What Do Numbers Say About Different Models of Innovation?

Posted on August 6, 2015 by Eugene Ivanov

I’m not a fan ofimages the “idea generation” model of innovation. This approach, which I call “bottom-up,” puts the focus of innovation on ideas that are generated by employees on the ground and then channeled upwards to senior management. I think that the bottom-up approach is plagued with a numbers of serious flaws that I discussed here and here.

A plausible alternative to the bottom-up model of innovation is the “top-down” one, an approach that focuses on problems. In this model, a company’s leadership formulates problems that are strategic to the organization and then moves them downward for employees to find solutions to these problems. Again, I outlined the benefits of the top-down approach here and here.

Personal preferences notwithstanding, can we find any specific numbers pointing to a superior efficiency of one model over the other? Here is what I can offer and I strongly encourage anyone to challenge my numbers–or come up with their own.

Take InnoCentive, an open innovation service provider specializing in crowdsourcing. Its business model is a classic example of the top-down approach: InnoCentive’s clients post technical and/or business problems (“Challenges”) to the InnoCentive website, and a network of InnoCentive “Solvers” (365,000+ from nearly 200 countries) work on finding solutions to these problems. InnoCentive boasts up to 85% success rate of their Challenges.

Compare this to Dell’s Idea Storm, an external innovation portal designed to solicit open-ended ideas from consumer, a typical example of the bottom-up model of innovation. The opening page of Idea Storm tell us that of total 23,731 ideas submitted to the portal only 549 were implemented. That is slightly above 2%.

Sure, I understand the difference between soliciting ideas from outside a company vs. the company’s own employees–as I credit InnoCentive’s remarkable skills in formulating problems on behalf of its clients–and yet, the difference in the efficiency for both approaches is staggering.

That’s what numbers say.

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Start-ups as an enemy of entrepreneurship?

Posted on July 30, 2015 by Eugene Ivanov

FORBES-WOMAN1

On July 27, The Telegraph published a column offering a blistering criticism of start-ups and what it’s calling a “start-up culture.” As the column author, Lucas Mikelionis, argues in the header, “Start-up culture is corrupting our youth and killing real entrepreneurship.” Mr. Mikelionis further claims that the start-up culture “has created a myth that has the power to ruin lives.”

For a rather short piece (fewer than 1,000 words), Mr. Mikelionis comes up with an impressive list of grievances he has with start-ups. First, he’s offended by the fact that start-ups go against “traditional business-making practice, where companies respond to the demand of consumers,” a strange claim, if you ask me, but that’s what Mr. Mikelionis says. Second, while admitting that some start-ups did deliver “revolutionary products,” he insists that this is not a rule, but rather an exception, arguing that most start-ups actually fail. Third, Mr. Mikelionis claims that start-ups don’t want to balance their books but prefer instead burning cash at high rate while ignoring market research, another strange claim, to say the very least.

Fourth, and this apparently is what brings Mr. Mikelionis’ blood completely to a boiling point, rare successful startups are not attempting “to create a business with a long-lasting plan,” but instead rapidly sell to “larger corporations…for a handful of cash.” As a result, there is a shift from company ownership to a “never ending game of start-up creation,” a deadly sin in Mr. Mikelionis’ eyes. A minor, but still a corrupting, factor is that inspired by Mark Zuckerberg and others like him, young people “rush out of university to start companies regardless of having no experience of working in the private sector.”

Mr. Mikelionis’ criticism is wrong in at least two fundamental aspects. First, he’s blaming start-ups for high levels of failure while apparently believing that “larger corporations” always do it right. This is absolutely not the case.  Let me quote Chapter 1 from Scott Anthony’s recent book “The First Mile”:

“…of eleven thousand consumer product launches in North America between 2008 and 2010, only six had first-year sales of more than $25 million, maintained at least 90 percent of sale volume the next year…and produced cumulative two-year sales that exceeded $200 million. Six. That’s 0.05 percent.”

