How to Make Innovation “The Way We Do Business” (it’s easy as ABC)

How to Make Innovation “The Way We Do Business” (it’s easy as ABC)

“We need to be more innovative.”

How many times have you said or heard that? It’s how most innovation efforts start. It’s a statement that reflects leaders’ genuine desire to return to the “good ol’ days” when the company routinely created and launched new products and enjoyed the publicity and growth that followed.

But what does it mean to “be more innovative?”

Innovation’s ABCs

A is for Architecture

Architecture includes most of the elements people think of when they start the work to become more innovative – strategy, structure, processes, metrics, governance, and incentives.

Each of these elements answers fundamental questions:

  • Strategy: Why is innovation important? How does it contribute to our overall strategy?
  • Structure: Who does the work of innovation?
  • Process: How is the work done?
  • Metrics: How will we know when we’re successful? How will we measure progress?
  • Governance: Who makes decisions? How and when are decisions made?
  • Incentives: Why should people invest their time, money, and political capital? How will they be rewarded?

When it comes to your business, you can answer all these questions. The same is true if you’re serious about innovation. If you can’t answer the questions, you have work to do. If you don’t want to do the work, then you don’t want to be innovative. You want to look innovative*.

B is for Behavior

Innovation isn’t an idea problem. It’s a leadership problem.

Leaders that talk about innovation, delegate it to subordinates and routinely pull resources from innovation to “shore up” current operations don’t want to be innovative. They want to look innovative.

Leaders who roll up their sleeves and work alongside innovation teams, ask questions and listen with open minds, and invest and protect innovation resources want to be innovative.

To be fair, it’s incredibly challenging to be a great leader of both innovation and operations. It’s the equivalent of writing equally well with your right and left hands. But it is possible. More importantly, it’s essential.

C is for Culture

Culture is invisible, pervasive, and personal. It is also the make-or-break factor for innovation because it surrounds innovation architecture, teams, and leaders. 

Culture can expand to encourage and support exploration, creativity, and risk-taking. Or it can constrict, unleashing antibodies that swarm, suffocate, and kill anything that threatens the status quo.

Trying to control or change culture is like trying to hold water in your fist. But if you let go just a bit, create the right conditions, and wait patiently, change is possible.

Easy as 123

The most common mistake executives make in the pursuit of being “more innovative” is that they focus on only A or only B or only C.  But, as I always tell my clients, the answer is “and, not or.”

  1. Start with Architecture because it’s logical, rational, and produces tangible outputs like org charts, process flows, and instruction manuals filled with templates and tools. Architecture is comforting because it helps us know what to do and how.
  2. Use Architecture to encourage Behavior because the best way to learn something is to do it. With Architecture in place (but well before it’s finished), bring leaders into the work – talking to customers, sharing their ideas, and creating prototypes. When leaders do the work of innovation, they quickly realize what’s possible (and what’s not) and are open to learning how to engage (behave) in a way that supports innovation.
  3. Leverage Architecture and Behavior to engage Culture by creating the artifacts, rituals, and evidence that innovation can happen in your company, is happening and will continue to happen. As people see “innovation” evolve from a buzzword to a small investment to “the way we do business,” their skepticism will fade, and their support will grow.

Just like the Jackson 5 said

ABC, It’s easy a 123

Architecture, behavior, culture – they’re all essential to enabling an innovation capability that repeatedly creates new revenue.

And while starting with architecture, building new leadership behaviors, and investing until the culture changes isn’t easy, it’s the 123 steps required to “be more innovative.”

What Business Are You Really In? Ask These 3 Questions to Find Out

What Business Are You Really In? Ask These 3 Questions to Find Out

Imagine that you decided to temporarily shut down your business. You made this decision because you knew something major could go wrong and, despite some efforts, you didn’t make as much progress as you hoped. So, you temporarily closed without knowing how long “temporarily” would be.

Three months later, you have made big changes. Massive, ginormous, monumental changes. Changes to foundational elements of your business. You discontinued a beloved product, made existing products safer and expanded a controversial product.

