Innovation is a competitive capability

Companies are forever talking about how they need a culture of innovation, or that innovation is a global initiative for the next important phase of the business, or that innovation will be the engine to drive the company to new levels, etc. I’m sure you’ve seen the word innovation thousands of times in business media in only the past month.

Innovation is nurturing growth

But, really, what is innovation? It seems to be an exciting concept with a lot of fuzzy edges and an elusive magical aura. Few companies could say they have a handle on innovation as a capability they manage like other aspects of their business.  Those that do are amazing and powerful (check out this growth chart for Apple). Innovation makes an organization competitive because it is measured by growth in new products and services or growth in new users (or both).

More often than not, the World’s Most Innovative Companies are a flash in the pan (Groupon?), or have a short tenure at the top of the list and then gradually fade into normalcy. This makes innovation seem even more mysterious and slippery… something to admire, but too vague to manage.  Something based on size or timing, not a sustained advantage directed at a market.

So how can organizations get this capability and why is it so elusive? Let’s start with the elusiveness first. Roger Martin, Dean of the Rotman School of Management, explains that many businesses have a hard time with innovation because it requires a different mindset than the way most business people approach problems. In his book, The Design of Business, he identifies three types of logic necessary for effective problem solving: deductive, inductive, and abductive. 

The problem is, most of our schools and businesses teach and practice only inductive and deductive reasoning (abductive isn’t even in my spell checker). Frankly, most of us don’t chat about formal logic over coffee and donuts, so you can see why this makes innovation slippery. The less formal version of this logic is often called design thinking and was pioneered by IDEO. But that term is awkward because design is associated with fashion, graphics and art, while innovation is more about doing than thinking. So, I just call it the capability of innovation.  I don’t disagree with Bruce Nussbaum’s focus on creativity, but that still feels incomplete to me.

The capability of innovation is a compound set of three skills that enable you to solve problems for your customers: rigorous observation, creative wonderment, and risk management. Whoa. Did you say wonderment? Yes, yes I did. (see Phineus and Ferb) Innovation is about coping with ambiguity and uncertainty while constantly moving forward to discover new opportunities. Since most business people haven’t developed these skills in their formal training, not knowing the best path forward makes them uncomfortable. So they stick with what they know, which keeps them locked in the present.

Three core skills of innovation

1. Rigorous observation. This is about being obsessed with your customers in action. This obsession involves asking questions, taking photos, and simply watching what they do (and don’t do) when interacting with a product or service. Ironically, many product managers defend their product deficiencies by saying customers didn’t behave as they should (at least they notice the gap!).

2. Imaginative wonderment. Instead of defending them with deductive reasoning, an innovative product manager would ask, “I wonder why that happened?” This is a moment of truth where innovation will live or die. If the leader shifts reasoning modes and becomes curious, the next step is to explore what could be happening instead of defending what is happening. This is not magical or fluffy, it’s a rational leap based on an observed pattern.

The exploration process that underpins imaginative wonderment is essentially the scientific method. It is the rapid iteration of possibilities that are tested against audacious goals (Like Thomas Edison and the light bulb). An emerging solution to a customer problem is driven by simple questions like, “Why not?” but is also constrained by feasibility (can it be built?) and viability (does it make business sense?). This exploration is both serious and fun. Systematic testing and elimination of ideas and options requires discipline, tenacity, and rigor. Generating an endless array of possibilities to test is playful, energizing, and empowering.

3. Risk Management. Overcoming the challenge of risk in innovation starts with a better understanding of the difference between innovation and invention. The dominant (but false) understanding that innovation comes from a blinding flash of insight, or from a lone genius that sees the world from a different angle, makes innovation seem untenable. How is a company supposed to plan for genius to occur? What’s the timeline? No wonder it’s not supported.

Innovation is not driven by breakthroughs in technology… it’s the opposite. Innovation is driven by commitment to satisfying customer’s needs and keen observations about what is and what is not working. These observations push the limits of technology and force the breakthroughs. Innovation in practice couldn’t be farther from being a lone inventor in a lab. Innovation is a collaborative, hands-on experience, taking place on the front lines with customers.

So the way to manage risk in innovation is first to stay very close to your customers, second to create a portfolio of innovation projects designed to solve their problems, and third to move very quickly to determine what doesn’t work so you don’t waste time and resources on unacceptable solutions.

Not every idea will evolve into an innovative solution (either attracts new customers or more engagement from current customers). An effective innovation portfolio should work much like an effective stock portfolio. There should be a mixture of incremental improvement ideas, evolutionary ideas, and revolutionary ideas. Investing in a balanced portfolio of several ideas mitigates the risk across all of them instead of placing “all of your eggs in one basket.”

Innovation is not whimsical, magical, or fluffy. It’s not accidental or even unpredictable. The problem with innovation for some companies could be that it’s more about nurturing than managing, a human-centered style not often associated with the titans of business.

 

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Is that innovation or invention?

While closely related, invention and innovation are distinct concepts. Invention is a technology driven breakthrough, bringing something new to the world, that acts like a doorway for innovation to occur. Innovation is an iterative process of improvement that either sustains or disrupts a consumer market.

Wright brothers first flight at Kittyhawk

A great example of this distinction is the invention of flight allowing for the innovation of air transport into a major industry.  The Wright brothers are largely credited with inventing the airplane, but what they really invented was a steering device, which allowed them to make the first “controlled, powered and sustained, heavier-than-air human flight.”

Among the early innovators of air transport were Donald Douglas, who created the DC-3, a robust aircraft capable of carrying things and people, and Henry Ford who was instrumental in the development of paved runways, passenger terminals, hangars, and radio navigation.  Without these innovations, airplanes were an interesting novelty, but they didn’t fulfill a real customer need (like traveling or shipping packages over long distances).

The Ford Trimotor is an example of innovation

Simply put: Invention is driven by technology and innovation is driven by consumer need.

Another example:

At Hulu we are focused on the consumer experience of video entertainment, and innovation is one of our primary goals as a business.  What drives our forward progress is an obsession over our customer’s needs, and a commitment to delivering better and better services to meet their demands.

Innovation in digital media requires deep expertise in software and communications technologies, and along the way Hulu has been awarded many patents for inventions that push the consumer experience to even higher levels.  But we didn’t invent most of the technology we use, or create most of the content viewed on the service; rather we are assembling existing components in new ways that are transforming the media business for users, advertisers, and  content owners.

Is that innovation or invention?

Many popular web-based services are breaking ground in the way people communicate, connect, and work with each other.  Sometimes it’s hard to tell if these things are novel inventions or early stages of innovation that will shift markets or generate new ones.

I wonder if Facebook, Twitter, and LinkedIn are inventions or innovations.  They are all valued with great potential to disrupt and transform, but to me they appear more like inventions in their current forms.  They are very cool, novel ways to interact, but that is by definition, invention.  What consumer markets have they created or disrupted?

I think it’s going to be very exciting to walk through the doorways they have created and see what innovation on the other side will produce!

 

 

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