Innovate – A customer-focused innovation model

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Strategic leaders must not get consumed by the operational and tactical side of their work. They have a duty to find time to shape the future.

– Stephanie S. Mead, CMOE

As the world is changing at an increasing speed, learning and innovation faster than competition is the only long-term sustainable competitive advantage. Innovation is a huge topic with many books written about it, and I have no ambition of covering it in full. That said, in this post I’ll go through an innovation model that ensures you put people first and use digital technology only as the means to improve people’s lives, not the end itself.

Introduction to innovation

Joe Gebbia was out of money, he was unemployed, and the rent just went up. At that moment he heard that a design conference was coming to town, and so he sent the following e-mail to his room mate and best friend Brian:

Innovation0

…and that e-mail gave birth to Airbnb. Joe, co-founder of Airbnb, took the concept of an air mattress and turned it into a rapidly growing company. Founded in 2008, it has since expanded to over 34,000 cities and 190 markets around the world. However, the innovation of this new business model is by no means finalized yet. Airbnb faces many regulatory hurdles and other challenges. Despite this, they are 10 steps ahead of all major hotel chains in capitalizing on the sharing economy, and that in itself the market concludes is worth a company valuation of 25+ bn$.

This links back to the importance of learning. Innovation is all about taking all the learning you gain and translating it into innovation in the marketplace that makes life better for the customer. It’s important to acknowledge that learning and innovating fast is more important than making things perfect from the get go, just like Airbnb’s idea wasn’t perfect with that first e-mail Joe sent. What would have happened if an employee at Hyatt Hotels Corporation, one of the biggest hotel owners in the world, would have sent the idea to their CEO? Would there be an innovation process in place to capture, nurture, test and evaluate it to create a department worth 25+ bn$?

A people-first innovation model

Borrowing inspiration from several innovation models I structure people-first innovation like this:

Innovation1

The principles are:

  • Customer pain point/delight: If we want to start with people, then zooming in on removing a customer pain point or amplifying a customer delight is the way to go
  • Solution: A list of dream solutions that you would like to be able to do, even if you have no clue how to start
  • Digital technology: Consider how digital technology can help make the solutions possible

These are the steps you can take to innovate people-first using digital technology:

1) Define the challenge

If I had an hour to solve a problem I’d spend 55 minutes thinking about the problem and 5 minutes thinking about solutions.

– Albert Einstein

Defining the problem can be hard. That said, if starting with people we recommend that you plot different customer journeys for your industry and consider what the potential pain points and delights are for each step. Let’s assume we are a company that sells sofas. One potential customer journey could look like this:

Innovation2

It’s important to continuously infuse data to ensure that your innovation work is based on real external realities vs only made up internal thinking. In terms of steps in the customer journey you probably want to start your innovation process with the most representative moments that most people encounter, to then move on and innovate around less frequently appearing moments. Then adding one potential pain point and one potential delight per moment in the customer journey:

Innovation3

To further qualify that these pain points and delights are representative you can use your standard various ways of qualifying hypotheses about customers. Two examples:

  • Qualitative: Discussion forums – Throw out questions about each moment in the journey on relevant discussion forums
  • Quantitative: Search trends – Check what people look for when they start to search for things related to the journey you are investigating

2) Generate solutions

Once you have defined the pain points / delights you want to zoom in on it’s time to start dreaming about what solutions you would want to have if anything was possible. This can be done in many ways, but two ways I’ve seen working are:

  • Dedicated time – Working a full day with a diverse team on generating solutions via various exercises is great. Focus is seldom a bad strategy.
  • Idea periods – Asking people to during the coming month zoom in on ideating solutions for a specific challenge. Everyone could have one common shared document where they add ideas they get on the subway, in the shower, and when trying to fall asleep.

What can help fuel the solutions in the direction of how the majority of people actually think and act is a data infusion linked to the challenge. Let’s say we look at the step “Too many options” for “Researching models, colors, material” for sofas, then you can try to identify data points such as:

  • People consider on average 6 different colors when researching a sofa
  • People spend on average 43 days to decide on what model to buy when buying a sofa
  • Less than 10% of people feel secure in their choice of color and model even after they made the decision

Sharing these data points with everyone involved in the solutions creation process will help them understand the reality of what you are creating a solution for instead of projecting only your own subjective thoughts on the challenge. The data points in themselves will also trigger lots of exciting ideas.

