Part 2 - Three Innovation Distinctions

by Stephen Shapiro

In the first part of this series, I wrote why you should focus on challenges, not ideas. You should read that article before proceeding.

In this second entry, I will focus on "Process, not Events."

I first shared these three distinctions with a bunch of speakers and authors. In the speaking industry, conferences/conventions are the primary model for professional development. That is, a bunch of people get together for a few days. The days are comprised of presenters on the stage who share their "wisdom" with attendees. When the event is over, the learning ends. And for most individuals, progress ends.

People who attend these events leave with a laundry list of ideas. Most people never implement any of the ideas. They just sit on the shelf in a binder.

This, in a nutshell, is what happens in the innovation programs of many businesses. They hold ad hoc brainstorming sessions. Or maybe they run a campaign using a crowdsourcing tool. They develop new ideas. If they are lucky, those ideas do get implemented. But quite often, the event ends and progress ends. Regardless, innovation does not happen again until someone has another stroke of inspiration and decides to hold another event.

Innovation in most organizations is episodic. It is unpredictable. And it is certainly not repeatable.

But what if you had a systematic way for ensuring that innovation continued long after the event? What if you didn't need to wait for divine intervention for your next big idea to sprout? What if you could make innovation repeatable? To do this, you want to move from "innovation as an event" to "innovation as a process."

Back to the authors and speakers... what if, instead of just events, there was a process that helped people see their ideas through to fruition? What if everyone came to the event with some challenges? The process could involve regular mentoring or an online community. There could be measures in place to help monitor progress. The point is, there is a process to help ensure progress.

In the business world, we have the opportunity to take this process-driven innovation concept a bit further.

For this "event to process" transition to be successful, the first step is to start treating innovation like you would treat any other part of the business. For example, your organization's finance department has skilled experts, measures, supporting technology (e.g., Oracle or SAP), processes (e.g., processes for closing the books at year end), an owner (the CFO), and a strategy.

The innovation "process" requires all of these elements, and more, including skilled innovation experts (e.g., an innovation center of excellence aka innovation master blackbelts), innovation measures (e.g., return on investment for each idea), innovation management technologies (e.g., InnoCentive's @Work solution), an innovation process, an innovation "czar" (aka advocate, Chief Innovation Officer, VP Innovation), and a clearly articulated innovation strategy (what you expect to achieve with your innovation program).

I call this level either "innovation as a process" or more accurately, "innovation as a discrete capability." You can read more about this in my "Innovation Philosophy" page.

With these fundamentals in place, you can begin to make innovation a repeatable and predictable process whereby creativity is encouraged throughout the organization and the best ideas are implemented.

It's worth noting that after successfully moving through the process level of innovation, the highest level of innovation is embedded innovation (aka embedded capability or environment). With both the event- and process-driven levels, innovation tends to be reactionary and discrete. It is somewhat separate from the business. With embedded innovation, people not only innovate to deal with "problems/challenges" that are presented to them, but in everything they do. They continuously, even radically, improve their products, processes and organization.

Look for the third and final installment of this three part series sometime soon.


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

Building Up Innovation Capital

by Rowan Gibson

As usual it was Peter Drucker, the godfather of modern management, who said it first. Right back there in 1966 (!), in his landmark book "The Effective Executive", Drucker argued that companies would need to build a new kind of organizational capital as the industrial economy gave way to the knowledge economy. His famous proclamation was that, in future, brainpower would be a more valuable asset for wealth creation than factories and financial clout. All of which came true, of course. But that was not the end of it. Now, over four decades later, we are once again challenged to rethink organizational capital as we make the transition from a knowledge economy to an innovation economy. And that creates a new agenda for every single company.

For most of the last century, as well as the previous one, we looked at companies as if they were comprised of only two kinds of capital: financial and structural. Financial capital obviously refers to a company's balance sheet. Structural capital is the value of its physical assets - its networks, facilities, warehouses, plants, inventory, and so on. Thus, if we had gone back and spoken to the super-rich industrialists and financiers of the late 19th and early 20th century - such as Vanderbilt, Rockefeller, Carnegie, and Morgan - they would have told us that this was the only way to measure the worth of an enterprise. Move forward a few decades and the same would have been true if you had talked to great business builders like Henry Ford, Alfred P. Sloan, Thomas Watson Sr., or any of their corporate accountants. What counted back then was the tangible stuff that is easy to quantify and monetize on a financial statement.

In the 1980s and 1990s, that began to change. In large part because the stock market value of companies was beginning to get out of all proportion to the "book value" of their physical assets. Microsoft, for example, had an almost 8-to-1 ratio of market value to physical assets value. And when Philip Morris bought Kraft in 1988 for $12.9 billion, the "hard assets" of the firm were calculated to be worth only $1.3 billion. That means Philip Morris was paying a full $11.6 billion - or 89.9% of the transaction price - for "other stuff" that wasn't even on the balance sheet: intangible stuff like brand equity, marketing capability, and so on.

British futurologist Hugh Macdonald coined the phrase "intellectual capital" to describe these intangible assets. He defined it as "knowledge that exists in an organization that can be used to create differential advantage." And in a seminal article in Fortune magazine in 1991, Thomas Stewart wrote that "every company depends increasingly on knowledge - patents, processes, management skills, technologies, information about customers and suppliers, and old-fashioned experience. Added together this knowledge is intellectual capital."

