Speed vs Strategy

by Steve McKee

Cristobal Conde is CEO of SunGard, a leading global software and IT company. In an interview with the Wall Street Journal, Conde was asked what has been the best move he's made during the downturn. He answered, "We could have generated more earnings by having more layoffs. We wanted to protect R&D. We wanted products ready to go at the end of the cycle. I saw a huge competitive opportunity to protect programmers when others weren't."

Conde's perspective is smart, but rare. Our research shows that most companies overreact to a downturn and cut not just fat, but muscle. If they go beyond what's absolutely necessary, that can easily compromise their future. Conde turns the fear on its ear by asking his employees "What is it you need to do now so you will remember the crisis as a gift?"

Chilean by birth, Conde has developed a taste for a uniquely American institution: NASCAR. Perhaps it's because he sees in racing similar patterns to those of business. "Going into the crisis is not that different from going into a turn," he says. "You slam on the brakes. In the turn, the most important thing is your position relative to other cars. I've been telling people, 'Focus on our relative market shares rather than overall volumes you can't control. What are we doing to improve our position?' After the turn, you take that better position."

Conde can't guarantee that SunGard will come out of the recession a winner, just as even the best NASCAR drivers don't know when they'll cross the finish line first and when they'll come up short. But races are decided by the strategy of the driver as much as the speed of the car.

Drive smart.


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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.

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.

Elevating HR to Drive Innovation

by Rowan Gibson

It's every employee's nightmare in recessionary times: finding a "pink slip" in the pay envelope, or getting a fateful phone call from HR. Over five million workers in America have had that gut-wrenching experience since the economy hit a wall in 2007. And this year the global layoff tsunami will claim millions more jobs worldwide. So I imagine that, right now, a lot of HR Directors are feeling about as popular as bird flu. But they need to take heart. Even in the midst of the worst economic woes for several decades, a new day is dawning for Human Resources. It's the day that HR finally gets the strategic recognition it deserves; the day that HR steps up from a mundane back-office function to play a center stage role.

My friend, Dave Ulrich, professor of business at the University of Michigan, has long argued that HR leaders should assume a more vital, strategic role inside their companies. Rather than merely busying themselves with everyday stuff like policies, payroll, and picnics, Ulrich says that HR professionals should be striving to build and strengthen the unique set of organizational capabilities that give a company its competitive advantage. In essence, that means developing a particular mix of resources, processes and values that makes it hard for rivals to match what the company does.

Sounds good in theory. But before the HR department starts packing boxes and moving upstairs, we should first give some serious thought to exactly which organizational capabilities today's companies should be building. Let's face it, most traditional forms of competitiveness - cost, service, technology, distribution, manufacturing, product design - can now be quite easily copied. Sure, these variables may still provide a company with a temporary head start, but over time they no longer offer the basis for a sustainable competitive advantage. So what do we have left? The answer, in a word, is radical innovation. As my colleague Gary Hamel puts it in "The Future of Management":


"In a world where strategy life cycles are shrinking, innovation is the only way a company can renew its lease on success."


What we're finding out in today's value-based economy is that radical, game-changing innovation is literally the only strategic weapon we have left, in the sense that it's the only capability that can create value for customers in a way that is difficult for competitors to imitate.

That's why innovation is now such a major strategic priority for every company on earth, not to mention national and even regional governments. But it's also where the real problem starts. Because, until now, very few organizations in either the private or the public sector have managed to turn innovation from a buzzword into a core competence - a wall-to-wall, top-to-bottom enterprise capability. Most of them wouldn’t even know where to start - or, indeed, how to sequence - the capability-building process.

As I have written before in this column, making innovation a systemic organizational capability is a complex and multifaceted challenge. It simply cannot be solved with some Band-Aid or silver bullet. Instead, it requires deep and enduring changes to leadership focus, performance metrics, organization charts, management processes, IT systems, training programs, incentive and reward structures, cultural environment and values. All of these elements need to come together and mutually reinforce each other as a system in order to institutionalize innovation. Otherwise, a company's efforts to make "all-the-time, everywhere" innovation happen will be doomed.

