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Monday, April 19, 2010

A Tribute to CK Prahalad

by Rowan Gibson

CK PrahaladOf all the management 'gurus' I have met and worked with, CK Prahalad will always stand tall. His sad and sudden departure a few days ago has robbed the world not only of a great mind, but also of a great heart. I bid him farewell.

CK and I first joined forces in 1995, when I was writing the manuscript for "Rethinking The Future." Our conversations back then taught me a great deal about strategic renewal - the capacity to maintain continuity by constantly creating new sources of profit. In fact, this principle went on to become a cornerstone of my work in the field of business innovation. I therefore feel I owe it to CK to repeat some of those strategy lessons here by way of a tribute. Think of the following words (which are CK's own) as a last lecture - a legacy - from a true intellectual giant:

"With the tremendous turbulence and the speed with which industries are changing today, you can't just sit around and wait. While high levels of profits from existing businesses are a must, companies need to be reinvesting in a consistent fashion to create new businesses, and new products, and to shape the pattern of market evolution. They need to imagine new markets for tomorrow, and to build new core competencies that will give them an advantage in those markets. So it's about creating a virtuous cycle in the organization, where you are continuously increasing the capacity for leverage and profitability within existing businesses, but you are also continuously redeploying resources to invent new sources of profit - new strategic growth opportunities.

Senior managers should therefore be spending less time looking inward and backward, and more time looking outward and forward. They need to be thinking about the implications of new trends and technologies, and about how their industries might be different in five or ten years. Of course, operational issues are important and legitimate - how to reduce overheads, how to respond to a competitor's last move, how to improve quality or reduce cycle time - but unless you are growing new markets, new businesses, new sources of profit, you will find yourself on a treadmill, always trying to improve the ever-declining margins and profits from yesterday's businesses.

It's not enough to imagine the future - you also have to build it. Many companies have had incredible industry foresight, but they lacked the capacity to execute it. Xerox has probably had more technology, and yet missed more opportunities, than any other high-tech company. In order to build the kind of future business which you have imagined, you need to develop this capacity for execution. You need to make a strategic blueprint for turning the dream into reality - a link between the present and the future. You need to carefully work out which new competencies you should be building, which new customer groups you should be trying to understand, which new distribution channels you should be exploring, in order to create a winning position for yourself in a new opportunity arena.

Two things seem to characterize most of the companies that succeed in capturing future opportunities. First, they have aspirations which lie outside the resource base of the company, and they manage to stretch and enlarge their resources in order to succeed in this new market. Second, successful companies have come to a view of the future that provides a sense of direction, a sense of common purpose, a sense of destiny, a single-minded and inspiring challenge which commands the respect and the allegiance of every person in the organization. The role of senior management is to make sure that the company develops this broad aspiration, and in addition that it is clearly articulated, understood and continuously reinterpreted. Every two or three years, management should again interpret its aspiration and say, 'This is what it means to us in the next two years', so the challenge is always renewed but the overall strategic intent remains consistent.

A company must also learn to look at itself as a portfolio of competencies, of underlying strengths, and not just as a portfolio of business units. Business units are focused on products and markets, whereas core competencies are focused on customer benefits, such as Apple's 'user-friendliness'. Organizations should identify their core competencies and ask themselves what strengths they could leverage in new ways as they move into the future, and what they could do that other companies might find difficult.

Companies are going to have to unlearn a lot of their past - and also to forget it! The future will not be an extrapolation of the past. Like a space rocket on the way to the moon, a company has to be willing to jettison the parts of its past which no longer contain fuel for the journey and which are becoming, in effect, excess baggage. That is particularly difficult for senior managers - those who actually built the past, and who still have a lot of emotional equity invested in it. If you want to escape the gravitational pull of the past, you have to be willing to challenge your own orthodoxies, to regenerate your core strategies and rethink your most fundamental assumptions about how you are going to compete. Most often it takes a crisis before a company is willing to do that. It takes a sense of urgency, a sense that the company's future success is not inevitable.

Of course, to create the future you do not have to abandon all of your past. There is a need for selectivity. But essentially, the success recipes from your past may no longer be the success recipes for your future. For example, quality was a source of competitive advantage in the past. That is where the efforts of many companies have been focused. But quality is now merely the price of market entry, so there is a need to move on. The most important source of competitive advantage for the future is the capacity to create fundamentally new products and businesses.

With new product development costs escalating, if you want an appropriate return on your investment, you have to develop products for a global market. In other words, you have to get access to critical channels of distribution around the globe and then quickly drive the new product to the market in as many of these countries as possible. In other words, the issue becomes not just time to market but time to global preemption. Ed Artzt, former Chairman of P&G, put it this way: 'If we don't do it early on globally, someone else will.' Ultimately, the race to the future becomes a mad dash to the finish line.

Go back and look at the Fortune 500 or the Fortune 100 over the last 50 years, and ask yourself how many companies have disappeared from the list, and what the survivors do to stay in that league. You will find that they are continually looking forward, not backward. They are continually changing the rules of competition, rather than following the accepted rules. They are regularly defining new ways of doing business, pioneering new product concepts, building new core competencies, creating new markets, setting new standards and challenging their own assumptions. They are taking control of their future. You can't do that if you are not willing to change and to move from where you are today. The opportunities are out there for everyone, but capturing new business opportunities is like shooting flying ducks - you can't do it with fixed gun positions."

Since CK first spoke those words to me over one and half decades ago (and they are just as relevant today as they were then), my respect and admiration for his insights has only grown. After his seminal HBR article The Core Competence of the Corporation, and the incredible global success of "Competing For The Future", co-authored with Gary Hamel, he went on to pioneer the concept of "co-creation" with an organization's customers in "The future of Competition". But the crown of his achievements was undoubtedly "The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits", which was both brilliant and humanitarian. With this masterstroke, he changed forever the way global corporations view emerging markets, and helped improve quality of life for countless underprivileged people, particularly in his homeland, India.

I will remember CK Prahalad as a man who made our world a richer place, not just in terms of business knowledge, or in terms of company profits (for those who were smart enough to listen to him), but also in terms of economic prosperity in the Third World. Thank you, CK. You will be sorely missed.

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Rowan GibsonRowan 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.