Looking at some of the potential solutions for the sofa example:

Innovation4

3) Merge solutions with digital technology

After you have some extraordinary solutions in place it’s time to merge them with digital technology to see which ones you can make work. It helps a lot to have a good understanding of what digital technology is available or about to become available. Ask your tech lead to have such an overview updated for innovation purposes where you continuously add emerging technologies. It could look something like this:

Innovation5

Again if returning to the example of buying a sofa, here is what the initial mapping of technologies could look like:

Innovation6

So a couple of examples of what the innovations could be are:

  • The sofa picker using image recognition, machine learning and automation: This could be a mobile site that asks you to shoot a video in the room where the sofa will be placed, turning 360 degrees. In addition it asks you to take a photo of your five favorite furnitures in your home, whatever they may be. It will then suggest the top-3 options of sofas, and they will make you feel “Wow! It’s amazing how spot on these recommendations are, you just saved me a lot of time!”. These will be sofas that matches the colors in the room, that fits measure-wise and that is the style of your favorite furniture.
  • See exactly what it will look like in advance using VR / AR: If you are a furniture company, instead of sending out a big catalogue, you can simply send out a VR/AR app together with cardboard goggles for your smartphone and have people walking around in their home placing things exactly where they want them so there is no concern about what something actually will look like once they buy it.
A note on solutions: Big ideas are actually often easier to execute than average ideas. Think about it. A bold idea is just more attractive, to resources, capital and talent. People just want to be part of it. An average idea is one where you likely have to do all the work yourself. So when you think about solutions and plans in general, don’t be afraid to make them big.

4) Play out the most promising alternatives

As a next step you need to decide which possible solutions to invest development resources in. Here is an algorithm you can use to get to there:

Score = (A*B + A*C)*D*E

A = Number of people impacted by the innovation.

B = Improvement vs today: This will include judgment as the improvement can be in different areas, e.g. 50% faster/cheaper, 30% better etc.

C = Profit potential per person

D = Feasibility. A number between 0 and 1 that will include a lot of judgment as well but serve well as a direction.

E = Link to mission. This is either 1 or 0, nothing in between. So either your innovation fits with your mission, or the total equation will equal zero.

Let’s take an example linked to the sofas. Let’s say you want to assess whether to develop the “Sofa picker” using image recognition, machine learning and automation, or the virtual reality / augmented reality interface showing exactly what the sofa will look like in your home. The two options could look like the following:

Sofa picker Virtual reality
A Let’s say you sell 100,000 sofas/year and you assume the initial adoption would be 5% based on a qualitative study. This number would be 5,000. Let’s say you sell 100,000 sofas/year and you assume the initial adoption would be 7% based on a qualitative study. This number would be 7,000.
B B = Let’s say people assess this to be 3x as good as looking around themselves, so this number would be 3. B = Let’s say people assess this to be twice as good as trying to picture it themselves, so this number would be 2.
C C= Let’s say you assume that you can charge the corresponding amount of an App in overall extra profit, so 1 $ for the sake of simplicity. C= Let’s say you assume that you can charge the corresponding amount of an App in overall extra profit, so 1 $ for the sake of simplicity.
D D = This is very feasible but requires some development that is not very straightforward, so 0.9. D = This is very feasible as the technology exists today, so 1.
E E = Let’s assume it links to your mission, i.e. 1. E = Let’s assume it links to your mission, i.e. 1.
Result: ((5,000 x 3) + (5,000 x 1)) x 0.9 x 1 = 18,000 ((7,000 x 2) + (7,000 x 1)) x 1 x 1 = 21,000

In this case the two options are very close, and a slight change in assumptions of for example profit could easily tip the result in the other direction. That said, what this type of approach helps with are three things among others:

  1. Sort bad from great – The big differences will be easily spotted.
  2. Contribute to a healthy discussion – The discussion around the different options and the commitment that follows will help a lot.
  3. Continuously refine the evaluation process – If you start with an algorithm instead of just judgmental discussion you can continuously refine and improve your equation. This also prepares you for the introduction of things such as automation of certain parts of your innovation process.

The point is that you don’t have to have a perfect assessment process to get started as the assessment process in itself will either way have to be continuously improved.

People-First Innovation Map

You can use this innovation map to ensure you take an outside-in starting point for innovation in people’s interactions with your industry and business.

Innovation7

Rapid innovation

Great innovators fundamentally challenge the way we think about time. They don’t turn innovation ideas into lengthy projects that may or may not see the light of day. They ask “What would it take?” not “Can it be done?”. So when you think about time, ask what it would take to go from a definition of a challenge to a beta solution that is launched into the market in the same day. Feels scary, right? You might not be able to do it in one day, but just having that as a starting point is going to speed up the innovation process tremendously.

If you want to give it a go to go from challenge to solution in one day you can use what is called rapid innovation, rapid prototyping, or pretotyping. The whole idea of rapid innovation is that dragging innovation out over time isn’t necessarily better. Working intensely with everyone in the room can yield surprisingly amazing results in a short period of time.