What companies need is not merely a pro-innovation mindset, or better brainstorming techniques, or "hot teams". The challenge is not about quickly coming up with a few new products or services to get the sales curve moving upward. It's about making innovation a new organizational way of life; something that permeates everything a company does, in every corner of its business, every single day. It's about infusing the entire lifeblood of an organization with the tools, skills, methods and processes of radical innovation.

That's the true imperative for rethinking the role of Human Resources. As soon as we recognize the strategic value and the immense organizational transition that's involved in building a corporate-wide innovation capability, HR automatically moves to center stage.

Who else but HR leaders would be capable of turning a company's strategic intent with regard to innovation into tangible everyday action? Who else could make the necessary changes to executive roles and goals, political infrastructures, recruitment strategy, broad-based training, performance appraisals, awards and incentives, employee contribution and commitment, value systems, and so on? Who else could build and foster the cultural and constitutional conditions - such as a discretionary time allowance for innovation projects, maximum diversity in the composition of innovation teams, and rampant connection and conversation across the organization - that serve as catalysts for breakthrough innovation? Who else could ensure that each employee understands the link between his or her own performance (as well as compensation) and the attainment of the company's innovation strategy? In short, who else but HR leaders could create a company where everyone, everywhere, is responsible for innovation every day—whether as an innovator, mentor, manager, or team member?

The sad reality is that too many CEOs overlook HR's potential in this regard. They still think of HR solely in terms of regulatory compliance, hiring and firing, employee comfort, compensation and benefits. Notably, Jack Welch, illustrious ex-CEO of GE and arguably one of the greatest corporate leaders of our times, sees things differently. In a recent column in BusinessWeek, he writes that "every CEO should elevate his head of HR to the same stature as the CFO." I couldn't agree more. It's time for HR to step up to the plate and take on the strategic role of innovation capability builder.

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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.

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.

Can Innovation Create Competitive Advantage?

by Jeffrey Phillips

Over the last six or seven years, definitely since about 2003 or 2004, there has been an increased focus on innovation in many businesses. I think much of this was driven by several factors, including an increased rate of change in competition, especially the growing capabilities of India and China. I also think that information costs have fallen as the web has become more fully adopted, and consumers are demanding more. Finally, I think the focus on cost-cutting and outsourcing is reaching it's logical conclusion. Most of the things that could be cut, trimmed or outsourced have been. Many businesses in the US are relatively lean, and need to return to growth and differentiation.

All of these factors contribute to the need for innovation. However, there are a lot of trends that suggest innovation is important in the near future as well. The focus on global warming means new technologies are required to reduce emissions. In the US, health care reform will mean new demands on an antiquated health care system. The US Government is straining to provide services that the population expects and demands. The banking sector is ripe for change and disruption. All of these factors suggest a significant amount of change is in store for our government and for major businesses.

None of this is going unnoticed in the hallowed halls of major corporations. Booz and Company has just released its yearly Innovation survey, and more than ever, innovation is moving from an interesting sideshow in most organizations. Now, innovation is being recognized as offering a competitive advantage, perhaps one of the few sustainable advantages, and CEOs and executives are taking note. The survey points out that over 90% of the executives surveyed said innovation was critical to the success of their firms as they prepared for the market and economy to improve. One executive went so far as to say "the recession was a catalyst for increased innovation".

Booz and Company listed three reasons why they felt companies have continued to invest in innovation during the economic downturn:

1. Innovation is becoming a core component of overall corporate strategy


2. Recognition that product development cycles are longer than recessionary periods


3. Many see the recession as an opportunity to build advantages over their
   competitors

One of the biggest impediments to innovation continues to be the "constraints of the product development lifecycle". The product development life cycle in many industries is simply too long and too cumbersome, and any opportunity to shorten the development life cycle could mean real rewards. Conversely, any slacking off could mean falling behind the competition.

My take: Innovation is gradually moving from an occasionally interesting sideshow that is not focused and not strategic, to becoming a key focus of senior executives as they realize that only innovation can help the firm continually grow and differentiate. Innovation is rapidly becoming a capability or enabler that strengthens and focuses the corporate strategies, and should over time become a key enabler to many corporate goals and strategies. Once more firms create a continuous capability for innovation and modify their cultures to embrace innovation, then we'll see the real transition occur. It is heartening to see that more and more firms are placing more emphasis on innovation at a strategic level.

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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.

