Minimum viable innovation system
This post is a summary and interpretation of the article Building an Innovation Engine in 90 Days published in the December 2014 issue of Harvard Business review.
Innovation require individual heroism or serendipity. Efforts to jump start innovation frequently fail. To solve this, companies can implement a minimum viable innovation system (MVIS) that is reliable and strategically-focused.
All innovations fall into one of two buckets:
- Core innovations extend today’s business by enhancing existing offers and improving operations. Core innovations are expected to deliver value in the near future.
- New-growth innovations reach new customer segments or markets, move to adjacent product categories, often through new business models. New-growth innovations take longer to bring substantial revenue.
New-growth innovations are necessary to close the growth gap: the difference between a business’ growth goals and the growth that the core business can achieve.
The further from the core a new-growth innovation is, the more it runs counter to systems and processes designed to strengthen and support the current business. Corporate systems such as budgets, incentives and strategic planning are designed to further today’s business, not to create tomorrow’s. MVIS can help companies overcome this difficulty.
Follow these steps to set up an MVIS.
- Research. Take three weeks to meet with a dozen clients. Probe for unmet needs. Investigate new developments in and around your industry.
- Focus. Identify three innovations that:
- many customers need and no on is addressing well;
- enable customers meet those needs more cheaply, easily or conveniently; and
- you have special capabilities within your company that competitors can’t easily copy. Wandering into a new market where you have no natural advantage is a common innovation trap.
- Form a team. Assign at least one person that gets up every morning and goes to sleep every night thinking about nothing but innovation. If you have no one fully focused on new growth, you’ve decided not to focus on new growth. Here’s how to free up resources:
- Competitive forces and customer demand are likely already creating unsanctioned innovation cycles within your teams. List all efforts with at least one part time employee working on them. Identify the markets these efforts target and estimate the size of the opportunity. Categorize the big enough efforts into core and new-growth, and consolidate these efforts with the ones you identified as part of step 1 and 2 above.
- Fund the projects. Set a threshold investment amount that project teams can spend without leadership approval. Fund projects as needed, not as part of quarterly or annual budget cycles. Ensure the leadership can make quick decisions to keep the momentum.
- Scale the MVIS. Once you see signs that specific projects are will bear fruit, bring the components of the MVIS that are working well into more formal systems. For example:
- Create an innovation portfolio
- Forecast the pace and scale of investment and the financial impact over a multiyear period
- Create tools to regularly monitor the portfolio
- Keeps abreast of market changes
- Look for partnership opportunities to amplify efforts
This is a summary of the article Two Routes to Resilience published in the December 2012 edition of Harvard Business Review.
Companies need to innovate to
- respond to market shifts,
- compete with disruptive star-ups, or
- close the gap to meet future revenue goals.
These transformations are better served through two separate efforts: Transformation A adapts the core business to the new realities. Transformation B creates a new disruptive business. Making both transformations work requires a Capabilities Exchange that ensures resources are leveraged and competing priorities are managed.
Goal: Find the competitive advantage the current model can sustain in the disrupted environment. Remember, disruptive innovation does not destroy all value. To find this advantage, answer these four questions:
- What can we still do better than our traditional competitors and upstarts?
- What must we give up?
- Why do our customers come to us?
- What is the real need that connects our customers to our brand?
- Focus on higher profit niches
- Cut costs (reduce workforce, close stores, etc)
- Redefine your product line to offer better, less expensive options
Goal: Exploit new profits without being encumbered by the revenue requirements and practices of the core business. To achieve this, answer this question: What unmet needs to customers have in today’s environment?
- Conceive a business model that fulfills the unmet needs profitably.
- Implement and evolve the business model, testing essential assumptions first and quickly adjusting as you learn.
- Develop the new model’s own profit formula, staff, processes and culture.
- Embrace the possibilities of new markets as enthusiastically as startups do.
The catch: it can take time (years) for the new revenue streams to reach their potential.
The Capabilities Exchange
The Capabilities Exchange coordinates the two transformation efforts so that each gets what it needs and is protected from interference by the other. Setting up the exchange is a five-step process:
- Establish leadership. Use a centralized approach with three core leaders: the CEO, the leader of the core transformation and the leader of the disruptive business.
