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Innovation Newsletter from OVO
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OVO Views
Conversations about Innovation
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August 2010
- Vol 4, Issue 6
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In This Issue
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Quick Links
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Greetings!
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It's August and it feels like we are in the 24th month of a 20 month recession. Our economy and our government feel a bit deadlocked and stagnant. It's clearly time for new thinking and new ideas. For our first topic in this month's newsletter, we turn our attention to incentives and motivations - what barriers stand in the way of innovation, and what must we do to obtain more innovation in every field.
Since we've introduced politics, we'll kick off the second topic with the old saw that "politics is the art of the possible". Innovation, on the other hand, is the art of the improbable or impossible.
Open innovation is gaining credibility all the time, but like many fads it has as many meanings and implementations as proponents. We'll introduce a brief "typology" for innovation that is based on a chapter in an upcoming book about open innovation, so your team can choose the "open innovation" approach that works best for you.
What if: These words are music to an innovator's ears. Let's look at one really interesting What If: What if leading an innovation team was considered the best job in your business?
We're pleased to have been invited to a number of speaking engagements this fall. Check out where we are speaking and come out and see us.
We'd like to know your thoughts about the
innovation space. What topics are of most
importance to you? What information can we
provide to help you accomplish your goals?
Please feel free to contact
us as we continue to bring you some of
the best commentary on the innovation space.
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Lost in Translation
In recent surveys, anywhere from 70% to 85% of executives questioned indicated that innovation is a top priority for their businesses. Clearly, innovation is considered a very important capability, and these leaders recognize the value innovative new products and services can create for their businesses. These new products and services could help retain existing customers and attract new customers, or perhaps even open up new markets. Yet, as many of you know, the gap between CEO expectations and real world delivery of innovation is still rather wide. There's still not enough connection between what CEOs want from innovation and the individuals further down the ladder actually deliver. We believe there a number of barriers that stifle innovation, the most important of which is compensation and evaluation.
Barriers
There are any number of barriers to innovation. These include factors like:
- Poor strategic vision
- Limited resources
- Fear of failure
- Defending sacred cows
- Pressure on quarterly earnings
While these are important barriers, virtually any of these can be overcome on any given innovation effort or project. The most insidious barrier for innovation, however, lurks in the background and doesn't appear that significant or powerful, yet it is the most likely reason for teams to fail to innovate.
Individual and team compensation and evaluation is the most significant, persistent barrier to innovation, and also the one that receives the least management attention.
Don't misunderstand me. I'm talking about the evaluations that lead to how people are compensated year over year, not the temporary bonuses that will cause some people to innovate for a specific project. These one time tweaks to compensation impact the behavior of the teams during the project, but then those folks revert back to their original evaluation schemes and compensation programs, which don't emphasize innovation and creativity, so even the people who have been on an innovation project regress to less innovative thinking.
Evaluation and Compensation
I cannot begin to tell you how many times we've been confronted with people who can't meaningfully participate in an innovation effort because doing so will put their evaluation, compensation and eventual advancement or career at risk. Doing innovation work means taking risks, working in ambiguous tasks. It can mean long hours with little to show for all of the work committed. Meanwhile, if the individual is evaluated based on his or her original evaluation program for his or her "day job", the individual is torn between doing the "day job" very well and giving innovation lip service, or really digging into the innovation work and putting his or her compensation at risk.
Beyond personal compensation, however, there are larger compensation issues at work as well. Since most employees don't just receive paychecks but are also shareholders, they have an interest in what Wall Street wants. And what Wall Street wants is regular, predictable earnings with no surprises. Taking strong people out of the day to day business to work on risky, uncertain projects may put the regular, predictable revenue line at risk. If your retirement and wealth is tied up in stock, and dependent on driving a consistent revenue stream, wouldn't you question the intelligence of putting your best people on projects that may detract from that goal?
Compensate to Innovate
So here's the point: if you want regular, consistent innovation over time, the most important person to bring on the team isn't the chief scientist or best ideator. No, it's the person who structures evaluation and compensation programs for your firm. Even in our modern times people are still relatively Pavlovian - they do what they are rewarded and compensated to do, even against their desires and judgment. Any firm can put programs in place to innovate once, or possibly even occasionally, but a consistent innovation program requires changing how people are compensated, so that anyone with a good idea or good innovation skills can get involved and not get punished for creating new ideas.
What's interesting about this conundrum is that many Talent Managers and HR directors haven't understood that one of their main focus areas - employee engagement - is tightly linked to innovation. To drive more engagement, drive more participation in innovation. To drive more participation in innovation, change how people are compensated.
