Archive | June 2014

Executives need to be disruption-ready: Insights from GE’s Global Innovation Barometer survey

The latest GE Global Innovation Barometer is a must read for all executives. As organizations enter a world of digital business and digital transformation, the findings show that most leaders realize that unless they disrupt, they will be disrupted.  Moreover, a growing sense for co-creation, co-innovation highlights the benefits of collaboration. 

Summary: Disruption, collaboration, and the future of work are highlighted in GE’s fourth annual survey — a must read for business leaders.

By R “Ray” Wang

Last week, June 16, 2014, GE unveiled the 2014 results for its “Global Innovation Barometer.” In the 4th annual survey, the GE team commissioned Edelman Berland to phone interview 3,209 senior business executives between April 2, 2014 and May 30, 2014.

Interviewees represented VP level and higher respondents from 26 countries including Algeria, Australia, Brazil, Canada, China, Germany, India, Indonesia, Israel, Italy, Japan, Kenya, Malaysia, Mexico, Nigeria, Poland, Russia, Saudi Arabia, Singapore, South Africa, South Korea, Sweden, Turkey, UAE, UK and USA.  The average age of respondents was 44 years old and 31 percent represented C-Level decision makers. Four key areas of findings focused on:

 

  1. Macro trends show how essential innovation is to overall strategy. The study showed that 80 percent of respondents believe that people in their country live better today than 10 years ago because of the impact of innovation on their life and on their country.  However, 47 percent felt that technological innovation will increase inequalities.  Collaboration (47 percent), convergence of technology (32 percent), big data (25 percent), and industrial internet (25 percent) show some mindshare gains in terms of companies with a strategy or process to make the most of these new technology trends (See Figure 1).Figure 1.  Businesses Embrace New Trends In stages
  2. Glocalization emerges as a key requirement for successful innovation. 82 percent of organizations interviewed believe that innovation is a global game.  Meanwhile 73 percent believed that innovation needs to be locatized to serve specific market needs (See Figure 2).  This leads to the need to “Think Glocal.”  Survey results also show that Mexico, Singapore, Indonesia, Sweden, Brazil, South Africa, and South Korea lead the perceptions that constraints create innovation opportunities for those willing to invest.Figure 2. Organizations must think glocal in order to deliver on innovation
  3. Delivering on new business models creates challenges on successful innovation projects.  Over 60 percent of respondents found it difficult to define an effective business model to support new ideas and make them profitable, creating a challenge killing the ability to innovate. In addition, understanding customers and anticipating market evolutions (84 percent),  attracting and retaining the most talented and skilled individuals (79 percent), and adapting and implementing emerging technologies (67 percent) rose to the top three critical requirements for innovation (see Figure 3).Figure 3. Customer Understanding And War For Talent Remain key Critical Requirements For Innovation
  4. Speed and agility to innovate better is more mantra than reality at most organizations. The survey showed 67 percent of respondents agreed that success in innovation requires companies to quickly adapt and implement emerging technologies (see Figure 4). Concurrently, 57 percent consider the internal inertia and the incapacity to be nimble, failing at rapidly converting ideas into actions is a challenge limiting their business’s ability to innovate efficiently.Figure 4. Organizations Find It Hard To Deliver on Agility Despite The Benefits 

The Bottom Line: GE’s Global Innovation Barometer Highlights Growing Sophistication Among Executives To Embrace Or Prepare For Business Model Disruption

The latest GE Global Innovation Barometer is a must read for all executives. As organizations enter a world of digital business and digital transformation, the findings show that most leaders realize that unless they disrupt, they will be disrupted.

Moreover, a growing sense for co-creation, co-innovation highlights the benefits of collaboration. This trend correlates with increasing requests from market leaders and fast followers to identify startups and other forward thinking organizations to partner with.

With 70 percent of respondents identifying big data as a critical foundation for digital business and digital transformation, organizations expect to not only optimize business efficiency, but also 69 percent of respondents expect to use big data to improve the innovation process.

Finally, organizations strangely expect their governments to provide a framework to support top drivers of innovation either by fighting bureaucracy and cutting red tape (87 percent), ensuring business confidentiality and trade secrets are adequately protected (86 percent), and better aligning student curriculum with the needs of business (85 percent).

Constellation sees the overall findings as positive for innovation in the enterprise.  As organizations enter the next phase of business model disruption via digital, the attraction and retention of key talent, the internal agility of new business models, the adoption of new technologies, and real leadership amidst change are key success factors for this digital transformation.

The GE Global Innovation Barometer does a great job of quantifying the sentiment leading into 2014.  The hard work of getting the job done is ahead but at least it’s no longer unknown.

~ Curated by The Marketing Curator and TME Pass The Idea (www.pass-the-idea.com)

Source: http://www.zdnet.com/executives-need-to-be-disruption-ready-insights-from-ges-global-innovation-barometer-survey-7000030885/

The Power Of Benchmarking Nature And Other Industries To Generate Breakthrough Innovation Ideas

Thomas Edison, who was a methodical inventor, once said “to invent you need an imagination and a pile of junk” (aka stimuli). One of the very best forms of stimuli comes from looking at other industries for ideas, relevant analogies, and problem solving.

Forbes, CMO NETWORK 6/24/2014

Thomas Edison, who was a methodical inventor, once said “to invent you need an imagination and a pile of junk” (aka stimuli).  One of the very best forms of stimuli comes from looking at other industries for ideas, relevant analogies, and problem solving.  The trickiest part is to figure out which industries to benchmark.  That, in itself, requires brainstorming sessions.  Biomimicry is an area that has proven extremely fruitful across a range of industries, as nature has solved many problems through evolution, and the best solutions in nature often determined which creatures and plant life survived and thrived.  What follows are 10 examples of bio-mimicry and other types of benchmarking outside of nature that have proven highly relevant for new product and service development.

1)   Japan’s high-speed Shinkansen “bullet trains”, were designed using some of the aerodynamic principles associated with the long, pointed beaks of hummingbirds.

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2) The molecular pattern on sharks’ skin prevents bacteria from growing.  This led the Sharklet Technologies Company to apply the pattern to hospital wall coverings to reduce germs that can be spread in hospitals.

3) Bat sonar or “echolocation” that keeps bats from bumping into things by detecting when they get close, is currently being applied to keep drones that fly around from bumping into people and objects.

4) Thistle plants and burrs were the inspiration for Velcro, because they attached and separated easily from soft fabrics.

5) The German company Festo benchmarked elephant trunks, which are extremely strong, forceful, flexible and soft, for use in factories to replace hard, more rigid equipment that was more likely to break fragile items on assembly lines.

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6) The lobster industry benchmarked the avocado industry to learn how to separate avocado pulp from their shells, for insights into extracting lobster meat for making lobster salads.  The high-pressure equipment used on avocado exteriors, proved a great solution for the lobster industry.

7) I‘ve heard the product and services design firm, IDEO, relate several times how they benchmarked Formula Race car pit crew teams to apply the way they’re organized, to developing nursing stations for hospitals.  The analogy is that both types of teams are responsible for the immediate health of their charges, with instantaneous decisions required, multiple sub-specialists on each team, and one individual responsible for giving the ultimate orders that alert everyone when the cars and patients are ready and healthy enough “to go”.

