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Friday, December 23, 2011

Innovation in Technology and its Challenges

Innovation is one of the latest buzz-words in the business world. And, there is a lot of debate in academia about what innovation is. Is it any invention? Is it anything new? Do x number of people have to buy the new "thing" before it is considered innovation? Is a new feature added to an existing product an innovation? Is any new product or service innovation? And on and on...the debate continues. The problem is that the academics spend most of their time and energy on discussing what innovation is and not enough on how to innovate. And, the people who are innovating are not usually discussing it.

Innovation is very contextual subject. In the business world, most of the times, innovation is related to revenue growth. For this article, innovation is new revenue creation with commercialization of new high-technologies or finding applications of existing high-technologies. Furthermore, this article is based on a recent talk I gave at the Santa Fe Institute business network event on innovation. 

Imagine the CEO of your company calls you and says that you have to create significant new revenue i.e. it can not be incremental revenue from an existing business, in the next x years. The 'x' varies with the industry. Where do you begin (when you are doing a startup, you have some idea what you are going to do)? Well, the first thing to do is to study (re-study) the organization. This will help you better understand the core-competencies (CC) of the organization today (vs. what they were few years ago) and to see what are the opportunities currently not addressed by the organization. [If you are new to the organization then the most important thing to understand would be the culture of the organization. The culture is like the soil, just like what crop you can grow depends on the soil, what new products you can produce in an organization depends on the culture of the organization.] Given that knowledge, look at the undeniable mega-trends and/or customer needs/problems. Understanding customer needs is tricky especially in the consumer world (vs B2B world). People don't know what they need and can't always articulate what they need. So, understanding of human behavior greatly helps with understanding of customer needs/problems and how the humans may use the technology you are developing. Then, find where the mega trends/customer needs intersect with how technology is evolving (and what are the technology disruption possibilities) and then think about where you can expand the CC. The expansion of CC helps with addressing more opportunities and with creating a competitive advantage.  This expansion requires good judgment and is a risk and it does take time. Usually, longer than you think. The following slide may visualize the concept.

These intersections will give you many opportunities to investigate. However, you can not do everything. The second thing to do would be to develop a filter for these opportunities i.e. which ones to investigate further. The filter includes the organization's culture and risk appetite, your budget, product life cycles, etc. This filter should be converted to a shared vision across the organization because if people don't see you and what you are doing as part of the organization then they will reject you and what your produce. 

Another approach is leading by technology i.e. develop new technologies and find the use for it later on. This is commonly referred as "solution looking for a problem". A lot of big things happen with this approach. For example, the Internet, electricity, phones, etc. However, chances of success with this approach are lower compared to the customer need focused approach and it takes a lot of time and money for these "solutions" to find "problems". Furthermore, usually people who make money with the technology-led approach are different than the ones who came up with the technology.

Coming back to the customer-led innovation, we have identified filtered areas of investigation, let's dig deeper into how we create new things. There are three ways which have worked for me:

1. BRC (Break the Rubik's Cube): Take what technologies exist in the market and combine them in a new way to create a new product. Just like breaking multiple Rubik's cubes and creating a cube with one color.  The whole is new but the parts are not.
Rubik Cube 1

Rubik Cube... n

New Cube

This is not an elegant way of doing things and usually engineers don't like this approach because it is not original. It is easier, does not require a lot of money, is faster to test new ideas. It works! Innovation is not about winning a Nobel Prize. 

A good example of this approach would be the first iPhone. It combined many existing technologies (multi-touch user interface, visual voicemail, 620 MHz micro-processor, 16GB storage, 120MB Memory, etc.). These technologies existed in the world in different places. Apple combined them in a unique way to create a Smartphone user-experience which was far better than anything that was in the market at the time. Another example is the laptop which basically took a lot of existing parts from the desktop computer and created new product. Microsoft Kinect is another very good example of BRC.  It is a spatial gesture sensing device that combines RGB camera, depth sensor, microphone array, etc. to create a new input mechanism for the Microsoft XBox gaming console. Kinect sold 8M units in the first 60 days of its release and is considered the fastest selling consumer electronics device.

