Makinginnovationmore

I've had a really good laugh lately at the people running around tripping robots.  I wonder if that's an actual job description (Robot Tripper) or if Google and others simply look for volunteers who are willing to trip the robots. Aren't the people doing this afraid that one day the robots will seek revenge?

But here's where innovation turns down a potentially blind alley.  Why do we need bipedal robots, and is being upright and bipedal a evolutionary feature that may have had an advantage in the past, but no longer?  In other words, if the robot gets tripped, so what?  We humans evolved to operate only in an upright position, but that doesn't mean that robots need to.  If a bipedal robot gets tripped, why doesn't it simply sprout wheels and go on its way?

In all seriousness, what we view now as advantages and features may eventually be bugs.  There are few activities that demand that a robot have bipedal capability or propulsion, when other forms of movement are equally viable and less subject to disruption.  We humans probably evolved in an upright position from a former crouched position because seeing over the grasslands meant earlier warnings about predators.  Since we no longer live in sub-saharan grasslands and constantly scan for predators, we are probably more likely to evolve in the future into beings permanently bent at the waist from sitting so much and permanently bent at the neck from scanning our devices.  Perhaps we should structure our future robots in the shape of a question mark rather than upright.

This is the problem with a lot of innovation thinking - anticipating a future that's based on the observable past.  This approach often fails to incorporate the amount of change, and the direction of change in the environment.  It's what militaries call "fighting the last war", building trenches when the enemy is building highly maneuverable tanks.  In the short run we may need bipedal, upright, humanoid robots simply because the physical environment we live in and work in is designed for humans to operate in, and therefore robots shaped like humans may be more efficient.  But I doubt it will take long before the environments change to adapt to robots and humans will adjust.  Already robots are delivering food and medicines in hospitals, and there are fully automated "dark" warehouses where no humans are employed, only robots.  McDonalds is exploring new restaurant designs that could be fully automated, with few or no human employees.  What's interesting about that design is that the "back office" - kitchen, freezers, etc - could be radically redesigned to save space, since humans will rarely or never go there, while the dining area would retain its human-centric design.

All of this to say that as we innovate, we need to consider two important issues.  First, innovation, especially disruptive innovation, rarely takes on the shape, contour or business model of what already exists.  Just ask BlockBuster or Tower Records.  Second, we have to consider the secondary and tertiary effects of innovation.  Do the robots conform to human centric designs or do buildings and factories become tailored to the robots that work there?  Most likely the latter, since robots don't need light, or heat, or safety equipment, or gyms, or cafeterias.  Too often we "innovate" only the most obvious piece of the equation - the evident product or service - and neglect how much change is occuring.  This evident innovation simply reinforces past ideas and conventions, while the rest of the world is leaving them behind.  Too often we innovate only a component of the total solution - developing a bipedal robot, when we actually should be rethinking the environment where a robot, regardless of its locomotion, is optimally deployed.


I'd love to end this post with a reference to playing checkers or chess, introducing the more complex dimensions of innovation, but that reference won't do.  It's too constrained.  Good innovators need to be thinking about the multi-variant possibilities of future scenarios rather than innovating based on past conventions and needs.  Further, once a potential future option becomes a reality, we must also understand how to operate in that new future.  Why build bipedal robots in an upright position when that's not optimal or valuable, but simply mimicking human construction?

So many companies make so many claims about innovation, and yet so few are really, deeply engaged in innovation.  In the next decade we'll say goodbye to some of the firms who are talking about innovation but aren't exercising the muscles.  Disruption and market transformation will occur (will? is occuring) at a far faster clip than before, and as Warren Buffet likes to say, when the tide goes out we'll know who was swimming in the buff.

How do we get a better understanding of who is merely talking about innovation, and who is actually practicing it?  Beyond that, is there a way to determine who is merely sustaining a veneer of innovation, and which firms are driving innovation into the core of their business?  Can we create a barometer of innovation capability and engagement?  I think the answer is "yes", based on evidence we can observe and measure.

Three maturation paths

There are at least three ways we can determine if a company is truly engaged and serious about innovation.   These are:

• The level of innovation capability
• The breadth of innovation output
• The amount of simultaneous innovation

Let's look at each of these in turn.