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Friday, April 02, 2010

Innovation Perspectives - Building Deep Innovation Capabilities

This is the fifth of several 'Innovation Perspectives' articles we will publish this week from multiple authors to get different perspectives on 'How should firms develop the organizational structure, culture, and incentives (e.g., for teams) to encourage successful innovation?'. Here is the next perspective in the series:

by Rowan Gibson

Innovation Perspectives - Making Innovation a Systemic CapabilityWhen I go into a large company, one of the first questions I usually ask is this:

"Does your organization have a worldwide innovation infrastructure where anyone, anywhere can get access to the cash, the talent, and the management support they need to turn their ideas into market success stories?"

No prizes for guessing the answer. Most companies claim they want to encourage creativity, risk taking, and rule breaking, but what you invariably find is that their management infrastructure and corporate culture actually inhibit these things. Talk to successful innovators in any large company, and you will probably hear a familiar story: "I succeeded despite the system." But if would-be innovators can only succeed in an organization despite the system - if they have to fight their way heroically through a minefield to push their ideas forward - then by definition, innovation is not a systemic capability in that organization, nor is it a core value that is deeply ingrained in the corporate culture.

For innovation to become a core competence and a tangible cultural value, there has to be a substantial degree of internal consistency between processes, metrics, reward structures, rhetoric, and top management behavior - and it is precisely this synchronicity that is lacking inside most companies.

Let's take structure. In the majority of organizations, innovation is still forced to live in a disconnected silo like R&D, New Product Development, a Skunk Works, an incubator, or a New Ventures division, where it neither involves nor infects the rest of the organization. By their very nature, these enclaves lead a solitary existence, operating as an adjunct to the real work of the company, and in my experience they produce very few ideas that ever make a big impact on a company's profits.

If we want to create the kind of structure that is required for opening up innovation broadly to the organization and to people outside it, we need to think about the social systems or institutional structures that have proven to be most conducive to innovation - universities, cities, industry clusters like Silicon Valley, or, most recently, the Web itself. What creates the vibrancy and serendipity in these structures is the matrix of ever-changing human connection and conversation. However, in a large organization, over time, the conversational patterns tend to become etched in stone. There are fixed reporting lines, committee groups, task forces, and so forth. Companies tend to consign innovation to a small cadre of 'experts' in specialized departments, and they end up having the same people talking to the same people, year after year, so they lose that conversational richness. In many ways, the organizational chart actually inhibits rather than increases the chances of making random, serendipitous connections.

To make innovation a pervasive and corporate-wide capability, the responsibility for innovation needs to be broadened beyond traditional structures and spread throughout a company's businesses and functions. This is exactly what happened to quality in the 1970s and 1980s when it ceased to be the exclusive responsibility of a specific department and, instead, became distributed to every corner of the company. What is required is a similarly systemic infrastructure for innovation that starts at the corporate level and infiltrates every part of the organization chart. An infrastructure that makes managers accountable at all levels for driving, facilitating, and embedding the innovation process into every nook and cranny of the culture.

The best innovation infrastructures I have seen are linked directly to the CEO and include a global Vice President of Innovation (VPI), regional VPI's, business unit innovation officers, innovation boards, innovation consultants and innovation mentors. These new, pro-innovation structures are designed to actively foster interaction across the organization and to distribute the responsibility and expertise for innovation throughout the company. They destroy the structural silos that usually separate people, ideas, and resources, and create a high level of cross-boundary connection, conversation, and collaboration.

In addition to building such an infrastructure to orchestrate and support innovation from everyone and everywhere, companies need to create the cultural conditions that serve as catalysts for breakthrough thinking. It's not enough to simply list innovation as a core value in your corporate mission. When companies refer to innovation as a value, most of them are using the wrong term. If an organization has not yet succeeded in making innovation a truly tangible core value for all its employees, the leadership team should be calling innovation an objective or a commitment, not a value. Innovation may well be something the leaders consider to be an imperative, and that they plan to put considerable effort into, but that does not mean that it has yet become a deep value for the company. Talking about innovation - using it as a slogan in an advertisement or on a corporate letterhead - does not make it a value. Values are less about what you say and more about who you are. They define the beliefs an organization holds deep down about what is important and right, and they drive the way its people behave on a consistent basis. It is absolutely crucial to make this distinction.

For innovation to become a genuine value, it has to be deeply internalized and clearly tangible to an organization's employees. It must be something, as Marcus Buckingham might put it, that helps to "change the daily rituals" and "introduce new heroes and language" throughout the organization. It becomes the net sum of a whole variety of messages and behaviors. In fact, in many ways, it is not really something a company can work on directly; it is something that comes from addressing a lot of other issues.

Innovation can only become a true value in a company through collective learning across all its levels, functions, and businesses - usually over considerable time. People need to not just hear that ideas are welcome from everyone and everywhere, or that rule breaking and risk taking are encouraged, or that ideas are allowed to fail without incurring punishment; they need to experience these things every day. That is when a corporate value becomes tangible enough to guide patterns of behavior across the entire organizational culture.

There are certain mechanisms a company can employ and institutionalize which can help to make innovation a tangible core value. They include things like consistent messaging from leaders (in both word and deed); a discretionary time allowance for reflection, ideation, and experimentation: broad-based innovation training; an open market for ideas; easy access to incremental seed funding; management structures for mentoring and support; and incentive and reward structures that encourage challenging the status quo, risk taking and entrepreneurship.

When these mechanisms become firmly ingrained in the corporate culture they provoke the right attitudes in people. Employees get the feeling that they are part of a vibrant, innovative company. They get hooked on the excitement and energy of innovation. They find it stimulating to work in a collaborative, open culture. They see that innovation is not just management rhetoric but a widely held and deeply embedded value. And they automatically begin to demand more innovation from themselves and their peers. Thus, the demand for innovation ceases to be the sole province of the CEO or other top level executives. It starts to be driven from all levels of the organization. This is what it takes to make a corporate culture more conducive to innovation.

HR professionals can add a lot of value here. Their challenge should be to create a company culture where everyone in the company is responsible for innovation - whether as an innovator, mentor, manager, or a team member. That means that all HR systems - pay, spot awards, the long-term incentive plan, the balanced score card objectives - need to be hardwired into the company's innovation strategy.

The bottom line: building a deep innovation capability requires a systemic approach. It requires your company to patiently assemble all of the above components, and to put the necessary drivers in place so that your corporate innovation system becomes sustainable.

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You can check out all of the 'Innovation Perspectives' articles from the different contributing authors on 'How should firms develop the organizational structure, culture, and incentives (e.g., for teams) to encourage successful innovation?' by clicking the link in this sentence.
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Rowan GibsonRowan 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.