From then on, we had three forms of capital - three basic kinds of assets - with which to measure a company's worth. But in a new, innovation-based economy, where value-creation is the new Holy Grail, the way we define, measure and manage organizational capital is again woefully incomplete. In 2001, strategy guru Gary Hamel argued that financial, structural and intellectual capital, by themselves, do not create new wealth. And I agree with his astute observation. Think about GM. If any company on earth ever had huge amounts of money, massive dealer and supplier networks, giant manufacturing plants, countless technological patents, well-oiled management processes, tons of customer information and decades of industry experience, it would have to be General Motors. Yet where is GM today? In effect, all of those assets have proven to be almost worthless in terms of creating new wealth.

Hamel's view is that the three traditional forms of capital are largely inanimate. In today's competitive era, they need to be animated or catalyzed by three new kinds of organizational capital if we want to translate them into wealth. He calls these "imagination capital", "entrepreneurial capital", and "relationship capital", all of which are different forms of human capital.

Consider the first one. Most companies would tell you that knowledge is a critical resource. Many large organizations have internal KM efforts aimed at sharing information and experience across the firm with a view to continuous improvement. But in a world where the pace of change has gone hypercritical, we're finding out that success has less and less to do with learning from the past, and more and more to do with imagining future opportunities. Knowledge has become a commodity. Let's face it, you can go online and find out almost anything with just one or two clicks. So the issue is not how much you know but how creatively you can leverage what you know. Today, the advantage increasingly goes to those firms that develop "imagination capital" - which is the capacity to dramatically reconceive what the firm is and imagine entirely new uses for its financial, structural and intellectual capital. Einstein's oft-quoted reflection that "imagination is more important than knowledge" becomes the mantra of the innovation economy.

Second, companies need to develop their "entrepreneurial capital", which means building the entrepreneurial spirit into many, many employees across the whole organization, not just in an incubator or some new venture division that exists out on the periphery of an otherwise orthodox company. It's about creating a cultural environment where the entrepreneurial spirit is everywhere; where ordinary employees can have the courage to experiment and try something new, where they can get unfettered access to the financial and human capital they need to push their ideas forward.

The third of these new kinds of capital is "relationship capital" (or what I would call "network capital"), which refers to the connections a company can make between previously isolated people, ideas, resources and domains - both across and beyond the organization. Innovation is so often about spotting the opportunities that come from recombining and blending all of these ingredients. The quality of a company's network of relationships - its ability to connect with individuals and organizations that have very different skill sets and capabilities - is becoming more and more critical to its own capacity to innovate.

Here's the sad reality: most companies don't have a clue about how to support
the development of these new forms of capital. So the challenging agenda for
organizations around the world will be to think about exactly what it takes to
build, measure, manage and exploit what amounts to their "innovation capital" - which is so essential to creating wealth in our times.

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Rowan Gibson is widely recognized as one of the world's leading experts on enterprise innovation. He is co-author of the bestseller "Innovation to the Core" and a much in-demand public speaker around the globe. On Twitter he is @RowanGibson.

Creating Conditions for an Innovation Culture

by Jeffrey Phillips

I've been thinking a lot lately about "creating a culture of innovation", which is what a lot of firms suggest they want to do. Of course this is a very lofty goal. Changing a corporate culture doesn't happen easily, and it certainly doesn't happen overnight. Yet clearly one of the most significant barriers to innovation is the entrenched culture of effectiveness and efficiency, of risk-avoidance and following rather than leading.

So, that led me to think about when teams and groups within an organization can be innovative, and what the conditions were when that happened. We regularly lead teams on trend spotting and scenario planning exercises that create some really radical future scenarios, with little resistance, and often lead ideation and brainstorming programs that achieve a large number of disruptive or radical ideas. These small programs demonstrate that innovation can happen in any organization under certain conditions. Let's first look at what makes these small programs effective.

We find that we can be most effective with these discovery and idea generation programs when we set very clear expectations about our goals and prepare the team carefully for the work, setting out specific rules and expectations. Typically when we go into the work, we'll close the door and tell the team that anything that happens in the room is fair game, and open for discussion, and we aren't bound by the "normal" rules. This helps get the team out of the "day to day" thinking and encourage their creative thinking. They know that no one will be allowed to ridicule an idea or submit challenges that will block the consideration of an idea. For those few moments or days, we have created a "micro-climate" for innovation, probably akin to a hothouse in the wintertime.

So, if we can create some assorted micro-climates where teams can spot opportunities and emerging trends, and effectively generate ideas, can we build on the "micro-climate" concept to create more areas where conditions are ripe for innovation? Using the flower analogy, can we move the ideas from one hothouse to another, gradually exposing the ideas to the elements and improving the chances for survival, while we try to change the conditions of the organization at large (change the cultural attitudes to innovation)?

I'd like to suggest the first step may be to create a number of "micro-climates" - safe locations to generate, develop and evaluate ideas that exist specifically to give ideas the necessary environments to grow. Some firms use a designated space for innovation. Perhaps the best way to change the culture is to start small, with several micro-climates that establish conditions for innovation and allow the process to prove its worth.

Eventually the idea needs to be exposed to the conditions, and planted where it will bear fruit. That is, it must make a transition from an interesting idea to a new product or service, and that means it must work its way through the product or service development process. There are two considerations here: either the existing product or service development process must be adjusted to accept and manage new, possibly more disruptive and fragile concepts, or new product and service development models must be developed for more radical ideas. To carry the plant analogy further, any farmer worth his salt will cover plants in the field that are susceptible to a killing frost or unexpected conditions. So, too, must an organization provide more cover and care for a radical idea as it moves through a traditional product development process.