Engagement, Innovation, Profits
Currently we've got it backwards. Most of our businesses are oriented to drive profits first, then find room for innovation and hope that people are engaged. Actually, many very profitable firms engage employees through innovation, which drives profits. If this model sounds a bit outlandish, just check the results of 3M, P&G, Google and Apple, or read more about W.L. Gore. Engaged people, properly compensated, actively involved in innovation activities will drive more profits.
What you should do now
If your firm has an innovation program or focus, evaluate the work required to innovate effectively, then review how the people who are asked to participate are evaluated. Are they held to their existing evaluation and compensation programs which are tied to their "day jobs", or did the innovation team develop new evaluation and compensation programs? If the former, the team will be able to offer a half-hearted effort at best, and will grow frustrated understanding the need for greater involvement, but forced to balance efforts in innovation and the day job.
If you want to understand how serious the executive team is about implementing innovation, just examine what changes they are willing to implement around evaluation and compensation.
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German Political Theory and Sausage Making
The German chancellor Bismarck, who ultimately united Germany in the late 19th century, remarked that politics is the "art of the possible". What he meant by that was that a politician must understand the difference between what "could" be done, and what "can" be done, and deliver the possible. That thinking, which still infects our government today, also infects our thinking when it comes to innovation. As we'll see, many politicians have introduced ideas that seemed impossible at the time - John F. Kennedy's mission to the moon, for example, and innovation must follow this line of thinking, opting for the art of the improbable, rather than the art of the possible.
The art of the improbable
Unlike politics or governing, innovation is the art of the improbable, or perhaps the art of the impossible. These two concepts define how we structure our thinking when approaching an opportunity or a problem.
Using the approach of the "art of the possible" we accept the limitations, barriers and constraints that exist and seek the optimal solution within that set of constraints. That's what government does - attempt to satisfy as many people as possible within the constraints that are established. What this typically means is a sub-optimal solution for the majority. The approach begins within a strict set of constraints, accepting the constraints and seeking solutions within the constraints. Unfortunately, this is the same starting point many innovation teams use when they begin their innovation journeys.
Start with the solution in mind
In business, like in government, we are constantly reminded to get the best return for our investment and resources. Starting within the constraints makes sense, because we may not have the opportunity or ability to change the scope of the effort. This perspective, however, throws up the white flag of surrender far too quickly. Rather than starting with the "art of the possible" as our motto, we innovators need to start with the optimal solution in mind, regardless of the constraints. This, as many of you will recognize, is implementing divergent thinking first. If we start our work by thinking about the best solutions, the most disruptive solutions and the most different or outrageous solutions, we'll generate far more ideas than we can within the far more limited "art of the possible" approach. Additionally, as the idea generation phase ends and we need to "converge" and recognize our constraints, we can discover ideas that allow us to extend or remove a constraint, or subvert a requirement or constraint entirely. The breadth and depth of thinking available to us and our teams when we start with an "art of the improbable" is so much more robust that we can not only solve the problem, but reposition the problem or address solutions far greater than the original.
There is no box
In any form we use to discuss our perspectives, we come back to the "box". As people exhort us to think "outside the box" ultimately what they want are new ideas. What they often need to do is start with a completely new perspective. There is no box, only a problem, challenge or opportunity. How you encourage people to think about the possible solutions is what limits their thinking or extends their thinking. Start by encouraging people to ignore the constraints, barriers and scope and dream up the perfect scenario, the absolute best case if we had all the money, time and power in the world. This is "divergent" thinking. Then, as your ideas have been generated, begin to consider how these ideas, appropriately applied, might provide incredible new solutions that negate your barriers or constraints.
Business then politics
While it may seem strange, politicians have the freedom to encourage the art of the improbable, perhaps more than business leaders. Think about JFK and landing on the moon, or ending poverty as we know it. These were radical visions that aligned people to outlandish goals. In less than a decade our space program developed the capacity to leave near earth orbit and place a man on the moon and return him safely to earth. Just because one person set aside the art of the possible, for the art of the impossible. Whether you are a business leader, an executive in a not-for-profit or an elected official, we need more encouragement to think about the art of the improbable. We all understand the constraints and challenges. We need direction and permission to think more boldly.
The innovation perspective
If all we focus on from an innovation perspective is the "possible" then all we'll get is incremental, "me too" ideas, products and services. Every other business function is obsessed with the art of the possible. Let's have at least one function that seeks out the improbable or the impossible. Innovation can be that function, and should be that function. Only by reaching for concepts that are improbable or impossible can we force people to think differently. That's when we'll discover opportunities for new products, services and business models.
