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OVO Views
Conversations about Innovation
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February 2007
- Vol 1, Issue 8
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Partner Highlight - Venture2
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In our continuing effort to reach
out to other innovation leaders and
understand their
experiences and perspectives,
we're pleased to welcome Mike Docherty to our
newsletter as a featured contributor this month.
Mike runs Venture2 (www.venture2.net), which
specializes in new product innovation, and
also runs the Launching Pad, an
incubator/ideation location to generate new
ideas and launch new products.
Mike agreed to talk with us about the
opportunities and challenges associated with
open innovation and his approach to
innovation networks.
Open Innovation
Open innovation business models and
collaborative approaches to innovation are
moving beyond 'nice to haves' to 'must
haves'. Joint ventures and strategic
alliances are on a growth path. ‘Open-market
innovation’ is included for the first time
among twenty-five management tools studied in
Bain & Company’s 2005 Management Tools and
Trends Survey. The survey of 960 executives
shows that open-market innovation methods are
now being employed by more than 24% of
respondents.
But are companies succeeding? A select group
of leading companies have successfully
adopted open innovation, and are
demonstrating impressive results. Due in
part to their commitment to open innovation,
P&G is seeing double digit sales growth with
better than 50% gross margins. And by
leveraging external partners, P&G has
achieved this growth, while their R&D as
percentage of sales has gone from 4.8% to
3.4% over the same period. But many others
are moving slowly or stumbling along the way.
Open Innovation as an ecosystem
I propose that open innovation business
models are a lot like ecosystems. Both
ecosystems and open innovation business
models have elements of partnership,
cooperation and competition. Both are about
inter-dependent – inter-dependent –
groups.
They depend on each other in a delicate
balance of support.
Creating an innovation network, relying on
external partners for innovation - it means
operating at a higher level. Just like in
nature when people go from dependence at
childhood to independence at adulthood to
inter-dependence as a family. So, just like
an ecosystem, your approach to open
innovation partnerships need to be built on
inter-dependence. You need your partners as
much as they need you.
Innovation networks can take many forms.
They can be peer-to-peer networks that bring
together non-competitive, or even competitive
players to share insights or co-develop.
They can be supply chain networks that
collaborate across the value chain.
Innovation networks can be internal forums
and mechanisms to leverage expertise,
technologies and ideas within large
de-centralized organizations. They can be
feeder networks that create linkages between
a large central company with external
start-ups, universities, technology companies
and inventors. Below are some of the more
common types of networks that can be used to
build an innovation ecosystem.
Examples of innovation networks
- Peer to peer networks: Non-competitive,
or even competitive companies sharing
insights and co-developing
- Supply chain networks: Innovation across
the value chain
- Internal networks: Forums and mechanisms
to share knowledge and ideas within large,
distributed organizations
- “Feeder” networks: Larger, centralized
entity leveraging external partners in
coordinated development
- Customer/User group networks: Advisory
groups or other forums designed to involve
customers in bringing forward both needs and
customer-developed solutions
- Events and forums: Discrete events aimed
at creating and nurturing a network of
innovators
Creating and managing innovation
networks
The first step in creating any network for
supporting innovation should be the
development of a statement of ‘strategic
intent’. This can take many forms but in
general is focused on defining the innovation
growth paths, whether any or all of the
following: new geographies, markets,
channels, business models.
The next step in developing innovation
networks is the first round of an ongoing
process of translating goals into problem
statements and charters. These problem
statements should have the following
characteristics:
- Charter based upon macro trend or problem
to be addressed
- Problem should be market or
customer-driven, not internally driven
- Problem statements should be challenging
and longer term horizon
- Networks should not be designed as
‘permanent’
Venture2 has a 3 step process we've refined
through a number of engagements which guides
our clients through the process of creating
innovation networks. That 3 step process
includes:
- Strategy Development
- Network Development
- Partnering Development
You can read more about how to set up and
manage innovation networks at our
website, www.venture2.net.