8) When tasked with developing a better surgical clip to reduce bleeding during operations, Johnson & Johnson, years ago, tasked a multi-disciplinary team with benchmarking other types of clips from diverse industries including office paper clips and hair clips.

9) The founder of Pinterest was said to have conceived of the idea for the highly successful platform based on the visual image of the mounted bug collection that he created as a kid.

10) The brilliant, multitalented Catalan architect Antoni Gaudí used bio-mimicry as design inspiration for his building exteriors and interiors.  Dragon scales and spines were the inspiration for the roof of the residence Casa Batlló, and the spiral of seashells influenced his unusual winding staircase in his building La Pedrera.

I wrote the book Catalyzing Innovation to start companies thinking about industries around the world they might consider benchmarking for relevance.  It’s filled with several hundred categorized, visual examples across industries and countries, to set companies on the path of exploring analogies for new product and service development breakthrough insights.  I recommend all firms when embarking on innovation, first take a look at other industries and countries for ideas.

For Breakthrough Innovation, Focus on Possibility, Not Profitability

Harvard Business Review

Most companies are organized and focused on the probable/profitable short term, and therefore miss the potential of breakthrough innovation that comes from being focused on the possible. This is frequently how well-established category leaders miss opportunities that transform their categories.

By Michelle Stacy 

More than 15 years after its founding, Google remains a company that inspires profound admiration — and at times, a bit of confusion.

The company is currently investing in self-driving cars, a futuristic idea that some people believe will never be achieved. It’s also rolling out Google Glass, a wearable computing device that’s inspired skepticism and some mockery.

The derision is misplaced. As someone who’s been involved in marketing breakthrough innovations, I’m convinced Google’s approach is the right one. Google is focused on possibility rather thanprofitability — a mindset that’s necessary to create innovations that transform categories. Many breakthrough innovations I’ve led have suffered when I’ve let the profitability mindset creep in. Google should be admired for first setting out to answer the question: “Is this possible?”

Successful innovations programs create a balance between the probable/profitable short-term programs and the possibility programs that challenge the status quo. Unfortunately, most companies are organized and focused on the probable/profitable short term, and therefore miss the potential of breakthrough innovation that comes from being focused on the possible.  This is frequently how well-established category leaders miss opportunities that transform their categories.

Programs that transform take patience. Speed to market, probability of quick return, and profitability mindset have to take a backseat to truly delivering a product that delights the consumer in everyaspect. My perspective on this comes from my own experience.

At Keurig, the pod-based coffee company where I worked as president for six years, sales grew at a 61% compound annual rate, propelling Keurig Green Mountain from $500 million to $4.5 billion in net sales from 2008-2013.  Keurig machines sit on the counter in more than 18 million households. Most people think that Keurig just recently appeared.  But in fact, Keurig was founded more than 15 years ago.  The first machines were sold in 2000.

Today, The brewers cost $100 or $150, still a significant premium to the standard drip coffee maker. But what many people forget is that in its early years, Keurig brewers cost $900 apiece. Early K-cups were made by hand. Keurig opted to  start out in the office coffee market, not the consumer market. That made the $900 price point competitive and acceptable. The whole approach to the office became a way to commercialize the design quicker and to gain consumer experience as the company drove the brewer down the cost curve. The wider diversity of coffee drinkers in an office (vs. a single consumer household) planted the seeds of the importance of having an eco-system of brands beyond our own. This led to the variety and partnering strategy that has been at the core of Keurig’s success. Today, Starbucks, Dunkin Donuts, Folgers, Caribou, Peets, and Snapple, to name just a few, participate as partners in the system.  It’s the only brand of single serve that offers a wide variety of brands of coffee and roasts, along with other beverages.

If the company’s founders and early leaders had focused on profitability instead of possibility, I’m not sure the system would have been as successful. And they certainly wouldn’t have invited the competition to share in the system to maximize the variety. Variety accelerated the growth.  It was the vision of transforming the way consumers make coffee that took them on the decade long journey to success, growth and profitability.

Possibility sharply focuses the scope of the breakthrough innovation. If the only question is “Is it possible to make it?”, then that question defines who you bring onto the team both from a capability standpoint (can this person help us figure it out?) and from a character standpoint. (Specifically: Does this person bring an optimistic or pessimistic perspective?) People who make great leaders of breakthrough innovation programs always ask the “What if” question. It frees you to look for talent and resources beyond your company — who are the partners who will share your vision, who bring incremental talent and cross-category perspectives to make this work?

One of the key ingredients to the possibility mindset is the addition of truly understanding what the consumer wants.  The question isn’t just “Is it possible to make it?” but “Is it possible to make exactly what your specific target consumer wants?” In contrast, the profitability mindset shuts down ideas and shortcuts the process. It stifles creativity and likely limits the team to only those ideas, capabilities, business models, and resources already inside the company.

Once the original ‘is it possible’ question has been solved for, the trick is to apply the same optimistic, focused thinking to the commercialization process. Now that we know it is possible to make, is it possible to make smaller, faster, better, and more cost effectively?

The opportunity is to create a win-win:  Create something that is right for the consumer and by doing this, transform a category and create a long term sustainable growth opportunity for the company.

Google is looking at “possiblity’ with Glass and self-driving cars. Both may seem like strange or silly innovations today, but over time they could turn into true breakthroughs and gain wide acceptance.

When Innovation Is Strategy
An HBR Insight Center
~ Curated by The Marketing Curator and TME Pass The Idea (www.pass-the-idea.com)
Source: http://www.bloomberg.com/news/2014-06-23/for-breakthrough-innovation-focus-on-possibility-not-profitability.html

It’s tough being a consumer products company.

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Sargento’s Ultra Thin cheese.

It’s tough being a consumer products company.

Of the nearly 3,500 new consumer goods introduced in 2012, just 14 managed to generate at least $50 million in sales in their first year and sustain that momentum into their second, according to the market research group Nielsen.

“Since we started doing this study in 2008, there have been more than 17,000 new product launches in the consumer products market,” said Rob Wengel, a senior vice president for innovation in North America at Nielsen. “Only 62 of them have had that kind of success.”

So rare are the successes that Nielsen hands out awards for innovation and creates case studies, which are to be released on Monday, that explain what the winner did to ensure success with products that are not merely a slight change to an ingredient or an overhaul of packaging or portion sizes.

Some of the winners are surprising. “You say to yourself, sliced cheese — really?” said Taddy Hall, senior vice president of Nielsen’s Breakthrough Innovation Project. “One of the huge takeaways of this project is that it isn’t always obvious what innovation is.”

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Bud Light’s Straw-Ber-Rita also won praise from Nielsen. CreditAnheuser-Busch, via Pr Newswire

Indeed, Ultra Thin, a sliced cheese product that Sargento Foods introduced in 2012, was one of this year’s winners, doubling its sales in its second year and accounting for much of the 6 percent increase in sales of natural (as opposed to processed) sliced cheese.

Sargento knew that cheese was becoming a bigger part of sandwiches because consumers were working to reduce their consumption of meat. Its research told it that consumers were also concerned about the fat, calories and salt in cheese — but were reluctant to trade for reduced fat versions.

