Sunday, November 08, 2009

Drinking Inside the Box

Note: This is the 6th article in the “Why Johnny Can’t Innovate” series.

Last week, a customer told me one of the most astonishing things I’ve ever heard.

My client could be just about anyone in the Fortune 500. Most companies in that club are venerable institutions that have weathered industrial, economic, and demographic revolutions for many years. A typical skill of a Fortune 500 company is an ability to observe and cautiously adapt to their customers’ needs. For decades (and in not so infrequent cases, for over 100 years), that skill has served Fortune 500 companies, their customers, and shareholders, very well.

Before we dine on my client’s insightful morsel, I need to set the table.

We do not live in 20th century, though I’m seeing more and more evidence that many companies are wishing, and planning as if they, and their customers did. Long-lived companies (of any size) know that in order to thrive, an understanding of market dynamics (past, present, and future) is essential.

Any market consists of only two basic roles: a buyer, and a seller. Sellers are usually manufacturers that have identified one or more needs that their product or service can deliver. Buyers are likely customers of sellers, and have the surprisingly synergistic relationship to sellers that they usually need what the sellers provide.

Great and enduring companies are those that embrace a continual understanding of these two roles. Yet, this concept is one that manufacturers are forgetting with increasing predictability. Frequently, in the pursuit of new revenues beyond their current product or service pipelines, companies adopt the amazingly bad business strategy of, “If we build it, they will come”. All too often, this is a failing strategy. It is a strategy that is focused primarily on the company’s core competencies, and not nearly enough on the needs of potential customers.

In order for companies to thrive, especially when severe and protracted economic disruptions are clearly visible on the horizon, companies must literally innovate, or die. Innovation cannot be limited to the products and services a company makes. Innovation must be rigorously applied to new business strategies, and to the identification (not just the development) of new markets.

The table is now set, but perhaps I should offer you an aperitif to whet your appetite a bit further.

Innovation methodologies and tools, sadly, are rarely used at most companies to their full potential. The immediacy of quarterly earnings often damns R&D and other innovation activities to product cost reduction or process optimization. (For the truly damned, defect mitigation is sometimes the order of the day if customer complaints and/or warranty costs are the major components hitting both top and bottom line growth.)

Methodologies such as Lean, Six Sigma, and DFSS are used to drive efficiencies into existing products, which serve existing markets. Such methods produce measurable benefits to cost containment or boosts in productivity, but seldom is the game changed.

High-value innovation is often (and mistakenly) relegated to strategic activity. A select few with even more select calendars will, on special occasions, be given leave to ascend their ivory towers. The company’s anointed few are charged to ponder and pontificate on ideas that can yield insights into new product designs and new markets that the future might bring. I had dinner recently with a group of such innovation apostles.

And now, our feast can begin.

The discussion over dinner was on the eve of a workshop that would apply innovation methodologies and tools to the identification of new markets. My client’s once valuable products and processes that had endured for more than half a century were now little more than commodities. Within their core market segments, my client's return on their own innovation had been diminishing rapidly, especially during the recent economic (near) death spiral.

During the evening, we discussed several means by which any product or service (and their underlying technologies) could be deconstructed into key functional benefits. Through application of specific research questions (applied both through innovation methodology and software), we could then find intersections between a technology’s benefits and the needs such technologies would address. Using this approach, correlations between functions and needs would likely surface in demographics and markets that had previously been completely outside of my client’s consideration. The workshop, and subsequent applications thereof would be examples of classic, “out of the box” thinking, with one exception: The research and innovation methods would be facilitated through automation, and generate many ideas in a predictably short space of time, with increasing degrees of relevance.

My client told me that this was exactly what they needed to hear. I would soon discover, however, that it was also something they would be unwilling to practice.

It was, in fact, the onset of a common innovation killer that I've seen over the years.

My client was suffering from a classic onset of Comfort Food Poisoning, which I’ll talk about in the 7th installment of "Why Johnny Can’t Innovate".

Stay Hungry.