Conclusion
As the marketing author Seth Godin said
“There’s no shortage of remarkable ideas -
what’s missing is the will to execute them”.
I firmly believe that open innovation and
innovation networks provide one of the best
mechanisms for overcoming our fixation on
creating more ideas and fear of implementing
them. Because open innovation let’s everyone
do what they’re best at. Too much invention
and innovation is taking place by individuals
and start-ups to ignore. These creative
entrepreneurs are a wonderful source of
innovation for large companies. And these
large companies are uniquely positioned,
through the strengths of their brands and
distribution channels, to scale up big ideas
into big businesses.
Let innovation networks be the catalyst to
help you collaborate effectively with
external innovators.
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Innovation as a cross-functional activity
requires
people in many different business functions to
generate, manage, evaluate, prototype and launch
new
products and services. As a cross-functional
activity, innovation requires that many people
participate in ways that are not well-defined or
organized by our existing organizational
structures.
Innovation can create new part-time and full-time
roles within your organization. Over the
next few
months we'll examine some of these roles and the
value they can add to your innovation
initiatives.
The Framer
This month, the innovation role we'll
consider is the Framer. Last month we looked
at the role of the Scout in innovation
initiatives.
The
Scout provides information on the trends in
the market, and the Framer
synthesizes that information and helps provide
context. The Framer provides two very important
functions. First, the Framer helps to bring
context
to innovation. By framing a need or an
opportunity,
the Framer helps others in your team
understand the
needs in a much more specific fashion.
Additionally, by defining the problem or
challenge, the
Framer can
establish the scope of the opportunity or
idea, and
dictate the objective measures or criteria
that can
be used to evaluate the idea.
The Framer's first responsibility is to bring
some
order out of the chaos and establish what
information and ideas are important.
Idea Context
Many innovation initiatives run aground
because the ideas they capture have too
little framing or context. An open
suggestion box is a great example. Rather
than simply ask people for their ideas,
you'll find it much more rewarding to
establish certain problems, challenges or
opportunities and ask people to respond to
these specifically with ideas. Using a
suggestion box, you can also ask people
to submit ideas with information on
what challenge or issue the idea solves,
how important that problem is to the
business, and how the solution would be
measured. Without this context, too many
ideas with no defined scope or importance to
the business are submitted and the innovation
team works on ideas that have little value to
the business.
The
innovation
team cannot work effectively in a vacuum.
Establishing a context and a scope for the
ideas and
their eventual outcomes means the team can make
tradeoffs and determine which ideas get more
attention. Since time, resources and
manpower are
limited, establishing a framework to
determine which
ideas "matter" helps the team understand
which ideas
to work on and where to spend their time.
Idea Evaluation
Additionally, the Framer can help the team
establish
the evaluation criteria for an idea or set of
ideas.
When framing the opportunity or need, the
Framer can
establish the outlines of the eventual
product or service, which will dictate the teams
that must review and pass judgement on the
idea, and
in what context they should consider the
idea. By
framing the idea appropriately, it becomes
easier to
understand its value proposition and the
opportunities and challenges the idea will
face in
the market. An idea that seems valuable in the
abstract may seem less attractive when its
eventual
context is described.
The ultimate value a Framer provides to the
innovation process is a method to provide
some defined constraints around the ideation
process, and help the organization focus its
energy on producing and managing ideas that
support the strategic direction of the
business and can be evaluated and launched
effectively. This function ensures the
innovation team does not get bogged down with
ideas that aren't well conceived or don't
support the direction of the organization,
which can lead to disappointing results.
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Innovation Success - The "C" Factor
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Over the last few months we've had an ongoing
series
of articles about the "C" factor - success
criteria
for innovations that begin with the letter
"C". In
previous newsletters we've examined the
concepts of
Choice, Control, Convenience and Community.
In this issue we'll look at the importance of
Compatibility as a success factor for innovation.
When creating a new product or service,
you'll have
two choices about the existing
infrastructure. Your innovation will need to
work within an existing infrastructure
(Compatibility) or your innovation will need
to disrupt the existing infrastructure and
create a new type of standard. Either of
these choices are valid, as long as your team
understands the implications of the decision.
