Strategy. Innovation. Brand.

potential impact of innovation

Innovation: Loosen Up, Tighten Up

Loosen up, dudes!

Loosen up, dudes!

I’ve written a lot about innovation but have yet to properly introduce Rosabeth Moss Kanter, one of our leading thinkers in innovation and change management. A professor at Harvard Business School, Kanter has written a string of books on innovation, incuding some of my favorites: Confidence: How Winning Streaks and Losing Streaks Begin and End and SuperCorp: How Vanguard Companies Create Innovation, Profit, Growth, and Social Good.

Today, I’d like to draw on concepts from one of Kanter’s articles in Harvard Business Review, “Innovation: The Classic Traps“. Kanter surveys a number of different traps but two, in particular, caught my attention, mainly because I’ve seen them myself.

The first is called controls too tight. All too often, companies use traditional metrics to judge the impact of non-traditional innovations. The problem is that traditional metrics — such as hurdle rates, ROI, or NPV — all require some type of track record to produce results that might be considered reliable.

The problem, of course, is that a truly innovative product has no track record. Kanter writes that companies often fall prey “… to the impulse to strangle innovation with tight controls — the same planning budgeting and reviews applied to existing businesses.”  Kanter writes that the solution is to loosen up and add flexibility to your planning and control processes. This may include innovation funds and judicious exemptions for corporate requirements and timetables. Going a bit farther afield, you might also incorporate new financial metrics like real options analysis.

The second trap might be called connections too loose. The idea is that companies often isolate innovative new products and processes in organizational units that are physically and/or culturally isolated from the mainstream. Kanter points out that GM’s Saturn brand was established as a separate unit to pioneer new ways to design, build, and market midsize cars. While Saturn itself was innovative, the innovations didn’t have much impact on the rest of GM.

The same trap can affect established units as well. Kanter points out that CBS was once the largest broadcaster in the world and also owned the largest record company in the world. But MTV, not CBS, invented the music video. Kanter also writes that “… Gillette had a toothbrush unit (Oral B), an appliance unit (Braun), and a battery unit (Duracell) but lagged in introducing a battery powered toothbrush.”

Again, I think we can go a bit farther afield and identify similar disconnects among departments within a company. Engineering designs a product and then turns it over to manufacturing. That’s often a loose connection. If manufacturing experts participated in the design process (as they do at Apple), you might get products that are not only well designed but also easy to manufacture.

What to do? Kanter writes that “… companies should tighten the human connections between those pursuing innovation efforts and others throughout the rest of the business.” This requires good leadership, good communication skills, and a willingness to “convene discussions to encourage mutual respect rather than tensions and antagonism.” It may also require good architecture as in the example of Steelcase, which built ” a design enter that would force people to bump into one another….” (This is one of the reasons I think Marissa Mayer at Yahoo! is right to require people to work at the office).

So how do you stimulate innovation? While it’s not easy, a good first step is to loosen up you processes while tightening up your people-to-people connections.




Marissa Mayer — You Go, Girl!

marissa-mayer-is-putting-the-kiboshnbspon-workplace-flexibilityMarissa Mayer, the new Mom who is also  the CEO of Yahoo!, recently announced that all Yahoos (that’s what they call employees) have to work at the office, not from home. Since then, the blogosphere has been all aflutter. A majority of the bloggers I’ve read suggest that Mayer is retrograde, dumb, and sexist. I have to disagree. I think it’s a very smart move and about time, too.

The arguments against Mayer’s decision have to do with productivity, convenience, women’s rights, and maybe even clean air. Stephen Dubner (one of the two Steves who created Freakonomics) wrote that an experiment at a Chinese travel agency shows that woking at home can increase your productivity and reduce health problems. Apparently long commutes raise your blood pressure. A recent article from Stanford (based on the same Chinese study) suggests that the productivity of those working at home is 13% greater than those working at the office. An article on (Work At Home Moms) argues that telecommuting shifts the employee’s emphasis away from politics and towards performance. Months ago, Slate wrote that Mayer doesn’t care about sexism. Grindstone calls Mayer’s decision a “morale killer” and a “giant leap backward for womankind.”  The Atlantic Monthly flatly declares that “Marissa Mayer Is Wrong”.

But is she wrong? It depends on what she’s trying to do. Raising productivity is generally a good idea. But if the price of productivity is reduced innovation, then the cost is too high. There’s a strong case to be made that working from home — while it provides many benefits — inhibits innovation. I’ve written about the mashup nature of innovation. Many of the best new ideas are mashups of existing ideas.