Optimizing Innovation - Panel Discussion

by Braden Kelley

We are happy to bring you some of the key points and insights from a panel discussion at the Optimizing Innovation Conference, which was held October 21-22, 2009 in New York City.

The panel topic was "Successfully Innovating in the Current Economy". The panelists were Robert Repetto (Wyeth Biotech), Halina Karachuck (AXA Equitable), Randy Calson (Diageo), and Karen Morris (Chartis Insurance). I will bring you key responses from the panelists by question:


Question 1 - "What challenges are you facing in the current environment?"

"We innovate around whatever the world throws at us, so events won't change our approach and how we build our model/systems/tools/etc., but what we focus on and the money we have available might change." - Robert Repetto (Wyeth Biotech)

"We are seeing resources being cut for innovation and growing risk aversion despite people "wanting" innovation." - Halina Karachuck (AXA Equitable)

"These are the best of times and the worst of times for innovation. The political and personal risk for stepping outside the status quo is now higher and people don't want to step out of their box. And at the same time, senior management time and leadership time is distracted by the economic times." - Karen Morris (Chartis Insurance)

"We have a portfolio that helps us adapt very quickly and the company was aligned to making change from ultra premium innovation focus to mainline focus. We look at an 18-24 month future, and have the benefit of a chairman that has stood up and said that innovation is a key focus - 'We will do new things to win'" - Randy Carlson (Diageo)


Question 2 - "What does innovation mean? Do employees know what it means? How is it actionable?"

"Often times the definition isn't clear. Innovation is different than having an idea. An idea is a wonderful thing and something to be proud of, but it may never come to fruition or make you any money. Innovation is taking an idea and making it real. Do we recognize the individual for the idea or the whole team that makes it happen?" - Robert Repetto (Wyeth Biotech)

"That word innovation can work against us. Everyone has a different idea of what means - from silly/fluffy brainstorming to 'oh my god are we going to have to create the next iPod? I can't do that.' - I would like to get rid of the word." - Halina Karachuck (AXA Equitable)

"One of the first things our group did was to define it - 'Innovation is the creation of new value sustainably for us and our value chain and our customers' - In retrospect 'innovation' is a burdensome definition - Instead we should focus on 'What can we do to build better relationships?' - Focusing on this will help to create value and innovation - especially in our product centric business" - Karen Morris (Chartis Insurance)

"Innovation is a separate business unit and success is measured over three years - 'A new liquid or a new package or a new combination of the two things' - a new product or new technology for existing product. One unusual example of innovation came with our failing french vodka (about to be killed) where someone suggested adding Sean Combs as a profit-sharing spokesperson and it turned around" - Randy Carlson (Diageo)


A couple of random comments:

"Much more difficult to create disruptive innovation, as it requires a whole set of different processes and systems than the incremental innovations." - Karen Morris (Chartis Insurance)

"Some people in our org think that innovation skills can be learned, while others think it is not a discipline and a waste of time." - Halina Karachuck (AXA Equitable)


Question 3 - "What about quick wins?"

"We've done ammendments to make products a little more attractive than they are currently (removing restrictions). It is currently harder to bring new market product innovations to bear, so we have started rapid prototyping and sometimes even creating hypothetical press releases for the business unit leaders with our name or the competitors name on it to spark conversations - 'Wait. We haven't got this.' - 'No, but we could.'" - Karen Morris (Chartis Insurance)

"We switched from bringing a pipeline of ideas to market to trying to focus on the culture and getting people to think more creatively, looking at our product design process. We got the green light to bring in IDEO to help us with our product design process because of the crisis. We are also looking at how we are training middle managers to feel comfortable and confident that they can be innovators even if they are only frontline-informed incremental innovations (people applied for this systematic innovation course)" - Halina Karachuck (AXA Equitable)

"We have had more success putting 3D bottles in front of executives to get them to buy-in, than presenting the fully-developed ideas in presentation form. That's not saying that we won't do all of the other justifications for the stage gate process - but just to give you an idea." - Randy Carlson (Diageo)


Question 4 - "Failure is not an option for me in the banking industry. If current business is a castle (nice, safe place), then why don't we don't innovate outside the castle?"

