Heads of Banking Innovation are Now Bottoms

by Chris Skinner

Over the past year, most of the banks I deal with have dropped the word 'innovation' from their mantra. It's strange but true that the focus upon being innovative had been such a focal point during the 2000s and now it's all over.

To illustrate the point, the Top 10 American banks used the word innovation' an average 1.2 times per annual report in 2000, rising to over six times per report by 2007.

Heads of Innovation were popping up everywhere and innovation was the key to being different, attracting customers, growing business and increasing revenues.

Now the Heads of Innovation have all gone and Innovation is at the bottom of the banks 'to-do' lists... in other words, the Heads have become Bottoms.

Banks have realised that the last thing they want to be is innovative.

They want to be boring.

So innovation has disappeared over the parapets as fast as Tiger Wood's pants.

But that's not the end of the story.

There will still be some innovation in banks. The question will be: which ones?

Let's roll back to the beginning.

Innovation became a focus for banks because technology was moving at such a pace, and client demands with it, that any bank which was not seen to be innovative felt they would lose business.

Hence, as is the way with banks, they all appointed a head of innovation, used the word 'innovate' in all of their customer marketing materials, and appeared to be innovative by doing funky things like using employees to advertise the bank and giving away pens in branches.

That's all the token gestures of innovation.

Meanwhile, some banks were actually being innovative, but just weren't talking about it that way.

Banks such as Goldman Sachs who were creating incredibly innovative trading systems that ensure best price for their investors, which is why they get so much investment business, whilst creating huge market volatility.

Banks like JPMorgan Chase who invented the whole concept and trading of Credit Default Swaps. By being the first mover to invent and then trade these products, JPMorgan were not only the first into profits from such instruments but the first out of the losses created by them, as were Goldman Sachs.

Very clever.

Banks such as Wells Fargo meanwhile, have made it a clear focus to engage customers using social media, and see this as a differentiation in the customer experience. Rather than having a head of innovation in this area however, they instead invest in creating platforms to engage customers in remote social interactions via blogs, virtual worlds, YouTube, Facebook and Twitter.

That's innovation, but it is not seen as token innovation but core developments in customer engagement.

For the average bank however, innovation is not in their blood.

This is because innovation demands doing things in a different way, and banks don't like to be different. They want to be the same.

They don't want to break away from the crowd, but want to do things in robust, proven, low risk ways.

They don't want to be leaders but lemmings, all running in the same direction doing the same thing in a nice, safe, undifferentiated manner.

They cannot invest in something new and different, because it has to have a clear business model, financial analytics to support the investment, clear returns on investment and absolute management buy-in and commitment.

All of the above would never happen with something that is not proven, not clear, not justified, and unable to be supported by a strong financial business case.

Hence innovation lies in a heap at the bottom of the bank's corporate agenda.

So what are we really talking about today, when it comes to innovation in banking?

We are talking about banks that create cultures of being prudent risk avoiders, entrepreneurial innovators, excellent customer engagers, aggressive market makers or active acquisitors.

These cultures sit at opposites with each other and rarely would you find a bank that could be all in one.

For example, I wouldn't put Wells Fargo in the bracket of prudent risk avoider as they see themselves as an excellent customer engager; Goldman Sachs are an aggressive market maker, as are JPMorgan, but they probably wouldn't use the word prudent; Citi are now a prudent risk avoider having learned their lesson of being an active acquistor; and Lloyds TSB were always a prudent risk avoider until they became an active acquistor.

These cultures are driven from the man or woman at the helm - a fish sets its direction from the head but also begins to rot first from the head - and it is the man or woman in the driving seat that creates the innovation and risk culture of a bank, not the label 'innovation'.

That is why you can find banks that are hybrids of this model - such as Barclays where John Varley has created a retail and commercial banking operation that is prudent whist Bob Diamond runs an aggressive market making operation in BarCap.

There are other banks that demonstrate this mix, and it is purely a reflection of the management team.

For example, HSBC is a prudent risk avoider under Chairman Stephen Green and CEO Mike Geoghagan, but is also an entrepreneurial innovator thanks to Chief Technology and Services Officer Ken Harvey.