The answer was to slice cheese thinner, but that also presented a challenge. “Being able to consistently slice cheese at that thin of a thickness and have it shingle out neatly and get it into a package is hard,” said Rod Hogan, vice president for new platform development at Sargento.

The company nonetheless succeeded. Now Ultra Thin is available in seven varieties, with three more to be introduced this year.

An even more unlikely winner of Nielsen’s award was belVita, a “breakfast biscuit” from Mondelez. It had done well in Europe, but in the United States, consumers tend to think of biscuits as disks of fluffy dough, drenched in butter or gravy.

Thus, Mondelez was not only introducing a new brand, it was also building a new breakfast category and figuring out how to help consumers understand that belVita was not a cookie.

Mondelez made sure belVita, which is sold in the cookie aisle, initially was displayed in locations where consumers buy breakfast products, like the cereal aisle and near the yogurt case. It also handed out more than 10 million samples, and used a variety of social media and advertising to explain the product.

In its first year of sales in the United States, belVita brought in revenue of $70 million and sales grew by more than 50 percent in its second year. Last fall, Mondelez sold its one billionth breakfast biscuit here and introduced a soft version.

Most people would have been tempted to drop the idea that gave Anheuser-Busch a home run. Intrigued when Kirin, a Japanese competitor, introduced a beer to be served over ice about three years ago, the company came up with its own version. “The over-ice principle seemed to be a really powerful ritual, and that led us to mixed drinks,” said Pat McGauley, vice president for innovation at Anheuser-Busch. “The biggest mixed drink in the world is the margarita, and that led to the Mexican bulldog.”

The Mexican bulldog is a frozen margarita with a bottle of beer turned upside down in it — and it became the inspiration for Bud Light Lime-A-Rita, a potent malt cocktail concocted to be poured over ice.

Last year, Anheuser-Busch introduced the Straw-Ber-Rita, which helped the company generate more than $500 million in revenue in the first two years the “Ritas” were sold.

And not only has the product been financially successful, it also has attracted women, who tend to elude beer makers.

The company has introduced mango and raspberry varieties and is encouraging fans to mix them up, with the help of an 18-can pack of mixed flavors and a recipe card.

“People even created a Jingle Rita over the holidays,” Mr. McGauley said

~ Curated by The Marketing Curator and TME Pass The Idea

Source: http://www.nytimes.com/2014/06/23/business/nielsen-rewards-innovations-of-successful-new-products.html?hpw&rref=business&_r=1

THE DISRUPTION MACHINE

What the gospel of innovation gets wrong.

The New Yorker, Annals of Enterprise

BY  JUNE 23, 2014

Disruption is a theory of change founded on panic, anxiety, and shaky evidence.

Disruption is a theory of change founded on panic, anxiety, and shaky evidence. Illustration by Brian Stauffer.

In the last years of the nineteen-eighties, I worked not at startups but at what might be called finish-downs. Tech companies that were dying would hire temps—college students and new graduates—to do what little was left of the work of the employees they’d laid off. This was in Cambridge, near M.I.T. I’d type users’ manuals, save them onto 5.25-inch floppy disks, and send them to a line printer that yammered like a set of prank-shop chatter teeth, but, by the time the last perforated page coiled out of it, the equipment whose functions those manuals explained had been discontinued. We’d work a month here, a week there. There wasn’t much to do. Mainly, we sat at our desks and wrote wishy-washy poems on keyboards manufactured by Digital Equipment Corporation, left one another sly messages on pink While You Were Out sticky notes, swapped paperback novels—Kurt Vonnegut, Margaret Atwood, Gabriel García Márquez, that kind of thing—and, during lunch hour, had assignations in empty, unlocked offices. At Polaroid, I once found a Bantam Books edition of “Steppenwolf” in a clogged sink in an employees’ bathroom, floating like a raft. “In his heart he was not a man, but a wolf of the steppes,” it said on the bloated cover. The rest was unreadable.

Not long after that, I got a better assignment: answering the phone for Michael Porter, a professor at the Harvard Business School. I was an assistant to his assistant. In 1985, Porter had published a book called “Competitive Advantage,” in which he elaborated on the three strategies—cost leadership, differentiation, and focus—that he’d described in his 1980 book, “Competitive Strategy.” I almost never saw Porter, and, when I did, he was dashing, affably, out the door, suitcase in hand. My job was to field inquiries from companies that wanted to book him for speaking engagements. “The Competitive Advantage of Nations” appeared in 1990. Porter’s ideas about business strategy reached executives all over the world.

Porter was interested in how companies succeed. The scholar who in some respects became his successor, Clayton M. Christensen, entered a doctoral program at the Harvard Business School in 1989 and joined the faculty in 1992. Christensen was interested in why companies fail. In his 1997 book, “The Innovator’s Dilemma,” he argued that, very often, it isn’t because their executives made bad decisions but because they made good decisions, the same kind of good decisions that had made those companies successful for decades. (The “innovator’s dilemma” is that “doing the right thing is the wrong thing.”) As Christensen saw it, the problem was the velocity of history, and it wasn’t so much a problem as a missed opportunity, like a plane that takes off without you, except that you didn’t even know there was a plane, and had wandered onto the airfield, which you thought was a meadow, and the plane ran you over during takeoff. Manufacturers of mainframe computers made good decisions about making and selling mainframe computers and devising important refinements to them in their R. & D. departments—“sustaining innovations,” Christensen called them—but, busy pleasing their mainframe customers, one tinker at a time, they missed what an entirely untapped customer wanted, personal computers, the market for which was created by what Christensen called “disruptive innovation”: the selling of a cheaper, poorer-quality product that initially reaches less profitable customers but eventually takes over and devours an entire industry.

Ever since “The Innovator’s Dilemma,” everyone is either disrupting or being disrupted. There are disruption consultants, disruption conferences, and disruption seminars. This fall, the University of Southern California is opening a new program: “The degree is in disruption,” the university announced. “Disrupt or be disrupted,” the venture capitalist Josh Linkner warns in a new book, “The Road to Reinvention,” in which he argues that “fickle consumer trends, friction-free markets, and political unrest,” along with “dizzying speed, exponential complexity, and mind-numbing technology advances,” mean that the time has come to panic as you’ve never panicked before. Larry Downes and Paul Nunes, who blog for Forbes, insist that we have entered a new and even scarier stage: “big bang disruption.” “This isn’t disruptive innovation,” they warn. “It’s devastating innovation.”

Things you own or use that are now considered to be the product of disruptive innovation include your smartphone and many of its apps, which have disrupted businesses from travel agencies and record stores to mapmaking and taxi dispatch. Much more disruption, we are told, lies ahead. Christensen has co-written books urging disruptive innovation in higher education (“The Innovative University”), public schools (“Disrupting Class”), and health care (“The Innovator’s Prescription”). His acolytes and imitators, including no small number of hucksters, have called for the disruption of more or less everything else. If the company you work for has a chief innovation officer, it’s because of the long arm of “The Innovator’s Dilemma.” If your city’s public-school district has adopted an Innovation Agenda, which has disrupted the education of every kid in the city, you live in the shadow of “The Innovator’s Dilemma.” If you saw the episode of the HBO sitcom “Silicon Valley” in which the characters attend a conference called TechCrunch Disrupt 2014 (which is a real thing), and a guy from the stage, a Paul Rudd look-alike, shouts, “Let me hear it, disss-ruppttt!,” you have heard the voice of Clay Christensen, echoing across the valley.

