Pharma Customer Experience Summit 2014 at The Nassau Inn Hotel, 10 Palmer Square, Princeton, NJ on March 6, 2014
Join me in Boston for the Corporate Venturing in the Life Sciences conference this week!
10x vs 10% – Are you still ready for breakthrough innovation?
Google co-founder and CEO, Larry Page, continues to have big expectations for his employees: come up with products and services that are 10 times better than their competitors, hence “10x” – that’s one order of magnitude!
10X vs. 10%
Many entrepreneurs and start-up companies, they seem to ‘shoot for the moon’! Far more than 90% of these ventures fail within just a few years. Few, such as Google, succeeded and grew to dominate internet giants. The question remains though if they can maintain the innovative pace of 10x when the innovation rate tends to sink closer to 10% in matured companies.
How big dreams changed the world
This challenge effects also other visionaries that changed the face of the world and transformed society in ways nobody has imagined, such as:
- Apple building a micro-computer at times when mainframes ruled the digital world and only few could envision a demand for personal computing
- eBay establishing a new online sales model that millions around the globe use every day
- Google taking over the browser market through simplicity, by giving everyone control to use the most complex machine on Earth, the Internet
- Microsoft cultivated software licensing to sell one piece of software millions of times over effortlessly at minimal cost.
As disruptive and transformative ventures grow and mature, the definition of what is perceived ‘innovate’ changes. Both momentum and focus shifts. With size companies struggle to continue innovating similar to their nimble start-up origins.
What happens? With size comes a downshift from disruptive to incremental change. Simplicity makes space for adding features. Adding features makes products more complex and ultimately less usable and appealing to the majority of customers.
Look at Microsoft’s Offices products, for example: Wouldn’t you wish they came out with a ‘light’ version with reduced feature complexity by let’s say 75%, so the software becomes easy to use again?
It also starts haunting Google, as their established products such as Search or Gmail need to be maintained. Additional “improvements” aka. features creep in over time. Perhaps you noticed yourself that recently Google search results seem to be less specific and all over the place while the experimentation-happy Gmail interface confuses with ever new features?
Even the most iconic and transformative companies experience the reduction of their innovative rate from 10X to an incremental 10% or so.
Funny thing is that -at least in technology- incremental improvement quickly becomes obsolete with the next disruptive jump. The current technology matures up along the S-curve (see graphics) and generates revenue, but the next disruptive technology emerges. Companies hold on as long as they can keeping revenue flowing by adding features or improvements of sorts to gain or maintain a marginal competitive advantage. Thus, incremental improvement and process optimization found their place here to minimize cost and maximize profit in a market where the product became a commodity, so the competition is based only on price.
The new technology does not yet make significant money in the beginning at the beginning of the next S-curve. The few early units produced are expensive, need refinement and are bought by enthusiasts and early adopters who are willing to pay a steep premium to get the product first. Nonetheless, development reached the point of “breakthrough,” becomes appealing to many and quickly takes over the market: the big jump onto the next S-curve gains momentum. Suddenly, the former technology is ‘out’ and revenue streams deflate quickly.
Large and matured organizations ride on an S-curve as long as possible. They focus top-down on optimizing operations. Little effort is made to address the underlying limitation of the current technology and seeking out risky new successors. Maturing companies tend to transform into a ‘machine’ that is supposed to run smoothly. A mind shift happens to avoid risk in order to produce output predictably and reliably at a specific quality level to keep operations running and margins profitable. Incremental process improvement becomes the new mantra and efficiency is the common interpretation of what now is considered ‘innovative’.
10X has turned into 10%. To keep up with the ambitious 10x goal, companies would have to constantly re-invent themselves to replicate their previous disruptive successes.
How Goliath helps David
Even our recent iconic ‘giants’ find themselves in a tighter spot today:
- Google struggles to integrate a fragmented product landscape and maintain the ambitious 10X pace of innovation
- Microsoft suffocates loaded with features that make products bulky and increasingly unusable while consistently failing to launch new technologies in the growing mobile segment successfully
- Apple waters down their appealing simple user interface by adding features and clinging to defend their proprietary standards from outside innovations.
