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Monday, April 26, 2010

There is No GPS for Innovation

by Stephen Shapiro

There is No GPS for InnovationOK, after 2 weeks of sleep deprivation due to manuscript deadlines, I am now back in action here. The final version of the manuscript went to the publisher on Saturday. I then played Personality Poker in Memphis with nearly 100 representatives from Penguin's gift sales on Sunday. These individuals sell books into non-traditional bookstores, gift stores, hospital gift shops, department stores, casino, and similar places.

Last weekend, I played Personality Poker with a couple hundred people at a conference in Canada.

After the event, over a dozen of us decided to go to dinner together. Half the people fit into taxis. After the taxis departed from the hotel, the remaining individuals went in two cars, one of which I drove. We had the address and a map. I, being Mr. Technology, plugged the address into the GPS. The other individual had the map, but also relied on directions he received from the front desk. I didn't bother getting directions since I had the navigation system.

I was the first car out of the parking lot. After exiting the hotel, I turned left, just as the GPS told me to do. The other car followed, but not for long. David, the other driver flashed his lights. I kept driving. After a minute I realized David was no longer behind me. Instead of believing that I might be going in the wrong direction, I just assumed that the GPS was taking me there via a shortcut.

After taking a series of turns - left, right, left, right, left, right - the final turn led us to a dead end. In fact, this road was nothing more than a large pile of dirt. So much for taking a shortcut.

Since my technology was not going to get us there, we needed to rely on the map. Unfortunately, the map provided by the hotel only had the restaurant marked off. The hotel was not to be found. The reason we could not find the hotel on the map was because the map did not extend far enough to include it.

There we were, in the middle of nowhere, with a map that told us nothing - and a GPS that told us even less.

This got me thinking.

How often do we drive our innovation programs the same way I drove to the restaurant that night?

We create our plans for innovation and we start driving. There might be signals along the way (like the flashing lights of the car behind us) that something is not right. In the case of innovation, it might be signals from the customers, buyers, or vendors telling us we are going the wrong way. But all too often, we continue to drive forward, arrogantly believing we are right and that those signs are all wrong.

No matter how great your plans are, you need to keep your eyes open. Look for signs. Don't assume others are wrong. Maybe your blueprint/map is incorrect.

Or, as Scott Cook from Intuit so eloquently said, "For every one of our failures, we had spreadsheets that looked awesome."

There are no accurate GPS systems in the world of innovation. Your ability - and willingness - to adapt, evolve, and change your plans is critical to a successful innovation program.

If you don't watch out for the signs and you blindly follow your plans, your innovation program will probably lead you to a huge pile of, um, dirt.

P.S. We did eventually get to the hotel. We did what any sane person would do... we asked for directions.

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

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Saturday, March 27, 2010

Is Crowdsourcing Disruptive?

by Stephen Shapiro

Is Crowdsourcing Disruptive?There was an excellent post by Hutch Carpenter on this website. In the article, he asked the question - "Is Crowdsourcing Disrupting the Design Industry?" He makes an excellent case for the value (and pitfalls) of crowdsourcing design work. As loyal readers know, I have used design crowdsourcing on several occasions.

In response to the article, I wrote:

I use crowdsourcing for some of my designs. And I have to admit, I do sometimes feel a little bad. It's clear some people put a fair amount of thought into their designs. Sadly, there is typically only one winner.

Having said that, as a consultant, no one feels bad for me when I spend days or weeks developing a proposal that does not get awarded to me. We recognize that it is the cost of doing business.

Let's face it... for some design work, it might be just as fast to develop a rough concept as it would be to develop a compelling proposal. Crowdsourcing can reduce the time and effort involved in selling design services.

And crowdsourcing, when done correctly, can give you (the 'Seeker') benefits that you would not get through conventional means.

Right now I am running a crowdsourcing competition for a design for my Personality Poker cards. The competition has been running for two days, and I received some amazing designs. Because I did a blind competition, everyone has to develop their own idea, rather than simply build on the idea of someone else. This is enhancing the level of creativity significantly.

The winner will get follow on work from me in fleshing out the concept and in future design work. [NOTE: The competition is over and I received 32 designs of which a half dozen of them were fantastic]

I used to use eLance (an eRFP site) for design work. But the results were not always great. Plus each designer has to submit a proposal and decide upon a fee. With 99designs, the designer knows the 'prize' and can decide if they want to invest any effort at all.

It's not spec work that is changing the rules. It is access to the masses. Personally, I would prefer to pay for a solution than a proposal.

I do think, if done well, design crowdsourcing can be beneficial to all involved.

Crowdsourcing has the potential to give designers a reach they have not previously had. Although their cost per design might go up, their cost of acquisition might actually go down. Proposals are a cost of doing business - and you don't win every proposal. Spending time/money on finding customers who want the proposal in the first-place is another cost - and you don't acquire every customer you target. Mailing marketing materials to potential customers is another real cost. The list goes on. The real cost/time associated with marketing/selling design services is not insignificant.

Crowdsourcing allows you to convert your marketing/selling time into design time. Your only cost is your time to develop the submitted designs. This feels like a much better use of design resources.

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

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Wednesday, March 10, 2010

The Performance Paradox

by Stephen Shapiro

The Performance ParadoxEvery leader dreams of finding the magic bullet that will increase creativity, boost productivity, and improve morale. Surprisingly, one of the most effective solutions may be the most counterintuitive: sometimes less effort, not more, yields optimal results.

Keep Your Eye on the Present

A few years ago, I worked with a Formula One racing team. Pit crews, consisting of 19 people, serviced the ultrafast, high-tech race - refueling cars, changing tires, and performing required maintenance in a matter of seconds. The crew members continually shifted positions to find the best combination for the optimal configuration of the team. As they practiced, they used a stopwatch to measure their time to milliseconds. Yet, ultimately, no matter how hard they tried, they couldn't work any faster. They had hit their performance plateau.

Then, they tried a new approach. They decided not to concentrate on their time, but on their style instead. Now, their movements became more significant than their speed. Astonishingly, the crew shaved several tenths of a second off their best time, even though they "felt" they were moving more slowly. This experiment reinforces the concept that the more you focus on your goals, the less likely you are to achieve them. By worrying about the future, you take your eye off the present.