- Identify the resources the two organizations can or need to share. Start by identifying the capabilities that organization B can borrow from the core to gain a competitive advantage over startups (i.e. branding, marketing and customer data).
- Create exchange teams. Have the leaders of each transformation allocate resources. Allow groups to form and dissolve without impacting regular operations. Keep teams small and with short reporting lines.
- Protect boundaries. Each organization must operate as if the future of the company depended on it alone. You will be investing in the new venture while cutting the legacy organization, so you may find that you will need to stop legacy employees from trying to meddle with the disruptive new business. It’s also important to avoid bleeding the core to prop up the new venture.
- Scale up and promote the new business. Ideally, the repositioned A organization will remain (or become) profitably self-sufficient. But the disruptive business is the source of future growth. As such, the B organization should receive an increasing share of resources and attention. Top management must put the new business centre stage when talking to the outside world about the company’s vision and prospects. Otherwise markets and customers will not see the evolution.
Disruptive innovation does not destroy all value
This is a summary of the article Surviving Disruption published in the December 2012 edition of Harvard Business Review.
Successful entrepreneurs identify what jobs people need done and how they could be done more easily, conveniently or affordably.
All disruptive innovations stem from technological or business advantages that can scale as disruptive businesses move upmarket in search of more demanding customers.
A disruptor can maintain lower prices while it improves its performance (i.e. computer chips get faster and cheaper).
Disruptors may be able to successfully disrupt an aspect of a business but not others. The extent of the disruption is dependent by the intrinsic value that the incumbent provides, as well as by the barriers that are overcome by the disruptor.
The following examples illustrate how some aspects of a business can be disrupted and how some other aspects of the same business can remain dominated by the incumbents:
- Grocery stores vs. online grocery stores. Customers will always prefer to go to the grocery store to buy emergency items (tonight’s dinner). Online grocers are better at canned food that can be bought at any time and stored. For online grocers to deliver goods to customers as quickly as grocery stores, they would have to adopt the stores’ cost structure.
- Cargo ships vs. air shipping. The existing infrastructure surrounding container shipping using cargo ships makes it hard to disrupt: from ship to crane to tracks to trucks. Changing this infrastructure is expensive.
- Railroads vs. cars, trucks and planes. The cheaper costs offered by railroads make it the best choice for businesses needed to ship goods.
- Ivy League universities vs. eLearning. Hard to disrupt. Ivy League universities confer status that eLearning just can’t provide.
- Movie theatres vs. streaming. Hard to disrupt. Teenagers and dating couples still go to the movies to get out of the house.
- Handheld GPS vs. cellphone GPS. Easy to disrupt. The only advantages of a handheld GPS (it’s durability, ruggedness and long battery life) can be overcome by cellphone GPS.
- Auto sales vs. car sharing services. Buying a car is still a better choice for frequent drivers of long distances.
Barriers to Disruption
From easiest to overcome to hardest-to-overcome:
- Momentum. Requires change in customer habits.
- Tech-implementation. Requires new implementations of existing technologies.
- Ecosystem. Requires changes to the ecosystem or business environment.
- New technology. Requires new technology.
- Business model. Requires new cost structure.
This post is an interpretation and summary of the article published in the June 2015 edition of Harvard Business Review titled You Need and Innovation Strategy.
What is an innovation strategy?
An innovation strategy is a set of processes that helps companies find new problems and solutions. Like any strategy, the innovation strategy must be specific to each company’s competitive needs and strengths, and must be linked to the business core value proposition.
Why is an innovation strategy important?
There are two causes that explain why an explicit innovation strategy is important:
- Aligning competing priorities. Without an explicit strategy, companies can wind up pursuing competing priories. Without an orchestrating strategy, diverse perspectives, a critical component of successful innovation, can become self-defeating.
- Overcoming inertia. Routine innovation is where companies play to their strengths. Without an innovation strategy, companies fail to overcome inertia and follow prevailing patterns.
How to develop an innovation strategy?
The process of developing an innovation strategy starts with the articulation of specific objectives that may enable the company achieve a sustainable competitive advantage. These objectives should answer the following questions:
- How will innovation create value for potential customers? Successful innovation must induce customers to pay more, save money, or access a larger societal benefit such as improved health or clean water. Specific benefits could include:
- Ease of use
- How will the company capture the value that innovations generate? Intellectual property alone cannot prevent customers from defecting to rivals. Companies must think through complementary assets, capabilities, products or services to keep their position strong.