On top of it, all giants tend to face the stiffening wind of governmental scrutiny and regulation that influences market dynamics to protect the consumers from overpowering monopolies that jeopardize competition and innovation.
Observing the down-shift
What can you observe when the down-shift happens? How do you know you are not on the transformative boat anymore? Here are just some examples:
- Small Jobs – job descriptions appear that narrow down the field of each employee’s responsibility while limiting the scope by incentivizing employees to succeed within the given frame.
- Safe Recruiting – practices shift to playing it safe by hiring specialists from a well-known school with a streamlined career path to fit the narrowly defined mold of the job description. They newbies are expected to replicate what they achieved elsewhere. To risk is taken to getting the ‘odd man out’ for the job, a person who took a more adventurous path in life and thinks completely different, as this may disrupt the process and jeopardize the routine output by shifting the focus away from operations.
- Homogenized workforce – as a consequence of hiring ‘safely’, the workforce homogenized thereby lowering the innovative potential that comes with the diversity of thought and experience.
- Visionaries leave – with the scope of business shifting, the visionary employees that drove innovation previously lose motivation when innovation and creativity slows. Now they are held to operate in a business space where they do pretty much the same thing as their competition. Naturally, these go-getters move on, as it is easy for them to find a challenging and more exciting new job in a more dynamic place. – This ‘leaky talent pipeline’ gets only worse and costly when the talent management focus shifts to talent acquisition and leaving talent retention behind.
- Complexity creeps in – the temptation to constantly add features increases the complexity and starts a spiral that is hard to leave again (see also ‘Complexity’ is the 2015 challenge! – Are leaders prepared for ‘glocal’?)
- Procedures for everything – operating procedures regulate every detail of the job. The new ‘red tape’ is not limited to the necessary minimum but rather by the possible maximum.
- Short-term focus – work output becomes mediocre and focuses on short-term goals and sales targets; the next quarter’s numbers or annual results take priority over following the big dream.
- Sanitized communications – broader communications within the company become ‘managed’, monitored, ‘sanitized.’ A constant stream of (incremental) success stories pushes aside an open discussion to target the bigger problems. Opportunities are missed for open dialogue and creative disruption that fuels the quantum leaps forward to outpace the competition. Peer to peer communication is monitored to remain ‘appropriate’ and can even be actively censored. Trust in management and subsequently also among employees erodes.
Management fear of being the first
The real problem is the shift of mindset in top management that quickly works its way down: not wanting to take the risk of being first, which includes avoiding the risk to fail while chasing to next big opportunity or technology. Instead, they sail the calmer waters among more predictable competition fighting for small advantages and holding on to the status quo opportunistically as long as they can. In some cases, the management even acknowledges the strategy shift from ‘leader’ to ‘fast follower’ despite whatever the company motto proudly promotes – and thereby accepting 10% and avoiding to leap ahead of their competition by bold and game-changing 10x moves.
Interestingly, these same managers still love to look over the fence to awe the iconic leaders but steer away to take charge and work to become the leader again themselves. The nagging question remains if they could actually pull it off getting into first place.
Outside-of-the-box thinking may still be encouraged in their organization but is not acted upon anymore. Internal creativity or ideation contests become more of an exercise to keep employees entertained and feeling engaged, but the ideas are hardly being funded and executed. Instead, company resources are concentrated to run the incremental machine predictably and reliably at 10% as long as its profitable, no matter what. – They simply have no resources to spare and dedicate to 10x!
These businesses undergo a cycle of breaking through by successful disruption in a narrow or completely new segment, then continued growth to a size where the organization slows down to an incremental pace and somewhat stagnating innovation. It may then get driven out of business by the next disruptor or pro-actively break up into more competitive fragments that allow for agility and risk-taking once again to become leaders in their more closely defined space of business. This closes the cycle they are to go through next. There is a strong parallel between evolution and Charles Darwin’s survival of the fittest.