Innovation capability

Long ago, over a decade ago when we started OVO, it was unusual to find people who could run an effective brainstorming activity within most companies.  Innovation was rare and brainstorming activities were more likely focused on solving Six Sigma challenges than aligned to creating new products and services.  As time has passed, some innovation skill has filtered in, and many companies have acquired innovation training.  Innovation capacity grows as more people have the skills to lead innovation, and as corporations establish more formal methods and processes.  While there are definitely more people with more innovation awareness in corporations, there is still a lack of consistent innovation methods or processes.  The new explore:exploit mantra, which is emerging and yet I believe incomplete, demonstrates that many companies are beginning to understand the importance of distinctions between the efficient practices that sustain current products and the divergent processes and methods that create new ideas.  Until a company can adequately sustain existing products and efficiency WHILE executing new innovative projects and managing ideas, doing both within a defined framework, there is little innovation capacity.

Breadth of Innovation Output
Beyond the new explore:exploit dynamic we hear, daily it seems, about the importance of "business model innovation".  It seems as though every year introduces a new innovation theme of the year or quarter, with business model innovation as the current hot topic.  Doblin did us all a favor by defining ten types of innovation (products, services, business models, experiences, brands, value networks and so forth).  A firm cannot succeed by innovating in only one of these dimensions, because change is happening in all dimensions.  Focusing on product innovation is important, but so is business model innovation, and customer experience innovation.  Nascent innovators will focus primarily, if not exclusively, on one innovation outcome or type.  People who place inordinate emphasis on one type (like the current business model craze) are doing so for their own purposes, not providing the right emphasis that suggests that multiple types are important.  To assess the maturation level of a particular company, simply review the innovations that they report.  How many different types are represented?  How radical or disruptive are any of the outcomes?  In most cases you'll find little variation, representing only a couple of innovation types.  Further, most innovation in nascent innovators is incremental, with few attempts at radical or disruptive innovation.

Innovation Capacity

When a company congratulates itself on one innovation, it can be evidence of a dramatic innovation, combining business models, design, new product innovation and a host of other factors.  Apple's introduction of the iPhone was such an occurrence.  Since Apple was betting big on a small handful of products, their innovation capacity was less important than the impact of the output and the disruptive behavior of the solution.  Few companies have four discrete products in the way that Apple did at the time.  This means that maturation has not only to do with observable capability (methods, processes and capable people) and a range of outcomes (product, service, business model innovation) but must also sustain multiple, simultaneous innovation activities, in a number of phases.  Any company can sustain one innovation activity for some period of time, but only a company that is truly mature in innovation can sustain multiple projects at the same time with wildly different intended outcomes.  This simultaneous innovation demonstrates that innovation isn't reliant on a few highly motivated people but is a core philosophy anchored in good process and corporate culture.


When you hear companies talking about their innovation acumen, capability or experience, let's evaluate three key factors to see just how capable and mature they are:  their observable and defined processes and people, their plans for and ability to generate a range of innovation outcomes and their ability to sustain operations while managing multiple, simultaneous innovation activities.  These three factors will signal a truly mature innovator.  A company that can demonstrate one or two of these factors will have advantage over others that only demonstrate one, but only a firm that can demonstrate all three is truly innovative.

There's a real sense that we in the corporate world are standing on the brink of an amazing transition, moving from relatively older, static models of competition based on corporate size and mass, to new competitive realities dictated by speed, agility and innovation.  For at least a couple of centuries, as we look back over the dominant corporations of the past, we can see that size and scale were the predominant factors.  Whether we think about some of the original corporations (like those that governed the tea trade in India and England) or more modern corporations like the US automobile companies or banks, the prevailing wisdom has been to grow large and use size, mass and reach to defeat other competitors.  Embedded in this thinking, or perhaps even dictated by this thinking, is an inherent business model:  size matters.  By growing large you can distribute costs more effectively, serve more customers from the same basic set of products, scale revenues and introduce efficiencies and command market power and dominate sales channels.  In a market where size matters, only a few players dominate and the rest compete for the leftovers.

But as we know, large companies become defensive, complacent and inert, held in place by investments and past performance, overly risk averse.  Their size and their business model ultimately becomes a barrier for new innovation and new growth.  The very thinking and models that helped them grow become barriers for further development.  And, of course, the models that got them to a specific position aren't necessarily relevant as tastes, consumers and channels change.  It's strange to think that Sears was once the largest retailer in the world, and actually made a significant transition from a catalog company (in many respects the world's first Amazon) to a company that based its model on presence in shopping malls. Now that Sears is relatively undifferentiated, and consumers are no longer spending time at malls, the model based on stores in malls and a highly distributed assortment of low and mid range products doesn't work.  But Sears is locked into a business model that is exceptionally difficult to change.  They can't pull out of mall stores overnight.  What was once promising as a model is now driving Sears toward a disaster.