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Open Innovation, explained
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A category killer
I felt we couldn't, in good faith, miss an opportunity to write about open innovation. After all, everyone else is, and it's a hot topic. So, bandwagon, here we come.
Except that we think that there are some serious opportunities within open innovation, but due to the hype, there are many opportunities to misunderstand open innovation or apply it without gaining the benefits that were expected. Yes, like pornography and the US legal system, open innovation is easy to discuss but difficult to define and understand. So, without further ado, let's break this thing down into some reasonably digestible chunks.
Typology
Open innovation is a catch-phrase for a range of innovation strategies, all of which involve third parties submitting ideas. However, the structures, the participants and how they are engaged can vary widely. Open Innovation, therefore, is a toolbox that includes a number of discrete methods for interacting with people outside your organization to find new ideas, evaluate new ideas and in some cases even co-create new products and services. You should include some components of open innovation in your innovation program as you mature your capabilities. What is important to understand is that different forms produce different outcomes, and some open innovation models will be more suitable for your needs than others.
We break open innovation down by considering two factors:
- Who participates and how they are "invited"
- Whether or not the sponsor provides a "topic"
In the first case, you can have an open innovation program that is "by invitation only" or one that allows anyone to participate, or any variation between those two extremes. You can choose to invite selected individuals or firms to participate, excluding others, or you can figuratively throw the doors open to anyone who would like to submit an idea. We distinguish these two extremes by calling them "invitational" and "Participative".
In the second case, the sponsor of the innovation effort can provide very specific topics or challenges that the participants should consider when submitting ideas, even go so far as to provide specifications. Or you can allow individuals to submit any idea that they care to on the other extreme. We call these two extremes "directed", since you are directing the participants about their focus, and suggestive, since the participants can suggest any topic they choose.
Like good management consultants we then define a 2x2 matrix and create four different "types" of open innovation:
- Directed, Participative
- Directed, Invitational
- Suggestive, Participative
- Suggestive, Invitational
Each of these are "open" innovation, but each has very different requirements and outcomes.
Suggestive, Participative
Probably the most well-known open innovation technique involves setting up a website and inviting customers, prospects and partners to submit ideas. In this environment, anyone can submit an idea about just about any topic.
This methodology can create tremendous customer engagement and involvement, as can be seen from Dell's IdeaStorm application and Starbuck's MyStarbucks Idea. Dell has received almost 15,000 ideas in a little over three years, and has implemented over 400 of those ideas. Note that these applications can encourage a significant number of idea submissions, and the folks who submit ideas do appreciate some engagement and feedback. Campbell's Soup learned this the hard way. Campbell's published a site requesting ideas, but then didn't respond or interact with the idea submitters, basically becoming a big black hole for ideas. What Campbell's didn't understand is that this kind of open innovation is basically an instance of social media, with all the expectations of engagement that come with that thinking.
In short, this approach is great if you want to receive a lot of ideas, engage customers, perhaps identify some lead users, but it demands active engagement and isn't likely to generate really radical ideas. Also, given the public nature of the site and number of participants, intellectual property and secrecy concerns are significant.
Suggestive, Invitational
IBM has had significant success running idea campaigns called Idea Jams. Typically IBM will suggest several significant topics and invite people to submit ideas aligned with those topics. In some Jams IBM has received over 30,000 ideas from participants invited from all over the world. By inviting people rather than throwing the event open to the entire web, firms that conduct Jams or campaigns tend to receive fewer ideas that are more inline with their strategies and needs. Typically these kinds of open innovation events are time-bound, receiving ideas for a period of a few weeks. Again, without a well-defined problem to solve or opportunity to address, the range of ideas submitted can be vast.
This approach is great if you want to receive a lot of ideas and can identify the individuals you'd like to have involved. While it will result in fewer ideas than a suggestive, participative approach, the ideas will have more alignment to your business and your needs. Additionally there's less expectation that the general public can participate, so there's less engagement expected and the events can be periodic, rather than continuous.
Directed, Participative
As firms experiment with "open" innovation, many begin their efforts with a suggestive, participative focus. Over time, the breadth of ideas submitted can make it difficult to evaluate and respond. In these cases, firms have begun to create "directed" events. This kind of open innovation allows the sponsor to define a specific problem or opportunity and request ideas that will solve or support the request. While many people may participate, the focus is on a very specific problem or topic, which tends to limit the ideas and ensure they are focused on something that is important to the sponsor. This clearly has some strategic implications, since the firm is requesting ideas on strategic and tactical issues. Given the public nature of the request and the availability of the ideas, it can be difficult to identify any really disruptive ideas.