- What types of innovations should be pursued? There are four kinds of innovations:
- Routine innovation builds on core competences and serves existing customers. For example, new versions of an existing product.
- Disruptive innovation requires a new business model but not necessarily new technology.
- Radical innovation involves a purely technological innovation. For example, pharmaceutical companies moving from chemically-synthesized drugs to biotech. The customers and business models don’t change.
- Architectural innovation combines technological and business model disruptions. Requires new competences and new ways to earn profits. For example, successful digital photography companies mastered the building of new hardware and changed from making money selling film, paper, chemicals and services, to making money by selling cameras.
- How does each innovation type fit with the business strategy? Innovation types can be combined or create a continuum. An innovation type may be suitable for the present set of circumstances, while a different type may become necessary as the business encounters new challenges.
- What is the right innovation process? The innovation process must be chosen based on the innovation type:
- Routine and disruptive innovations call for a highly structured process designed to solve as much of the technical and market uncertainty as possible early on.
- Radical and architectural innovations require more experimental, iterative and rapid prototype-driven process.
Implementing the innovation strategy
Who is responsible? Because innovation cuts across just about every function, it is the responsibility of senior leaders to orchestrate such a complex system.
Follow these steps to implement the strategy:
- Allocate resources to each innovation type
- Manage trade-offs
- Manage the instincts of individual functions to satisfy their own interests
- Recognize that the strategy must evolve with continual experimentation, learning and adaptation.
Advice for companies in different stages
A company whose core business is maturing should seek new opportunities through business model innovations and radical technological breakthroughs.
A company whose platforms are growing rapidly would want to focus on building and extending them through routine innovation.
Connecting brand position with business outcomes
This post is based on a a piece by Ivey Marketing Professor Niraj Dawar and PhD student Charan Bagga published in the June 2015 edition of Harvard Business Review. The link to the article is broken on the HBR website, so I am providing this link to the coverage article on the Ivey website.
In the article, the authors argue that traditional brand positioning tools such as Perceptual Maps aren’t aligned with business goals. This disconnect often leads to the implementation of actions that have little—or negative—effect on performance as measured by key business indicators such as profitability or sales volumes.
The solution, the authors argue, is to use of a Centrality-Distinctiveness Map (C-D Map) that aims at syncing the marketers’ plans with those of the business, resulting in a better orchestrated overall business strategy. More specifically, the C-D Map provides allows marketers to:
- Assess the brand positioning strategy by answering the question “are the marketing goals aligned with the business goals and the resulting business performance?”
- Focus on real competitors by answering the question “does consumer perception of who my competitors are the same as my own perceptions?”
- Track the results of specific actions by answering the questions “are pricing changes or advertising campaigns moving the brand in the right direction on the C-D Map?”
The C-D map plots brands across a two-dimensional axis. The X axis represents Centrality, or how popular or representative of its segment a brand is. Think Coca-Cola in soft drinks or McDonalds in fast food. The Y axis represents Distinctiveness, or how unique a brand is in terms of its capability to stand out from its competing brands. Think Tesla, the carmaker. The authors then proceed to label each quadrant as: Unconventional, Aspirational, Mainstream and Peripheral, as shown in the diagram below:
To illustrate the characteristics of the brands on each of the quadrants and to begin identifying strategic implications, I will use well-known carmaker brands, as follows:
Aspirational brands such as BMW are in the best possible position on the C-D Map. These brands command a price premium thanks to the quality of their products. This price premium results in high profits at lower sales volumes than those seen in the mainstream. These brands are also well-known amongst consumers.
Mainstream brands such as Ford enjoy massive popularity, perhaps leading the chart in terms of sales volume. These “run-of-the-mill” brands rely on heavy advertising to maintain their position. Despite their perceived dominance, their products aren’t as profitable as those of aspirational brands.
Peripheral brands such as Kia have low sales volumes. Therefore profitability depends on the brand’s ability to stay low in terms of marketing and R&D costs. These brands follow a “me too” approach to innovation and are perceived as lower cost substitutes.