"Our castle is under siege. I would love to innovate outside the castle, and maybe we have one idea that might be allowed to do so in a more entrepreneurial way because it might go faster, and fast matters." - Halina Karachuck (AXA Equitable)

"There is always the challenge re-integration later, and sometimes they drown in the moat. High potential leaders may not want to participate because it removes them from visibility for a time. Insights are increasingly being described as the only source of competitive advantage." - Karen Morris (Chartis Insurance)

"Fail fast, fail small, learn, and adapt. There will be a chance of failure - limit the size of the exposure." - Randy Carlson (Diageo)

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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.

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.

Can entrepreneurs lead us out of this crisis?

by Matthew E May

I agree with Tom Hayes and Michael Malone in their belief that "Entrepreneurs Can Lead Us Out of the Crisis." Why? Because entrepreneurs have the agility, flexibility, and grit to make change happen. Innovation is the chief tool of the entrepreneur. Hayes and Malone outline about a half dozen ways the new administration can help them. And those ways are by and large subtractive, a key element of elegance.


1. Kill Sarbanes-Oxley. It's massive, expensive, and sucks needed capital.

2. Remove the shackles on tax-free retirement money, or remove taxes on accounts intended to fund new ventures. (like a 529)

3. Eliminate payroll taxes. It's a burden, and stops the creation of new jobs.

4. Lower capital gains taxes on venture capital investments in early stage startups.

5. Help big business think small to return to an entrepreneurial mindset by providing an incentive to take risk and create new jobs. There's none of that in the stimulus package for large companies.

6. Seduce entrepreneurs. How? A presidential summit like Reagan's in 1982. Obama holds sway...he needs to aim it at small business.

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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.

Time to Search for New Strategic Growth Opportunities

by Rowan Gibson

It had to happen. After several years of solid growth and blue sky thinking, we now have a big, dark cloud hanging over the global economy. So what do we do next? Many
companies are likely to put the brakes on strategic growth initiatives, reasoning that money is getting too tight to invest in innovation. It's the usual knee-jerk reaction. And it's totally counterproductive. In a stalling economy, companies need to find new opportunities for pushing up revenues, not just focus on cutting costs.

Judging by all the long faces at this year's World Economic Forum in Davos, the party is definitely over (at least for a while). I may be sticking my neck out here, but I'm not entirely sure I want to join the pessimists. In the past, the mighty U.S. economy has proven to be incredibly resilient, despite all the prophets of gloom and doom. In this decade alone, America Inc. took severe beatings from the Dotcom bubble, the 9/11 attacks, and financial scandals like the Enron meltdown, yet it came back stronger than ever.

Clearly, we experienced a significant slowdown in 2008 (and so far in 2009), but I'm far from convinced that America is the new Japan, destined to spend the next decade in the economic doldrums.

When the world's dominant economic player (the U.S. accounts for 22.5% of the global economy) starts sneezing, it's obvious that everyone else panics about catching flu. But let's not forget that, taken together, Europe and Japan also account for about 25% of the global economy. And while recent stock market turbulence indicates that decoupling from the U.S. economy is still mostly wishful thinking, there remains some hope that China, India and other developing markets can somehow continue to drive global growth, even as America stalls.

Some of the world's leading companies are already a lot less interested in the U.S. market. Take Nokia. Most of the company's revenue growth is currently coming from China, Asia Pacific, Middle-East and Africa. For the Finnish mobile phone giant, North America and even Europe represent yesterday's growth opportunities. Or consider U.S. based Yum Foods, owner of the fast food chains KFC, Pizza Hut and Taco Bell. Today, 50% of the company's profits come from overseas markets where business is booming (Yum is particularly focused on China, India and Russia), compared with U.S. sales which grew by a mere 2% in 2007.

The big question is whether these emerging economies, which are still highly dependent on exports (especially to the U.S.), can continue to grow their domestic markets if consumer spending in the West - and thus demand for their products - starts to plummet. Only time will tell.

One thing's for sure: now is not the time to start mothballing your company's innovation initiatives. Innovation is not a luxury reserved for the good times. It's the mainstay of revenue growth and company value and market share and competitive advantage, whatever the state of the economy.

Recessions aren't forever - the current slowdown is likely to last maybe three or four quarters at the most, which is nothing in product development terms. When the economy returns to growth, your company needs to be ready with innovative new offerings on the marketplace with which to attract current and future customers. If you put the brakes on innovation now, you won't be able to come out swinging once growth takes off again.

