The Terminator Effect

terminator-images1(This post originally appeared on Innovation Excellence)

I’d like to touch upon a subject that doesn’t come up often in innovation discussions: I’d like to talk about how we kill projects.

Everyone would agree that killing projects is a key to maintaining healthy product development pipeline. By terminating projects that are going nowhere, companies free up resources to introduce new, potentially more successful initiatives. When I hear someone saying “We’ve got a lot of great ideas, but have no resources,” I’m always tempted to ask: “When was the last time that you killed a stalled project?”

But killing projects is tough. However good we might be at celebrating failure (remember this “fail fast, fail often” hoopla?), we are actually quite bad at admitting failure. Failed projects negatively affect the company’s reputation and bottom line and they definitely don’t make our career ladder easier to climb (to say the very least). Besides, almost every project is someone’s brainchild, and who likes killing their brainchildren? The great Leo Tolstoy was reportedly crying when writing the scene in which Anna Karenina threw herself under the train.

The way in which companies make their kill/continue decisions largely depends on which of the two schools of thought they belong to: the “pick the winners” or the “kill the losers.” The “pick the winners” approach relies on selecting relatively few projects that supposedly have the greatest chance to succeed–and then investing heavily in these projects. Once the “winning” project has been selected and advanced into the project pipeline, killing it becomes progressively difficult. In contrast, the “kill the losers” strategy is based on launching a larger number of projects, carefully monitoring them, identifying those that aren’t going to succeed and then killing them as rapidly as possible.

At first glance, the “pick the winners” strategy makes more sense. Indeed, if we have established a solid theoretical framework, developed advanced proprietary technology and secured some proof-of-concept data, is it that difficult to identify an eventual winner? Isn’t it where our prior experience in product development really pays off? Besides, isn’t it a proper way to raise (brain)children: to have just a few of them and then invest heavily in each one?

Yet, a recent study on efficiency of drug development, arguably one of the most expensive kinds of projects in the history of humankind, shows that in real life it’s the “kill the losers” strategy that turns to be a true winner. A group of authors at The Boston Consulting Group analyzed 824 individual drug candidates with a known full development outcome coming out of 419 companies. Of these 842 molecules, 637 failed in Phase II clinical trial or later and 205 were approved. For each candidate, 18 attributes were assessed for correlation with success or failure. What the authors have found was that the strongest single factor correlating with success was a high termination rate in preclinical/Phase I stages. In other words, companies making hard decisions about which project to terminate earlier in the project lifecycle do better than companies postponing these decisions for later (and often doing this not of their own volition).

Shall we call it The Terminator Effect?

There are encouraging signs that drug developers warm up to the “kill the losers” strategy: AstraZeneca, the world’s seventh-largest pharmaceutical company, has recently announced termination of 15 therapeutic programs and said that from now on, it’ll be reviewing its pipeline quarterly rather than every 6 months.

“Anna Karenina” would have been completely different book if Tolstoy decided to “kill” Anna at another point in the epic story. But various literature genres demand different rules. Take, for example, crime thrillers where the first dead body is expected to show up on the very first pages of the book. And I would argue that drug development and crime thrillers have something in common: you don’t know the outcome until the very end.

image credit: orionpictures.com

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What Can Dancing Teach Us About Innovation?

download(This post originally appeared on Innovation Excellence)

It’s remarkable how many different things can teach us about innovation: historic figures, such as Thomas Edison; outdoor activities, such as skateboarding; sports events, such as sailing competition The America’s Cup; consumer products, such as iPhone 5s and Spanx. And then, there is HollywoodThe Karate Kid, and (my favorite) “a parking lot full of meat lovers.”

In fact, one shouldn’t be surprised, for innovation comes in so many different shapes, shades, angles and facets that it can originate from almost any source, not just as a neat package delivered by a college or business school professor.

Inspired by the above examples, I decided to contribute my fair share to the list. As a competing amateur ballroom dancer, I’d like to argue that dancing too can teach us about innovation. To prove my point, I’ll share with you some wisdoms that I’ve learned from my dancing teacher.

Make every move your move

In a sense, there is no “correct” way to dance. True, textbooks and competition guidelines would describe recommended sequences of steps that every basic dancing move is composed of. Yet, every dancer knows that it’s his or her body—its structure, flexibility and responsiveness to music—that ultimately defines the choice of dancing moves and the way they’re performed. You succeed in dancing only when your every move fits your physical and spiritual abilities; you become a dancer only if every move becomes your move.

