It’s been a super exciting week speaking to leadership teams at start-ups, corporates, challenger consultancies, and pioneering innovation consultancies on how to build ‘bullet-proof’ businesses for the future, combining mindset, values, and 'fire-in-the-belly' mission and purpose to unlock sustainable revenue growth and innovation for some of the world’s most admired brands. These meetings have proven to be highly provocative, discussing industry and organisational value curves, how to differentiate with breakthrough ventures, mindsets, values and ways of working. One beer at a time.
Reflecting on the past week, I found myself writing about some of these learnings following discussions with leadership teams at various companies, large and small. From big global powerhouses to small start-ups who in their own rights have disrupted the health and wellbeing space by creating consumer-centric propositions that link 'low involvement' categories to high engagement activities such as video games (think Fortnight) and bundled propositions linked to an app where users are rewarded with points that can be redeemed across a broad footprint of fun categories. Over dinner with the co-founder of a super exciting start-up in the fintech/ welltech space, we discussed the many exciting links that this brand was building to meditation apps like Calm, biking and walking apps, air miles and even high street health food stores. These innovations have made ’shopping’ certain categories so much more enjoyable for consumers.
I pitched a business case to the top 40 most senior execs in a financial services company in 2005 using a well-known company as a benchmark (they operate in a different geography) who use interesting lifestyle measures for calibrating risk and in so doing, the price of a particular insurance product, where behaviours (i.e. gym membership and number of swipes per week) improve prediction accuracy. After all, a 50 year old male customer who goes to the gym 6 times a week, sleeps on average 8 hours a day and eats at Itsu most days of the week is, on average, far healthier than a Greggs buyer who eats pies and spends 5 days a week in the pub.
This is the future, although to be fair, the proposition was pioneered by a first-mover company in South Africa over a decade ago although unfortunately on this particular occasion the leadership team were in the wrong ‘mindset’ for real innovation, thinking more in terms of product bells and whistles than the customer value prop and experience/ offering in its broadest sense. This was before Pay Pal, Facebook and start-ups in the way we know them to be now. The business killed the idea. And someone else ran with it. I met with that someone else this week, and somehow it brought things full circle.
‘Moving fast and breaking things' in the words of Mark Zuckerberg, is what makes the difference between following the herd and innovating. I don't believe you need to break. So for me, it's 'move fast and build things or create things. Even they need correction too. #onlyhuman
In the case of big companies and corporates, prioritisation of resources is often used as an excuse when in actual fact mindset and appetite for risk, coupled with values and ability to execute on experiments and prototypes, is often lacking, particularly those where the leadership is stuck in a regional office and so far removed from the pulse that they themselves are an imminent life risk.
A few years back, working with the CEO of an iconic global beer brand on a project to develop a profitable revenue growth strategy that included building tools and capabilities for innovation in the relentlessly bloody lager category, to mitigate against smaller players in Craft and non-alcoholic categories, this particular CEO told me that they were considering appointing millennial's to the board in an effort to 'down-age' the decision-making dynamic and bring relevance into the innovation and 'future-proofing' practices in the business. Increasingly, innovation is not just a 'hopper' or a funnel outside the existing business - often in a lovely offsite location with plushy water features and momentary meditations on how to ideate and generate 500 concepts in 3 days only to have them die on the page in the workshop room when the executives head back to their day jobs, having been patted on the back by their fellow herd.
Over a beer last night with a super bright pioneer in the industry, he used the term Silicon Valley 'half-life' which I loved. This refers to the time it takes for executives and leadership teams to slip back into their 'day jobs' after returning from an accelerator or incubated environment where they create and test products with real customers, only to get drawn into their usual mindset and behaviours in the first week of being back in 'business-as-usual', having spent a bucket load of cash to have some fun and make one another feel great, but without having moved the needle in terms of mindset, culture and ways of working.