All in all, the lesson learnt for most banks is that innovation is not a function or label, but a culture and so it is gratifying to see innovation has been removed from the mantra of the banks as a label.

Now let's see which banks create innovative cultures over the next decade, and watch them grow.


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Chris Skinner is Chairman of the Financial Services Club and regular commentator on banking at The Finanser.

The Worst Decade Ever :-)

by Steve McKee

Now that 2009 is over, I have bad news and I have good news.

First the bad news. According to the Wall Street Journal, stock performance in the decade now ended was the worst ever - worse even than the woeful 1930s. For the past ten years, the value of NYSE-traded stocks has declined by an average of 0.5 percent a year. Compare that to the 1990s, when the average annual increase was an incredible 17.6 percent.

Factor in inflation and it gets even more depressing, with the S&P 500 declining an inflation-adjusted 3.3 percent annually. During the 1930s, stocks showed an inflation-adjusted (deflation, really) annual gain of 1.8 percent. And the decade now ending saw many notable companies fall out of the S&P 500, for reasons of scandal (Countrywide, Enron), excess (Bear Stearns, Merrill Lynch, Lehman Brothers, Wachovia), misfortune (Circuit City, Lucent, Reebok) and just plain changing dynamics (AT&T, Compaq, Dow Jones & Co., Maytag, Wyeth).

Pretty discouraging, when you think about it. But here's the good news. The vast majority of American corporations found a way to move ahead during the turbulent ten years past, and all of them - all of us - are the stronger for it. We face challenges ahead, but having muddled through the most difficult decade in two centuries we'll face little that will surprise us. And those of us who have maintained our focus, kept our nerve and remained consistent throughout should profit all the more.

Here's to 2010, the dawn of a new decade. May the old one rest in peace.

[Note: Today marks the one-year anniversary of this blog. Prior to launching it last December I wondered - and worried - if I would have enough to write about. If there's any silver lining to the year now past, it's that it provided plenty of content for a blog called "When Growth Stalls." Let's hope next year is a little tougher on me.]

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Steve McKee is a BusinessWeek.com columnist, marketing consultant, and author of "When Growth Stalls: How it Happens, Why You're Stuck, and What To Do About It." Learn more about him at www.WhenGrowthStalls.com and at http://twitter.com/whengrowthstall.

Should We Revive Dying Brands and Companies?

Or are we better off creating new ones? Does "The Circle Of Life" apply here?

by Idris Mootee

We make assumptions that it is the management team responsibility to extend or prolong the life of any companies even they have fewer reasons to exist. Management is different from practicing medicine, although sometimes I am called the strategy doctor. Instead of wasting resources and energy to save a company or a brand, should we just take whatever assets and redeploy them? In life, the cycle of life is the natural order of things.

Although we do live longer now, death is inevitable. Technology is the same. Should corporations be the same? Saab is at the end of life. Should it deserve a second life? Apple had its near death experiences and came back stronger. Many argued at that time Apple should be sold to Sony. Wang Computers thought they were beating IBM and could become the next IBM. IBM was also close to disappearing from the scene just 15 years ago.

Management consultants usually have a keen preference for prolonging corporate life. I guess to keep them spending. The pharma companies don't want patients to die, just stay sick. Why do we care about extending the life of large companies or big brands? Is it because they can afford our fees? Or we have a love for them. Yes, build to last. Business schools love transformation stories because they make great business cases, and portray CEOs as heroes. For many large companies, transformation and renewal is the only source of survival.

The world of fashion has a lot of comeback stories, although they are generally not sophisticated from a management capability perspectives compared to the GEs of the world. Think how Burberry, Adidas, Dior, and Abercrombie & Fitch all have found prosperity in their new life. Many business school case studies have been written about of how brands were "brought back from the graveyard." Unfortunately, however, the lessons are often so idiosyncratic. There 100 times more cases where companies tried revitalizing old brands by hiring new CMOs and advertising agencies and throwing big money towards advertising, hoping to rebuild a great brand even when there wasn't a relevant product or service or a sound business model behind it.