The point here is that too many times we talk about "changing the culture" and immediately reject the concept, since it is such a Herculean task. Perhaps what we should do is establish small teams and locations where the conditions are beneficial to innovation - small micro-climates where ideas can succeed, and string them together. Once we've demonstrated success, we won't have to worry about changing the culture, because slowly the organization will recognize success and begin to adapt to the best concepts that the conditions in the micro-climates offer them.

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Jeffrey Phillips is a senior leader at OVO Innovation. OVO works with large distributed organizations to build innovation teams, processes and capabilities. Jeffrey is the author of "Make us more Innovative", and innovateonpurpose.blogspot.com.

Do you have a Corporate Innovation System?

by Rowan Gibson

Co-authored with Peter Skarzynski, CEO of Strategos, in close collaboration
with well-known strategy guru Gary Hamel, I believe that "Innovation to the Core" (Harvard Business School Press) is by far the most important thing I've ever done.

Lots of people have been asking me for a synopsis of the book, so here goes...

Could you describe your company's "corporate innovation system"? Ask this question inside most organizations and all you get is a blank stare. It's obvious that, in the vast majority of firms, innovation is still more buzzword than core competence.

Yet a few leading-edge players - including GE, IBM, P&G, Whirlpool, Shell, Cemex, Best Buy, and W.L. Gore - are demonstrating that large industrial organizations really can tackle the challenge of innovation successfully in a broad-based and highly systemic way.

What these companies understand is that it's entirely possible to make innovation an "all-the-time, everywhere" capability, something that becomes part of the organization's bloodstream - just like quality, for example.

Instead of ascribing innovation to a mysterious mix of happenstance, individual brilliance and the occasional bolt of lightning, the first thing we need to do is demystify the innovation process. If you want to create a high-performance "innovation engine" inside your organization, you need to recognize and address three cultural preconditions for making breakthroughs happen: creating time and space in people's lives for reflection, ideation and experimentation; maximizing the diversity of thinking that innovation requires; and fostering connection and conversation - the "combinational chemistry" that serves as a breeding ground for breakthrough ideas.

Next, you need a methodology for systematically generating novel strategic insights - these are the raw material for innovation breakthroughs. There are four specific kinds of insights that enable innovators to discover new and unexploited opportunities of real value. These are: company and industry orthodoxies that deserved to be challenged, trends and discontinuities that could potentially reshape the business landscape, competencies and assets that could be leveraged to create opportunities beyond the boundaries of the existing business, and emergent but as yet unaddressed customer needs.

Once your company has built a foundation of novel strategic insights using these four "lenses of innovation", the next step is to "crash" various insights together to see if the collision opens up new opportunities for innovation. Radical business innovations are almost always the product of "creative collision" - i.e. they are based on a combination of insights, ideas and domains that don't usually belong together. It is also imperative to examine each component of your company's (or your industry's) business model, using insights from the "four lenses" to uncover opportunities for industry reinvention.

In addition to this ongoing insight discovery and ideation work, which should engage as many minds as possible across your organization, the goal is to open up the innovation process to your extended network of customers, suppliers and partners, involving all of these constituencies in the search for new growth opportunities.

Once your company is using all these available means to improve the quantity and the quality of new ideas entering its innovation pipeline, you should make sure you are employing the right evaluative criteria at every stage of the opportunity development process, so that you avoid prematurely killing off potentially valuable ideas. The most important question to ask first, for example, is not "What's the expected ROI?", but "How BIG is this idea?" - based on the understanding that it is radical (rather than incremental) ideas that tend to deliver breakthrough performance.

It is also crucial to build mechanisms for rapidly reallocating resources behind new growth opportunities, as well as an "innovation architecture" that gives strategic coherence and consistency to your opportunity portfolio. You want to make sure your innovation pipeline is robust enough to nurture, manage and commercialize the ideas your organization decides to pursue, and that it is capable of managing growth opportunities with very different timescales and risk profiles. You are also going to need a comprehensive set of metrics (linked to management compensation) that is designed to measure innovation performance - including inputs, throughputs, and outputs.

Finally, to drive innovation to the core, you need to put the necessary systems, structures and processes in place to make innovation a self-sustaining enterprise capability and a tangible core value. This requires four interdependent and mutually reinforcing components that need to come together to institutionalize innovation: visionary leaders and organization aligned around a common vision of innovation; a disciplined approach to building innovation capabilities across the organization; a systematic approach and supporting tools to enable idea generation, pipeline and portfolio management; and a collaborative, open culture that rewards challenging the status quo.

Do all of this and your innovation outputs will soar!

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Rowan Gibson is widely recognized as one of the world's leading experts on enterprise innovation. He is co-author of the bestseller "Innovation to the Core" and a much in-demand public speaker around the globe. On Twitter he is @RowanGibson.

Happy Holidays from Blogging Innovation

Just a short message to wish you a happy holiday season from the team here at Blogging Innovation.

As a special gift, we've made all of our white papers and case studies registration-free for your convenience. Just click to download.

If you're not already one of the 1,650+ members of our Continuous Innovation group on LinkedIn, we invite you to join the discussions and news item sharing that occurs there for the growing Blogging Innovation community.

May your season be full of time spent with happy and healthy family and friends.

All the best,

Braden

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Braden Kelley is the editor of Blogging Innovation and founder of Business Strategy Innovation, a consultancy focusing on innovation and marketing strategy. Braden is also @innovate on Twitter.