Unconventional brands such as Tesla Motors suffer from low recognition amongst consumer but command a price premium that allows them to compete in niche markets.
Aspirational brands should consider creating wider appeal while defending from mainstream brands trying to climb upmarket with premium products.
Mainstream brands should focus on defending their position from peripheral brands boosting their marketing and advertising in order to gain popularity.
Peripheral brands should focus on staying low cost in terms of marketing and innovation. Historical data suggests that efforts to move into the mainstream are rarely successful.
Unconventional brands should work to increase centrality in order to sell more. The ideal path forward for these brands is to move towards the aspirational quadrant.
The extra mile is worth a league
Giving just a bit more takes you to a whole new level.
With the years I realized that what I used to think was good enough, it was, well, just enough. We live in a very competitive world and we interact with a lot of very smart people on a daily basis. You can no longer win by doing a good-enough job; you need to do something special.
To narrow the window for interpretation of what special means, here are some thoughts that try to contextualize what I am referring to. Thoughts that, in a way, fail miserably at contextualizing anything and get diluted in an all-encompassing list. I guess I should eat my own dog food and try a little harder next time.
At any rate, we should aim to:
- Expand your research to include more diverse sources
- Re-read and rewrite your work one more time
- Push that extra pixel
- Find the perfect colour choice
- Sand that edge
- Remaster, quantize and remix that soundtrack
- Fine tune that video transition
- Research more fonts
- Adjust that kerning and leading
- Measure twice and cut once
- Experiment until you get the perfect espresso (and take notes)
- Go for gold even if you got silver
- Straighten that painting
- Communicate to disarm and aim for win-win
- Call your friends in their birthdays (don’t just Facebook them)
What else should we add?
Team management principles
Making team management a rewarding experience for leaders and their teams.
Leading a team can be an extraordinarily rewarding experience for leaders. However despite best intentions, some leaders end up micromanaging, making their teams give less. Here are some thoughts on what leaders can do to increase commitment the right way.
1. Give them freedom. I believe that the most effective way to get the best from people is to help them understand why they are doing something. Only then people can commit wholeheartedly, assuming they support that cause. We often hear about buy-in. I am not a fan of that phrase. Buy-in implies that someone is being persuaded to do something. If I am genuinely interested, I don’t need to buy-in. I just want to do it.
2. Give them direction. Freedom without direction creates confusion. I’ve seen teams spin their wheels when no clear direction was given to them. It is important to communicate very clearly what the expected outcomes of an effort are. Without that understanding, teams have a hard time knowing what to do and that can be frustrating and unproductive.
3. Make them accountable. Freedom and clear direction allows people to sincerely commit to whatever they’re doing, and to making sure that they do their best to arrive to the expected outcomes. An important element is to make it clear that people are accountable for achieving what’s expected from them. Without clear communication of accountability people tend to be less demanding of themselves because of lack of consequences. This downward spiral fosters underperformance and lack of growth; an outcome not only detrimental to managers but also unfair to team members themselves.
4. Get out of their way. With freedom, direction and accountability, people are equipped to show what they’re capable of. It is now time for the leader to get out of their way. Leaders must resist the temptation of telling people how to do something. Instead, tell them what they need to do (give them direction) but don’t tell them how to get it done. Give them the chance to teach you something. You may be surprised.
5. Trust them. Very few things are as demotivating as feeling that someone doesn’t trust us to do a good job. Trusting someone sets an unspoken commitment for that person to do their best to achieve whatever it is that we expect from them. Be careful not to put someone in a position where they don’t have the means to accomplish what is expected of them. But when they do have the means, just trust them. Knowing that you trust them will empower them to accomplish a whole lot more.
6. Give them the right tools. People need the great tools to do a great job. Anything less translates into an unnecessary hurdle to overcome. Software developers need the fastest, most modern computers available. Digital designers need the largest and highest quality displays. Give them anything less, and they will be wrestling with inadequacies that aren’t core to their expertise.