For those fashion companies, it is about hiring the right designer (call Tom Ford or Marc Jacob) and for other businesses, whom do you call? The designer is often viewed as the critical component to reengineering a brand, and total attention must be paid to the brand in an effort to return to its essence and reason for being successful in the first place. It used to be case that you could recruit a top CMO and things will work out. This is not working anymore. You need a master strategist, a great storyteller and a change agent, all in one person (call Indra Nooyi or Steve Jobs). In fashion, you go back to the essence of the brand. In other business what do you do? How do you rediscover your core or find a new core?

Successful transformation and re-invention rests on two major premises: first, that our time is characterized by a rare confluence of new behavior and economic disruption, and second, that the "new global reality" is turning toward a "whole new emphasis on innovation". I was speaking to a group of graduating Ivey MBAs on global strategy. You can check them out at slideshare below:

Ivey Lecture Global Strategy Short

View more documents from Idris Mootee.

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Idris Mootee is the CEO of idea couture, a strategic innovation and experience design firm. He is the author of four books, tens of published articles, and a frequent speaker at business conferences and executive retreats.

The Innovation War Room

by Rowan Gibson

There are three ways to react to an economic crisis. One way is to bury your head in the sand and hope the whole thing just blows over (good luck!). Another way is to run around in a panic-induced cost-cutting frenzy that could seriously impair your company's long-term growth potential. The third and, of course, smartest way is to recognize the impending threat to both your top and bottom line, and quickly adapt your company's strategy and business model to the new market conditions. Is that what your organization is currently doing? Perhaps. But what if you're having a difficult struggle radically rethinking and reinventing what you do, and how you do it, as economic circumstances rapidly change. If so, here's some advice.

I have, via this column, argued vigorously over the past few years that, in a world where the pace of change has gone hypercritical, today's most important race is the race for strategic renewal. It is the race to change as fast as the environment is changing around you; the race to invent new sources of profit before the old ones disappear; and the race to reinvent your strategy and your business model before they become obsolete. When the economy is on the up, most companies tend to postpone this work of strategic renewal based on the old notion that "If it ain't broke, don't fix it." Yet, as the current crisis proves once again, a successful business model can get broken almost overnight when the economy takes a downturn.

So what exactly is strategic renewal? It's the act of dynamically adjusting business models and strategies to the deep changes at work in the external environment. Above all else, this requires innovation. In a 2003 article in Harvard Business Review entitled "The Quest for Resilience", Gary Hamel wrote, "Strategic renewal is creative reconstruction." It's about taking your traditional business model apart and looking for imaginative ways to reconstruct it to create significant new value for your customers and your company. This becomes all the more urgent in recessionary times, when customer needs and market conditions swiftly and dramatically change.

But how can you actually go about the task of strategic renewal? My answer is this: set up an 'Innovation War Room'. This may well be a physical space, as in the case of Emerson Electric, the global technology and engineering leader, where former CEO Chuck Knight set aside a specific room, right next to his own office, for directing the company's strategic renewal efforts. It was reminiscent of the cabinet war room in London, used by Winston Churchill to direct military strategy during World War II. Chuck Knight's Innovation War Room was a simple but highly effective device that forced all of Emerson's people to focus on reinventing the business model and finding bold, new growth opportunities. And its impact on the company's strategies - and, ultimately, its performance - is still being felt today. Last year, even in the face of formidable pressures, Emerson announced record financial results for 2008, and it continued to be one of the most reliable earnings machines in the American economy.

Very few companies could claim to have a specific innovation war room somewhere at headquarters. But what every company can and should do - right now! - is organize a serious, high-level strategy forum (at least call it the 'Innovation War Room') to start rethinking their business from the customer backward. One of the fundamental questions they need to ask at that meeting is, "How do we get the sales curve moving upward in a market where customers are no longer buying?" And, in a nutshell, my own response to that question would be identical to a slogan IBM is now using:


"Stop selling what you have. Start selling what they need!"