Now, imagine that the press followed all of this. They reported on every meeting, speculated on every discussion, and critiqued every statement. They even said you should be fired.

But now, today, you announced that you’re open for business. All the problems are solved, and all the changes rolled out. The press celebrated, and articles, podcasts, and news stories heralded your business’ re-opening.

Your customers yawned. 

They didn’t miss you.

Many didn’t even know you were gone.

A True Story

You just read the story of Major League Baseball at the end of its 99-day lockout.

But it could also be the story of your business if you make the same mistake MLB did in December, which is the same mistake it has made for the past 20+ years.

It forgot what business it’s in.

MLB thinks it’s in the baseball business. For some customers, diehard fans, it is. But for most, baseball is in the business of helping customers to:

  • Make memories
  • Have fun
  • Feel connected to others
  • Be entertained
  • Drink beer and eat junk food without guilt

These are the Jobs to be Done that customers hire baseball to do for them. But there are dozens of other businesses offering to do the same Jobs, many in ways that are lower cost and more easily accessible. And fans are taking their business to those competitors.

According to Statista, the average per game attendance was 18,900 in 2021, a 34% decline from 2019. Even more troubling than this “generational low” is that people aren’t even watching baseball at home, evidenced by the 12% decline in TV viewership for games.

Customers are rejecting baseball. They just don’t care about it as much as they used to. As a result, they’re spending less time and less money on it and finding newer and better alternatives.

3 Questions to Figure Out if You’re Out (or In)

This story isn’t unique to MLB. It’s the story at the core of many failed businesses. The outward view of solving customers’ problems gives way to an increasingly inward-facing view of the business the business is in.

The story isn’t fast-paced or obvious, either. The declines happen slowly – average gameday attendance dropped only 367 people annually from 2012 to 2019, a decrease that’s easy to miss when considering that the average MLB ballpark holds 43,000 people. 

But once the decline starts and apathy sets in, it is challenging to change the story. But not impossible.

If you want customers to care about you again, to need you and your products the way they used to, you need to care more about your customers than your business. You need to ask three questions:

1. “Why do you choose us?” (in Innovation-speak this translates to, “What are your Jobs to be Done?”)

2. “When you don’t choose us, who do you choose and why?”

Then you must listen. Really listen. To EVERYTHING customers say. The reasons you want to hear and the ones you don’t,  The competitors you know and the ones you least expect. The things that make them better that you know and the ones you don’t agree with.

Then, and only then, do you look inward at your operations and business model and ask.

3. “What business are we in?”

Are your operations set up to deliver delight to customers or maximum efficiency to your business? Is your business model set up to create value for customers or maximize profit for you? Are you increasing the size of bases 3 inches and claiming its safer or doing everything possible to reduce the game’s length and increase its fun factor?

It’s not customer rejection that kills a business. It’s customer apathy.

Don’t allow your customers to become apathetic. They cared about your business once. Keep giving them reasons to care by asking what they care about and delivering it.

How do you make sure that you’re in the right business?

3 Common Resource Allocation Mistakes (and What to Do Instead)

3 Common Resource Allocation Mistakes (and What to Do Instead)

You know that to deliver today’s business and achieve tomorrow’s goals, you need a portfolio of projects that improve your existing operations and a portfolio of innovation projects. You also know that to max out your odds of hitting tomorrow’s goals, you need a portfolio of different types of innovation projects. 

You are also keenly aware that with limited resources, you can’t possibly fund every project.

So how do you make some of the most complex decisions that confront leaders?

Don’t fall into the trap of false choices.

It’s easy to feel like you need to decide between funding operations projects and innovation efforts. You don’t.

Projects that improve what you do today, like increasing efficiency and improving existing offerings, are fundamentally different than innovation projects that create something new. Trying to compare them is like trying to compare strawberries and broccoli – they’re fundamentally different, and people have strong feelings about both.

Do allocate resources to improvement AND innovation projects.

Most of your resources should go to improvement projects because there are what keep you in business and equal to (or ahead of) competitors. They’re also the lowest risk, so you can be confident of achieving your expected ROI.

