why companies suck at innovating and what to do about it

The Innovation Enginevs.

The Efficiency Engine

The Battle All Businesses Face

The Strategy + Innovation Group | All Rights Reserved - Copyright (c)

27/8/2012

76% of Innovation Initiatives Fail

60% outright fail and another 16% make it to market, but lose money

Only 24% are successful and

profitable

So

urc

e:

“In

no

vato

r’s

Dile

mm

a”

The 2003 Data


37/8/2012

Reality: 98%

Failure Rate

The 2013 Data


47/8/2012

Can’t Hide itWe All Suck

at Innovating

3/12/2013 The Strategy + Innovation Group | All Rights Reserved - Copyright (c)

55

Luck isn’t Enough


77/8/2012

In 2008 we went Deep Undercover

In the midst of economic

chaos… to learn the hard lessons

We Chose to Investigate

ASKING TWO QUESTIONS

1. Why don’t more companies use Systematic Innovation methods?

Especially when there are examples of good useSamsung | Intel | Siemens | Dow | Motorola

2. What prevents companies from materializing / monetizing results from innovating systematically?

8

MULTIPLE THEMES EMERGED OF WHY COMPANIES DON’T USE SI

METHODS

1. Biases – 11 different biases cited, (see backup and McKinsey Report on Biases)

2. Prejudices – a.k.a. PI (Psychological Inertia)

3. Organizational Dysfunction

4. Ignorance of Systematic Innovation Methods or how to best apply them

9

The Strategy + Innovation Group | All Rights Reserved - Copyright (c) 107/8/2012

Biases distort the Quality of Decisions = Poor Execution

Biases

See backup for detailed explanation of McKinsey’s Analysis and What we found

Innovation:a commercially successful

step change advance

(not to be confused with ‘optimization’)

This the typical way most of us approach improving businesses and technology

3/12/2013 The Strategy + Innovation Group | All Rights Reserved - Copyright (c) 12

WHAT DOES A 98% FAILURE RATE IMPLY?

Extremely costly making innovation “bets”, but We cannot call it management or investment

– Results Do Matter

Clearly No Established Process for innovating

Managing the Risk of Innovating is ineffective


Traditional Innovation Risk:The Risk of Decision MakingP

red

icti

on

Learning

% R

isk

Ac

cu

rac

y o

f D

ec

isio

n M

akin

g

Time

Wild Guesses 0%

25%

50%

75%

100%

25%

50%

75%

100%

InformedEstimates

ReliableForecasts


Traditional Innovation Risk:The Risk of Decision MakingP

red

icti

on

Learning

% R

isk

Ac

cu

rac

y o

f D

ec

isio

n M

akin

g

Time

Wild Guesses 0%

25%

50%

75%

100%

25%

50%

75%

100%

InformedEstimates

ReliableForecasts

Most management at best, are guessing

MORE INNOVATION FAILURE STATISTICS

Over 90%

of innovation attempts fail before they reach the market

of those attempts that do reach the market will also fail

of innovations are delivered late, over-budget or at a lower quality than was originally planned

of collaborative innovations fail


WHY WE ACTUALLY FAIL AT INNOVATION HAS MULTIPLE SOURCES

10%

18%

44%

20%

28%Coordination

Production

Route to market

More Ideal Solution

Market Demand

Sources of Innovation Initiative Failure: SME's, Startups


A LITTLE DIFFERENT FAILURE RATE AT MNC’S

34%

12%

8%

23%

26% Coordination

Production

Route to market

More Ideal Solution

Market Demand

Sources of Innovation Initiative Failure: MNC's / Large Corporations

THE HEART OF THE PROBLEM

CustomerNeed

Technical Solution(protectable IP)

Ability of an OrganisationTo successfully exploit the IP

Only when all three are in place

is there an opportunity for

successful commercialisation

VoC VoS

VoBLegend:VoC: Voice of the CustomerVoS: Voice of the SystemVoB: Voice of the Business


WHICH MEANS IF WE NEED TO BE MORE PREDICATABLE (PROFITABLE)

THEN WE WILL NEED TO BE RESPONSIBLE AND ACCOUNTABLE FOR:

Our Thinking

Our Learning

Our Decisions

Our Actions

Our ResultsOtherwise


WE ARE NOT MAKING INVESTMENTS – WE ARE…

TYPICAL APPROACH TO PROBLEM SOLVING AND

INNOVATING

We leverage our acquired knowledge and the experience we’ve gained from academia, on-the-job, company and industry experts, etc…

The good news: This works well enough when addressing known problems and

solution sets with conventional methods and frameworks for solving problems in a given discipline.

The bad news: When we look at all problems in the same way we can become

‘stuck’ in looking at things the same way that others have. Resulting in a psychological inertia, preventing a solution from being found.