7. Learn from them. I first became familiar with the myth of the complete leader when I read the article In Praise of the Incomplete Leader published in the February 2007 issue of the Harvard Business Review. Until then, I was under the assumption that great leaders had all the answers. I was wrong. There is no such thing as the complete leader. No one can be great at everything. Great leaders aren’t afraid of recognizing their weaknesses and surrounding themselves with people that can help balance them. Ironically, the worse leaders—those not entitled to be called leaders—are the ones that project an image of complete strength. Such self-confidence is often masking deeply rooted weaknesses.
8. Expect more. The Pygmalion effect states that the greater the expectation placed upon people, the better they perform. Give your team enough information to help them make better decisions. Let them know that while they have the freedom to experiment, they are accountable for delivering the expected results.
9. Help them see the big picture. Unlike leaders, members of specialized teams have a laser-focused mind. This narrow field of vision is what makes experts be experts; their deep specialization is what makes them so good at what they do. Leaders on the other hand, have a 360-degree searchlight mind that enables them to hold divergent ideas about a single concept. Use this capability to show team members the implications of certain decisions or considerations that they may not be attuned to. In the same way team members can teach you a lot about a little, you can teach them a little about a lot.
10. Help them grow. Always be looking for new skills that will not only make the team stronger as a unit, but that will develop the individual team members in their own personal career. Care deeply about their wants and needs and look for ways to satisfy their desires to better themselves. Don’t wait for formal performance reviews and career planning sessions to put new challenges in front of them. Do it regularly and consistently.
The photo used in this post is Gnat Display Team – RAF Waddington by Alan Wilson. It is used under the Creative Commons Attribution-ShareAlike 2.0 Generic license.
Community managers rule
Hiring the right community manager can make or break your product
Startup founders are very selective of who they bring onboard. This is particularly the case in early stage, where the perceived value of what they’re building is high. In this stage, founders aim to bring in strategic partners that they hope will add as much value as the founders themselves.
This aiming high mindset is right. Settling for less so early can turn the startup into a fraternity. There is however a blind spot. In the pursue of higher value, founders close doors on important skill sets. Some of which are critical for getting the right traction.
Meet the community manager.
In my experience, people that levitate towards the role are extroverts. They have a large group of friends and followers, online and in real life. They attend lots of parties and are somewhat of a celebrity.
To a founder working 16 hours a day such glamour feels decadent. The hardworking entrepreneur may see the community manager as a socialite that doesn’t value hard work.
While this perception may be true in some cases, it is unfunded in most. Socialites do work hard their own way. Maintaining that status requires effort. Doing it right requires talent. Doing it consistently, discipline.
Okay. Socialites aren’t lazy. But why do community managers matter?
Let’s say you’re starting an app or website. You have a clear vision for what your ideal user looks like. That user you would feature on the home page for others to discover and emulate.
Promoting certain behaviour is easy to do in the very early stages. After all, most users are your friends and their friends. But as the app spreads into the wild, it inevitably attracts less-than-ideal personas. Sure; settings, defaults and features can contribute to steer usage in certain directions. But unintended uses are resilient and crappy behaviour spreads fast unless a human intervenes.
Failure to manage can have unintended consequences. In some cases these consequences can be good, showing you what people really want to do with your product. But in most cases, things quickly turn to anarchy. The end result? A community of which you wouldn’t want to be a member yourself.
A community manager that understands how to talk to people is the perfect candidate to prevent this derailment. Bring them in early. Be sure they’re passionate about what you’re trying to do. Share equity if you can’t afford them. Most importantly, understand that they bring real, high and strategic value.
Bonus link: An article from Mashable about some of the most important qualities of an effective community manager. (Opens in a new window).
The photo used in this post is traffic light obsession.3 by Clay Junell. It is used under the Creative Commons Attribution-ShareAlike 2.0 Generic license.
New and better ideas
New ideas are fuelled by diversity, observation, curiosity and humour.
Loosely speaking, we are creatures of habit. We tend to do the same things over and over. We take the same route to work and eat at the same places. Even in our free time, we hang out at our favourite spots. Routine makes it hard for us to look at situations in a new light. Here are ideas on how to breakaway from our comfort zone.
Hang out with diverse people. We tend to surround ourselves with people that are like us. After all, having more in common leads to easily flowing conversations. Resisting this affinity could broaden our insight. More-of-the-same can help to confirm assumptions, but doesn’t expose us to new thinking. Spending time with people of different backgrounds and interests, does. We can use this new understanding to solve long-standing challenges.