The absolute worst thing your company can do in a stalled economy is to assume you can just continue to sell the same old product or service to the same old customers in the same old way - and at the same old price. Instead, you need to get busy working out how your customers' priorities may have changed, and quickly realign your business model to address their new needs. When I read through a Wall Street Journal a while back, most of the ads (for luxury watches, exorbitant real estate, and fabulous vacation resorts) looked embarrassingly inappropriate in view of the times. One ad, from NOKIA, stood out in contrast. The headline: "Can anyone provide cost cutting solutions that work now? Yes, we can." Now, there's a company that seemed to get it. But wait a minute. Didn't that headline sound more than a little like Barack Obama? NOKIA seemed to have understood the lesson from last year's US election: whether you're selling politics or products, the winners will be those who recognize that the game has changed, and that "same old, same old" will no longer cut it.

In some of my own keynote speeches and strategy workshops, which - guess what - are now entitled "The Innovation War Room" (hey, right product at the right time, no?), I teach companies to unpack their business model into five components: who they serve, what they provide, how they provide it, how they make money, and how they differentiate and sustain an advantage. Then I show them how to radically rethink each component using the 'Four Lenses of Innovation' - the cutting-edge ideation methodology outlined in my latest book "Innovation to the Core". So I get the strategy teams to:

1. Challenge deeply-held orthodoxies about who their customers are, how they interact with them, how they define their products or services, how they configure the value chain, and so on


2. Harness emergent trends and discontinuities to substantially change the way things are done in their industry


3. leverage core competencies and strategic assets in novel ways to generate new growth


4. Understand and address deep customer needs that are currently going unmet

Isn't it time you subjected your own business model to some 'creative reconstruction', aimed at making it better suited to today's shifting customer needs and new economic realities?

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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.

Up or Down - Innovation and Value are Key

by Rowan Gibson

A couple of years back, when the economic barometer was pointing upward, all the talk in company boardrooms was about growth, innovation and value creation. Today, with the global economy lingering in the doldrums, corporate strategy is shifting inexorably back to the safe haven of operational efficiency. Now you might argue that this reaction is both inevitable and understandable, and I would accept that at some level. But remember this: something far deeper and more significant than these episodic upswings and downswings is the fact that we've entered a new kind of economic era - an era where cost-cutting is no longer enough. Whether it's currently an 'up' economy or a 'down' economy, we now do business in a value-based economy. And innovation is the only sustainable source of value-creation we have left.

What organizations need to understand is that, at the macro level, productivity - which of course is central to profitable economic growth - has always been determined by two elements. On one side, it is determined by the efficiency with which companies use their inputs - how much labor and capital it takes to produce their goods and services. On the other side, productivity is determined by the value that customers place on the outputs.

For most of the industrial era, the predominant focus was on efficiency as opposed to value. Yet when we look at the companies that are creating most of the new wealth today, we find that they are not doing it by eeking out the last few percentage points of efficiency from their business processes. They are doing it by creating things that bring incredible new value to customers.

Think about Apple, or BMW or Porsche. What we find is that, while these companies are highly efficient in their operations, they do not necessarily enjoy the largest economies of scale. It's their ability to deliver value - to create things that are compelling, exciting and wonderful - that has made them enormously effective engines of wealth creation. BMW and Porsche, for example, command the highest margins per vehicle in the world. Contrast this with the meager performances of GM and Ford and we find that huge economies of scale do not per se deliver an advantage. If a company is not capable of combining low operating costs on the one side with high value-creation on the other, it simply becomes incredibly efficient at making the kind of products customers don't want.

On the whole, large companies have spent about a hundred years building a 'hyper-efficiency' mindset into their organizations. But, until recent years, they have given very little thought to the other side of the productivity coin - how to build a mindset around creating 'hyper-value' for the customer. That's why innovation goes so much against the grain in most companies. It has to fight against a whole set of management principles, processes and systems that are basically set up to deliver something else.

Creating value requires a deep understanding of unarticulated customer needs. It requires enormous creativity. It requires a degree of messiness - i.e. recursive cycles of experimentation and learning. It requires radical thinking in terms product configuration or value proposition. But the industrial age has given us organizations that are not very good at doing any of that. It has given us organizations that treat variety as the enemy - that believe variance from a quality standard, or from a budget, or from a production schedule is a fundamentally bad thing. Yet creating value for the customer often entails challenging and deviating from these norms.