04/11/2023 22

PSYCHOLOGICAL INERTIA EFFECT

Property of the Strategy + Innovation Group-- Do Not Distribute or Reproduce without permission

Problem solving is like digging for treasure in a field

If a hole already exists, our inclination is to dig in deeper

If someone else comes along, we encourage them to jump in the hole with us

The deeper the hole, the more difficult it is to see what’s happening in other parts of the field

CLASSIFICATION OF PROBLEMS

Invention:Innovator

(Sys. Innov trained Engineers)

Troubleshooting:Skilled

Prediction:Futurist

(Advanced Sys Innov,trained engineers)

Shotgun Approach / Trial and Error:Pseudo-Expert

Known Unknown

Kn

ow

nU

nk

no

wn

Solution

Problem

Type III ErrorsType III Errors

Inventive ProblemsInventive Problems

• Eliminate Type III errors (solving the wrong problem precisely).• Remove Psychological inertia.• Improve the level of innovation

Psych

olo

gic

al

Inert

ia L

ine

4/27/2010 24

CORPORATE CULTUREADAPTIVE VERSUS UNADAPTIVE CORPORATE CULTURES

ADAPTIVE UNADAPTIVE

Core Values

Most managers care deeply about customers, stockholders and employees. They also strongly value people and processes that can create useful change.

Most managers care mainly about themselves, their immediate workgroup or their product. They value the orderly and risk-reducing management process much more highly than leadership initiatives.

Common Behavior

Managers pay close attention to all their constituencies, especially customers, and initiate change when necessary to serve their legitimate interests, even if that entails taking some risk.

Managers tend to behave somewhat insularly, politically and bureaucratically. As a result, they do not change their strategies quickly to adjust to or take advantage of changes in their business environments.

Source: “Corporate Culture and Performance”, Kotter, J.P. and Heskett, J.L., 1992


Designing For Organizational Innovation

Avoid the Stupid

Mistakes, Learn from

Others

and Don’t be a

Fluffy Bunny

Fluffy Bunnies go

here too

Copyright Protected | Property of the Strategy + Innovation Group 27

THE COST OF THE DYSFUNCTIONAL ORGANIZATION

25% Avg. Profitability Difference (20-30% range) between “Remarkable” vs. “Unremarkable” firms (dysfunctional culture)

Can be as high as 50%

This material MAY NOT be distributed to others, copied or reproduced without the express consent of the author

“Culture, a fancy word for the habituated thinking of an organization, rightly or wrongly”

-RP


THE COSTS OF THE DYSFUNCTIONAL ORGANIZATION

Those working in an uncivil work environment• 48% decreased their work effort• 47% decreased their time at work• 38% decreased their work quality• 66% said their performance declined• 80% lost work time worrying about (an uncivil) incident• 63% lost time avoiding the (uncivil) offender • 78% said their commitment to the organization declined

Bad Apple Syndrome Negative comments are 5X stronger than good Caustic people will infect and bring down performance in short time frames



DYSFUNCTION’S IMPACT

BOTTOM LINE: Dysfunction causes 25 - 50% Lower Profitability and Productivity, Higher Healthcare costs and Higher Employee turnover

Performance gains are hindered by poor work processes that in turn creates toxic employees

Toxic Employees / Leaders • Have a significant negative financial ripple effect on an firm’s

performance and profitability (Bad Apple Syndrome)• They’ll likely block necessary strategies to achieve performance

gains (Maintaining status quo irrationally)

Organizations need a multi-pronged strategy to eradicate the effects of operating in a

dysfunctional stateThis material MAY NOT be distributed to others, copied or reproduced without the express consent of the author


ROOT CAUSE

Only 1% of the population is Sociopathic so… Pointing at people alone as the problem is not a

complete answer

We Believe the workaround to the issues are..

Misunderstanding what an effective Professional Leader really means and does

Lack Knowing “How-To” effectively Influence others



ORGANIZATIONAL LIMITATIONS

Successful companies & the strategies they use often owe a great deal to the inertia and inefficiency of rivals

An organization’s greatest challenge may not be external threats or opportunities but instead to the effects of inertia and entropy



DIAGNOSIS OF THE PROBLEM

Organizational Inertia: is an organization’s unwillingness or inability to adapt to changing circumstances

Organizational Entropy: measures a organizational system’s degree of disorder, and without intervention will always increase



Causes of Fear and Dysfunction Entitlement Self-Interest Putting Oneself Above the Rules

Some companies even have individual promotion / compensation programs that support this


WHAT LIMITS ORGANIZATIONS FROM BECOMING GREAT?

Copyright Protected | Property of the Strategy + Innovation Group34

RESOLVING THE DILEMMA


GOT LEVERAGE?

