P48 Innovation from a Global Perspective – Arthur Fox interview.

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  • In today’s interview I have the great pleasure of interviewing Arthur Fox. Arthur is currently the founder and chief innovation leader at the innovation global network, which is a group I strongly suggest that you become a member of. Go to innovationglobalnetwork.com and check out the wide breadth of services and connections you can make in the innovation business.
  • He has been the global director of consumer insights at companies like Johnson & Johnson and Pfizer. From his position in the innovation global network, he is an active contributor on many innovation topics. I’m looking forward to hearing his thoughts on innovation. Let’s get started.
  • From my interview with Arthur, there are some points that I think can directly and immediately help you in your innovation programs.

P47 Truly Innovation Best Practices-Drew Boyd Interview

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  • In today’s podcast, we have the opportunity to truly learn some innovation best practices. In this podcast, I have the honor to interview Drew Boyd. Today Drew Boyd is the executive director of the Masters marketing program and assistant professor of marketing and innovation in the Carl H Lindner College of business at the University of Cincinnati.
  • What I love about Drew is that he has this wonderful combination of mastering innovation in the real world during his 17 years at Johnson & Johnson and then as a teacher and researcher in the academic world. While at Johnson & Johnson he developed the marketing mastery program which was not only acclaimed within the company but also by other companies like Procter & Gamble and Kraft.
  • Drew has co-authored a book titled Inside the Box: a Proven System of Creativity for Breakthrough Results. You will get a peek into the powerful insights in this book from our interview. He also has a very interesting ongoing blog which is at www.insidetheboxinnovation.com.
  • So, let’s talk to Drew Boyd.
  • As I stated in the interview, I definitely learned something from my conversation with Drew Boyd. I think there are some very useful insights that can help everyone listening to this podcast.
  • First, you can take strong encouragement from Drew that everyone can learn to be creative just like you could learn any other skill. In an earlier podcast, you heard from me the same encouragement that everyone can be creative.
  • Second, Drew’s inside the box perspective has some very valuable guidance. Innovation is not about going off into the wild blue yonder without a compass and knowledge of your capabilities. Innovation works best when there are appropriate constraints that guide your innovation efforts. These constraints are equally important in the front end of the innovation effort all the way through going to the marketplace.
  • Do not forget his book titled Inside the Box: a Proven System of Creativity for Breakthrough Results and his very interesting ongoing blog which is at www.insidetheboxinnovation.com.
  • This is a podcast worth listening to again. As with all of the innovation best practices podcasts my goal is to provide you with proven practical learning that you can translate into selling more and making more.

P46 Enlightened Experimentation

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  • Successful innovation always requires experimentation. For example, in previous podcasts I’ve talked about rapid prototyping.
  • The key points in this podcast are drawn from a Harvard Business Review article titled Enlightened Experimentation: the New Imperative for Innovation. The author draws his information from research in the pharmaceutical, automotive, and software industries. The focus is on for rules learned from that research.
  • The first he calls organize for rapid experimentation. He says, “the ability to experiment quickly is integral to innovation: as developers conceive of a multitude of diverse ideas, experiments can provide the rapid feedback necessary to shape those ideas by reinforcing, modifying, or complementing existing knowledge.”
  • The author gives the example of the car manufacturer BMW. In efforts to improve the crashworthiness of their cars, they historically would build expensive prototypes. These were not only expensive but often took months to build. In the course of the overall development cycle for a new model, the time to test with expensive prototypes typically returned crash results too late to effectively integrate all the learnings into the new model development.
  • Today the company uses virtual experiments – this is where crashes are simulated using powerful computers. This has significantly reduced experimentation costs and dramatically speeded up the receipt of crash results information. This allows for rapid experimentation and learning. Ultimately the virtual experiments are confirmed in actual prototype testing, but by that time the probability that the virtual experiments are confirmed in actual testing is very high. By utilizing this process, BMW significantly improved the side-impact crash safety of its vehicles. If they used the old methods, the physical prototypes would cost about $300,000 which was more than the cost of all the 91 virtual crashes combined. Yes, that’s 91 virtual crash experiments.