Which comes first? - Innovation success or culture?

by Jeffrey Phillips

Many strategic challenges have a "chicken or egg" quandary. In the case of the chicke and the egg, which comes first? Clearly you can't have a chicken if the chicken didn't come from an egg. But you can't have an egg if it didn't come from a chicken. Quite a conundrum. Ranks up there with Schrodinger's cat and other notable thought experiments.

The chicken and egg question has parallels in innovation, especially when firms consider how to get started. The dilemma the firms face is: do we work on creating an innovation culture before attempting innovation, or do we start with smaller, more tactical innovation activities that will allow us to build up innovation knowledge and experience that can be transferred to the culture? Here's a couple of things to ponder while considering the tradeoffs.

First, anyone, anywhere can brainstorm or generate ideas. That does not make them "innovative" and one brainstorm is not necessarily repeatable or sustainable. However, that may be the best first step for many firms, only comfortable with small, trial steps. However, what many firms find once they've generated ideas is that there is no sustaining process or procedure for managing ideas, and the "day job" is more compelling. Cultural roadblocks often stymie further pursuit of ideas.

Second, building a culture is hard, but changing a culture is very difficult. In any existing firm, there are norms and expectations that have been built over time and reinforced in the way people work and how they are compensated. Changing a firm's culture does not happen overnight, and many executives recognize this. So, there's yet another rationale for trying a "quick and dirty" innovation project rather than trying to implement longer term change.

Third, building a culture of innovation requires a vision. You can't simply wave a wand and expect the culture to change - it can change, but it must change based on some shared concepts and vision. Executives have to define a very clear rationale for the change and present the end state. This requires commitment and good communication skills over a long period of time. Again, since we manage today with a stopwatch rather than a calendar, time is of the essence, and quick wins are preferred to methodical changes.

So, in many cases we are left with two alternatives, neither of which seem to have positive outcomes. On one hand a firm can innovate with small projects and programs and attempt to overcome cultural issues as they arise. Often they will find that the culture doesn't reward people who take risks and who propose programs that are different from the status quo. On the other hand, a firm can start working on the culture and begin changing the expectations before launching innovation programs, but this is time consuming and most executives don't have the patience for such efforts.

Probably the best approach is to run the changes in parallel. Start working on cultural change while enacting a series of small innovation programs. Build on the successes and use any failures as opportunities to reinforce the cultural change. Expect that any effort to change the culture will take several years. However, if you can successfully influence the culture, the innovation possibilities are incredible. Culture is the biggest roadblock to innovation, but once overcome, it can be the stimulus and propulsion for innovation.

In the case of innovation activities versus innovation culture, don't think of these as tradeoffs but as activities that should, probably must, be done simultaneously if you want to build a long term, successful innovation capability.

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Jeffrey Phillips is a senior leader at OVO Innovation. OVO works with large distributed organizations to build innovation teams, processes and capabilities. Jeffrey is the author of "Make us more Innovative", and innovateonpurpose.blogspot.com.

Will Your Strategy Kill Your Company?

by Rowan Gibson

Many companies once believed - and some of them evidently still do - that business models were essentially immortal. The prevailing attitude was that while product portfolios might need to be refreshed every now and again, successful strategies would remain successful for the rest of time. Shell would suck oil out of the ground, General Motors would make cars, Xerox would make copiers, and that's the way it would always be.

In a world where nothing much changed - or where things changed very slowly - the assumption was that a company could pretty much do the same thing forever. Innovation therefore became a calm, unhurried exercise in developing "new and improved" versions of existing products, funding ongoing technical research and filing industry patents. How many firms thought there was ever going to be a need to innovate more deeply and more strategically - at the level of the business model itself? Or to fundamentally rethink and re-earn their company's right to exist on a year by year basis?

Go back a few decades and the focus was generally on developing increasingly efficient processes for delivering more of the same. But, today, with the sheer underlying speed of change in the external world, "more of the same" can very quickly lead to strategic obsolescence.

For some companies, it's a technological discontinuity that causes all the trouble. This is what happened to Wang in word processing, and to Atari, and later Sega in videogames, when the next wave of technology superseded the old. The same fate befell Schwinn, the original leaders in the U.S. bicycle market, when their business was destroyed by the disruptive advent of the mountain bike. Remember, too, that the venerated Encyclopedia Britannica was knocked off its proud pedestal almost overnight by something as banal as Microsoft Encarta, when a simple CD-ROM displaced a shelf-filling set of printed volumes.


"What got you where you are today is seldom what will keep you there."


For other firms, the disruption might come from a market discontinuity. Suddenly, they find themselves facing new and very aggressive competitors who have a more effective business model than they do. Remember Xerox in the early 80s, for example. The company didn't even notice the threat from the Japanese until its earnings dropped 50% in one year alone - 1982. Or it could just be a sudden shift in consumer tastes. In the U.S., for example, Krispy Kreme doughnuts were doing just fine until lowcarb diets reshaped the food industry. That's how quickly and mercilessly the market can change.

These days, strategies can have a very short shelf life. Their underpinnings are being regularly shaken and they die much more quickly than in the past. "This company will be going strong 100 and even 500 years from now," said C. Jay Parkinson, president of U.S. based Anaconda Mines - just three years before Anaconda was bankrupt.

The bottom-line message here is that linear thinking is useless in a nonlinear world. The things that got your firm where it is today are seldom going to be the things that will keep it there. The challenge, therefore, is to routinely consider the unthinkable - to regularly rethink everything about your company and the business you are in, even when things appear to be going well. To illustrate the point, Meg Whitman, president and CEO of eBay, holds strategy meetings not once or twice a year - but several times each week!