The same logic applies to people. Getting people together — and encouraging them to mix and mingle in more-or-less random ways — helps them mash up concepts and create new ideas. It’s why Building 20 — a ramshackle, “temporary” structure on the MIT campus — generated so many innovations. People bumped into each other and shared ideas and, in doing so, created everything from generative grammar to Bose acoustics. It’s why cities produce a disproportionate share of of inventions and patents (click here and here). It’s why reducing the number of bathrooms in a building will increase innovation –you’re more likely to bump into someone. It’s why I advise my clients to allow e-mail to flow freely between buildings but to banish it within a building. If you’re in the same building as the recipient, get together for a face-to-face meeting. You’ll get more out of it — maybe even an innovative new product.

So, what is Mayer trying to accomplish? In her memo to all Yahoos, she speaks of “communication and collaboration” and notes that “Some of the best decisions and insights come from hallway and cafeteria discussions, meeting new people, and impromptu team meetings.” She doesn’t use the word “innovation” but that’s exactly what she’s talking about. And, in my humble opinion, Yahoo! could use a healthy dose of innovation. So I think Mayer has got it right: PPPI — proximity and propinquity propel innovation. All I can say is: you go, girl!

The Most Innovative Companies of 2012

many small light bulbs equal big oneBoston Consulting Group just published its annual (since 2004) ranking of the 50 most innovative companies in the world. BCG polled 1,500 executives and asked them to rank companies by innovation. More importantly (from my perspective), BCG asked the executives about their company’s plans, strategies, and tactics regarding innovation. You can find the entire report here. I’ll summarize some of the key findings below.

Perhaps the most important finding is that investment in innovation has recovered from the turmoil of the recession. Seventy-six percent of executives said that innovation is a “top three” priority — the highest level in the survey’s history. And they’re putting their money where their mouth is — 69% said they plan to increase spending on innovation in 2013, the highest level in six years. Further, companies that emphasize innovation tend to generate superior total shareholder returns (TSR). The most innovative companies of 2012 generated TSR premiums (compared to less innovative companies in the same sector) of 6.3% over three years and 3.5% over ten years.

How did these companies become so innovative? BCG identifies six key factors:

Get customers involved early — innovative companies get customers involved to generate new ideas and to separate the wheat from the chaff. One of the key reasons to involve customers is to ensure that weaker projects “fail fast and fail cheap”.

Use data to drive tough decision making — it’s hard to make tradeoffs among promising projects. Which ones will succeed? Which ones will simply be distractions? The most innovative companies allow executives to make firm decisions for “the right reasons on the basis of the right data”.

Think strategically about tradeoffs — “Best practice companies do not make [tradeoff] decisions in reference to last year’s budget but rather on the basis of the size of future opportunities.”

Ensure senior leadership commitment — “The most commonly cited force driving innovation was the CEO.”  I don’t mean to brag but this is exactly what I found in my dissertation, a study of innovation in colleges and universities in 1984. It’s the person at the top who sets the innovation culture.

Envision innovation as a holistic system — don’t just try to optimize one piece of the puzzle. Create a strong vision for the need for innovation throughout the company and then build the enablers, including culture, processes, and organization.

Optimize intellectual property to create value — lots of companies have bright people. The most innovative companies also have collaborative processes and decision rules to create and capitalize on intellectual property.

Innovation: Ideas That Generate Ideas

It's not a reef. It's a platform.

It’s not a reef. It’s a platform.

I’ve spent the past several days in the Minnesota woods at a client’s executive retreat. The client is a software company that has made a number of acquisitions over the past few years. A good portion of the discussion at the retreat focused on how to build a platform that can: 1) integrate the various acquisitions; 2) deliver a common interface; 3) simplify the support load; 4) provide a foundation for developing new functionality more quickly.

The discussion got me thinking about platforms — innovations that generate innovations. I’ve written a lot about innovation over the past year and especially the role of serendipity and  mashup thinking. I’ve generally focused, however, on innovations as an end result. In other words, we adopt certain behaviors and modes of thinking and the result is an innovation. We then repeat the process and (hopefully) get another innovation. Creating the innovation essentially ends the process.

Platform thinking, on the other hand, can lead us to innovations that spawn innovations. As Steven Johnson points out, platforms abound in the natural world. Johnson builds an extended metaphor around the coral reef — a platform for unimaginably rich plant and animal life. Once the process gets started (in an otherwise barren sea), the reef builds a virtuous circle that attracts and facilitates multiple life forms. Part of the secret is collaboration. The CO2 that one animal gives off as waste becomes the building block for another animal’s home. Similarly, oxygen is a waste product for some reef denizens but the lifeblood of others.

