How to research new products and services.

Post 544 - Finding out what customers want or value when creating new products or improving existing ones isn’t as straightforward as it may see. For example, when asked, nobody thought they wanted the Aeron chair. Henry Ford once said, "If I had asked people what they wanted, they would have said faster horses." If you ask, most people can only tell you what they 'think' they want. And they can't imagine what they haven't already experienced.

Surprise innovations confound those who believe that customers will use the product only as directed. An Indian company marketed a bicycle with a small engine. The bike didn’t sell very well but in one region, customers kept ordering the engine by itself. Upon learning that farmers were using it to run small irrigation pumps, the company switched businesses and became the leading maker of such pumps.

Innovation is the ability to continually and constantly renew, replenish and enrich our views, philosophies, values and competencies by looking out of bounds, outside the lines and out of the box. Useful knowledge is widely dispersed and expensive to collect. In general, facts are too dry and personal experiences are too situational to decipher, so giving people the tools they need to find their own voice is the highest form of education. You can take an analytical approach (tell me about...), a physical approach (show me ...), and a creative approach (let's play a game ...). The more approaches you use, the more information you’ll get.

For example, try thinking about a product or service as a speedboat with an assortment of attached anchors, each representing something that the customer doesn't like about the current offerings. Then think about changes to the product or the introduction of new ideas and features that will allow the speedboat to break free of each anchor in turn. However, if you worship the voice of the customer in this way, you’re likely to only get incremental suggestions rather than brand new ideas.

Different levels of innovation please different people. Satisfied customers, who already feel well served, accept small, incremental improvements and resent major changes. Potential customers who are satisfied, but not delighted, by a competitors product, are attracted by a distinctive innovation that shows clear advantage but remains reassuringly familiar. Revolutionary changes appeal to potential customers who reject or ignore all the options currently being offered to meet their needs. Innovation that’s too radical won’t be widely accepted. To succeed in business, choose one group of customers and learn what they want. Then use your skills and resources to surpass their future hopes, not just to meet their present expectations.

Bigger companies tend to be rather conservative in this regard as they're focused on squeezing profits out of past investments rather than creating new sources of income. Innovation is frequently blocked by competing departments and functions that have plans of their own. The rule for success when innovating in bureaucracies is to stick your neck out just enough to get a haircut but not enough to risk getting your head chopped off.

Try to discover the things you know, the things you know you don't know, and the things you don't know you don't know. Move items from the category of things you don't know you don't know into the category of things you know you don't know. In the latter, you actually have some knowledge about whatever that subject is. You can then apply other methods to reduce your ignorance about the subject.

"It's only when you drop yesterday's assumptions that you can glimpse tomorrow's patterns and possibilities. To see deeper, unsee first." - Umair Haq

How to test your company’s creative ability.

Post 536 - Last Friday, I had lunch with eight colleagues where we talked about our experiences with innovation and creativity. One of those present was a visiting researcher from Sweden who introduced us to the following test. I thought you might find it useful. Just answer YES or NO to the following ten questions:

1. Are you encouraged to be creative and come up with new ideas at work?

2. Do you and your colleagues take initiatives even if the outcomes are uncertain?

3. Are you allowed to fail in your workplace?

4. Do you experience the atmosphere at your workplace as lively and eventful?

5. Do you feel that there’s room for humor and laughter in your workplace?

6. Does your boss listen to you? Is there a dialogue rather than a monologue at your workplace?

7. Do you have time to think of new ideas?

8. Have you and your colleagues the opportunity to take part in how the company is managed and developed?

9. Do you verbally encourage others in the workplace?

10. Are you encouraged to collaborate with others?

The number of YES answers to the above test are evaluated as follows:

0-3 YES:
Probably you don’t have much room to be creative.

Action: Download Farida’s dissertation summary on www.farida.se and give the dissertation to your management! Do the test again after six months and if the score hasn’t improved - change jobs!

4 – 6 YES;
Not a super-creative company, but has the right conditions to
become one!

Action: Work on the points that you’ve answered NO to and enhance
the areas where you've answered YES.

7-10 YES:
You’re probably in an organization that can perform and deliver
super-creative results.

Action: Spread the word, and recruit more people who don’t have space to be creative in their current companies. Focus on your own creativity so you can get even better results.

Farida’s research shows that when employees are more creative, you get both better economic results and a healthier, happier staff.

For more information, contact:
Dr. Farida Rasulzada
Department of Psychology
Lund University, Sweden
+46 (0) 736 222 121
Farida.Rasulzada@psychology.lu.se

How to turbo-charge your creative thinking.

Post 471 - Roger von Oech writes that the first principle of traditional logic is the law of non-contradiction. Logic can only comprehend those things that have a consistent and non-contradictory nature. This is fine except that most of life is ambiguous; inconsistency and contradictions are the hallmarks of human existence. As a result, the number of issues that can be thought about in a logical manner is small, and too much emphasis on the logical method can inhibit the exploring mind.

"Hard thinking" is logical, precise, exact, specific and consistent. "Soft thinking" is metaphorical, approximate, diffuse, humorous, playful and able to deal with contradiction. Hard thinking is like a spotlight, bright, clear and intense, but the focus is narrow. Soft thinking is like a floodlight, more diffuse, not as intense, but it covers a wider area.

Some people have little use for soft thinking because it's not logical. When faced with an issue, they immediately think, “Let’s see the numbers and get down to brass tacks.” And as Karl Albrecht points out, they'll never give themselves the opportunity to consider steel tacks, copper tacks, plastic tacks, sailing tacks, income tax, syntax or contacts. Using a little soft thinking early in the creative process may still cause you to end up going with the brass tacks, but at least you’ll have the confidence of having considered other alternatives.

Our educational system does a fairly good job of developing logical thinking skills but doesn’t do much to develop soft thinking. In fact, most of our educational emphasis is geared toward eliminating soft thinking, or teaching people to regard it as an inferior tool. As a result, most people aren't very adept at soft thinking, so it takes some practice to do it well.