Quite frankly, the line between success and failure has never been finer. Hence the imperative to continuously reinvent your success with radical new product concepts, new ways of doing business, new markets, new capabilities, new customers and new sources of profit. Unless you are taking deep, strategic innovation very seriously, your company's days might already be numbered.

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Rowan Gibson is a global business strategist, a bestselling author and an expert on radical innovation.

Innovation Regeneration

by Rowan Gibson

In biology, there's an old saying: "Growth is the only evidence of life". A lot of investors on Wall Street seem to echo these words when they evaluate today's corporations - and business leaders are getting the message. At GE, for example, CEO Jeff Immelt is on the hook to deliver an incredible 8% of organic growth each year. This represents around $15 billion of new revenue - equivalent to the combined annual revenue of America's entire bookstore industry, or fitness industry, or music production and distribution industry! No wonder "Driving Growth" has become today's dominant management mantra, not just at GE but at companies all over the world.

Yet if we go back to biology for a moment, we realize that there is more subtlety to organic growth than we may have previously imagined. In fact, we find out that life actually requires two very different kinds of growth.

The first kind of growth is about cell multiplication and organization - it's about increasing the size and strength of the organism until it reaches physical maturity. In the case of human beings, it's the process that starts with a single cell and finally produces the estimated tens of trillions of cells that make up our adult bodies.

The second kind of growth, however, is not about size; it's about longevity. It's the process of self-renewal by which our body cells are continually replaced or repaired, as the need may be. If this process - of growing new cells to replace those that deteriorating - could somehow be sustained, human beings could theoretically live forever.

The biology of business is not dissimilar; companies need both kinds of growth as they progress through their life cycle. In the early years, most companies are primarily concerned with scaling up their organizations as rapidly as possible, with a pressing need for systems or processes to help them manage their ever-expanding business. Eventually, though, this kind of growth tends to flatten out and the company reaches a level of maturity in terms of its size and strength, just like humans and other biological organisms do. As my colleague Gary Hamel likes to put it, "Trees don't grow to the sky".

Again, consider GE. In the last five years of Jack Welch's tenure, which ended in the year 2000, GE's market value grew from around $50 billion to somewhere between $350 and $400 billion. But to do that again over the next five years, GE's market value would have had to go from $450 billion to $3 trillion! Extrapolating from the year 2000, this meant that by 2005 GE would have to represent 20% of the entire New York stock exchange! The chances of that happening were very remote. Here's the point: it's simply a lot easier to grow by 100% a year when you are a $10 million firm or even a $100 million firm than when you a $50 billion firm. Because to achieve that kind of growth rate at that kind of size, you would practically have to recreate half of the economy every year.

Of course, expanding the business remains crucial even when a company's growth-rate has naturally flattened out, but at some point increasing the scale of the organization is no longer the main issue (in fact, it may even need to get smaller to become more profitable). That's when the emphasis shifts to a different kind of growth - the need to grow new sources of profit to replace those that may be losing their economic value. These might be new product ideas, new services, new strategies, new markets, new customers, new business opportunities, or new competencies - whatever it takes to offset the long-term irreversible decline in the economic efficiency of the company's core business model.

This is the challenge that currently faces companies like McDonald's or Coca-Cola or Microsoft or Dell. It's the task that bedevils Hollywood as it watches box office figures shrink and DVD sales stalling in a world of digital downloads. It's the hurdle for big pharmaceutical firms as they confront declining R&D yields, escalating price pressure, and the growing threat from generic drugs. It's the big headache for traditional airlines as they compete with industry revolutionaries like Southwest, JetBlue, Ryanair, Easyjet or AirAsia. For all of these businesses, and many more, success now hinges not on size but on the capacity for strategic renewal.

Like human beings, organizations start to grow old and die when they lose the power to renew themselves. That's why it's crucial to build a deep capacity for self-renewal - the capacity to replace the old and decaying with the fresh and new on a perpetual basis. The goal is to be "forever young". And the fountain of youth - the only real source of renewal on the longer term - is deep, strategic innovation. It's not going to come from anywhere else.

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Rowan Gibson is a global business strategist, a bestselling author and an expert on radical innovation.

Creating a Culture of Innovation

I define innovation as an "organization's ability to adapt and evolve repeatedly and rapidly to stay one step ahead of the competition." A culture of innovation, when done right, gives you a competitive edge because it makes you more nimble with an increased ability to sense and respond to change.

A culture of innovation has less to do specifically with new products, new processes, or new ideas. There are of course discrete innovations such as the iPhone or a battery that is powered by viruses (MIT has developed this). These are valuable and necessary in order to create a culture of innovation.

But a culture of innovation is more than new ideas. It needs to be repeatable, predictable, and sustainable. This only happens when you treat innovation like you treat all other capabilities in your business. This means having, amongst other things, a defined process.

An organization's innovation process must achieve three things. It must:

• focus on the "right" challenges


• find appropriate solutions to those challenges, and


• implement the best solutions.

These translate into three "portfolios" an organization must create:

• A portfolio of challenges


• A portfolio of solutions


• A portfolio of projects

Let's take each one at a time.


A Portfolio of Challenges

All companies have challenges. They can be technical challenges on how to create a particular chemical compound. They can be marketing challenges on how to best describe your product to increase market share. They can be HR challenges around improving employee engagement.

An organization's ability to change (i.e., innovate) hinges on its ability to identify and solve challenges. Challenges are sometimes referred to as problems, issues, or opportunities. But at the end of the day, they are all just various forms of challenges. I will use these terms interchangeably here.

Where do you find these challenges? You can find them anywhere - from customers, employees, shareholders, consultants, vendors, competitors, and the list goes on.