So much for the efficiency of larger corporations! Large companies waste mountains of resources to launch products the vast majority of which spectacularly fail in the marketplace–and all that while keeping the balance books in perfect order (well, most of the time). Compared to that, the start-up world strikes me as El Dorado of Success and Efficiency. (Not to get too personal, but does Mr. Mikelionis really believe that all or even the majority of pieces published by The Telegraph, a large news corporation, are examples of journalistic excellence? I don’t think so.)

Sure, I strongly prefer young people graduating from colleges, at least eventually. And yet, it’s so tempting to recollect a number of failed companies, such as Kodak or Blockbuster, whose executive teams were packed with MBA graduates from the top business programs.

The second, and much more troubling, problem with Mr. Mikelionis’ piece is the fact that he doesn’t actually understand what a start-up is. He apparently believes that start-ups are smaller versions of larger corporations that can become such by creating “long-lasting plans” and nurturing the culture of ownership. To this end, Mr. Mikelionis could greatly enrich himself by reading Steve Blank with his famous “start-up is an organization formed to search for a repeatable and scalable business model.”

Naturally, not every idea can result in a repeatable and scalable business model. It takes experimentation and inevitable–and unavoidable!–failure to identify a winner. That’s why start-ups fail, and not because their founders are lazy, stupid or corrupted. And, yes, when a larger corporation sees a start-up with a worthy idea, it’s ready to shovel piles of cash at it. This is how big companies fill their product pipelines these days.

The ultimate winners in this game are we, the consumers; because start-ups help large companies innovate better and faster, bringing to the marketplace new and exciting products. That’s why in contrast to what The Telegraph and Mr. Mikelionis say, start-ups don’t kill “real entrepreneurship.” They are real entrepreneurship.

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What Questions Does Chattanooga Shooting Raise?

Posted on July 19, 2015 by Eugene Ivanov

I like timageso argue that a key to successful crowdsourcing campaign is to ask a right question. It doesn’t really matter what this question is about, for as long as it well-thought-out, properly defined and clearly articulated. For, in the end, it’s precisely the quality of the question that makes your crowdsourcing campaign either success or failure.

Obviously, the ability to ask right questions matters not only in crowdsourcing, but in many other areas as well, including, not surprisingly, politics. I thought about that earlier today when watching the FOX News coverage of the Chattanooga, Tenn., shooting. During the interview with a former FBI official, a caption at the bottom of the screen read: “Chattanooga shooting raises question about lone wolf attack.”

Sure, the Chattanooga shooting raises many troubling questions; however, the one highlighted by the FOX News doesn’t strike me as the most pressing. The question I personally would love to have answered is this: How come that the Chattanooga shooter, Muhammad Youssuf Abdulazeez, had AK-47 in his possession? Who can explain to me why on earth a private person–whether a native or naturalized U.S. citizen; whether born in Kuwait, or Mexico or Kansas; whether a devout Muslim, or Christian, or Jew or an atheist; whether a lone wolf or a gang member; whether a school football player or a church choir singer; whether a brilliant student or delusional lunatic–can lay his hands on AK-47 assault weapon? Not a handgun or a hunting rifle, but the AK-47, a firearm which only real utility is to kill people?

(A side question to ask: is it a pure coincidence that such a shooting happened in Tennessee, the state that neither bans the sale of assault weapons nor requires background checks on private sales, the state that was rated with an “F” by the Law Center to Prevent Gun Violence?)

Every time a mass shooting happens in the United States, the question of gun control–real gun control– rises…and then gradually wanes until the next massacre. For as long as we choose ignoring this question–or keep asking other questions, like whether the shooter was sane or insane or whether he was “radicalized”–our attempts to fight gun violence will fail. Because it’s what inevitably happens to all campaigns that attempt to answer wrong questions.

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On Henry Ford, Toyota and Faster Horses

Posted on July 7, 2015 by Eugene Ivanov

Adownload consensus seems to have emerged that customer feedback, gathered through market research, is a key to successful innovation. And yet, dissenting votes can still be heard. Some folks claim that paying too much attention to customers can stifle innovation, degrade it to a mere incremental improvement of existing products (which is considered by these folks as anathema to a “true” innovation).