This is both the promise and the danger of business model innovation.  Commenters and consultants talk blithely about business model innovation as if existing companies can readily and rapidly change their business models on the fly.  For existing companies, business model innovation is important, if for no other reason that change is more frequent and more disruptive, which leads to the invalidation of old models.  Existing companies must learn to balance the efficiencies gained from existing models and the ability to constantly evolve their models to new competitive realities.  As we like to say when we talk to clients about innovation, we've got to build the plane while we are flying it.  There's no other option, and this is especially true for business model innovation.  Sears cannot suddenly change its business model, abandoning stores, abandoning faithful customers and vendors.  If you want to see how that plays out, go look at JC Penney's attempt to innovate its stores and eliminate coupons and discounting.  That experiment lasted only a year or two before Penney's brought back its former management team.

Penney's experience doesn't suggest that you shouldn't innovate your business model, only that you can't suddenly change it and lose good, faithful customers who don't understand the change.  Business model innovation is something every company should be constantly experimenting with, and communicating to its employees and customers why these experiments are taking place and what changes they are expecting and planning for.

Business model innovation is so compelling because it is so unusual (at least to date) and so powerful.  We can look at examples like iTunes, NetFlix and Airbnb as real business model disrupters.  We can also note that every one of these was a new entrant into an existing industry, not bound by convention or past investments in the industry.  Does this mean that incumbents should ignore business model innovation and simply wait to be disrupted?  Absolutely not.  In fact many of the "innovations" that these disrupters introduced were opportunities that existing incumbents could have addressed but ignored.  Take for example Airbnb.  What Airbnb offers is a reservation system to allow you to rent a vast array of properties, none of which they manage or own.  But Marriott and Hilton don't own many of the buildings they brand, and their reservation systems work just fine in those locations.  What would have happened if Marriott or Hilton had expanded the definition of accomodations to include renting rooms or condos in the same way that Airbnb does?  After all, the hotel chains have a captive audience who trust their branding and want points.  It's not such a stretch to think that Marriott or Hilton or other trusted, established brands could have done what Airbnb did.  And this is only an example of a business model change that expands the opportunities, rather than a change like Netflix that completely disrupts the existing model and market.

Business model innovation is so compelling because it is so difficult for existing companies, but that's not a reason not to do it.  Existing companies should be examining their business models and understanding the impacts of business model innovation.  Which innovations expand the market and model (like Airbnb)?  Which disrupt or destroy the market (like iTunes)?  What can/should we do to evolve, adjust, modify and move our models?  Where are the testing grounds?  How do we experiment with new models before the old models come under attack or become obsolete?

The real challenge is that most companies are barely cognizant of product innovation, which has its own challenges but isn't as difficult or compelling as business model innovation.  This is akin to going directly to high school, skipping elementary and middle school, foregoing the education and experience.  Again, that doesn't mean business model innovation should simply be ignored, because the pace of business model innovation is increasing as we get better and better connectivity, better payments tools and platforms and better information management and data analysis.  These platforms will allow completely new business models, and will shift existing competition very quickly.


In fact, business model innovation is a lot like a terrible accident on the road, so heartbreaking and sad that you can't look, and so compelling and awe-inspiring that you can't help but watch.  We need to get off the sidelines and get involved with business model innovation, but not in the way you've been told.  Every company needs to start defining its existing business models, understanding potential weaknesses that can be exploited.  They need to start experimenting with new business models and understanding new technologies and platforms.  It's naive and wrong to assume that established business models will sustain.  Those that understand the impending changes and put in place the capabilities and mechanisms to experiment, learn and adapt will be the ultimate winners.

It seems fitting that on the first day of a new month, early in a new year I'll pen what is my 1000th post on innovation.  Looking at that number makes me think that innovation is either a vast topic or that I repeat myself quite frequently.  Happily, I believe both alternatives are true, keeping with the both/and mantra of innovation.