To use the language of complexity theory, most companies have been operating predominantly at one end of the spectrum - "the ordered regime" - and hardly at all at the other end, which scientists refer to as "the edge of chaos." It is this 'other' end - the messy, creative, experimental end - that is so vital for value creation, wealth generation and long-term growth. Indeed, in his book, "The Hacker Ethic", Pekka Himanen wrote that, in today's economy, the "most important source of productivity is creativity." This is the sort of mantra that becomes popular when the economy is growing; when companies find themselves drawn naturally toward the innovation end of the spectrum. But the big challenge comes when things take a downturn and there's pressure to cut costs again - which is exactly the situation we're in now. Organizations must ensure that the pursuit of radical, value-creating innovation does not get neglected as they pull back reflexively toward the 'ordered regime'.

As Charles Simeon, a pastor at Cambridge University in the 18th century, profoundly observed, "The truth is not in the middle, and not in one extreme, but in both extremes." The same could be said of operational efficiency and innovation. Now more than ever, organizations need to learn how to operate equally well at both extremes - they need to be both highly innovative and highly efficient at the same time. In a value-based economy, companies must be able to continually dream up products and services their customers wouldn't want to live without, yet they must simultaneously have the capacity to deliver those things with brutal efficiency.

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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.

Are You Playing Offense or Defense?

Interview - Bill George of "7 Lessons for Leading in Crisis"


I had the opportunity to meet Bill George at the World business Forum and later interview him. He is the author of "7 Lessons for Leading in Crisis", and a professor of management practice at Harvard Business School, where he has taught leadership since 2004. Bill George is the author of three other best-selling books, and the former Chairman and Chief Executive Officer of Medtronic. I interviewed him about social media, the recession, offense vs. defense, leadership, and needs of the innovation workforce.

Here is the text from the interview:


1. Do you think that CEO's and other corporate leaders should be participating in the social media conversation on Twitter?

I actually wrote a blog on this very subject last month (Extra, Extra, Tweet All About It). Just as it's important for CEOs to read the newspaper and watch TV to remain current with customers and trends, it is equally important for CEOs to participate in social media, particularly Twitter. In no other forum can you be the spokes of a potentially very large, real-time communication wheel - this can be very useful in assessing one's standing in the marketplace. On Twitter, CEOs can have unfiltered access to customer opinion, engage with customers and other CEOs, respond to questions, and further build their personal brand and promote their company.

However, there is one caveat every CEO should keep in mind: You cannot join Twitter just to say that you are "on Twitter." From my limited experience (I've been on since August), I've learned that engagement is crucial to getting the true informational and relational benefit of the service. If you don't devote sufficient time and energy, others will see right through you and the entire operation will be a waste of time. The long and short of it is: The world of social media is the new marketing and communication standard. CEOs would be wise to keep pace.


2. Any tips for people having trouble facing their reality?

Be open to criticism. In fact, go looking for it. If you are truly having difficulty facing your reality, ask your support network - your internal management team, your family, your friends - to help face it with you. "Facing reality, starting with yourself" is the first step in my latest book "7 lessons for Leading in Crisis", and I find that this step is the most difficult, particularly for veteran leaders with well-defined egos and track records of success.

A good rule of thumb for any leader: Whenever your company falls into the depths of crisis, automatically acknowledge partial fault or involvement. This is because under every conceivable circumstance, as the leader you had a hand in a creating the crisis. This does not mean accepting all the blame and putting the weight of the world on your shoulders, it's just a good starting point. Concede the need for improvement, and that mindset will aid in your finding exactly where you fell short, and what your reality looks like.


3. How do you help your organization see that it is time to switch from defense to offense?

When you notice that your competitors are going on defense! One of the worst things you can do in a crisis is hunker down and ride out the storm. And that is the tendency for many companies - they sit idly by, and wait for the "norm" to come return. Meanwhile, the market landscape is adapting to new consumer wants and industry needs. When you see your competitors sidle off and play defense, that's when your organization needs to go on offense. But don’t be a bull in a china shop - be measured and precise in your moves.


4. Any tips for people who feel their company is wasting a good crisis?

Yes - don't let it continue! Crises present rare opportunities for companies to reinvent as there is typically less internal resistance to change if employees believe it will have positive impact. For those leaders who fear their company is in fact wasting the crisis, I would recommend they pull an about face, communicate their concerns, and work the problem from scratch with their management teams. Leaders need to dig deep and prepare for the long haul if they want to be effective in crisis-time, and that begins with open communication internally and an on-the-offensive approach to solutions.