To illustrate the point, do you think for a minute that a company like Apple is going to stop innovating because the economy is in a downturn? Not on your life. As Bruce Nussbaum pointed out in his BusinessWeek article, during the last recession Apple got busy working on iTunes, iPod and its retail stores. When the economic skies cleared up, Apple took off like a rocket. By the same token, hands up if you think the Chinese are going to relax their innovation efforts while America tries to get its economic act together. I don't think so, do you?

This, then, is not the time to pull the plug on innovation. If the growth rate in your industry is slowing down, what you need now more than ever is new sources of revenue - new products, new markets, new customer segments. Otherwise you'll be faced with ever-declining revenues and profits from your existing business.

The thing to do now is engage your whole organization in the search for new strategic growth opportunities - and ways to make more out of the business you already have. This doesn't call for huge innovation budgets. One of the most inexpensive methods for generating lots of new ideas is simply to ask for them. Another is to look outside your organization, and involve suppliers, partners and even customers in the search for new, value creating opportunities. This kind of 'open innovation' is what my colleague Gary Hamel would call "innovating on the cheap".

By all means, take a careful look at your innovation investments and try to manage them just as efficiently as any other in the company. But don't let innovation become the victim of a shortsighted focus on bottom line results. Instead, continue to build and maintain your company's foundation for long term growth, which is centered on its capability to innovate.

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

How are you holding up?

by Steve McKee

Well, Labor Day is behind us, autumn is upon us, and we're about to come up on a year since the fall of Lehman Brothers.

The recession itself is almost two years old, having officially started in December, 2007. Most companies began to feel the slowdown early last year, followed by an unanticipated shockwave that rippled through the economy in September. Since that time there has been a steady drumbeat of bad news, and businesses have had to find ways to cope with and adjust to continuous uncertainty about what's going to happen next. Washington hasn't helped, taking on one of history's most consequential and divisive arguments about the role of government at a time when the economy needs rest. No one has any idea what the outcome--or the consequences--of the argument will be.

So how ya doin?

It's not a trivial question. When the story of this recession is written with the benefit of hindsight, I believe we're going to see significant analysis about the psychological effect the protracted downturn has had on corporate culture, and particularly corporate leadership. Fatigue makes cowards of us all, as the saying goes, and as business leaders we're nothing if not fatigued.

As a consultant I'm seeing an increasing amount of decisions made based on emotion, many of them ill-advised. The kindling of internal conflict is dry and dangerous, vulnerable to the slightest spark of insult or dissent. Longstanding customer relationships are weakened as tensions rise and trust declines. Managers are struggling to manage not only the financial challenges at work, but those at home as well.

There's no easy way out. There's only a way through. And we have to get through it together. The good news is that, like most things in life, recognizing the struggle is the first step towards overcoming it.

Take a minute today and reset your perspective. Determine to persevere. And offer a word of encouragement to someone you know who needs it. It might just make you feel better too.

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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.

Value versus Price

When 2008 came to a close, Nestle looked up and saw that revenues were up ten percent, fueled in part by higher prices. Procter & Gamble reports that its premium products are doing just fine, despite being priced 60 percent (Tide Total Care) or 70 percent (Clairol's Perfect 10) higher than its base brands. Pepsi is stepping up support of its Rockstar energy drink, which sells for five or six times as much per ounce (according to Beverage Digest) as regular soda. Even Gucci Group reported healthy revenue gains in 2008.

What's going on here? Aren't we experiencing the worst economy in generations? Indeed we are, but the companies above (and others) understand that their customers are making a flight to value, not merely to cheap. Sometimes value means "less expensive" (GameStop is projecting double-digit sales growth this year based on its used offerings and perception of videogaming as affordable entertainment), but value can also mean "more for your money," which, through a variety of approaches, Nestle, P&G, Pepsi and Gucci are managing to provide ($2.2 billion in R&D last year at Procter & Gamble, to cite one example.)

The easiest strategy to follow in tough times is discounting. But it can also be the most deadly. Every company should be taking a hard look at its value equation in this environment. But no company should forget that equations always have more than one variable. Providing more value for the money is almost always a better strategy than asking less money for the value.

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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.

Is Innovation Expensive?

