Innovation: It’s as much a science as an art

[This is the second article in a series on innovation — the first post can be found here]

On a recent flight across the Atlantic, I found myself playing with the coolest airplane windows ever. The electrochromic windows on Boeing’s 787 Dreamliner switch from dark to transparent at the touch of a button. No longer do we have to lift and lower a flimsy plastic shade, which always seemed so incongruous with jet age travel. Leaving aside any thought to how this magic works, I couldn’t help but think, “neat!” (and “how soon till this breaks?”). Fortunately for us, though unfortunately for Boeing, the Dreamliner program has always represented to me a useful case study illustrating mostly the good, but also the bad, and the ugly of innovation.

In my previous post, I noted how we are two decades into the digital transformation of industry and many companies are being disrupted by newer technologies and business models. Only a limited number — the examples inevitably include Amazon, Netflix, LinkedIn and SpaceX — really understand innovation and are benefitting immensely. Most companies, however, are struggling with it and would benefit from a rigorous, scientific approach.

In this context, innovation means the introduction of new products, processes and other developments that solve problems, derive from research and experimentation and create economic value for customers and businesses. Innovation needs to be among every company’s competencies and business leaders should apply the same level of discipline here as they do to sales and production. Much like a science, innovation can be broken down into a systematic methodology that comprises three interrelated areas, which I define as the Who, the What and the How.

In this post, I will discuss this framework further and provide high-level examples.

Innovation as a science isn’t new: it can be taught widely throughout any organization

How can more companies become innovative? While there is no “one size fits all” answer, at its simplest, companies need to think about innovation the same way they think about sales, marketing, finance and other management disciplines. It’s a function that needs to be well thought-out. It’s a collaborative system that directly connects the market with multiple, internal resources who can improve the entire business model. Any going-concern delivers degrees of excellence in their sales and production functions and is able to respond to immediate market demand. Companies with excellent innovation functions, however, are also able to drive growth over the medium and long term.

This is where the evidence is clearest — companies with break-through performance have well-developed functions that consider the Who, the What and the How of innovation.

Who? Nurture organization-savvy entrepreneurs

Organizations large and small need to create and nurture an eco-system of like-minded people who are connected with the market and can deliver within an existing operating model. The driving premise here is that groups, not individuals, develop ideas and those ideas need to be aligned with broad market problems.

Since every team is core to innovation, businesses will want to create an eco-system of like-minded individuals across functional teams that connect with people outside the company and solve problems. These are individuals who can nurture networks. They need to be aggressive, able to drive change and have a holistic understanding of how a business works. Crucially, these individuals (sometimes referred to as intrapreneurs) need to fit within an established organizational framework and given the support to succeed.

There are many examples of intrapreneurship. In this post on the Virgin Group website, a few well-known are presented including the development of 3M’s Post-It Note and Sony’s PlayStation. The article describes intrapreneurship as, “a[n] … environment and a management structure that encourages idea generation and internal problem solving [that] is essential in nourishing the abilities of employees …; nobody wants to be met with a metaphorical brick wall when attempting to present ideas and innovations.” Intrapreneurs and an eco-system of like-minded individuals are just the first piece in the innovation puzzle.

What? Think beyond (and before) the product

“Technology often comes in big waves — such as computerization, the Internet and mobile devices. However, plenty of innovation involves lots of little things that are additive over time and make a product or service better or faster; for example, simplifying online applications, improving ATMs to do more and speeding up credit underwriting. Many of these improvements were not just the result of technology but the result of teams of people across Legal, Finance, Technology and Client Support working together to understand, simplify and automate processes.” — JP Morgan 2015 Annual Report

Too often business leaders think innovation is a trade-off between a huge new product concept and/ or a series of creative, incremental enhancements. This misses the point widely. Customers interact with the whole business model when they purchase a service — and it’s across the whole business model where opportunities for innovation exist. At the highest level, the business model is the interaction between a product, an operating system and a go-to-market approach. As businesses like Uber and, twenty years ago, Abercrombie & Fitch have shown, the product offering itself can be relatively un-innovative while improvements occur elsewhere in the business model.