Human intelligence is a complicated phenomenon, and yet almost all of our formal ideas of intelligence are based on logic and analysis - I. Q. tests are a good example. Musical ability, decorating, painting and cooking seem to have no place in many test-makers’ idea of intelligence. As Edward de Bono points out, if someone says he’s learned to think, most people assume that means that he’s learned to think logically.

When exploring a creative challenge, take a leaf out of Einstein's book and utilize the power of hard thinking followed by soft thinking. Einstein would pour over his calculations and cover everything he knew before having in-depth discussions with his peers. All this involved hard creative effort. But Einstein appreciated soft thinking as well, so he consciously set the problem aside and redirected his attention to playing the violin or sailing - two things he loved to do and could "disappear" while he was doing them. He found was that during these pleasurable pursuits, his unconscious mind would go on thinking about the challenge and surprise him with a breakthrough insight or innovation at the time when he least expected it. So following Einstein's method seems like a good way to turbo-charge your creative thinking breakthroughs.

“What concerns me is not the way things are but rather the way people think things are” – Epictetus.

How to deal with stalled meetings.

Post 470 - Most of us have a one sided view of the world and find it difficult to change when we're asked to think about a view that differs from our own. During meetings, some people argue their own point of view at length, and never seem to stop. How to solve the problems of time wasted in meetings? How to focus more on the points that really matter instead of concentrating on unrelated and inappropriate topics? How to reduce or stop endless discussions? How to improve communication and decision-making in groups?

Edward de Bono's Six Thinking Hats is a good technique for looking at the effects of a decision from a number of different points of view. To improve the quality of communication and decision-making, he suggests looking at the decision "wearing" each of the following "Thinking Hats" in turn. De Bono reports that this process reduces time spent in meetings by 20 to 90 percent, based on experiences reported to him since his book of the same name was first published. Each represents a different style of thinking as explained below:

• White Hat:
Here, look at the information that's available, and see what can be learned from it. Look for gaps in knowledge, and either try to fill them or take them into account. This is where you analyze past trends, and try to extrapolate from historical data. Care in characterizing what's actually known is important here.

• Red Hat:
Wearing the red hat, look at the decision using intuition and gut reaction. Think about how other people will react emotionally, and try to understand the intuitive responses of those who don't fully understand your reasoning. This allows emotion and skepticism to be brought into what would otherwise be a purely rational decision.

* Black Hat:
Using black hat thinking, look at things pessimistically, cautiously and defensively. Try to see why ideas and approaches being considered mightn't work. By highlighting the weak points in a plan or course of action, you can eliminate them, change your approach, or develop contingency plans to counter any problems that may arise. Black hat thinking helps persistently pessimistic people be positive and creative. Another benefit of this technique is that many successful people get so used to thinking positively that they often can't anticipate problems in advance, which leaves them ill-prepared for difficulties later on.

• Yellow Hat:
The yellow hat encourages positive thinking. An optimistic viewpoint helps to see all the benefits of the decision and to spot the opportunities that arise from it. Yellow hat thinking helps you to keep on going when everything looks gloomy and difficult. This view is helpful in opening up the possibilities.

• Green Hat:
The Green Hat stands for creativity. This is where you can develop creative solutions to a problem. It's a freewheeling way of thinking, where there's little criticism of ideas. Most ideas begin with the green hat and then get analyzed from the black and yellow hat point of view. This is the entrepreneurial hat - fertile, creative, provocative.

• Blue Hat:
The Blue Hat stands for process control and can be used to move between different thinking styles. This is the hat to wear when chairing meetings. Running into difficulties because ideas are running dry? Direct people's activity into green hat thinking. Then, when contingency plans are needed, ask for black hat thinking, and so on. You can use these different hats in meetings to help defuse disagreements when people with different thinking styles discuss the same issue.

People learn best when they're playing, and the six hat approach clearly encourages a spirit of play. By having everyone in a group focus on a specific element (Hat) at the same time, not individually, this technique reduces the amount of personality-based conflict, encourages more participation, and gives validation to many different ways to present the question at hand. It also suspends judgment longer so that more ideas can emerge.

I suggest you give this process a trial run with something unimportant before unleashing it on a big issue. Otherwise, you might be stalled by lack of understanding about how the process works. Keep practicing until you're satisfied that it's working well.

The power of lateral thinking.

Post 469 - Reading Edward de Bono's book New Think over the weekend, I was reminded again of the difference between vertical and lateral thinking. Vertical thinking begins with a single idea and then proceeds with that idea until a solution is reached. Lateral thinking generates alternative ways of seeing the problem before looking for a solution.

DeBono explains this by talking about digging holes:
Logic is the tool that's used to dig holes deeper and bigger, to make them altogether better holes. But if the hole is in the wrong place, then no amount of improvement is going to put it in the right place. No matter how obvious this may seem to every digger, it's still easier to go on digging in the same place than to start all over again in a new place. Vertical thinking is digging the same hole deeper; lateral thinking is trying again elsewhere.

de Bono acknowledges the advantages of digging in the same hole, agreeing that "a half-dug hole offers a direction in which to expend effort." He also points out that no one is paid to sit around being capable of achievement. Since there's no way to assess such capability, we have to pay and promote people according to their visible achievements. So it can work to your advantage to dig the wrong hole (even one that's recognized as being wrong) to an impressive depth than sitting around wondering where to start digging. However, breakthroughs usually come when someone abandons a partly-dug hole and starts afresh in a different place.

Many successful people think from a very rational, positive viewpoint, and this is part of the reason that they're successful. Often, though, they may fail to look at problems from emotional, intuitive, creative or negative viewpoints. This can mean that they underestimate resistance to change, don't make creative leaps, and fail to make essential contingency plans. Similarly, pessimists may be excessively defensive, and people used to a very logical approach to problem solving may fail to engage their creativity or listen to their intuition.

Tomorrow, I'll cover de Bono's "Six Thinking Hats," which is a way to look at important decisions from a number of different perspectives. This helps make better decisions by pushing people to move outside their habitual ways of thinking. Thus by understanding the full complexity of a decision, they can spot issues and opportunities which they might not otherwise notice.

How people learn.