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Wednesday, March 17, 2010

Part 3 of 3 - Building a Systemic Innovation Capability

Interview - Rowan Gibson of "Innovation to the Core"

Part 3 of 3 - Building a Systemic Innovation CapabilityI had the opportunity to interview Rowan Gibson, co-author of "Innovation to the Core" about the book and about creating a systemic innovation capability inside organizations.

Rowan Gibson is a global business strategist, a bestselling author and an expert on radical innovation. In addition to "Innovation to the Core, Rowan is author of "Rethinking The Future", and a keynote speaker at large international conferences, corporate management events and executive summits.

We have split this in-depth interview into three parts. Here is the third part of the interview:

6. What are some of the biggest barriers to innovation that you've seen in organizations?

The biggest barriers to innovation tend to be deep and systemic. They are embedded in a company's leadership priorities, political structures, management processes, cultural values and everyday behavior. For example, senior managers might actually be working against innovation, because the company's metrics system doesn't measure them on it, and the compensation system doesn't reward them for it, so why should they be worried about it? Or a company might be biased heavily toward its legacy business and against revolutionary new ideas that might potentially cannibalize that business. Or allocational rigidities in the budgeting process are making it difficult to get resources behind new opportunities. Or the criteria used in the company's product development stage gate process may tend to kill great ideas too early. Or the organization might simply lack people who have had any significant training in the skills and tools of innovation. These are quite familiar problems, but in every organization the barriers to innovation are subtly different, depending on factors like corporate culture, business model, organizational structure, and so forth.

To make the transition from innovation initiative to enterprise capability, an organization needs to identify, objectively, the practices, policies, and processes inside its core managerial DNA that are toxic to innovation - like traditional management processes that systematically favor perpetuation and incrementalism over new thinking and innovation. Senior executives need to realize that building a truly innovative company is not a matter of simply asking people to be more innovative; it's a matter of positively changing those things that today diminish or stunt the organization's innovation potential. As Clayton Christensen puts it, "Systemic problems require systemic solutions".

7. What skills do you believe that managers need to acquire to succeed in an innovation-led organization?

Managers are going to have to develop a "dual focus" - both on short-term operational performance and on long-term growth opportunities and innovation. The problem here is that these two sides of the business require very different skills. It takes a certain style of management to cut costs, restructure, reengineer, and downsize, and quite another style of management to create growth through new ideas and initiatives.

Today's senior executives will have to learn to do both - they will have to be relentlessly focused on meeting the numbers within their legacy businesses, yet equally focused on generating and successfully commercializing new growth opportunities for the future. This is very easy to talk about but very difficult to do, because efficiency and innovation don't usually "cohabit" too well - they're uncomfortable bedfellows because there's just an inherent tension between these two forces. So what this adds up to is an extremely difficult balancing act for today's managers.

I know of only one way to realign the focus and commitment of top management so that it's equally focused toward innovation, and that is to design a new set of metrics for evaluating management performance - one that puts innovation at least on a par with other performance objectives. If you think about the Balanced Scorecard inside most organizations it's actually not very balanced, in the sense that it tends to be weighted heavily toward optimization rather than innovation. So the first step is to make sure innovation is fully represented in a company's metrics. It has to be recognized to be equal in importance to operational excellence.

Companies might preach the need for risk taking and rule breaking, but these are not the metrics they typically use for measuring their managers' performance. Management compensation is typically tied to other measures like cost, efficiency, speed, and customer satisfaction - and executives are paid for making progress against those metrics. Organizations that are serious about making innovation a core competence need a new set of metrics to offset this tendency and encourage managers to put as much energy into innovation as they are currently putting into optimization.

The other thing managers need to learn is that, in an innovation-led organization, strategy-making is no longer going to be a top-down, executive-only exercise. It's something that will involve everyone in the company - and even people on the outside - and it will increasingly emerge from the bottom up. Managers must come to believe, deep down, in "innovation democracy" - the notion that ideas with billion-dollar potential can come from anyone and anywhere.

Instead of fearing that this will put them out of a job, managers should recognize their pivotal role as champions of the new innovation process. Rather than going away in a little group and trying to come up with all the new growth opportunities on their own, executives should be encouraging all of their people to think like entrepreneurs and submit new ideas. Then they need to regularly sift through the wide variety of opportunities bubbling up from below, and look for ways to invest incrementally in these opportunities. This has worked very well for Best Buy, for example, where some of the most valuable ideas in recent years have come not from top management but from line-level employees who interact with customers each and every day.

This is no doubt going to require a degree of humility on the part of top management, because it essentially means that senior executives will have to give up the old, elitist view about who is responsible for the destiny and direction of the organization, and start involving many new and different voices in the process of charting the company's future.

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

Well, if we agree that tomorrow's economy will be an ideas economy, or a creative economy, or - as I like to call it - an innovation economy, then what does this tell us about the kind of skills tomorrow's workers are going to need? Look at the typical school curriculum. What are the kids learning? Most of it has to do with filling their heads with old information - with facts and figures - as opposed to enhancing their imagination, their ability to create or envisage new solutions.

The education system is set up to teach conformity. It punishes people who fail to stand in line, or who question authority. Yet when we look at successful innovators - like Steve Jobs or Richard Branson - we find that they tend to be rebels. They are contrarian in their thinking. They 'zig' where others 'zag'. They have somehow developed an almost reflexive ability to question the status quo, to look at things from a completely different angle of view, to imagine revolutionary new ways of doing things, to spot opportunities that others can't see, to understand the revolutionary portent in trends and discontinuities, to empathize with unmet needs, to take risks and follow dreams. Is that what schools and colleges are teaching their students to do? I don't think so. In fact, I would argue that they are systematically robbing people of their ability to think creatively.

Today's MBAs are also woefully unprepared for the new era. They may have learned how to read a balance sheet correctly, but when did they learn how to systematically discover new strategic insights, or how to come up with radical new growth opportunities, or how to recognize a really big idea when they see one, or how to rapidly reallocate resources to push ideas forward? And when did they learn how to foster the cultural and constitutional conditions inside an organization that serve as catalysts for breakthrough innovation? Let's face it, what business schools produce en masse are business administrators, not business innovators. They reward people with MBAs, not MBIs. And, again, I believe that part of the answer is to bring more balance into the student's priorities, so that they learn how to embrace the paradox between the relentless pursuit of efficiency and the restless search for radical, value-creating innovations.