Observe closely. You are conducting a survey to understand how people react to a certain stimulus. You ask questions and analyze the results. This practice is well established and it does have a legitimate place. The problem is that in certain cases, people think they’d react in some way while in reality they end up doing something else. This is when observing is better than asking. Seeing what people do in a certain situation instead of asking them what they’d do, will give you more accurate answers.
Ask and be willing to listen. In situations where simply asking can give us the insight we need, be sure to listen. In some cases, we will be trying to convince ourselves that something is a good idea or a bad idea. We try to convince ourselves because the outcome is beneficial to us in some way, which impedes our capacity to stay objective. So when we ask, we really need to listen for what comes back and we need to put it in the right context. Pay special attention to answers that contrast with your beliefs; those are the ones that we tend to carelessly dismiss.
Be curious. Be open to new ideas. New way of doing things. New routes to get to where you’re going. Design your life to encourage serendipity. It may at times feel like you’re wasting your time. You may feel like your way is better. And in many cases it will be. That’s where the challenge is: seek to learn new ways of dong something, but don’t waste your time relearning something you do well already. The best areas for keeping an open mind is when trying to solve a long-standing problem. You may realize that a newbie’s simplification of your complex world, is, in fact, the wiser course of action.
Relax. Curiosity, discovery and learning tends to happen more when we’re not trying to arrive to a specific outcome. Exploration requires that we try things that will fail. Taking things lightly and with some humour encourages failure by avoiding judgement. This helps people be okay with asking dumb questions and taking risks. Without dumb questions and risks, we’ll stay on the safe and predictable side, making it impossible for us to have new and hopefully better ideas.
Early stage idea validation
For idea validation, use assholes and realists
You’ve gone through the idea validation checklist and discovered that the terrain to start developing your idea is fertile. You’ve been working at a 10-slide pitch deck and it’s pretty solid. You did your homework so you’re fairly confident that your assumptions are rooted in facts. You also have 3-year financial projections that you think are interesting enough to investors. It seems you’re ready to go all-in, until you have this casual chat with a friend of a friend that has no issues telling you that people simply won’t use what you’re about to build.
Now you’re faced with a dilemma. Your research gives you confidence, but a part of you simply can’t ignore the nonchalant, commonsensical warning sign. The good news is that that you’re having this dilemma now and not after you invested time and money into something that didn’t fly. So it’s extremely important that you play devil’s advocate in the early stages of idea validation.
The people best positioned to challenge the idea are those that have no vested interest in any particular outcome. Here are some traits of people that will help prevent wasting time, money and a gargantuous amount of mental energy.
1. Assholes (but not negative). They’re not bad people. It’s those people that may appear to be assholes because they’re not into smoothing things before telling you what they think about something. No-nonsense, no beating around the bush. Watch out for negative, glass-is-half-empty personalities that are likely to shut down anything by default, missing legitimate opportunities along the way. Find people that will react positively—and even enthusiastically—when presented with real opportunities.
2. Realists (not optimists). Optimists are great people to have around because they’re just so much fun. The dangerous part is that they tend to think that anything could work, provided that [insert some rationale here like “enough effort is devoted” or “the right people see it at the right time”, etc.] While this is an encouraging way to look at challenges, it will do little to save you from engaging with something that isn’t real.
3. No spouses, girlfriends, boyfriends, parents, etc. They love you and because they love you they think you can accomplish anything. In easy-to-read, jumping-off-a-cliff situations, they will prevent you from doing something stupid because they love you. But in complex situations where the outcome depends on non-linear cause-and-effect factors, knowing what’s right and wrong for you may not be that clear cut. To be safe, be wary of those that think you are special in any way.
4. No software developers. This one applies to software developers because it is based on my own experience, but I suspect it applies to any kind of people that build and develop the idea. Developers have, for some reason, a strong tendency to say that they can do anything. And it’s true; at least good developers can build pretty much anything you ask them to build. So they’re not really thinking whether an idea is real because they’re focused on whether something is feasible. And in most cases feasibility can be arrived to, so they will tend to be supportive. Engage developers after you have validated the core concept using assholes and realists.