Mind Set Skill Set

StrategyDiagnosis Insights – looking for assumptions and contradictions

Strategic Intent

Strategic Policy

Strategic & TacticalActions

Competitive Frameworks / Tools / Methods


5 DYSFUNCTIONS OF TEAMS

Inattention to

RESULTS

Avoidance of ACCOUNTABILITY

Lack of COMMITTMENT

Fear of CONFLICT

Absence of TRUST

Fear of being vulnerable with team =

Artificial harmony for the sake of peace =

Ambiguity & Failure to Buy-in to decisions =

Unwillingness to call peers on performance or behaviors =

Caring about something other than the collective goals of the group =



HOW FUNCTIONAL TEAMS BEHAVE

Artificial Harmony

Mean-Spirited Personal Attacks

Ideal Conflict Point

DestructiveConstructive

How do you define success?

Copyright Protected | Property of the Strategy + Innovation Group 37This material MAY NOT be distributed to others, copied or reproduced without the express consent of the author

37

THE POWER OF PROFESSIONALISM

“Technical competency will get you onto the green. But a professional puts it into the cup every time”

-Richard Platt


38

WHY PROFESSIONALISM MATTERS

Professionals hold it together under difficult circumstances

Professionals 1. Demonstrate mastery in their work

2. Conduct themselves in a way that engenders trust

Choosing to be a Professional provides an identity that raises your sights above mediocrity

People who view themselves as professionals outperform, outsmart and outlast others


39

WHY PROFESSIONALISM MATTERS

The Effectiveness of a Professional is Balanced

“What You Do”(blade #1)

Skill Set(Technical Competency)

“How” you go about Your Work

(blade #2)

Mind Set(Leadership Competency)

Note: Experts are not necessarily Professionals

40This material MAY NOT be distributed to others, copied or reproduced without the express consent of the author


FOUNDATIONS OF PROFESSIONALISM

Trust: The One Thing You Have to Get Right

With Trust: people are more confident, proactive and hopeful

Without Trust: people are more skeptical, withdrawn and pessimistic

Gaining Trust is based on supporting another’s priorities, protecting their self-interests and respecting their values

3 elements needed in order to Build Trust: Character, Competence and Judgment


41

FOUNDATIONS OF PROFESSIONALISM

Trust: (Continued)

Consistency, an inseparable correlation between it and trust. You cannot have trust without it.

Show up as a professional, not merely when it suits your needs

No mixed messages, be clear

No double standards,

No creative rationalizations


42

7 MIND-SETS OF TRUSTED PROFESSIONALS

MS#1: Professionals Have a Bias for Results

Delivering results demonstrates trustworthiness

Deliver the Right Results in the Right Way • Ensure outcomes are sustainable, not just a flash in

the pan


43


MS#2: Professionals Realize (and Act) They're part of Something Bigger Than Themselves Commit to the success of the firm, organization

or client.

Realize success transcends your own parochial interests.

Collaborate as an effective team member


44

MS#3: Professionals Know Things Get Better When They Get Better

Disaster / Aid Workers

Selfless Efforts in the For-Profit World • Giving back to the Community

Personal example • Near death, significant losses and the march back



45

MS#4: Professionals Have Personal Standards Often Transcending Organizational Ones

Have a personalized core set of values

Do what’s right over what’s expedient by taking a long view

Rise above the fray, stay focused and avoid pointless drama


Copyright Protected | Property of the Strategy + Innovation Group46This material MAY NOT be distributed to

others, copied or reproduced without the express consent of the author

46

MS#5: Professionals know That Personal Integrity is All they Have

3 Very Important underpinnings of Integrity:

1. Authenticity and honesty

2. Delivering on one’s commitments (both explicit and implicit)

3. Refusing to violate the trust others have extended to us



47

MS#6: Professionals Aspire to Be Masters of Their Emotions Not Enslaved by them

3 by-products of Mastering one’s emotions (and inspiring trust in others):

1. Professionals are respecting when it’s difficult to be respectful

2. Professionals maintain their objectivity and keep their wits about them – Don’t take things personally

3. Professionals manage their ego and resist the urge for immediate gratification



48

MS#7: Professionals Aspire to Reveal Value in Others

“Aspire” suggests intent, priority and, most importantly, proactively

Professionals who hold this mind-set: Readily extend trust

• Where & When appropriate – don’t be naive – that’s stupid

Recognize the value other professionals bring to the table.

Aspire to lift others through their demeanor and actions


PERFORMANCE MANAGEMENT PYRAMID


POSITIVE RESPONSE TO CHANGE

Informed anguish

Blissful ignorance

Coming to terms

Realistic support

Overtchecking

out

Covertchecking

out

1. UninformedOptimism(Certainty)

2. InformedPessimism

(Doubt)

3. HopefulRealism(Hope)

4. InformedOptimism

(Confidence)

Resistant

Time

Supportive

4/27/2010 Property of Strategy + Innovation Group LLC 53

Finding Out What You Don’t Know is the

1st Step

“It is not what you do know that hurts you, it is what you don’t know that get’s you thrown under the bus”

- Richard Platt

SO AS INNOVATION CHAMPION CHARTERED BY THE CEO

TO PROLIFERATE ACROSS THE ENTERPRISE you HAVE TO PICK A SIDE

This?

