Co.Design

Wanna Manage The Innovation Process? Focus On Planning Scenarios, Not Fighting Fires

In Relentless Innovation, Jeffrey Phillips offers a clear-eyed primer for managing the innovation process.

The following is an excerpt from Relentless Innovation: What Works, What Doesn’t—and What That Means for Your Business by Jeffrey Phillips.

Perhaps one of the biggest myths about innovation is the idea of the "lone" innovator, who works on ideas in the lab or office, without assistance or support. In this myth the innovator or inventor has a flash of insight, generates and manages ideas completely on his or her own, and fights the bureaucracy to overcome all odds to produce a commercially viable product. While these stories about individual innovators overcoming all odds are enjoyable, they are rarely true. In fact, most, if not all, ideas that become new products or services require the involvement of a significant number of people from a wide array of business functions—sales, marketing, legal, manufacturing, and distribution, to name a few. The complexity inherent in developing, testing, and commercializing a new product demands a broad perspective and a diverse set of skills.

Likewise, innovators need strong, consistent processes and frameworks in order to manage, develop, and test ideas. Few firms succeed using ad hoc or "on the fly" innovation processes. A well-defined idea management and development process assists an innovator by reducing complexity, defining evaluation criteria, establishing "gates" and reviews for the ideas, and communicating workflow and tasks for the people who are involved in developing and managing ideas. A common, consistent process increases effectiveness, reduces bias in idea consideration, and encourages the development of institutional capabilities over time. When many teams or individuals attempt innovation using the same processes and methods, learning benefits become evident, reducing risks, costs, and timeframes associated with innovation and producing better results than in organizations that fail to define and sustain an innovation process.

A well-defined innovation process will encompass an entire "end to end" innovation capability, including these phases:

• Trend spotting and scenario planning
• Gathering customer needs and market insights
• Generating ideas using the scenarios and needs as guideposts
• Evaluating, prioritizing, and selecting ideas for further development
• Prototyping and piloting ideas
• Transitioning ideas into product or service development
• Launching new products and services

In each of these phases, there are a number of steps to complete the phase successfully. Further, each phase has a number of tools and techniques that must be mastered in order to produce effective results. To implement those tools and techniques and to complete this process, clearly defined workflow must exist, and the people who are expected to do this work must be trained. The innovation process is similar to other business processes within your firm. There must be a clear definition of the work, who does the work in each step, and a carefully defined workflow so that teams in each phase or activity understand the results of the work upstream and they can use that input to accomplish their tasks.

While innovation is consistently ranked as one of the most important capabilities, few firms have well-defined innovation processes or capabilities. Other important business processes, such as receiving customer orders or accepting payment for customer orders, are well-defined processes honed over years or decades. Yet innovation is still relegated in many firms to an ad hoc process developed by the innovator or innovation team, purpose-built for the task at hand, and rarely reused or repeated. No other important process is conducted in such an ad hoc manner. Innovation needs and deserves the same definition and process that other important functions benefit from.

When a Process Is Valuable

Defining and developing an innovation process, however, only makes sense if the process will be repeated. If an innovation initiative is a "once and done" event, developing a new innovation process specifically for a discrete, one-time initiative will not be worth the effort. Since few firms think of innovation as a business discipline that can be sustained over time, it doesn’t seem useful to construct a consistent, repeatable innovation process, especially one that encompasses all of the tasks and phases identified above.

Further, defining a new process requires identifying roles and responsibilities to support and sustain the process, meaning that roles are created and education and training is required. Building an innovation process and staffing it effectively, though, isn’t valuable if it is not repeated frequently.

Defining the Core Team

While firms pour thousands of dollars each year into improving processes for purchasing or order entry, and optimize these processes using process definition, Six Sigma, and Lean, most companies never define an innovation process, conducting innovation efforts in an ad hoc manner. While companies would never allow each business unit to define its own purchasing parameters and identify its own approved vendors and purchasing processes, they do allow each product group or line of business to adopt its own innovation methods and tools, and deploy people with little training and no centralized methods to create new products and services.

There is a better way. Just as purchasing is centralized to ensure that every acquisition in every product group or line of business is conducted in a similar and effective manner, a core innovation team can be defined to create and manage a common innovation method or process, while providing innovation capabilities and tools to anyone undertaking an innovation project. In this approach, a central team is responsible for managing and maintaining innovation methods, processes, tools, and capabilities and assisting product groups or lines of business when they need help on innovation tasks. A small core team can assist many different groups and ensure a more consistent, effective approach to innovation. Note that the core innovation team recommended isn’t responsible for innovation, but for defining the common methods and processes for the organization to use.

Transition Points

Further, many innovation programs falter at important transition points within defined processes. Perhaps the most important transition point is between idea selection and product development. History is replete with examples of organizations that generated hundreds of great ideas that were never developed or implemented.

