Innovating is not inventing

I started reading an article on ‘Breakthroughs and the the “Long Tail” of Innovation’ and it began to blur with the Long Trail school where my husband occasionally gives video lessons. So why would I blur these two things? Well for one thing the Long Trail School focuses on building a community to enable focused, hardworking, and creative students.

The founders of the school after years of teaching in traditional schools recognized that the ‘one size fits all’ approach to education doesn’t work.

We know that the ‘one size fits all’ certainly does not work for the management of breakthrough innovation. According to Long Trail founders, talented bright young students were slipping through the cracks and not being pushed to excel, often not even being noticed. This is the same problem that managers of innovation face as described in part in the article on the long tail of innovation. How do you provide a climate for creativity and make sure it gets noticed?

The long tail of innovation refers to the fact that almost all inventions are useless, a few are of moderate value and only very very few are breakthroughs. The question then becomes what or who is the source of these rare breakthroughs. It turns out lone inventors are more likely to be the source of breakthroughs so the Long Trail school is right in encouraging creative types. On the other hand lone inventors are on average less successful. Collaboration and diversity of teams help by leading to a great number of inventions and a greater chance of producing the highest valued output. Investment in science makes the process of invention less random. Once managers more fully understand the invention process, as the authors suggest, they should reconsider their reward systems. This was a big issue for our sample of companies intent on establishing breakthrough innovation programs. They know money is good but often is not a sufficient or practical reward, celebrations work up to a point but rewards have to be tied to specific skills and to a career path. Hence recognizing the different modes and aspects of the invention process must translate into providing career paths for both inventors and innovators which brings me to another point.

In ‘Breakthroughs and the “Long Tail” of Innovation’, author Lee Fleming makes the case that many managers have little understanding of the process of invention. I agree but there is also the reality that many managers have little understanding of the process of innovation and they often confuse it with the process of invention. These processes may sometimes overlap but they are fundamentally different. It is with the innovation process that noticing really happens because here is where the intersection of markets and technology must be worked out. Ensuring that something gets noticed means ensuring a market presence. A breakthrough invention can let one do something new or unique but a breakthrough innovation changes our lives and the competitive landscape and therefore makes us notice the importance of the invention.

Breakthrough Innovation depends on an implementation process aimed at reducing market, resource and organizational uncertainty as well as technical uncertainty. The types of creativity, collaboration and rewards required go beyond that required for the invention process.

Minutes for my (auto)mobile?

The NYTimes is all over this issue regarding novel vehicles for emerging markets that meet new energy restrictions. Besides Tata’s complete disruption of the automobile market….there’s more happening. Saturday’s article was interesting in and of itself…about how or why consumers balk at major innovations. Mr. Zachary, the reporter, claims that no one knows why the Hybrid-Electric Vehicle (HEV) is making a splash but the video phone did not. Says it’s luck, circumstance, etc.

Well….hmmm. Not necessarily so.

In my earlier post on New Market Creation I described some proactive measures that companies can take to stimulate market interest and trial over extended periods of time (which is necessary for those major innovations that will cause users to have to change their behavior).

But even more interesting is this morning’s article on Israel’s experiment. Israel is promising to support a joint venture between an entrepreneur by the name of Shai Agassi, Renault and Nissan Motor company to build the infrastructure throughout the country that will sustain the use of electric vehicles. Sure, it’s driven by desperation. Gasoline is currently $6.28/gallon in Israel! Pollution is rampant. And Israel has zero energy resources and not such great relations with Saudia Arabia. Prime Minister Olmert and President Shimon Peres position this experiment among the land of truly breakthrough visionaries, as Mr. Peres notes: “Israel can’t become a major industrial country, but it can become a daring world laboratory and a pilot plant for new ideas, like the electric car.”

The entrepreneur…Agassi, came up with a new business model: sell electric car transportation in the same way that consumers pay for cell phone usage. The cars will be cheap…cheaper than gas powered vehicles. Users pay a monthly fee based on expected mileage, and if they go over, they pay a premium for the recharge. Similar to recharging your mobile’s minutes! There are charging stations to be positioned throughout Israel and easily available batteries should a changeover be required.

The point of all of this is that Agassi has been able to convince an entire government and 2 companies to build an entirely new infrastructure. And…he plans to roll it out to other countries as it’s proven. He’s in it for the money. He sees the opportunity, and he sees the enormous value that this change can bring. And he started with a country who needs this change desparately…and is willing to recognize that.