In support of this point of view, Steve Jobs is often quoted: “It’s really hard to design products by focus groups. A lot of times, people don’t know what they want until you show it to them.” A plausible interpretation of this quote would seem to be that had Jobs listened to his customers, Apple would have been forever stuck to making incremental improvements to Apple-1. Another relevant line is attributed to Henry Ford: “If I had asked my customers what they wanted they would have said a faster horse.”

I’d like to take issue with the latter statement. OK, Henry Ford had asked his customers what they wanted and they told him that they wanted a faster horse. Did Ford conclude after getting this response that he was done with collecting consumer feedback? Too bad if he did! What Ford should have done instead was to take a next step and apply the 5 Whys approach pioneered by the Toyota Motor Corporation that later became a formidable competitor to Ford’s own company. So, when hearing that his customers wanted a faster horse, Ford should have asked them: Why? Why do you need a faster horse? I suspect that many of Ford’s customers would have told him that what they had in mind was not an Arabic stallion to impress their friends and neighbors. What they really needed was a reliable mean to move commercial goods: in large quantities, to large distances and at faster speed. This customer feedback might well have led Ford to the idea of a Ford truck.

One should differentiate between two related, overlapping, yet distinct forms of customer feedback: customer wants and customer needs. What focus groups produce is customer wants: a demand for a faster horse or faster computer. It takes more time and effort–and much more sophisticated market research tools–to identify customer needs behind customer wants. True, people often don’t know that they want a product until you show it to them. But it is only after they realized that they needed this product that they’re ready to pay for it. It is consumer needs, not wants that lead to new product lines or even completely new markets. It’s serving unmet consumer needs that allows bold startups disrupt businesses of big guys.

Sure, a stroke of genius like Steve Jobs can sometime substitute for a proper market research. Try this approach at your peril, but don’t be surprised if your innovation journey won’t be as successful as that of Apple.

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Have too many ideas? Blame your CEO!

Posted on June 30, 2015 by Eugene Ivanov

downloadIn an elegant piece in Harvard Business Review, Whitney Johnson points to a problem that many innovative companies face: an excess of good ideas. Obviously, only a fraction of them can be pursued. But what are we going to do with those innovators whose ideas weren’t selected for implementation? How shall we prevent them from growing “angry, jealous, or bitter” (in Whitney Johnson’s words)? How shall we protect the corporate innovation culture from being poisoned by the residual resentment?

Whitney Johnson suggests two approaches. The first, conventional, is to acknowledge the input of the people whose ideas were rejected and then engage them in the implementation of selected ones. The second, somewhat radical, is to terminate the employment of those who have failed to overcome bad feelings after their rejection.

Wow! For a company that generates many ideas that could lead to a lot of terminations.

I feel amazed with how many people sincerely believe that the “we-have-too-many-good-ideas” syndrome is incumbent on the corporate innovation process. It is not. The “excess of good ideas” only happens when companies adopt the bottom-up model of corporate innovation. In this model, the focus is on ideas, which are collected on the ground and then channeled upward. I already wrote about serious flaws of the bottom-up model of innovation and don’t want to repeat these arguments here. Suffice is to say that this approach will serve only mature (innovation-wise) organizations; for organizations with a shorter history of innovation programs–and these are still in majority today–the bottom-up model of innovation doesn’t work.

What is the alternative? The alternative is the top-down approach. In the top-down model of innovation, the focus is on problems. The company’s leadership formulates problems that are strategic to the organization and then moves them down the ladder for employees to generate solutions to these problems. Again, I refer the readers to my previous post describing the benefits of the top-down model. The important point here is that companies practicing this approach don’t suffer from “too many ideas” because having many good solutions to a limited number of important problems is a blessing, not a curse. Equally important–and very relevant to what Whitney Johnson’s talking about–is that giving specific feedback to the employees about the value of their solutions is much less “toxic” than explaining to them why their ideas were rejected. Regardless of whether an employee “wins” or “loses” in a solution contest, he or she feels engaged and appreciated.