I was asked last night how companies could afford to allocate scarce resources to innovation in these unprecedented times. When every extraneous expenditure is cut back to preserve cash flow how can it be justified to lavish money on experiments that might fail?

You do not get innovation for free - you have to allocate time, money and people to the search for new products, services, methods etc. However, innovation can lead to powerful cost savings, profitable new products and competitive advantage. Indeed right now the main benefit of innovation might be survival. If you just cut costs and don't innovate you will be bypassed in the market by more agile competitors.

There are inexpensive ways to achieve innovation. Let's divide activities into three categories.

1. It costs virtually nothing to:

• Communicate a vision of innovation


• Set goals and objectives for ideas, prototypes and innovations


• Ask your people for ideas


• Ask customers for ideas


• Ask suppliers for ideas

2. It costs very little to:

• Run brainstorm meetings


• Set up an intranet based suggestion scheme


• Evaluate and select the best ideas


• Build models and prototypes


• Ask customers to evaluate your prototype products or services


• Implement small incremental innovations in your products, services and methods


• Empower people to try more initiatives in their areas


• Investigate new collaborations and partnerships

3. It costs a lot of money to:

• Roll out major new products or services


• Try an entirely new business model


• Re-engineer your IT systems

So you should do a lot of items from Category 1. Generate many ideas from all sources - it costs very little.

You should do a few things from Category 2. Definitely move the best ideas to the prototype stage and evaluate them (but kill them if necessary).

You should think carefully about items from Category 3, but be prepared to allocate some of your scarce resource in this area.

Innovation involves making bets. Often these bets fail. But you have to stay in the game and keep making small bets until one or more come off. Innovation is not free, but it can be done on slender means if you adopt this kind of approach.

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Paul Sloane writes, speaks and leads workshops on creativity, innovation and leadership. He is the author of The Innovative Leader published by Kogan-Page.

When Innovation Fails

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

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.

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-a-week business model


• First Direct's branchless banking


• Grameen Bank's micro-credit lending concept


• PayPal's user-friendly, online-payment service


• Umpqua Bank's people-centered retail environments

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

Innovation Conversations with Scott Anthony

I had the opportunity recently to interview Scott Anthony, President of Innosight and the author of "The Silver Lining" about a variety of innovation topics including: 'The Great Disruption', barriers to innovation, education, leadership, and commodity businesses.

Here is the text from the interview:

1. What is the biggest challenge that companies face in the Great Disruption?

I think the biggest challenge facing companies is an unwillingness to let go of the past. Companies have to come to grips with the fact that what made them great in the past will not make them great in the future. That doesn't mean they have to completely walk away from their heritage. But they to constantly question the status quo, think about the businesses they are not in that they should be, and be willing to walk away from businesses before they need to. It's a tough challenge.

2. What stands in the way of many companies being able to deliver new innovations to market?

Well, I think it is important to note that companies don't struggle with all types of innovations. Most companies excel at managing innovations that extend their core business. They struggle with innovations that run counter to their existing way of operating. Then, the greatest enemy lies within. We call it "the sucking sound of the core." A company's core systems and structures "want" an innovation to conform to what a company has done before, not what is necessary for success. The sucking sound makes innovation slow and complicated. To break the sucking sound of the core, companies need to make sure they have a "safe space" for innovation, and that senior leaders actively step in to break standard operating procedures when required.

3. If you were to change one thing about our educational system to better prepare students to contribute in the workforce of the Great Disruption, what would it be?

The one thing I would want to see students trained in is non-linear thinking. The era of optimization is over. We are in an era of constant creative destruction. Students need to learn how to find the non-obvious insight and to imagine possibilities that don't yet exist. I worry that an increased focus on standardized tests runs counter to the needs increasingly facing companies.

4. What skills do you believe that managers need to acquire to succeed in the Great Disruption?

The basic problem facing many managers is they are being asked to solve problems they have never faced before. You see, it used to be possible to have a productive 40-year career being an operator that did a great job executing a solidly formulated strategy. Today's leaders have to be great operators and great innovators. They have to pass that old F. Scott Fitzgerald test of holding two opposed ideas in the mind at the same time, while still retaining the ability to function. In simple terms, managers have to learn how to find the "and." Disciplined and creative. Love big businesses and small businesses. And so on.