  • Use of small groups also helps rapid experimentation. You just need to make sure that you have the right people in a small group. For example in BMW’s case, they had designers, test engineers and manufacturing engineers as a part of the team. Another benefit that helped speed up experimentation for BMW was that several tests could be conducted simultaneously by running them in parallel.
  • The authors second rule is fail early and often, but avoid mistakes. The author says, “Experimenting with many diverse – sometimes seemingly absurd – ideas is crucial to innovation. When a novel concept fails in an experiment, the failure can expose important gaps in knowledge. Such experiments are particularly desirable when they are performed early on so that unfavorable options can be eliminated quickly and people can refocus their efforts on more promising alternatives.”
  • Some people are uncomfortable with a rule like this because it involves failure. I’ve always looked at failure as a teachable experience. If I am able to convert what I’ve learned about a failure into a future success then failure is a very good friend indeed.
  • A company mentioned in a couple of previous podcasts, IDEO, also highly values the ability to have rapid experimentation early on in an idea’s life to facilitate rapid learning from both what worked and did not work. Subsequent experiments incorporate learnings which typically improve results, but there still may be shortfalls that need to be learned from. The cycle continues by then incorporating those learnings into the next version.
  • There are some important basics when it comes to experimentation. There needs to be a clear objective that outlines what you anticipate learning. There needs to be a hypothesis detailing what you expect will happen from the experimentation. Experiments also need to control the variables. If a single experiment includes multiple changes and performance improves dramatically, you need to know how much each change contributed to the performance improvement.
  • The author distinguishes between failures and mistakes when he says, “mistakes produced little new or useful information and are therefore without value. A poorly planned or badly conducted experiment, for instance, might result in ambiguous data, forcing researchers to repeat the experiment. Another common mistake is repeating a prior failure or being unable to learn from that experience.”
  • The authors third rule is anticipate and exploit early information. Deep and broad learning about an innovative idea early on is critical to success. For example, research in the software industry suggests that late stage development problems are 100 times more costly than mistakes caught at an early stage.
  • Not only are late stage problems much more costly financially, they can also cost a project precious time in getting to market. Speed to market can be a major benefit. For example, a pharmaceutical• product that can reduce its development time by six months has the benefit of effectively extending patent protection by six months. For products that might have a short life cycle, reducing development time by six months can extend a trend based lifecycle and substantially improve profits.
  • Consider the before-and-after example for Chrysler. In 1993 when they developed the Concorde and Dodge Intrepid models they used a physical process for fitting the powertrain and other components into a prototype automobile. This process took three weeks and many attempts before they achieved success. By 1998 they were using digital mockups powered by computers. Instead of taking weeks to accomplish the task, it was completed in 15 minutes.
  • The author’s fourth rule is to combine new and traditional technologies. It is not unusual for companies to become enamored with new technology and view the new technology as a replacement for their traditional or historical technologies. There can be significant risks in thinking this way.
  • New technologies can be buggy early on, which reduces their effectiveness below the previous technology. The new technology may not perform all of the capabilities of the previous technology.
  • As is often the case with technologies, it is highly desirable to have an integration of multiple technologies. When this is done effectively, you can experience the benefits of both old and new technologies.
  • In the pharmaceutical business, new technologies have significantly increased efficiency and speed when developing new chemical compounds. Researchers no longer need to carefully develop one compound at a time. Instead they can use what is called combinatorial chemistry. This allows chemists the opportunity to develop numerous variations in parallel built around similar hypotheses or building blocks.
  • There is considerable information here that has varying applicability to help your business. I want to share my thoughts on how you can best use the information shared in this podcast to help you sell more and make more.
  • Probably the most universal of the rules in this article is the one about organizing yourself for rapid experimentation. Regardless of the business that you are in, developing prototypes ranging from fully operational to looks like prototypes is a proven rapid learning technique. Even prior to this step, producing multiple written concepts and variations on those concepts can be very valuable when you share them with potential customers either in a qualitative or quantitative research environment. Typically the best learning cycle is from concept – that is, a written expression of the idea maybe with a rough visual or two – to the development of various types of prototypes that are shared with potential customers in either a qualitative or quantitative research environment.