Last month, days after the Times’ publisher, Arthur Sulzberger, Jr., fired Jill Abramson, the paper’s executive editor, the Times’ 2014 Innovation Report was leaked. It includes graphs inspired by Christensen’s “Innovator’s Dilemma,” along with a lengthy, glowing summary of the book’s key arguments. The report explains, “Disruption is a predictable pattern across many industries in which fledgling companies use new technology to offer cheaper and inferior alternatives to products sold by established players (think Toyota taking on Detroit decades ago). Today, a pack of news startups are hoping to ‘disrupt’ our industry by attacking the strongest incumbent—The New York Times.”

A pack of attacking startups sounds something like a pack of ravenous hyenas, but, generally, the rhetoric of disruption—a language of panic, fear, asymmetry, and disorder—calls on the rhetoric of another kind of conflict, in which an upstart refuses to play by the established rules of engagement, and blows things up. Don’t think of Toyota taking on Detroit. Startups are ruthless and leaderless and unrestrained, and they seem so tiny and powerless, until you realize, but only after it’s too late, that they’re devastatingly dangerous: Bang! Ka-boom! Think of it this way: the Times is a nation-state; BuzzFeed is stateless. Disruptive innovation is competitive strategy for an age seized by terror.

Every age has a theory of rising and falling, of growth and decay, of bloom and wilt: a theory of nature. Every age also has a theory about the past and the present, of what was and what is, a notion of time: a theory of history. Theories of history used to be supernatural: the divine ruled time; the hand of God, a special providence, lay behind the fall of each sparrow. If the present differed from the past, it was usually worse: supernatural theories of history tend to involve decline, a fall from grace, the loss of God’s favor, corruption. Beginning in the eighteenth century, as the intellectual historian Dorothy Ross once pointed out, theories of history became secular; then they started something new—historicism, the idea “that all events in historical time can be explained by prior events in historical time.” Things began looking up. First, there was that, then there was this, and this is better than that. The eighteenth century embraced the idea of progress; the nineteenth century had evolution; the twentieth century had growth and then innovation. Our era has disruption, which, despite its futurism, is atavistic. It’s a theory of history founded on a profound anxiety about financial collapse, an apocalyptic fear of global devastation, and shaky evidence.

Most big ideas have loud critics. Not disruption. Disruptive innovation as the explanation for how change happens has been subject to little serious criticism, partly because it’s headlong, while critical inquiry is unhurried; partly because disrupters ridicule doubters by charging them with fogyism, as if to criticize a theory of change were identical to decrying change; and partly because, in its modern usage, innovation is the idea of progress jammed into a criticism-proof jack-in-the-box.

The idea of progress—the notion that human history is the history of human betterment—dominated the world view of the West between the Enlightenment and the First World War. It had critics from the start, and, in the last century, even people who cherish the idea of progress, and point to improvements like the eradication of contagious diseases and the education of girls, have been hard-pressed to hold on to it while reckoning with two World Wars, the Holocaust and Hiroshima, genocide and global warming. Replacing “progress” with “innovation” skirts the question of whether a novelty is an improvement: the world may not be getting better and better but our devices are getting newer and newer.

The word “innovate”—to make new—used to have chiefly negative connotations: it signified excessive novelty, without purpose or end. Edmund Burke called the French Revolution a “revolt of innovation”; Federalists declared themselves to be “enemies to innovation.” George Washington, on his deathbed, was said to have uttered these words: “Beware of innovation in politics.” Noah Webster warned in his dictionary, in 1828, “It is often dangerous to innovate on the customs of a nation.”

The redemption of innovation began in 1939, when the economist Joseph Schumpeter, in his landmark study of business cycles, used the word to mean bringing new products to market, a usage that spread slowly, and only in the specialized literatures of economics and business. (In 1942, Schumpeter theorized about “creative destruction”; Christensen, retrofitting, believes that Schumpeter was really describing disruptive innovation.) “Innovation” began to seep beyond specialized literatures in the nineteen-nineties, and gained ubiquity only after 9/11. One measure: between 2011 and 2014, Time, the Times Magazine,The New Yorker, Forbes, and even Better Homes and Gardens published special “innovation” issues—the modern equivalents of what, a century ago, were known as “sketches of men of progress.”

The idea of innovation is the idea of progress stripped of the aspirations of the Enlightenment, scrubbed clean of the horrors of the twentieth century, and relieved of its critics. Disruptive innovation goes further, holding out the hope of salvation against the very damnation it describes: disrupt, and you will be saved.

Disruptive innovation as a theory of change is meant to serve both as a chronicle of the past (this has happened) and as a model for the future (it will keep happening). The strength of a prediction made from a model depends on the quality of the historical evidence and on the reliability of the methods used to gather and interpret it. Historical analysis proceeds from certain conditions regarding proof. None of these conditions have been met.

“The Innovator’s Dilemma” consists of a set of handpicked case studies, beginning with the disk-drive industry, which was the subject of Christensen’s doctoral thesis, in 1992. “Nowhere in the history of business has there been an industry like disk drives,” Christensen writes, which makes it a very odd choice for an investigation designed to create a model for understanding other industries. The first hard-disk drive, which weighed more than a ton, was invented at I.B.M., in 1955, by a team that included Alan Shugart. Christensen is chiefly concerned with an era, beginning in the late nineteen-seventies, when disk drives decreased in size from fourteen inches to eight, then from eight to 5.25, from 5.25 to 3.5, and from 3.5 to 2.5 and 1.8. He counts a hundred and sixteen new technologies, and classes a hundred and eleven as sustaining innovations and five as disruptive innovations. Each of these five, he says, introduced “smaller disk drives that were slower and had lower capacity than those used in the mainstream market,” and each company that adopted them was an entrant firm that toppled an established firm. In 1973, Alan Shugart founded Shugart Associates, which introduced a 5.25-inch floppy-disk drive in 1976; the company was bought by Xerox the next year. In 1978, Shugart Associates developed an eight-inch hard-disk drive; Christensen, who is uninterested in the floppy-disk-drive industry, classes the company as an entrant firm and credits it with disrupting established firms that manufactured fourteen-inch hard drives. In 1979, Alan Shugart founded Shugart Technology, which changed its name to Seagate Technology after Xerox threatened to sue. In 1980, Seagate Technology introduced the first 5.25-inch hard-disk drive; Christensen, at this point, classes Seagate as an entrant firm, and Shugart Associates as a failed incumbent, even though Shugart Associates was shifting its focus to what was then its very profitable floppy-disk-drive business. In the mid-eighties, Seagate—here considered by Christensen to be an established firm—delayed manufacturing 3.5-inch drives, which were valued by producers of portable computers and laptops, because its biggest customer, I.B.M., didn’t want them; I.B.M. wanted a better and faster version of the 5.25-inch drive for its full-sized desktop computers. Seagate didn’t start shipping 3.5-inch drives until 1988, and by then, Christensen argues, it was too late.

