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Tuesday, December 29, 2009

Part 1 - Three Innovation Distinctions

by Stephen Shapiro

Innovation Challenges not IdeasLast week I was with a group of extremely successful entrepreneurs in Las Vegas. I was a bit of an outlier as my background is mainly with large, multi-billion dollar businesses. Everyone else in the room came from the start-up world. Also, nearly everyone in the room worked exclusively with speakers and authors. Although I too am a speaker and an author, it was clear that my perspectives were a bit different than everyone else in the room. Or as one entrepreneur said, "Steve, you have distinctions in innovation that we don't."

So they asked me to share my point of view. What I shared were three simple distinctions on innovation.

  1. Challenges not Ideas

  2. Process not Events

  3. Diversity not Homogeneity

In today's blog entry I will focus on the first point. Subsequent blog entries will address the last two points.


Signal-to-Noise Ratio

One of the most important, yet under-considered measure in the innovation process is the signal-to-noise ratio. The signal-to-noise ratio is the ratio of a signal power to the noise power corrupting the signal. In layman's terms, it is the ratio between what you want and what you don't want. For example, in audio recordings, it is the ratio between the music and the background noise.

Organizations do not have a shortage of ideas. They have a shortage of good ideas that matter.

In innovation, the signal is comprised of the good ideas. The useful ideas. The ideas that can and will ultimately be implemented in such a way that they create value. The noise is made up of all of the other ideas. Useless suggestions. Solutions to problems that don’t matter. Ideas that will never come to fruition.

To increase innovation's your signal to noise ratio the first thing you want to do is stop asking for ideas.

Drowning in Ideas

Suggestion boxes are cluttered with noise. The amount of time required to sift through the chaff to get to the wheat is huge. And even when you do find a good solution, the amount of effort required to rally to troops to implement the problem is huge.

The innovation team of a large retail bank implemented a major suggestion box program. They received thousands of ideas. Evaluators looked at every idea. In the end, none were implemented. In the aftermath of their efforts, they asked me for my observations. In hindsight, the submitted ideas could have been categorized into 3 groups:

  1. Duds: A large percentage of the ideas were clearly not worth pursuing. These ideas were not new, or were unlikely to show a positive ROI. However, even with these, there might have been a nugget of usefulness that was missed. However the energy to nurture these nuggets was probably not worth it.

  2. False Negatives: There were, from my perspective, many ideas that were indeed good. But for whatever reason, the evaluators dismissed them. Part of it had to do with biases of the evaluators. Sometimes it was due to a lack of knowledge on the part of the evaluators. And often, it was because the ideas were not fleshed out enough making it difficult for them to be properly judged.

  3. Good, But No Home: This was the most disconcerting category. These were ideas that were good ideas that the evaluators liked, but sadly they had no organizational home. As a result, the ideas withered on the vine and were never implemented. They never got the resources or funding necessary to move them to the next level.

The company's innovation program lasted a total of 18 months. It was shut down and deemed a huge failure.

I have seen similar results in other organizations. One large company I know has a competition each year where employees submit new product ideas. The winner gets a large check and the company implements the best idea. I asked the person responsible for this program if it was viewed as a success. The answer was, "It was a PR success but a commercial failure." The competition generated buzz in the media, but none of the products have yet to generate a positive ROI. Contrast this with their more focused efforts on creating or improving specific product lines. In nearly every case, these were commercial successes. Their idea-based programs did not generate good bottom-line results, while their challenge-based initiatives did.

The other issue with ideas is that there is no level of accountability. Because people tend to develop ideas on their own time, there are no time tracking methods that can keep tabs on how much energy is invested in idea generation. If you encourage ideas, I suspect that you are spending a lot more money on those initiatives than you could ever imagine. You might be able to measure the ROI of a winning idea. But I doubt you can determine the ROI of your overall ideas-based program. There is no way to know how much time was spent on the thousands of duds that never see the light of day.

The Power of Challenges

Contrast this with challenges. With challenges you assign owners, resources, evaluators, evaluation criteria, and funding up front. We know that the solution to a challenge will be relevant to the needs of the organization, so if a solution is found we know it will be valuable. Also, because of the nature of challenges, we have better tools to evaluate the amount of time spent on finding solutions. We can truly measure the ROI of each challenge and the overall challenge-based program.

