Preparing for the class I teach with Alladi Venkatesh on Design and Innovation Management, I’ve been reading the Henry Dreyfuss classic, Designing for People, published in 1955. From the thirties to the sixties, he designed everything from flyswatters and tractors to airplane cabins and touchtone phones.

One thing that really struck me was the similarity between the things he was imagining in the fifties and the contents of the file I keep on innovation today. Textiles that light up? He designed curtains using tiny medical device lights for a night club in the forties. Cars with automated parking systems? His drawings were there in the fifties.

What was even more striking, however, was how much things have NOT changed in more than 50 years: washing machines, ovens, urban crowding, traffic, gas-guzzling cars. In fact, his photos of relaxed air travel then (complete with comfy sofas and curtained beds) make you long for those good old days.

So while computers and phones are delivering on his promises, most things are not. The differences, I think, are in the inertia that attaches to any established business. Detroit was doing quite well, thank you, with gas-guzzlers so until this year there was no incentive to change. Ditto for washing machines that waste more water than most people use in a week.

It’s not really ideas we lack—it’s the will to buck the system and create much better solutions. It’s been too easy over the last century to forget what architect Daniel Burnham advised: Make no little plans.

Sunday’s New York Times had an article by G. Pascal Zachary titled “Inside Nairobi, The Next Palo Alto”.  The author points out that most technological innovation is created either in wealthy countries or in China and India.  Yet, the rest of the world may be seeking solutions that comprehend their unique constraints.  For example, despite lack access to high speed internet, frequent power failures, political instability and no university training on the latest programming languages, there are aspiring entrepreneurs in Nairobi writing programs for the new iPhone (which is not even available in the country yet so they use iPhone software simulators). 

In many developing countries such as Kenya, there are few wired phone lines or personal computers so; mobile phones have become an indispensable communication and computing platform.  G. Pascal Zachary’s article share the fact that in Kenya four times as many people have cell phones than have bank accounts and, text messages have become much more important than e-mail.  This has led to the availability of very low cost mobile phones with limited functionality from major manufacturers specifically designed for these markets.  Clearly, local programmers are brought up in an environment of limited bandwidth and memory which results in their developing “tight” or “light” applications.  Now, Google is opening a development office there which may lead to Nairobi becoming a center for technologies targeted toward emerging economies. 

I’m sure that for many of you, this talk of developing software in an environment of limited computing resources brings back “old” memories (dating all the way back to the 1980’s and earlier…before the concept of “bloatware” ever existed).  It seemed like it took exceptional skills and an intimate understanding of the underlying platform for programmers to architect and develop robust solutions in those days.  I won’t bore you with lots of examples from “those days”…but, I will just mention a couple to make the point about sparking innovation. 

BMC Software, which is now a $1.7B firm, began in the early 80’s when John Moores addressed the issue of limited communications bandwidth in the U.S. for the transmissions between central mainframe computers and remote CRT terminals.  His software solution to the bandwidth problem significantly enhanced the productivity of his customer’s personnel and launched a firm that became known for its software innovation.  In an even earlier time…there was the challenge of landing a human on the moon.  Up until the Apollo missions all computations for flights at NASA had been performed on analog computers.  So, MIT and Raytheon develop the Apollo Guidance Computer (ACG) which was the first significant use beyond the military for rudimentary, rare, very expensive integrated circuits.  This scarcity of computing power led the all the hardware and software innovations which were required to produce a small and reliable onboard computer for the space program.  It is amazing today to think that the ACG only had 36K of storage (rope core memory where each 1 or 0 was manually wrapped with a wire and magnetic donut – no room for errors in the code back then) and 2K of random access memory which was enough to safely land a man on the moon and return to earth. 

What can we take away from these or other examples of innovations that were born in an environment of scarcity?  Is there current opportunity for firms to challenge their product development groups to create innovative ways to solve problems by constraining the underlying platform or components?  Could this lead to innovations for meeting the needs of emerging and/or developed countries?  What could be the opportunity gained by opening small product development labs in less developed countries such as what Google is doing?

The above titled article in today’s Wall Street Journal was prompted by Dow’s announcement that is purchasing Rohm & Hass for a 74% premium over yesterday’s closing price.  This brings me back to my last blog post on business transformation.  In it, I outlined two existing models for business innovation which are either a “primarily skill leveraging approach” or, a “primarily skill acquiring approach”.  (As a side note, it is interesting to note that Dow’s 2007 annual report had one word on the cover…”transforming”.)