You'll forgive me for being a bit reflective here in the first section of this post.  I started writing Innovate on Purpose over a decade ago, as innovation seemed poised to take root in corporate America.  My colleagues and I at OVO Innovation created our consulting practice to assist large corporations in their innovation journey.  I decided to write about my assessments, my discoveries and the lessons learned along the way.  And over that time I've seen a lot of innovation, and innovators come and go.  I have to express my disappointment at the commitment to innovation that we've seen over the past decade, and I have to tell you that I believe a real reckoning is coming.  Like Jeremiah from the Old Testament I feel like a prophet of impending doom, but I also see the incredible possibilities that lie ahead of us once we finally decide that innovation is more important than efficiency and as we recognize the coming wave of business model innovation.

What's old is new again
Today (February 1, 2016) I did a quick scan of the social media sites, especially Twitter, to see what people were highlighting.  What's remarkable to me was the large number of tweets about innovation culture.  I saw this one on why the financial services, especially banks, lack a culture of innovation.  Having several large financial institutions as innovation customers, I can tell you that any company with a "risk" department struggles with innovation, and the same is true for highly regulated companies or industries.   In the same twitter stream Henry Hart Doss talks with Larry Keeley at Doblin about innovation culture, Doss taking the perspective that culture is important, and Keeley seeming to claim it isn't.

A decade on corporate leaders are still trying to get their heads around innovation, and decide whether it's a cultural phenomenon, or a process and tools issue, or something to do with design, and how it all links into strategy, all the while trying to isolate the disruptive aspects of innovation from the engine of profitability and efficiency.  At this point, many of the current leaders have missed the boat, and I believe we'll need to wait for the next generation of leaders who will recognize that these are all components of an integrated solution.  Innovation is impacted by the culture of the organization, is a process and tools issue, incorporates design and user experience and has a range of outcomes.  Until we see it as an integrated, mutually dependent whole, innovation is only toying at the margins and will always fail to deliver based on the outsized expectations that are set.  But these issues are just the tip of a larger iceberg that's appearing on the horizon.

What's going to happen
Here's my prediction about what's going to happen next.  Innovation, like a virus, mutates beyond expectation, shifting from an innocuous bug to a deadly contagion, as issues like business model innovation create significant disruption.  All we need is the emergence of a few trusted platforms upon which innovations can thrive, and major industries will quake and topple.  For example, payments is ripe for innovation, and what we lack are some basic infrastructure standards.  If those infrastructure standards are completed and a platform is created, we could witness a wholesale change in the way banking and financial services are created and offered.  We could see the rise of a real "retail" payments offering that wipes out retail banking, credit cards, payments, etc.  And that's just based on the rise of one platform.  If Uber and Airbnb can take grow so quickly based on their respective platforms, why can't we "uberize" other industries?

People will scoff, but the coming business model innovation wave will not simply topple giants, the way product innovation and design innovation humbled firms like Yahoo, Motorola and Nokia.  Those firms still exist, but as pale shadows of their former selves.  Business model innovation, the next emergent wave of innovation focus, will not wipe out individual businesses, it will rework industries and revenue streams.  We are on the cusp of a significant amount of disruption.  If you think you've seen a few disruptions, like what happened to Blockbuster when NetFlix really took off, then you get the general idea.  Except we'll be talking about industries, not individual companies, when people really understand what business model innovation can do.

Reflection
So, over a decade of blogging we've succeeded and we've failed.  We are still trying to convince executives about the importance of innovation culture, and the need to build innovation skills.  I think we can safely say that there's more focus and more awareness of the need for innovation in the corporate suite, but the commitment to conduct innovation is still not where it needs to be.

This is going to change.  People who understand a hockey stick graph, or Gladwell's tipping point model will agree - we are nearing an inflection point, where we'll shift into a new business reality, leaving behind the large, slow behemoths.  What will replace them are fast, nimble business model innovators that can morph and adapt as consumers and markets change and adapt.  To do so they'll be much more flexible, configurable and able to identify trends and change as those trends change.  These firms and their leaders will understand the coming business model disruption.  In fact they are with us today, much like the small rodents and mammals were living with the last dinosaurs, scurrying around under their feet, ready to rise as the old guard passed away.

Yes, I'm being a bit apocalyptic, but when you reach 1000 posts you get the opportunity to opine about your longer range views.  The fact of the matter is that this coming disruption is an OPPORTUNITY, not a disaster, for those who see it coming and are prepared.  This isn't a nuclear winter wasteland, except for the people and firms that ignore the pending doom.