Some of you may see a loophole in my logic. You might think, "Ok Steve, why not just post a challenge that asks for new ideas. This would seem to be a challenge-based approach. But of course all you are getting back are ideas." This is true. And this is why it is important to discuss the construction of challenges.

The Goldilocks Principle

Good challenges must adhere to the Goldilocks Principle. That is they can't be too big (broad, novel, abstract - e.g., asking for new ideas) or too small (overly specific). They must be "just right." As Dwayne Spradlin said in his InnoCentive blog entry on the topic:

For example, the big problem is not the need for a new drug for a neglected disease, it is the elimination and/or minimization of the human suffering caused by the disease. The right questions might include: How do we limit transmission? How can we cost effectively produce treatments that comprehend market based economics to ensure a sustainable model? How do we distribute treatments in the developing world? Even these questions require further decomposition until we get to well formulated challenges (e.g., Can we get 5X more vaccine into the hands of those that need it in the context of real world economic, cultural, and political constraints in Sub-Saharan Africa?).

The key is good challenges. The right challenges.

A lot more could be said on this topic. But I will close with a quote from Albert Einstein, who in 1938 said:

"The mere formulation of a problem is far more often essential than its solution, which may be merely a matter of mathematical or experimental skill. To raise new questions, new possibilities, to regard old problems from a new angle requires creative imagination and marks real advances in science."

I couldn't have said it better myself.

P.S. The next blog entry in this series will be on process versus events.

Stephen ShapiroStephen Shapiro is the author of three books, a popular innovation speaker, and is the Chief Innovation Evangelist for Innocentive, the leader in Open Innovation.

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Blogger Jackie Hutter, Intellectual Property and Patent Business Strategist and "Recovering Patent Lawyer" said...

This post is remarkable. Thanks, Stephen and Braden. In distilling innovation into these 3 bullet points, it becomes easy to see why innovation is both so hard and so necessary. Also, I can overlay these onto any number of companies and law firms that I have worked for over the years and can certainly many clients I have had and easily see why they are or are becoming failed institutions. I am looking forward to the 2d and 3rd parts of this series.

7:49 AM  
Blogger Steve said...

Thanks Jackie! Parts 2 and 3 will be coming soon...January most likely.

8:46 AM  
Anonymous Ken Gillgren said...

Oboy, I may not be able to adequately summarize my point here, but your illustration is based on a fatally flawed process that belies the "signal-to-noise" conclusion. No brainstorm using any method will ever be effective when it involves folks throwing out ideas haphazardly for some abstract other to followthrough on. And no brainstorm ever goes anywhere as a raw brainstorm--someone, somewhere, must discern the underlying patterns of approach, content, etc., and ideally this stage should (some might argue, must) involve the same folks who generated the brainstorm in the context of owning the ultimate solutions.
But I agree with your central point: how the core challenge is stated sets the stage for innovative solutions.

5:38 PM  
Anonymous Gregg Gallagher said...


Great post - my only quibble is in line with Ken's observation. Better to improve the S/N ratio by refining the brain-storming/top-of-the-funnel input process, then eschew new ideas altogether.

Looking forward to Parts 2 & 3

6:25 PM  
Blogger Yann said...

Great Post, thanks Stephen. I have indeed experienced the power that a focused challenge brings to the ideation step. I'm also not a fan of idea boxes, but before dismissing them entirely, let me raise a couple of questions:

a) in your experience what are the proportions of duds, false negatives, good but no home?

b) if the proportion of duds is not overwhelming, we could then argue that the issue is not the idea box itself as an ideation process but the selection process. In Stage-Gate terms, the idea box could still be a good tool for the ideation stage with an acceptable signal-to-noise ratio, but the issue would be with the screening gate that would not be adequately resourced to perform as an accurate signal receiver.

1:32 AM  
Anonymous Graham Horton said...


I agree entirely with your recommendation to "stop asking for ideas" (and have blogged about it here and here.)

For further proof, Starbucks has received over 70000 ideas via its "My Starbucks Idea" portal, and the results are pretty underwhelming (in my opinion, at least).

If a company is going to practice this aspect of Open Innovation, it's much better for them to ask...

- customers about their tasks and goals
- independent experts to solve challenges (as you point out).

I'm glad to see someone else out there crying "The Emperor has no clothes!"

2:59 PM  

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