Why then does the bottom-up model still remain so widespread? Unfortunately, sticking to it allows the company’s executive leadership adopt a hands-off approach to the innovation process. It’s so easy to announce an open season for ideas and then claim that the collective wisdom of the whole organization is now harnessed. But it takes time and effort to formulate the company’s innovation strategy, align it with the corporate strategic goals, identify key problems to be solved and articulate criteria of successful solutions. So the “too-many-ideas” problem is not an inevitable toxic by-product of the innovation process, as Whitney Johnson wants us to believe; it is a result of a wrong innovation strategy.

Or let me put it differently. Does your company struggle with the excess of good ideas? Blame your CEO.

 Image credit: www.businessinsider.com

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Three Reasons for your Company to Write an Innovation Charter

Posted on June 5, 2015 by Eugene Ivanov

Magna_Carta This piece was originally posted to the Qmarkets blog

A lack of executive leadership is one of the most commonly mentioned reasons for the failure of innovation. This leadership vacuum usually comes in two flavors. The company’s CEO loudly declares “Let’s innovate!” and then forgets about it, leaving the nascent innovation team fight alone the overwhelming forces of inertia and resistance. Or, the C-floor loads the innovation group with a zillion challenging goals, expecting it to deliver one magic bullet after another, but provides no room for experimentation or failure. Regardless of the road, the destination is the same: innovation initiatives splutter; the sense of excitement subdues; pessimists feel vindicated and cynics argue that corporate innovation is a career suicide.

I think that one approach to deal with this problem is to create a corporate Innovation Charter. No, I don’t consider this approach a panacea; other remedies should be administered too. And, yes, I realize that writing up yet another corporate missive may sound “bureaucratic.” Nevertheless, I see at least three reasons why Innovation Charter could help companies innovate more effectively.

  1. An Innovation Charter outlines major aspects of the company’s innovation strategy.

The major objective of the corporate Innovation Charter is to outline what innovation means for this specific company. It should explain where the company stands today; where the company wants to be in a few years; how the gap will be bridged and what role innovation should play in this process. The clarity about the place innovation occupies within the framework of the general corporate strategy will help select appropriate (and, hopefully, appropriately supported) innovation programs. It will also help identify the most efficient innovation tools, including the choice of innovation management software.

Equally important, an Innovation Charter should create a common innovation language. Many problems stem from the fact that people use different vocabulary when speaking about innovation. The consequences might not be as dramatic as the epic failure of the Babylon Tower building project, yet serious enough to erect a communication wall between the innovation team and the rest of the company.

In other words, the Innovation Charter, after loudly declaring “Let’s innovate!”, keeps the message alive and helps transform it into a set of actionable business initiatives.

  1. Innovation Charter creates the innovation “law of the land.”

I’d be the last person to blame a company’s CEO for the lack of attention to innovation. Let’s face it: CEOs are people in charge of everything, and it’s plain unrealistic to expect them pay undivided attention to any particular business process, including, of course, innovation, a continuous process with no evident need for day-to-day executive control.

So, instead of asking CEO for constant intervention, the innovation team should create an Innovation Charter and asks the CEO to explicitly endorse it (ideally, publicly). With this endorsement, the innovation team can claim executive support even when the attention of the executive leaders will inevitably shift to other priorities.

In other words, the Innovation Charter establishes the innovation “law of the land.” Sure, as any other law, it needs re-enforcement, but it helps maintain order even when the cops are away.

  1. Innovation Charter makes innovation “everyone’s business.”

Corporate innovation can only succeed if it’ll expand from the traditional R&D or product development units to departments that are usually not involved in innovation programs (manufacturing, finance, HR, etc.). Unfortunately, very often, the corporate structure is too rigid, too “anti-matrix,” to allow innovation to become “everyone’s business.”

Realistically, not everyone in a company will be willing to assume the extra-load that participation in innovation activities demands. But even those who are, often can’t because of the immense pressure (applied by their managers) of their everyday routine tasks. Here, an Innovation Charter can help too as it provides an explicit mandate to get involved in innovation activities, something that even all-powerful mid-level managers can’t easily dismiss.