Or This?

Fluffy Bunnies Don’t Live at the Intel I Know

Published in 1999

Whatever You Do Remember

This:

This Is NOT about You

It is about Your Customer

Take Nothing Personally


WHAT OODA LOOP SPEED MEANS TO A CHANGE AGENT

ImplicitGuidance& Control

Know whatto do

Act

And be able to do it

UnfoldingInteraction

WithEnvironmen

t

Action(Test)

Feedback

Decide

Decision(Hypothesis)

FeedForwar

d

FeedForwar

d

Feedback

While learning from the

experience

Observe Orient

Feed

Forwar

d

Observations

UnfoldingCircumstances

OutsideInformation

UnfoldingInteraction

WithEnvironment

Quickly understand

what’s going on

ImplicitGuidance& Control

CulturalTraditions

GeneticHeritage

NewInformation

PreviousExperience

Analyses &Synthesis

Source: Adapted from presentation by Chet Richards author of “Certain to Win”; http://www.belisarius.com/index.htmli

THE VALUE PIPE (A STORY OF 2 FLOWS)

$ flow back to

the business

Value provided to a downstream

customer(JTBD, product, service,

information, etc…)



COMPARING PROCESS IMPROVEMENT AND SYSTEMATIC INNOVATION

METHODS

Program Six Sigma Lean ThinkingTheory of

Constraints TRIZ / Systematic InnovationTheory Reduce Variation Reduce Waste Manage Constraints Evolve System to Next Generation

1. Define 1. Identify Value 1. Identify Constraint1. Identify Ideal Final Result and gaps to IFR

2. Measure 2. Identify Value Stream 2. Exploit Constraint 2. Functional Analysis of System

3. Analyze 3. Flow 3. Suborndinate Processes3. Solve Contradictions (w/ Inventive Principles)

4. Improve 4. Pull 4. Elevate Constraint4. Apply Trends and Laws of Technological Evolution

5. Control 5. Perfection 5. Repeat Cycle 5. Select Best Solutions

Focus Problem Focused Flow Focused System Constraints System Analysis & Break Contradictions

Primary Effect

Uniform Process Output

Reduced Flow Time Fast Throughput Innovative Solutions for tough problems

Application Guidelines

Reduction in process Variability(Stop building crap product)

Stop doing

Wasteful Activities

Increasing the Speed of Processes

Complex Problem Solving Tools for

Evolving the System to Next Level

of Performance

Value Derived for Company

The results of a firm’s competitiveness is derived from its ability and process by which it innovates. If the results are poor we have no other alternative but to look at the process by which the results that were delivered gave us.

It is our process by which we innovate that must become our focus – otherwise we are back in the land of magic pixie dust and the business god’s favoring us as we attempt to move forward with

our business plans and expectations.

Focus on the process to deliver Customer Results. Build the process in and manage it relentlessly.

Results are what Customers Pay For,Everything Else is Waste

Systematic Innovation TOOLS AND THEIR

APPLICATIONSystematic Innovation Tool

Application / Use

JTBD – “jobs to be done”:

The job that a customer hires a product or service for, embedded within a given system. a.k.a. the main parameters of value

IFR – Ideal Final Result: Uses Law of Ideality as a guideline, (when the JTBD is within it), to define the functionality, performance, costs and limits of a system

Functional Modeling: Shows “how” the system is interacting dysfunctionally

Zone of Conflict Analysis:

Shows “where” and “when” the system is dysfunctioning

Contradictions: Refines “how” the system is dysfunctional, and “where to focus” efforts

Inventive Principles: Provides potential solutions to overcome system contradictions and dysfunction (best solutions are usually combinations)

S-Curve Analysis: Shows level of system maturity, and “how to” evolve the system to greater level of maturity, performance and profitability

Trends of Eng. Systems:

Shows “how to” evolve the system to higher levels of functionality

Scientific Effects: Shows ways to solve limitations of the system using scientific effects from other industries or sciences


THE SYSTEMATIC INNOVATION TOOLBOX

65

66

Systematic Innovation++

<5%Going After

Non-Consumers

5 - 10%No Guts, No Glory

5 - 10%Staying In Your Own Backyard

80 - 100%Staying Inside

the HouseSource: Booz, Allen, Hamilton white paper “The Innovators Prescription - Raising Your

Return on Innovation Investment” (2004)

Note: The #’s come from NIST’s analysis of Typical R&D spending by corporations, the category names are my own