Directed, Invitational
With P&G in the lead, many firms are moving toward a "proprietary network" of partners and customers who exchange ideas. In this model, partners and customers who have been vetted and invited to participate share insights with their counterparts on very specific issues and challenges. While the number of participants is significantly limited, the exchange of information is greatly enhanced, and since intellectual property issues are resolved in advance, the flow of information is heightened.
Other Open Innovation Methods
I'm sure there will be an argument that there are other innovation approaches - technology transfer from a university, or acquisition of a small firm by a large firm. My argument will be that these and other approaches fall within one of the typologies above. Technology transfer is inevitably a "directed" model - trying to solve a specific problem, usually in a participative model. Acquisition is reflected in the directed, invitational model.
What's really important
If you are planning an open innovation effort, the most important concept to get right is to understand what outcomes you want to achieve. If you hope to generate disruptive ideas that have intellectual property associated with them, you can do that through some forms of open innovation, but probably will fail in a very open, suggestive model. On the other hand, if you want to fully engage your prospect and customer base, you can do that, but set your expectations accordingly. Open innovation is a generic term for a number of different interactions with a range of outcomes. Pick the approach, or approaches, that will address your needs, and understand the commitments you make in each model so you don't disappoint your internal team and your customers, partners and prospects.
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Innovation Management as a reward
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Managing ideas not people
We've expressed in other articles our concern about the impacts of existing compensation and reward systems on innovation. One of the most interesting challenges about innovation is attracting people to lead an innovation effort. Since innovation is risky and can be very valuable, we'd like only our best people to run such an effort. However, the cost/benefit analysis for putting your "best" people on innovation seems iffy at best. Looking at the opportunity from their perspective, one might question why anyone would want to lead an innovation effort, given the risk, uncertainty and size of the opportunity.
In most organizations the path to management glory is an ever-increasing pyramid. The more people, or assets, or money that you manage, the more power. It is exceptionally rare to find a senior executive in any business who doesn't manage a large number of people or assets. However, an innovation project or initiative by definition will start small and grow if successful, so in many cases we are required to recruit a leader who either 1) has to give up management of a larger team to take on the innovation effort or 2) promote someone who is willing to take on the leadership of the innovation effort but hasn't had much leadership experience.
Don't make a CLM
In the world of TLAs (Three Letter Acronyms) perhaps the worst is the Career Limiting Move (CLM), a mistake, poor performance or a "failure" that shifts your career from the fast track to the slow track. Given the concerns about failure, many experienced managers carefully consider their assignments. If we stipulate that innovation is risky, and uncertain, and often underfunded, innovation projects run counter to everything that a manager needs to succeed - likely successes that include managing a lot of people and resources. Our existing compensation models have directed our best people to manage the "core" that rarely changes and isn't differentiated, and to ignore the new stuff that will radically change the market and disrupt the status quo. This means it can be very difficult to find great people to lead an innovation effort - every factor in the business emphasizes continuity and reinforcement of the core, rather than creating something new.
Managing ideas should be the pinnacle
Imagine the firm that shifts its focus - emphasizing and rewarding the management of innovation programs and ideas over the management of people and assets. The best people in the firm would naturally gravitate to innovation efforts. Since good people follow good leaders, you'd have little problem finding the staff necessary to generate, manage and commercialize ideas.
Consider the existing method that firms use to groom new executives. Up and coming managers seek opportunities to manage projects that have significant funding and resources and will lead to ever larger pyramids. These same managers and executives naturally shy away from any effort that reduces their managerial budgets or headcount, or introduces more risk to their track record of success. Which is why it can be so difficult to identify the right person, with the right motivation, to lead an innovation effort.
Conclusion
We are constantly reminded that our workforce is more capable and more intelligent than at any time in the past - in fact Gary Hamel has written about the need for innovation in organizational management. At a time when many people work independently and decisions are being pushed down the chain of command, and the people we hire are ever more capable of independent thought and decision making, we still reward managers by the size of their teams, not the value of their ideas. Clearly, the size of a team and how successful the team is is quantifiable, while innovation only offers a promise of new revenues and profits in the future.
But our focus on the size of the team an individual manages and their relative successes dampens the willingness to take risks to develop and manage new ideas. We are building structures and systems that defend the status quo internally and ensure our best people aren't encouraged to innovate, while the incentives for external individuals and organizations are just the opposite. No entrepreneur cares about how many people they manage - they care about the value of their ideas. Perhaps larger organizations should take a cue from entrepreneurs. Perhaps it is as important to manage ideas as it is to manage people.
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Innovate On Purpose™
