| Written by Juan Antonio Solares | | Wednesday, 18 April 2012 13:32 | | Many people think that innovation is about generating ideas. In our previous articles we discussed how structures must exist that allow ideas to reach decision-makers, but it is not enough to merely come up with new ideas—this is only the “front-end” of innovation. Since ideas must be executed in order to generate value, a “back-end” of innovation is required to test and refine the ideas and make them a reality. The unit of execution of innovation is not the idea itself, but a project derived from the idea. Many people can claim to have innovative ideas, but only the ones who actually implement them can claim to have innovated. Not all ideas can be implemented though, because there are limited resources. Organizations must choose wisely which ideas they will focus on, given the resources they have. Ideally, they should focus only on the ideas that will succeed and have a large, positive impact, but without a crystal ball it is difficult know which ones to place the bets on. Despite the best predictions, when ideas are put into practice, they collide with many unforeseen variables, and can turn out very differently from what was expected. This is where the “back-end” of innovation plays a crucial role: ideas can be tested and refined before they are executed, either increasing their likelihood of success, or proving early on that they will fail so as to avoid costly investment losses. This testing and refining is done through lower-cost experiments that prove (or disprove) feasibility, demand and profitability. Creating this “back-end” of innovation has two components to it: first, organizations must create a culture of experimentation and learning, and second, employees need support in designing and executing experiments. The first key component is creating an atmosphere where experimentation is encouraged and failure is seen as a lesson learned rather than a finger-pointing opportunity. Many organizations want to avoid failure at all cost—creating a culture where ideas are not executed unless all possible risks have been eliminated. But in the world of innovation, lessons learned from failures are critical to building successful breakthrough businesses. This makes failure more of an asset than a liability, especially in the early stages of idea implementation. Dr. Patel from IXL Center, explains that "leaders have to tolerate failures and employees have to take risks. We need to create a culture of learning similar to that seen in kindergarten – or, in a research lab. In either place, kids or scientists learn by experimenting, by trial and error. They are passionate, patient and persistent. Out of ten tries (experiments), they may both find one success. But neither the kid nor the scientist would say that they had nine failures. Instead, they say that they had nine learnings that allowed them to get the one success." A great example of such a culture is Alcoa. Paul O’Neill wanted Alcoa to become a safe company. For this he created a culture that emphasized learning and experimentation: even though they wanted to become the safest company, when employees made mistakes it was more important for them to report them so that the rest of the company could learn how to avoid those mistakes and others as well. In one instance, O'Neill fired Alcoa's best division president because "one hundred fifty people [...] succumbed to carbon monoxide fumes and had to be treated at an emergency clinic. The incident was never reported, so others at Alcoa were not informed nor able to learn from the accident" (Paul O'Neill: Values Into Action, HBR Working Knowledge). Alcoa managed to fulfill its goals because of this culture that placed great value on learning and experimentation. It is in this environment where ideas can flourish and become a reality. Even with a culture of experimentation and learning, employees still need support in knowing what kinds of experiments to run, and often need resources to run them as well. A good place to start is with the aspects of the idea that are most uncertain. For some ideas, there will be a lot of uncertainty around their feasibility: Can it be produced and are we the best ones to produce it? For other ideas, the uncertainty may lie more around demand: Is there are a market for this and are they willing to pay for it? Other ideas may have uncertainty around the profitability: Can we produce it cheap enough and sell it at a high enough price to make it worth it? Employees must be able to determine the biggest uncertainties, and design experiments that will address those uncertainties. Experiments can range from simple phone calls to lead customers to sophisticated working prototypes. A good place to start for reducing uncertainty around feasibility is making mockups and prototypes, getting feedback from others on the look and feel, signing NDAs with potential partners, and running demonstration projects that show that certain expectations were achieved. A good place to start for reducing uncertainty around demand is making a brochure that clearly states what you offer and what the advantages are, getting feedback from lead customers, and getting advanced purchase orders from clients. A good place to start for reducing uncertainty around profitability is getting cost estimates from producers, margin estimates from distributors, and feedback from potential customers on what it currently costs them to solve the same problem through alternate methods. Increasing the likelihood of success of ideas is an iterative process in which rapid feedback from small successes and failures is used to transform the idea into something that has high feasibility, strong demand and will have a positive impact on the organization’s bottom line. It is important to give failure the value it deserves—a tremendous source of insights that will ultimately lead to success. As Henry Ford once said: “Failure is simply the opportunity to begin again, this time more intelligently.” Innovative organizations need to create space and provide resources for their employees to experiment with ideas, take risks, fail fast, learn from mistakes, and iteratively refine ideas until they are ready to go to market. | | Written by Juan Antonio Solares | | Monday, 26 March 2012 11:13 | In our last post we compared innovation to connecting the dots and coming up with more and better dots. One idea to keep in mind is that ideas can come from the most surprising places. A tremendous source of dots is a company’s employees. But it is not immediately obvious how this is true: many people think that great ideas come from the lone genius who knows everything. If this were the case, innovation