I'm looking forward to the next 1000 posts, and I'm sure they will happen, since so much is still to unfold.  Thanks for your indulgence and your readership.  I'll try to keep the flame burning in the next few years.

I'm a fan of Robert Browning, and really any one who can create a really pithy but meaningful quote.  Today's quote is from Browning, who said: "a man's reach should exceed his grasp, Or what's a Heaven for?".  Of course any quote taken out of context can be used in any way I choose, but I like to think that Browning was writing about innovation.  In my way of thinking, Browning was exhorting all of us to innovate in ways that stretched us beyond our capabilities and comfort zones.  That part about reaching exceeding his grasp has that in spades.  If all of our reaching is within our grasp, if everything remains close and easy, within our knowledge and comfort zones, we will never make change.  And, to use another of my favorite quotes, from Shaw, all change is due to the "unreasonable" man, because reasonable men adapt themselves to their conditions, while "the unreasonable man adapts surrounding conditions to himself."

From these two quotes we can learn that innovation demands that we reach beyond our capability, knowledge and comfort zone (exceeding our grasp) and by doing so we may be seen as "unreasonable" and fomenting change.  But that's what innovators do.

Now to pull the rug out

After all this lofty praise for reaching beyond the grasp and fomenting change, I'd like to issue a warning.  Currently, there is a lot of talk being thrown around on the web and in business periodicals about all kinds of innovation - business model innovation, service innovation and so forth.  This is both exciting and terrifying at the same time, because innovation needs to move beyond product innovation, but there comes a time when the reach far exceeds the grasp, and innovation goals or targets become unreasonable.

I'm actually glad to see the increasing focus on innovation other than product innovation.  We've often said that product innovation is both the easiest to do, and the easiest to copy, while other innovation types, like customer experience innovation or business model innovation are far more difficult to replicate.  That's why there are many retail stores but only one Nordstroms, for example.  But it's a far cry from doing simple, incremental innovation around existing products to attempting to innovate a business model.  That's why Airbnb can disrupt the hotel industry from the outside while larger firms can only watch and wonder.  The larger firms had simply too much invested in the status quo.  They may or may not have been willing to do the innovation, but it simply seemed too unreasonable to do it.

Gaining skills and increasing vision

Innovation of any form, resulting in any outcome, can be challenging, but the more the result becomes intangible (services, experiences) or upsets a dominant paradigm (business models) the more difficult it becomes, for several reasons.  First, it's difficult because it is unusual.  Most companies can do some product innovation when forced to, but haven't conducted any more robust or intangible innovation.  Second, by their very nature, these outcomes are intangible:  hard to see, hard to test, hard to prove.  You almost have to create the solution before you'll know if it will work.  That's the reverse of most corporate thinking, which seems to suggest you should prove it will work before you experiment.  Third, these kinds of innovation are difficult because they challenge a very valuable existing paradigm:  an industry convention, a viable business model, that few want to destroy.

While many corporations have some innovation skill, the idea of business model and customer experience innovation may still be instances where the reach far exceeds the grasp, to paraphrase Browning.  Talking about business model innovation and building expectation is dangerous when few established companies know how to do it, and further, have the unreasonableness to try.  Because it will take more than skill to innovate a business model in an existing industry.  It will require either an outsider who has no stake in the market, or an incumbent who is willing to tear up an existing convention (that they also benefit from) and start again.

Since many corporations are also public corporations dependent on shareholders, only visionary or desperate CEOs will suggest that the company slit its own business model throat and innovate a completely new way of doing business.  Talk about unreasonable!

What's likely to happen

None of this means that I don't think business model innovation is going to occur.  It's already underway, and every large corporation is watching and trying to understand what's going to happen.  A lot of investments are being made "just in case" to buy time.  GM invested in Lyft "just in case" the Millennials never make the shift to acquire cars, and the baby boomers all give theirs up.  GM hasn't yet innovated its business model, which is really a financing model, but it probably needs to.  And GM isn't alone.  Every business model is under siege.  Intel built its model based on the dominance of the PC, but tablets and smartphones are far outpacing the growth of desktops and laptops.  We can go on and on about the business models that are at risk, and how hard it can be to innovate out of an existing model.