Anyway, I'm glad to see that "Innovation to the Core" is increasingly being included on business school curriculums. I wanted it to be kind of a business education for the 21st century and it's gratifying to see it being used that way. The book is also playing quite a role in corporate training programs inside some of the companies that have truly recognized the innovation imperative. So if that means I'm making a meaningful contribution to advancing the field of business innovation, I'll be a happy man.

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Braden KelleyBraden 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.

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Tuesday, March 16, 2010

Part 2 of 3 - Building a Systemic Innovation Capability

Interview - Rowan Gibson of "Innovation to the Core"

Part 2 of 3 - Building a Systemic Innovation CapabilityI had the opportunity to interview Rowan Gibson, co-author of "Innovation to the Core" about the book and about creating a systemic innovation capability inside organizations.

Rowan Gibson is a global business strategist, a bestselling author and an expert on radical innovation. In addition to "Innovation to the Core, Rowan is author of "Rethinking The Future", and a keynote speaker at large international conferences, corporate management events and executive summits.

We have split this in-depth interview into three parts. Here is the second part of the interview:

3. Innovation demand in an organization is equal in importance to innovation supply, but why don't most companies see that?

Again, it's because they are usually too focused on the front end. So they work hard to push up the supply of ideas, launching initiatives like online suggestion boxes, open innovation programs, creative competitions, and perhaps some kind of reward and recognition system. But they fail to create the necessary demand for innovation, meaning the natural, reflexive pull for new ideas within and across the businesses. Failure to drive and manage the demand side of innovation is often where the whole initiative falls flat.

I often ask companies a simple set of questions to gauge the level of innovation demand inside their organizations. For example, Do the executives who run your company's core businesses demonstrate genuine interest in radical, new ideas by redeploying adequate resources behind them? Are they held personally responsible for the performance of their unit's innovation pipeline? Do they spend a significant percentage of their time mentoring innovation projects?

One of the dilemmas today is that, in most organizations, the pressure to innovate is not very real and tangible to senior managers. If you are running one of the company's business units, for example, what is real and tangible to you is the pressure to meet the numbers - to improve operational performance - and you know you are being monitored on a monthly, weekly, daily, or even minute-by-minute basis. But there is usually no similar pressure that is holding you directly accountable for innovation performance. So your natural bias is to worry a lot more about efficiency, and short-term earnings, and monthly variances from budget, than about the innovation performance of your business unit.

The challenge, therefore, is to create a whole set of pressure points on the demand side that will make leaders as sensitive and responsive to the need to innovate as they are to the need to make the numbers. For example, companies can give senior managers unreasonably high growth targets that call for innovative ways to dramatically outperform the average; they can force their senior managers to allocate a portion of their budget to fostering innovation projects; and they can link a sizeable part of executive compensation directly to innovation performance. These are the kinds of measures GE has taken to drive innovation demand across the organization, and it has produced impressive results because GE is a company where managers are fanatic about achieving their goals.

4. Since the book was published, have you come across other organizations that you think are doing systemic innovation really well?

When we were writing the book, we devoted quite a lot of ink to companies like Whirlpool, P&G, IBM, GE, Shell, W.L. Gore, and Cemex. These are all excellent examples. Since then, of course, I've been working with all sorts of other organizations to embed innovation as a systemic capability. They include pharmaceuticals giants like Bayer and Roche: tech champions like Microsoft and Nokia: financial services leaders like Generali Group; massive consulting firms like Accenture; manufacturing companies like Rexam, top automobile brands like Volkswagen; trend-setting retailers like Ahold and Metro; home appliance makers like Philips and Haier; even heavy engineering firms like Debswana diamond mining. For the last half-year, I've also been very busy with Mars - the global manufacturer of chocolate, pet food and other food products - and I've seen a lot of progress there, too.

What really satisfies me is to see companies like these gradually institutionalizing and managing innovation as a discipline. So some of them are setting up innovation directors, innovation boards, business unit innovation officers, and innovation ambassadors. They are introducing comprehensive new metrics to measure their innovation performance. They are building new processes to produce and nurture a continuous stream of innovation opportunities from inside and outside the organization, as well as robust innovation pipelines for taking ideas from mind to market. They are giving their people new tools - including the "Four Lenses" methodology and web-based innovation platforms - that open up the innovation process to everyone. They are training literally thousands of their employees to use these skills and tools, and setting up incentive schemes and reward ceremonies to encourage them to innovate every day. They are hardwiring all their HR systems - pay, spot awards, the long-term incentive plan, the balanced score card objectives - into the company's innovation strategy. They are creating new cultural mechanisms, such as a discretionary time allowance, to foster and support innovators throughout their ranks. They are building dedicated innovation spaces where their people can ideate together. And they are working hard to make innovation a tangible corporate value, rather than just an aspiration.

There are few other companies, too - ones that I have not yet personally worked with - that I would point to as good examples of systemic innovation. They include Best Buy and McDonald's in the USA, and Tata in India. In fact, there's a rapidly growing list of organizations around the world that seem to be gaining traction with the innovation management challenge, and what they demonstrate is that large companies really can tackle innovation successfully in a broad-based and highly systemic way.

5. People often talk about not having time to innovate. How can people find the time for themselves or their employees?

This is such an important issue. When we asked more than five hundred senior and midlevel managers in large U.S. companies to identify the biggest barriers to innovation in their respective organizations, one of the most common responses was "lack of time." Most of us are struggling simply to get through the day, and it's almost impossible to think creatively, reflect on new strategic insights and innovate in a focused manner when you're running from one meeting to the next, making loads of phone calls, writing a thousand emails and frantically trying to work through all the other tasks on your to-do list. So companies need to think seriously about freeing up more time, energy, and brainpower across the organization to devote to innovation and growth.

The fact is, none of us are going to "find" time for innovation. We are going to have to "make" time for it by driving a wedge into our agendas and turning innovation it one of our strategic priorities. In the book we say that carving out time for employees to imagine and experiment and develop their own ideas is the "first commandment of innovation". For some companies, a discretionary time allowance seems to work quite successfully. Well-known examples would be 3M, Gore and Google, where employees can spend a percentage of their time on pet projects. Other organizations take a number of people out of their day jobs for a certain period - say, a few weeks or months - and let them concentrate on generating new insights and ideas as members of dedicated innovation teams. Here, I'm thinking of companies like Whirlpool and Cemex. In addition, Whirlpool also has a formal training program where people are given time to learn the principles, skills, and tools of innovation in the same way as they learnt Six Sigma. Then there's the example of Shell, where the time allowance actually comes after a person or team has submitted an idea, and these people are given one or two months, rising to perhaps a whole year, to design some small-scale, low-cost experiments to test the validity of their new business concepts.