This was not our experience with the HEV team we tracked in one major American automobile company, who planned to sell HEV’s at a price premium throughout the Los Angeles area because “consumers are willing to pay extra for green products there…” (they told us).

“Why not start in China?’ our research team naively asked. “Seems as if their economy is beginning to boom, but their automobile infrastructure is yet to be built. You could work with the Chinese government to get ahead of the pollution problem, as well as the challenge they’ll face in getting their hands on enough oil reserves.” (This interview occurred in 1996).

“We would never get involved with a government as a customer,” they replied.

They didn’t….and today they are not a player in the HEV marketspace.

Now this story is about major market creation. But sometimes that is what breakthroughs require. In fact…MANY times it’s what they require. It’s amazing that Mr Agassi could convince Israel, but a major US auto company refused to even approach the government of an emerging market. Sigh….

What the Innovation Man forgot

You have got to take a look at this really great IBM commercial that brings home a point close to my and my co authors heart.

Companies often do get stuck in the ideation stage (Discussed in the post on the Discovery capability). Coming up with ideas, even good ones, is actually the easy part. At one of our workshops a company representative ended the day by repeating implementation, implementation, and implementation that is what it is all about.

Of course that is not so easy when you realize all the politics, powerbases and uncertainties you have to deal with. The way around this is continually doing and experimenting and articulating the impact and implications of the results (Gina discussed this in her earlier posts on incubation and acceleration). Developing good experiments around markets, resources and organizing as well as technology and executing these experiments thoughtfully gets you to the level where you can begin to be poised for success. The data helps build the political coalitions you need to move ahead.

Tata Nano: Innovation around Cost

This morning I was making my bed, listening to all the bad economic news – worst holiday retail sales in five years, the housing crisis, gas prices and now egg and milk prices skyrocketing– and wondering if I still had enough chutzpah to shout about the importance of innovation in such a spiraling environment.

When companies hit hard times their initial reflex is to cut down on long term risky projects, which is to say breakthrough innovation programs. Then I heard about the new ‘People’s Car’. Yes, Tata Motors of India unveiled a car that will cost $2500! That’s the cheapest car ever made. It gets 54mpg. Such a low cost car may be welcome in America if other costs keep rising as they have been.

Tata People’s Car

It turns out Tata Motors is a company devoted to innovation. They adapted lighting technology used by the Indian film industry and developed the only world class crash facility in Asia outside of Korea and Japan by innovating while reducing costs. In fact Tata’s mantra is innovation around cost. This is different than the focus of new product development in the nineties around efficiency and cost reduction.

Innovating around cost can reshape the competitive landscape and change the world. Of course many environmentalists are worried that that such cheap cars will greatly accelerate global pollution levels —-and that is something to worry about. (It is reported that the Tata Nano complies with the ‘Euro III’ pollution standards that prevail in India and should meet the tougher Euro IV standards with a bit of tweaking).

But back to innovation and why companies pull back from it just when they really do need it. They are scared of uncertainty and don’t realize it is everywhere and that they need to have dedicated systems or an infrastructure to deal with it. At least three companies we studied faced a very serious decline in their mainstream businesses. When the going got really tough two pulled their breakthrough innovation programs. Of these two, one filed for bankruptcy and the other is floundering. The company that maintained its commitment to breakthrough innovation won three prestigious innovation awards last year and is viewed by some on Wall Street to be on track for a strong comeback. So what is my point? Well I like this idea of innovating AROUND cost. But it is more than that.

Breakthrough innovation is a mindset, not a luxury or something that others must think about. If you have a system that allows for opportunity identification and articulation, experimentation with technology, markets and business models and development of new business creation, given any circumstance there are opportunities to capture value from breakthrough innovation.

Creating New Markets for Novel Technologies

Found this brilliant article that I happen to agree with COMPLETELY. In fact, I believe Daniel Scocco must have read some of my papers! He says that managing, actually, CREATING new markets is distinctively different from managing current ones. He’s absolutely, positively correct.

While he focuses on reviewing the reason why MBA students don’t learn how to do the latter (because as his Professor correctly pointed out, business schools offer Masters in Business Administration rather than Masters in Business Innovation (MBI)…. The Lally School is addressing this very problem!). I’d like to focus on why companies don’t know how to create new markets.