In another example, working with the European Revenue Growth leadership team of the world's largest beverage company to develop pan European capabilities in pricing, promotions and portfolio innovation, the challenge was set to build sustainable revenue growth platforms and ways of working at their centre of excellence in London before rolling these playbooks out to individual markets across Western Europe and Scandinavia, the brief was to help mitigate risk and create new opportunities across a number of dimensions.
Firstly, on product strategy, price and consumer promotions, and secondly, to innovate across channels, creating uncontested space for portfolios in new markets and distribution channels. Innovation therefore, goes beyond a simple tweak to product or offering.
Whether you're an individual, a large corporate or even a start-up, if you want to innovate and thrive in today's massively uncertain yet singularly abundant times, you need to be considering wholesale mindset and business model transformations. In the digital age, if you want to innovate, you need to do so from the foundations of the business. Values, mission, culture and mindset are precursors for successful innovation and winning, particularly in today’s ‘exponentially’ changing world. Then comes product, process, channel and a range of iterations in innovation that include packaging, price, promotions, the list of variables for innovation and differentiation are endless. If you want to innovate, learn these 8 rules:
The 'Rules For Innovation' and building breakthrough ventures in wildly uncertain times:
Rule 1: Innovation is never a single event
We tend to think of innovation as arising from a single brilliant flash of insight, but the truth is that it is a drawn out process involving the discovery of an insight, the engineering a solution and then the transformation of an industry or field. That’s almost never achieved by one person or even within one organisation.
Rule 2: Innovation Is Combination (outside-in thinking)
The reason that Fleming was unable to bring Penicillin to market was that, as a biologist, he lacked many of the requisite skills and critically, networked alliance of fellow agitators with whom co-creation is a shared vision. It wasn’t until a decade later that two chemists, Howard Florey and Ernst Boris Chain, picked up the problem and were able to synthesize penicillin. Even then, it took people with additional expertise in fermentation and manufacturing to turn it into the miracle cure we know today.
This isn’t the exception, but the norm. Darwin’s theory of natural selection borrowed ideas from Thomas Malthus, an economist and Charles Lyell, a geologist. Watson and Crick’s discovery of DNA was not achieved by simply ploughing away at the lab, but by incorporating discoveries in biology, chemistry and x-ray diffraction to inform their model building.
Great innovation almost never occurs within one field of expertise but is almost invariably the product of synthesis across domains.
Ketchup's modern revolution began in 1991 in a small precision-moulding shop wedged between a scrapyard and a saloon on the south side of Midland, Mich. The key prop in the dingy scene was a moulding press that was meant to turn injections of liquid silicone into flexible, one-piece precision valves.
It wasn't working quite right, however. Paul Brown, the shop's stocky, bull-headed owner, spent his days sitting before the press on a four-legged stool, chain-smoking and rethinking the valve's design.
"I would pretend I was silicone and, if I was injected into a mould, what I would do," recalled Brown, a computer-phobic, intuition-guided shop technician.
His vision was a dispensing valve for a new kind of shampoo bottle that would be storable upside down on, say, a tub's edge. The valve had to open easily when squeezed and shut securely when the squeezing stopped. No drips, no leaks ever. He was right. The customer bought in. Eventually, so did baby food-maker Gerber, which uses a version of the valve in its sippy cup. So did NASA when it needed a leak-proof drinking-water system for space-walking astronauts. So did shampoo and cosmetics makers. Years later, so did Heinz and Hunt's, Heinz's main competitor, for their top-down ketchup bottles.
Rule 3: First, Ask The Right Questions
Too often, we treat innovation as a monolith, as if every problem was the same, but that’s clearly not the case. In laboratories and factory floors, universities and coffee shops, or even over a beer after work, people are sussing out better ways to do things. There is no monopoly on creative thought. Curiosity and what Carol Dweck coined as the ‘growth’ mindset, coupled with Eric Rees’s Lean start-up methodology of ‘build-test-learn-iterate’ allows founders and entrepreneurs with the right mindset to try and fail and try and fail and try and fail until they get it right.