The other thing to remember, as I have been emphasizing all along, is that creating bandwidth for innovation is not just about the front end. It also has to do with freeing up top management time for the back end of innovation - time to devote to steering innovation activities, reviewing ongoing innovation projects, setting priorities, allocating resources, mentoring innovators and embedding innovation as a core competence. And making innovation stick requires a significant number of people - outside of R&D and new product development - who officially work on a full- or part-time basis on innovation activities. One global company has already appointed 1,200 part-time innovation mentors along with 50 full-time innovation consultants, who coach and support would-be innovators throughout the organization, helping them push their ideas forward.

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Braden KelleyBraden 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.

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Monday, March 15, 2010

Part 1 of 3 - Building a Systemic Innovation Capability

Interview - Rowan Gibson of "Innovation to the Core"

Part 1 of 3 - Building a Systemic Innovation CapabilityI had the opportunity to interview Rowan Gibson, co-author of "Innovation to the Core" about the book and about creating a systemic innovation capability inside organizations.

Rowan Gibson is a global business strategist, a bestselling author and an expert on radical innovation. In addition to "Innovation to the Core", Rowan is author of "Rethinking The Future", and a keynote speaker at large international conferences, corporate management events and executive summits.

We have split this in-depth interview into three parts. Here is the first part of the interview:

1. When it comes to innovation, what is the biggest challenge that you see organizations facing?

The biggest challenge is not generating new ideas and opportunities. It's how to make innovation a deeply embedded capability. What usually happens is that companies focus most of their efforts on the front end of innovation - so they launch some kind of ideation initiative with a lot of hoopla and they get a whole bunch of ideas. But then they hit a wall because there is no back end - there is no organizational system for effectively screening ideas, aligning them with the business strategy, allocating seed funding and management resources, and guiding a mixed portfolio of opportunities through the pipeline toward commercialization. So, invariably, what we find is that the whole innovation effort eventually withers. And all those enthusiastic innovators inside and outside the company become cynical and discouraged as they watch their ideas go nowhere.

The real challenge, therefore, is to turn innovation from a buzzword into a systemic and widely distributed capability. It has to be woven into the everyday fabric of the company just like any other organizational capability, such as quality, or supply chain management, or customer service. In other words, for innovation to really work, and to be sustainable, it has to become a way of life for the organization. Yet how many companies have actually achieved that? The sad truth is this: most organizations today still have absolutely no model, no practical notion, of what the back end of innovation actually looks like. If you asked them to build a corporate innovation system that seamlessly integrates leadership commitment, infrastructure, processes, tools, talent development, cultural mechanisms and values, they wouldn't even know where to start. That's the challenge Innovation to the Core was meant to address.

2. Why is it so important that organizations build a foundation of insights before generating ideas?

OK, let's go back to the front end of innovation. If you're going to do this properly, what you're really looking for is not just a lot of ideas. Senior managers often complain that most of the ideas they get from their employees and customers are not very good ones. So after they open up the innovation process to everyone, everywhere, they find themselves wasting valuable management time sorting through a heap of garbage to find a few interesting submissions. That's because, frankly, they don't really understand how the innovation process actually works.

Try to look at it this way: before you start building a house, you have to gather the right materials and lay a solid foundation, right? Remember the story of the three little pigs? If you build a house from the wrong materials it can easily be blown down, so it's useless. Then there's the Bible story of the house built on sand rather than rock. It makes a similar point: if you don't have the right foundation - regardless of the quality of the building materials - the house is equally useless. So it is with new ideas and opportunities. In a sense, they need to be built from the right "materials" and they need a solid "foundation", otherwise they won't be very good. What I'm getting at here is that there is actually a front end to the front end of innovation. Before you start ideating, you need a set of really novel strategic insights. These are like the raw material out of which exciting innovation breakthroughs are built. If you ask people to innovate in a game-changing way without first building a foundation of novel strategic insights, you find that it's mostly a waste of time. You get a lot of ideas that are either not new at all, or so crazy that they're way out in space.

So how do you develop those all-important insights? I teach companies a methodology for doing that in a systematic way - it's called "The Four Lenses of Innovation". The fact is that in order to discover new ideas and opportunities of any real value, people need to stretch their thinking beyond the conventional. They need to develop fresh perspectives. So the "Four Lenses" represent four specific types of perspectives, or ways of looking at the world, that innovators typically use to come to their breakthrough discoveries. They are (1) Challenging orthodoxies, (2) Harnessing trends, (3) Leveraging resources in new ways, and (4) Understanding unmet needs. By using these lenses, or these particular angles of view, it's possible to systematically look through the familiar and spot the unseen. That's how you discover those deep insights that others have overlooked or ignored.

Once you have gathered a collection of really inspiring insights, you can then do your ideation work. You start thinking about what kinds of ideas and opportunities could be built on these unexamined dogma, unexploited trends, underutilized resources, and unvoiced customer needs. And what that gives you is not just a high quantity of ideas but also a high quality. Rather than just pulling ideas out of the air, you generate opportunities that are grounded. They are based on real industry orthodoxies that deserved to be challenged, real discontinuities that could potentially reshape the business landscape, real competencies and assets that could be leveraged to create opportunities beyond the boundaries of the existing business, and real customer needs that have not yet been addressed. So you inspire ideas that are connected to the real world; they are not in some crazy, unbounded creative space. They are founded on realities - things you can test and validate.

Now imagine that instead of merely inviting everyone, everywhere to "go forth and innovate", you actually gave them access to these powerful strategic insights via a web-based tool, and you taught them how to ideate effectively. Can you see how that would dramatically enhance their innovation performance? That's what I'm currently doing with all kinds of organizations around the world.

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Braden KelleyBraden 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.

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Book Review - "Innovation to the Core"

by Braden Kelley

Innovation to the CoreA few weeks ago I received "Innovation to the Core" by Rowan Gibson and Peter Skarzynski (with an introuction by Gary Hamel) in the mail. "Innovation to the Core" weighs in at 295 pages, but it is an easy, and pleasant read. The book is full of a lot of great material, and the influence of Gary Hamel is evident in several of the chapters.

Rowan Gibson travels the world giving speeches and conducting innovation workshops, and Peter Skarzynski is the CEO of innovation strategy consultancy - Strategos (which is now owned by UTEK).