In higher intellectual activities, the results are even more pronounced. Take the true story of a high school student who became increasingly anxious over passing her upcoming final exam in math, always her weakest subject. She studied hard, all the time focusing on her goal of passing her exam. In spite of her efforts, she failed. She pleaded with her teachers to give her one more chance. They did. This time, instead of concentrating on the goal, she used a powerful creativity technique.

Her first conscious thought each day when she awoke was to visualize herself as Condoleezza Rice, the U.S. Secretary of State, a very successful, highly educated woman. Dr. Rice wouldn't worry about a high school math exam, right? By imagining she was someone else, she stopped agonizing and gained more confidence daily. By focusing on the present rather than the result, she scored a 93%, her greatest performance with less effort.

Dare to Be Different

Does this also apply to sales? Can we perform better when we don't focus on our sales goals? A woman's clothing store had a competition to determine who among its employees could sell the most in two months. The winner would receive a bonus and, possibly, a raise. All had their eyes on the prize, except for one sales rep who decided on a different approach. Instead of trying to make a sale, she zeroed in on serving the customer. If a customer needed help for eight hours to pick out a blouse, that's what she would do. If she felt customers would find a better product at a competitor, she would send them there. After two months, this sales person who was not trying to make sales outsold everyone else by a significant margin.

We have seen similar results in many sales and service organizations. We all know (and believe) the expression, "You get what you measure." But a serious question arises: will you get what you want? Often, targets and goals create stress and dysfunctional behavior.

Less Motivation, More Performance

The concept of reducing goal-obsession to improve performance is not new. In the early 1900s, Robert Yerkes and J.D. Dodson developed the eponymous Yerkes-Dodson Law. The premise is performance increases relative to motivation only to a point, after which performance drops. Typically, it is drawn as an inverted U-shaped curve.

If you lack motivation, the result is low performance. This is not surprising. As your motivation increases, your performance increases - to a point. This point is the sweet spot of optimal performance. Then, as you become more goal-obsessed, performance paradoxically decreases. Goals increase stress and cause you to fixate on the future rather than the present.

Yerkes and Dodson suggest that different tasks require different levels of motivation. For example, physically demanding tasks often require higher levels of motivation. This explains why professional athletes are inclined to be very goal-driven. Even so, as demonstrated by the pit crew example, too much goal orientation will hurt even athletic performance. In 2004, the New England Patriots broke the records for the longest winning streak in NFL history - 20 games in a row. At a press conference after the game a reporter asked the team's coach, Bill Belichick, to comment on this winning streak. He replied, "We did not have a 20-game win streak. We had 20 one-game win streaks." His philosophy was for the team to play each game to the best of its ability. Setting your sights too far ahead is a sure recipe for failure.

Creativity Has its Own Rewards

Within the business world, Yerkes and Dodson found that intellectually challenging tasks required lower levels of motivation. The more creative the work, the less motivation required to hit peak levels of performance. Studies reveal that creativity diminishes when individuals are rewarded (externally motivated) for doing their work. Why? The desire to achieve the goal overtakes the personal interest in the endeavor. A myopic focus on the outcome overshadows the intellectual stimulation of the process. As a result, risk taking becomes reduced and creativity vanishes.

"Working hard" may not be the best way to improve productivity and creativity. Maybe it isn't even "working smarter." As we have seen, perhaps the answer lies in trying less. Or maybe it can be found in understanding human behavior and motivation, as illustrated in the following studies.

Your Loss Could Be Your Gain

Which magazine do you think American men are more likely to buy?
  • A men's health magazine with the cover, "Lose Your Gut Fast" or
  • A similar magazine with the cover, "Get Six-Pack Abs"?

Although most people intuitively think that the second cover, "Get Six-Pack Abs," is the sure winner, when a magazine did such a comparison, it found that "Lose Your Gut Fast" sold six times more copies. Why? The answer lies in the three requirements for individuals (or an organization or a society) to change:
  1. They must be dissatisfied or uncomfortable with the current situation.
  2. They must foresee a better future.
  3. They must believe that they can reach that better future with a reasonable amount of effort.

Point #3 is critical. Using the "gut" example, when someone is 20 pounds overweight, as are many Americans, six-pack abs may be desirable yet seem inconceivable. It's just too much work, and the likelihood of success seems poor. Only when your gut is gone will the idea of six-pack abs seem like a possibility. Similarly, only when your organization is a lean, mean fighting machine will people embrace longer-term, strategic visions.

A question I ask when I address my audiences illustrates this concept further: "Which would you choose?":
  • Option 1: A guaranteed gain of $75,000 or
  • Option 2: An 80% chance to gain $100,000 with a 20% chance of getting nothing?

Seventy-five percent of audience members choose Option 1, consistent across all groups, regardless of demographics. People are risk averse when it comes to increasing gains. What would you choose if I worded the question as a loss rather than as a gain?:
  • Option 1: A certain loss of $75,000 or
  • Option 2: An 80% chance of losing $100,000 with a 20% chance of not losing anything

Over 80% of my audiences choose Option 2. People will take risks to reduce their losses. This explains why the status quo often wins over change. Although there may be a benefit in changing, the risk of losing what you already have is too great.

People will take great risks to minimize their pain/losses yet play it safe when the option is to increase their pleasure/gains. When your organization's change plans are utopian visions of a grandiose future, your employees move to the far end of the performance curve: high motivation, low performance. They become cynical about success and feel as though you are not addressing their current pains and frustrations. Instead, fix immediate problems first, then move on to more strategic visions.

The Bottom Line

To create a pervasive culture of innovation, you must first create an environment of performance and motivation. Achieving this is often, paradoxically, the result of less, not greater, effort. Although goals and performance targets are useful tools, they can also have a detrimental impact on results. When people are too future-fixated, their creativity and overall performance diminish. Find the sweet spot of optimal performance, and you will undoubtedly see an increase in employee productivity, creativity, and satisfaction - all with less effort.

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

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Tuesday, March 02, 2010

Reverse Knowledge Management

by Stephen Shapiro

Reverse Knowledge ManagementLast night I went to a seminar. On the whiteboard, the seminar leader drew an oft-used framework:

There are things you "know." - For example, I know I can speak English.

There are things you "know you don't know." - I know I can't speak Chinese.

And there are things you "don't know you don't know." - Obviously I don't have any examples of this.

But it got me thinking. There is one dimension that is never mentioned...

There are things you "don't know you know."

Inside of organizations, there is so much untapped knowledge. To combat this, over the past two decades, companies have invested millions of dollars in knowledge management systems. The objective has been to capture the company's knowledge.