Innovation projects are higher risk, and the number of resources they need is hard to predict, especially when they are in their earliest days or focused on something radically new and breakthrough. 

Don’t give innovation projects all their resources at once.

Annual budgets make sense when you’re 99.9999% certain that the line item will be around for an entire year. But when you don’t know if a project will be around until next quarter, let alone next year, don’t give them all the resources upfront. Project teams will be tempted to front-load their spending and, if the project needs to end, it can be hard to quickly free up the resources to allocate them to a different project.

Do protect all innovation resources for an entire year.

Even if you have the excellent discipline to carve out an annual budget for innovation and dole it out in bite-sized chunks based on hitting key milestones, it can be hard to maintain that discipline. Over time, the funds allocated to innovation, but not specific projects, start to look like a piggy bank that you can “borrow” money from when your existing business needs to. And while your intentions may be good, borrowed money is never repaid and, as a result, isn’t available when it’s needed.

Don’t use the same criteria to evaluate every innovation project.

Every project needs a small initial investment – money and people to answer a question or explore a space to see if “there’s a there there.” But before allocating a single additional resource to an innovation project, you should be able to answer the following five questions:

  1. What is the problem we’re solving, and who has it?
  2. How can/will we solve this problem?
  3. Why should we solve this problem/create this solution (e.g., does this support our strategy and priorities or create a compelling and sustainable competitive advantage)?
  4. What results do we need/will we get?
  5. What is the next major milestone, and what is required to get there?

If these questions can’t be answered, more work needs to be done, or the effort must be canceled. But often, these questions can be answered, but additional resources aren’t allocated because they can’t be answered with the same depth, breadth, and certainty that later-stage innovation projects can. 

Applying the same burden of proof to an early-stage project asking for $10,000 to conduct consumer research as you apply to a late-stage project asking for $10M to launch doesn’t protect you from making a mistake. It drains your innovation portfolio and “protects” you from growth.

Do evolve decision-making criteria as a project progresses and resource requests get bigger.

At every stage of its development, a project should be able to answer the five core questions above with increasing depth and greater confidence rooted in ever more concrete and quantifiable evidence.

For example, consider a project in the design phase (first draft of a solution) seeking a few thousand dollars to test a paper concept with customers. When asked, “What results do we need/will we get?” if the answer is “We believe we can generate $X revenue based on the following eight assumptions, all of which we find believable based on internal or external benchmarks.” If you agree, then give them the money.

When that same project reaches the De-Risk phase (in-market testing) and requests millions of dollars and dozens of people for launch, if the answer is the same, STOP everything immediately (and, honestly, it shouldn’t have gotten this far)! The answer in this phase should be a detailed P&L and NPV because you know more than you did back at Design, and you’re asking for more.

Resource allocation is complex, especially when you have limited resources and an abundance of very different but very attractive choices. But it can be easier with a bit of discipline and common sense.

What other tips and tricks do you use to make resources allocation decisions?

Psychology Safety: Innovation Requirement or Red Herring?

Psychology Safety: Innovation Requirement or Red Herring?

“Why doesn’t anyone bring me ideas?”

“Why doesn’t anyone ask questions during my meetings?”

“How can I get people to challenge my ideas?”

If you have asked any of these questions, you are not alone. 

I hear these questions from managers to C-suite executives in every industry imaginable because they know that sharing ideas, asking questions, and challenging others are core behaviors in innovation.

The answers vary by person and the company, but all tend to fall under the umbrella of “Lack of Psychological Safety.”

No one wants to hear that the culture of their team or their organization isn’t “Psychologically Safe.”  Does that mean that the culture is “Psychologically Unsafe?”  That doesn’t sound good.  That sounds like a lawsuit.  And even if the culture isn’t “unsafe,” what does “safe” look like?

These are some of the questions that Timothy R. Clark sets out to answer in his book, “The 4 Stages of Psychological Safety: Defining the Path to Inclusion and Innovation.

What is “Psychological Safety?”