The book starts with a premise that I agree with, which is that too many companies view innovation as a specialized activity to be handled by specialists - in much the same way that people viewed the quality movement in its early days. Now of course companies endeavor to embed quality throughout the entire organization and seek to make it a core competency. The same thing now needs to happen with innovation in organizations that want to be able to both sustain themselves and win in the long term:

"Despite the gargantuan nature of the challenge, building a deep, systemic capability for innovation is now the inescapable imperative for every company - as important to an organization's success and survival as the quality movement was in its day."

To create the preconditions for systemic innovation you have to:
  1. Create time and space for reflection, ideation, and experimentation

  2. Maximize the diversity of thinking

  3. Foster connection and conversation ("combinational chemistry")

Before reading this book, I've been trying to convince people that insights are more important than ideas and that the quality of a company's insights and execution are what will differentiate the winners from the losers in today's marketplace. This insights conversation has always been difficult because people always want to jump to the ideas - thinking that the idea is king.

It was refreshing to see that the authors of "Innovation to the Core" also feel that successful and sustainable innovation starts with the insight, and so Chapter 3 is all about building a foundation of novel strategic insights predicated on "Four Lenses of Innovation":
  1. Challenging Orthodoxies

  2. Harnessing Discontinuities

  3. Leveraging Competencies and Strategic Assets

  4. Understanding Unarticulated Needs

There are additional ways to generate insights to build sustainable innovation on, but these are a good starting point, and Chapter 3 by itself makes a purchase of this book worthwhile.

Once you identify the insights you are going to build on, then you can get on with producing a torrent of new product or service ideas and even attempt to innovate across the business model. One other key distinction that the book makes is that innovation doesn't have to be risky, and that when you look at your innovation portfolio, you should have a balance of ideas with differing levels of potential impact on the industry.

Timing is incredibly important to successful innovation too - both in terms of determining when to ask the right questions but also when to ramp up the level of investment in an idea. Ramp up the financial investment too soon and you may doom the project to failure from accumulating losses and progress that can't be accelerated by greater financial commitment. But, ramp up the financial investment too late and someone else may beat you to the market. The key is to identify which barriers to successful development can be accelerated by increased spending, and which can't.

I also liked how the authors of this book allocated some of this book to the importance of the demand side of the innovation equation. Companies that focus only on generating a greater number of innovation ideas without creating the conditions that increase the desire and capabilities of managers to develop an increasing number of innovation ideas, will face a higher chance of innovation failure over the long term.

Taken all together I found "Innovation to the Core" to be an interesting and important read for any manager looking to gain a deeper understanding of what's required for creating systemic innovation. The book was worth the time investment.

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Braden KelleyBraden 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.

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Escaping the Internet Commodity Trap

by Rowan Gibson

Escaping the Internet Commodity TrapThe Internet is like a black hole that relentlessly sucks in, digitizes and democratizes content of every kind. While that may be generally good news for consumers (hey, look at all the great stuff we can now get for free), it has turned out to be unbelievably bad news for the content providers. Ask anyone in the print media business, or the music business, or the movie business. For at least the last decade, industries that primarily produce content have been struggling hard to find a viable new financial model in a world where internet users (particularly the young generation) don't expect to pay for anything they read, listen to, or watch. As one popular mantra puts it: "Content is no longer king". The fact is, content distribution is now king. Power has shifted to the content aggregators - think Google, YouTube, Digg.com or iTunes - and to new media platforms like Amazon's Kindle reader or the Apple iPad. So how exactly are content providers supposed to make money in an era of rampant digital commoditization? The only option they have left is to innovate like never before; to reinvent their industry business models before they become obsolete.

I remember talking to Kevin Kelly, co-founder of Wired magazine, back in 1995 about the future of the Web. He told me he viewed the Internet as a "planetary-sized copying machine" and added that "trying to stop copying on the Net is impossible." Indeed, within a week of my latest book "Innovation to the Core" being published in Chinese, there were at least two websites in China offering a digital version of the book for illegal download. Consumers clearly win - why buy the physical book when you can get the digital file for free? But in terms of book sales and royalties, the author (i.e. me!) and the publishers lose out entirely.

That's why the book publishing industry is feverishly exploring a variety of new business models. One option is to sell eBooks direct to customers, cutting out middlemen like distributors and retailers, and building a community around the books and authors. Since eBooks have a relatively low price tag, the hope is that consumers will be willing to pay for the genuine article (a la iTunes) rather than download an illegal copy, especially if it comes with social-media-enabled tools that help them discuss and share the book with others. Another option is to make the eBook itself a richer multimedia experience (with audio, video, hyperlinks and so forth) rather than just a text-based medium. Instead of embedding all of these media in a single digital file (which would still be relatively easy to copy and distribute illegally), publishers could give consumers a code when they purchase the book that offers exclusive access to a dynamic, integrated online application environment.

A similar challenge faces today's music business. Over the last decade, music labels, retailers, and the artists themselves have seen their revenues fall off a cliff in an era when teenagers can - and do - get all the music they want for free. Last year, 95% of music downloads were still from illegal file-sharing sites. And although Apple is now the world's biggest music retailer, its iTunes store has never been a massive revenue producer. Instead, it simply serves as a provider of low-cost content for the iPod, helping to drive sales of Apple's premium-priced music player. So far, the latest trend - cloud-based, streaming music sites like Spotify, Rhapsody and Pandora - has not been very helpful to the music industry either. Until now, these sites have employed a free-to-users, ad-supported model which doesn't generate much money for the labels or the artists. As an example, it's estimated that a million plays of Lady Gaga's popular song "Poker Face" on Spotify only earned her a paltry $167.

Frankly, I'm not too worried about the artists because most of them make their money these days on concert revenue and merchandising, not on the sale of recordings. And since people go to live concerts to hear artists performing songs they already know, it's actually in the artists' interests to have their music distributed as widely as possible, even if it's for free, in order to generate a lot of fans. Yet what about the music labels? How can they possibly compete against free downloads? Only by finding innovative new ways to add value. That's what MusicDNA is all about. It's a new digital file format that contains not just music but additional content such as lyrics, images and interesting info like interviews, tour schedules, or updates to the artists' social network pages. Anyone who downloads the file illegally would miss out on all these extras. So MusicDNA offers hope that the industry can open up new revenue streams. It may also point the way forward for Hollywood studios as they look for ways to battle illegal movie downloads.