The problem is, the knowledge management databases usually become so large and unwieldy that they are unusable. I can attest from experience that these systems often end up becoming digital piles of untapped information. Finding what you want can be like finding a needle in a haystack. Or, more accurately, it is like finding a specific needle in a stack of needles.

What's the solution?

You might call it, "reverse knowledge management."

Instead of posting knowledge which sits passively in a database waiting for someone to find it, you post your question to your "community" so that it can be answered at the time of need. Of course, asking the world for an answer to your question is not new. Yahoo/Google Answers did this a few years back.

But internally, especially when you have already invested in knowledge management systems, the dynamics can be quite different.

If you are using an internal collaboration tool like InnoCentive@Work, you might find that reverse knowledge management is an unintended benefit. When you have a challenge you want solved, the odds are, someone else within your organization has already solved a similar problem. But you probably don't know who knows the solution or where to find the solution.

Sometimes the solution can be sitting in your knowledge management system... and you don't even know it because it is too difficult to find.

Interestingly, "requests for information" posted on internal collaboration tools are sometimes solved not by the individuals with the expertise, by rather by the knowledge management team. When a question is posted, the knowledge management team masterfully scours their databases to find a solution. The advantage of this approach is that those with expertise in navigating the knowledge management systems do what they do best, thus freeing the rest of the organization to focus on what they do best. And it has the added benefit of breathing new life into your old knowledge management initiatives.

So, what is it that you organization doesn't know what it already knows?

P.S. I have to admit that I am a bit surprised. If you Google "reverse knowledge management" (in quotes) you will see that the only place this term is used on the entire internet is by me.

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

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Tuesday, February 23, 2010

Is Open Innovation a Tournament?

by Stephen Shapiro

Is Open Innovation a Tournament?A magazine asked me to write a book review of "Innovation Tournaments" by Christian Terwiesch and Karl Ulrich. The book arrived in the mail yesterday and I immediately turned to the index to see if InnoCentive was listed. Sure enough, we are mentioned in several places in the book.

This got me thinking: Is InnoCentive a tournament?

The word tournament is derived from the French word for "medieval sport" and is now used to describe a wide variety of competitions.

Most competitions/tournaments are quite entertaining. And by their very nature, there is always a winner. One could argue that tournaments are "spectacles designed to find a champion."

Given this widely held point-of-view, using the word tournament as a descriptor of InnoCentive seems to be inaccurate.

The NCAA basketball championships are a tournament. The "World Series of Poker" is a tournament. American Idol is a tournament. With each of these, there is always a winner. The purpose of the tournament is to find that winner while (usually) providing entertainment value.

InnoCentive is not interested in finding a winner for the sake of naming the champion. The objective is to find workable solutions to real business problems. Their approach is one I call a "contingency-based, value-driven pricing model." Admittedly, that does not sound as sexy as calling it an innovation tournament.

Here's how it works. A company has a problem they want solved. They decide the "value" of finding a workable solution and they offer a "bounty" to anyone who can provide one. The bounty is only paid when they get what they need. This "pay for solution" model outsources the risk associated with complex problem solving.

Here are other examples that illustrate the key difference between the bounty-based approach with the tournament-based approach.

The NetFlix Prize was not a tournament. They only paid the team that improved the recommendation engine by 10%. This makes is a bounty-based approach. You only pay the bounty when you get a successful solution.

In contrast, The Cisco iPrize, can be thought of as a tournament. According to their website, they will "select up to 32 semifinalist teams that will work with Cisco experts to build a business plan and presentation... Up to eight finalist teams will present their business ideas to a judging panel to compete for the grand prize: a $250,000 award shared equally by members of the winning team." The LG Electronics competition (read my article on it here) was also a tournament-based approach.

The key difference is the way the challenge is articulated. With the bounty-based approach, the success criteria is clearly defined and you know if someone provided a successful solution: Did you improve the recommendation engine by 10%? Did you find a chemical compound that has specific properties? Did you develop a mathematical model that optimizes solves a specific problem? The "winner" of the bounty is determined by this success criteria. If the criteria is not met, the bounty is not paid.

With the tournament-based approach, the success criteria is not defined. The winner is the "best" of the submissions. Although these types of competitions can yield excellent solutions, I know from inside-information that the results are often less than stellar. One company that uses this type of tournament described the results as a "PR success yet a commercial failure."

Both approaches can provide value to any organization. It's just important to recognize that they are useful in different ways. Tournaments can be great to get a broad set of ideas for an undefined space. Bounties are great for when you are hunting down usable solutions.

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

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Tuesday, February 09, 2010

Part 3 - Three Innovation Distinctions

by Stephen Shapiro

Part 3 - Three Innovation DistinctionsThis is the third of my "Innovation Distinctions" entries.

In the first part of this series, I wrote why you should focus on "Challenges, not Ideas." Next, I addressed the distinction of "Process, not Events."

In this final entry, I discuss why innovation requires "Diversity not Homogeneity." Be sure to read the previous two articles before reading this one.

As mentioned in the other blog entries, I first shared these distinctions with a group of speakers and authors who were brainstorming ways to improve the learning experience for other speakers and authors who attend their conferences. Here's the Catch 22: Having only speakers and authors speaking to other speakers and authors does not lead to much creativity. Most of the "ideas" presented are well-worn and don't address the "real world" outside of the industry.

Therefore, my last suggestion to the group was to increase the level of diversity at these learning experiences. This would provide a wider range of ideas, suggestions, and points-of-view.

How does diversity apply to an organization?

Diversity can mean a wide variety of things:
  • Diversity of race, creed, color, sex, etc.
  • Diversity of innovation styles
  • Diversity of disciplines

I won't address the first point as that has been a topic of discussion for decades. Let me tackle the next two.

Diversity of Innovation Styles

The second point ties directly to my Innovation Personality Poker system.

In the card-based game, I discuss the four primary innovation styles: analytical, creative, planning/action, engagement. Most organizations favor one over another and therefore do not have a good balance of styles. There's a reason for this.

Although homogeneous teams are often more efficient (i.e., you get things done faster), having a bunch of "yes men" working for you is not the answer for long-term growth. When people think too much alike, new ideas struggle to surface. In these homogeneous climates, innovation and growth (i.e., effectiveness) suffer.

The essence of successful companies, then, is the ability to be both efficient and effective. They are able to focus on both production and innovation, not just doing things right but also doing the right things.