Startups, entrepreneurs and new entrants will conversely have a field day, because many new platforms and technologies will allow them to enter and change the dynamics of an industry or business model with relative ease.  Airbnb and Uber are two examples, as is NetFlix, and all are dependent on the power of the internet, which has become a platform for business model change.


Right now, there's an overabundance of talk about business model innovation, by people who know how difficult it can be. Those who need business model innovation most don't have the depth of skill or experience necessary, and are often too locked-in to their existing models to innovate effectively. They aren't yet willing to be unreasonable.  But the new entrants are fully willing to disrupt and subvert the business models, and new technologies and capabilities are making it easy for them to do so.  You can believe everything you read about business model innovation and its importance, but pay attention to the companies that actually do it.  They will be the ones with the skills and unreasonableness (if they are larger) or the utter lack of investment in the convention (if they are entrepreneurial or crossing industry boundaries).  Business model innovation is just emerging and will happen quite regularly, but it will be driven primarily by the new entrants and the boundary hoppers.

Perhaps one of the biggest challenges innovators face is the lack of shared conventions or definitions.  This starts with the definition of innovation, which we all agree is important but no two people agree on the definition.  Moving on from there, we have different types of innovation, different tools and outcomes, differences in focus and intent.  I honestly believe that innovation teams in corporations attempting to conduct innovation suffer, because of the host of different and often proprietary innovation methods, processes and tools.

There's little I'd like more than to create shared platforms and models, and to create holistic solutions rather than increment our way to good frameworks.  One of the challenges I'll address and attempt to solve today is the emerging dichotomy currently represented as explore and exploit.  This is, in itself, an evolution, because the vast majority of work in corporations recently could be represented by a single activity:  exploit.  But I'm going to argue that while the emergence of the explore:exploit duality if a good thing, we need to go much further.  This explore:exploit duality is emerging simply to isolate two different activities with different goals and tools.  Explore seeks to discover new ideas, using high divergent tools and methods, while Exploit seeks to maximize profits using highly convergent tools and methods.  Thus we isolate and inoculate them from each other.

Missing the Forest for the Trees

But this is a forest and trees problem, because Explore and Exploit represent key activities, not the entirety of a end to end innovation or idea process.  Yes, they are important activities, but they overlook, ignore or simply attempt to subsume important activities like Experimentation, Execution, Enhancement and Evisceration.  Let's not stop with the emergence of explore and exploit.  Let's pull back the viewfinder and take a broader look at the entire end to end innovation process, from the earliest hints of needs in Exploration to the last dying gasps of an outdated product in Evisceration.  As we define and share a common framework, we can educate our clients, remove mystery and speak clearly and directly about specific tasks and outcomes.  We can highlight what our clients do well (define and build new products, maximize revenue and profits) and what they do poorly if at all (discover new needs, experiment to find the best solutions, create a graceful end of life for products).

The proposed six phases of an idea lifecycle
We've published a new white paper entitled Beyond Explore and Exploit, seeking to define an entire end to end idea lifecycle using six "E" words you've probably already noticed scattered throughout.  Those "E" words represent sequential steps in an idea lifecycle, from birth to death:

• Explore - to find new insights, discover new needs, create new ideas
• Experiment - to evolve the ideas and validate the features
• Execute - to convert good ideas into new products or services and launch them
• Exploit - to maximize profits and gain returns on the investments in the first 3 phases
• Enhance - to extend the life of a product or provide new features or benefits
• Eviscerate - to create a logical, graceful end for products, rather than leave them as zombies

You can find the entire whitepaper on our website here, along with other articles and papers.  I'd like to thank my good friend and frequent collaborator Paul Hobcraft for his thoughts and comments.  Any oversights or mistakes are of course mine alone.


So, what say you, gentle innovators?  Ready to think about creating one common, shared innovation life cycle?  What did we get right with this model?  What did we get wrong?  How do we lower the barriers for our clients through shared innovation models and frameworks?  Ready to give it a try?

Like many of you I look forward to the annual reports about innovation that a number of larger corporations and consulting firms publish.   It's interesting to get a large, multinational examination of the state of innovation, and to see how the data is interpreted.  Each year BCG and other consulting firms release an innovation report.  From the business perspective,  GE does a nice job every year of interviewing a large number of executives around the globe, and analyzing the data for insights.