Post 324 - Studies show that living organisms have learning curves that are S-shaped. So people start with a period of slow orientation followed by a rapid acceleration. However, at a certain point in time, the curve begins to tip downward. Then if a person or an organization doesn’t move onto a new curve, its success life is sharply limited. There are many recent business examples where companies that initially enjoyed great success couldn’t reassess their strategies, and missed the changing market as a result – think of the auto industry for one. Similarly, the PC is not a fixed product but a continuum. It’s not one thing, it’s a continuing phenomenon and every couple of years its definition changes. Success gives the illusion that the curve only goes up. It requires reflection and introspection to know otherwise.

To be introspective means creating an observation point where you can see the past and the future and then decide what to do next. This means retreating, withdrawing to reassess, reframing your perspective, and then returning to the fray. Individuals are most likely to do this when they see different values and conflicts between themselves and their work or their organization. The best strategy is to face up to it and decide what you can change in the organization and what you have to change within yourself. As Professor Pam Posey points out, transitioning between learning curves (created by plotting results v/s effort) is very tricky to do. “It feels like a free fall zone - it feels like we’re throwing away our progress and going back to ground zero again.”

Many companies waste an incredible amount of energy trying to make do with what they have rather than creating something different (in this context, different means better). Managers tell me over and over, “The organization we have is fine - it’s just that it doesn’t really work all that well.” There’s a widespread practice at all levels of people waiting for the experts to tell them the right way to run their business rather than thinking it through for themselves. But deep inside, people usually know a better way to do their work than the way their they’re currently doing it. Ask them, “Would you run the business like this if it were your business?” and the vast majority say “No way.”

However, people in general lack knowledge about how to reach in and access their own beliefs and learnings. And they don’t know how to join their ideas with those of others and act on them together. To many professionals, this approach seems too simple and simple approaches are really difficult for them to trust. However, it’s what works best. The tools most American managers are using to explore their world have grown dangerously out of date.

As Abraham Lincoln once said, “As our case is new, so must we think anew, and act anew. We must disenthrall ourselves, and then we shall save our country.”

Today, I leave you with this thought: The future is coming at us with ever increasing speed. We need to engage with it - today; to seize its opportunities - now; to start shaping its possibilities - in this very moment. And our approach must be very different from the behaviors we’ve relied on in the past.

There are no mistakes, only lessons.

Post 322 - Innovation and imagination can be spurred on by many things, including laziness, as in the story of the farmer and his wife sitting by the fire one evening. The wife said, ”Tom, I think it’s raining. Can you go outside and see?” The farmer, who was very comfortable where he was, thought for a second, then replied, “Why don’t we just call the dog in and see if she’s wet?”

Risk taking, however, is a key component of innovation and you can't expect to always be right in your choices. “The better a man is, the more mistakes he will make, for the more new things he will try,” according to Peter Drucker.

Taking risks involves making intelligent mistakes. Occasional failure is the price of improvement. Think of learning as a stabilizer in times of change. It takes a certain amount of counter-evidence to challenge old behaviors, and it takes further efforts to unfreeze these behaviors, delete obsolete theories, and replace them with new ones. Learning and unlearning are complimentary capabilities and people need to use both of them simultaneously, especially in rapidly changing environments. We learn nothing from the things we already know. But we can learn from the mistakes of others - you can never live long enough to make all the mistakes yourself.

I believe there are no mistakes, only lessons. Growth is an experimental process of trial and error. The failed experiments are as much a part of the process as those that ultimately work. A lesson will be presented to you in various forms until you've learned it. And after you've learned it, you can then go on to the next lesson. There's no part of life that doesn’t have its lessons. As long as you’re alive, there are lessons to be learned - the learning never ends. As Karl Popper writes in Conjectures and Refutations, “Our aim must be to make our successive mistakes as quickly as possible.”

Carroll O’Connor, the legendary “Archie Bunker” of TV fame once said, “Professional acting has a kind of tension. The amateur is thrown by it but the professional needs it.” Like a wind-up clock, the professional can't really tick without some tension. When Steve Ross ran MTV, he had a wonderful philosophy - that people got fired for not making mistakes. While solutions reached by rational means may not be the right ones, at least you can backtrack and try to find where you took a wrong turn. Rational thinking doesn’t guarantee wisdom of thought anymore, just transparency.

In most organizations today, knowledge is scattered, hard to find, and prone to disappear without a trace. The Nobel prize winning economist, F. A. Hayek, in an essay on the use of knowledge in society, wrote that, “the knowledge ... we must make use of never exists in concentrated or integrated form, but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess.” Traditionally, finding solutions to problems focused on finding the right answer. But, in many cases today, there's no single answer. Rather, there are many often inconsistent and competing answers, none of which has a unique claim to validity. So, risk taking is inevitable in finding the best route forward ... and the most risky route is to try and do it all by yourself.

I'll end this post with a quote from Martin Luther to use as a mantra for moving forward: “Everything that is done in the world is done by hope.”

How entrepreneurs foster innovation.

Post 321 - Judging by Federico Faggin's outline for introducing innovation which I posted yesterday, the current confusion over health care reform reflects a process that lacks a clearly crystallized central idea and is thus active in all the stages Fagin mentioned at the same time. Hopefully, the president's address tonight will bring a better focus to the national discussion.

I think it's a pity we don't have more people with entrepreneurial experience in government these days instead of so many full-time political bureaucrats. Why? Because entrepreneurs have energy, vision, selling skills and hustle. They've an innate ability to compartmentalize their fears and doubts. They've the drive to put their imprint on whatever they create and they're comfortable with ambiguity and lack of clarity. More than anything, they want to use their skills and abilities, be independent, have contol over their lives and build for their families. They believe in what they’re doing with a passion that overcomes doubt. They believe that if you want to be successful, don’t make a wish, make a call.

Andy Grove of Intel says that learning to adjust in today’s environment is like driving in a fog behind another car. It’s easy going as long as you have the other car’s tail lights to guide you. But when the leading car turns off the road, you’re suddenly stuck without the confidence that comes from finding your own way. Followers have little future. You mustn’t let your strengths become your weaknesses. Focus on inventing the future rather than sprucing up the past.