Creative changes to the operating system, in the case of Uber, or the go-to-market approach, in the case of Abercrombie & Fitch in the 1990s, are/ were the cornerstones of those businesses success. While it may seem obvious that innovation outside of the product offering offers opportunity, it is rarely pursued in practice. Industries have developed standard practices that shape their operating model and go-to-market approach. They remain convinced these practices are unchangeable and therefore focus on the limited opportunities associated with differentiating the product offering through new features or different pricing/ packaging options.

Combining an eco-system of like-minded individuals with an approach that considers the breadth of a business model will immediately set your business apart. The final piece of this puzzle is a rigorous, step-by-step process that connects the market directly with internal resources who can deliver improvements.

How? Move from qualitative to quantitative market feedback

“The client is at the centre of all our activities and that includes product development. Product development at its core is understanding client needs, developing solutions and deploying them in a timely manner. That is the way we go about thinking of product development and it is an institution-wide effort. It is an iterative effort of interacting with clients, understanding what their needs are, coming up with products, interacting with clients again and seeing if these meet their needs, what tweaks are required and over a short period of time coming up with the right solution for our clients.” — Deutsche Boerse 2015 Annual Report

Recently, I caught up with the president of a major financial services business. She noted how she still has to remind her most senior executives to stop responding to emails and instead go speak to customers and other external stakeholders. She wants to ensure her business leaders remain connected with the evolving needs of their customer and avoid, as Larry Fink of BlackRock put it in a recent NY Times article, becoming “complacent — too sure of what [they] thought [they] knew.”

Fink was referring to a costly failure he experienced in the 1980’s and continued, “I believed I had figured out the market. But I was wrong because while I wasn’t watching, the world had changed.”[1] This echoes a discussion I had a few months ago with another senior executive at a global asset management company about the boom in financial technology, “We thought we knew our customers, but they [start-ups] really know our customers.”

There’s nothing new about speaking with customers although these anecdotes might suggest otherwise. The challenge most companies face — certainly in the B2B space — is remembering that it’s not about The Customer, it’s about all (or most of) them. Organizations need to move from decisions based on qualitative evidence, often captured from a meeting with an important client, to decisions based on quantitative evidence. A well-designed system will mimic the high frequency feedback that benefits consumer technology businesses — think Instagram or Google — where usage information and other feedback-loops reflect performance of product features. It will link feedback from sales activities to feedback from account management, market research, product usage and strategy.

An effective process will ensure you know the customer, their language and their problems more intimately than ever before. This is the foundation of a robust innovation methodology, which also includes (a) understanding clearly the market opportunity and how to prioritise; (b) using a disciplined approach during the design, plan and build phases to focus creativity; (c) testing ideas with the market repeatedly and quickly; (d) methodically recording and aggregating this feedback; and (e) refining your proposition iteratively. Ideally, every step provides an opportunity to interact with potential customers up to and including the launch, which is just as another chance to gather feedback before you loop back to the beginning of the process.

A scientific approach to innovation will ensure you can compete in this tech-enabled world

Developing a strong, market-led, cross-functional orientation will allow businesses to compete effectively in today’s tech-enabled world. This approach recognizes that innovation is a systematic methodology that can be broken down into component steps and taught widely across an organization. In this system, you nurture an eco-system of like-minded individuals who think broadly about opportunities across the business model, ground decisions in an un-paralleled understanding of customers and scale concepts into successful solutions.

I mentioned Boeing’s 787 program at the beginning of this post. For years, the Dreamliner has been my go-to case study on the good, the bad and the ugly of innovation and provides a lot of lessons learned. Like Chekov’s gun, it has a role to play in this story — but it will have to wait until my next post.

[1] At BlackRock, a Wall Street Rock Star’s $5 Trillion Comeback, NY Times SEPT. 15, 2016