Before I drill into what I believe the data tells us, remember a couple of factors.  First, how a question is asked matters, as well as which questions were asked and which were not asked.  There may be as much to learn from what wasn't asked as their is in what was asked.  Second, analyze the analysis.  Look at the data itself and how it is presented.  There are connections in the data that seem interesting to me that GE does not call out.  GE may refrain from calling these out because the data or conclusions differ from what GE is interested in presenting. Or, GE simply took a different perspective than I did.  There are many reasons why the analysis from the same data set may be slightly different.

It's clear what's important to GE - examining the report suggests a couple of areas that GE wants to highlight, including business to business collaboration, data analytics and support for innovation from governments.  GE also covers a wide array of innovation topics, and the overall report and analysis they provide is reasonably good.

My analysis

Here's my analysis of their report and the subsequent data they provided (charts/figures noted by page number).  This analysis is based on the 88 page PowerPoint I downloaded from the main Barometer site:   http://www.gereports.com/innovation-barometer/


Page 5 - 2016 Key Findings.

GE presents four key findings (Welcome Revolution, Embracing new models, Disruptive Innovation and Everybody's starting up).  Within these findings two concepts caught my eye.  First, while executives recognize the need for "disruptive" innovation (never really defined as far as I could see), 81% worry about being left behind, or have fear of becoming obsolete (a new acronym:  FOBO).

But here's the question:  does this "fear" translate into any action?  Do executives communicate this fear to their organizations?  More importantly, do the executives allocate resources or investments based on these concerns?  We don't know from the research.

Second, the research states that "Inertia and risk aversion are growing".  God help us if this is true.  Inertia and risk have traditionally formed some of the biggest barriers to innovation.  If inertia and risk aversion are growing, as the report states, then together we face an immense struggle to innovate.  Large corporations face enough challenge to innovate without an increase in inertia and risk aversion.  The report says nothing about how to overcome these issues.

Page 22 - Increased Financial Return

According to this slide, firms in leading innovation countries are recognizing growing innovation return from collaboration.  Almost 90% of the firms surveyed are growing innovation collaboration, with the global average at 77%.  While innovation is growing and collaboration is increasing, this data is overstated or does not represent the average company in the countries where the research was conducted.  In our experience "open innovation" is still a buzz word for many companies, and while collaboration and open innovation can be game changers, the vast majority of companies are not actively collaborating for innovation success.

Page 25 - Being disruptive is the gold standard

Again, other than defining disruption in the previous slide as "creating a market that didn't previously exist" we don't have a good definition of disruption.  Moreover, 60% of the companies surveyed have difficulty coming up with radical and disruptive ideas.  47% say the development of new products and services "contributed" to business performance, but doesn't mention what the contribution was.  Companies can label any new product and its associated revenue as "innovation", and this statistic doesn't equate to "disruption", merely to new products or services.

The entire analysis argues for more disruption, but doesn't address how difficult it is or what firms are doing to grow the skills necessary to innovate effectively.  Later we'll see another conundrum, the concern about working on disruptive projects versus the need to get to market quickly.  Conversely, the report doesn't talk much about what's causing industry and segment disruption.  Disruption is increasing - look no further than Airbnb or Uber for examples - but many industries don't understand the disruptive forces or how to defend against them.  Most larger corporations would be better served to learn to understand the potential disrupters and purchase, block or co-opt them.  If inertia and risk are big barriers to every day innovation, what kind of barriers will larger corporations encounter when they try to "disrupt" something?

Page 31 - The majority of business executives continue to favor a "safer" approach

Here's research that simply confirms what we already knew.  Executives prefer innovation that doesn't interfere with day to day operations.  But what we actually need is a "both/and" approach:  the ability to conduct excellent day to day operations to drive revenue and profits while simultaneously conducting innovation to create new products.  Currently, almost two-thirds of the respondents note that they intend to protect the core business as much as possible, which will starve innovation activities.

Page 32 - Many businesses innovate incrementally...

On this slide we see what appears to be a logical tradeoff:  63% of respondents favor incremental innovation because they want safety and low risk, while recognizing they need to get to market quickly.  What they miss is that innovation can be disruptive AND rapid, they just don't have the processes or skills to conduct innovation in that way. And, when new entrants with the ability to be both disruptive and rapid emerge (look at Zara, or Uber, for example), there will be disruption in their markets and industries.  It's not enough to recognize what the disrupters are doing, corporations have to adopt these skills and capabilities or they will be disrupted.  Corporations must become more capable innovators, must become more agile, more able to make quick decisions and become proactive rather than react to market conditions or competitive actions.