Ignore
Compatibility at your peril,
regardless of the "Wow" factor of your product
or service.
Defining Compatibility
Let's start out by recognizing that
compatibility is
often thought of as a technical requirement. For
many years, for example, Apple peripherals
were not
compatible with Windows based machines. They
simply
weren't made to work together. Different
electrical distribution systems in various
countries require electrical appliances to
have different plugs and voltage regulators.
But extend this thinking a bit further and
you will
recognize that compatibility is important in
services and business models as well as physical
products. A product or service needs to be
compatible with consumer needs and
expectations - in fact expectation
compatibility may be even more important that
technical compatibility. Is your new product
or service compatible with the expectations
of the consumer and the way they've acquired
and used your product or service previously?
In the end, compatibility is about consumer
expectations and change. Consumers are
willing to change if the new product or
service strongly outweighs the benefits of
the previous solution. Otherwise,
compatibility becomes exceptionally important
given the expectations, investment and
infrastructure in place already.
Choosing Compatibility
Creating products and services that are
compatible
with existing infrastructure makes a lot of sense
for incremental and disruptive products and
services. Compatibility creates a network
effect,
adding value to your products and services and to
the existing products and services. For
example, if
your company were to create the best headphones
known to man, with the best audio fidelity
and stereo quality, but require a completely
new jack type
unlike the existing pin types used on
existing audio equipment, your
innovation would fail. The existing
investment in audio equipment in the hands of
consumers today would negate the power of
your headsets until you could convince the
audio industry to adopt your new standard for
jacks.
A case could be made that your headphones
will not use a jack at all but rely on
BlueTooth or other wireless links to audio
equipment. In this case you may address the
needs of some audiophiles but still miss the
broad mainstream of music listeners who do
not have wireless or BlueTooth capability.
Most new innovations rely on existing
standards and firmly held expectations.
When these consumer expectations are not met,
a new product or service will fail.
Services firms often "innovate" customer
service by providing more automation in the
customer service channel. While these tools
may cut costs and even provide better
service, they violate consumer expectations
of personal service and are often perceived
negatively.
Disrupting Compatibility
Most innovators dream of dramatically
changing the status quo - creating a new
product or service that disrupts a competitor
or market. The challenge that most
disrupters face is that they require
consumers to actively change their behavior
or product usage. Unless the innovation
provides significantly greater benefits than
the existing product or service, the consumer
will remain with the incumbent product or
service.
A good example of an entrenched incumbent
ripe for disruption is Microsoft. It would
be hard to count the
number of PC operating systems that have
attempted to disrupt Microsoft's hold on the
operating system. Many firms have tried, and
only one operating system can be considered a
threat to Microsoft - Linux. Linux was
intended as an alternative to Microsoft, and
used Microsoft's dominance and strengths
against Microsoft.
Linux attacks Microsoft on three dimensions -
emotion, finances and openness. For many
people, Linux is an alternative simply
because it is not Microsoft. Linux is also
much less expensive than Microsoft and has by
far more openness and configurability. In
the case of Linux, the open source community
has created a solution that can possibly
disrupt an existing competitor, but not
without significant risk. Many firms have
significant investment in Microsoft's
software and aren't prepared to change until
Linux proves it is ready for more than just
the technical guys. A disrupter always faces
a higher expectation for quality, service and
delivery, since the disrupter forces the
consumer to change his habits.
If you seek to disrupt an existing market or
standard, your product must create a
compelling value proposition for its target
audience. It will need to demonstrate enough
value that it causes consumers to make an
active change in their behavior, and to
completely adopt that change. A good example
of a successful disruption is online brokers.
These firms provide more flexibility and
more control over investing and bypass the
costs and control of the traditional broker.
However, a significant portion of the
investing community still uses traditional
brokers, to take advantage of their insight
and market advice. Even a proven disruptive
success like online brokers will attract only
part of the potential market, due to inertia,
fear of change or other rationales.