If you don’t risk anything, you risk even more. The cost of delay exceeds the cost of mistakes. Nothing will ever be attempted if all possible objections must be first overcome. Progress always involves risk. You can’t steal second base and keep your foot on first at the same time. "Some things arrive on their own mysterious hour, on their own terms and not yours, to be seized or relinquished for ever,” according to the writer, Gail Goodwin, who also reminds us that the turtle only wins the race in fairy tales.

Creativity is all about connecting things. Creative people don’t really do something different - rather they see something that just seems simple and obvious to them. That’s because they can connect their experiences and use them to synthesize new points of view. They can do this because they have more experiences or they think more about their experiences than other people. Unfortunately, that’s a rare commodity. People who haven’t had very diverse experiences don’t have enough dots to connect, so they're unable to think systemically. As a result, they end up with very linear solutions because they don’t have a broad perspective on their problems.

A poet must embrace many tasks, not the least of which is making all the parts of the poem fit together. The biggest challenge is not just to create an exquisite turn of phrase but to be true to the essence of the poem as a whole. Systems thinking is an understanding of the connectedness of different parts of an entity to one another and to its environment. System thinking makes the full pattern of change clearer. When you’re deep in a hole, all you can see is the edge. However, the view from the mountain top is very different.

Stanislaw Lec's observation is still true today: “Many of those who were ahead of their time had to wait for it in uncomfortable quarters.”

How to create innovation.

Post 320 - Listening to the arguments over health care reform started me thinking about how little seems to be understood about how to create innovation.

For hundreds of years, people thought that the breaststroke was the fastest way to swim, although the way the swimmer’s arms recovered underwater was really inefficient. Then, in the 1850s, some competitive swimmers noticed that Native Americans and Australian aborigines used a stroke with an out-of-the-water, over-arm recovery and began to experiment with the new stroke - a key innovation. They found they had to find a new kick to go along with this new way of swimming, and about the turn of the century, the flutter kick was perfected - a second important innovation. Since then, there have been a large number of small improvements in the crawl stroke, such as rotating side to side rather than swimming flat in the water. Even today, there’s still room for discovery and improvement. A combination of breakthrough innovation and small, incremental improvements - both were important in the development of modern swimming.

Federico Faggin, who invented the first 4-bit microprocessor at Intel in the early seventies, describes the creative process as follows:

The creative process starts with a soup of ideas made up of our own experiences, what we’ve learned from others we know or work with, and ideas we’ve picked up from the media. The first phase is the crystallization of an idea, the 'aha' phase, where we find the conceptual blueprint for a new product or process.

Next, the essence of the idea emerges. It becomes crisp, clear, and real, and is made to work.

The third stage involves introducing the new idea in the real world. This is the most critical stage because here, reactions are generally hostile. Some opposition comes from those who fail to understand the significance of the innovation, some comes from those who are threatened by changes in the status quo, and some comes from those with competing ideas.

But the main problem with new ideas is that they’re different. When something is new, people wonder how it’s going to fit into the old. They’re bogged down in the metaphors of the old and can’t understand something new that’s outside their current experience. They don’t know how to integrate new messages into familiar patterns of thinking and behavior. It takes tremendous self-confidence and persistence to win acceptance for new ideas. And because some of the inevitable criticism will probably be well founded, it takes honesty and pragmatism to know when an idea should be modified or abandoned.

The next phase is one of endorsement, where champions emerge to help the pioneers by lending their credibility to the new idea and giving it visibility. This acceptance triggers the acknowledgment phase during which the idea is widely adopted and used. The inventor gets public recognition and a star is born. Next comes the stage of invisibility, where the idea is no longer considered new and becomes part of the normal fabric of society.

New ideas are most readily received by those in new situations who have something they want to get done, have few preconceived ideas about the right or normal way to do it, and have little to lose by adopting the new. Victor Hugo said, “There’s nothing more powerful than an idea whose time has come.” Unfortunately, most people begin to realize the time has come only long after it’s arrived.

“The search for static security - in the law and elsewhere – is misguided. The fact is security can only be achieved through constant change, through discarding old ideas that have outlived their usefulness and adapting others to current facts.” - William O.Douglas.

How to encourage "intrepreneurship."

What is entrepreneurship?

Richard Cantillon, a French economist, originally defined entrepreneurship in 1755 as “self employment with an uncertain return.” Entrepreneurs work independently or as part of a corporation, to develop a product, process, market, or technology into a usable form that’s commercially viable in the marketplace. Entrepreneurs, by definition, chafe at confinement and regimentation.

What is intrapreneurship?

This refers to entrepreneurial efforts inside existing companies ("intrepreneurship") aimed at exploiting new markets or new products, or both, that are eventually treated as new businesses by existing organizations. These venturing efforts may or may not lead to the formation of new units that are distinct from the existing business (e.g., a new company or a new division).

What happens to defeat entrepreneurship in larger companies?

- Success leads to stagnation.
Of the ten leaders in vacuum tubes in 1955, only two were left in 1975. Some failed because of a decision not to invest in the new technology. Others invested, but picked the wrong technology. Still other companies failed because of their inability to play two games at once: to be both effective defenders of what quickly became old technologies and effective attackers with new technologies. Firms like Intel and Motorola were not saddled with internal conflict and inertia, and as they grew, they were able to re-create themselves. Firms like RCA were unable to manage these multiple technological approaches; they were trapped by their successful pasts.

- Large organizations find it difficult to successfully make small investments.
At one firm, it was impossible to invest $20K to automate a simple routine process although the manager could sign off on $20K in overtime for a single weekend. Investments had to be of the order of a million dollars or more just to be considered.

- The company’s culture has a predominantly inward focus.
There are extensive procedures for resolving issues through consensus. There’s an arrogance bred by previous success. There’s a sense of entitlement on the part of some employees to guaranteed jobs without a quid pro quo. There’s a preoccupation with internal procedures rather than an understanding of the changing external marketplace.

The typical intrepreneurial process has four phases:

The Solo Phase, where the intrepreneur works alone to develop an entrepreneurial idea.

The Network Phase, where the intrepreneur shares the idea with close friends and trusted customers.

The Bootleg Phase, where an informal team develops and provides support to the new venture while the intrepreneur takes on the responsibilities of leadership.