Academics have studied Psychology Safety since the 1960s, but Amy Edmondson’s 1999 paper ushered it into daily use.  Today, Psychological Safety is commonly defined as a shared belief that one will not be punished or humiliated for speaking up with ideas, questions, concerns, or mistakes.

Clark goes a step further to identify four types, or stages, of Psychological Safety:

  1. Inclusion Safety: People feel safe and accepted for who they are, including the different and unique aspects of themselves
  2. Learner Safety: People engage in the learning process by asking questions, giving and receiving feedback, experimenting, and making mistakes
  3. Contributor Safety: People use their skills and abilities to make a difference in the team and/or organization
  4. Challenger Safety: People speak up, challenge the status quo, and pursue opportunities for change or improvement

Each type builds on the other, which means that, as a leader, you can’t have a culture in which people challenge your ideas (Challenger Safety) if they don’t feel that they belong (Inclusion) AND comfortable asking questions AND are willing to work to improve or change things.

That’s a tall order as far as culture goes.  Add to that the common belief that all four types of Psychological Safety are required for innovation, and it’s no wonder you feel overwhelmed by the task of creating an innovative organization.

How much Psychological Safety is required for innovation?

That depends on what you mean by “innovation.”

(sorry, I know that’s a lame “consultant” answer, but it’s true, so stick with me)

If what you mean by “innovation” is something that improves what you already do and how you do it (core innovation) or changes one element of what you do or how you do it (adjacent innovation), then you don’t need all four stages. 

Contributor Safety is Required

Core and Adjacent innovation aren’t sexy.  But, for most companies, they are sufficient to inspire and grow the business for at least 5-10 years.

As a leader, of a large existing business, with hundreds or thousands of employees and customers, multiple sites, and complex operations, you can’t possibly know everything that’s happening everywhere.  So you rely on your employees to work hard, do their best, and bring all their skills and experiences to bear for the organization.  You need them to ask, “How can we do this better?” and develop an answer.  You need them to contribute.

To ensure that your employees contribute to operations AND innovations, you need to build and sustain a culture where people feel they belong, are encouraged to learn (even from mistakes), and contribute their thoughts based on their knowledge. 

Challenger Safety is a Red Herring

Radical, breakthrough, and disruptive innovation are sexy.  But it’s insanely hard because it requires the creation of a new business model AND the destruction of the existing one.

The good news is that most companies don’t need to destroy their existing business and replace it with something new.  As a result, they definitely don’t need employees constantly challenging the status quo.  Questioning the status quo by asking, “How can we do this better?” is fine.  Asserting that everything needs to be changed or else is counterproductive.

As a leader, it’s a good idea to cultivate Challenger Safety with a small circle of trusted advisors.  Even one person who has permission to challenge you is sufficient.  That is how you get to the best idea and create the most value.

You don’t need an entire organization challenging each other and everything they do.  That is how you get frustration, chaos, and destroy value.

It’s And, not Or

Psychological Safety is an innovation requirement AND a red herring. 

If you know the type of innovation you want, what results you need, and when you need them, you can focus your efforts on creating and sustaining the right level and scope of psychological safety required to deliver on those goals.

Which makes me wonder….

What type of Psychological Safety does your team need?

What do you do to build Psychological Safety?

How do you encourage people to share ideas and ask questions?

Share your answers in the comments. I promise to respond to each one AND I’m certain your fellow innovators will thank you.

3 Common Innovation Gaps (and How to Close Them)

3 Common Innovation Gaps (and How to Close Them)

A few weeks ago, I wrote that innovation happens in the gaps and offered a few suggestions for finding and closing those gaps.

But I only told you half of the story.

The gaps I wrote about are market gaps, the ones between what your customers want or need and what you offer. 

These gaps are relatively easy to close because they exist through no fault of our own and we have tools like customer research and R&D to help close them.  Closing these gaps is simply what we are in business to do.

But there are other gaps.  Gaps that are harder close, mainly because no one wants to see them.  These are the gaps inside your organization – the ones that exist between what you need, want and are willing to do.

