Innovation at the Core and beyond the core

If you consider yourself as an innovator, I guess you all want to create some Edison effect. So that when you launch your innovative solution, you can refer to the old days as “how could we ever live like that ?”

The fundamental premise of this blog post is that organizations need a two-speed strategy for innovation.

• One for innovation in the core, which is more about creating efficiencies in the core.
• And one for innovation beyond the core, where you basically look for the next xxx Million EUR/USD new business stream (*).

*(Fill in the xxx based on the type of business you’re in). Think twice: by filling the xxx, you already frame your innovation to relative small innovations or real bold disruptive ideas.

Beyond the core you can NOT apply the same traditional core principles, decision criteria, mantra’s, etc.

Even more importantly, you need different governance and funding mechanism to succeed in innovation beyond the core. You also need a tail of your innovation process.

You need a governance that is not based on consensus (or even worse, on the principle of pleasing or obfuscating the no-Sayers), but on

the power of the believers

Team up with the believers.

You need a funding model where for each project – aka read new revenue stream of xxx Million EUR/USD – you have a FEW share/stakeholders, so that decisions are fast and don’t get watered down by yet another consensus process.

Because you want to make decisions on change of direction fast. You do not want to go through a lengthy consultation process with all sorts of stakeholders. In this sort of innovation beyond the core, often you take entrepreneurial decisions, that is taking decisions without knowing all the elements of the equation. In other words, their is some risk taking involved.

And when you take risk you can fail.

Fail wisely

And make corrections as you go.

For that you need fast assessment of the situation and fast decision taking to change course.

In this innovation beyond the core, you probably don’t ask customers what they expect from the next problem, as they are probably framed in the existing core products and probably think in extensions of existing familiar products. When Apple launched the iPOD, do you really think they asked their MacBook customer base what they expected of a portable music player. Do not think so.

They probably would have ended up

with a cassette-player in the cloud

It took the nerve and courage of a visionary with – euh, a vision – and then execute very well on that vision.

You need to define a radically new and very clear tail to you innovation process. That tail must be agile, with few to decide and fund, to move fast before your competitor gets there. If not you end up with a number of cool ideas that never get further than prototype. And you create a big illusion and disappointment with all those who spent often a lot of their free time to come up with ideas and work them out into prototypes and initial business cases. (not everybody has the Google luxury to dedicate 20% of your work-time to innovation). And you loose the “clout” of your innovation team/work. See more about clout at the end of this blog post.

If you still need to be convinced of this principle, please read on and see what a number of very smart people have to say on this.

I found inspiration for this blog post in two great recent articles on Innovation by Adam Hartung in Forbes and one other on his great blog. Reader subscription mandatory if you do something in innovation in real business. Adam is author of Create Marketplace Disruption: How to Stay Ahead of the Competition.

First article was in Forbes in October about the myth of efficiency.

Most organizations embrace the creation of new ideas and the fun exercises that surround "ideation." Then they hope they can somehow develop the momentum to roll out those ideas. As if that were what organizations do.

We all know that organizations are not designed to create and implement new ideas. To the contrary, they usually exist mainly to manage legacy businesses, to defend and extend them.

Organization leadership focuses on order and control. Thus a recent spurt of articles across the business press bemoans the problem of business "inertia," as the management expert Gary Hamel calls it.

When you take a hard look at efficiency, you can see that it’s never a good source of higher returns.

As appealing as cost cutting sounds, it can’t improve returns except within the shortest time frame. Why? First, most cost cutting is easily matched by competitors, thus offering little or no competitive advantage. Second, most cost cutting is simply distributed to customers through lower prices, in a fight to maintain revenue and stay ahead of fast-moving competitors. Price wars break out as a business spirals into lower margins and declining growth.

We know that the return on innovation is very high

As I mentioned earlier, it has been shown in many industries that investment in new products and services creates substantially higher returns. Why? Because real innovations are harder for competitors to match and keep up with, especially the more radical or disruptive they are. Also, genuine innovation prompts more customers to buy, increasing sales. Innovation grows a business. And since it leaves competitors behind, it generates higher margins.