  • The second rule can also significantly benefit your innovation program. The benefits of rapid experimentation and failing early and often can really be seen as one rule. It is very, very important that you not shortchange the upfront learning program on a new idea. Just because you get positive feedback at an early stage, does not mean that you solved the puzzle to marketplace success. You need to learn from multiple variations of the idea. Upfront aggressive learning programs will absolutely increase your chances for eventual marketplace success – or if one of the learnings is it’s not a good idea, you can save an expensive failure.
  • I hope these insights help your innovation program so that you can sell more and make more.

 


P45 IDEO’s Advice on Overcoming Barriers – Part Two.

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  • In a previous podcast I shared some advice from one of the founders of IDEO, Tom Kelly from his book The Art of Innovation. IDEO is typically one of the top ranked innovation companies in the world.
  • In this podcast, I share some advice they have on dealing with some of the more common barriers to innovation. This is very helpful and relevant advice for most of you that are listening to this podcast. Some or many of these innovation barriers or inhibitors exist to some degree in almost every company that I’m aware of.
  • I will go through each of the barriers he outlines along with his suggested solutions. I will add to this my own personal experience with these innovation challenges.
  • The first barrier is hierarchy-based innovation. Tom states, “innovation and structure are like oil and water. Forcing ideas to start at the top or rigidly follow a vertical path through an organization tends to weigh down new projects. There are just too many obstacles.”
  • Another dimension of hierarchy-based innovation is, in my experience, often an innovation killer. In a hierarchy organization, the more senior the manager supposedly the smarter they are. So when you’re in a room with a group working on innovative ideas and a senior manager says something like “I don’t think that would work” referring to an idea under discussion, then there’s a pretty good chance that the idea under discussion just died. Not too many people are willing to challenge a senior manager, certainly in a group situation and where hierarchy is powerful.
  • A strong hierarchy-based culture assumes the more senior the manager, the smarter they are. Even if others don’t necessarily see them as smarter, and they often do not, the junior people can be intimidated and even fearful about a wide variety of possibilities, including their careers.
  • Personally, by nature I resist this kind of culture and behavior. During my time as vice president of marketing at Gallo, I would often find myself disagreeing with Ernest Gallo, the company chairman and founder, in a group meeting. Very few people disagreed with him—he could become a fiery Itialian. Usually if Ernest said he didn’t like something, everyone else in the room would follow like a herd of cats – except me. If I disagreed, I would always speak up with the first words being “Ernest, with all due respect……”, which I sincerely meant, and then shared with him a contrary view.
  • Tom Kelly suggests that a bridge from this hierarchy-based approach is a merit-based approach. This works if a company truly values ideas from any source and is willing to evaluate them objectively instead of how much hierarchy power a person has.
  • Tom’s next barrier is bureaucracy, which is often integrated into a hierarchy based system. Bureaucracy brings the added dimensions of paperwork, extensive step-by-step approval processes, and always needing legal perspective. There may come a time when some of this – and I underscore some of this – is actually helpful. It definitely is not helpful in the early stages of an idea’s life. In this stage, you need to play with possibilities and have freedom to go wherever new ideas take you.
  • Tom states that the bridge from this barrier is what he calls autonomy. This is essentially where the innovation process is extracted from the broader company culture to the greatest extent possible. Individuals or groups are given considerable autonomy to follow an exploration wherever it takes them. This is especially helpful for disruptive innovations which can often produce ideas that change the rules of the game in whatever category of business the company competes.
  • In an earlier podcast, I talked about how some companies are experimenting with creating startup like business units either inside or slightly outside of an existing larger company. The intent is trying to create and emulate the more free-flowing culture of startups as a way of nurturing successful innovation.
  • The next barrier he puts forth is called anonymous. It is a company where it seems to always be business as usual. There is little change of any kind. People seem to be almost on autopilot as they operate the business. There is not much interpersonal engagement. This can be the case in many older, mature businesses. They don’t have competitors threatening to put them out of business. Urgency as low. Life is blah but it’s okay.
  • Tom’s alternative is a company that is more like friends and family. The good organizations go out of their way to make you feel welcome and comfortable. People are not into the hierarchy dance. They can poke fun at each other. They recognize that ideas can come from anyone. There is respect for both the person and the ideas they share. There is honest engagement.