5. What traits do you believe managers need to acquire to succeed in an innovation-led organization?

Open-mindedness, trust, vigilance, and determination. You must be open to outside-the-box thinkers. Plenty of people claim to have that mindset, but many are unnerved by truly original innovation as it may seem foreign to the point of being impractical. However, a handheld phone-mp3-computer seemed impractical (and impossible) 10 years ago, but now we have the iPhone. Trust is also key. You have to trust your teams to work effectively and create good ideas. There is a requisite need to delegate some control. It's the only way truly creative people create. At the same time, however, leaders are in charge - they must be vigilant and active in the innovation process. Leaders cannot be timid in voicing skepticism or input. Finally, one must be determined. Seldom does an idea work the first time around. Leaders have to be determined to see a great idea through to the end. In fact, what makes it a great idea is that it has been put through the wringer and improved.


In the future, I hope to bring you a review of "7 Lessons for Leading in Crisis" and right now you can enter to win one of three signed copies of this book in our October Innovation Contest.

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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.

When Innovation Goes Wrong

by Rowan Gibson

Ever since innovation became the buzzword du Jour, a lot of people seem to have lost their ability to tell smart ideas from stupid ones. Case in point: the financial "innovations" (read: stunningly stupid loan products) that kicked off the trillion-dollar economic meltdown mess we're currently in. The simplistic notion that "new equals good" has often been a recipe for grand-scale disaster, just as it was in the dotcom debacle at the turn of the millennium. And when the doo-doo inevitably hits the fan, it's all too easy to level the blame at innovation per se rather than admit to being a bonehead. Here's why many ideas that are labeled "innovations" are just plain stupidity.

Simply put, innovation goes wrong (sometimes big time) when an organization over-commits to an idea before validating the key assumptions on which it is based. Let's take the infamous sub-prime mortgage. The assumption here was that a jobless, homeless person who is just out of jail and doesn't even have a bank account can afford to make mortgage repayments of any description, let alone horrendously overpriced ones.

The idea of selling mortgages to poor people with bad credit was clearly "new" given that banks have traditionally offered 30-year, fixed-rate amortizing home loans to people who looked like they could actually pay the money back. But going after this risky, low-end market segment with a ripoff financial product wasn't exactly what C.K. Prahalad had in mind when he talked about "the fortune at the bottom of the pyramid". And it turns out - duh! - that this particular "financial innovation" wasn't a very smart one (to put it mildly), and even less smart when used as the cornerstone for a multitrillion dollar house-of-cards based on endless derivatives of derivatives.


"Innovation can never be risk-free, but you can certainly make sure you look before you leap."


It's precisely big boondoggles like this one that give innovation a bad name. In fact, columnist Paul Krugman wrote in the New York Times that "financial innovation" is a phase that "should, from now on, strike fear into investors' hearts." Yet should the financial services industry - or any industry for that matter - now decide to "throw the baby out with the bathwater" when it comes to innovation? Absolutely not. It's worth remembering that over the last couple of decades, innovation has given us a string of success stories in financial services: Charles Schwab's online equity trading, Commerce Bank's open-all-day, seven-days-aweek business model, First Direct's branchless banking, Grameen Bank's micro-credit lending concept, PayPal's user-friendly, online-payment service, or Umpqua Bank's people-centered retail environments, to name just a few. The difference with these opportunities is that they were all based on very solid assumptions about the viability and sustainability of the business model; they were not built on proverbial sand. That's why these innovations have created significant new value and wealth, instead of destroying it.

Unfortunately, there are all too many cases where companies have overcommitted to an idea that wouldn't even pass the sanity test. These tend to be ideas where the customer benefit is unclear or unimportant to people, or where the technology is not yet up to the task, or where the market is just not there, or where the business model is so stupid that it's dead on arrival. Instead of first checking the validity of critical assumptions on which the idea is based, sometimes a company (or even a whole industry) decides to jump from 10,000 feet without a spare parachute, hoping against hope that the thing will somehow work.