The Formal Product Phase, where the new venture becomes a formal, official organizational entity and must deal with the parent organization’s regular policies and practices.

You design organizations that encourage this kind of innovation by creating a culture where employees have a sense of security and a sense of possibility. To get innovation, you must allow freedom to experiment. However, to get good financial results, you must have a high degree of control. This culture is fostered by having internally inconsistent competencies, structures and cultures that can coexist, yet share a single vision.

As I've mentioned before, the characteristics of creative organizations are:
• Open channels of communication.
• Not run as a tight ship.
• Wide-ranging perspectives.
• Idea-generating units freed from other responsibilities.
• Investment in basic research.
• Risk-taking philosophy.
• Stable, secure internal environment.

Creating serial innovation.

One reason why the UCSD’s CONNECT program has developed so many new ideas and products is because it encourages interaction between creative scientists and business entrepreneurs as they hunt together for scientific answers to urgent problems. Successful innovators never lose track of what they’re doing; bringing together a concept of what's needed in the marketplace with what's possible in the world of science.

Turning a company into a serial innovator is like a new novelist, still flush with a best seller, who now needs to write that second novel. Hundreds of local technology companies are established businesses today thanks to CONNECT and now need to jump-start another product, a new story. In older, more traditional industries, the innovation crisis is even more serious, though less visible. Merger mania among the big drug companies is driven by the shortage of new Rx products ready to come to market - at a time when many of their most profitable products will soon run out of the patent protection that keeps their prices high. And although the packaged goods giants are rushing to market with thousands of new product ideas, 90% of them fail within 12 months of launch. We still don't know enough about how good ideas happen or where they can lead.

In 1918, an assistant US Postmaster General named James Blaksee put together a fleet of parcel-post trucks to pick up farm produce from designated spots along the country’s main roads and ship it directly to town. However, parcel post soon turned out to be something entirely different than what was originally envisioned - a means not to move farm goods to town but to move consumer goods from town to country. The nature of revolutions is such that you never really know what they mean until they’re over.

Creative guru, Roger von Oech, suggests that we question ourselves as we approach problems so we don’t miss the obvious. He recommends:

(1) Documenting observations without jumping to conclusions.

(2) Asking why, over and over again, to get to the root of the problem. He notes that problems aren't always well expressed; they’re often expressed as solutions and/or wishes instead.

(3) Circling the problem and describing its impact from multiple perspectives.

One of the best ways to promote creativity is through informality. What starts with an accidental discussion over a relaxed cup of coffee often has a surprising outcome. Companies should create more opportunities for these random and relaxed encounters. Today, more and more of these informal chats take place remotely via the internet.

People need to experience something within themselves that will spark and sustain their effort to innovate - and when they experience this "something," they’ll be self-sustaining. They’ll think about their projects in the shower, in the car, and in their dreams. They’ll need very little management from the outside as their intrinsic motivation will flourish. Inside out will rule the day - not outside in. People will innovate not because they’re told to, but because they want to.

Rolf Smith reminds us that, “Being creative is when you think about your thinking. Being innovative is when you act on your ideas.”

Great companies succeed because of their ability to shape and leverage multiple streams of innovation. These include incremental innovation (e.g., thinner mechanical watches), architectural innovation (e.g., SMH’s Swatch watch), and discontinuous innovation (e.g., Seiko’s quartz movement substituting for mechanical movements). They take advantage of brand new markets for existing technologies while proactively introducing substitute products. At the same time, they create new markets and competitive rules by cannibalizing existing products.

"The important thing is not to stop questioning," according to Albert Einstein

Leading innovation.

“When you think about a creative organization, whether it’s advertising or artists, a scientific institute, universities or baseball teams, what we want are the stars. And the stars know how to play their positions better than I do. I have to support them and help them be creative.” – William Brody, the newly announced president of the Salk Institute for Biological Studies.

CEOs who really shine are those who change the face of their industry by introducing innovation. They’re strategic visionaries and thought leaders who have a broad perspective and the confidence to take bold steps. They can look at a wide range of opportunities and then ask, “Which of these opportunities fits our company and what we’re good at?”

Visionary leaders provide a psychological focal point for people’s energies, hopes, and aspirations. They serve as forceful role models and set a standard of behavior to which others can aspire. Senior teams are powerful signal generators in an organization; they extend and institutionalize the leadership and management of innovation and change. The senior team must be cohesive, yet embrace diversity among its own members. It must be able to anticipate significant external events as well as internal developments across the organization, and be able to determine when proactive change is called for.

An effective way to extend the reach of the senior team is to include a broader set of individuals who make up the upper management of the company, including individuals several levels down from the executive team. Driving the leadership of innovation and change down into the firm in this way brings two advantages:

- it ensures that all senior managers have a shared strategic perspective, not a parochial or functional view of the organization,

- it develops and tracks a pool of talent that will be able to lead the organization of the future.

As companies mature, operations eventually tends to dominate. So, product development and idea generation gets treated in the same cultural mode as operations. Most companies become dramatically less innovative as they mature because they don't have the tolerance to support two quite different cultures under the same roof. They pay lip service to the innovative part of the culture as it’s gradually being squeezed out.

One solution is to organize the new separately from the old. Running the existing business always requires considerable time and effort from those responsible for it. Since the new always looks so small compared to what already exists, it tends to get neglected. Existing units invariably concentrate on adapting and extending what’s already there. It’s a mistake to make innovation an objective for people who are also responsible for running the current business. Somebody quite high up in top management must champion and support new innovations. Companies who are introducing more than one new innovative project at a time can have them all report to this senior manager.

Creating an innovative culture.

The culture of an organization:
* reflects and dictates the unspoken rules of interaction (Can we speak openly and share our opinions or our ideas?).
* drives the norms around how the work is done (Do we take ownership for our performance?)
* creates underlying expectations for those who take part (Do we act in ways that influence the success of our company?)
* is a powerful dictator of behavior

The key is a widely-shared corporate value system that promotes integration across departments and business units, and encourages people to share information and resources. Each company should have its own approach that takes into account its history and its vision. The culture should be loose, so that values can be expressed in ways that vary according to the type of innovation required in different parts of the company. At innovative technology companies, for example, managers value the openness and consensus needed to develop new technologies. Yet, when implementation is critical, they recognize that consensus can be fatal.