  • Granted this is a dramatically different company culture. As positive and attractive as it is, it is still not easy to bridge from an anonymous culture to this culture.
  • Interestingly, his next barrier he calls clean. This is a company culture where there are policies about having clean desks and there are strict rules about what you can do with your space. To a large extent, people are successful by playing by the rules. Not surprisingly, a culture that puts a high value on playing by the rules has a very, very difficult time developing out-of-the-box thinking, which almost by definition breaks the rules.
  • Tom’s alternative or bridge from the situation is what he calls messy. Messy can mean careless, unfocused, and lack of caring. In this case, it means an organization that can handle chaos. When it comes to innovation, internal chaos can often result when a disruptive innovation starts moving from a rough idea stage into prototyping and even the marketplace. By definition, disruptive innovations often require new processes, values, and capabilities. Maybe most of all it requires new rules and processes. Ail of this can be unsettling.
  • An organization that is run by strict rules thinks it’s doing the right thing. They think they’ve identified the best and most efficient way to do things and they want everyone doing the same thing the same way. What they fail to recognize is that they are putting a cork in personal initiative, stifling creativity and innovation, and maybe most importantly putting them at significant risk of a competitive innovation damaging their business.
  • His next barrier he calls experts. You may remember my earlier podcast titled “the curse of the expert.” In an organization of experts, only the views of the experts seem to count. And those who are labeled experts want it that way because it helps protect their position and image. As I shared in that previous podcast, experts know something but they definitely don’t know everything and often far from everything. They know a part, often a very small part, of all there is to know on a particular topic.
  • Tom’s alternative is to make sure that non-experts and what he calls tinkerers have the space and freedom to become an integral part of innovation. A previous podcast addressed the subject of open innovation. With open innovation a very wide variety of interests and expertise are invited into the innovation process. It’s a powerful way of dramatically expanding the number of quality ideas considered in the innovation process. Interestingly, there are several studies indicating that the estimates of supposed experts are less accurate than the collective estimates of people with lot lower levels of expertise. One such study compared growth estimates made by senior economists to estimates made by the general public – the general public’s estimate was more accurate by a wide margin.
  • Changing gears, the main value of this podcast is its identification of cultural dynamics that can significantly inhibit innovation. In my experience, the two that are most troublesome are a strong hierarchy based culture and a culture that strongly embraces bureaucracy. Interestingly, it’s often common to find both existing in a culture at the same time. When this happens, innovation becomes very, very difficult.
  • I suggest that you can benefit from the insights in this podcast by looking at your own company culture. A good friend of mine became president and CEO of a company where the culture had been the previous president and CEO made it clear that he was the smartest person in the company. His predecessor did not need to know what you thought. My friend brought a dramatic change. When the managers brought an issue to him, they were expecting that they would be told what to do. Instead they were asked what they thought should be done. And in many cases my friend agreed with their course of action. Having talked to some of his direct reports, I can tell you this was a very welcome surprise.
  • A strong hierarchy built will make innovation difficult every time. A culture built on bureaucracy where there are forms to be filled out and approvals to be gained before anything meaningful can be done also reduces chances for innovation success. And then when things are agreed to, there are tracking forms and forms for forms – it’s never-ending frustration. If this describes any aspect of your culture, consider becoming an agent of change if you want innovation to thrive. Successful innovation typically requires the freedom to play with possibilities. Take a look at your business and see what you need to do to make this possible.

P44 Successfully Navigating Personal Disruptive Innovation

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  • This podcast is different than others in the series because it focuses on personal innovation. You’ll recall that for this podcast on Innovation Best Practices, I define innovation as producing ideas to make something better. In this podcast, I address innovation to make your life better, but at a disruptive level. For example, you are unhappy in your current work and you take an innovative approach to making your life better. You develop ideas, you interview with potential new companies, and finally you get offered an exciting new job that requires you to move from Detroit to Singapore. There’s family involved. Your significant other also has a job that is impacted. Kids love the schools are currently in. You know that you will be working in a very different company and national culture than you’ve ever experienced before. This is change built on more change and built on even more change.
  • So how do you deal with this disruptive innovation you’ve chosen for your life?