Take Iridium, Motorola's failed satellite telephone venture, which was built on a fundamentally flawed assumption about the size of the target market. Basically, Motorola totally underestimated the speed at which cellular coverage would spread. Their premise was that there would be huge regional gaps in the global network - parts of the world that would have no mobile phone coverage for a long time to come. That would have made Iridium the perfect answer. It turned out quite quickly that those regions would be very few and far between (you would practically have to be an Arctic explorer to need an Iridium phone!), so the target market soon shrank to insignificance. This is something Motorola should have known better.

Or take Webvan, the "oh-so-dotcom" online grocery business that burned through a billion dollars and went belly-up. There was nothing fundamentally flawed about the idea of online grocery shopping, as a host of other retailers have since proven. Rather, Webvan's massive failure was based on a whole series of flawed and untested assumptions around the customer value proposition, the economic engine, the value of partnerships, and the product and service offering.

Business history is full of such examples: from Coca-cola's infamous "New Coke", to GM's all-electric EV-1 project (which cost a billion dollars and sold only 700 vehicles), to all those other empty dot-com business models in the late 1990s - like Pets.com - that quickly disappeared. The lesson from all these disasters is to look before you leap. A company should first reduce the uncertainty surrounding critical project assumptions before committing irreversible and non-recoverable resources to an idea. The greater the uncertainty surrounding these assumptions, the greater the risk associated with any new opportunity. Therefore, the focus of an innovation project should initially be on learning rather than earning. It should be on launching experiments to test whether a business model makes sense or not, or whether a new technology will work or not, or whether customers would value the new service, or what they would be willing to pay for it, or which product configuration would work best, or which distribution channels would be most effective, and so on.

Clearly, innovation can never be risk-free. But the process of validating or invalidating these critical project assumptions should stop you from ever completely misreading the basic economics of an opportunity. It will make sure that hubris never gets the better of humility.

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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.

Smart 'R' Us?

by Steve McKee

Toys 'R' Us has faced its share of difficulties over the past several years. The company has had to contend with the likes not only of traditional competitors including Sears, KB Toys and FAO Schwarz, but bricks-and-mortar bruisers like Target and Walmart and Web behemoth Amazon. Not so long ago the company faced what appeared to be an existential threat from a very-well funded (and heavily advertised) "new economy" competitor, an online startup called eToys. There was a period when I thought Toys 'R' Us not only had seen its better days, but would have very few days left.

My how times have changed. Toys 'R' Us now owns--that's right, owns--the FAO Schwarz, eToys and KB Toys brands. And in a gutsy move that runs counter to the loss of nerve by which most retailers are still being tripped up, the company, which has fewer than 850 stores, will launch an additional 350 temporary locations during the upcoming holiday season. That means more rent, more people, more inventory, and more risk. It also means significant potential to gain market share.

In a Wall Street Journal interview, Toys 'R' Us CEO Gerald Storch said about the decision, "The current economic disruption provides an opportunity. The people who made their fortunes during the Great Depression where those that moved when everyone else was pulling back."

He's right, of course. The same Wall Street Journal article cites a CIT Group study which suggests that two thirds of retailers plan on hunkering down during the upcoming holiday season. While they make their toys easier to buy (with bigger discounts) but harder to find ( by stocking less inventory), Toys 'R' Us is positioning itself to be in the right place at the right time as harried shoppers look to cross items off their list (given the category, often impulsively). That will help the company not only pick up share, but protect its margins.

Rather than sitting around, wringing its hands about another potentially difficult holiday season, the Toys 'R' Us team has decided that disruptive times often call for disruptive measures. I predict their stockings will be full this year.

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Steve McKee is a BusinessWeek.com columnist, marketing consultant, and author of "When Growth Stalls: How it Happens, Why You're Stuck, and What To Do About It." Learn more about him at www.WhenGrowthStalls.com and at http://twitter.com/whengrowthstall.

Visual Explanation of the Crisis of Credit

Here is a great visual explanation of the crisis of credit from Jonathan Jarvis. Apparently, he created it as part of his thesis work in the Media Design Program at the Art Center College of Design in Pasadena.

Enjoy!


The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

What do you think?

@innovate