Another victim of the Internet commodity trap has been the traditional news media industry. According to a new survey by the Pew Internet and American Life Project, more Americans now get their news from the Internet than from newspapers, and three-fourths say they primarily learn of news via updates on social media sites like Twitter. So as readers (closely followed by advertisers) make a mass exodus from print to digital media, 'The Press' as we know it seems to be going the way of the dinosaur. In the face of mounting bankruptcies, mass layoffs and plunging advertising sales, some publishers have already thrown in the towel. As an example, McGraw-Hill recently signaled their despair by selling off BusinessWeek at the bargain basement price of less than $5 million.

So is there any hope for this ailing industry? Some think it might still be possible to go back to the old 'paid content' model. Rupert Murdoch, illustrious media mogul of News Corporation, has been making headlines over the last year with his plans to erect a pay wall around his media. And, if it works, others will almost certainly follow. An analogy could be the advent of cable TV in the 1960s and 1970s. At first, very few believed that anyone would be willing to actually pay for TV shows and movies after spending decades watching them for free. But today the average household in North America pays about $50 a month for Pay-TV, so why shouldn't the same principle work for the Internet? There is also new hope on the horizon in the form of emerging digital media platforms like Kindle and Apple iPad, that promise to bring fresh revenues to the news industry by charging readers to access publications in an exciting new way.

Gordon Crovitz, former publisher of the Wall Street Journal, has co-founded a company called Journalism Online to help newspapers find new payment models. These range from micropayments - where readers pay for individual stories - to "freemium" models like the one used by the Financial Times, where readers can view 10 free pages every 30 days.

One of Rupert Murdoch's properties, The Wall Street Journal already charges readers US$119 a year for an online subscription. The WSJ is also experimenting with a new kind of media mix that takes it beyond the written word. Last September, its Digital Group rolled out News Hub, a twice-daily video news series. In January The Wall Street Journal Network delivered a record 5.5 million streams, with about a million or so views being generated by News Hub. This February the group launched Digits, a video series focused on technology which streams live each weekday, and plans are now in the works for several other original live series.

As whole industries see their traditional business models sucked into the Internet commodity trap, their only hope of escape has become radical innovation. For content providers of every stripe, success and survival in the future will be based on the ability to fundamentally rethink, re-imagine and reinvent themselves by innovating around who they serve, what they provide, how they provide it, how they make money, and how they differentiate from the rest. Stewart Brand's maxim may have famously stated that "information wants to be free", which is at the heart of utopian Internet democracy, but the cold reality is that every business has to make money. That means that whether you produce books, newspapers, magazines, music, movies or TV shows, somebody somewhere has to pay somehow. Figuring out who that could be - and how the financial model would work - is one the greatest business battles of our age.

Related Articles - "Content is No Longer King" - Part 1 - Part 2 - by Stephen Shapiro

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Rowan GibsonRowan 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.

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Monday, January 04, 2010

Building Up Innovation Capital

by Rowan Gibson

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

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

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

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

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

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

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

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

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

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

Rowan GibsonRowan 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.

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Monday, December 28, 2009

Do you have a Corporate Innovation System?

by Rowan Gibson

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

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

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

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

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

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

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

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

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

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

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

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

Do all of this and your innovation outputs will soar!

Rowan GibsonRowan 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.

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Monday, December 21, 2009

Will China 2.0 Out-Innovate Your Company?

by Rowan Gibson

China 2.0 InnovationPick up your iPod and turn it around. Note the cool and somewhat snobby phrase that's printed on the back of the device: "Designed by Apple in California. Assembled in China." These eight words speak volumes about the Middle Kingdom's role to date in the global economic food chain. But it's already a seriously outdated paradigm. After thirty years as a lowly "workshop for the world", China is getting ready to move up the value chain. And this transition - from low-cost manufacturing to world-class innovation, design and marketing - will change the rules of competition everywhere on earth, including inside China. So forget whatever else your organization considers to be a strategic priority and ask yourself: "Are we gearing up for China 2.0?"

On a recent trip to Beijing, I was struck by how radically the focus of everyday business conversations has changed. And this has nothing to do with the global recession, which temporarily took some of the wind out of China's sails. It has much more to do with the realization that China is entering a new and quite different era in its economic development, and that companies (both local and foreign) will have to act quickly and decisively if they are going to carve out a place in it.

Until now, there were certain words that seemed to dominate all business conversations in China. Obviously, one of them was "growth", which is understandable considering that China's economy has doubled in size three times over in just the last thirty years! Another dominant word was "cost", as in low-cost, cheap, cheapest - which is a concept no nation has mastered quite like the Chinese. And still another was "export", since China's white-hot growth has been driven primarily by exploding overseas demand.

But now the game - and the conversation - is changing. There's a new set of words and phrases that I'm hearing more often in business circles in China. Like "world-class", "high performance", "global", "better" and "best". Company leaders - whether they are from local Chinese firms or foreign multinationals - are talking a lot less these days about "manufacturing in China" (been there, done that) and a lot more about "marketing, design and innovation in China" (you ain't seen nothing yet). This shift in rhetoric has incredible implications for the shape of future competition, both globally and in China's own massive home market.

However, you might argue that China still has a long way to go before the rhetoric becomes reality. And you'd be right. Take innovation, for example. In the recent International Innovation Index, produced in part by Boston Consulting Group, China was ranked as the world's 27th most innovative nation, just behind New Zealand. To put this in context, some of China's regional neighbors were at the very top end of the scale: Singapore was ranked first in the world, South Korea took the number two slot, and Japan landed in 9th place (right behind the United States). Newsweek's comment on these rankings was quite typical: "China excels at producing huge volumes of low-cost products, but Japan and South Korea are tops in innovation and high-tech goods."

It definitely won't stay that way. Consider some data that support this conclusion. For a start, the number of patent applications from Chinese companies has increased ten-fold over the last decade, and the annual growth rate is almost twelve per cent. In fact, the world's most prolific filer of international patents last year was Huawei Technologies, China's largest networking and telecoms company, which became the first Chinese enterprise to top the list. Overall, China ranked 6th among countries according to the number of patents filed, after the USA, Japan, Germany, South Korea and France. And if current growth rates continue, China will surpass them all in about a decade.

In his brilliantly researched book China Inc., journalist Ted Fishman says, "China has yet to introduce the kind of world-changing technology or consumer products that are the hallmark of advanced economies. But it will." And he continues, "The genius that has so far poured into creating great factories will soon be evident in great products and great brands that will offer the world unsurpassed quality and refinement."