There's plenty of evidence that team diversity translates directly into corporate profits. Sigal Barsade and colleagues at the University of Pennsylvania's Wharton business school studied top management teams at large corporations in the United States. Interestingly, the more diverse the functional roles of the members of those teams were, the greater the average, market-adjusted financial return in those companies. Diversity of the top leaders translated into bottom-line results.

In Personality Poker, there are four key concepts:
  • You need people in your organization "play to their strong suit." That is, make sure that everyone understands how they contribute to and detract from the innovation process. This includes ensuring that you have the right people with the right leadership styles in your organization.

  • As an organization, "play with a full deck." You must embrace a wide range of innovation styles. Instead of hiring on competency and chemistry, also hire for a diversity of innovation styles. Every step of the innovation process must be addressed. You need people who are great at conducting research, delivering results, developing plans and reports, building relationships, and creating new ideas, amongst other things.

  • "Deal out the work." That is, you must divide and conquer. You can't have everyone in your organization do everything. Instead, get them to divvy up the work based on which style is most effective at a given task. You can't have everyone generating ideas, or focusing on planning.

  • Recognize that in order to treat everyone the same, you must treat everyone differently. People have different needs in terms of how they like to be managed, how they like to be praised, and how they want to contribute to the organization. In order to attract and retain a well-balanced organization you must be prepared to treat people as they want to be treated. To do this, you must overcome the inertia of your company's personality and embrace the needs of the individual personalities.

I could write a whole book on the value of diverse teams. Oh, wait, I did! My Personality Poker book will be published by Penguin's Portfolio imprint Fall 2010. Throughout, I provide examples of, and evidence for the value of having a diversity of "styles" within your organization.

But what about the third type of diversity: The diversity of disciplines.

Diversity of Discipline

A discipline is any area of expertise like biology, chemistry, physics or mathematics. You can have an organization comprised of diverse innovation styles while sharing only one discipline.

A while back, I spoke with Al Bredenberg, Senior Researcher from ILO Institute. He subsequently wrote an excellent blog entry on the topic of diversity where he quotes me. He also mentions a Harvard Business Review article by Lee Fleming that suggests that companies with less diversity of discipline produce better overall financial results than highly diverse ones.

"The financial value of the innovations resulting from such cross-pollination is lower, on average, than the value of those that come out of more conventional, siloed approaches. In other words, as the distance between the team members' fields or disciplines increases, the overall quality of the innovations falls. But, my research also suggests that the breakthroughs that do arise from such multidisciplinary work, though extremely rare, are frequently of unusually high value - superior to the best innovations achieved by conventional approaches... When members of a team are cut from the same cloth, you don't see many failures, but you don't see many extraordinary breakthroughs either."

However, as the diversity of disciplines increases, "the average value of the team's innovations falls while the variation in value around that average increases. You see more failures, but you also see occasional breakthroughs of unusually high value."

Therefore, although there is value to diversity of disciplines, the challenges seem to outweigh the benefits.

What's the solution to having a diversity of disciplines without having to deal with the inherent complexities?

Open Innovation. By working with companies like InnoCentive, you get the value of discipline diversity while having few of the downsides. You get the take advantage of a wide range of experiences while only paying for successful solutions.

I will write more on Open Innovation in subsequent entries.

The Bottom Line

Diversity can create incredible value for an organization. It can help facilitate the innovation process. It can help increase the quantity and quality of breakthrough ideas. The key is knowing the right way of managing and engaging a diverse set of perspectives.

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

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Tuesday, January 19, 2010

Part 2 - Three Innovation Distinctions

by Stephen Shapiro

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Tuesday, January 05, 2010

Predicting the Next Innovation

by Stephen Shapiro

Predicting the Next InnovationRecently I returned from over two weeks on the road. I was in and out of five airports. As you go through security, the routine is always the same...
  • Take off your shoes
  • Take out your liquids
  • Take out your computer

Why are we put through these security gymnastics?

On December 22, 2001, Richard Reid was caught with plastic explosives in the soles of his shoes. That's why we now have to walk barefoot through airports.

On August 9, 2006, two dozen people were arrested in the UK because they were plotting to bring liquid explosives on planes leaving Heathrow airport. Now we have to travel with miniature shampoos, shave creams and toothpastes.

Computers are scanned because, well, that's the obvious place to look. I guess.

What do these have in common? For the most part, the security scans we now endure were due to cleverness on the part of terrorists. Rarely are we subjected to scans that are due to the cleverness of government agencies.

Are there ways to easily smuggle weapons on planes in spite of our increased security? Of course. Nearly every time I pass through a metal detector, I have metal collar stays in the dress shirt I am wearing. Although the detector never beeps, these could easily have been turned into razor sharp weapons. Does this mean that next week I will have to travel topless through the airport? Good thing I have been working out.

Give me 15 minutes and I could rattle off dozens of other, more sinister ways to smuggle weapons on board.

Reactionary Innovation

This is a reactionary approach to business.

The current financial situation also demonstrates a reactionary approach to business. Enron has a meltdown. What should we do? Implement ridiculously stringent rules like the Sarbanes-Oxley act. Our financial institutions start to falter. OK, let's spend $700 billion of the taxpayers' money to sort out the mess.

I'm not saying that these rules and legislation are good or bad (or ugly). That's a conversation for another time. But I do find it ironic that the "big ideas" always seem to come in response to some tragedy. They are rarely proactive.

What does this have to do with innovation? Everything.

Most organizations use creativity to help them determine what to do next. They brainstorm ideas, select the best solutions, and then implement the most promising ones. Creativity is used to determine what your company or organization will do next.

Predictive Innovation

But in these rapidly changing times, creativity can be equally (if not more) valuable for determining what the marketplace and your competitors will do next. Or, if you are the government, it may help determine what your banks and terrorists will do next.

When is the last time you had a brainstorming session where you asked the following questions?
  • What are we most afraid our competition will do to us?
  • Who is not a competitor now, but might be in the future?
  • What shift might happen in the buying habits of our customers that may make our product/service less appealing?
  • How can the sagging economy help our business?
  • What emerging products or services may make our business irrelevant?

The list of outside-in questions can be endless - and valuable.