Page 36 - Having an innovation strategy...

This slide suggests that two thirds of the firms surveyed have a "clear innovation strategy", which is probably true but almost certainly irrelevant.  What is relevant is having a clear strategy, that is regularly and capably communicated to the entire organization, and is backed by executive commitment, new funding, project prioritization and other factors which ensure innovation is actually done.  You can see how little having a clear innovation strategy matters when you read that 62% of those firms with a clear strategy "struggle to come up with radical and disruptive ideas".  Ultimately this chart tells us that over 60% of the firms that responded (62% of 68% and 57% of 32% = 60%) struggle to come up with radical and disruptive ideas.  This is further reinforced by the next slide...

Page 37 - We see polarized views in approach to innovation strategies

France, Indonesia and India lead the way in responding to the question:  Does your company have a clear innovation strategy, yet I think few experts would claim that these countries or the preponderance of firms in these countries are excellent innovators.  On the flip side, Japan is noted earlier in the research as an innovation champion, and we can easily toss in Israel and Sweden, all three at the opposite end of the scale, lacking clear innovation strategy.  Either having a clear innovation strategy doesn't matter (which it does) or it is not enough (having a clear strategy is useful only if other conditions, like executive commitment, funding, resources and other factors are also put in place).  Further, we need to move away from the reliance on countries and governments.  Too often governments create incentives and hope to pick winners and losers, rather than simply creating conditions where the best ideas and industries succeed.

Page 41 - Identifying best practices and integrating them...

I especially like this chart, but I think the developers of the material missed a key opportunity here.  If we look from left to right we can identify key factors that become barriers to innovation. They are:

• a lack of PROCESS (to have a clear process and structure in place)
• a lack of PEOPLE (to encourage and reward innovative people)
• a lack of innovation CULTURE (to create a connected culture) and (to reward those...)
• a lack of GOVERNANCE (to create a set of metrics..)
• a lack of CUSTOMER INSIGHT (to rely on consumer research...)

These factors have been innovation challenges for years.  To see them show up in this research is almost reassuring, but ultimately damning.  For these to show up in this way, in this order means that for over a decade corporations have known what the challenges are and haven't moved the needle very much.  We know these are problems.  When will leaders arise who will focus on them and fix them?

 Page 42 - The Informed Public think internal inertia and lack of leadership...

Here's a real conundrum.  The factors that keep firms from innovating effectively (business models, integration, inertia, lack of investment, lack of skill sets) are all factors that are internally controllable.  None of these arise from external competition or are unobtainable or unchangeable.  All of them are within the purview of the executives who were interviewed to change!  Let's get to it!

Conclusion

GE has once again done a great job surveying a broad population of executives, who have indicated that innovation is important and who recognize that their companies must get better at doing innovation consistently and in a more disruptive fashion.  Yet these same executives, who recognize the key challenges and skill gaps, don't have answers to basic changes necessary in order to innovate.  In this regard, there's nothing new under the sun.  We are still faced with issues like risk, uncertainty, the tradeoffs between day to day operations and innovation, and everyone recognizes the skill gaps, cultural barriers, inertia and other innovation blockers.

The real problem identified by this report is how uncomfortable most corporations are with the types of innovation they need to be doing.  The report confirms that most respondents are uncomfortable with radical or disruptive innovation, while recognizing that these factors pose significant challenges to their current business prospects.  Change is accelerating and disruption is accelerating.  Executives understand this but don't seem to have plans to address them.  At a minimum, larger firms should be paying close attention to potential disrupters, and taking a proactive yet defensive stance to block the disrupters, delay the disrupters or create conventions or regulations that stymie them.  Better yet, the corporate leaders could learn from or acquire the disrupters.  The best possible scenario is that larger corporations become far more proactive, creating new solutions and identifying emerging markets and needs before the disrupters do.  But this will require a change in culture, rewards, focus, business model and ultimately, leadership.

This should be a wakeup call to new managers and junior executives who are climbing the corporate ladder.  Now is the time to build these skills, to put new processes and mechanisms into place.  The pace of change is accelerating.  Disruption is occurring.  FOBO (obsolescence) won't occur on the current management watch.  It will occur just as you reach the top, unless you are prepared to make changes to the way your company operates.