When launching innovation initiatives, organizations—especially those with a shorter innovation history—often look for “best practices,” a set of supposedly proven approaches that can guarantee a successful outcome of any given innovation project. The truth is that there are no “best practices” in innovation management practice (remember Steve Shapiro’s “Best Practices Are Stupid”?). Instead of chasing the elusive silver bullets, the organizations should try a number of different approaches and identify those that best fit its corporate strategy, organizational structure, the level of innovation maturity, resources and culture.  Only after finding the moves that are its moves, can the organization successfully conduct an innovation dance.

You move with your feet, but you dance with your whole body

When I was taking my very first dancing lessons, I was absolutely sure that once I memorized the sequence of required steps (“slow-slow-quick-quick-slow”), the art of dancing will be mastered. But then, I was told that my arms mattered too. Later, I realized that without moving hips (not something taken for granted for a man of my age), my dance will look bland. Finally, I understood that it’s my brain (or guts?) that ultimately drives my dance, bringing together my feet, arms, hips, shoulders and, yes, my face expression. In fact, the more experienced I become in dancing, the less I think about steps as such.

Usually, organizations begin experimenting with innovation by creating a dedicated innovation team—be it within R&D, business development or IT unit—whose responsibility is to learn and conduct first “steps” of innovation journey. It’s crucially important for this group not to stay indefinitely focused on the pure technicalities of the innovation management process. To begin with, the innovation group should rapidly reach out to the marketing to make sure that all planned innovation initiatives incorporate customer feedback. Then it should talk to human resources to ensure that employees who made significant contributions to innovation projects are properly recognized and rewarded.

And don’t forget corporate communication whose help with celebrating success stories may play a crucial role in changing the very way the organization views innovation. Finally, little will come out even of the most brilliantly conceived innovation initiative, if the senior management team, the company’s brain and face, would fail to support the innovation group. It’s for a reason that innovation is called a team sports.

Motion creates an emotion

I’d lie if I told you that I’m always in a dancing mood; no, quite often I don’t feel like dancing. But sometimes, I simply have to, for example, to get prepared for my next lesson. So I get up, turn on the music and take my first step. Then another. Then one more. And, all of sudden, a magic happens: my body sheds the rust and gets filled with life, and the rhythm of the music begins pulsing in my blood vessels. My dancing motion is creating a dancing emotion, and, fueled with this new emotion, my next step is better than the previous.

There are so many excuses for organizations to place innovation at the bottom of the priority list. “We don’t have time,” “We don’t have resources,” “Our CEO doesn’t care”—have we all not heard this before? The only way to shake off the innovation lethargy is to leave the proverbial couch and take the first step. Then another. Then one more. Trust me, sooner or later, the motion of repeated innovation “steps” will change the spirit of the innovation group and then gradually start taking hold of the emotional state of the whole organization. Repeated acts of innovation will become the habit of it.

It’s likely that one of your innovation initiatives will eventually succeed. And there is going to be a celebration, perhaps, even party. And, who knows, there may be even a band in the room playing music. Enter the floor and make a few dancing moves.

image credit: learntodance.com

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Can Money Buy Innovation?

(This post originally appeared on Innovation Excellence)

Even in our money-driven society, the power of money has limits: there are certain things money can’t buy. Love and happiness come to mind first, but a popular list of things that can’t be supposedly bought with money is much longer and includes such items as “25-hour day,” “clear conscience” and (my favorite) “an honest politician.”

Some would add one more item to this list: innovation. Innovation, they’d argue, is a thing based on creativity, and creativity feeds on intrinsic motivators: natural curiosity, joy of learning, thrill of solving a difficult problem. Extrinsic motivators, such as money, can do little to make a person more creative. Hence, the argument goes, money can’t buy innovation. Many companies have reduced this concept to practice: they launch innovation initiatives and then expect employees to participate in their spare time, for free.

Unfortunately, academic research on incentivizing innovation is still in its infancy and doesn’t provide much help. In a 2013 article in Strategic Management Journal, Oliver Baumann and Nils Stieglitz showed that companies could increase the efficiency of idea-generating process by offering rewards to their employees. Yet there was a caveat: offering moderate rewards provided “a sufficient stream of good ideas, but few exceptional ones.” Moreover, increasing the size of the reward did nothing to boost the number of exceptional ideas. In other words, monetary rewards did stimulate innovation, but only incremental innovation, not radical.

The fact that money can boost innovation in principle makes this glass at least half-full; the fact that money failed to improve the quality of ideation process leaves it half-empty (if not even emptier, given our obsession with radical innovation and disdain for incremental).