Evaluating Efforts; Use 4 Metrics (minimum):1.Return On Human Assets (ROHA):2.Return On Investment (ROI):3.New Usage or Market Segment? (Y/N) 4.Proprietary Technology? (Y/N)

BILL GATES

Intel Confidential | Internal Use Only

INGREDIENTS OF AN INNOVATION MANAGEMENT SYSTEM

Leadership & Organization

Vision & Goals

Innovation Strategy

Org Structure

Innovation Policy - ICMM

Culture & Values

Collaboration

Open “Idea Friendly” Culture

Innovation Incentives and Rewards

Established Process to trust

Processes & Tools

Systematic Innovation methods

Supporting Tools (Proto-typing capability)

Idea Management (Generation & Shaping)

Pipeline & portfolio Management

People & Skills

Grammar of Innovation

Proficiency in Innovation (Process, Methodology & Tools)

Innovation Training, Workshops & Coaching

Innovation Effectiveness

Innovation Metrics


INNOVATION CAPABILITY MATURITY MODEL INDEX

Effects of implementing an ICMM

Managed Process for Innovation Increase in Customer Loyalty Increase in Quality Increase in Predictability Increase in Profitability Decrease in Risk

Level -3: Undermining

Level -2: Contemptuous

Level -1: Obstructive

Level 0: Negligent

Level 1: Initial

Level 2: Defined

Level 3: Implemented

Level 4: Managed

Level 5: Adaptive

Risk

Profit

ICMM helps to combat Bias

Prejudice and Organizational

Dysfunction

STEVE JOBS

OPTIMIZATION IS DEFINED BY BOUNDARY CONDITIONS OF THE

SYSTEM


Optimization occurs at or below the apex

Contradictions define the limits of all systems

Put another way:Assumptions or biases limit what we view when

look at how a system performs

Parameters ‘x’ and ‘y’ limit performance of ‘z’

RESOLVING BIASES AND ASSUMPTION ARE ADDRESSED LOOKING FOR CONTRADICTIONS AND USING FUNCTIONAL ANALYSIS OF THE

SYSTEM


XInnovation occurs

above the apex of the contradiction

paraboloid

Contradictions define the limits of all systems, if we purposefully break them we gain performance in the ‘z’ axis

Parameters ‘x’ and ‘y’ limit performance of ‘z’

S-CURVESHelps define where a technology exists in regards to its functionality (performance), and its maturity


Per

form

ance

S-CURVES AND CONTRADICTIONS


Each step in increased performance along a single s-curve can be defined in terms of contradictions (obstacles to be overcome)

Measured Parameter – Cost, Profit, ROI, Efficiency, Effectiveness, etc.

Current System

Altered System

Fundamental Limit of Capability

target

Getting to the target requires a change to the system- Solve a contradiction- Use another means- Evolve to other trend stages

THE OVERRIDING IMPORTANCE OF EVOLUTIONARY S-CURVES

EACH LARGE SYSTEM IS MADE UP OF INDIVIDUAL COMPONENTS

Individual components, have their own individual s-curves


A PRODUCT IS DEFINED BY THE PROCESS THAT MAKES IT

The process by which a product is produced is inseparable from its process, thus any improvement suggested or envisioned for a product has a direct causality back to the processes used to create it.

In effect there are always at least two s-curves defining a system:• The product (a demand driven

function)• The process that builds or

produces a product (a cost driven function)


Danner, T.W. A Formulation of Multidimensional Growth Models for theAssessment and Forecast of Technology Attributes. Aerospace Engineering (Georgia Institute of Technology, 2006).

IMPROVEMENT OF A DESIGN IS LIMITED BY THE IMPROVEMENT IN THE PROCESS THAT CREATES IT

Design performance (demand driven curve) is constrained by Manufacturing performance (cost driven curve)

Why Important: Coordinating development of the Process Innovation curve to coincide with the Product Innovation Curve increases margin sooner, shortening Time-To-Productivity, shortening Time-To-Market, lowering product cost with greater performance, reliability, and functionality than competitors products or processes that don’t use such a methodology7/8/2012 The Strategy + Innovation Group | All Rights Reserved - Copyright (c) 80

7/8/2012The Strategy + Innovation Group | All Rights Reserved - Copyright (c)

81

Systematic Innovation Risk:Reducing the Risk of Decisions

Pre

dic

tio

n

Learning

% R

isk

Ac

cu

rac

y o

f D

ec

isio

n M

akin

g

Time

Wild Guesses 0%

25%

50%

75%

100%

25%

50%

75%

100%

InformedEstimates

ReliableForecasts

Utilizing Systematic Innovation Methods: Dramatically Reduce the Risks of Human Biases and the costs of Trial & Error drop significantly

Quality of Prediction/Solution = Better Faster Speed

TYPICAL TOP DOWN PERSPECTIVES

CEO’s Perspective

Grow topline business

Grow Revenues

Launch new products / services

Globalize the business

COO’s Perspective

Execute current priorities

Operational efficiencies

Effective processes

People priorities

CFO’s Perspective

Grow bottom line

Reduce costs

Manage Risks

Compliance

What’s the Next BIG Thing?