The skill acquiring model is driven by a top down, management team and usually tied to a real sense of urgency for entering a completely new business and developing new core competencies quickly.  This strategic move by Dow is a good example of a skill acquiring model of innovation.  In this case, Dow needs to move rapidly from being primarily a provider of commodity chemicals, which is rapidly facing increasing competition from the Middle East, to higher margin, specialty chemicals.  Even Rolm & Hass itself evolved through both organic growth driven by a rich heritage of innovation (acrylic and small molecule chemistry for a wide variety of products) as well as through acquisitions and mergers.  Rolm & Hass decided to accelerate its own specialty chemical diversification into electronic chemicals by purchasing Shipley Co., Rodel and LeaRonal, Inc. during the 90’s.  In 1999, Rolm & Hass merged with Morton to once again expand its product and skill portfolio. 

Dow’s strategy is somewhat reminiscent of the evolution of another chemical company.  Monsanto had been primarily a chemicals company that moved into new markets such as plastics and textiles throughout its early years.  Then the oil embargo of 1973 created an incentive to move to businesses that was less of a commodity and less dependent on the price of oil.  This resulted in senior management establishing a corporate vision to build a new core competency in biotechnology.  Monsanto tried various organizational structures to facilitate this transition which eventually led to forming an executive management committee to lead its evolution from a top down approach.  The Monsanto of today has further refined its focus to where it is now strictly an agricultural company that helps farmers succeed “using the tools of modern biology”.

Innovation efforts that are variations or extensions of the current theme are best accomplished by current business units and, dedicated new business groups are often appropriate for related diversification.  But, a corporate vision that requires a complete restructuring of a business, that must be accomplished quickly and does not leverage internal competencies, can be more successful if driven a senior, corporate management team.  This brings up the need for a firm to develop a simple yet powerful vision for business innovation that is grounded in its core competencies, corporate strategy and its culture.  I will leave this discussion of the successful use of the “vision thing” in strategic business innovation for an upcoming blog post.

A recent article in Forbes titled “Transform Your Company For Growth” by Scott D. Anthony and Kevin Bolen of Innosight does a great job in describing the potential as well as the challenges in creating sweeping changes to an enterprise.  Most corporate leader would like to know the untold secrets of how a Nokia evolved from a lumber mill to the leader in cell phones or, how Google grew from a search technology firm to a leader in advertising.  The authors outline five lessons that executives can employ when seeking transformational growth ("DeLTA, for dedicated resources, lead opportunities, tools and enablers and appropriate mindsets”).

I would add to this discussion a framework of how firms can think about operationalizing transformational change which is driven by a firm’s existing core competencies in comparison with the skill requirements implied by its strategic vision.  The framework is comprised of two models which are either a “primarily skill leveraging approach” or, a “primarily skill acquiring approach”, which drive divergent implications for new business development. 

The skill leveraging model is dependent on creatively applying existing core skills and technologies to build new business units by strengthening a core competence (“edge out” or “reach out” innovation).  Versus the skill acquiring model which is focused on building new core competencies (“break out” innovation). These skill models will strongly influence decisions related to the best approach for organizational structure, roles and responsibilities, internal processes and corporate style. 

A skill leveraging approach is often organized around a multitude of “bottoms up”, interdisciplinary teams which propose new ideas for approval and funding.  This approach recognizes and supports the fact that it takes time to develop completely new businesses internally.  Successful firms which employ this model have an entrepreneurial culture which is difficult to organically develop overnight.  This environment includes adequate resources, free time to experiment as well as freedom to fail and a degree of autonomy.  There is also a flexible new business development process which includes multiple sources of funding, various internal communication forums, fluid teams and active senior management sponsors. 

Now, the skill acquiring model differs in that it is likely driven by a top down, management team that sets the course and overall process.  It includes few operating managers as it is based on a formal process to identify new opportunities from outside of the current business. Often, this approach is tied to a real sense of urgency for entering a completely new business and developing new core competencies quickly.  Obviously, the success of this model is tied to a clear senior management vision for new business and innovation.  This method is not as appropriate if the goal is to simply create add-ons to existing businesses (there is too much organizational conflict if a headquarters business development group is independently trying to acquire add-on firms for existing, operating groups that would rather drive their own businesses). 

Hopefully, these two models will add another point of view to thinking about how to create “edge-out”, “reach-out” or “break-out” innovation within an organization…and, the implications that each drive related to organizational structure and management style.

Last month the Wall Street Journal ran an article titled “Campbell’s Chief Looks for Splash of Innovation”.  The article was an interview with Douglas Conant, CEO of Campbell Soup Co. in which he discussed Campbell’s recent successes in innovation (e.g. reduced sodium soup).  But, Mr. Conant also stated that “this year we lost the innovation war in soup” (he was referring to General Mill’s Progresso light soups tied to Weight Watchers points).  Now, some of us may be asking the question of whether incremental product improvement fit with what constitutes “innovation”. 