In your next brainstorming session, try the following:
  • Brainstorm your own list of questions, building on mine above.
  • Determine which ones you want to tackle first.
  • Brainstorm, using a variety of creativity techniques, to identify "possible" outcomes.
  • For those which are deemed plausible, brainstorm a list of "triggers" for each. These are market conditions that tell you that the given scenario is moving from "possible" to "plausible."
  • Set up a corporate "radar" system to help monitor external conditions. Have everything in place such that you can implement critical ideas when market conditions dictate.

This approach blends creativity with scenario-based planning. It helps you move from reactive solutions to proactive solutions. And in today's volatile world, this might just be the key to your long-term survival.

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

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Tuesday, December 29, 2009

Part 1 - Three Innovation Distinctions

by Stephen Shapiro

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

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

  1. Challenges not Ideas

  2. Process not Events

  3. Diversity not Homogeneity

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


Signal-to-Noise Ratio

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

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

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

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

Drowning in Ideas

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

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

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

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

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

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

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

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

The Power of Challenges

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

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

The Goldilocks Principle

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

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

The key is good challenges. The right challenges.

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

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

I couldn't have said it better myself.

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

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

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Tuesday, December 22, 2009

It's Not Rocket Science

by Stephen Shapiro

For those of you who asked, here is the video of my six minute speech at the TEDx NASA conference. Enjoy.

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

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Tuesday, December 15, 2009

Is Collaboration or Competition Better for Innovation?

by Stephen Shapiro

Collaborative or Competitive Innovation?At the Open Innovation Summit last week, I had a lively conversation with a few individuals. The debate was about which model of open innovation is most effective - competitive or collaborative.

Kevin Boudreau and Karim Lakhani wrote an excellent article earlier this year in the MIT Sloane Management Review on this very topic. They looked at the merits of each form of open innovation. I encourage you to read the article as it addresses factors like intrinsic and extrinsic forms of motivation.

InnoCentive uses both forms of open innovation in different environments.

Their 'marketplace' model is competitive. That is, when posting challenges to their network of 185,000 experts, the solvers cannot see any of the other solutions. One reason for using this model is that the intellectual property needs to be protected.

This is in contrast to InnoCentive's @Work product which is used to broadcast challenges internally to employees. With this product, solutions are provided in a collaborative fashion where solvers can see all responses. Given that only employees are participating, intellectual property issues are not as critical.

The competition/collaboration debate reminds me of the Miller Lite commercials - "Tastes Great...Less Filling."

It also reminds me of the hand dryer versus paper towel debate (in terms of efficacy - not impact on the environment, which is a different debate).

After much experimentation, I have the long awaited answer: Use paper towels first followed by the hand dryer. The paper towel gets off most of the water so that the hand dryer can quickly evaporate the remaining liquid. The best solution for drying your hands is not one approach, but a combination of the two... in the right order.

I believe that the answer is the same for the competition versus the collaboration debate. It is not an either/or proposition.

From my experience, you start with competition followed by collaboration. Here's why:

If you start with collaboration, you end up with "group think" very quickly. That is, as soon as the first idea is thrown out, it tends to influence the thinking of the other contributors. This narrows the set of ideas that are typically generated. Therefore, if you start with a competition, you get the broadest set of ideas possible.

Then, after selecting the winners of the competition, you take the best ideas and allow a collaborative community to flesh them out. This gives you get a much richer solution in the end.

This approach models the most effective way of running brainstorming sessions. It works best when you first have each person independently write down their own creative ideas. Only after everyone generates their own list does the group come together. Then they share ideas, select the best ones, and expand upon those best ideas collaboratively. Individual thought followed by group throught. Competition followed by collaboration.

IMHO, the same is holds true for open innovation.

Of course there are a variety of factors that may require the use of one approach over the other (e.g., intellectual property protection), but there are even ways to address that. But more on that in another blog post.

P.S. I'm serious about using paper towels first followed by the hand dryer...
P.P.S. If you are not aware, I am InnoCentive's Chief Innovation Evangelist.

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

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Tuesday, December 08, 2009

Innovation Convergence

by Stephen Shapiro

I never really thought much about toothpaste. But at the last two innovation conferences where I spoke, toothpaste was one of the hot topics.

At the FT Innovate conference in London, Unilever discussed their "Signal White Now" (and other brands) toothpaste. Instead of using harsh bleaches and abrasives, they borrowed an optical-effect technology from their laundry team. This toothpaste uses a blue pigment to make yellow teeth instantly appear whiter. This same ingredient is used to make white clothes look even whiter.

At the Open Innovation Summit in Orlando, GSK discussed how their "Aquafresh iso-active" toothpaste borrowed an idea from Edge shaving cream (now a division of Energizer Holdings, Inc). The toothpaste comes out like a gel, but foams in the mouth, much like the shaving cream. This formulation, according to the can I was given, removes 25% more bacteria than regular toothpaste - or 3x more according to the picture on the right.

This got me thinking. If toothpaste manufacturers can get ideas from shaving cream and laundry detergent, where else could they get ideas? Within 5 minutes, I thought up a few ideas of how to gain inspiration from other products:
  1. Pop Rocks: As a kid, I loved how Pop Rocks, the carbonated candy, exploded in your mouth. What if you added Pop Rock-like crystals to toothpaste? Not only would the toothpaste foam, it would fizz and explode. Maybe this would blast the plaque off your teeth. Of course, it might blast off your teeth like Pop Rocks reputedly did a few times.

  2. Shampoo: Shampoos are infused with vitamins and minerals to give your hair bounce and shine. What if you infused toothpaste with these ingredients? Or maybe you could add some homeopathic remedies - for those who believe in these alternative "medicines." Sublingual administration (under the tongue) is a common and effective way of delivering drugs directly into the bloodstream.

  3. Conditioner: We use shampoo to clean and conditioner to protect. Maybe they can create a tooth conditioner; a special toothpaste that you use after your regular toothpaste. It could coat your teeth to prevent staining, bad breath, or split ends. Even better, they could borrow the "technology" used by shampoos like "Pearl" that combine shampoo and conditioner into one formulation.

  4. Moisturizers: Several moisturizers have an AM and a PM formulation. One is used in the morning and the other at night before you go to sleep. The AM formula of toothpaste could be infused with caffeine that would be absorbed into the bloodstream sublingually (see idea #2 above). And the PM formulation could be infused with melatonin to help you sleep better at night.

  5. Weight Loss Products: I'm not sure how this would work, but what if you could create a toothpaste that somehow made certain foods taste bad? This might cause you to reduce the amount of food you eat. Or maybe there is another way to make toothpaste a weight loss product. OK, this one is a stretch, but there might be a kernel of an idea there!