In his original research, Christensen established the cutoff for measuring a company’s success or failure as 1989 and explained that “ ‘successful firms’ were arbitrarily defined as those which achieved more than fifty million dollars in revenues in constant 1987 dollars in any single year between 1977 and 1989—even if they subsequently withdrew from the market.” Much of the theory of disruptive innovation rests on this arbitrary definition of success.

In fact, Seagate Technology was not felled by disruption. Between 1989 and 1990, its sales doubled, reaching $2.4 billion, “more than all of its U.S. competitors combined,” according to an industry report. In 1997, the year Christensen published “The Innovator’s Dilemma,” Seagate was the largest company in the disk-drive industry, reporting revenues of nine billion dollars. Last year, Seagate shipped its two-billionth disk drive. Most of the entrant firms celebrated by Christensen as triumphant disrupters, on the other hand, no longer exist, their success having been in some cases brief and in others illusory. (The fleeting nature of their success is, of course, perfectly consistent with his model.) Between 1982 and 1984, Micropolis made the disruptive leap from eight-inch to 5.25-inch drives through what Christensen credits as the “Herculean managerial effort” of its C.E.O., Stuart Mahon. (“Mahon remembers the experience as the most exhausting of his life,” Christensen writes.) But, shortly thereafter, Micropolis, unable to compete with companies like Seagate, failed. MiniScribe, founded in 1980, started out selling 5.25-inch drives and saw quick success. “That was MiniScribe’s hour of glory,” the company’s founder later said. “We had our hour of infamy shortly after that.” In 1989, MiniScribe was investigated for fraud and soon collapsed; a report charged that the company’s practices included fabricated financial reports and “shipping bricks and scrap parts disguised as disk drives.”

As striking as the disruption in the disk-drive industry seemed in the nineteen-eighties, more striking, from the vantage of history, are the continuities. Christensen argues that incumbents in the disk-drive industry were regularly destroyed by newcomers. But today, after much consolidation, the divisions that dominate the industry are divisions that led the market in the nineteen-eighties. (In some instances, what shifted was their ownership: I.B.M. sold its hard-disk division to Hitachi, which later sold its division to Western Digital.) In the longer term, victory in the disk-drive industry appears to have gone to the manufacturers that were good at incremental improvements, whether or not they were the first to market the disruptive new format. Companies that were quick to release a new product but not skilled at tinkering have tended to flame out.

Other cases in “The Innovator’s Dilemma” are equally murky. In his account of the mechanical-excavator industry, Christensen argues that established companies that built cable-operated excavators were slow to recognize the importance of the hydraulic excavator, which was developed in the late nineteen-forties. “Almost the entire population of mechanical shovel manufacturers was wiped out by a disruptive technology—hydraulics—that the leaders’ customers and their economic structure had caused them initially to ignore,” he argues. Christensen counts thirty established companies in the nineteen-fifties and says that, by the nineteen-seventies, only four had survived the entrance into the industry of thirteen disruptive newcomers, including Caterpillar, O. & K., Demag, and Hitachi. But, in fact, many of Christensen’s “new entrants” had been making cable-operated shovels for years. O. & K., founded in 1876, had been making them since 1908; Demag had been building excavators since 1925, when it bought a company that built steam shovels; Hitachi, founded in 1910, sold cable-operated shovels before the Second World War. Manufacturers that were genuinely new to excavation equipment tended to sell a lot of hydraulic excavators, if they had a strong distribution network, and then not do so well. And some established companies disrupted by hydraulics didn’t do half as badly as Christensen suggests. Bucyrus is the old-line shovel-maker he writes about most. It got its start in Ohio, in 1880, built most of the excavators that dug the Panama Canal, and became Bucyrus-Erie in 1927, when it bought the Erie Steam Shovel Company. It acquired a hydraulics-equipment firm in 1948, but, Christensen writes, “faced precisely the same problem in marketing its hydraulic backhoe as Seagate had faced with its 3.5-inch drives.”

Unable to persuade its established consumers to buy a hydraulic excavator, Bucyrus introduced a hybrid product, called the Hydrohoe, in 1951—a merely sustaining innovation. Christensen says that Bucyrus “logged record profits until 1966—the point at which the disruptive hydraulics technology had squarely intersected with customers’ needs,” and then began to decline. “This is typical of industries facing a disruptive technology,” he explains. “The leading firms in the established technology remain financially strong until the disruptive technology is, in fact, in the midst of their mainstream market.”

But, actually, between 1962 and 1979 Bucyrus’s sales grew sevenfold and its profits grew twenty-five-fold. Was that so bad? In the nineteen-eighties, Bucyrus suffered. The whole construction-equipment industry did: it was devastated by recession, inflation, the oil crisis, a drop in home building, and the slowing of highway construction. (Caterpillar sustained heavy losses, too.) In the early nineteen-nineties, after a disastrous leveraged buyout handled by Goldman Sachs, Bucyrus entered Chapter 11 protection, but it made some sizable acquisitions when it emerged, as Bucyrus International, and was a leading maker of mining equipment, just as it had been a century earlier. Was it a failure? Caterpillar didn’t think so when, in 2011, it bought the firm for nearly nine billion dollars.

Christensen’s sources are often dubious and his logic questionable. His single citation for his investigation of the “disruptive transition from mechanical to electronic motor controls,” in which he identifies the Allen-Bradley Company as triumphing over four rivals, is a book called “The Bradley Legacy,” an account published by a foundation established by the company’s founders. This is akin to calling an actor the greatest talent in a generation after interviewing his publicist. “Use theory to help guide data collection,” Christensen advises.

He finds further evidence of his theory in the disruption of the department store by the discount store. “Just as in disk drives and excavators,” he writes, “a few of the leading traditional retailers—notably S. S. Kresge, F. W. Woolworth, and Dayton Hudson—saw the disruptive approach coming and invested early.” In 1962, Kresge (which traces its origins to 1897) opened Kmart; Dayton-Hudson (1902) opened Target; and Woolworth (1879) opened Woolco. Kresge and Dayton-Hudson ran their discount stores as independent organizations; Woolworth ran its discount store in-house. Kmart and Target succeeded; Woolco failed. Christensen presents this story as yet more evidence of an axiom derived from the disk-drive industry: “two models for how to make money cannot peacefully coexist within a single organization.” In the mid-nineteen-nineties, Kmart closed more than two hundred stores, a fact that Christensen does not include in his account of the industry’s history. (Kmart filed for bankruptcy in 2002.) Only in a footnote does he make a vague allusion to Kmart’s troubles—“when this book was being written, Kmart was a crippled company”—and then he dismisses this piece of counter-evidence by fiat: “Kmart’s present competitive struggles are unrelated to Kresge’s strategy in meeting the original disruptive threat of discounting.”