2. CPE (Copy Paste Edit): Take a technology from a different industry, adapt it to fit into your product and voila you have a new product.

High-Tech industry is full of CPE products. Camera phones are a good example. Take cameras from the Consumer Electronics and adapt them to fit into a mobile phone. Now a days, you probably can not find a phone without a camera. The use of motor and displays in various products in different industries always fascinates me. I have a motor in my shaving razor. There are display screens on the back of airplane seats and car seats. There are gyroscopes in Smartphones. Before we used CPE to bring gyroscopes to the phones, they were used in satellites and aeroplanes.

It is rather difficult to maintain a competitive advantage with CPE because they are easier to copy. However, you can find ways to sustain the competitive advantage by creating a better user experience and continue doing CPE faster than others.

If you look closely, a lot of innovation we see falls under BRC and CPE. 

3. IRM (Inverted Rogers Model): Everett Rogers, one of my heros, developed a model for adoption of innovations i.e. how people adopt innovations. The model outlines five attributes of innovations that decide if and how widely the innovation would be adopted. You can see the model here. These five attributes of innovations are:

1. Relative Advantage (relative to what exists in the market today)
2. Interoperability (backward and forward to what exists and what will exist)
3. Simplicity (to use and to communicate)
4. Trialability (ease and expense of trying the innovation before buying it)
5. Observability (by others who are currently not using the innovation)

We can invert the Rogers model and design products which have the five attributes of innovation. It is difficult to know if anyone designed products with these attributes in mind. However, you can look at anything widely adopted and you will see these products have high degree of these attributes. I have lead product developed in some of my jobs and have designed successful products using IRM. You can also look at something new and predict how widely it would be adopted. See an example here. The example is about Apple TV and a lot has changed since the article was written four years ago. However, you will get the idea re applying Rogers Model.

Now we know what to investigate, what are the boundaries, and how to investigate. To execute on these concepts, there is a simple four-prong approach. See: 

1. Technology Feasibility: Can we actually create a new product using BRC/CPE/IRM that is within the boundary conditions. Does the new product work as expected? Can we source all the parts?

2. Market Feasibility: Is the market ready? Can you meet the price points? Is the value chain ready? Can we influence the ecosystem?

A lot of times the markets are not ready when the technologies are ready.

Both Technology and Market Feasibilities can be done in parallel or in reverse order.

3. Prototype Development: Create a low-cost prototype what showcases the core value your product is going to provide. Usually, you learn a lot of new things during the prototype development and multiple iterations of prototypes are required before it is functional.

Life is relatively easier for consumer software companies where you can release a working prototype as a product and continue making refinements based on customer feedback. I think Gmail was in beta (prototype) for years. Things are more difficult when hardware is present in the innovation. 

4. Customer Validation: This mainly applies to the B2B world. It is usually a good idea to design products with your customer's customer needs in mind in the B2B world. Hopefully, you have been talking to your customer during technology/market feasibility and prototype development. However, now is the time to get commitment. The customers usually have no risk in telling you to try making something new and they are interested. Things may change when they have to commit with money. Sometimes it is a good idea to have a lead customer to go to market with.

Again, everything we have discussed so far is contextual. If you are launching an App in iTunes store, you may not have to do any of the things we discussed. Or, in pharmaceuticals, where you are developing new drugs, BRC/CPE/IRM may not work.

To summarize, innovation is trial and error. However,  applying the techniques we just discussed we can reduce the risk of losing a lot of money and increase our chances of success.

Somehow there is a perception that innovation is cool and sexy. Conceptually, yes! Good results, yes! Getting to results, no! It is a very messy business.

While innovating over the last few years, I faced the following challenges (and I still don't have the answers): 

1. How do you measure progress?: For a running business, there are well established metrics to see how the business is doing. Revenue, bookings, COGS, etc. However, while innovating, you can only point to milestones which may show you progress but it maybe progress on a path that leads to nothing. If you are running the innovation business, you may know that you are making progress but it is hard to communicate to your peers and to your management. That is why trust from organization is necessary to do any innovation in a big company.