5. What advice do you have for companies that are already loving the low end in a commodity business?

Companies that are already loving the low-end should think about innovative ways to extend and grow their business. One way to do so is to add on additional offerings that help customers solve additional problems they are facing in their lives. This could be a new feature, it could be a service. Another approach is to see if there are other markets where they can bring their low-cost acumen. A low-cost business model is a powerful weapon that companies can deploy in multiple markets.


As a special bonus, here is a video of Scott Anthony being interviewed about "The Silver Lining" by Business Innovation Factory's Chris Flanagan:





My book review of "The Silver Lining" can be found here.

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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.

Book Review - "The Silver Lining" by Scott Anthony

A couple of weeks ago I received "The Silver Lining" by Scott Anthony in the mail. "The Silver Lining" is a relatively short, easy, and pleasant read. Scott introduces several different concepts in the book in addition to the main thesis - which seems to be that companies must prune their innovation portfolios, refeature their products to meet ever-changing customer requirements, and re-tool their organizations to better deal with the constant change that is becoming the norm in the world today.

The first concept that Scott introduces is a term to refer to the current economic dis-equilibrium - 'The Great Disruption' - and the rapid change that organizations face. Here is a great quote from the first chapter:

• "The biggest silver lining for innovation is that the scarcity that is sure to result from the current economic climate is actually a good thing for innovation. Abundance is actually the root cause of many corporate struggles with innovation."

Another key focus of the book is detailing the importance of pruning your innovation portfolio. This a great analogy for re-evaluating your innovation investments, as often in cutting back selected branches you make the overall plant or tree healthier and allow it to grow stronger upwards. With innovation portfolios it is the same. Often many organizations allow too many projects to continue consuming resources that should really be 'pruned' so that those project resources can be re-deployed to help the remaining projects become more successful and complete faster.

At the same time, Scott Anthony makes the point that opportunities may exist for organizations to refeature products in ways that both reduces costs and increases sales. Pursuing this strategy can also reduce options available to potential disruptive competitors seeking to enter the market.

Smart companies will also use 'The Great Disruption' as an opportunity to re-tool their innovation capabilities and processes while also utilizing their potentially reduced innovation budget to conduct smart strategic experiments that could include exploring open innovation or low end opportunities ('learning to love the low end').

After describing how to love the low end (which is very similar to how companies should approach any disruptive innovation), Scott Anthony concludes the book with his thoughts on personal reinvention and his views on what's next for innovation.

Another favorite quote from the book (which I've heard elsewhere) suggests that you should staff up a disruptive innovation project or a strategic experiment with the best people you can find for each element (not the people that have been successful in the mainline business):

• "Good entrepreneurs don't take risk, they manage risk."

Overall, Scott makes some good points about pruning the innovation portfolio, retooling the organization for better innovation success, and addressing the low end of the market that make the book a worthwhile read.


My interview with "The Silver Lining" author Scott Anthony can be found here.

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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.

Crisis or Opportunity?

No one in their right mind would suggest that an economic collapse was just what we needed, but sometimes, tough times do throw up opportunities we don't hear when the bulls are roaring. I remember back in the 1970s, New York was a very different city to the one we know now. It had a gritty edge and the sense that anything could happen if you stepped beyond the lights. As the economy of the city collapsed and bankruptcy loomed, businesses folded or moved on to more congenial locations, leaving behind vast tracts of abandoned buildings and empty store fronts. One by one they were reoccupied, and very often by artists.

Downtown, the Bowery and SoHo exploded in a buzz of creativity. The subway, if you had the nerve to go down there, was a living gallery of graffiti art featuring the poignantly funny chalk drawings of Keith Haring on blacked out notice boards. As each train roared into the station, it was like watching a rainbow rocket past. Above ground, artists like Haring took advantage of empty stores and cheap rents to start their own enterprises. Haring called his the Pop Shop and it gave me the same charge of energy and enthusiasm I had seen and lived with in 1960s London.

I am certain we will see this same spirit blossom in the present crisis. One person's empty space is someone else's chance of a lifetime. This is certainly happening in London, a city that has been savagely hit by the current downturn. A number of artists have grabbed at empty shop fronts to create temporary exhibitions. It's the pop-up store concept in a different guise - opinionated, focused, passionate, committed. It's also an opportunity for local Councils to return some space to creative people to use as studios, sound recording suites, and practice rooms. Good times have the unfortunate effect of squeezing these essential creative resources out of the centre of cities. Let's welcome them back. Our ability to see opportunity rather than threat, and work to our strengths rather than succumb to our weaknesses is the way to get through these tough times. Best of all, it will inspire into the optimism we need to sustain us on the other side that we call the future.