In his discussion of the steel industry, in which he argues that established companies were disrupted by the technology of minimilling (melting down scrap metal to make cheaper, lower-quality sheet metal), Christensen writes that U.S. Steel, founded in 1901, lowered the cost of steel production from “nine labor-hours per ton of steel produced in 1980 to just under three hours per ton in 1991,” which he attributes to the company’s “ferociously attacking the size of its workforce, paring it from more than 93,000 in 1980 to fewer than 23,000 in 1991,” in order to point out that even this accomplishment could not stop the coming disruption. Christensen tends to ignore factors that don’t support his theory. Factors having effects on both production and profitability that Christensen does not mention are that, between 1986 and 1987, twenty-two thousand workers at U.S. Steel did not go to work, as part of a labor action, and that U.S. Steel’s workers are unionized and have been for generations, while minimill manufacturers, with their newer workforces, are generally non-union. Christensen’s logic here seems to be that the industry’s labor arrangements can have played no role in U.S. Steel’s struggles—and are not even worth mentioning—because U.S. Steel’s struggles must be a function of its having failed to build minimills. U.S. Steel’s struggles have been and remain grave, but its failure is by no means a matter of historical record. Today, the largest U.S. producer of steel is—U.S. Steel.

The theory of disruption is meant to be predictive. On March 10, 2000, Christensen launched a $3.8-million Disruptive Growth Fund, which he managed with Neil Eisner, a broker in St. Louis. Christensen drew on his theory to select stocks. Less than a year later, the fund was quietly liquidated: during a stretch of time when the Nasdaq lost fifty per cent of its value, the Disruptive Growth Fund lost sixty-four per cent. In 2007, Christensen toldBusiness Week that “the prediction of the theory would be that Apple won’t succeed with the iPhone,” adding, “History speaks pretty loudly on that.” In its first five years, the iPhone generated a hundred and fifty billion dollars of revenue. In the preface to the 2011 edition of “The Innovator’s Dilemma,” Christensen reports that, since the book’s publication, in 1997, “the theory of disruption continues to yield predictions that are quite accurate.” This is less because people have used his model to make accurate predictions about things that haven’t happened yet than because disruption has been sold as advice, and because much that happened between 1997 and 2011 looks, in retrospect, disruptive. Disruptive innovation can reliably be seen only after the fact. History speaks loudly, apparently, only when you can make it say what you want it to say. The popular incarnation of the theory tends to disavow history altogether. “Predicting the future based on the past is like betting on a football team simply because it won the Super Bowl a decade ago,” Josh Linkner writes in “The Road to Reinvention.” His first principle: “Let go of the past.” It has nothing to tell you. But, unless you already believe in disruption, many of the successes that have been labelled disruptive innovation look like something else, and many of the failures that are often seen to have resulted from failing to embrace disruptive innovation look like bad management.

Christensen has compared the theory of disruptive innovation to a theory of nature: the theory of evolution. But among the many differences between disruption and evolution is that the advocates of disruption have an affinity for circular arguments. If an established company doesn’t disrupt, it will fail, and if it fails it must be because it didn’t disrupt. When a startup fails, that’s a success, since epidemic failure is a hallmark of disruptive innovation. (“Stop being afraid of failure and start embracing it,” the organizers of FailCon, an annual conference, implore, suggesting that, in the era of disruption, innovators face unprecedented challenges. For instance: maybe you made the wrong hires?) When an established company succeeds, that’s only because it hasn’t yet failed. And, when any of these things happen, all of them are only further evidence of disruption.

The handpicked case study, which is Christensen’s method, is a notoriously weak foundation on which to build a theory. But, if the handpicked case study is the approved approach, it would seem that efforts at embracing disruptive innovation are often fatal. Morrison-Knudsen, an engineering and construction firm, got its start in 1905 and helped build more than a hundred and fifty dams all over the world, including the Hoover. Beginning in 1988, a new C.E.O., William Agee, looked to new products and new markets, and, after Bill Clinton’s election, in 1992, bet on mass transit, turning to the construction of both commuter and long-distance train cars through two subsidiaries, MK Transit and MK Rail. These disruptive businesses proved to be a disaster. Morrison-Knudsen announced in 1995 that it had lost three hundred and fifty million dollars, by which point the company had essentially collapsed—not because it didn’t disruptively innovate but because it did. Time, Inc., founded in 1922, auto-disrupted, too. In 1994, the company launched Pathfinder, an early new-media venture, an umbrella Web site for its magazines, at a cost estimated to have exceeded a hundred million dollars; the site was abandoned in 1999. Had Pathfinder been successful, it would have been greeted, retrospectively, as evidence of disruptive innovation. Instead, as one of its producers put it, “it’s like it never existed.”

In the late nineteen-nineties and early two-thousands, the financial-services industry innovated by selling products like subprime mortgages, collateralized debt obligations, and mortgage-backed securities, some to a previously untapped customer base. At the time, Ed Clark was the C.E.O. of Canada’s TD Bank, which traces its roots to 1855. Clark, who earned a Ph.D. in economics at Harvard with a dissertation on public investment in Tanzania, forswore Canada’s version of this disruptive innovation, asset-backed commercial paper. The decision made TD Bank one of the strongest banks in the world. Between 2002 and 2012, TD Bank’s assets increased from $278 billion to $806 billion. Since 2005, TD Bank has opened thirteen hundred branches in the United States, bought Commerce Bank for $8.5 billion, in 2008, and adopted the motto “America’s Most Convenient Bank.” With the money it earned by expanding its traditional banking services—almost four billion dollars a year during the height of the financial crisis, according to the Canadian business reporter Howard Green—it set about marketing itself as the bank with the longest hours, the best teller services, and free dog biscuits.

When the financial-services industry disruptively innovated, it led to a global financial crisis. Like the bursting of the dot-com bubble, the meltdown didn’t dim the fervor for disruption; instead, it fuelled it, because these products of disruption contributed to the panic on which the theory of disruption thrives.

Disruptive innovation as an explanation for how change happens is everywhere. Ideas that come from business schools are exceptionally well marketed. Faith in disruption is the best illustration, and the worst case, of a larger historical transformation having to do with secularization, and what happens when the invisible hand replaces the hand of God as explanation and justification. Innovation and disruption are ideas that originated in the arena of business but which have since been applied to arenas whose values and goals are remote from the values and goals of business. People aren’t disk drives. Public schools, colleges and universities, churches, museums, and many hospitals, all of which have been subjected to disruptive innovation, have revenues and expenses and infrastructures, but they aren’t industries in the same way that manufacturers of hard-disk drives or truck engines or drygoods are industries. Journalism isn’t an industry in that sense, either.

Doctors have obligations to their patients, teachers to their students, pastors to their congregations, curators to the public, and journalists to their readers—obligations that lie outside the realm of earnings, and are fundamentally different from the obligations that a business executive has to employees, partners, and investors. Historically, institutions like museums, hospitals, schools, and universities have been supported by patronage, donations made by individuals or funding from church or state. The press has generally supported itself by charging subscribers and selling advertising. (Underwriting by corporations and foundations is a funding source of more recent vintage.) Charging for admission, membership, subscriptions and, for some, earning profits are similarities these institutions have with businesses. Still, that doesn’t make them industries, which turn things into commodities and sell them for gain.