Second article also in Forbes a couple of days ago. About Innovation beyond the core.

Few businesses are any good at innovation. For all their brainstorming exercises and "open innovation" programs,

they mostly just come up with reformulations of existing products,

new pricing plans and basic updates

the same old things just a little cheaper, faster or better

Businesses ask their "strategic customers" where to innovate and get little advice. Those customers are usually strategic only in that they are large, not because they have any particular market insight. They too just want more, better and cheaper, which are hardly recommendations for true innovation.

The criteria are developed by reviewing "core technologies," "core markets" and "core capabilities."

"Leveraging the core"

becomes a refrain

All of which just increases the likelihood that what comes out will be remarkably non-innovative, like reducing the dirt-removing strength in Tide, slapping the word Basic on it, lowering the price and calling the result an innovation.

This leverages the "core brand" while extending its reach to more low-price customers, but how much can it possibly increase company revenues?

Even if you get that far, and have some form of Innovation evangelists in your company (i hate the word Innovation “Manager” as innovation has to come from everywhere inside and outside your company) that is in no way a guarantee for success and often a source for cynicism.

As ideas are developed, they get pushed through the wringer. Managers try to add value by applying a critical eye to them. With little more than their own past experience to guide them,

they cut out ideas they fear

won’t work technologically,

won’t be accepted by distributors,

might cannibalize existing product sales,

could require entering unknown markets

or otherwise are disruptive.

The number of ideas quickly shrinks.

Why is failure the norm? Defending and extending the business is what we’ve trained our business leaders and managers to be good at. They know how to remain close to "core" by staying "focused." They work on improving "operational excellence" and seek the "low cost position" while striving for "customer intimacy" with the biggest customers (encouraged by Michael Tracy and Fred Wiersema, the authors of The Discipline of Market Leaders).

Third article on his own blog just before the week-end. Referring to another great article by Andrew McAfee, in essence about the management illusion of (brand) control in this Web 2.0 world.

Executives who feel like

they have "control" of their business

are under an illusion in 2009. 

And that has been demonstrated time and time again as this recession has driven home a plethora of market shifts.  There are many things managers can control.  But many of the most important things to success are completely out of management’s hands. 

Thus, the ones who succeed aren’t trying to control their brand, or business. 

Instead they are building organizations that have great market sensing and are quick to react. 

Just compare GM to Google and you’ll see the gap between what worked in 1965, and what works 45 years later.

Fourth and last article is from James Gardner.

James Gardner is a Director in Corporate Information Technology at the Department of Work and Pensions in the UK, where he is accountable for innovation, architecture and strategy. Before that he was Head of Innovation and Investment & CIO Technology at Lloyds TSB. For quite some time he is writing about innovation in Banker’s Vision. His latest post is about innovation backlash and innovation clout.

Consider this scenario. You use the tools of innovation to create a pile of new thinking that results in new prototypes or experiments getting built. Everyone is excited, and loves the new approach. New things start happening, so everyone declares the exercise a success.

But the situation is illustrative of something that you always see when you send an innovation team into the wild: the new ideas getting created threaten someone’s interests, no matter how well the innovation team influences those around it.

You get a backlash that is as inevitable as it is hard to manage. In fact, I’m not certain it is possible to manage it.

If you’re about changing the status quo and you don’t ruffle some feathers, it is surely inescapable that you’re not really changing anything at all.

My conclusion is that you have to invest your innovators with sufficient political clout that they can – in their own right –

protect themselves

from the backlash when it happens. If the clout is invested via proximity to a powerful senior figure, then so much the better.

There is a downside to giving innovators clout, of course. The downside is they then have the ability to disrupt strategy and “get distracting”. My own view, though, is that a strategy that doesn’t know how to deal with the new stuff without falling apart isn’t very much use anyway. It’ll only be current in the short term.

Try this: give your innovators their head and protect them from harm.

You’ll be surprised as the results you get.

This sounds very much like the Red Monkey story from Jef Staes, already mentioned elsewhere on my blog.

Summary: Innovating in the core or beyond the core is fundamentally different.

PS: of course, this blog post was written during my free personal time.