In a breakout at the Open Innovation Summit, an innovation leader from Johnson & Johnson, when asked to name the most important word for their business right now, answered "Convergence." By this, he meant the sharing of ideas across business units and brands.

Ideas can indeed come from anywhere. And quite often, the best ideas will come from inside your own organization - just from a different product, function, division, or brand. Where will your next big idea come from?

If you have other toothpaste innovation ideas, I would love for you to post them as comments!

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

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Tuesday, December 01, 2009

What Will Shooting for Mars Get Us?

by Stephen Shapiro

At the TEDx NASA conference, I had some amazing conversations with people in the "green room" while preparing to take the stage.

One individual had spent his entire career with NASA focused on travel to Mars. This was his life's passion. But now that he has moved out of the space program into the private sector, he wonders if the money spent on space travel should be re-focused. He wonders if we should spend the money fixing problems here on earth.

We had a lively debate. One thing I suggested was that shooting for Mars MIGHT be the way to fix some of our issues here on earth.

Shooting for Mars to fix Earth
From my experience, when trying to solve problems, we attempt to move from point A (where we are today) to point B (where we want to go). But often we fall short and end up at A’ (as depicted in the graphic on the left).

However, if we shoot for point C, even if we fall short, we might just hit point B.

You can debate the value of flying to the moon or looking for life on Mars. But it is hard to debate the incredible technologies that have been developed as part of the space program and how they are integrated into every day life.

There is a great webpage that lists a number of these spin-offs. One example spin-off from the Hubble telescope is the use of its Charge Coupled Device (CCD) chips for digital imaging breast biopsies. According to the website - "The resulting device images breast tissue more clearly and efficiently than other existing technologies. The CCD chips are so advanced that they can detect the minute differences between a malignant or benign tumor without the need for a surgical biopsy. This saves the patient weeks of recovery time and the cost for this procedure is hundreds of dollars vs. thousands for a surgical biopsy. With over 500,000 women needing biopsies a year the economic benefit, per year, is tremendous and it greatly reduces the pain, scarring, radiation exposure, time, and money associated with surgical biopsies."

The site continues to make a compelling case for why space program investments are good investments.

Here's the question for you and your innovation efforts...

How often do you shoot for "B" and miss the mark? What if you shot for "C," fell short and hit "B" instead?

Instead of just going for what seems possible, shoot for the seemingly impossible. Try wild and crazy ideas.

I discussed the general concept of making the impossible possible in an entry called "The Magic of Innovation." Be sure to check it out.

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

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Tuesday, November 24, 2009

Innovation at TEDx NASA

by Stephen Shapiro

This past Friday I had 6 minutes to share a message about innovation with the world at TEDx NASA. It was a fantastic event with 29 speakers, authors, musicians, aerospace engineers, a neuroscientist and more. 1,700 people were in attendance and it is reported that nearly 100,000 people watched via video streaming on the internet.

Given that my typical speech is 45 minutes long, preparing a 6 minute presentation was a bit of a challenge and required me to script it out to make sure I did not go over my allotted time. Below is what I prepared. Within the next two weeks, I will be able to share the actual video footage - where I am sure I said something completely different.


It's not rocket science.

We hear people use that expression to describe something that's not that complex. And although I would never suggest that aerospace challenges are simple, sometimes, even rocket science isn't rocket science. What I mean by that is sometimes the most creative solutions to aerospace challenges can be found outside the realm of rocket science.

The issue is, you are experts. And your expertise might be the very thing that is preventing you from finding the most creative solutions.

Let me explain why with a simple example.

Think about a time when you lost your keys. After searching everywhere, upon finding them, what did you inevitably say to yourself? "Can you believe it? They were in the last place I looked!" Well of course, who finds something and continues to look for it?

The same thing is true when looking for a solution to a problem. Once your brain finds a solution, it stops looking. And the greater the level of your expertise, the quicker you find a solution. Unfortunately, your idea may not be new, innovative, or the best solution.

The key is to look outside your domain of expertise and to assume that someone else has already solved your problem. Because the odds are, someone HAS solved your problem. So, if you are working on an aerospace challenge, the solution may in fact not be rocket science.

Let me give you a few simple examples.

A high margin item for office supply companies is selling refilled toner cartridges. The challenge is however, very few customers return the used cartridge. During a brainstorming session designed to find creative solutions to this dilemma, I asked the question, "Who else has solved this problem? Who sends you something and is guaranteed that you will send it back?" The first response was the IRS. But the next response was NetFlix. They send you a DVD. You can keep it as long as you want. When you are done you return it and get another one. We investigated and implemented a NetFlix style subscription model for toner cartridges. This worked out great for the company, because they had a 100% return rate on empty cartridges. And customers love it because they never run out of toner and they get great discounts.

It's not rocket science. Someone else solved this problem.

Or consider engineers who have been searching for better ways to locate and seal cracks in gas pipelines. This is a pressing issue for the industry. Then, one day, while a Scottish engineer was working on this issue, he got a paper cut. Unlike most people who would be annoyed, he was thrilled. What he realized is that his finger is like a cracked gas pipeline. By making a connection between capillaries and a pipeline, he was able to quickly develop an inert coagulation ingredient that would seals these cracks.

The solution wasn't rocket science. Someone else, in this case the human body, had already solved this problem.

Or consider a snack food manufacturer that wanted to find a way of reducing the amount of fat in their potato chips. The best solution wasn't found in their laboratory. In fact, the solution wasn't found in any laboratory. The person who discovered the best solution had no experience with food production. He was a musician. He knew that sound vibrations travel through solid objects and that if an object is light enough it, too, will vibrate. The solution was to place speakers above the conveyor belt and use loud music to literally shake the fat out of chips.

Clearly, this was not rocket science.

Quite often the most creative solutions arise when you assume that someone else has already found a solution. When you look outside your domain of expertise.

Or, as Steve Jobs, CEO of Apple Inc, once said, "Creativity is just having enough dots to connect... connect experiences and synthesize new things. The reason creative people are able to do that is that they've had more experiences or have thought more about their experiences than other people."

When you become masterful at connecting dots you find new and creative solutions.

That's the wonderful thing about this conference. They could have put 20 aerospace engineers on the stage. But instead they brought in artists, musicians, authors and neuroscientists. This is a chance for you to connect the dots. To learn from unrelated disciplines. If you have 100 aerospace engineers working on a challenge, the value of adding the 101st would be incremental. But adding a biologist, a neurologist, a nano-technologist, or a musician, may lead to a breakthrough.