If you want to test rapid innovation, this is one format you can use:

Time: One working day

Participants: Partner loop team (key people from every major function, important partners such as agencies, developers that can prototype your ideas live)

Process:

  1. Inspiration: Inspire the group, which can be done in many ways. Host the day in an unexpected location, bring in an inspirational speaker, watch videos of the latest innovation from all around the world. Whatever gets the group going.
  2. Data: Fuel the day with relevant data and insights about real people’s behavior. You could for example start off by pretending to be at an art exhibition where you have framed data points plastered on the walls. Everyone could walk around and just breath in all the great data.
  3. Challenge: Define what you are solving for. Either this has been agreed before the session or you can workshop it in the session. One framework is the pain points and delights of the customer journey as explained earlier in this post.
  4. Teams: Split in teams of three.
  5. Braindump: Do an individual brain dump where everyone writes down all their ideas on pieces of paper or similar. More ideas is better than less at this stage.
  6. Share: Share your ideas in your team of three – Put them up on the wall in your corner and go through them briefly.
  7. Nurture: Pick the best ideas in each group and do a “yes and…” each on each idea, i.e. everyone in the team adds a build on each of the best ideas to make them even stronger.
  8. Share: With full group your best ideas on the wall.
  9. Nurture: Pick the best ideas from the full group and add any builds on them.
  10. Prototype: Create a prototype of the best ideas. It could for example be an App, a website, a video or a concept.
  11. Field: Go out and talk to real people showing them your prototypes to collect feedback.
  12. Regroup: Share back feedback and agree which ideas to launch and who owns what next steps.
  13. Celebrate: Do something really fun together to close the day.

How to make the rapid innovation successful:

  • Be fully present – People are either in or out, nothing in between. You are either there for the full day without your phone or you are not there.
  • Be expansive – Your job is not to kill ideas, but to nurture and grow them. No “but…”, only “yes, and…”.
  • Actionable next steps – Ensure you spend a good portion of time to really discuss and agree on very clear next steps with very clear owners and timings. Otherwise you will lose momentum and the risk of completely dropping the ball and wasting everyone’s time.

Innovation principles

As you take on innovation using the process outlined in this post there are some principles that will increase the likelihood of success. The overall one could be:

Do a little bit of everything and a lot of what works

By having this mindset you are always first on the ball, but you are also first in letting the ball go if it’s not helpful to your business. This mindset will enable you to learn faster than your competitors how to make best use of emerging trends and technology. Here are five more innovation principles to consider:

Have a clear mission – If people in your organization are clear about why they go to work, the innovation will be guided towards a common goal and it will drive motivation. You can read more about the importance of a clear mission here. Sense-check: Would anyone in your organization (including yourself) be able to in 1 min explain why they go to work in the morning in a way that is super motivating to them?

Challenge people – If the brief is You own this area, so you need to execute it well or We can’t wait any longer, we need to figure out how to use programmatic marketing, that is not motivating or challenging. Great innovators would say: You need to become the best person in the world at programmatic marketing, what would it take to get you there? A challenging question can completely alter the perspective of a person and enable them to come up with bigger innovations.

Test-and-learn fast – One of the biggest insights from X, previously known as Google X, is that the earlier ideas are killed the better. Astro Teller who heads up X talks about this in a TED-talk. In this talk he explains how they created a culture and reward system to for every idea always start by trying to solve the hardest part of how to execute the idea first. If they are unable to do so people are encouraged to kill the idea to make space for more promising ideas. The benefits of this are many. First, this enables X to work through a long list of ideas at rapid pace. It also reduces the financial risk as the vast majority of ideas gets killed at infant stage. Finally it ensures that the ideas that do gets through the first phase will have the resources they need and likelihood to be successful. So try to kill your ideas as early as possible by really putting them to the test and rather continue with very few great ideas than trying to make a business of everything. This starts by immediately jumping into trying to solve the hardest part first with every idea. Procrastination has no place in an innovation culture.

Collaborate Take any innovation and consider which ten or so collaboration partners would make it even greater. Innovation is not something that works best in isolation. One example is Bank of America’s partnership with Khan Academy in making people more financially savvy via the site bettermoneyhabits.com. By partnering with Khan Academy, Bank of America gets to tap into Khan Academy’s vast experience of what it takes to create engaging educational content online.

Find a rhythm – To create an innovation culture you need to have some recurrence to your conscious work with innovation. As such, finding the rhythm becomes important. For example, you might have a monthly innovation day and weekly meetings to check in on the development & implementation of what you innovate.