Photo credit: Keith Haring's Pop Shop, New York, circa 1986. Photograph by Charles Golfi Michels.

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Kevin Roberts is the CEO worldwide of The Lovemarks Company, Saatchi & Saatchi. For more information on Kevin, please go to www.saatchikevin.com. To see this blog at its original source, please go to www.krconnect.blogspot.com.

Beyond the crisis, mindboggling science and the arrival of Homo Evolutis

Here is an interesting video of Juan Enriquez, Futurist, speaking about some of the startling things he sees in our future as innovations in robotics and the life sciences collide with our country's current financial situation.

Will our current innovation trajectory create a new hominid species capable of controlling its own evolution?

Check it out:



What do you think?

@innovate

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

My Hopes and Fears of the Black Swan

Last week I came across an interview with Nassim Taleb, author of "The Black Swan." Mr. Taleb went on to talk briefly about the main thesis of the book - that every so often events come along that change our vocabulary and our way of thinking about the world around us. The example given, related to the title of the book, was that people in England used to sometimes say "I'm as likely to see that happen as to see a black swan." That of course was before the discovery of Australia, and before the discovery of - black swans. The point being that people always seek to explain the world around them using the past as a guide, but "black swans" always come along that don't fit people's previous understanding of the world.

The author then went on to talk about how he saw the financial crisis coming, and how beginning in about 2006 he started advising everyone close to him to move everything into cash. Living in Silicon Valley back in 2001, I saw the stock market and housing and consumer debt bubbles all forming, but I wrongly assumed that when the stock market bubble burst that the housing and consumer credit bubbles would also pop. We now know of course that they didn't and instead actually got bigger thanks to the acceleration of mortgage securitization and risky lending. This time however, the real estate bubble's explosion has of course popped the stock market and consumer debt bubbles.

Now of course, every economist and stock picker out there is seeking to explain the current situation using the past as a guide and the government is seeking to avoid the "mistakes" of the past. You have people calling a bottom in real estate, you have people calling a bottom in the stock market, and you have a few people saying the stock market will go down another 20-30%.

The truth is, this is a black swan.

Nobody has ever seen a residential real estate bubble, a stock bubble, and a consumer credit bubble all pop at the same time. One bubble not included in the list, but about to be added is the popping of the commercial real estate bubble. Because all of these bubbles have never all popped at the same time with the financial markets seizing up for good measure, nobody can really tell you what is going to happen next. I won't endeavor to either. But I will share with you my top five hopes and fears.

Hopes:

1. Things will bottom and the huge amount of money sitting on the sidelines in treasuries and money market funds will move back out into stocks and bonds and help to avoid some of the layoffs that would otherwise occur


2. The actions of the fed will be sufficient to keep the capital markets functioning


3. The stimulus package of Barack Obama and Congress will not result in a pork explosion and will help to set a floor to the downturn


4. The government will actually make money on its rescue efforts and the dollar won't collapse under the weight of all this new debt (meaning China and others won't dump dollars)


5. Private industry working with the Obama administration and state/local governments can help to spur the country into a leadership role in the next wave of global innovation

Fears:

1. Consumer spending will hold up better than expected in this holiday season and everyone will get all excited and the market will rally, only to realize that it was one last big debt-fueled hurrah and personal bankruptcies will surge in the first quarter (January-March)


2. Housing foreclosures which dropped in November will also remain relatively tame in December as people seek to be home for the holidays, only to see home foreclosures spike in the first quarter (January-March)


3. As retailers accelerate store closures in the first quarter and commercial real estate companies come under pressure, it will spark another round of trouble in the financial services sector and the credit markets may seize up again


4. Companies that have a heart and chose not to lay people off right before the holidays, will finally succumb and turn loose an avalanche of layoffs in the first quarter, making credit card and mortgage default problems even worse


5. The pent up aggression that we have seen erupt in places like Greece may erupt here if things get substantially worse

What are your hopes and fears?

@innovate