[at this point I show a picture and tell a funny story...but you'll have to wait for the video for that]

It is about making connections. It is about connecting the dots. It is about looking outside of your domain of expertise.

You are all experts. And you are admired for your deep understanding of complex technical issues. Having said that, sometimes, the key to creative thinking is to recognize the best solutions aren't always rocket science.

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


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Tuesday, November 17, 2009

Do people seek risk only to minimize losses?

by Stephen Shapiro

Taking Risk to Avoid LossesBack in the 1980's, executives used to joke that you would never get fired for buying "Big Blue" (IBM) computers. It's not that IBM was the best, but you knew they would not screw up.

When I worked for Accenture (then Andersen Consulting), the Economist once called us "The McDonalds of the consulting industry. You know what you will get and it's not fillet mignon." People hired us not to get highly creative solutions, but rather to be assured of a successfully implemented solution.

There is a reason why consulting firms are so successful.

People choose safe, tried and true solutions over those which may be better yet have a risk of failure.

This is human nature. People take risks to minimize losses, yet play it safe when it comes to increasing gains.

But how much of a gain must be dangled in front of us before we will risk giving up the sure thing? I've been conducting a survey to find the answer.

Here's the first question posed to respondents:

Which would you choose?
  • Option 1: A guaranteed gain of $75K or

  • Option 2: An 80% chance of getting $100K and a 20% chance of getting nothing

Our survey found that 75% of the people go for the sure thing, option 1. People play it safe when it comes to increasing gains. But how safe?

What if the upside is increased to an 80% chance of getting $150K? Now, 57% take option 2. Still, 43% play it safe, even though there is an 80% chance of doubling their money.

What if the upside is increased to $225K? 76% choose option 2. This means that, 1 in 4 people still play it safe even when the potential upside is 3 times the original amount. When we increase the upside to $450K - 6 times the original amount - we still have 20% of the people who go for the sure thing.

It appears that people believe the expression, "A bird in the hand is worth two in the bush." Interestingly, the original Old English expression was, "Better one byrde in hande than ten in the wood." That seems even more accurate.

Ok, let's look at the loss side of things.

Here's the first question posed to respondents:

Which would you choose?
  • Option 3: A guaranteed loss of $75K or

  • Option 4: An 80% chance of losing $100K and a 20% chance of losing nothing

This time, when presented with a loss rather than a gain, 71% go for the riskier option 4. People take risks to minimize their losses. [As an aside, when I ask audiences this question, the percentage of risk takers is closer to 90%]

Increase the potential loss to $125K and 44% still go for the riskier option 4. When the potential loss is increased to $250K, 22% of the respondents still opt for option 4.

Risk versus RewardIf you plot these responses (risk-taking probabilities against expected gains), they make a nice 'S' curve as depicted in the graphic left.

What does this graph tell us?

It clearly supports the premise that people take risks to minimize losses, yet play it safe when it comes to increasing their gains. The loss of $1,000 hurts more than a gain of $1,000 feels good.

This means that you can sell someone more easily when you focus on losses rather than the gains. This might explain why Al Gore has been so successful with his "Inconvenient Truth." Instead of focusing on the benefits of a cleaner environment, he focused on the 'meltdown' associated with the status quo. Can anyone say Nobel Prize?

The shape of the curve also gives us a bit more insight. First, the gain of $2,000 does not feel twice as good as the gain of $1,000. Equally, the loss of $2,000 does not hurt twice as much as the loss of $1,000. There is a point where we become numb to the increased gain or loss.

Another potentially useful take-away is what I call the "risk/reward tipping point." This is the point where the 'S' curve flattens out on both the loss and gain side. This occurs at the point when 80% of the people take the desired action. And based on my research, this ratio is a little under 3.

What does this mean?

The hoped for win (the upside) must be three times the guaranteed amount in order for most people to risk the sure thing.

There is a reason why the status quo wins out in business, politics, and life. Rarely are we given options where the benefit is three times the sure thing/current situation.

On a final note, there was some interesting research on this topic...but with a twist. Researchers at Duke University, in a paper entitled "Sleep Deprivation Elevates Expectations of Gains and Attenuates Response to Losses Following Risky Decision" (Venkatraman, Chuah, Huettel, Chee), wrote that this risk-taking profile changes when someone does not get enough sleep.

When kept awake for 24 hours, the study (supported by brain scans) showed a double whammy: people became more optimistic about potential gains and they were also numbed to the negative feelings associated with losses. They would act riskier and have less regret (distinct from disappointment) about bad decisions. Their decisions were often bad decisions. If you go to Las Vegas, be sure to get plenty of sleep!

Our ancestors lived in a world of scarcity. Therefore it is not surprising that we do everything in our power to horde what we have. Unfortunately, our desire to play it safe can cause us to miss out on big opportunities. Risk taking is fundamental to innovation. And innovation is critical to long-term success.

If you want to see some of this stuff action, be sure to read my entry on 10 1/2 Ways to Improve Your Life - By Losing. This may give you some tools to enable you to take healthy risks to improve your life and business.

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

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Tuesday, November 10, 2009

Simple Innovation

by Stephen Shapiro

Unlocking Perfection - Cleaning Michaelangelo's DavidAntoine de Saint-Exupery, author of "The Little Prince", once said:

"Perfection is finally attained not when there is no longer anything to add but when there is no longer anything to take away."

This is a brilliant quote because it describes the challenge many innovators face. Too often, new products are overly complex and end up 'over-serving' their customers.

My new computer with Vista and Office 2007 is a perfect example of that. 99% of the software's functionality goes unused, yet these complexities slow down my computer and reduce ease of use. Being able to do everything for everyone is not perfection.

Next time you are designing a process, a product, or a service, ask yourself, "What can I remove?" For most consumers, simplicity is more important than comprehensiveness (and complexity).

The concept of 'taking away' is also a great time management technique. In addition to your to do list, be sure to create a 'don't do' list. Become masterful at killing products, eliminating non-value adding tasks, and removing old/pointless habits.

Or, as Michelangelo once said:

"In every block of marble I see a statue as plain as though it stood before me, shaped and perfect in attitude and action. I have only to hew away the rough walls that imprison the lovely apparition to reveal it to the other eyes as mine see it."