In “The Innovative University,” written with Henry J. Eyring, who used to work at the Monitor Group, a consulting firm co-founded by Michael Porter, Christensen subjected Harvard, a college founded by seventeenth-century theocrats, to his case-study analysis. “Studying the university’s history,” Christensen and Eyring wrote, “will allow us to move beyond the forlorn language of crisis to hopeful and practical strategies for success.” On the basis of this research, Christensen and Eyring’s recommendations for the disruption of the modern university include a “mix of face-to-face and online learning.” The publication of “The Innovative University,” in 2011, contributed to a frenzy for Massive Open Online Courses, or moocs, at colleges and universities across the country, including a collaboration between Harvard and M.I.T., which was announced in May of 2012. Shortly afterward, the University of Virginia’s panicked board of trustees attempted to fire the president, charging her with jeopardizing the institution’s future by failing to disruptively innovate with sufficient speed; the vice-chair of the board forwarded to the chair a Times column written by David Brooks, “The Campus Tsunami,” in which he cited Christensen.

Christensen and Eyring’s recommendation of a “mix of face-to-face and online learning” was drawn from an investigation that involves a wildly misguided attempt to apply standards of instruction in the twenty-first century to standards of instruction in the seventeenth. One table in the book, titled “Harvard’s Initial DNA, 1636-1707,” looks like this:

Christensen and Eyring also urge universities to establish “heavyweight innovation teams”: Christensen thinks that R. & D. departments housed within a business and accountable to its executives are structurally unable to innovate disruptively—they are preoccupied with pleasing existing customers through incremental improvement. Christensen argues, for instance, that if Digital Equipment Corporation, which was doing very well making minicomputers in the nineteen-sixties and seventies, had founded, in the eighties, a separate company at another location to develop the personal computer, it might have triumphed. The logic of disruptive innovation is the logic of the startup: establish a team of innovators, set a whiteboard under a blue sky, and never ask them to make a profit, because there needs to be a wall of separation between the people whose job is to come up with the best, smartest, and most creative and important ideas and the people whose job is to make money by selling stuff. Interestingly, a similar principle has existed, for more than a century, in the press. The “heavyweight innovation team”? That’s what journalists used to call the “newsroom.”In 2014, there were twenty-one thousand students at Harvard. In 1640, there were thirteen. The first year classes were held, Harvard students and their “nonspecialized faculty” (one young schoolmaster, Nathaniel Eaton), enjoying “small, face-to-face classes” (Eaton’s wife, who fed the students, was accused of putting “goat’s dung in their hasty pudding”) with “high faculty empathy for learners” (Eaton conducted thrashings with a stick of walnut said to have been “big enough to have killed a horse”), could have paddled together in a single canoe. That doesn’t mean good arguments can’t be made for online education. But there’s nothing factually persuasive in this account of its historical urgency and even inevitability, which relies on a method well outside anything resembling plausible historical analysis.

It’s readily apparent that, in a democracy, the important business interests of institutions like the press might at times conflict with what became known as the “public interest.” That’s why, a very long time ago, newspapers like the Times and magazines like this one established a wall of separation between the editorial side of affairs and the business side. (The metaphor is to the Jeffersonian wall between church and state.) “The wall dividing the newsroom and business side has served The Times well for decades,” according to the Times’ Innovation Report, “allowing one side to focus on readers and the other to focus on advertisers,” as if this had been, all along, simply a matter of office efficiency. But the notion of a wall should be abandoned, according to the report, because it has “hidden costs” that thwart innovation. Earlier this year, the Times tried to recruit, as its new head of audience development, Michael Wertheim, the former head of promotion at the disruptive media outfit Upworthy. Wertheim turned the Times job down, citing its wall as too big an obstacle to disruptive innovation. The recommendation of the Innovation Report is to understand that both sides, editorial and business, share, as their top priority, “Reader Experience,” which can be measured, following Upworthy, in “Attention Minutes.” Vox Media, a digital-media disrupter that is mentioned ten times in the Times report and is included, along with BuzzFeed, in a list of the Times’ strongest competitors (few of which are profitable), called the report “brilliant,” “shockingly good,” and an “insanely clear” explanation of disruption, but expressed the view that there’s no way the Times will implement its recommendations, because “what the report doesn’t mention is the sobering conclusion of Christensen’s research: companies faced with disruptive threats almost never manage to handle them gracefully.”

Disruptive innovation is a theory about why businesses fail. It’s not more than that. It doesn’t explain change. It’s not a law of nature. It’s an artifact of history, an idea, forged in time; it’s the manufacture of a moment of upsetting and edgy uncertainty. Transfixed by change, it’s blind to continuity. It makes a very poor prophet.

The upstarts who work at startups don’t often stay at any one place for very long. (Three out of four startups fail. More than nine out of ten never earn a return.) They work a year here, a few months there—zany hours everywhere. They wear jeans and sneakers and ride scooters and share offices and sprawl on couches like Great Danes. Their coffee machines look like dollhouse-size factories.

They are told that they should be reckless and ruthless. Their investors, if they’re like Josh Linkner, tell them that the world is a terrifying place, moving at a devastating pace. “Today I run a venture capital firm and back the next generation of innovators who are, as I was throughout my earlier career, dead-focused on eating your lunch,” Linkner writes. His job appears to be to convince a generation of people who want to do good and do well to learn, instead, remorselessness. Forget rules, obligations, your conscience, loyalty, a sense of the commonweal. If you start a business and it succeeds, Linkner advises, sell it and take the cash. Don’t look back. Never pause. Disrupt or be disrupted.

But they do pause and they do look back, and they wonder. Meanwhile, they tweet, they post, they tumble in and out of love, they ponder. They send one another sly messages, touching the screens of sleek, soundless machines with a worshipful tenderness. They swap novels: David Foster Wallace, Chimamanda Ngozi Adichie, Zadie Smith. “Steppenwolf” is still available in print, five dollars cheaper as an e-book. He’s a wolf, he’s a man. The rest is unreadable. So, as ever, is the future. 

~ Curated by The Marketing Curator and TME Pass The Idea

Source: http://www.newyorker.com/reporting/2014/06/23/140623fa_fact_lepore?currentPage=all

European Commission points to innovation reforms to sustain economic recovery

New Zealand (at 1.3% GDP  in 2012) well below R&D investment intensity of leading countries

European Commission

Brussels, 10 June 2014

Commission points to innovation reforms to sustain economic recovery

The European Commission has today highlighted the importance of research and innovation (R&I) investments and reforms for economic recovery in the European Union, and made proposals to help EU Member States maximise the impact of their budgets at a time when many countries still face spending constraints. Increasing R&I investment is a proven driver of growth, while improving the efficiency and quality of public R&I spending is also critical if Europe is to maintain or achieve a leading position in many fields of knowledge and key technologies. The Commission has pledged support to Member States in pursuing R&I reforms best suited to their needs, including by providing policy support, world-class data and examples of best practice.

Olli Rehn, Vice-President of the European Commission responsible for Economic and Monetary Affairs and the Euro, said: “The European economic recovery is gathering speed while the pace of fiscal consolidation is slowing down, in line with the EU’s reinforced fiscal framework. Nonetheless, budgetary constraints will remain, which is why.it is more important than ever that Member States target their resources smartly. The EU budget is helping drive growth-enhancing investment in research and innovation and today we are putting forward ideas to help maximise the impact of every euro spent.”

Máire Geoghegan-Quinn, European Commissioner for Research, Innovation and Science, said: “Fostering innovation is widely accepted as the key to competitiveness and better quality of life, especially in Europe where we cannot compete on costs. This is a wake-up call to governments and businesses across the EU. Either we get it right now or we pay the price for years to come.”