The process for failing fast can be significantly improved by asking the right framing questions upfront. What is innovation? How should we go about innovation? Should we hand it over to the guys with white lab coats or teams working in accelerators/ incubators, or perhaps an external partner? A specialist in the field? Crowdsource it? What we need is a clear set of foundations to begin with, supported by a framework, as opposed to building a hopper or funnel supported by an unwieldy gate process. In my experience, the starting point is with mindset, values, culture, and this begins with the top team. There’s no point building a greenfield operation in an incubated environment without giving consideration to how this fits into the broader corporate mission and strategy (and business as usual)
A great analogy from talk's this week, provided by a Lead Inventor at one of the most renowned innovation consultancies I have known for the last 20 years, is that the incubators or accelerators are much like the SWAT team or special forces in the army. Unless there is a clear plan of how they will work to support - and inspire - the broader business, the end outcome could be disastrous. In my personal experience working in a project with a leading insurance company, I was fired up and super excited to work within this unit although not much thought had been given to how this would be perceived by the rest of the business, and how propositions and products would be integrated into business-as-usual. We ideated around 576 products and experiences (or value props) over the course of 3 days although the leadership had not given much thought on how to ‘execute’ on this within the existing business. The ‘pioneering’ team were left miffed and demotivated, and at the end of the project became disillusioned when there was no place to go back to in the business. The project team became dismantled. Mindset, dealing with failure and learning through experimentation, culture, values and a pioneering ethos needs to infect the whole, and not just parts, of the organisation.
The Harvard Business Review provides a simple matrix for the best way to start, facilitated by asking the right questions:
(1) How well is the problem defined? and (2) How well is the domain defined? Once you’ve asked those framing questions, you can start defining a sensible way to approach the problem using the innovation matrix.
Clearly, no one method will work. Look at any great innovator, whether it is Apple, Amazon or Y Combinator, and you’ll find a portfolio of strategies. So the first step toward solving a difficult problem is asking the questions you need to define your approach. To paraphrase Voltaire, if you need to solve a problem, first define your terms.
Rule 4: There Is No "Right" Size For Innovation
When most people think about innovation, they think about startups. And certainly, new firms like Uber, Airbnb and Alibaba can transform markets. But others such as IBM, Procter and Gamble and 3M have managed to remain market leaders for decades, even as competitors rise up to challenge them and then, when technology and markets shift, disappear just as quickly into oblivion.
While it’s true that small, agile firms can move fast, larger enterprises have the luxury of going slow and creating ‘moats’. They have loyal customers and operate in a world of singularly abundant resources. They can see past corners and spot hot trends using data and insights gleaned from their research teams; these players invest for the long run. There’s a big difference between capitalising on the next big thing and developing sustainable, scalable revenue growth, generation after generation. The later is becoming increasingly difficult to do, whether you’re a software company, a magic circle law firm or a mom and pop grocery store. The digital landscape is creating exponential change.
Rule 5: Leverage Open Innovation To ‘Move and Learn Fast’ through experimentation and testing
When Microsoft launched Kinect for the Xbox in 2010, it quickly became the hottest consumer device ever, selling 8 million units in just the first two months. Almost immediately, hackers began altering its capabilities to do things that Microsoft never intended. Yet instead of asking them to stop, it embraced the hackers, quickly releasing a software development kit to help them along.
Like Microsoft, many firms today are embracing open innovation to expand capabilities. Cisco outfoxed Lucent not by developing technology internally, but by smartly acquiring startups. Procter & Gamble has found great success with its Connect and Develop program and platforms like Innocentive allow firms to expose thorny problems to a more diverse skill set. As was the case with Alexander Fleming and penicillin, most firms will find that solving their most important problems will require skills and expertise they don’t have. That means that, at some point, you will need to utilise partners and platforms to go beyond your own internal capabilities. Big powerhouse companies are buying smaller, more nimble players at the rate of knots in order to become more able to deliver on a broad range of needs as determined by the ‘new world’.