Hopefully, future research will bring more clarity to the topic. In the meantime, I see at least two reasons why incentivizing innovation with money makes practical sense. First, incremental innovation, notwithstanding our feeling about it as intrinsically inferior, still forms the basis of any rationally designed corporate innovation portfolio. None other than Google’s Larry Page, hardly an enemy of radical innovation, told Forbes a few years ago that about 70% of his company’s innovation portfolio was composed of incremental improvements of core products. Now, let’s see: if you can increase the efficiency of two-thirds of your company’s innovation projects with money, would you not consider this money well spent?

Second, some companies (Google and 3M are routinely mentioned in this context) have introduced the so-called 20% time rule, a corporate policy that allows employees to use a fraction of their regular time, usually 15-20%, to pursue “side” projects. Should the employees be paid additional money for generating “side” ideas? Of course, not. The problem, though, is that the vast majority of companies don’t have such a 20% time rule; employees in these companies are expected to innovate in addition to their everyday job responsibilities. In practice, that means that extra work is expected from them outside their regular working hours. In plain business language, this is called overtime. As far as I know, when it comes to “routine” business activities, companies aren’t allergic to paying cash for overtime. Why should innovation be an exception?

We should stop practicing innovation snobbery: to believe that innovation isn’t for everyone, but for a few privileged (a.k.a creative) souls; to insist that only radical innovation matters, while incremental one is for losers; to argue that innovation is fundamentally different from other business processes, and therefore normal performance evaluation metrics don’t apply to innovation activities.

Instead, we should become more assertive in our approach to corporate innovation: to firmly align it with the company’s strategic goals; to define what kind of innovation involvement is expected (or not) from each position within the company; to establish metrics by which this involvement will be assessed at each level, from top to bottom. With this in place, innovation will be rewarded as any other top performance would: with promotions, stock-option grants and, yes, cash bonuses.

We also should stop arguing whether we can or can’t buy innovation; we should simply pay for it.

 

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A Multiple Choice Test

(This post originally appeared on Innovation Excellence)

Everyone has his or her sense of order. My daughter, for example, arranges her clothes in the alphabetical order of brand names.

The growing adoption of open innovation tools in corporate innovation practices has resulted in a rapid proliferation of firms providing open innovation platforms and services. Often called open innovation services providers (or vendors or intermediaries), these new entities are rushing to fill the new and potentially lucrative niche; some experts put the worldwide number of OISP at around 200 and counting.

The multiplicity of OISP is good news for organizations trying to incorporate open innovation approaches into their internal R&D processes: with a plenty of available options, they can select a platform that would best fit their particular need. The bad news, though, is that just navigating this complex, still very immature, marketplace is a challenging job by itself.

This is why a report by Forrester Research, “Innovation Management Tools, Q3 2013,” comes so timely. Aimed at bringing some order into the fragmented world of OISP, the report analyzed and ranked 14 most significant players in the open innovation management field. The 17-criteria analytic tool used by Forrester can obviously be applied to evaluate the performance of OISP not covered in the present study.

While representing a significant step in the right direction, the Forrester report is not without certain limitations. In particular, the report did not pay enough attention to the differences in specific business models employed by the OISP it analyzed. As a result, the same metrics were applied to companies as diverse as designers of collaborative innovation management software (Brightidea and Spigit), innovation consultants (Imaginatik) and providers of crowdsourcing-based solutions (InnoCentive).

In order to help companies extract more value from existing and emerging OISP, some classification needs be established to help potential users better understand what kind of specific services could be expected from each OISP. It would seem reasonable to divide OISP in at least two large categories. The first category would include providers of innovation management software, such as Brightidea and Spigit. Recently, Spigit has merged with Mindjet, the designer of project management software. The combined company may well become a “Swiss army knife” in the field of innovation management support.

The second category would include the so-called crowdsourcing companies, i.e. companies employing large numbers of external experts (or solvers) to address specific client needs. A great variety of business models exists within this category. Some companies provide an “expert-on-demand” service, allowing their clients to rapidly find a qualified expert in a particular field for an on-line or telephone consulting session. U.S.-based YourEncore and Maven and French Presans fall into this sub-category.  Another flavor of the crowdsourcing approach is provided by the U.S.-based Yet2.com, the creator of an on-line marketplace where companies could buy and sell promising technologies, licenses and know-how. Finally, a number of providers use large crowds of highly diverse “solvers” to crack specific R&D problems posted by their clients. American InnoCentive and NineSigma and Canadian IdeaConnection represent this brand of the crowdsourcing approach.