  • There are many good books and articles on how to deal with this. Recently, I found a particularly good article in the Harvard Business Review – an article titled Managing Yourself. How to Embrace Complex Change. The process and principles articulated in the article have lessons for personal change, but also can be applied to disruptive innovation in business.
  • The author suggests a step-by-step process she calls the seven C’s.
  • The first is complexity. Disruptive change always involves complexity. We know this, but we do not always clearly see all the elements of complexity. So the first step is laying out a map of what the complexity of a move from Detroit to Singapore looks like.
  • In the example I gave earlier, creating this map probably requires involvement of all the people directly impacted. One of the biggest fears and impediments to this kind of change is a sense of the overwhelming scope of the change. This tends to be a more of general feeling supported with a few specifics. A lot of the fear can be eliminated if there’s a collaborative effort among those directly and indirectly involved to identify all of the complexity. Having identified it, it may still be a bit overwhelming, but knowing what you need to do is a big step forward.
  • The second C is clarity. You want to take the map you created in the previous step, which is probably in headline form, and make it far more specific. Each element may involve several steps and several people to be involved. There can be specifics like timing and who does what. This is a step that many people skip, but at significant risk of problems emerging later. Instead of handling these problems and needs in a systematic way with little time pressure, they all of a sudden become fire drills at the most inconvenient time and at the most inconvenient physical location.
  • Clarity requires details that are accurately stated and well written so that others reading the information quickly and easily learn what they need to learn.
  • Next is confidence. You understand what needs to be done and have a plan for each element that defines who is going to do what and when. As much work as you’ve put into the plan, you know to expect the unexpected. Even though there will be surprises, you now have confidence that you understand the full scope of what needs to be done. More importantly, you know that everything that needs to be done is very doable. Even if someone drops the ball, you know what to do when you pick the ball back up and move it to the finish line.
  • In this process, you need to realize that not everyone’s confidence is going to be at the same level at the same time. Some people will develop confidence in the change more quickly than others. Those who are on the leading edge of developing confidence can help others by sharing the basis for their confidence. Confidence can be infectious – in a good way.
  • Next is creativity. While you think you have your arms around what needs to be done and a plan to get it done, you know there will be a need for some new solutions requiring creativity. Sometimes you think you have a solution only to find out it’s not going to work. Instead of losing confidence when this happens, engaging creativity can quickly create multiple options/solutions you had not previously considered.
  • When you can solve challenges creatively within the group of people that are directly and indirectly involved in the disruptive change, the confidence increases. Confidence helps creativity. As you have seen from earlier podcasts, when there is fear and uncertainty, people tend to shut down, at least to some degree. Confidence helps unlock the full range of potential creativity. Earlier I said, you need to expect the unexpected. When the unexpected does happen it’s time to turn on the creativity to convert unexpected into a clear plan you know can be confidently executed.
  • Commitment is the next one. Everything that’s happened so far leads up to a deep commitment to your plan and the change. Commitment goes beyond saying to yourself “we can do this.” It goes the level of “we are going to do this.” This is a big shift – a powerful shift that significantly increases your chances for success.
  • When everyone is committed, there’s a deep sense that a tipping point has been arrived at. You’ve moved on from the previous reality and are already deep into and living the new reality.
  • Next is consolidation. You are now living the new reality. There are still remnants of change that need to be completed. New items have popped up on your to do list only to be quickly checked off when creativity and commitment are engaged. You have now completely let go of the previous reality. You’ve moved on from a sense of loss and change to excitement for what you have gained and the potential for even more.
  • Last is change. At this stage, the new reality is now your only reality. All of the change has been digested and is behind you. You are fully present in your new world. The focus is now on appreciation for what you have gained. No one involved in the change talks about the old reality. You are all in.
  • This is an interesting process. It’s not the only one. You can learn more if you want to explore further. I think the principles of this process are on solid ground. The details of your personal change will certainly impact the details and plans you need at each step.
  • There is some risk in trying to skip a step. For example, not doing the clarity step can result in some nasty surprises and disagreements. You discover that not everybody had the same understandings. This can add stress, which is never helpful.
  • So, I have addressed personal disruptive innovation. It may not happen frequently in your life, but when it does happen you need a plan. This is a pretty good place to start.