The Communication published today highlights three key areas of reform:

  • Improving the quality of strategy development and the policy-making process, bringing together both research and innovation activities, and underpinned by a stable multi-annual budget that strategically focuses resources;

  • Improving the quality of R&I programmes, including through reductions of administrative burdens and more competitive allocating of funding;

  • Improving the quality of public institutions performing research and innovation, including through new partnerships with industry.

The Commission has also called on Member States to prioritise R&I, as public authorities regain margins for growth-enhancing investment. With current R&I spending across the public and private sector worth just over 2% of GDP, the EU remains well behind international competitors like the United States, Japan and South Korea, with China also now very close to overtaking the EU (see graph). Increasing R&I spending to 3% of GDP therefore remains a key target for the EU, but the Communication today shows that improving the quality of public spending in this area is also essential in order to increase the economic impact of investment. The Communication points equally to the need for the EU needs to put in place the right framework conditions to encourage European companies to innovate further.

Public and private R&D intensity in 2012 in the EU and some third countries

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Background

Innovation is central to economic growth and business competitiveness, and is at the heart of the EU’s Europe 2020 strategy. Today’s proposals follow those of the 2014 Country Specific Recommendations where a number of Member States received recommendations to reform their research and innovation policies. The Commission has also issued today a State of the Innovation Union report demonstrating progress against the 34 commitments made and highlighting the need for further efforts.

The EU budget for 2014-20 marks a decisive shift towards R&I and other growth enhancing items, with a 30 % real terms increase in the budget for Horizon 2020, the new EU programme for research and innovation. A further EUR 83 billion is expected to be invested in R&I as well as SMEs through the new European Structural and Investment Funds.

~ Curated by The Marketing Curator and TME Pass The Idea (www.pass-the-idea.com)

Source: http://europa.eu/rapid/press-release_IP-14-646_en.htm

What if customers evaluated your company’s ideas?

Involving Customers in the Innovation Process

Posted by Hutch Carpenter

Jun 10, 2014

At the 2014 HYPE Innovation Managers Forum in Bonn, I hosted a roundtable that looked at Involving Customers in the Innovation Process. There were over a dozen different corporations represented in the discussion. To spur the conversation, I mapped the points for customer involvement as:

  1. What customers want (jobs-to-be-done)
  2. ideas (open innovation)
  3. Feedback on options (collaborative design)

As the roundtable went along, many good points were made on those fronts. And then, an idea out of left field was proposed…

Why not have customers review ideas?

Which proceeded to run havoc with my nice, prepared framework of where customers can be involved. My new flow of customer involvement became something like this:

Customer_involvement_in_innovation_-_different_points

This roundtable itself was a great example of opening your mind to new ideas. I asked the participants their thoughts about this suggestion. Was it scary to contemplate having customers evaluate ideas? Many raised their hands in the affirmative. Which is understandable, any radical idea should feel scary.

But let’s de-scarify this concept. If you were to have customers review your internal ideas, what are the key considerations? Here are five:

  1. Differentiating from focus groups
  2. Profile of right customers to involve
  3. Type of ideas
  4. Ways to engage customers in the evaluation process
  5. What criteria make sense?

Differentiating from focus groups

Focus groups have been used for a long time by companies, especially those in the Consumer Packaged Goods industry. In a focus group, several people are gathered into a room to review prototypes of new products. They’re asked about the features they see, price points, interest in purchasing, etc.

Focus groups are fine for what they are: feedback on an already-selected internal idea. That feedback is valuable, and it’s more aligned with the ‘collaborative design’ activity in the graphic above. But it’s not the same as evaluating ideas, on three counts:

  • It’s after the idea has been selected
  • It tends to be narrowly focused on the features that are seen
  • It’s limited to products

Focus groups are a form of customer evaluation, but it differs from having customers review ideas.

Profile of right customers to involve

Imagine yourself identifying customers you would want to invite to help evaluate ideas. Which ones should you select? Research by professors at UC-Riverside and Dartmouth provides an answer (pdf). Bring your Emergent Customers into the evaluation process.

In their study, the professors defined Emergent Customers as having “the unique capability to imagine or envision how concepts might be developed so that they will be successful in the mainstream marketplace.” In two separate field experiments, they were able to prove that customers with Emergent traits better judged how products would perform in the market. That’d be helpful in the innovation process, right?

Their research identified six traits that define Emergent customers:

Traits_of_Emergent_customers

In assessing customers as potential evaluators, these traits provide guidance for selection criteria.

Types of ideas

An organization will generate many types of ideas. But not every idea necessarily is appropriate for customer evaluations. For example, an internal cost-cutting initiative likely has few ideas that would be shown to customers. Nor would one where employees are asked to challenge orthodoxy, which might air some dirty laundry.

But some types of ideas are obvious candidates for getting customers’ perspectives:

  • Product-related
  • Services
  • Customer service
  • Increasing knowledge about the company’s offerings
  • Pricing bundles

Basically, anything that addresses a job-to-be-done of your customers. If it directly affects their experience, an idea is appropriate for customer evaluations.

Ways to engage customers in the evaluation process

In the roundtable, we discussed the logistics of having customers do the evaluations. In a typical internal process, there are two modes for experts to evaluate ideas. In the team evaluation mode, the experts come together (in the same room, or via conference call) and assess each idea together. In the individual evaluations mode, each expert separately does an evaluation.

Would you have customers in the room for team evaluations? Perhaps. Depends on the ideas, and the comfort of the experts in working closely with customers.

The group of corporate innovation executives at the roundtable advised that a customer evaluation process would be done separately from any evaluations done by internal experts. Two ways to approach this:

  • Customer evaluations happen in parallel to the expert evaluations. This allows decision-makers to have all the information at once.
  • Customer evaluations follow expert evaluations. This focuses customers on only those ideas that have met a threshold of feasibility for the company.

The best way to have customers do the evaluations would seem to be in an interview style. Depending on them to complete a review on their own might be a push, as it can be with internal experts who are on the company payroll!

What criteria make sense?

It would not make sense to have customers evaluate on the more common criteria often used internally by organizations. Internal criteria might include: size of market, technical feasibility, resources required, etc.

Those are not the criteria that matter to customers. And indeed, plugging into customers’ mentality offers fresh ways of thinking about ideas in an outside-in context. Here are some example criteria that would make sense for customer evaluations:

  • How important is the targeted job-to-be-done (of the idea) to me
  • Degree of improvement over the current way I address the job-to-be-done
  • How much would the idea change my desire to use the company/product/service

The criteria for customer evaluations should differ from what is used for internal reviews. Although, arguably, even internal evaluations should incorporate elements of jobs-to-be-done. But customers are generally going to be better positioned to assess based on..what they themselves value.

Just make sure you’re bringing Emergent Customers into the evaluation process.


Once you break it down, the concept of having customers review internal ideas seems less far-fetched than it does initially. If the idea catches your curiosity, give it a try on limited, low key basis. See how customers both (i) react to the invitation; and (ii) assess the ideas.

~ Curated by The Marketing Curator and TME Pass The Idea (www.pass-the-idea.com)

Source: http://blog.hypeinnovation.com/would-if-customers-evaluated-your-company’s-ideas