Compatibility and Innovation
A great feature about compatibility and
innovation
is that your firm gets to choose.
With your innovation, you can choose
compatibility
with the existing infrastructure and
expectations, making it
easier
for customers to acquire and use your
products and
services. Or you can choose to create a
product so
disruptive that it eliminates the need or
thinking
behind the existing infrastructure, which will
provide a much more dramatic return on your
investment but may take much longer to launch and
acquire sales.
Either approach is valid, but your strategic
intent is important. Embracing compatibility
means faster acceptance in the market, but
disrupting the market can mean market
dominance and higher profits.
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In our work on innovation and idea management
over the last few years, one recurring theme
we've noticed is that innovation and idea
management initiatives are often begun
without enough forethought and planning. As
we speak with individuals who have been
tasked to innovate, we find:
- Unclear goals
- Uncertain direction
- Poorly defined strategies
- Little organizational support
- Few defined processes
These factors tend to slow down an innovation
initiative or keep the initiative from
achieving what is possible. Innovation
Readiness is a key factor to innovation
success.
If Readiness is an important factor to
success, how can you "Get Ready"? We at OVO
suggest an innovation readiness assessment.
Based on the work we've done, we've
identified eight factors that are necessary
for innovation success across the business.
An assessment looks at each of those factors
and helps determine the level of experience
and support each of the factors has within
the business, the level of effort necessary
to improve that factor, the impact that will
have to the business, and the costs and
timeframes associated with improving those
factors. Once the assessment is complete, it
is easy to identify the "factors" that need
work and a work plan to get the organization
ready for successful innovation.
Got Traction?
If you have a team defined, and have started
doing some innovation work but feel like you
are not accomplishing much, you may need to
back up and ensure your company is ready.
Symptoms will include:
- Different expectations across the
organization
- Unclear definition of your team's goals
- Constantly evolving requirements and
outcomes
- No measurements or metrics established
If you encounter one or more of these
symptoms, it's likely that your organization
is not ready for the work you are doing. The
executive team buy-in has not occurred, or has
not been communicated, or the culture has not
accepted the concept of an innovation team.
Regardless of the problem, you'll need to fix
these concerns before you can move ahead.
Meanwhile the clock is ticking. You are
expected to deliver something - but what?
Unclear goals and shifting expectations mean
you spend time on a number of ideas and
projects, but none meet all the criteria
necessary for success. Eventually the team
falls into disrepute, because they've worked
for quite a while and have little to show for it.
What's great about an innovation readiness
assessment is that it does not take long to
accomplish, provides very meaningful,
actionable results and it helps ensure a much
higher success rate when you start your
innovation initiatives.
Use physical fitness as an analogy. If you
decide to get in better shape
and run a marathon, you'd probably consult a
doctor to determine the areas of concern.
You'd adjust your eating habits and exercise
routine. You'd train to get ready for the
marathon. Likewise, since innovation is such
an all-encompassing activity, you need to lay
the groundwork and prepare your organization
for innovation. The average person won't be
successful running a marathon without
preparation, and most firms won't be
successful creating sustainable innovation
processes without similar preparation.
Back to Basics
In most cases where innovation initiatives
have failed or stalled, the cause of the
failure is not based on a lack of ideas
within the organization, or the innovation
team. Almost always, the stumbling block
causing innovation to fail is a cultural or
process issue that should have been addressed
before the initiative was started. Before
you start your innovation initiative, or
before you get too far down the road, do a
quick assessment of the factors we define to
ensure your innovation initiative has a great
chance for success.
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If you'd like to discuss how OVO can work
with you
to improve your innovation strategies, ideation
sessions, innovation processes or software,
contact us today at our website
or
(919) 844-5644 x789.
If you enjoyed this innovation newsletter, please
pass it along to your friends. If you wish to
unsubscribe, please see the link below.
Sincerely,
Jeffrey Phillips
OVO
phone:
919-844-5644 x789
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OVO | 220 Horizon Drive | Suite 117 | Raleigh | NC | 27615
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