Xerox PARC is probably the best-known example of an organization that created many new innovations but failed to transition those concepts into new products or services. Xerox PARC is credited with prototyping the first computer mouse, the first graphical user interface, and a number of other technologies that were finally brought to market by other firms. Xerox PARC struggled to move new ideas out of the research lab and into product development, and their struggles are reflected in many other organizations. Often the barrier is in the transition from idea selection to product or service development. The chasm between well-received idea and funded product development is large and it should be bridged by idea sponsorship, priority setting, and funding.

Ideas that are valuable to an innovation team and solve customers’ needs may not receive the appropriate ranking or prioritization from an overworked product manager with a long list of priorities. This issue must be solved by integrating the product development team into the idea development, so the product managers understand the value and opportunity the idea presents. Also, sponsors need to be identified who can support, fund, and ensure achievement of the idea, placing correct prioritization on the product manager’s to do list. It’s not enough to document a process to generate and manage ideas, the process must consider key "gates" and decision points like funding and important "gaps" or chasms like the transition from idea to new product or service development.

Reactive versus Proactive Philosophy

While some factors (compensation, metrics, and processes, for example) are the outcome of intentional, careful decisions and specific actions, other factors influencing innovation are often derived over time or they are an artifact of the history of the organization, its position in the market, and its strategic focus. For example, many firms adopt the strategic position of "fast follower," discussed earlier, intending to enter new markets or create new products once those markets or product spaces have been validated by a competitor.

Far too frequently, many firms settle for such a "reactive" approach to innovation, using it as a tool to respond to changes in market conditions and in response to new entrants or new offerings, rather than using innovation in a proactive way to open new markets or address unmet opportunities. An example from one of OVO’s clients is instructive here.

OVO Client Case Study

We worked with a large health insurer prior to the 2008 presidential election that brought President Obama to the White House. For at least two years prior to the election it was clear that a Democrat would win the White House and when he or she (Hillary Clinton was considered the frontrunner at that time) did win, one of the first big priorities would be to address health-care delivery and funding. While we raised this issue repeatedly, our client decided to take a "reactive" wait and see posture, rather than using innovative tools to create novel solutions that could become the leading thinking in the marketplace.

The argument given by our client was that regulations could change quickly and any new ideas or products they created would be worthless if the administration and Congress worked in directions different than the insurer chose to pursue. This attitude, which is prevalent in many firms, simply ignores the concept of trend spotting and scenario planning, and instead asserts that the future is basically unknowable. It is possible, however, to consider potential futures, and with a bit of work and insight any firm can predict with great confidence where markets, regulations, and customers are going. Good innovators don’t react to the market, they identify emerging opportunities and arrive with products and solutions before customers are aware that their needs or conditions have changed.

To continue the saga of OVO’s health insurance client, a year after the inauguration of President Obama, the insurer had fallen afoul of congressional Democrats, who sought to control increasing insurance prices. With no new products to introduce, our client had to resist new legislation and take its lumps in the media and in its markets. By ignoring the potential future and taking on a purely reactive mode, this firm lost several years of opportunity for innovation and now must work within the confines of the new legislation, reacting to regulations, rather than having acted in advance to influence the legislation by demonstrating innovative new products and services.

Firefighting

Most entrepreneurial and smaller firms want to change the world, and they are constantly trying to influence the dynamics of the market in significant ways. Over time, as the firms age and settle into a comfortable BAU existence, the expectations shift. As firms mature they seek to protect their markets and drive out costs and inefficiencies. Companies also become more defensive about their markets and prefer to react to changes rather than create changes. In fact, many firms in an industry try to codify the status quo, locking in existing rules and expectations and locking out new entrants. When the market inevitably shifts, most of these firms are caught off- guard, and resort to "firefighting." Firefighting is a term I use to describe the urgent demand and rapid response to a new product introduction by a competitor or a significant change in the marketplace. Middle managers are often asked to drop everything they are working on and respond to events in the marketplace.

In many firms it is hard to distinguish middle management from firefighters since middle managers are typically stuck with rushing from one fire to another. These fires are caused by unanticipated changes in the market through new regulations or entrants. Because the firm has settled on a reactive posture, and isn’t actively attempting to influence the market or understand the future, every new change is a significant hurdle that must be addressed. Most firms reward "firefighters" who rush to handle these issues, though in hindsight these problems could have been avoided by a little foresight or proactive efforts.

A true innovator will identify these emerging issues and create new products or services to forestall change or to influence the change to favor their products or solution. Innovators are proactive, establishing new markets, identifying and meeting emerging needs well before the "fast followers" or laggards. Innovators force their competitors to become firefighters, which expend their energy and resources to stay abreast of the latest products, simply hoping to keep pace with the innovators. Trend Spotting. Any firm can invest a small amount of money and resources into trend spotting. Trend spotting involves identifying changes that are occurring in technologies, economies, demographics, and other fields that will influence future markets. Trends may suggest that the demographic nature of a country is shifting, becoming older and more homogeneous; that economic growth is slowing; or that new technologies will dramatically change the way people interact with each other. Trends are easily spotted if people are alert to what happens in their markets and economies.