One might argue that because many OISP offer more than one specific platform or service, such a classification would be difficult to create. True, providers of innovation management software always combine their products with some sort of consulting, and crowdsourcing companies routinely develop stand-alone software products that could be sold separately. Yet, the note of the multifunctionality of OISP does not negate the need for their classification. Rather, it calls for this classification being more sophisticated and purpose-oriented.

Every single morning, a myriad of women around the world, including my daughter and wife, face a difficult choice: what to wear for the day. No one can help them in this daunting endeavor. But we can make the process by which global companies choose their innovation service providers less stressful and more efficient.

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On Cash and Praise: How We Reward Innovation

(This post originally appeared on Forward Metrics)

A good friend of mine works for a high-tech company in Massachusetts. Recently, the company’s new CEO, an avid fitness buff, has introduced an initiative: every employee who’d spend certain number of hours per week in the company’s gym becomes eligible to a cash bonus. My friend, a frequent visitor of the gym himself, complains that the exercising space, largely deserted just a month ago, is now jammed with jogging, yogging and cycling people, sweating and determined. I suspect that many of these folks took advantage of the new initiative to rejuvenate their otherwise moribund New Year’s resolutions.

No, I’m not against commercial entities enforcing good behavior of their employees with cash. My point is different. I wonder why so many companies, while rewarding people for something they should be doing anyway, like exercising, don’t reward them for participating in innovation activities. Does innovation not have at least as strong an impact on the company’s future as the physical and mental health of its employees? Is adding innovation to one’s daily routine, already cramped with multiple responsibilities and looming deadlines, not as difficult as finding time to exercise? And yet, we see it time and again: with a great fanfare, a company launches an innovation contest and then expects employees to submit their ideas for free—or for a vague promise of future recognition if the winning idea is eventually implemented, something that in many high-tech companies may takes years.

Granted, there are companies that do recognize and reward their employees for innovation. Predictably enough, even some “best practices” have already emerged. We’re told, for example, that a balanced mix of monetary (e.g., cash or stock-option awards) and non-monetary (e.g., formal and informal recognition within the organization) rewards is needed to incentivize innovation. We’re further told that monetary awards can encourage incremental, but not radical innovation; the latter is better advanced by a formal recognition of the innovator. While sensing certain logic in these claims, I still wonder if any of them is supported by solid field research data.

It appears to me that such a convoluted approach to rewarding innovation—compare it to the simple “you exercise, we pay you cash” scheme—reflects the fact that in the majority of companies, some notable exceptions notwithstanding, innovation is still not organically embedded in the routine business operations. It is still considered a process that is conceptually different from other major business processes, such as marketing, business development or quality control. Consequently, established performance evaluation metrics aren’t used to assess innovation activities, and as a result, companies either invent ad hocrewarding tools or, worse, choose not to reward innovation at all.

Hopefully, this will change over time. As companies get more mature in their approaches to innovation, as they align innovation with corporate strategic goals, as they define what kind of innovation involvement is expected (or not) from each position within the company and then establish metrics by which this involvement will be assessed at each level, from top to bottom, innovation will eventually be “rewarded” as any other top performance would be: with cash bonuses, stock-option grants, promotions, etc.

And if a company has some money to spare, the opportunities to reward good behavior of its employees are endless. Exercising is great. But what about reading? You read one book per month, we pay you cash.

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Customer Service

(This post originally appeared on Forward Metrics)

A new buzzword is coming into vogue in the media: the consumerization of healthcare. Pundits define this term as a shift in the way the healthcare industry operates: from the traditional B2B mode to the one that focuses primarily on B2C interactions. Consumer advocates, in turn, point out that consumers are taking a more active role in important healthcare decisions. As a result of this trend, they argue, every healthcare company will have to become more consumer-centric, leading to what some enthusiasts have already dubbed “consumer-centric healthcare.”

In real life, so far the consumerization of healthcare has meant two major things. First, providers of healthcare products and services have begun paying closer attention to consumers’ behavior. Some pharmaceutical companies, for example, are adopting the “beyond-the-pill” approach: using web-based engagement tools, they show consumers how their lifestyles can maximize (or weaken) the effectiveness of provided therapies. Other companies take into account consumer and doctor feedback when designing protocols for clinical trials of new drugs.

Second, the consumerization of healthcare is manifested by the rapid proliferation of activist groups calling for a greater patient involvement in personal healthcare decisions. One of the most prominent players on this field, PatientsLikeMe, defines its mission as changing “the way patients manage their own conditions…the way [healthcare] industry conducts research and improves patient care.”