would be hard to come by because genius is not something you can buy at the corner store. Good ideas are like chemical reactions: they come from putting together two things that can be explosive. Maybe an accountant and an engineer, while having lunch together, can come up with great ideas, but if a company does not have the structures in place to hear them out and test them, those ideas will be wasted. In his book, Where Good Ideas Come From: The Natural History of Innovation, Steven Johnson shows how difficult it is for good ideas to come into existence. What needs to exist is a network where ideas can collide: “networks create an environment where those partial ideas can connect […] They make it easier to disseminate good ideas, of course, but they also do something more sublime: they help complete ideas.” All that needs to happen in a company, then, is for different people to talk about ideas and put things together. This can be encouraged by providing time for colleagues from different departments to interact with each other—grabbing lunch or coffee, etc. Once ideas begin to "bubble up," a receptacle to collect them and send them to the decision-makers must also exist. Organizational structures can take many forms. Take what Polly LaBarre, a writer at the Management Innovation Exchange, says in “When Nobody (and Everybody) Is the Boss,” about Morning Star (the largest tomato producer in the US) and W. L. Gore (the makers of the famous Gore-Tex material). Anybody would expect these companies to have great leaders carrying the company on their shoulders. Well, this is true—but not in the way you would expect it to be. At Morning Star and W. L. Gore, workers are “without bosses, titles or job descriptions, [they] determine their own roles and responsibilities, negotiate their commitments peer to peer, and make their own decisions about who to hire and how to spend the company's money.” The great leaders are the empowered workers who have been provided with a corporate structure that allows good ideas to be heard. LaBarre thinks that “the ‘modern’ organization was founded on the principle of control—a central authority sets direction, corrals information, curtails decision-making power, and punishes deviations from the norm.” Control is not bad, but it may sometimes bottle up innovation: people will have good ideas but they lack the channels to forward those ideas to the decision-makers in the companies they work for. What is important, then, is to have a structure that allows ideas to bubble up. There is, however, one more issue to address: ideas must also be tested, and there must be structures in place to allow for this as well. More on this on our next post. | | Monday, 23 January 2012 12:06 | This blog entry is based on the Whitepaper titled "Business Insights for Action Compilation", written by Hitendra Patel, Ronald Jonash and Tyler McNally. It has been summarized by Juan Antonio Solares. Innovation is a child’s game of connecting the dots: it’s all about finding which ones connect to which, and once connected, an idea takes shape. In business, few of us can connect the dots in meaningful ways and we admire people who seem to instantly grasp the big picture. We call them geniuses and wish we could think like them. But at IXL Center we are democratic. Anybody can innovate, much the same way anybody can play connect the dots. We realize that an organization holds the dots within itself, and that it can innovate if it knows how to connect them. Companies, we believe, that have more and better dots, coupled with a structure to connect them, can come up with better business ideas and at a faster pace than those firms that do not. Therein lies the genius. After much deliberation, we discovered that to have a constant spirit of innovation, a company must: 1) collect dots from a wide range of sources, 2) cluster the related dots, 3) and have a structured process to connect the dots. Let us look at these three separately. 1. Gather diverse dots More is better: two heads are better than one, and being higher up is more advantageous for surveying a terrain. The same is true for business: having more dots across more fields helps foster successful innovation efforts. Dots are fragments of business ideas: one is not enough to set an entire strategy in motion, but the more of them you have, the closer you come to having an innovative idea that will work well. Inside organizations, each of the departments within it holds dots: all of them are needed to create a robust and actionable business concept. Competitors, the supply chain, partners, customer--all of these are also sources of dots. Dots may also be found beyond the value chain and in other unrelated industries. Steve Jobs, the man who liked to live at the intersection of the sciences and the humanities, found he liked to read Shakespeare and Plato, besides scientific literature that he devoured. Dots may also be found in unimagined scenarios, set in the future. There are many methods that can be used to generate diverse dots, but it is critical that the methods used are systematic, regular and cost-effective. 2. Cluster related dots As leaders of the Arthur D. Little innovation practice in the 1990’s, we discovered that most business ideas failed because the ideas were not sufficiently deep or broad. To strengthen these ideas, we introduced a method called clustering, where similar and related dots are grouped to create an “uber-dot.” This strategy provided more clarity, options and thus, more confidence. Creating the uber-dots requires many dots, and a system to group them. We created a system based on the structure of a business, broken down into these five categories: markets, channels, offerings, production and business models. Within this framework, each company can cluster the dots according the most appropriate subcategories. 3. Connect the dots Our research shows that most companies do not compare complete business plans, but only dots or uber-dots. A strategy designed on this comparison is doomed to fail. Comparing complete business concepts instead of individual fragments is the best way to see the relative value of one idea versus others. Creating a process that draws from the five categories democratizes the innovation process, ensuring that the critical components of each each idea are thought through, and joining many heads together to collaboratively design new successful business ventures. With a well-defined process, the company can tap into the collective wisdom of the organization. In conclusion, an organization can innovate new growth opportunities by gathering more and better dots, clustering them, and then connecting the dots to form complete business ideas. | |