In other words, Innovation Charter sends a message to all: “Yes, you can and you should!”

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Is Religion an Obstacle to Innovation?

Posted on May 20, 2015 by Eugene Ivanov

20150509_woc154_2In a recent piece, The Economist touched upon an interesting topic: the link between religion and innovation. The piece refers to a study, “Forbidden Fruits: The Political Economy of Science, Religion, and Growth,” published by America’s National Bureau of Economic Research, that attempted to correlate a country’s ability to innovate with its religiosity. Innovation was measured by the number of patents per capita and religiosity by the share of a population that self-identifies as religious. When plotted against each other, the data showed a strong negative correlation: more religious countries tend to be less innovative. The authors of the report hypothesize that theocratic models of government may provide environment in which anti-scientific views negatively impact public policy.

An obvious weakness of the study lies in the way it measures its endpoints. As already pointed out by Gijs van Wulfen, innovation is much more than simply technical inventions embodied in patents. Besides, defining a country’s religiosity by the number of people calling themselves “religious” is an oversimplification. True, the United States and, say, Iran may both have high ratios of religious people in their respective populations. Yet there is a huge difference between the United States with its constitutionally mandated separation of church and state and Iran, essentially a theocracy.

A year ago, I wrote about socio-economic factors that may affect innovation when reviewing the annual 2013 Global Innovation Index.  The Index ranked innovation capabilities of 142 countries–and, by the way, the authors of the Index used not one, but 84 “innovation indicators,” which included, among others, the quality of higher education, availability of venture capital and government support.

I was struck by the fact that the top of the innovation ranking was heavily populated by countries representing mature democracies: of 30 countries on the top of the 2013 Innovation Index, 28 were classified as “Free” by Freedom House, a U.S.-based non-government organization that monitors democratic development around the world. The same trend held at the bottom of the Index: among 30 least innovative countries, 17 were “Partly Free” and 11 “Not Free.”

My interpretation of these findings is simple: it’s not religion that impedes innovation; it’s lack of freedom. It’s freedom–political, economic and, of course, religious–that lets innovation flourish.

Image credit: http://www.economist.com/blogs/graphicdetail/2015/05/daily-chart-3

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The Myth of “Unstructured” Innovation

Posted on May 14, 2015 by Eugene Ivanov

creative-thinkingI’m grateful to everyone who commented on my post, Does Innovation Need “Structure”? Many agreed with my assertion that adopting a formalized process (“structure”) provides innovation with direction and helps create what is commonly known as culture of innovation. Yet, predictably enough, some folks disagreed. They argued that innovation requires “unstructured way of thinking.” For this reason, their argument goes, “structure stifles innovation.” Here, I’d like to address this argument.

Let me start with a brief history of iPod. If you consider, as I do, iPod as one of the most innovative products of our times and yet believe that innovation has to be “unstructured” to deliver results, then the creation of iPod must represent a classic example of highly-intuitive, uncontrolled action of a creative genius. Right? Wrong. To begin with, iPod had a predecessor, MP3 player, created by Tony Fadell (not Steve Jobs). Fadell pitched the MP3 concept to Philips and Microsoft, but was turned down. Apple then hired Fadell and put him at the helm of a dedicated and tightly managed product development team. And, by the way, Apple outsourced to other companies part of the iPod software development as well as the user interface design.

Now, I understand that Steve Jobs made some brilliant technological and business decisions in the process–perhaps, when taking shower or bath, who knows–but I don’t see anything “unstructured” in the way iPod was created.

I strongly suspect that many people calling for “unstructured way of thinking” as a prerequisite for innovation are confusing innovation and creativity. My point of view is that for as long as one considers innovation as invention (a product of creative thinking) followed by implementation (essentially project management), innovation can’t be unstructured. That being said, am I ready to concede that at least the creative thinking component of innovation is completely unstructured? No, I’m not.