What are you doing that is imprisoning your perfection?

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

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Tuesday, November 03, 2009

How a Blizzard Saved the ATM

by Stephen Shapiro

Early ATM"Build it and they will come." We hear that mantra a lot. But with innovation, it is often more like, "Solve a pain and they will come." The ultimate success of the Automated Teller Machine (ATM) is a great example of this.

The other night I was having dinner with someone who in the mid-1970's worked with Citibank, the second largest bank at the time. He shared with me the story of the birth of the ATM, at least from his perspective.

In 1977, after investing hundreds of millions of dollars in ATM technology research and development, Citibank decided to install machines across all of New York City. But at first, they were not very popular. The technology was confusing to first-time users, the machines were not always accurate (they sometimes dispensed the wrong amount of money), and they were impersonal. I was told that customers who used ATM machines were so frustrated that many closed their accounts.

The ATM may never have been an instant hit if it weren't for a natural disaster.

January 1978 will always be remembered for a blizzard that dumped as much as four feet of snow in the Northeast. In New York City, nearly two feet of snow brought the city to a halt. Banks didn't open. Instead, people got their money from supermarkets. But most of those quickly ran out of money.

This created a massive 'pain'.

Where did people turn? The ATMs. It is estimated that during the storms, use of the machines increased by over 20%. Soon after, Citibank started running TV ads showing people trudging through the snow drifts in New York City. That's when the company introduced their wildly popular slogan, "The Citi Never Sleeps." This was the real birth of the automated teller machine.

I found an interesting Fortune article that corroborates his story. The article claims that by 1981, Citibank's market share of New York deposits had doubled. A lot of this growth could be attributed to the ATM.

This story illustrates an innovators dilemma. Brilliant innovations are not necessarily taken up by the masses. Some ideas just need time to incubate and gain acceptance. But can your business survive long enough to see the success? Too many ideas, like Webvan, could not endure the incubation period. Sometimes your innovations need a little boost.

As I have pointed out in previous blog entries, people take massive risks to eliminate their pains, but play is safe when it comes to adding convenience. ATMs were primarily about convenience. What did it take for them to become a success? A pain caused by a natural disaster.

Are your new ideas solving a pain? Or are they just a nice to have? If they are just a convenience, what can you do to create a pain - without having to rely on a natural disaster?

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

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Tuesday, October 27, 2009

Content is No Longer King (Part 2)

by Stephen Shapiro

Amazon Kindle DXIn an earlier blog entry on content, readers provided a number of interesting comments. If you haven't already read that article (and the comments), you may want to do so in order to understand this new article.

Many did not agree with my point of view. And that is great. I only wanted to stimulate some conversation.

Let me first address some of the comments (and I appreciate the time that everyone took in writing comments). The comment is in italics with my response following.

"I wonder if the Kindle model requires a subsidy to offset the upfront cost of technology development and/or design manufacturing." Two thoughts come to mind. 1) No one has an issue paying $150 for an iPod even though the cost of the music is pretty much the same. 2) As new generations of eBook readers hit the market, prices will drop. Several are now on the market for under $200.

"The reason distribution appears to be the source of value isn't distribution itself but the monopolistic nature of new distribution channels." Indeed. And that's my point. Those who aggregate are the ones who create positions of power. The content creators are not the power players. And the individual publishers certainly aren't.

"If content was truly losing its ability to create value, Comcast would not try to purchase NBC - they might instead bid for Netflix or for a content delivery device company like Roku." Great point. The reason why I mentioned Comcast's acquisition of NBC was not to say that it was a good or bad move. I was only trying to point out that a few years ago, the networks were the ones doing the acquiring. Now the distributors are in a position to buy the content creators. It will be interesting to see what this Comcast deal does to Hulu.

"It's the publisher that is not essential anymore - the content creators are also becoming content publishers due to technology." Indeed, the publisher is now playing the role of middleman and is going away in many respects - or needs to play a very different role. As you suggest, content creators do have the option to go straight to the consumer now. And we are seeing a democratization of content. Having said that, content creators will still want to push their content to content aggregators - the source of the eyeballs. The reason why Google is so successful is that they are currently a significant player in how content is found.

Google and AuthorsSome interesting things have evolved in the past week since I wrote the first article. It appears that the big innovations are being developed by the content aggregators (not that that is surprising).

Google Digital Books: Google is offering eBooks on out of print books that are no longer subject to copyright restrictions. They scanned nearly 2 million books and will be offering them in digital form for about $8.

HP/Amazon paperback books: Soon after Google's announcement, HP and Amazon.com indicated that they will offer print on demand paperback books for these out of print books. A 250 page book from their library of 500,000 can be purchased for about $15. A single copy can be printed in a few minutes.

Book Pricing War: Wal-mart, in an effort to crush Amazon.com, is offering 10 new release books for $10. Well, that was until Amazon said they would offer those same books for $10, at which point Wal-Mart dropped the price to $9. Target joined the price-war, dropping the price to $8.99. This caused Wal-Mart to drop the price to $8.98. According to the WSJ, "The publishing industry is also watching warily to see if the price war will have lasting impact on book pricing and the contracts that publishers sign with authors."

BN Nook eBook Reader: Barnes and Noble, announced the release of their 'Nook' eBook, intended to take on Amazon.com's Kindle. One account says that the Nook is "closer to a printed book than its precursors in some respects, (in that it) allows users to lend their copies of electronic books to any friend who has installed Barnes & Noble's e-reader application on a mobile device or personal computer."

Comcast Premium Channel Streaming: Comcast announced that by end of the year, you will be able to watch popular cable television series such as HBO's "Entourage" and AMC's "Mad Men" on your computer without paying extra. They are reported to be the first cable TV operator to "unlock online access to a slate of valuable cable shows and movies, aiming to replicate what's available on television through video on demand."

Please don't get me wrong. Content is necessary. As an author, I sure hope there is value in what I do. Amazon.com, iTunes, Wal-Mart, Barnes and Noble, and Comcast would not exist without content. So yes, content is important. I just wonder if it is still king.

P.S. As an aside, Andrew Odlyzko published an article entitled "Content is Not King" where he contends (according to Wikipedia) that "1) the entertainment industry is a small industry compared with other industries, notably the telecommunications industry; 2) people are more interested in communication than entertainment; and 3) therefore that entertainment content is not the killer app for the Internet." I realize it is a different topic altogether, but it is interesting nonetheless.

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


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