Has “innovation” gotten to the same broad usage as other famously overused terms such as “solutions” to where it has lost its core meaning?  Would it help the discussion about innovation to add further granularity to the term?  Like the popular example about the word “snow” (whether in native Inuit Eskimo or any other languages people refer to “wet snow”, “power snow”, “fresh snow”…well you get the idea)…do we need more than one word or phrase to describe the concept of innovation? 

I like the idea of leveraging a descriptive taxonomy for differentiating various types of innovation that was used in the computer industry.  This model is useful when viewing the innovation challenge from a particular company’s business development challenge.  Or, you could also use this vocabulary to describe new developments from an overall industry view. 

Conceptually, my interpretation of this framework illustrates potential commercialization approaches based on two factors.  One of those factors is the degree to which a firm has the proven, internal skills required to successful develop and bring to market a planned new offering.  The other factor is to what degree this new product or service is improving on a firm’s existing well understood offering or, whether it is bringing to market a completely new offering that addresses an emerging or latent customer need.  If you plot the new business development opportunity against these two axis, the farther you get from the current, core business of a firm (or industry) you get…“edge-out”, “reach-out” and “break-out” innovation. 

So, what is the difference between “edge-out”, “reach-out” and “break-out” innovation?  And, how could this help the development of a strategy for pursuing business growth?  To start with “edge-out” innovation, I would put the Campbell soup example into this category.  It is adding incremental functionality to a well-know offering.  And, Campbell is using internally, well established product development, manufacturing, and go-to-market skills.

I would characterize “reach out” innovation as adding significant new functionality either to a well known offering or to a completely new product or service for a firm.  And, the commercialization of this product can be accomplished using internal skills but, they are deployed in a significantly new configuration.

I view “break out” innovation as bringing to market a completely new product or service (potentially leveraging a disruptive technology) which requires new skills in order commercialize what is internally unfamiliar technology, processes and markets.  

Now, back to my earlier question of how this taxonomy can assist in the development of a strategy for pursuing business growth.  Well this framework obviously hinges on the ability of a firm to leverage its available skills or, whether the company will need to acquire significantly new skills.  These distinct skill models will directly influence decisions related to the best approach for organizational structure, roles and responsibilities, internal processes and corporate style.  I will lay out some of the potential implications in an upcoming post.  In the mean time, let me know your ideas on how to better define what constitutes “innovation”.

Over the last few years, functional MRI testing has given researchers the ability to see inside the brain in real time. Now, according to this month’s Scientific American Mind, researchers at the National Institutes of Health have used jazz pianists to show that improvisation generates activity in the medial prefrontal cortex—the same area that lights up when people are storytelling.

It’s the first scientific evidence that backs what I’ve seen in practice and explored in my thesis: telling stories excites more and better creative ideas than working from facts or tasks. In fact, when you start with a story about personal creativity, people in brainstorming sessions generate more than twice as many ideas.

It also explains why charismatic leaders with visionary stories about change can inspire even huge corporations—those stories turn on the creativity in every person who hears them. Perhaps companies that want innovation throughout the ranks should invest more in finding and telling the right stories.

“The customer is the company.  Threadless churns out dozens of new items a month – with no advertising, no professional designers, no sales force, and no retail distribution. And it has never produced a flop.”

The above title and quote is from the current Inc. Magazine cover article.  The article profiles Treadless, a $30 million business with 30% profit margins, which is built around a social network where users are central to idea generation, marketing and sales forecasting.  Threadless could be viewed as a poster child for the concept of “user innovation” as defined by MIT’s Eric von Hippel or “crowdsourcing” as coined by Jeff Howe in a June 2006 Wired magazine article about istockphoto (http://www.wired.com/wired/archive/14.06/crowds.html) (For more on Jeff Howe’s views on crowdsourcing, visit his blog and view excerpts from his book at http://crowdsourcing.typepad.com/cs/). 

One element that makes the Treadless story so interesting is the fact that the founders evolved a onetime design contest into powerful business model without comprehending how unique it was at the time.  This is especially interesting given the fact that Treadless is not in the software or electronic media business where “open sourcing” is commonly thought to be leveraged.  The founder was quoted about his successful model as “I think of it as common sense.  Why wouldn’t you want to make the products that people want you to make?”