What’s Today’s BIG Challenge?

What’s our Next BIG Risk?


Source: Cognizant’s submission to MIXprize.org

EXAMPLES OF STRATEGIC BUCKETS

Portfolio management splits the overall NPD resources a priori to the formulation of project ideas on different NPD programs as bundles of NPD projects.

Projects compete with like projects instead of with one another across the buckets


Development of advanced

technologies

Cost Reductions

Process & Product

Improvements

Development of Completely new

products / services

INNOVATION SYSTEM CONTROLS

Focus on problems that need to be solved, customer’s and production processes (needs)

Learn and implement systematic innovation tools across the org (methods and people)

Start simple where there are already issues, (look for contradictions)

Support and enable the products, services, R&D, and process development activities (idea conversion)

Tie projects to revenue, cost savings and productivity benefits (metrics)


INNOVATION SYSTEM CONTROLS

Connect with others in the organization, get their support, enable their activities and agendas (key initiatives)

Communicate up down and across the organization on the value add (dashboards)

Communities of practice are vital (culture)

Big wins are nice, but look for multiple small wins from all corners of the organization, they accumulate (visibility and rewards)


Understanding the Different Types of Innovation

Understanding the Different Types of Innovation

Knowing the different types of innovation and which one to use and when is vital to architecting your process that fit’s your industry and firm’s needs to be competitive

Geoffrey Moore did an insightful analysis of the many different types of innovation in his book “Dealing with Darwin”

INNOVATION

MYTH

BUSTING

Myth Busting

There are multiple types of innovation initiatives NOT just disruptive innovation, each one provides a means towards achieving profitability and delivering value to customers.

Disruptive innovation: really only works if you have excess functionality, or over-serving a given market and that there are underserved elements to migrate that functionality towards those underserved markets

Disruptive Innovation

PlatformInnovation

ApplicationInnovation

ProductInnovation

Value Eng.Innovation

IncrementalInnovation

ProcessInnovation

DesignInnovation

MarketingInnovation

ExperientialInnovation

Value MigrationInnovation

IntegrationInnovation

OrganicInnovation

StructuralInnovation

This is the one many think of, when thinking about innovation and it’s the riskiest to do

EXAMPLE OF A MISUNDERSTOOD AND MISAPPLIED METHOD

Blue Ocean Strategy (BOS) is an excellent example of a marketing innovation. The authors present it as a means of “value” innovation, however the downside that we’ve noted about it’s use is that it is often a one-time win for a firm.

Can Blue Ocean Strategy be sustained?

By example when we evaluated Casella Wines (‘yellow tail’ brand) from Australia, an example cited by the authors of Blue Ocean Strategy, what we did not see was any subsequent use of the method demonstrating a repeatability and reliability of using the method.

It might be repeatable migrating from one company or industry, however it has not been demonstrated that it is repeatable within the same product line that it was first applied.

93

It is not that yellow tail didn’t gain benefit from its initial BOS analysis and redefining the market, but what new innovation has yellow tail introduced since it began. The only noticeable change is that the price of yellow tail wines has

increased, and the hoped for volume increases did not pass on a lower cost to buyers.

Blue Ocean Strategy Conclusion

Our conclusion is that BOS is useful for redefining other parameters that are under-recognized by the market.

But once that has been executed and the market made aware of the enhanced value of a given product, the method is not able to exploit other value parameters that the buyer may desire.

It is not that BOS’s approach is wrong, we adamantly agree with the fundamentals of decreasing industry costs, and increasing buyer value, we see it as a marketing tool, not necessarily as a repeatable and reliable method we can go to market with.But can it modified to be repeatable?

Can BOS be modified to be repeatable?

The Core of BOS

The Four Actions Framework is the core process by which BOS operates and where the additional value parameters are found, and where a firm may reduce, change, or eliminate to gain competitive advantage.

10/19/2007 The Strategy + Innovation Group LLC | Confidential 96

IMPORTANCE OF 4 ACTIONS FRAMEWORK TO SKILLED

INNOVATORS

All of these methods

are techniques

from the Systematic Innovation

toolbox

Evolve System using

Evolutionary Trends to achieve

higher performance

Model System under evaluation for its functionality and

utilize Trimming Method

Use Inventive Principles to solve contradictions

Find an alternative means of achieving

Functionality



PROBLEMS WITH ORGANIZATIONAL

STRATEGY

and What to Do About It

This material MAY NOT be distributed to others, copied or reproduced without the express consent of the author Copyright Protected | Property of the Strategy + Innovation Group 98

SCHOOLS Base Discipline – Some Shortfalls

Design Architecture as metaphor - Neither analytical, nor intuitive. Too static in an era of rapid change.