Keeping this cycle in mind, it becomes easier to see why management undergoes the mind shift to predictable and incremental improvement during the massive growth phase of the company in the center of the S-curve. It is also the time when the disruptive innovators have jumped ship to join the next generation of cutting-edge innovators and risk-taking disrupters that prepare to take the leap working on the next S-curve.
Which way to turn?
The question is where you want to be: the true risk-taker or the incremental improver? Understanding the trajectory and current location of your company helps to make the right decision for you. It can save you from frustration and be banging your head against corporate walls and be wasting your energy in a dinosaur organization that is just not ready anymore for your ‘big ideas’ and quick moves outside its production-house comfort zone.
This leaves some of us thinking which way to turn. If you are looking for predictability, longer-term employment (an illusion these days one way or another) and good night sleep, this is the place you will feel comfortable in.
Otherwise, dare to follow the risk-taking visionaries like Elon Musk (the brain behind PayPal, SpaceX, and Tesla Motors; see his recent great interview) to move on.
And then there is ‘intrapreneuring’ as a third direction that tries to change the company from within. (See ‘The Rise of the Intrapreneur‘)
To say it with the words of Niccolo Machiavelli, the wise and sober realist: “All courses of action are risky, so prudence is not in avoiding danger (it’s impossible), but calculating risk and acting decisively. Make mistakes of ambition and not mistakes of sloth. Develop the strength to do bold things, not the strength to suffer.”
Shoot for the moon (or Mars, if you are Elon Musk), change the world no matter what and enjoy what you do!
Innovate to Implement!
Innovate to Implement!
Creating value through new products is not enough. Capturing the value requires equal attention on the innovation process. Focusing on creativity and neglecting execution along the value chain is a costly mistake.
It’s all about creating and capturing value
Innovation is about new products (or services) that create value for an organization as much as it is about capturing this value. While there seems to be no shortage of ideas and even products, what differentiates successful companies from others is that they are able to capture the value of what they created.
Capturing value is a process that complements the product by looking at all aspects of the value chain seeking ways to maximize influence and revenue streams. Thus, capturing the value has to be well thought out and built it into the solution – rather than addressing it in an after-thought.
A new product may bring competitive advantage but this is temporary and will last only as long as the competition needs to catch up. To sustain, an organization needs to develop agility and differentiating capabilities to sharpen the competitive edge continuously and reliably in a fast-paced, competitive, and ever-changing environment (see also “‘Complexity’ is the 2015 challenge! – Are leaders prepared for ‘glocal’?”), while reaping the fruit of their work.
Capturing value –or- Who owns the customer?
The aim of capturing value is to ‘own the customer’, i.e. a customer who is willing to pay a premium or accept shortcomings in some areas in order to buy or use the product (or service). Only then does a company own the customer and the competition remains locked out.
Apple, for example, has perfected this customer ownership: Its loyal customer base values the customer experience with Apple products and identifies with the Apple branding. They purchase every new gadget at a premium with little regard to the actual technical specifications or product offerings from other manufacturers. (See section “Fuzzy values? – Here are some how-to examples” in my previous blog “How to become the strategic innovation leader? (part 2 of 3)”)
Apple effectively controls all aspects of the value chain and generates revenues from different streams from hardware, apps, software, and content, for example. Just to give you an idea, here is an overview on some of the revenue streams Apple has created along the value chain (from Bertrand Issard’s Blog):
As a bottom-line, products create the value that needs to be captured just as much. Hence, it is important to focus also on the process that ensures value is captured throughout the value chain.
– So how does this relate to innovation?
Innovating the value chain
Innovating the value chain to capture value requires thinking far and wide beyond the product considering all aspects relating to the:
- Business model – what is the revenue model? What partnerships add value without sacrificing too much control?