The Inc. Magazine article integrates a number of thoughts from Eric von Hippel where he envisions a day when firms move away from traditional R&D to where users drive product definition.  He observes that today most businesses employ an iterative process of market research testing and product redefinition which can end up being inefficient.  And, von Hipplel notes that many firms are better at collecting customer input than they are at productively exploiting it.  I’ll suggest that this view of a day where product ideation is driven by “user innovation” is more likely to be applicable for one end of the innovation spectrum than for all types of business innovation. 

Professor Michael Tushman of the Harvard Business School describes an innovation framework with customers on one axis (existing, new) and technology on the other axis (incremental, architectural, competence-destroying/ discontinuities).  Incremental improvements in both product definitions as well as go-to-market models which address existing customers could obviously benefit from the appropriate deployment of “user innovation”.  But, a crowdsourcing approach to product definition could be much less successful in identifying and driving discontinuities within an industry.  We used to view this as the difference between “edge-out” and possibly “reach-out” innovation versus “break-out” innovation.  I will further explore these three types of innovation and how they are best attained in a future post.

If you would like to read more about firms that have effectively used the concept of crowdsourcing (in addition to exploring the Jeff Howe links mentioned above), also take a look at the list of firm on the Wikipedia entry at http://en.wikipedia.org/wiki/Crowdsourcing.

So, where does business innovation come from?  (I’m not proposing the question of “who” within an organization; rather the business enablers that are the likely sources of innovation.)

One model that I found useful in my thinking about how firms create strategic innovation suggests that it most often arises from:

• Well developed and keener customer insights which provide early identification of unmet or latent customer needs
• Flexible and integrated business systems which provide ways of reconfiguring the value chain to achieve lower costs and/or better service
• Superior access to research and development resources that can make available new (or applied in a better manner) technology which dramatically improve product or service performance

The above basis for innovation aligns with my April 15th blog post where I shared my perspective that business innovation is much more than “home run” product ideation and includes to go-to-market innovations and leading edge value chain improvements.  Organizations with one or more of these competencies will obviously increase their opportunities for innovation versus their competitors.  A firm can then improve the success and sustainability of their innovation efforts through the implementation of a defined, continual process of generating, screening and implementing many new ideas.  This process should outline general guidelines for each of the phases of new business development.  These phases move from being loosely controlled in the initial step to being tightly controlled during the later stage and address:

1. Idea generation (continual scan for new business ideas)
2. Idea screening and concept evaluation (identify a winning value proposition)
3. Business plan development (develop detailed, viable business plans)
4. Commercialization (implement an operational plan through varied approaches which might include internal development, acquisition, license, joint venture, alliance, etc.)

Coming up soon, I will outline of two very different operational approaches for how firms are implementing their corporate visions for strategic innovation.

I just returned from the World Innovation Forum in New York, where hundreds of business people and academics gathered to hear the experts in the field. MacArthur Genius Award winner Amory Lovins told us how to reduce reliance on oil through eliminating waste in our engineering (oddly enough, research sponsored by big oil companies). Business guru Gary Hamel explained why innovation has become the mantra of every business trying to survive in a global economy. Andy Cohen escaped from a straight jacket faster than Houdini to tell us how to escape from our own thinking traps.

The most fascinating insights, however, came from Daniel Pink, author of A Whole New Mind. According to Pink, for the last century, the world rewarded analytical skills. If you could make it through any professional school—law, medicine, business, engineering—you had a ticket to the upper middle class. Today, any knowledge that can go into a spread sheet will migrate to the huge masses of educated people around the world who are willing to analyze data for a fraction of the salaries we command here. 

Value today, he demonstrates, will only come from people who can see the bigger picture and anticipate the future. The analytical skills taught in graduate schools and executive courses today are necessary, but not sufficient.

At Merage, I see this new focus: learning the soft skills to manage virtual teams, hands-on innovation projects in design classes with Alladi Venkatesh and strategy classes with Leonard Lane, plus the latest stories from real innovators in the Edge class. Across the whole curriculum, innovation is an increasingly important part of all we teach, so that we’re creating the leaders of tomorrow.

Lynda Lawrence is an innovation consultant with Ideaworks Consulting. She teaches Strategic Innovation and Design Management at the Merage School at UCI, and is an advisor to the Beall Center.
 

But, what really caught my eye is David’s list of the six traits that effective marketing innovations share.  His stated traits come from the perspective of solving real customer needs bases on creative research and meeting a sustainable business case.  I encourage you to view the details on his blog post.  I will pick up on this theme of “the genesis of business innovation in my next article.”

Mike Mata is a member of the Advisory Board for the UCI Don Beall Center for Entrepreneurship and Innovation.