Rule 6: Disruptive Innovations Require New Business Models
When Chester Carlson perfected his invention in 1938, he tried to market it to more than 20 companies, but had no takers. It was simply far too expensive for the market. Finally, in 1946, Joe Wilson, President of the Haloid Company, came up with the idea of leasing the machines instead of selling them outright. The idea was a rousing success and in 1948 the firm changed its name to Xerox.
The tricky thing about disruptive innovations is that they rarely fit into existing business models and so the value they create isn’t immediately clear. Kodak made money by selling film, so was slow to adopt the digital cameras that the company had itself invented. Yahoo’s business was focused on keeping users on its site, so passed on the chance to acquire Google.
It’s not just products that we have to innovate, but business models as well. In the age of design thinking and data driven customer-centricity, we’ve seen models such as Deliveroo and Ocado disrupt existing ‘bricks-and-mortar’ businesses leading to a decade of change and erosion on the high streets of New York and London. A change in consumer buying behaviours necessitates radical shifts in how we plan for tomorrow. Future-proofing your business means considering all the options, having an open mind, experimenting and following the fox. A brand owner cannot just leave the supermarket and set up direct-to-consumer business models. This won’t be very wise. So we build prioritisation frameworks for portfolio’s and channels to focus which offers to grow, maintain and re-stage, and critically where.
Rule 7: Innovate The Core - The 70/20/10 Rule
In the consumer goods industry, where past NPD’s have resulted in large tails, bets need to be made on which products (or sku’s) and portfolio’s to make prioritise. There’s increased complexity in the form of ranging and assortment by size and types of stores i.e. large Walmart with the car park and boot space vs small format Albert Heijn stores in Amsterdam, frequented by mostly cyclists who only have a bike basket and cannot bulk buy large packs of Coke, but smart companies realise that the bulk of their profits will come from current lines of business and therefore need to navigate the complexity with frameworks and methodologies. At Fifth P, our super bright teams of engineers and MBA’s helped us write an algorithm to do just this. But it all began with mindsets, vision and values.
Take Google for example. Yes, it pursues radical innovation, like self-driving cars but its continual improvement of its core search business is what made it the world’s most valuable company. That’s why Google, as well as many other innovative companies, follow the 70/20/10 rule.
The premise of the rule is simple. Focus 70% of your resources in improving existing technology (i.e. search), 20% toward adjacent markets (i.e. Gmail, Google Drive, etc.) and 10% on completely new markets (i.e. self-driving cars).
source: Merhdad Baghai, Stephen Coley, and David White
Rule 8: In The Digital Age, Ecosystems and Collaboration Create Powerful Sources of Growth and Competitive Advantage
Not long ago, it was difficult to collaborate with someone in Johannesburg or Sydney from Ho Chi Min City. Today, however, we can use platforms to access ecosystems of technology, talent and information.
In a networked world, the surest path to success is not acquiring and controlling assets, but accelerated learning through deep and wide connections, rapid experimentation/ prototyping and collaboration.
Thanks to smart phones and the internet of things, data and knowledge has been democratised. A teenager with a smartphone in Lisbon today has greater access to information than President Reagan did in office in the 80’s.
This is why collaboration itself is becoming a the new source of strategic competitive advantage. Big corporates are acquiring smaller companies where they themselves find it difficult to innovate or create capabilities required for winning in today’s era.
From a human perspective, innovation goes far beyond research labs, Silicon Valley pitch meetings and large corporate accelerators. The little entrepreneur selling her wares in Nigeria speaking at a TEDx event can complement Sapiens in indescribable ways. Trends become movements. Followers become tribes.
''We rise by lifting others'' - Robert Ingersoll
Written by Andrew Soteriou
Inspired by:
My awesome alliance of collaborators and agitators!
Perfectly Imperfect - Baron Baptise (for allowing me to committ my mind's thoughts and to 'let go' without re-reading the article with the eyes of a pedant!)
Lean Start-Up, Eric Rees
Greg Satell, Mapping Innovation
Harvard Business Review
Forbes
Ketchup is better with upside-down, bigger bottle, Frank Greve
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