In the human world, the Internet is probably the best recent example of a platform. The Internet creates both serendipity (we get to meet lots of people) and mashup thinking (we can easily find lots of new ideas to mash together). The Internet also takes care of a lot of the dirty work of information sharing. Just as the coral reef makes it easy for many animals to find a home, the Internet makes it easy for people like me to create websites and share information. We often hear the metaphor of researchers standing on the shoulders of giants. My website is standing on the shoulders of a very rich (and essentially free) technology stack.

Platform thinking is innovation taken to the next step. We think about how to create something that creates something. I’m generally a proponent of free markets, but Johnson makes as strong argument that the most fundamental platforms come from public agencies. Certainly, the Internet did not come from market-driven competition. Rather, it resulted from the collaboration of many specialists from many disciplines in an open environment. That’s pretty much like a coral reef.

So, what’s the next platform? I’m guessing that it’s a mashup of: 1) the human body, 2) secure communications, and 3) Internet sensors. We already have millions of Internet sensors monitoring the environment — everything from air pressure, to ocean salinity, to volcanic pressures. The next frontier could well be sensing human health conditions. We already have wearable condition monitors. For instance, friends of mine run a small company in Denver called Alcohol Monitoring. They provide a wearable device, with secure communications, that alerts probation officers when one of their wards has been drinking. Within a decade, I’d guess that health condition monitors will migrate from outside the body to inside the body. They’ll provide critical data that can help us foresee — and forestall — health crises. They’ll also provide a platform for a huge wave of new ideas, services, and fortunes. Sounds like a coral reef.

Want to Be More Innovative? Move to Boulder. Or Sweden.

patentsIn an earlier post, I pointed out that cities generate much more than their “fair” share of innovations. The reason is simple: there’s more opportunity to run into new ideas, concepts, and people. It turns out that innovation is even more concentrated than I thought. Just 20 of the America’s 370 metropolitan statistical areas — accounting for 34% of the population — produce 63% of the nation’s patents. The top five patent-producing metropolises in the U.S. (in order) are: San Jose, CA, Burlington, VT, Rochester, MN, Corvallis, OR, and Boulder, CO. These areas account for 12% of the U.S. population but 30% of American patents.

The finding comes from a new Brooking’s Institute report on patents. Some other highlights:

  • The pace of patenting in the U.S. continues to climb. The growth of patent applications slowed after the IT bubble burst but is now at an all time high.
  • Though the pace has increased, the U.S. ranks ninth in the world in terms of patents per capita. The countries ahead of the U.S are (in order): Sweden, Finland, Switzerland, Israel, the Netherlands, Denmark, Germany, and Japan. (Those pesky Scandinavians are at the top again).
  • The average patent is worth about $500,000 in direct market value — and much more as it diffuses through the economy.
  • The last period of great patent growth in the United States fell between the Civil War and the early 20th century. We “democratized” invention during that period — with many patents coming from blue-collar workers who were not professional researchers. Today, patents are more complicated, more difficult and expensive to obtain, and require more education. The ability to create patents is concentrated in fewer organizations in fewer places.
  • The price per patent is rising in the U.S.. From 1953 to 1974, $1.8 million in R&D spending generated one patent. Since 1975, the cost has been $3.5 million (in inflation adjusted dollars).
  • Almost half (48%) of the patents granted in the U.S. from 2006 through 2010 could be grouped into the Big Ten categories: Communications, Computer Software, Semiconductors, Computer Hardware, Power Systems, Electrical Systems, Biotech, Measuring & Testing, Information Storage, Transportation. The top five categories account for slightly more than 30% of all patents.
  • Patent ownership has become broader and more competitive. Of the top ten patent producing companies from 1976 to 1980, only four were in the top 10 in 2011-2012: IBM, GE, GM, and AT&T.
  • The federal government dominated R&D spending up to approximately 1970. By the late 1970s, the federal government share fell below half. In 2009, the government share of R&D spending was about one-third. Roughly 60% of federal R&D spending goes to private companies, 30% goes to universities (including university-administered national labs).
  • Metropolitan areas that lead in patent production also lead the nation in terms of of productivity growth. They also enhance local employment opportunities and generate a disproportionate number of initial public offerings (IPOs).

The Brooking Report provides ample evidence that the research and innovation that lead to patents has a dramatic impact on local economies, employment, and growth. Bottom line: if you want your city to grow, don’t build a football stadium. Build a research university. Or move to Boulder.

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