Decentralized decision making, with consistency achieved through information sharing, strong financial controls and individual accountability, can easily lead to fragmented strategies. The secret to avoiding this is strong social control, exercised through the corporate culture. Culture is the key both to short-term success and, if it’s not managed correctly, to long-term failure when it creates obstacles to innovation and change.

What if one of your executives or employees stops by your office, obviously excited by a new idea for the business. The typical first reaction is to acknowledge the idea and add it to your list of things to do. Many CEOs keep a yellow pad of good ideas that just keeps getting larger and often becomes a source of frustration. Jim Alampi suggests the secret to handling this is not to add yet another idea to your list, as counter-intuitive as that seems. The best response is to acknowledge the value of the idea but not add it to your list of things to do. A statement like, “That’s a really interesting idea and we should consider it. We already have our priorities set for this quarter and this idea doesn’t appear to be more impactful for the company than our current priorities, so please keep this on your to-do list and bring it up again at the next quarterly executive team meeting.”

Getting people to share their learnings triggers additional innovative ideas. I’ve found that:
- people can’t resist sharing when there’s a technical problem to solve and they have the expertise to contribute,
- people are eager to share when they have “bragging opportunities” – such as presentations at conferences, published papers and reports, brown-bag lunches, etc. Have someone document such presentations and post them on an internal website the next day for all employees to read. If it takes too long to disseminate the information, it’s likely to be out of date.

Three cultural elements that are strongly related to radical innovation are:
- a future market orientation,
- a willingness to cannibalize,
- a tolerance for risk.
Organizational tools such as incentives and product champions are also important. But perhaps the most important variable is constructive conflict: the climate of open debate, the honest and frank exchange of ideas. That’s something that can be significantly affected by top management setting the right example, rewarding people for sharing honest opinions, listening to what people are saying, and then doing something with it.

How smaller companies encourage innovation.

Smaller companies have significant advantages over large corporations when it comes to innovation. During a rapidly growing economy, every business is forced to keep up with demand for its products and services, and struggles to make investments that increase productivity. Other investments, such as those that drive innovation, are often put aside in order to meet short-term commitments. During an economic downturn, small businesses (and startups) can inexpensively access top talent as part-time consultants if not as full-time staff. By working closely with these talented engineers and designers, smaller businesses that invest in encouraging innovation will be ready with new products and services when the economy eventually turns around.

Where small companies generally fall down, however, is in building disciplines around the creation, capture, and execution of new ideas. Most small companies develop from a single successful idea, usually the brainchild of the founder. But founders can't afford to remain the sole font of innovation in their businesses any more than they can remain the sole salesperson. Nor can they rely on the passions of their staff and the mental sparks created when 30 people interact each day in close quarters. Innovation requires work. Work requires structure. For smaller companies, invention is 1% inspiration, 49% perspiration, and 50% smart routines. Typically, small companies can't spare employees to spend days or weeks observing customers to understand what turns them on. Instead, most ideas have to come from the employees themselves. So it’s critical to hire creative people and make them open channels to consumers by teaching them to sharpen their powers of observation as they go about their everyday lives.

Good leaders reward the behaviors they want by creating an incentive system for innovation. At an early stage in the company's growth, it pays to keep it simple. Give small awards - $100, perhaps, or a dinner for two - for new ideas. Present these awards at quarterly review meetings, to publicly celebrate the ingenuity of the employees. Later, if the company proceeds further with any of those ideas, their creators might receive $500. Employees who's ideas are taken to market, get paid more.

Innovative small business owners need to be:
- clear about what they want to achieve,
- able to assemble and lead teams of talented people,
- comfortable when dealing with the unexpected,
- able to learn at an accelerated rate.

These entrepreneurs don’t just wait for new ideas - they wheedle them, hunt for them, flirt with them, and coax them into being. They make a list of every possible way a product could be designed or something could be done. Then they try to figure out what hasn’t been done, or ignore physical laws and other constraints. They decide what would be the best possible way to do something; then move backwards, reverse engineering it step-by-step into reality. Inventor David Levy says he used to lie in bed every Saturday morning forbidding himself to get up until he thought of something new.

However, according to Dee Hock, “The problem is never how to get new innovative thoughts into your mind, but to get the old ones out.”

Some examples of innovative companies.

Consider three successful innovative companies: Hewlett-Packard (H-P), Johnson & Johnson (J&J) and Asea Brown Boveri (ABB). Each of these has been able to compete in mature market segments through incremental innovation and in emerging markets and technologies through discontinuous innovation. H-P went from an instrument company to a minicomputer firm to a personal computer and network company. J&J moved from consumer products to pharmaceuticals. ABB transformed itself from a slow heavy-engineering company based primarily in Sweden and Switzerland to an aggressive global competitor with investments in Eastern Europe and Asia.

Although these three companies combined represent hundreds of thousands of employees, each has found a way to remain small by emphasizing autonomous business groups. Take for example ABB, the U.K. giant of 60 businesses, 6000 profit centers in 1300 operating companies, and $30 billion annual revenue. ABB's success can be attributed to a great extent to its management style, symbolized by the 30-30-30-10 rule, which ABB's leadership applies to existing and acquired businesses. The rule provides that 30% of employees are kept at top management, 30% at middle management, 30%on the frontline management and 10% are laid off. The point is to push down as many managers as possible and thus to push decision making further down to where there’s actual contact with the market, and hence innovation, occurs. At ABB, frontline managers are now entrepreneurs driving a bottom up process; middle managers are coaches, leveragers, and developers of the organization; and top managers are institution builders and creators of the organization's values and purpose.

Similarly, J&J has more than 200 separate operating companies that scramble relentlessly for new products and markets. The logic is to keep units small so employees feel a sense of ownership and are encouraged to take responsibility for their own results. This encourages a culture of autonomy and risk-taking that couldn’t exist in a large, centralized organization. These kind of companies retain the benefits of size, especially in marketing and manufacturing. Size is used to leverage economies of scale, not to slow the organization down. H-P, for example, used its relationships with retailers developed from its printer business to market and distribute its personal computer line.