In his excellent book, “Borrowing Brilliance,” David Murray showed that creative thinking was a structured six-step process. Each step has its peculiar set of features and rules, understanding and following which can make your idea more creative. I highly recommend Murray’s book to any proponent of the “unstructured thinking” concept. I’d also like to point out to the tremendous practical success of the design thinking approach, a formal methodology for creative problem solving. And I’m not going to tell Tim Brown, a design thinking guru and the author of highly influential book, “Change by Design,” that his book is no more than a collection of recipes to “stifle innovation.”

Let me finish with quoting the advertising genius David Ogilvy who, in my opinion, gave the best description of how innovation and structure are connected: “Give me the freedom of a tight brief.” This is how I interpret what Ogilvy was saying: Here is a problem we’re trying to solve. Here are the requirements any successful solution must meet. Here are the criteria we’ll apply to select the best solution. And that’s it. Now, go and find this solution. And while doing this, feel free to be creative, innovative, unexpected, unpredictable, unprecedented, uncontrolled, bold, wild, out-of-the-box and out of hand. And unstructured too, of course.

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Connecting bright ideas

Posted on May 6, 2015 by Eugene Ivanov

IdeaConnection, an connectingopen innovation service provider, and Brightidea, a designer of on-demand innovation management software, announced that they had formed a technology and services partnership. An April 29 news release explained that customers of Brightidea will now be able to get access to IdeaConnection’s global network of highly-skilled technical experts; they will also enjoy IdeaConnection’s full range of open innovation services. In return, IdeaConnection’s customers will take advantage of Brightidea’s SaaS suite of advanced products to facilitate corporate innovation programs.

The market of innovation management services remains remarkably fractured. Take, for example, providers of open innovation services: some experts put their number at around 200 worldwide. Then there are multiple companies producing innovation management software, and so far, only Spigit and Mindjet have joined their efforts by merging into a single company. No wonder that many organizations, especially those at the very beginning of their innovation journeys, feel confused or even scared when trying to navigate this complicated maze of offerings, features and price models.

The partnership between IdeaConnection and Brightidea, while no formal M&A, is therefore a step in the right direction. Creating a one-stop shop of innovation services will help organizations launch their innovation initiatives without agony of going through an oversized toolbox of almost identical tools. This partnership also makes a lot of sense because it emphasizes the urgent need of consolidating internal corporate innovation programs and external (open) innovation activities.

In other words, the partnership between IdeaConnection and Brightidea is a bright idea.

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Does Innovation Need “Structure”?

Posted on May 1, 2015 by Eugene Ivanov

downloadA 2012 study by Accenture found that organizations that have a holistic, formal innovation structure consistently report better outcomes of their innovation programs. But Kevin Daly of Affinnova is skeptical. In a recent piece, Daly described Affinnova’s own survey of 400 innovation practitioners involved in consumer product development. According to the survey, top performing companies (i.e. those with highest new product success rates) were no more likely to have a formal innovation system than average performing ones.

Of course, it’s tempting to explain the contradicting results by differences in the study design (the precise reading of the questions, the corporate positions of the study respondents, etc.). But the meaning of the term “innovation structure” is terribly important too.

Imagine that you just began studying a foreign language. You’re trying to apply a heavy “structure” of grammar and pronunciation rules learned from a textbook, but you’re frustrated with the results as you commit one mistake after another. With envy, you listen to a native speaker: this person remembers no rules, applies no visible “structure,” but his/her speech is perfect. And yet, however bad your newly learned language might be, you still speak it better than someone who hasn’t tried at all.

The same happens with companies practicing innovation. At the very beginning, with no prior experience in it, you do need a “structure:” an innovation charter (or, at the very least, an explicit verbal buy-in from your top management), a steering committee, a budget, a dedicated innovation team. But as your company grows more innovation-mature, as the innovation process penetrates all levels and corners of the company, as engaging in innovation activities becomes responsibility of all company employees, the “structure” gets fuzzier and fuzzier. At certain point, you may have an efficient innovation process, yet already no “holistic and formal” innovation structure. The differences in innovation maturity between companies surveyed by Accenture and Affinnova may well have contributed to the differences in their respective studies’ findings.

So, does innovation need “structure”? It does. But if you work hard to apply it to your organization, sooner or later, structure will transform into something else. It’s called culture.

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