Making innovation everyone’s business

An important thing to ensure you make innovation a competitive advantage is making it a core part of everyone’s work. This is all about making innovation part of daily processes, performance indicators, compensation and budgets.

One great place to start when making innovation part of your core work is looking at how you distribute resources. Follow the money so to speak. What you can do with your overall budgets and employee time is to invest it as follows:

Budget & time split

10% – Innovation trials – Experiments where you don’t know what the outcome will be

20% – Scaled innovation trials – Taking what seems to work from your innovation trials and scaling it to a bigger part of the company/market

70% – Daily business

Some people might ask if it isn’t a lot of risk involved in investing in total 30% of your resources in innovation? That’s more than 1 day per week for every employee. Well, if we agree that the only thing certain is that everything changes, the question is how we want to define risk? We believe that it’s not only risky, but by mathematics bound to fail to not dedicate part of your resources to innovate what you will make money from tomorrow.

When it comes to performance and compensation there are many ways you can stimulate innovation by for example making an innovation KPI part of the bonus criteria and base performance evaluation. Here is a list of food for thought innovation KPIs for you to consider what would work best for your organization:

  • No ideas killed after first qualification test – Very important, ensures that most ideas are killed very early while the financial risk is still low as no ideas should be killed after first round of qualifications, it also ensures that the ideas that passes the first qualification round holds great potential and will have sufficient resources
  • Customer improvement – Measured in different ways pending what the improvement is (save of time/money, better results)
  • Topline revenue generated by new business – To ensure innovation is financially viable
  • Number of ideas during ideation – To prevent default thinking early in the process
  • Time from idea to prototype – Speed of prototyping is critical to ensure innovation stays a competitive advantage
  • % of budget and time invested in innovation – An in-process KPI that ensures you put sufficient focus on innovation

As for the processes, innovation needs to be a standing point on the recurring business review meetings you have, for example your weekly business review. It also needs to be part of whatever overall business scorecard you have.

Organize for innovation – Mutiny as business idea

There is obviously no one-size-fits-all way to organize for innovation. That said, I want to share one way of doing it that you might want to consider unless you already have something working great.

The first thing is to ensure everyone in the organization works with innovation by following the 70/20/10 split of resources recommended in the previous section. That said, for many big organizations creating something truly transformational is close to impossible within existing structures of KPIs, performance evaluations, managing short-term business and the expectations of how to do things. Taking a step back within these structures and saying that we want to do something completely different is very hard and quite often energy-draining for the poor souls that have tried.

Therefore, one very real option for all major organizations is to break out a group of people with the brief to put the main business out of business. Having this freedom will enable them to do extraordinary things. Professor John Kotter, change management guru, answers a question in an interview in the Swedish book To Lead Digital Transformation (translated from Swedish):

Ok, let us play with the thought that you would be CEO of a newspaper publisher. What would you have done when you recognized that the industry was about to change?

[…] To do this I would build up an entirely new parallel organization and let it both find and implement many different solutions. Solutions that will lead the company to new ways of working. Our research results shows that it’s the best way to successfully make a change. There are few companies working in this way today but it’s what I would do if I was the CEO of a newspaper publisher.

There are more and more examples of companies that do this, where one of the pioneers was Google with Google X. Founded in 2010 as a division of Google Inc, it is now called just “X” and operates as a subsidiary of Alphabet Inc.

MTG, Modern Times Group, a Swedish media house that is continuously innovating has created MTG X who in their own words:

MTGx is the digital accelerator of Modern Times Group, and is focused on leveraging MTG’s digital assets and industry leading content portfolio, to create and deliver world class entertainment experiences. MTGx is committed to increasing the development speed of MTG’s digital entertainment services across the world, and provides centralised digital skills and platforms to all of MTG’s businesses. MTGx also works closely with innovation and startup communities around the world to find and develop the entertainment services and products that will drive entertainment in the future.

MTGx is a great example of when someone tries to break out part of the business to act as a sparring partner to the main business. I’m not judging whether they have been successful or not, but they acknowledge that you need to break out of existing structures to gain the space and freedom to disrupt.

At the end of the day, the question is simple: Who would you rather see win – a competitor you own or a competitor you don’t own?

Finally, innovation is hard. It requires effort. It will often fail. However, just because you fall off the bike the first time you try it, doesn’t mean it’s a bad idea to learn how to ride a bike…

Getting started

  • Schedule a monthly innovation day where people are enabled to work on innovation using the People-First Innovation Map
  • Include innovation in the weekly business operations checkpoints with the most important stakeholders
  • Introduce innovation KPIs as performance criteria in your organization
  • Split your budget and time 70/20/10
  • Set aside a part of your company with the freedom to compete with the main business in whatever way they see fit
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