- Processes – what are the core processes of the organization? What are value-adding enabling processes?
- Offering – what do you offer the customer? – For example, a product concept (think: iTunes, App store), quality/cost/performance optimization (Intel or AMD chips), a product system (Google), or a supply chain (Fedex or UPS)
- Delivery – how do you deliver your product or service? – For example, are you forming alliances with partners to complement the in value chain in areas outside your own organization’s competency or field of business? If so, make sure you have a well thought-out marketing strategy with win/win profit sharing that creates incentives for stable and lasting partnerships.
Examples here are the coffee distribution approaches of Nespresso or Keurig’s (single cup coffee brewing), the focus on customer experience of Harley-Davidson (motorcycles), or the brand communication of Red Bull (energy drink).
Two parts of one whole
The innovation process consists of two parts, the invention and the implementation part. Typically, the invention revolves around creativity and ideation that tends to get more publicity and attention than the implementation, which requires focus, discipline, and persistence to execute.
The creativity has the ‘Wow!’ factor – no question about it. Brain-storming of sorts and creativity techniques can be quite fun, social, and engaging. Nonetheless, new ideas are cheap and come by the dozen. That is, perhaps, why innovation literature and models seem to focus (and sell better) on the creative front-end; not so much on the back-end (execution). Yet, it is flawless execution where the rubber hits the road and the value is captured.
Even worse when the innovation process starts out with generating ideas around a specific solution for a new product or service without exploring alternative approaches and then trying to find an application and market for the product. The more mature way to start is with a focus on the problem and then develop and narrow down solutions to find the one(s) that best meet(s) the underlying needs of that problem.
Focusing on the problem first and understanding it thoroughly leads to better results, i.e. develop a product (invent) to sell it (implement).
The point here is that both parts are equally important and require to same amount of attention for an innovation project to succeed. Invention without implementation does not help; neither does implementing something immature that and doesn’t work.
This is what an innovation process looks like if you break it up (left to right) into the two parts, invention and implementation, and the process steps:
A new product alone is not enough
New product development (NPD), for example, draws from both parts, typically in a series of steps with cycles between them: Ideation, Initiation, Incubation, and finally preparing the Industrialization ‑ but this is not where the implementation process ends.
It requires a few more process steps to make the solution work in the real-life production environment and deliver results reliable and consistently. A clean hand-over introduces and integrates the change into routine operations, i.e. the production environment and processes of the organization, for example. Failing here means failing the innovation project.
Unfortunately, innovation leaders on the front-end tend to be crushed or steamrolled in a rigid and back-end-heavy organization in a clash of creativity (front-end) and execution (back-end).
It requires discipline, persuasiveness, and persistence to push forward and overcome the obstacles that emerge from a production environment optimized for efficiency when innovative change knocks at their door and disrupts the rhythm of a fine-tuned process flow. It also requires courageous leadership and an intrapreneurial spirit to do what is right for the company overall and necessary for future success.
In a nutshell
What innovation comes down to is the creative part of collaboration to come up with a new product as well as the implementation that captures the value throughout the value chain with the goal to ‘own the customer’ through differentiation. Focusing on the creativity and neglecting the implementation and execution is a costly mistake that lets even the best idea fall short of its market potential.
Can movies innovate with only seven stories to tell?
Can movies innovate with only seven stories to tell?
How innovative are movies really – if at all? While AVATAR and THE ARTIST appear to be polar opposites, they share a similar story, so where is the innovation?
Following my passion, I happened to visit the ‘Berlinale’, the international film festival in Berlin/Germany last week: Over 20,000 accredited participants from around the world share their professional passion and trade movies in one of the world’s biggest market places for films.
In midst the bustle, I couldn’t stop my mind from wandering off and asking myself this question:
Is a movie an innovation?
Each film is an entrepreneurial venture, a financial and personal risk that filmmakers take and often sacrifice years of their lives for. As the audience, we enjoy to immerse in ever-new stories and characters to touches our minds and emotions.