P43 Samsung Is Winning By Design

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  • When it comes to innovation, Samsung is a very interesting company. In the very, very tough and competitive world of smartphones, they are about the only android brand that has established themselves as a legitimate competitor with the Apple iPhone. That is no small achievement given the number of other quality companies selling android-based smart phones.
  • Getting to where they are today has required major changes in the very fundamentals of Samsung. In a quality Harvard Business Review article titled How Samsung Became A Design Powerhouse the authors detail the remarkable transformation the company went through to become the competitor with Apple that they are today.
  • Back in the mid-1990s Samsung was a company that had competencies and values that were not going to make them successful in the smart phone and smart TV business. What they valued most was speed, scale, and reliability. Their engineers produced products capable of being sold at a specific price point and with certain predetermined performance capabilities. You will notice that so far I’ve not used the word design in talking about their competencies and values. That is because design was barely a consideration back in the mid-1990s.
  • In the mid-1990s low levels of innovation, innovation they needed if they were going to be a leading brand, frustrated the company’s chairman. He determined that the number one additional capability they needed was design.
  • Fast-forward to today and the company has over 1600 designers. In recent years, they have produced stunning designs in the smartphone and smart TV business. But I’m getting ahead of myself, so let’s take a look at how they got there.
  • In effect, they needed to change an engineering and cost focused culture to an innovation driven by design culture. As you may have heard me say in previous podcasts, changing company culture is never easy and never fast. Samsung was no exception to this statement.
  • Samsung leaders point to an early decision that made a big difference. Instead of outsourcing design, they made the decision to create an internal design capability. Anyone that has worked with engineers and designers knows that there can be almost an inherent different worldview between the two groups that can create tension and challenges. Among other differences, engineers can be very efficiency focused while designers do not want to be shackled by efficiency and cost in their effort to drive high levels of consumer satisfaction.
  • In bringing designers into the company, they wanted people who were capable of strategic thinking and navigating the existing culture. The design group utilized some tools and processes that are sometimes foreign to engineers. They brought a sense of empathy to the design process. Empathy enabled them to dive deep into the consumer experience with their products. They want to know both the dimensions of physical interaction and the emotional experiences customers had.
  • They also develop the ability to visualize new possibilities. Powered by empathy and driven by creativity, they were able to bring innovative thinking to a much higher level. Innovation was now far more customer driven then bottom-line driven. Empathy is also an internal value where people learn to appreciate the world of people who are very different than them – like the differences between designers and engineers.
  • They also realized they could learn through experimentation in the marketplace. While this may seem like common sense to many people listening to this podcast, you need to appreciate that an engineering, efficiency, and cost driven culture can often not value marketplace input before launching a product. For those of us using smartphones, this is a recipe for disaster – a disaster that Samsung was able to largely avoid.
  • Samsung now has multiple levels of designers deployed throughout their business. Designers working with business units develop new products with about a 12 month time horizon. Then another group works with arch type design. This group works both with business units and their corporate design center. They plan and design new products and user interfaces that are 18 – 24 months out. The next generation design group also works with their corporate design center and the business units helping senior executives define the near-term future, which is two – five years out. Lastly, they have a future design group which works from their corporate design center. Their focus is on developing entirely new business concepts that include a technology roadmap. They also look at future technology developments and user megatrends. Their business focus is five – 10 years out.
  • While most of my comments have focused on smartphones, many of the same observations, can be made about their television and smart television offerings. They have brought considerable innovation to the category that typically is focused primarily on visual quality, audio quality, usability, and physical shape.
  • Having said all this, Samsung has been remarkably competitive in a highly competitive smartphone business. But all has not been roses. At times in the last 10 years profits have been a roller coaster ride. They’ve had several product introductions that have underperformed expectations and some that have exceeded expectations. There has been a constant stream of more and more innovative products in both the smart phone and smart TV business.
  • I have admired Samsung from afar since I am a 100% Mac, iPhone, and iPad person. I have marveled at some of the capabilities they put into their smart phones. In many ways their phones have capabilities that the iPhone does not. The attraction of the Apple way of doing business is that you get a fully integrated system across multiple platforms – computers, tablets, and phones. The system has great integrity and ease-of-use.