The fact is, companies don’t have a process for new market creation. They use conventional market management techniques (The Blu-ray HD-DVD tussle is a case in point). Companies refuse to engage with the market early and often when they have a novel technology that could take them down a myriad of application paths. Look at what happened to Analog Devices when they first realized the possiblities for accelerometer technology. They had wanted to enter the automotive market (why?….because it’s BIG. Does that make it a smart choice? NO). So they found a way to make accelerometers that could detonate airbags…for 5% of the cost of the technology that was being used at the time. Now that’s a radical innovation, right?

Great. But they could not make a profit. They priced based on an estimated cost at a full volume, assuming finely honed manufacturing processes that provide cost economies.

In the meantime, they started talking about accelerometer technology. At professional and technical conferences, In the news. Everywhere.

Companies began calling them. “We see a use for this,” said the gaming industry. “How about medical applications?” said a medical instrument company. And there were more. It turned out that these smaller, niche application areas would tolerate higher prices than the automotive industry would.

Creating New Markets

It’s a phenomenon we’ve seen many times. We call it application migration. For the case of Analog Devices, it looked like this:

So how can companies CREATE new markets for novel technologies?
1. Realize that the application choices your discovery team elects to pursue are for learning the possible market landscape. Don’t focus on implementing the first application explored. Explore many applications, and explore them simultaneously.

2. Get a New Business Creation person (one with an MBI, not an MBA!)…on the technical team. This is different from a New Business Development person. People think of NBD roles as either a) those who find and vet potential acquisition/merger candidates, or b) those who find new markets to sell current products/solutions into. NBC is different. These people create new value chains, find customers for an entirely new to the world product who may never have been identified as a ‘market’ before. It’s a difficult job, but it’s extreme. Fun, that is.

3. Make sure there’s no pressure on the ultimate business unit to deliver high margin profit on the breakthrough platform before the pursuit of applications defines just that, an entire platform of product lines. Most of the time the business unit is so pressured to show profits they commercialized the low hanging fruit of a radical innovation, and then forget the rest. What a waste.

4. Talk about the technology, before it’s perfected. Talk about its promise. You don’t have to reveal HOW it works, only that it works. DuPont used to put ads in trade and science magazines describing the properties of their coolest materials. These ads asked the market (technical people in other companies) what they perceived the material could be used for. What a way to create a market! Here’s one for Biomax, a biodegradable polyester material that we studied long ago.: DuPont doesn’t run such ads anymore. But wow, they sure helped stimulate markets.

12 Questions to assess your Company’s capability for Breakthrough Innovation

Companies have to develop a capability for breakthrough innovation. They can’t rely on strong maverick individuals to get it done. Not that those people aren’t crucially important…they just have too little muscle in the organization to make breakthrough happen often enough.

Here are some questions for you. Does your company have a breakthrough innovation capability that addresses Strategic, Portfolio and Project level issues? Think about these:

Strategic Level Issues: The Innovation Agenda

1. Is there a Corporate innovation strategy? A corporate Strategic Intent regarding where your company should be in terms of technology/market domains ten years from now? Is it used to drive investment decisions in terms of hiring, acquiring and networking?

2. Who in your senior leadership team is responsible for major innovation? Who’s responsible for cultural change associated with breakthrough innovation?

3. Do you have a dedicated group of people responsible for making breakthrough innovation happen? Does it have a known structure and a mission that’s clearly articulated? Are they located within the main part of the company, rather than relegated off to the sidelines, with the hopes that they’ll come up with cool ideas that’ll change the future of the company? (Turns out that approach doesn’t work very well).

4. Who are the key innovation stakeholders at all levels in the firm and externally? Who manages their expectations, and how?

5. How are diverse expectations managed?

The Innovation Portfolio

6. What is the right innovation portfolio mix (incremental to radical; current strategy versus strategic intent; aligned with one of your current businesses, aligned with several of your current businesses, and unaligned)?

7. Who’s overseeing the portfolio? Is there anyone in charge of the sub sector of the portfolio that is the set of initiatives that offer the potential to be real gamechangers? Who makes decisions regarding the mix of initiatives within that breakthrough portfolio? Who is coaching those project teams? Is there a governance model in place for the portfolio of possible breakthrough innovations percolating along in your company???

8. How are investment decisions made? What defines strategic, portfolio and project success?

9. How is a culture of innovation nurtured?

Project Level Issues for Breakthrough Innovation: Team Learning and Uncertainty Management Mechanisms

10. What are the considerations for initiating, maturing and transitioning innovation projects?

11. How are projects managed with high levels of technical, market, resource and organization uncertainty?

12. What is required to build entrepreneurial teams and individual buy-in? How are people rewarded?

Breakthrough innovations are not individual acts.