While any attempts to listen to the proverbial voice of the customer can’t be but welcomed—be it healthcare or any other customer-oriented industry—one ought to remember that the history of patient group involvement in healthcare decision-making process is not without controversy.

Back in the 1980s, the outbreak of AIDS brought to life a voiceful and influential advocacy on behalf of AIDS patients. Having launched an unprecedented in its magnitude public campaign, the AIDS patient advocates succeeded in persuading the U.S. policymakers to shift substantial amounts of NIH funds to HIV/AIDS research. The powerful infusion of taxpayers’ money helped rapidly identify the origin of the HIV/AIDS epidemics and then develop the life-saving treatments. Yet many critics bitterly complained that by receiving the amount of NIH funds that wasn’t commensurate with the number of HIV/AIDS patients, the program had siphoned much needed resources away from other, more important, public health needs.

Similar, albeit more muted, criticism has been voiced against generous NIH funding for breast cancer: critics argued that the amount of public money spent on this disease—as a result of active lobbying by dedicated patient groups– was vastly excessive, given the relatively low number of breast cancer patients.

It appears that the AIDS and breast cancer cases are not exceptional. In fact, they are part of a general trend: patient groups—often called disease advocacy organizations—actively influence federal funding in favor of “their” diseases. A 2012 study conducted by Rachel Kahn Best from University of Michigan follows how disease advocacy organizations lobbied Congress for a greater share of NIH funding. Using data on 53 diseases over 19 years, Kahn Best showed that for each $1,000 spent on lobbying for a specific disease, there was an associated $25,000 increase in research funds for this disease the following year.

What is wrong with that, one might ask? Well, the problem is that the amount of NIH funds allocated for any particular disease is now determined not by some objective parameters associated with this disease—for example, by the so-called burden of disease–but rather by the strength of a corresponding patient advocacy group and the amount of money it spends on lobbying members of Congress.

And when you have winners, you have losers too. In particular, Kahn Best points out that diseases affecting primarily women (except for breast cancer) and African Americans tend to receive lower levels of funding because of weaker lobbying. Besides, adequate funding isn’t provided to the so-called stigmatized diseases, such as lung and liver cancer, associated with patients’ “bad behavior” (smoking for lung cancer and alcohol consumption for liver cancer). Year after year, both diseases received smaller funding than would have been predicted based solely on patient mortality.

While welcoming public involvement in healthcare decisions, we as a society at large need to find ways restricting the influence of special interests—and money they bring along—on the healthcare decision-making process. There is so much at stake here.

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Want to be more innovative? Live in a free country!

Last year, a consortium composed of Cornell University, European Institute of Business Administration and World Intellectual Property Organization unveiled the annual 2013 Global Innovation Index. It ranked the innovation capabilities of 142 countries by using 84 indicators, which included, among others, the quality of higher education, availability of venture capital and government support.

Even a brief look at the Index led me to a curious observation: the top of the ranking was heavily populated by countries representing established democracies. To make sure this observation had any statistical meaning, I compared the Index with the 2013 Freedom of the World Report published by Freedom House, a U.S.-based non-government organization that monitors democratic developments around the world. (I know, Freedom House is often criticized for its highly subjective, often biased, assessments. Yet, it provides the only systematic source of data on democratic credentials of the world’s countries.)

The Freedom of the World Report makes assessments in two categories, political freedom (PF) and civil liberties (CL), by using a 7-point scale: 1 represents the “most free” and 7 the “least free” rating. Depending on the rating, a country is classified as “Free,” “Partly Free” or “Not Free.” Of 30 countries on the top of the innovation Index, 28 were “Free” (the combined PF/CL ranking of 1.1). Only two countries, Hong Kong (#7) and Singapore (#8) were classified as “Partly Free” (the combined PF/CL ranking of 3.5 and 4.0, respectively).

In contrast, among 30 countries at the bottom of the Index, only two, Lesotho (#124) and Benin (#127) were classified as “Free” (the combined PF/CL ranking of 2.5 and 2.0, respectively). Of the rest, 17 countries were “Partly Free” and 11 “Not Free” (the combined PF/CL ranking of 4.1 and 6.2, respectively).

Indeed, there appears to be a strong correlation between the level of democratic developments in a given country and the ability of this country to innovate. This finding may have implications for U.S. government when it allocates funds to promote entrepreneurship and innovation in foreign countries. Government officials would be wise to consider the maturity of democratic institutions in recipient countries when anticipating potential return on innovation investment.

As for the rest of us, we have yet another confirmation of what we always intuitively knew: to be more innovative, you have to live in a free country.

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