  • Samsung recognizes this and is reportedly working on its own operating system and various service platforms said to include transportation, health, and payments.
  • When it comes to televisions, I am a Samsung fan. Their smart TVs bring new functionality to television in an easy to use and reliable platform.
  • So, what lessons can you take away from this that can help you?
  • First, fully recognize the challenges associated with making fundamental changes to the capabilities and culture of your business. Existing capabilities, processes, and values tend to resist change and in some cases even sabotage change. You need a plan for the new capabilities to gain empathy and appreciation for the existing world and for the existing people to both appreciate and want the new capabilities that will help make them even more successful. While this is easily said, do not underestimate how much time and effort it takes to bring this about. It takes a long-term, conscientious plan to accomplish this.
  • Second, if you’re business category or segment is going through rapid change driven by innovation both from within and without the existing group of companies, recognize you probably need new capabilities to effectively compete. Do not make this choice quickly. In Samsung’s case, they decided they needed some of the same capabilities that Apple has – great designers. Sometimes doing what a competitor has is the right solution, but sometimes you want to build a competitive advantage a different way with different capabilities. Making the right selection requires understanding who you are, who your competition is, and who your consumers are. Out of all the options available to you, you want to choose the one that has the best answers from these three perspectives.
  • You may walk away from this podcast saying that innovation is not easy. You are right. It is why only 25% of new products succeed and 75% fail. Having said that, by learning the innovation best practices in these podcasts, you greatly increase your chances to sell more and make more.

P42 Disruptive Innovation Changes Everything

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  • This podcast addresses one of the most powerful forms of innovation – disruptive innovation. As the name suggests, those companies on the receiving end of a competitive disruptive innovation can feel very disrupted. Their world changes. To survive they can’t just respond with a new flavor or 20% more or a better package on their existing products.
  • Consistent with the best practices in this podcast, information you will hear today is drawn from a very helpful Harvard Business Review article titled Meeting the Challenge of Disruptive Change where one of the authors is Clayton Christiansen, the author of the seminal innovation book, The Innovator’s Dilemma.
  • In my business career, I had a front row seat to disruptive innovation in the coffee category. I had some experience with Folgers while at Procter & Gamble (the brand is now owned by Smuckers). I’ve also had innovation clients in and around the coffee business.
  • For decades, there was a consolidation process and the coffee category ultimately ended up with two brands dominating the category. Maxwell House was first developed by a company called General Foods and then bought by Kraft. Procter & Gamble purchased Folgers at a time when it was primarily in the Western United States and expanded it into the balance of the United States where at first it became a solid number two brand. Then through some remarkable and insightful advertising, Folgers moved from number two to a clear number one brand. For years Maxwell House positioned themselves as a great tasting coffee with their slogan “good to the last drop.” Folgers was also on a taste strategy until it discovered the power of aroma. Waking up in the morning to the aroma of coffee advertising, helped propel Folgers into the number one market share position.
  • So these two brands, owned the retail coffee category. There was not much successful product or packaging innovation going on for a long time. Folgers experimented with several flavored, iced coffee drinks that I tasted in the lab and thought were great tasting products. Unfortunately for them, the products never got out of the lab.
  • All of this preceded the introduction of Starbucks. Starbucks became a disruptive innovation. It’s amazing that Folgers and Maxwell House had millions of dollars of research and advertising and yet they did not know what the founder of Starbucks knew.
  • The next major disruptive innovation was the Keurig coffee machine and K cups from Green Mountain Coffee, a small company in Vermont.
  • The vast majority of the growth in the coffee category, both home and away from home, has come from these two disruptive innovations while the previous kings of the category have had to deal with flat or declining trends. They never successfully responded to these two disruptive innovations despite the fact that both companies are highly respected for their business acumen and innovation.
  • The situation where the big brands lose out on major innovation is not unique to coffee. Prior to personal computers that were mini computers and not one mini computer company succeeded in the personal computer business. With the advent of discount retailing with Kmart and Walmart, only one department store succeeded in discount retailing – Dayton Hudson.
  • The article’s authors zero in on the challenge existing companies have in responding to disruptive innovation. “It’s because organizations, independent of the people in it, have capabilities. And those capabilities also define disabilities. As a company grows, what it can and cannot do becomes more sharply defined in certain predictable ways.” Their research identified three factors that define what an organization can and cannot do.