These gaps exist because status quo is more comfortable and certain, and executives have little to no incentive to close them.  These are the gaps that create room for disruption and take down once-great companies.

Mind the INTERNAL Gaps

Need: What you must do to stay in business.  Need To Dos aren’t glamorous, doing them won’t give you a competitive edge or make you immune to disruption.  But, if you don’t do them, you’ll go out of business much faster than if you do.

Want: What you aspire to do.  Want To Dos are what you wish your company would do, achieve, or be known for.  These are the things you declare at company meetings, the BHAGs, and the visions.  They are what inspire and motivate employees.  They are also things that rarely happen because…

Willing: What you do in addition to the Need To Dos.  If “want” is the talk, “willing” is the walk.  Doing the Wants drives your resources allocation and investment decisions, drives the goals and KPIs you measure, and determines the expectations you set with shareholders.  Willing is what you commit to and base your compensation, and maybe even job, on

Close the Gaps

Need / Want: The Comfortable Gap

Closing this gap is comfortable because you know how to do it.  You know that just doing the basics isn’t enough to survive in a competitive world and you have experience investing in improvements that are almost certain to increase revenues and/or decrease costs in the near-term.

If you have a gap between what you need to do and what you want to do, understand why the gaps exist and invest in closing them.

Need / Willing: The Deadly Gap

Avoiding this gap is what drives most executives and entrepreneurs because this is where companies die.  Startups face this gap when they need more capital but investors aren’t willing to provide it or when they need to pivot but are unwilling to let go of their idea.

Giant, successful companies face this when consumer expectations change, technology leaps forward, and the basis of competition shifts.  They see it happening, but they are unwilling to change.  They cling to their business models, relentlessly focusing on better serving their best customers until they are, ultimately, disrupted.

If you face a Need/Willing gap, you need to decide whether you will let go of the safety of the current business to invest in disrupting it or whether you will “get while the getting’s good” and milk as much revenue and profit out of the business before it finally succumbs.  Both options are valid but making a choice requires great courage.  Unfortunately, most executives are too afraid to make that choice and their companies become victims of indecision.

Want / Willing: The Heart-breaking Gap

Seeing this gap is hard because it exists as a direct result of decisions made by the very leaders who seek to close it.  How many times have you heard an executive declare “We need to be more innovative!” and then embark on a year-long cost-cutting initiative? Or ask people to come up with ideas in their free time? Or shift resources from innovation to core business operations?

If seeing the gap is hard, closing it is infinitely harder.  Closing it requires change, it requires executives and employees to do things differently, often doing the opposite of what they’ve always done.  It requires smart risk taking and the willingness to learn.  It requires prioritizing the next decade over the next quarter.

If you face a Want/Willing gap, you need to look in the mirror and honestly answer two hard questions – Why do you want to be more innovative?  What are you, personally, willing to sacrifice to be more innovative? 

If your only answer to the first question is, “I think we should be,” or your answer to the second is “nothing,” STOP.  The gap is too big to close because you don’t have the will to do what needs to be done to drive change. 

But if you have clear and meaningful answers to the first question and you’re willing to make personal sacrifices if required, then you’re ready to do the challenging, frustratingly slow, but profoundly rewarding work necessary to close the gap.

Mind the Gap or Close the Gap?

There are gaps that we comfortably live with, gaps that will destroy us, and gaps that will break our hearts.  All gaps can be closed, but each requires different levels of commitment, courage, and time.

Are you willing to close the gap?

3 Things To Do in the Right Way at the Right Time for Innovation Success

3 Things To Do in the Right Way at the Right Time for Innovation Success

Most people know that 95% of new products fail within three years of launch.  It’s often cited as evidence of big companies’ inability to be innovative, keep up with changing consumer demands, and respond to the nimbleness of start-ups.

Naturally, companies don’t want to fail in the market, so they try to get better at listening and responding to customers, more comfortable investing in unproven but potentially market-defining technology, and more willing to question and change their business models.

Yet, the market failure rate stays essentially the same.

