to do something better is imperative to setting the tone for your staff to feel they’re not going to loose their job over trying something new.

One thing much of the literature currently misses is that once an accepting culture is introduced, it will take a good 1-3 months of incubation for people to get excited and trust that their ideas will be supported, even if they fail.

Trendhunter.com founder Jeremy Gutsche’s new book Exploiting Chaos illustrates the value of failure in innovation and how to exploit chaos. In it he asserts that for innovation to thrive, in addition to accepting failure, an organization must adapt quickly and work with the chaos. Structure and stability serve a purpose but are not the big picture for creating an innovative environment or long-term value.

One final note from Jeremy’s book: don’t let the failure of others reinforce inaction. This is an important point and different from creating a culture that lets failure happen. Instead, ensure that while failure happens the urgency for reinvention is never gone.

If you ask any employee of Google what it is that is a source of their company’s ability to innovate, the reply will always be chaos. It is not a fit for every company, say a button manufacturer, but if you’re a button manufacturer who wants to revolutionize a stagnant industry, play with a little bit of chaos on the side and you won’t be disappointed.

How to Measure Innovation, Part II

As a segue from the previous post on scoring innovation with metrics, Harvard blogger Scott Anthony posted a continuation this morning on The Danger of Innovation by the Numbers.

In short, he stresses that R&D must be tied to the market and that effort should be made to track the long-term impact of innovation development efforts.

His argument is backed by the claim that too much focus on the numbers will push researchers into a corner. A recent Harvard study showed close to 80% of respondents say they tie innovation success to the number of patents filed.

Scott takes the lead in asserting that patents for patent’s sake can be a null metric despite its current status as industry best practice. This metric can derail potentially lucrative research and prevent an opportunity to reach true value and success for the organization.

Instead of measuring the number of patents, a fool’s game for quite some time now, start measuring revenue generation tied to each patent in relation to its initial investment in the greater context of product adoption. Scott’s onto something by recommending taking an output focused approach to metrics beyond the walls the organization and into the market where ultimate success lives.

How can innovation be scored?

A recent paper by McKinsey proposes a new way to measure innovation.

Assumptions the paper makes:

• most metrics fail to connect innovation to company performance,
• innovation can be tracked against competing firms,
• if a company is out-performing the market, it must be innovating,
• the impact of innovation can me measured over the long-term.

These assumptions roughly comprise their new innovation performance score (IPS) which shows the compound annual growth rate for a specified period (multiple years) that can be attributed to innovation. It measures excess company growth.

Mistakes the paper makes include:

• seeing investment into a particular technology as innovation,
• that culture and agility can be measured as part of the metrics,
• revenue growth can be compared to the overall market.

The lessons McKinsey reports includes:

1. ‘strong’ innovators do consistently well,
2. top innovators continued to perform well through economic downturns,
3. product, process, and business model innovation in particular are necessary for superior innovation impact, there may be optimum levels for achieving innovation.

This is a bold attempt by McKinsey to get into the market of measuring and influencing investment in the future growth of companies. What it does well is begin the conversation around formalizing the idea of innovation as an investment to determine growth.

Why recession is the innovation acid test

Necessity breeds the saying goes, so too for innovation in organizations looking to find new survival skills. Video conferencing reduces travel costs, the Web enables decentralization of resource, opportunities to collaborate blossom. It is through tough economic times, argued by McKinsey’s August publication of “Using technology to turbocharge innovation in a downturn.”

Recession has historically given way to an increase in technological advances for multiple reasons. One being that during economic downswings only major innovations become successful, the kind capable of shifting the paradigm of existing business models and establishing new growth areas to excel into the economic upswing.

Over a dinner last week I was talking with friends about how so many organizations make the mistake during a downswing to go into crisis management unaware that market positioning is underfoot. McKinsey researchers found that nearly 40 percent of leading US industrial companies tumbled from the top quartile of their sectors during the 2000-01 recession, as did a third of leading US banks.

The report states there are two areas of innovation currently taking place. First is the “Internet of People”, in short people are integrating with each other, the market, and workplace. The second is the “Internet of Things” in which micro devices on wireless networks become more interactive and intelligent capable of transforming business models.

The coming paradigm shift here is that the new logic of paying for value will determine the success of your business model.