  • First, they look at the company’s resources and what it can do. Resources include things like people, technologies, balance sheet, market insights, brands, and various kinds of relationships, like with suppliers, distributors, and customers.
  • Second, they look at a company’s processes. They define this as “patterns of interaction, coordination, communication, and decision-making employees use to transform resources into products and services of greater worth. Such examples as the processes that govern product development, manufacturing, and budgeting……”
  • Third, they look at a company’s values. The authors say, “we define an organization’s values as the standards by which employees set priorities that enable them to judge whether an order is attractive or unattractive, whether a customer is more important or less important, whether an idea for a new product is attractive or marginal, and so on.”
  • The authors note that most companies are pretty good at using their capabilities to respond to evolutionary changes. Evolutionary changes usually are relatively modest improvements to existing products. For example, a new flavor of a beverage or a new variation of a detergent, like cold water Tide.
  • Companies typically have a very difficult time responding to disruptive innovations. For example, Merrill Lynch had great difficulty responding to Charles Schwab’s entry into the bare-bones discount broker business. When personal computers were first introduced, they were very disruptive to both mainframe and mini computers.
  • One of the things that makes responding to disruptive innovation so challenging for most companies is that these types of innovations tend to be both rare, unpredictable, and intermittent. This usually means that they are not organized to develop disruptive innovations of their own or to respond to competitors’ disruptive innovations.
  • Companies successful in responding to disruptive innovations often use new teams, new organizational units specifically deployed to develop or respond to a disruptive innovation. This is not an additional assignment for people in an operating unit. As the authors state, “managers need to pull the relevant people out of the existing organization and draw a new boundary around a new group.” They go on to say, “new team boundaries facilitate new patterns of working together that ultimately can coalesce as a new process.”
  • Companies that have used this approach include Medtronic, IBM and Eli Lilly.
  • This approach is necessary because disruptive innovations can fundamentally change the rules of doing business in a particular category. For a company to respond, it often requires new processes and new values. Responding to a disruptive innovation can fundamentally impact the business model of an existing company, forcing it to develop a way of doing business with much lower margins. This is difficult for existing companies that have pre-existing overheads. Many companies initiating a disruptive innovation are smaller and leaner so that lower margins are nowhere near the issue that they are for existing companies.
  • HP faced this issue with their laser printer division when inkjet printing emerged as a very popular option. They were forced to face lower margins, new manufacturing processes and systems, and all this for a lower quality printing option. They struggled with their inkjet business until they created a separate division from their laser printer operation in Boise, Idaho and created a separate inkjet division in Vancouver, British Columbia.
  • Sometimes a company can respond to a competitive disruptive innovation with an acquisition that gives it new capabilities. Having said this, this is a tricky and challenging option. The acquiring company needs to never lose sight of what it is acquiring, especially the capabilities, processes and values of the acquired company. To make this work, the acquired company most often needs to be kept as an independent operation. If it is merged into an existing business unit, there’s a very high chance that the different capabilities, processes and values of the acquired company will virtually disappear when they are forced to conform to the acquiring companies capabilities, processes and values.
  • The bottom line is that companies facing a competitive disruptive innovation face a serious challenge. In many cases, the degree of severity of the challenge can range from a significant negative financial impact to a dramatic financial impact that threatens the very existence of the company.
  • How can you use these lessons in your business?
  • First, the best defense is an offense. You want to have as a regular part of your innovation program the goal of developing your own disruptive innovations. Disruptive innovations are always out of the box ideas. Developing them requires the full power of quantum idea generation, especially including high-level external expertise and diversity in the creative process. You will have difficulty getting a disruptive innovation without doing this.
  • Second, if you face a competitive disruptive innovation, your initial inclination might be to ask existing product groups to develop a response. As much as they might like to do so, they probably lack the capabilities, processes, and values to get the job done. Your highest probability of success options are developing a separate internal business unit or making an acquisition that you keep independent.
  • This podcast is giving you an overview of this very important and often challenging topic. The principles are good, but the unique details required for your business to succeed will make the difference between success and failure.