That process is well underway. It's notable that in 1995 there were just three Chinese companies on the Fortune 500 list. By 2000, it was ten. By 2005, the number had jumped to eighteen, and in 2008 - a mere three years later - it had leapt to 35. Companies all over China are rising to the challenge of becoming high-performance business players, many on a global scale. Huawei, for example, is already giving Cisco a run for its money in the networking business. In 2007 the company reported annual revenues of $16 billion, and in 2008 $23.3 billion. That's a 45 per cent increase year-on- year. And over 60 percent of Huawei's revenue is generated outside China. Another Chinese champion, Haier Group, is currently the fourth-largest appliance manufacturer in the world, with global revenues in 2008 of nearly $18 billion. Sales outside China are rising by about 10% year-on-year, and the company has grabbed a significant share of the U.S. market by focusing on neglected product niches like compact refrigerators and electric wine cellars. Haier has already surpassed rival Whirlpool as the world's top refrigerator producer in terms of sales.

Gong Li, chairman of Accenture in Greater China, has a catchy way of describing the challenge of moving up the value chain. He calls it "Jumping Over The Dragon Gate", which refers to an old Chinese legend in which carps had to swim against the current and jump over a tall gate to transform themselves into dragons. As more and more Chinese companies close the performance gap with their global counterparts, Li believes they will be able to "make the jump". And Anil Gupta, co-author of the excellent new book Getting China and India Right, absolutely agrees. He warns that China will produce "fearsome global competitors at a speed that the world has not seen
before". So what exactly is your own organization doing about the rise of China 2.0? And, for that matter, what are you doing about it in your personal career? Isn't it time you started learning Mandarin?

Rowan GibsonRowan 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.

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Monday, December 14, 2009

Innovating Healthcare

by Rowan Gibson

Innovating HealthcareThe first modern hospitals were founded in Europe and America in the 18th century. About a hundred years later, both the pharmaceutical industry and the health insurance industry began to emerge. So it's safe to say that, in much of the developed world, the healthcare business has been around for about two or three centuries. And, over time, like most other businesses, it has become bigger, better and faster. But has it actually become different in any essential ways? Not really. Yet that's about to change. In a world of hyper-accelerating change, global competition, rapidly commoditized products and services, and unprecedented patient primacy, the industry is waking up to the need to reinvent itself from top to bottom for a whole new era.

Over the last few years, I've been spending a disproportionate amount of time with healthcare people. Not because I'm sick (thankfully!). But because there's a growing recognition right across the industry that the strategies and business models of the last couple of centuries may no longer be fit for purpose. The world is simply changing so much, and so quickly, that the old ways of doing things (and they are very old) are looking increasingly archaic, perhaps even obsolete.

As regular readers of this column will know, my approach to radical rethinking and renewal is centered on a set of strategy tools called the "Four Lenses of Innovation". Briefly, they are: challenging orthodoxies, harnessing trends, leveraging resources in new ways, and addressing unmet customer needs. And if we look at what is happening in the healthcare industry around the globe, we can see numerous and very exciting examples of these four "lenses" in action. Here are just a few.

One of the stubbornly enduring orthodoxies in hospital management is the age-old notion that we all make mistakes - "to err is human". Everyone has heard horror stories of people having the wrong leg amputated, or getting an operation that was meant for the patient next door. Every year in the U.S., for example, millions of hospital patients suffer injuries - about 100,000 of them fatal! - from things like false medication, incorrect dosage, inefficient diagnostics, duplicated procedures, and so forth. Yet in healthcare, people have long accepted these medical errors as "part of the system". This is clearly an orthodoxy that must be challenged. When IBM took a good look at what was going wrong - and all too often it was stupid things like illegible handwriting, misplaced decimal points, missed drug interactions and allergies - they realized they could alleviate the problem. They offered to use IT to help hospitals manage their patient data a lot more effectively, in much the same way that companies manage their supply chains. This was the birth of IBM Life Sciences, which has grown from a 2-person unit in 2000 to a multi-billion dollar, 1500-employee business today.

Consider another orthodoxy - this time in the pharmaceutical industry. The traditional pharma model is based on drug discovery - testing thousands of compounds to see if any of them makes a measurable difference. It's a model that has essentially remained unchanged since the industry got started in the 19th century - the only difference being the scale and efficiency with which today's pharma companies can manage the compound-testing process. Today, however, a new set of players has emerged - companies like Amgen, Genentech, and Genzyme - where the business model is focused on understanding disease mechanisms (i.e., genetic diseases, immune system disorders, heart disease, cancer) and creating targeted products that address those mechanisms. Their promise is 'personalized medicine', in which the therapy can be matched to an individual's own unique genetic makeup, as opposed to big pharma's "mass medicine" model. By innovating around gene-based therapy, which is based on completely different skills and assets from conventional drug-making, this new breed of pharma companies is fundamentally changing the game. Which explains why Swiss pharma giant Roche was recently so focused on swallowing up biotech pioneer Genentech.

Now think about trends. Look at what's happening in the technology field alone - from e-health to handheld scanners, mobile information devices, telemedicine, surgical robots, remote diagnostics, "integrated digital hospitals", 24/7 access to full medical records, and the list goes on. Or consider the parallel trend "from high tech to high-touch", where design elements such as nature, color, lighting, noise reduction, and so forth, are being used by a few cutting-edge hospitals to promote what is known as a "healing environment" that treats both body and soul.

Then there are healthcare providers that leverage their resources in novel ways to create new value for customers. India's Apollo Hospital Group, for example, which is the largest healthcare provider in Asia, and the third largest in the world, uses its expertise to offer medical business process outsourcing - i.e. writing of diagnosis reports, medical coding, billing etc. - to hospitals right across America. And for many of these hospitals, Apollo take cares of radiology, X-rays, ultrasound, CTs and MRIs when it's nighttime in the U.S., taking advantage of the time difference. The company's IT-enabled services already generate tens of billions of dollars.

And what about unmet customer needs? Again, there are great examples. Like Florida Hospital, where staff did "day in the life" profiling of patients so they could better understand and address their problems and frustrations. Or California's Fresno Surgical Hospital, which has modeled itself on the Ritz Carlton hotel to offer a '5-star patient experience' - including luxury rooms, mini-bars, art on the walls, and food prepared by a Ritz-Carlton chef.

True, many of these examples are still about improving what has always been done. But as all this exciting innovation activity continues, I believe we'll soon see the healthcare industry doing things it has never done before.

Rowan GibsonRowan 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.

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