Planning Linked to urban planning, system theory, & cybernetics - Neither supports real-time strategy making nor encourages creative accidents.

Positioning Economics of industrial organization & military history (Art of War) - Strategy reduced to generic positions selected through formalized analysis of industry situations.

Entrepreneurial Early writings come from economics - Vague vision; strategies are designed mainly based on leader's intuition.

Cognitive Cognitive Psychology - Too subjective approach to strategy formulation (just in the head of the strategist).

Learning Linked to learning theory & Chaos theory in mathematics - Strategy development process is rather chaotic, unpredictable and process (rather than result-oriented)

Power Political science - Focuses mainly on the clash of self-interests of stakeholders during the process of strategy development

Culture Anthropology - Not well suited for radical change projects.

Environment Biology - Severe limits to strategic choice.

Configuration History - Polarized between two approaches favoring either radical or incremental change


SUMMARY OF ISSUES WITH THE SCHOOLS OF STRATEGY

Majority miss…

organizations ability to compete and innovate is the sum total of the collective habits of its people – What Your People Do

• “How it gets things done” (a.k.a. the company culture)



Majority miss…

are tops down, thus little / no buy-in from the people doing the work, the execution part

• Little appreciation for front line on “how to” deliver value (What Customers Pay For)



Majority miss…

not focused on “how” the work will achieve the desired outcomes

• Doesn’t unleash capabilities and talents of front line personnel delivering value to the customer (How the Value is Delivered to the Paying Customer)


wis•dom |ˈwizdəm| the ability to discern or judge what is true, right, or lasting; insight.

Confucius stated that wisdom can be learned by three methods:

Reflection (the noblest) Imitation (the easiest) Experience (the bitterest)

THE DEMING AND DRUCKER MODEL OF CHALLENGE

7/8/2012

The Strategy + Innovation Group | All Rights Reserved - Copyright (c)103

“The enterprise that does not innovate ages and declines. And in a period of rapid change such as the present…the decline will be fast.” - Peter Drucker


104

Topic of Intersection Dr. Drucker Dr. Deming

Fear as a motivator

Modern behavioral psychology has demonstrated that great fear coerces, while remnants of fear cause only resentment and resistance. Lesser fears destroy motivation.

Drive out fear, so that everyone may work effectively for the company. Fear impairs performance and causes numbers to be padded.

Management by drives and quotas

Many managements fail to draw the obvious conclusion that drives [such as cost cutting, then inventory cutting, then human relations] are after all, not the way to get things done.

Quotas are a barrier to improvement. Eliminate numerical quotas for the work force. Eliminate numerical goals for people in management.

Innovation

Inherent in the managerial task is entrepreneurship: making the business of tomorrow. Inherent in the task is innovation. Innovation is above all, top-management attitude and practices. Innovation in a business enterprise must therefore always be market-focused. Actually, “What is our business?” is almost always a difficult question and the right answer is usually anything but obvious.

Innovation, the foundation of the future, cannot thrive unless the top management have declared unshakable commitment to quality and productivity. The moral is that it is necessary to innovate, to predict the needs of the customer. A good question for anyone in business to ask is: What business are we in? What product or service would help our customers more?

Productivity

Productivity means that balance between all factors of production that will give the greatest output for the smallest effort. Economic performance that is achieved by mismanaging work and workers is illusory and actually destructive of capital even in the fairly short run. To leave knowledge skill underutilized is impoverishment of society and individual alike.

Production [and service] should be viewed as a system. The improvement of quality begets naturally and inevitably improvement of productivity...this transfers waste of man-hours into good product and better service. The result is a chain reaction—lower costs, better competitive position, happier people on the job, jobs and more jobs.

Variation

To design a control system, one has to think through what is routine and what is exception. The traditional American system is misapplication of control. It subordinates the routine to the exception.

There are two mistakes frequently made:

1. To react to an outcome as if came from a special cause, when actually it came from common causes of variation.

2. To treat an outcome as if it came from common causes of variation, when actually it came from a special cause.

Learning

Worker responsibility for the job, work groups, and output cannot be expected, let alone demanded until the foundations of productive work, feedback information, and continuous learning have been established. The fault is in the system, not in the men.

I should estimate that in my experience most troubles and most possibilities for improvement add up to proportions something like this: --94% belong to the system, (common causes) which are the responsibility of management. --6% special causes

Psychology of leadership

Management by drive [such as a theme of the month] is a sure sign of confusion. It is an admission of incompetence. It is a sign that management does not think. To make a living is no longer enough. Work also has to make a life.

Transformation to the new philosophy of management will result in joy in work, joy in learning. The result will in time be greater innovation, expansion of market, greater material reward for everyone. Everyone will win; no losers.