Let's face it, companies have no shortage of challenges.

And guess what, some of the most important challenges to solve are hidden due to organizational blind spots and assumption-making.

The "meta-challenge" for all organizations is to find which challenges, if solved and implemented, will create the greatest value. Given that organizations have limited resources and money, prioritization is critical.

My favorite quote (used many times in this blog) comes from Albert Einstein - "If I had an hour to save the world, I would spend 59 minutes defining the problem and one minute finding solutions." Most companies spend 60 minutes of their time finding solutions to problems that just don't matter.

Therefore, the first step in creating a culture of innovation is to surface, identify, and codify challenges. And then you must become masterful at valuing, prioritizing, and framing these challenges.

Think of your innovation portfolio much like you would handle a financial investment portfolio. You want some safe bets (incremental innovation) and some riskier investments (radical innovation). You also want a variety of innovations ranging from technical challenges to marketing challenges, and service challanges to performance improvement challenges.

Once you have the right challenges to solve, the next step is to find solutions.

A Portfolio of Solutions

Every challenge has multiple potential solutions. And there are multiple ways in which to find these solutions.

Some challenges are solved in the moment by the person who thinks them up. Most challenges in fact are solved this way. These challenges tend to be "unarticulated" in that they are not presented to the organization as a problem to solve.

Other challenges are more complex and require specialized expertise. You need to find the right person(s) with the right knowledge.

Others require less technical expertise and are solved through creative thinking.

For each challenge, you need to first determine which mechanism would best yield a viable solution. Approaches include, but are not limited to...

• Internal Individual/Team: This is the most common way challenges are typically solved. This is when you use internal resources whose job is to solve these types of challenges. For example, this would be the development team members assigned to a particular product. They are paid to solve their product development challenges. Brainstorming is often the tool of choice.


• Internal Crowdsourcing: Sometimes the best solutions are found by people who typically do not work on this problem. It might be a customer service representative finding a great new branding idea. Or maybe it is tapping into R&D people who are in different parts of the organization. Sometimes this can be achieved through company-wide competitions. Read my article on how reality TV show type competitions can be used to stimulate creativity.


• Outsourced (External Single Source): Some challenges can be solved (and potentially implemented) by a third party who takes ownership for delivering the result. Typically, outsource partners are found through some type of RFP process. eLance.com is a well-known example of a platform that matches specific challenges with bidders who are able to solve specific types of problems.


• External Crowdsourcing: Some challenges are best solved by a diverse group of external solvers who can independently work on a solution to your problem. In some circles, this is referred to as Open Innovation. InnoCentive and 99Designs.com are two good examples of this. A challenge is posted and solutions are provided by a wide variety of solvers.

These are only a few of the many approaches. If one technique (e.g., internal team) does not yield a workable solution), try a different approach (e.g., external crowdsourcing).

Regardless of which technique(s) you use, the result will be a portfolio of solutions for the given challenge. Depending on the technique you use, you may end up with a low signal to noise ratio. This is the ratio of a signal (what you want - that is, good ideas) to the noise (what you don't want - the duds). Your success is often based on your ability to separate the wheat from the chaff.

The next step is to strengthen and select the best ideas, combining them into a comprehensive solution. If you find a solution that works, the next step is to implement.

A Portfolio of Projects

The final attribute of a culture of innovation is the ability to take all of the selected solutions and turn them into programs/projects so that they can be converted from ideas into reality.

Elsewhere on my blog, I discuss many different ways of making this happen. Some of them include "Build It, Try It, Fix It" - an iterative development process where you learn by doing rather than analyzing. Other more "waterfall" type development approaches are more linear and rely heavily on analysis and testing (analyze, design, build, test, deploy).

Regardless of how you implement, without this step, you end up with lots of ideas on the cutting room floor, none of which create value.

During implementation, it is critical that you keep track of the value proposition for each project, having the courage to change direction, or, in some cases, killing ideas altogether.

Bottom Line

A culture based on surfacing, solving, and implementing valuable challenges can make innovation repeatable and predictable. This requires more than just a process, it requires an entire innovation capability [read my perspectives on the innovation capability].

My mantra is, "When the pace of change outside your organization is faster than the pace within, you will be out of business." And as we all know, today's pace of change is crazier than ever. A culture of innovation, when done right, can give you a leg up in a highly evolving marketplace.

P.S. There are many different "techniques" that can be used at each stage of the process. Communities, social networks, customer-feedback systems, etc. These will be addressed more fully in future articles.

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

Do Rewards Kill Innovation and Creativity?

I am constantly asked how to best structure a financial reward system in an effort to motivate people to contribute ideas and improvements. My answer: Just say no.

Combined research from the Employee Involvement Association and Japan Human Relations Association reveals that the average number of ideas submitted per employee annually is 100 times greater in Japanese companies than in U.S. companies. Why? For one thing, we reward the wrong thing in the wrong way. The average reward in Japanese companies is 100 times less than the average U.S. reward of nearly $500. We have it backwards!

In a nutshell: payment for ideas can defeat the purpose.

The situation brings to mind one of my favorite parables:

An old woman lived alone on a street where boys played noisily every afternoon. One day, the din became too much, and she called the boys into her house. She told them she liked to listen to them play, but her hearing was failing and she could no longer hear their games. She asked them to come around each day and play noisily in front of her house. If they did, she would give them each a quarter. The youngsters raced back the following day, and they made a tremendous racket playing happily in front of the house. The old woman paid and asked them to return the next day. Again they played and made noise, and again she paid them for it. But this time she gave each boy only 20 cents, explaining that she was running out of money. On the following day, they got only 15 cents each. Furthermore, the old woman told them she would have to reduce the fee to a nickel on the fourth day. The boys then became angry and said they would not be back. It was not worth the effort, they said, to play for only a nickel a day.