However, is a movie really an innovation? One can argue.
The generic definition of innovation from the “What does it take to keep innovating? (part 1 of 3)” post states: “innovation is different from a novelty: it is the combination that translates a novelty into a marketable product (or service), so an innovation brings together the newness, the value it creates and the adoption to something marketable”.
Therefore, also a movie would have to demonstrate these same three requirements in order to be innovative. So let us look for a match along the lines of:
- Creating a value
- Capturing value in a marketplace.
Seven stories to rule the world
First, is a film a novelty? Of course, you may think. Every film is new and different, even a re-make!
What I find interesting though is that many experts agree there are “seven stories that rule the world” as Matt Haig lays it out. It means that there are only seven plots, which are being re-told in different ways over and over again. ‑ How can this be innovative?
AVATAR – a high-tech pinnacle
AVATAR, for example, took 3D cinema to a new technological level and colorful experience for the audience just a few years back. James Cameron made this movie “with the intention of pushing the boundaries of what was possible with cinematic digital effects (…) blending live-action sequences and digitally captured performances in a three-dimensional, computer-generated world.” (Read more: James Cameron’s Avatar – 3D and CG Movie Technology With Avatar – Popular Mechanics)
The humongous $500 million total investment was a huge risk to take but the gamble of this big Hollywood production worked out: AVATAR broke the sales record (formerly held by TITANIC) by earning nearly $2 billion within 39 days at the box-office. Not a bad 1:4 return of investment (ROI) ratio!
Looking at our definition for innovation, AVATAR meets all three requirements by inventing new technology and processes for an enhanced viewing experience and by meeting an audience demand as we proven by its commercial success. It is not surprising to see the sequels AVATAR 2 and AVATAR 3 already on their way.
Nonetheless, the AVATAR story is based on the ancient ‘rebirth’ plot of the protagonist and put little emphasis on artistic performance of its characters.
THE ARTIST – so old, it’s new again?
Now look at the ongoing award season: THE ARTIST keeps racking up one trophy after another. Both movies, AVATAR and THE ARTIST could not be more different: THE ARTIST comes in black-and-white and is a silent movie from France!
Neither the story line of an artist’s comeback (yes, it’s the ‘rebirth’ plot again, just like in AVATAR) nor the century-old cinematic format bears any news. Is this really an innovative movie? One can argue.
Let’s look at value creation and value capture first; this is an easy one: The commercial value of THE ARTIST reflects $60 million or so in box-office sales the last time I checked. It draws crowds of paying audience and proves to be a very successful production (with the same 1:4 ROI return ratio as AVATAR) on the original $15 million investment! It is also the runaway winner converting nominations into awards internationally. Check.
Certainly, producing a silent movie for theatrical release these days is an enormous risk and considered unthinkable before THE ARTIST came along. In fact, it came at a high risk for the filmmaker, Michel Hazanavicius. He was not even taken serious and was laughed at when he presented his idea to raise funds for the project. It looks like a hopeless project from the Stone Age compared to AVATAR!
Let’s face it; movies have become a commodity that is available anytime and anywhere and on every gadget like smart-phones or gaming consoles. As mass-marketed products, movies often don’t even make it to the theater screen anymore; instead, they go directly on DVD or on-demand channels with only little returns for the filmmaker and investors.
What is new about an old concept?
With THE ARTIST, we have a movie that follows a plot line known for centuries and shot in the old-school and boxy 1.33 celluloid format about as old as the movie industry itself. Yet it became a smash success overnight as the first theatrical silent movie release in 35 years. Remember Mel Brooks’ SILENT MOVIE comedy in 1976? ‑ Something must be different! What has happened?
What it comes down to is the question whether a black-and-white and silent move has innovative potential in the ‘novelty’ category.