Use of rewards to motivate ...watch lest the compensation system reward the wrong behavior, emphasize

Rewards motivate people to work for rewards (quoting Alfie Kohn). A show

W. Edwards Deming, renowned statistician and management expert, and Peter F. Drucker, the father of modern management thinking, knew one another.

What might surprise you is the incredible number of intersections there are in their thinking


105

Deming’s SOPK (System of Profound Knowledge)


106


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THE SYSTEMATIC INNOVATION TOOLBOX

109

110

JTBD and

Diagnosis


INTEGRATING THE INNOVATION LIFE CYCLE INTO THE PRODUCT LIFE CYCLE

Planning ProductionDevelopment

Implementation

(IPA)

ApprovalMeetings:

ShipReleaseApproval(SRA)

DevelopmentInvestmentApproval

(DIA)

ProductDocuments:

ProductRequirements

ProductImplementation

DesignSpecifications

QualificationReports

ProductOverviewProposal

(POP)

ProductDiscontinuance

Approval(PDA)

ExplorationBusiness

RequirementsDocument

(BRD)

Plan

PlanApproval

Strategic Goal

and Limits

Diver

gent

Convergent

Analysis

Diver

gent

Convergent

Problem Definition

Diver

gent

Convergent

Competitive Frameworks

and Innovation

Methods

Diver

gent

Convergent

Solution Finding

Diver

gent

Convergent

Adoption / Rapid

PrototypingImplementation

Diver

gent

Convergent

Design for Innovation in Manufacturing

After Action ReviewPLC

ILC

Diver

gent

Convergent

Product Life Cycle

Innovation Life Cycle

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Customer Requirements,

Data Standards

e-CAD data input CAM / DFMs/w package

Run Design for Manufacturability

Analysis and review results

Do manufacturability

issues exist?

Document Issues in the DFM report

Use principles to Identify

viable solutions

Yes

No

Prototype New

Component solutions for ES

Build ES Prototypes(w/ Mfg. Eng.

at build)

Identify Contradictions

Check DFM violations

against customer Product cost and

Performancerequirements

Low

Risk

Med & High Risk

ReviewManufacturingPerformance

(w/ mfg floor feedback)

Legend: ES = Engineering SystemCAM = Computer Automated ManufacturingDFM = Design for Manufacturability

Release Product for

High Volume Mfg

DFM Tool as a Virtual Prototyping Tool

Continue NPIBuilds forStatistical

significance

Root cause for low yield

High

Yield

Trends of ES EvolutionAnalysis

S-CurveAnalysis

Low Yield

Problem solved with standard

Engineering approach

No

Yes

DfIM Flow

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Innovation Management

The Strategy + Innovation Group 503.421.9391

Please contact The Strategy + Innovation group for a discussion of your organization’s needs www.sig-hq.com

BACKUP


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6 COMPANIES INVESTIGATED* +10 YEARS 10 Biases - Barriers to Effective

Innovation#1: Overconfidence in Predictions – outcomes fall

short of predictions, plans are usually overly optimistic

#2: Innovation is Too Risky – uninformed about the different types of innovation, where, when and how to do it effectively

#3: a Priori – bias that you don’t actually know, so you guess, a.k.a. confirmatory bias

#4: Illusion of Predictability – separate variant of #1 bias, in that one undervalues the uncertainty of environmental/external factors

#5: Silver Bullet – overestimating or assuming a simple remedy for a challenging, difficult or intractable problem

* Note: Plus a boat load of research on organizational decision making, resistance, inertia, entropy and dysfunction


10 BIASES - BARRIERS TO EFFECTIVE INNOVATION

#6: Ego – bias since we were previously successful / innovative, you can’t tell / teach us anything about innovation, we are the leaders

#7: Recency – bias focusing on what just happened instead of looking at the totality of what happened from the beginning

#8: Familiarity – instinct to gravitate to familiar explanations, instead of investigating more deeply

#9: Size – bias of large effort for large results, resulting in an inaccurate attribution of what actually achieved the results. Typically seen in large culture changes.

#10: Political – individual’s bias and focus on personal interests / positions versus organizational needs. Killing projects that aren’t yours, siloing, etc…


Bonus Bias: WHAT MOST COMPANIES THINK IS GOING TO MAKE

THEM COMPETITIVE

The driver of “Talent-driven innovation” is misleading, effective innovation is a function of skills and capabilities that are learned and can be taught

PREJUDICES AGAINST INNOVATION

Lack of understanding that everyone is innovative

Fear of failure

Fear of criticism

Lack of a conducive environment/motivation (management)

Lack of time


Lack of understanding of innovation process

Team culture too focused on status quo

Lack of skills/knowledge that drives insights and ideas

Lack of awareness about reuse as a form of innovation

‘Not invented here’ syndrome prevents use