Sound familiar? The old woman's scheme effectively stole from the boys the very thing they loved most to do, what they were in fact doing for free. The moral of the story is pretty clear. If we're not careful, we can replace a natural motivation with a synthetic one. We can rob creative power from people by attaching a financial reward to ideas.

The story repeats itself all the time. Companies treat employees like a rat in a maze after cheese, by paying for approved ideas and accepted suggestions. They then wonder why they get such low participation. They give no thought to the notion that in order to get a good idea, you need a lot of ideas.

Teachers at my daughter's school are notorious for the practice, and I take them to task regularly. They want students to read more books, so they reward the completion of books. Maybe with a homework exemption. Or extra credit. Or even vouchers to the local Taco Bell. So the quick and easy books get read. The superficial books get read. Even the good readers, the ones who love to read, get swept up in the program. They stop reading the classics, turning to the quick reads to score points. Then the program is discontinued, and everyone stops reading. Even the best readers lose their love of words. And that's a true shame.

Is there a solution? I think so: mandatory kaizen, aka continuous improvement. Yep, good old Yankee born and bred incremental innovation, circa World War II, courtesy of Training Within Industry under the auspices of Roosevelt's Emergency Services. Make it part of the daily work. Make it the daily work. Kaizen aims to draw out the natural curiosity and creativity within people and guide it toward adding value for customers.

Kaizen does not attempt to light a fire under people. It lights the fire within them.

Related Article: Importance of Recognition to Innovation Success

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Matthew E. May is the author of "IN PURSUIT OF ELEGANCE: Why the Best Ideas Have Something Missing." He is constantly searching for creative ideas and innovative solutions that are 'elegant' - a unique and elusive combination of unusual simplicity and surprising power.

24hrs of Innovation - Creating a Culture of Continuous Innovation

In this economic downturn there is more pressure than ever on executives to find new sources of growth, and as a result leaders are increasingly talking about innovation. In some organizations the leader may say "we need to be more innovative" or "we need to think out of the box" and stop there. While for other organizations it may become part of the year's goals or even the organization's mission statement. Only in a small number of cases will there be any kind of sustained effort to enhance, or create, a culture of continuous innovation.

By now everyone has probably heard of six sigma and continuous improvement, and maybe your organization has even managed to embed its principles into its culture, but very few organizations have managed to transform their cultures to support innovation in a sustainable way. For most organizations, innovation tends to be something that is left to the R&D department or that is thought of on a project basis. Some organizations create new innovation teams, but it is rare for an organization to invest in transforming their entire culture. There are many reasons for this:

1. Support from top leadership is required


• Challenge: Most executive teams are focused on short-term results and transforming organizational culture is a long-term investment of financial and leadership resources.


2. Clear goals and guidance are needed


• Challenge: This is a bigger barrier than you might think. Most organizations struggle to understand how to set innovation goals and to provide a vision for employees on how they might get there. Goals to 'be innovative' or 'think outside the box' are not specific enough to be successful.


3. Every organization is different


• Challenge: The starting place, needs and barriers to creating a culture of continuous innovation are different for every organization - making easy implementation of best practices impossible


4. Most companies lack a shared vocabulary for innovation


• Challenge: People in different parts of the organization use different terminology, methodologies, frameworks, and have different understandings of what innovation is. The lack of a shared vocabulary prevents organizations from achieving shared success.


5. Change is painful


• Challenge: Creating a culture of continuous innovation threatens the power base of a critical few, and disrupts the way people think about their jobs and the organization. Even if change is for the better, people tend to want to avoid change.


6. Change needs to be managed


• Challenge: This means pulling employees off of their day jobs or hiring consultants to commit to the leadership and communications surrounding the change effort. This investment may prove challenging in the current economic climate.


7. Change takes time


• Challenge: Organizations seeking to create a culture of continuous innovation must realize that the transformation will not happen overnight. People can only absorb so much change at once. The transformation will likely have to be broken up into separate phases with discreet goals (don't try to do it all at once).


• Make sure to stop and share the successes of each phase, and also to identify what you've learned that can be implemented in the next phase.


8. Visualize the outcomes of participation


• Challenge: Often people withdraw and choose not to participate in organizational transformations because they don't believe that their participation will positively impact their daily lives. If those who choose to participate don't see an impact from their early efforts, might choose to disengage as the process continues.


• You must celebrate participation and highlight the impact of individual contributors throughout the process.


9. New systems and processes may be required


• Challenge: To innovate continuously, you need to be open to receiving great ideas from anywhere in the company, and must have systems and processes to manage idea gathering, evaluation, and development. Often this requires a financial and personnel investment.


10. Change efforts require lots of communication and storytelling


• Challenge: You have to bring the change to life for employees. This requires involvement of employees early and often in the communications surrounding the goals and outcomes of the cultural transformation


• Create a story that is easy and fun to tell - this will make it easier to cascade the change downwards through the organization

This should give you a better idea of why very few organizations embark upon the difficult work to enhance or create a culture of continuous innovation. It may not be an easy or a short journey, but creating a culture of continuous innovation is the only way to increase your chances of avoiding organizational mortality.

Successfully creating a strong culture of continuous innovation also represents a huge opportunity for an organization to attract the best talent, to lower costs, to continuously add new revenue streams, and to better achieve competitive separation.