THE ARTIST gave ‘rebirth’ to this narrow and thought-dead category of silent black-and-white movies at a time where technology over-kill ruled the house! THE ARTIST brought back the glamor of the old Hollywood to present day: A glitzy world of the famous and the beautiful, celluloid dreams on the silver screen. It reminds us that movies can be special and not just a commodity.
Thus, the plot may not be new, but the way it is presented can very well be original. This is where we find the novelty of innovation or, as Matt Haig puts it: “It comes from style and voice and the imagination that brings language and characters and settings to life (…) It’s how you carry these universal plots into the present age that’s the challenge.”
It is not the plot alone that attracts the audience but the unique way to tell a story with high artistic quality and at the right time, when the audience matured and is ready for it. THE ARTIST re-discovered the glamor, elegance and artistic focus that seemed lost and brought it back to life. It answers to the silent yearning of its audience and lets us feel the magic of movies once again.
The Bottom Line
No matter if you agree or disagree with me that movies can be innovations, if you have not seen THE ARTIST yet, watch it and enjoy. It is just magical and delightful like movies are meant to be!
Q&A – Case study for founding a business-focused ERG
Answers to questions around establishing the NxGen ERG at Boehringer Ingelheim Pharmaceuticals, Inc. in 2009
If you are planning to found an ERG or are a new ERG Leaders, you might find the attached Q&A helpful.
In an interview style, here are the answers to the following questions around establishing the NxGen ERG (Next Generation at the Workplace) at Boehringer Ingelheim (BI) in 2009:
- Where did the idea for NxGen originate?
- Why was the Next Generation at the Workplace ERG necessary at BI?
- What makes NxGen innovative? How do you think your approach to creating and growing this new ERG was different from the past?
- What is the business case for the existence of NxGen? How do you link NxGen to BI business plans/activities?
- How does the NxGen seek to drive innovation at BI?
- Are there specific requirements for project size, scope, etc that the NxGen group takes on?
- How are employees able to allocate time to create and develop NxGen projects?
- Do the initiatives that arise out of NxGen resonate with other generations in the workplace? within BI?
- What are the criteria necessary to make an ERG like yours successful? What role do NxGen members, executive management, and the overall company have in its success
Attachment: NxGen Case Study for NALC 2010
(Published also as “Expert Insights” in the Network and Affinity Leadership Handbook, Powerful tools for Employee Resource Groups, p.76-79, Diversity Best Practices, New York, NY; 2010)
Why do companies need business-focused ERGs?
Changing the organization from within by engaging employees in business-focused employee resource groups (ERGs) – the practical “how-to” guide!
Why do companies need business-focused ERGs?
The answer can be as simple as this: Because it makes good business sense!
But what makes this answer so simple? – Well, because it’s made up of a few simple aspects:
First of all, every company, unless it is classified as a non-profit, is in business for one reason: to make money by providing some sort of product or service to its customers.
Simply put, if a company fails to rack up profits it will go out of business. That’s why focusing on the business benefits, the “bottom line”, the return on investment (ROI) makes not only sense but is key for successful employee resource groups (ERGs). It’s the bottom-line arguments, the financial benefits, that open the doors to executive support, buy-in, and funding.
Second, to take advantage of the diversity and capabilities of the human capital readily available.
Let’s look at companies, its workforce and its markets today: We live and work globally – everyone is connected. Our markets today are just as diverse and multi-faceted as our workforce should be. It takes all we know and who we are as diverse human beings (coming from different cultures and ethnicities, religious beliefs, physical characteristics, sexual orientation, and so on) to understand what our customers need and how we can give it to them.
Therefore, it makes sense not only to diversify the product portfolio to mitigate risk and seize opportunity but also to diversify the workforce for the same reasons. Not tapping into all of your workforce’s diversity and capabilities puts you at a disadvantage to companies who know how to maximize their human capital effectively.
Are you still with me? So, the next question is how to meet this goal.
Stay tuned for practical advice, keeping it simple, and examples taking you through the steps on how to build a business-focused ERG.
– Any questions so far?