“Ah-ha!” the experts proclaim, “if companies are doing everything right and 95% of innovation projects are still failing, that means that projects are launching that shouldn’t be.  That means we must get better at killing projects before they launch!”

Suddenly, Fail Fast becomes the corporate mantra.  More projects start because it’s ok to fail.  More projects get killed, a mind-boggling 99.9%, according to one study.  Fewer projects get launched. 

Yet, the market failure rate stays essentially the same.

Why?  Why does the market failure rate stick stubbornly at 95% if companies are doing all the right things, including killing 99.9% of ideas and projects before they even get to market?

Because it’s not enough to do the right things.

You must do the right things in the right ways at the right times.

Here are the three most important ones:

Right Thing #1: Start with a problem

All successful innovators know that successful innovations create value because they solve problems for people willing to pay for the solution.  This is why I constantly advise my clients to “fall in love with the problem, not the solution.”

Right Way: Finding a problem that people are willing to pay to solve isn’t enough.  Companies need to find and invest in problems that align with their priorities and strategies, not just the passions of their innovation teams, R&D department, or top performers.

Right Time: If a problem does not align with a company’s priorities or strategy, kill it before it even becomes a project.  Don’t say, “let’s explore this further. Maybe there’s something there,” or “let’s get something the market and see what happens.”  When the company set its strategies, it made choices about what it does and does not do, which means that before the problem was even found, the company chose to kill work on it.  Respect that choice and focus scarce resources on problems and projects that support the company.

Right Thing #2: Listen to consumers

“The consumer is boss,” former P&G CEO and Chairman AG Lafley once said.  He’s right.  If the consumer doesn’t have a problem, doesn’t like the solution you’re offering, or isn’t willing to pay what you want for the solution you designed, then failure is inevitable.  Innovation begins and ends with the consumer.

Right Way: LISTEN, don’t talk to consumers.  Lots of companies talk to consumers – they tell consumers what they’re creating and ask for feedback,  what other companies are doing and ask for critiques, what consumers should want and what they should do, and then ask for money in return.   Listening means asking open-ended questions, letting consumers think and respond, and believing and acting on the answer, even if it’s not the answer you want. 

Right Time: Always.  Constantly. Forever.  It’s not enough to listen to consumers at the beginning when searching for a problem to solve or in the early days of designing a solution.  Listen to them during prototyping, during the MVP stage, before launch, after launch, and every single day after that. 

Right Things #3: Learn fast

F*ck fail fast.  Failure sucks.  No one wants to fail, no matter the speed.  It’s not ok to fail because it means that you made an avoidable mistake, made a decision despite the data, and took an unnecessary risk.

But learning is entirely different.  When you make a mistake, you learn, which prevents you and others from making the same mistake.  When an experiment results in an unexpected outcome, you make new connections between pieces of data, and that learning opens new possibilities and closes down false ones.  When you weigh the data, take a calculated risk, and it doesn’t work out, you learn that chance and luck play a role in business.

Right Way: Be honest about what you don’t know, what you need to know, and what you will do once you know.  In the long run, false confidence serves no one and, more often than not, leads to very expensive and very public failures.  Make the implicit explicit, state your assumptions, and pursue a learning plan, NOT a launch plan.

Right Time: Early and often.  Lean start-up and Agile methodologies encourage companies to surface and test assumptions starting with MVPs because it’s when the costs of progress and failure begin to become materials.  But uncertainty exists right from the start. The moment a problem is found, assumptions are made about the market’s attractiveness, a solution’s feasibility and viability, and the willingness of the company to invest.  Write them down, share them with key decision-makers, test them through small and scrappy experiments.  Start learning from day 1 so you don’t fail at day 1,000.

100% success shouldn’t be the goal.  Neither should 5%.

Entrepreneurs and innovation experts will admonish companies that, if they succeed 100% of the time, they’re not taking enough risks and truly innovating.  While that’s true, there’s also a lot of space between the current 95% failure rate and the inadvisable 0% failure rate. 

Doing the right things – starting with a problem, listening to consumers, and learning fast – but companies need to do the right things, in the right ways, at the right times, to be successful more than 5% of the time.