These firms accomplish this without the top-heavy staffs found at other firms. Some years ago, H-P set up an internal Work Innovation Network (WIN) for its managers. Participants met three times a year for 2 - 3 days at a site that was currently involved in some kind of significant innovation. Each meeting was organized by a planning team of WIN members. Short presentations focused on areas of current interest, with long breaks in between so the participants could create their own connections for learning. This “white space” turned out to be where most of the learning took place. People subsequently formed “Neighborhoods” around topics of mutual interest and later “Cyberhoods” where they worked together to help each other develop and deploy innovative ideas.

“In the modern world of business, it is useless to be a creative original thinker unless you can also sell what you create. Management can’t be expected to recognize a good idea unless it’s presented to them by a good salesman.” - David Ogilvy

The bottom line of these examples is that innovative organizations promote variation in products and technologies by decentralizing and encouraging individual autonomy and accountability. They select winners in markets and technologies by staying close to their customers, by being quick to respond to market signals, and by having clear mechanisms to kill products and projects. Finally, products and managers are retained by the market, not by a hierarchical staff who are removed from real customers.

The manager’s role in encouraging innovation.

The challenge for managers in innovative organizations is to improve the fit between strategy, structure, culture and process, while simultaneously preparing for the revolutions required by discontinuous change. This requires the skills to compete in a mature market where cost, efficiency, and incremental innovation are key, while at the same time developing new products and services where radical innovation, speed and flexibility are critical. While a focus on either one of these skill sets is conceptually easy, focusing on only one brings short-term success but long-term failure.

Management's new job is to learn to adapt proactively by positioning themselves to take advantage of what's coming, much like a surfer prepares to ride a wave. This new job description includes a willingness to undertake an endless quest for “The Next Big Thing." The role of management changes from manager-as-pilot to manager-as-lookout - a lookout who spots emerging developments and figures out what impact they can have on different aspects of the business. Finding, evaluating, acquiring and integrating useful technologies and innovations from external sources - customers, suppliers, other companies, both large and small, universities consulting organizations and individual inventors - will increasingly be a part of management’s overall business process.

The manager as architect uses strategy, structure, competency, and culture as tools to build innovative organizations. The manager as network builder and politician builds cliques and coalitions in the service of innovation and change. Perhaps most important, managers are asked to build in and integrate the tensions and contradictions inherent in innovative organizations and while also managing for today and tomorrow. The best management teams have the competency and behavioral flexibility to develop innovation streams on the one hand and to lead organizational renewal on the other.

Managing an organization that can succeed at both incremental and radical innovation is like juggling. A juggler who’s very good at manipulating just a couple of balls isn’t very interesting. It’s only when the juggler can handle multiple balls at one time that his or her skill is respected. For organizations, success for both today and tomorrow requires managers who can simultaneously juggle several inconsistent organizational structures and cultures and thius build and maintain innovative organizations.

Like good jugglers, managers must balance the contradictory structures, skills and cultures required to compete successfully. The dilemma confronting them is this: In the short run, they must respond to changes in their marketing environment with step-by-step changes to see that they survive as the fittest competitor. But in the long run, they may have to shelve the very strategy or product that has made their organization successful. These contrasting managerial demands require that managers periodically destroy what’s been created in order to reconstruct a new organization better suited for the next wave of competition or technology.

Creating new knowledge isn’t something that can be managed in the traditional sense. It’s the capacity of people and communities, continuously generated and renewed in their conversations, to meet new challenges and opportunities. People who create value with their knowledge need to be inspired and supported rather than directed and controlled. So managers have to work to develop an open culture of communication and collaboration that encourages the sharing of innovative work and business practices.

Traditional management's carrot and stick motivators are good to drive people to do the same things over and over, more reliably and maybe even faster. But to get people to innovate, they have to be driven primarily by intrinsic interest and fun in the work itself. Money, such as the payoff from a successful start-up, provides powerful reinforcement to the intrinsic drives, but can never replace them. Only a playful mind can be creative, and only people doing what they enjoy can come up with something original. Managers need to consider the whole person when creating an innovative environment

Building organizations that encourage innovation.

The forces of technology, globalization and diversity require new forms of organization and new concepts and capabilities from management. These concepts are being built around networks of talent and expertise rather than depending on individual heroes and blinding flashes of genius. Successful organizations are networks characterized by a marriage of concepts, competencies and connections.
- New concepts are important because they drive the innovations necessary for vitality and prosperity.
- Competencies are about broad know-how that incorporates technical literacy, global insight, and cultural sensitivity.
- Connections involve frequent interactions between previously isolated groups and individuals. Other prerequisites for innovation are that employees have a sense of security and a sense of possibility.

Features of creative organizations:
• Open channels of communication.
• Not run as a tight ship.
• Management has wide-ranging perspectives.
• Idea-generating units are freed from other responsibilities.
• Resources are invested in research.
• There’s a risk-taking philosophy.
• There’s a stable, secure, internal environment.

Start by creating a culture of innovation. Marines are taught that they must be prepared to improvise. One of their core maxims is: "That which is not forbidden is permitted." It’s often been said that the Army mantra is: "That which is not permitted is forbidden." If a business embraces a culture which says that whatever is not forbidden is permitted, it opens the door to innovation and allows people to improvise, change and grow. If an organization embraces a culture which says that whatever is not expressly permitted is forbidden, then the culture draws bright lines around what is acceptable and stifles creativity and innovation.

An innovative culture can be fostered in organizations which have internally inconsistent competencies, structures and cultures but share a single vision. Managing culture is generally the most neglected and highest-leverage tool for promoting innovation and change. It’s also the most difficult to diagnose and alter. Culture is a powerful way to motivate and focus behaviors in complex and changing settings. But culture can also hold a company hostage to its past. The key seems to be to create a clear vision with a limited set of core values that can, in turn, host diverse cultures within the company. Tools to shape culture include systems of participation and involvement, senior team behavior, and reward and recognition systems.

Finding sources of innovation.

According to the late Peter Drucker, there are seven systematic methods that have been used to understand needs and produce specific innovations.