If you'd like to explore some of these issues and discuss them further, please join our Continuous Innovation group on LinkedIn.

In the LinkedIn group and in future articles and white papers, we will further explore how to overcome some of these challenges to achieving a culture of continuous innovation.


Is your organization ready to invest the hard work towards achieving the rewards of a culture of continuous innovation?


Braden Kelley (@innovate on Twitter)

Creative Cultures - Making Innovation Work

I found an interesting video of Professor Paddy Miller talking IESE's program Creative Cultures: Making Innovation Work. The video talks about the importance of innovation in our current global economy and the challenges in making innovation permeate the organization.



"Much of the innovation industry talks recycled platitudes: the real secret is that innovation is more about business culture than it is about brainstorming ideas. A culture of innovation is driven by the individual. It's instilled in an organization by small teams working together day to day."

- Paddy Miller, IESE Professor


What do you think?

@innovate

Building an Innovation Culture in Gaming

Introduction

I had the opportunity to attend the Brightidea Innovation Leaders "Birds of a Feather" Conference. The event was a peer-to-peer discussion on innovation management among innovation executives and managers at top global corporations. The conference provided a forum to exchange ideas and best practices on implementing innovation in large organizations, and there were presentations by WMS and Mentor Graphics. This is the first of a series of two articles highlighting the key takeaways from the two presentations, based on the notes I took at the event.

The WMS presentation was given by Shridhar Joshi, VP, Global Product Strategy, and Al Thomas, Executive Director, Advanced Game R&D.

WMS has sprung forth from the loins of Williams Bally Midway combination and its heritage of pinball machines to become the dominant player in the video slot machine business.

WMS leadership set innovation as a core principal in an attempt to establish a culture of innovation. They set out with two key questions:

• How do we make every employee feel that innovation is part of their job?


• How do we maximize our innovation potential?

To achieve their innovation culture goals, WMS had to establish certain focus areas, had to establish certain structures that allowed somewhat for spontaneous formation of cross-fuctional teams, and had to form an advisory panel of experts to lead, guide, and evaluate innovations. In addition to creating on-boarding training on innovation for all employees, WMS also had to put training in place to replace panel experts over time.

Other foundational pieces include:

• A process for what to do with ideas that people submit (internal and external ideas)


• Training on the idea submission system along with training on how to innovate


• A reward and recognition program


• Quarterly innovation awards luncheon


• An annual innovation awards dinner


• Marketing team publishes a quarterly innovation newsletter

Seven keys to success:

1. Building a program formally before launching it


2. Launching it with the full support of top management and a communications plan to support the launch


3. Participation - People want to participate (75% so far) - we're tapping the brain of the entire company


4. Consistency - We have been able to maintain involvement over time


5. Fearless Leaders at the top


6. Light-hearted approach makes innovation accessible


7. Having a tool at the backbone has been key (shows that we have a process to manage the ideas that come in)

As a result of the foundational pieces and keys to success coming together, WMS has been able to create a "Culture of Systemic Innovation" because of the following:

• They didn't create artificial financial metrics


• Employees are free to do (submit) what they feel is important


• Panel of experts are responsible for evaluating the financials


• We find the organic innovators in the company and make them the spokespeople

WMS has built an innovation portal, of which Bright Idea's idea management system is but just one part:

• "I have an idea" (submission)


• "I'm in need of a solution" (search and innovation challenge creation)


• "I'm new to this site" (tool training)


• "Be a better innovator" (innovation training)

And a few final takeaways:

• The promise of financial rewards are not key, in fact they might hamper participation


• It is important to also provide the ability to start a specific innovation challenge for problems people are seeking a solution to


• The BrightIdea solution does not replace any existing departmental solution (i.e. new game idea submission from game designers)


• The BrightIdea system helps to make the IP group more efficient in some ways by helping to shape ideas before they get to the IP group (curtails hallway conversations, etc.)


• A lot of the ideas are about things like improving manufacturing, hr benefits, etc.


• Rather than setting aside a certain amount of time every day for innovation, it is more important for managers to be flexible and help promising projects succeed


• It is important to allow ideas to gather strength on their merits, to allow people to comment and vote on ideas, and to provide mentors to help shape promising ideas


• Breaking the surface tension is one of the keys to sparking innovation


• Getting participation is a function of how committed you are to giving people proof points that you are listening (moving the cafeteria soda machine example) vs. The suggestion box is a paper shredder


• Inviting the third person to the idea session often creates a third idea that the first two would have never imagined

Conclusion

All of this comes together to reinforce the difference between innovation theory and practice. Innovation and working with clients are, of course, my passions. After listening to WMS I came away with the feeling that they "get it" and that they are making a lot of the right moves to set themselves up for success, but I also noted that there are numerous other parallel "innovation" tools and processes that may be an area of great opportunity for increasing their chances of achieving continuous innovation.

I would entreat all of you out there in formal or informal innovation management roles, to not only give yourself a broad base of knowledge in innovation theory, but to also seek out other companies ahead of you on the path and learn from their successes and mistakes. Innovation is a dirty business, an emerging discipline, and the reality is actually far more interesting than the theory. For another inside peek into practical attempts to create innovation, I encourage you to check out a book with an unusual (or possibly innovative) organization scheme I am currently reviewing - "Inside Project Red Stripe: Incubating Innovation and Teamwork at the Economist".

So, if the people at WMS keep it up, chances are that every time you go to a casino and play the video slot machines, you (or the casino) will have a better experience than the time before.

What do you think?

@innovate