Trends are valuable as they indicate the potential direction and shape of the markets in the future. While trends don’t necessarily indicate exactly what will happen, they provide clues as to the emerging opportunities and threats that may exist in your markets. Even if your firm doesn’t care to do this work in house, it can easily be outsourced. Once you have the trends as inputs, conducting short scenario planning exercises to try to understand the future will begin to shift the firm into a more proactive stance.

Scenario Planning

Scenario planning isn’t difficult and it is a great tool to begin to anticipate possible futures. Scenario planning uses the trends you’ve collected as inputs. Using those trends, your team discusses the impact of trends in a number of areas—technological, demographic, societal, governmental, and so on, and forms hypotheses about the future based on those trends. Thus, scenario planning helps your team create alternative views of the future. Forecasting in this way can help your firm predict market shifts, identify emerging market opportunities, and anticipate new entrants. You can learn more about scenario planning from perhaps one of the best sources; Peter Schwartz introduced scenario planning at Shell Oil in the late 1960s, and he eventually wrote one of the most approachable books on the subject entitled The Art of the Long View. Once your team begins to understand the potential futures, then you can become proactive, influencing the market or regulators if necessary, creating new products and services that address the needs as they emerge.

From Reactive to Proactive

Shifting the focus for middle managers from "firefighting" to future scanning is possible and they’ll appreciate the change. Firefighting is taxing, frustrating, and rarely leads to good outcomes, while requiring a huge expenditure of resources and resulting, at best, in a return to the status quo. Instead of moving the firm into a new or better position, firefighting is an investment that optimally returns the firm to its original status quo. Future scanning, however, shifts the focus toward the future and new opportunities, placing the organization in a position where it can be proactive.

Middle managers will again take their cues from what executives say is important, what key goals and metrics are communicated, and their personal evaluation and compensation plans. Executives who demand scenario planning to help shape the course of the business will introduce the importance of scenario planning and future scanning, and those tools will cascade throughout the business. Just as important, firms need to downplay the "heroism" of fighting fires and instead reward managers who spot problems or opportunities before they occur. Good innovators are proactive and they use their insights about the future to take advantage of the market and their competitors, moving into valuable positions ahead of other firms. Reactive companies constantly fight fires and long for the day they can steal a march on their innovative competitors.

Here, again, clear strategy and intent is important. A firm that lacks a well-defined strategy or has a strategy that isn’t well communicated will shift its focus to what it knows best. In the absence of a new strategy, sustaining and improving the operating model becomes the strategy. The heightened focus on the operating model means that the firm cedes the proactive space to other firms that focus on innovation, trend spotting, and scenario planning, and it becomes ever more reactive to market shifts and consumer demands. The inevitable disruptions, when they do occur, create more dissonance for the reactive firms—which didn’t foresee these changes and who are locked into a highly efficient operating model—than they do for proactive, innovative firms.

Buy Relentless Innovation here.

[Image: Fotana, Nomad_Soul, tovovan, and Mikhail Olykainen via Shutterstock]

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1 Comments

  • PARC, a Xerox co.

    Given PARC's experiences -- and some lessons learned -- in evolving our business model (since we were incorporated in 2002) and working across multiple clients and industries today, here are some points we'd like to highlight and raise: 

    *We definitely agree that one of the biggest myths about innovation is the idea of the "lone" inventor. PARC has always had and continues to bring people from diverse disciplines together to solve our clients' problems, and as you note, we now also incorporate broader perspectives and other expertise such as business development, IP portfolio creation reduced to practice, manufacturing for scale, etc. 

    *Clear -- and repeatable -- processes and frameworks for managing innovation are certainly helpful. But here's the thing: we need to move beyond just phase "gate" approaches to more iterative, non-linear approaches -- such as adopting a real options mindset and a portfolio management approach for executing on innovation investments. http://bit.ly/iidbhu 

    *Sure, scenario planning is a useful tool, and great for helping companies innovate when they know where they want to go. But the reality of innovation is that people in boardrooms and laboratories don't decide what's successful in the marketplace: people do. That's why incorporating human factors insights from social scientists and ethnographic observations of people in context (which reveal what people do, not just what they say they do) can help companies determine where they SHOULD go. In other words: don't just focus on solving the problem "right", but focus on solving the "right" problem. http://bit.ly/tafalB 

    Finally: consider practicing open innovation, which involves partnering with outside organizations to achieve your business goals (whatever they are). It's the best hedge against the innovation risks you mention above, the best strategy for moving from ideation to implementation (the transition gap you reference), and one of the best ways to create new options and accelerate time to market. That's PARC's business model today, and we're celebrating 10 years of practicing it this year! http://bit.ly/hcrg8K