The first of these techniques is to carefully watch for the unexpected event that may be signal a new trend. The introduction of the personal computer produced several events that were missed by companies that actually had people on their staff to spot just such events. IBM did react to Apple Computers' unexpected success but completely missed the opportunity to control the operating systems for these computers. An expected failure also needs to be analyzed for clues to creating a successful innovation. The Edsel car, introduced in the 1950s, was a big unexpected failure. Ford had spent considerable time and money researching and introducing this car, which was quickly laughed out of the marketplace. When Ford went back to analyze what had happened, they discovered the customers they’d targeted had shifted their tastes to a new lifestyle - sportier and more luxurious. Ford was then able to take this information and create the Thunderbird, which was a tremendous success.

The second source for identifying needs is to search for incongruities. These are not specific events, but trends that may be exhibited throughout an entire industry or company. An example is the way the large U.S. electronic companies responded to Japanese electronic products. U.S. companies would abandon any product line that couldn't produce at least a 15% return on investment. The Japanese priced their products low to start with, then gradually increased their prices to recover their investments. This incongruity happened many times over until U.S. companies decided to fight for market share with more aggressive tactics and innovative marketing.

The third source for identifying innovation possibilities involves looking at specific processes that can be improved. When analyzing a manufacturing process or a service process, there are always improvements that can be made. The automation of factories, when done systematically and rationally, is an example of the containing evolution in innovations. The problem here is not in identifying what to look at, but exactly what should be done to effect change. Quite a few companies become paralyzed in arguments over the correct changes to apply to the process.

The fourth method of identifying needs that require innovation is to examine market and industry structures. Markets go through cycles and stages that are fairly predictable. The beginning of new industries usually produces hundreds of competitors that are narrowed to half a dozen serious competitors during the maturing phase. The railroad, automobile, airplane, computer, and steel industries all went through these stages.

The fifth method of determining sources for innovation concerns demographics. These are changes in the size, age, composition, educational status, income, etc. of any population. Demographic studies can produce very clear and unambiguous information concerning what needs will exists in the future. In the U.S. population, members of the "baby boom" are currently changing from consumers of houses and material goods and are instead preparing for retirement. The current discussion on health care in U.S. is really about the needs of this aging middle class.

The sixth method looks for changes in perception. During the last twenty-five years, the life expectancy of Americans has increased substantially. However, the people have been gripped by fears over their health during the same period. This perception has been fertile ground for a range of innovative and entrepreneurial health products. One of the fastest growing industries currently is the sale of "organic" foods. Here’s an example of a negative fixation that’s driving billions of dollars into new purchasing patterns. Those who understand these perceptions can respond and / or act pro-actively.

The seventh type of innovation is "knowledge based." This popular theme includes the famous stories of Edison inventing the light bulb or the Chinese inventing paper. Knowledge based innovations usually cover long time spans and are high-risk propositions for the individual entrepreneur or organization. The Fax machines was invented 100 years ago but only became a major business product 75-years later. The technologies that are changing the way we work tend to be based on knowledge that’s at least 10 to 20 years old. Knowledge based innovations also tend to converge with other innovations before they become integral to our economy. The computer industry is a good example of knowledge based convergence covering 200 years and thousands of innovations.

The last source of innovation is "bright ideas." These are the flashes of brilliance that occur to individuals in the middle of the night and are the most difficult to fit into a methodical system. These ideas are generated in a situation that may have no connection to any organization, market, industry, convergence of available knowledge, or management. While there are an unlimited number of these ideas, only a very few become part of the economy.

Understanding innovation.

Innovation is finding a new way to do something. In a fast-changing world, the ability to continually renew, replenish and enrich our views, philosophies, values and competencies by looking outside the lines and out-of-the-box is increasingly important. In business, the goal of innovation is positive change, to make someone or something better.

Organizational innovation is creating or adopting an idea or behavior that’s new to the firm. You can look this at from the three different perspectives:

- how the organization’s structure influences innovation,

- how the organization learns and creates new knowledge,
and
- how the organization overcomes its inertia in radically changing business conditions.

Until the early 1990s, research on innovation focused mainly on knowledge production and learning caused by formal organizational arrangements. Since the 1990s, interest has increasingly shifted to examining informal and personal networks as effective ways for producing, storing, and disseminating knowledge. We will later describe how to use these ideas in building "communities of practice" as vehicles for interactive learning.

However, in most cases, innovation is best shaped and disseminated by the interplay of ideas among different people. Sharing and implementing new ideas is less about technology than about clarifying where information is and who knows about it, so those who want to can find it quickly. No amount of technology can force people to share ideas, electronically or otherwise, if they don't want to share them. It's up to the firm’s leadership to create the structures and the culture that encourages the movement of ideas.

What happens to defeat the spread of ideas in a typical company?

- Success often leads to arrogance and stagnation.

- Larger organizations often find it difficult to successfully make small investments. At one firm I know, it was impossible to invest $20K to automate a simple routine process although the manager could sign off herself on $20K overtime for a single weekend. Investments had to be a million dollars or more just to get heard.

- The firm's culture becomes inwardly focused, with elaborate, slow-moving procedures for resolving issues through consensus. There's a sense of entitlement on the part of some employees to guaranteed jobs without a quid pro quo. There's a preoccupation with internal procedures rather than an understanding of the changing marketplace.

Other ways that ideas are stopped from spreading include:
· People are afraid of losing credit for their ideas.
· They're afraid of not being indispensable any more if their unique knowledge and
talents are shared with others.
· They believe that sharing ideas will create jealousy or resentment.
· They don’t know how to find others with relevant ideas.
· They don't know that anyone else has the information they're looking for.
· They believe that only people in their own inner circle have ideas worth pursuing.
· Stove-piped organizations discourage contact with others outside their own business
units, departments or functions.
· Their assignments don’t put them in regular contact with other people.
· They can’t spare the time it takes to share ideas, especially if it appears there’s
no immediate need to do this.
· They dislike the leadership or the goals of the organization.
· Inertia is the first law of all organizations.

Next week, I’ll write about how to avoid these conditions in designing more innovative organizations. But first, tomorrow is poetry day!