Whatever metrics you have developed to measure progress, are they stimulating thinking or are they replacing thinking? In a running business they usually replace thinking. Usually, people are happy or upset with results and do not spend enough time understanding why the results are the way they are.

Is there a quantitative way to measure progress in innovation?

2. What is the right team?: Given the complexity of the products today, growth/innovation may not be possible without an effective team. How do you build an effective team from scratch? You can build a team with highly specialized individuals or generalists. Of course, it is easier to say that have both specialized individuals and generalists but pragmatically finding these people, hiring them, making them work together is a big challenge. Furthermore, since we are dealing with the unknown it may not be possible to know what the right mix is.  When building a new team, you also have to think about the balance between people from the organization you are part of and people from outside the organization. 

The most important thing is chemistry. You can hire the geniuses and if they can't work together, no successful innovation will come out of the effort. 

How do you know what the right team would be before the team is there? 

3. Can you move the ecosystem faster?: This depends on the organization's position in the ecosystem. Given the techniques, BRC/CPE/IRM, we discussed re innovation, most likely, you would depend on co-operation with other companies to go to market with your new product. For example, Verizon (a wireless carrier in the US) may not be able to launch a new exclusive Smartphone without co-operation with a  Smartphone OEM like Motorola or HTC. And, the OEMs can not launch a product without co-operation from its suppliers like nVidia, ADI, etc, and so on. Another good example is my previous start-up, Mjedi, where to execute on the simple idea that when you go shopping, the items you like get posted on Facebook, I had to align various groups within retailers-online sales, offline sales, marketing, IT, logistics, advertising agencies, etc. Aligning these various entities takes a lot of time. They have different sales cycles, mindsets, business processes, etc. There is a debate about how the new value created should be distributed. However, there is no way around it. And, by the time everyone is aligned, you may lose the relative advantage your innovation is providing. Of course, there are exceptions like Apple and Disney which command heavy influence over the entire ecosystem because of their market position. I am curious to see how long this influence will last. 

Is there a way to move the ecosystem faster? 

4. Can you deliver on the vision with high-complexity of execution?: When you have been innovating for some time, sooner or later you develop a vision re how you want the new product to look, feel, behave, etc. At the same time, there are deadlines, budgets, and global teams.  Life in the corporate world is full of compromises. You have to be paranoid about delivering on your vision. It is much easier to make compromises and keep people happy. People's bonuses depend on delivering on-time and under-budget. So, if there is a deviation from your vision and you have to spend more money to fix the unexpected problems which also results in missing deadlines, and you are not willing to make any compromises to the product then you are going to upset a lot of people because they will miss their bonuses. If you make one compromise, the other very small compromises are made for you by the team. So, no-compromise is a good policy. The challenge becomes delivering on your vision without alienating people. 

Is it possible to deliver on your vision and keep everyone happy? 

5. How do you get the timing right?: This is really hard. There are many examples of companies which launched revolutionary products when the market was not ready.  You are working on something that does not exist yet so it is difficult to know if the world is ready to accept it. Apple is considered an innovation leader today. Here is list of twelve major failures Apple had mainly because their products came out when the markets were not ready. Most likely, Apple's success today has something to do with learnings from these failures and doing it better the next time. Failure is inevitable in innovation.  Take another example LED lights. Practical LEDs have been around since 1960s and their overall market share of lighting is still ~10%. Figuring out the market size of something that does not exist is another problem. In early 1980s Mckinsey, a management consulting firm, famously forecasted that by year 2000, the global market for mobile phones would be 900,000. In the year 2000, there were 400,000,000+ mobile phones globally and today there are 5,400,000,000+ mobile phones in the world.  It is difficult to predict how your innovation would evolve and usually market-size predictions don't take into account the evolution of the product. 

And then there is the problem of when do you give up, let's say you have been following a disciplined approach to innovation and things usually take longer than you anticipate and cost more than you think, do you continue forever? You create prototypes and the feedback requires you to spend a lot more money to make modifications and that risks recouping the investments. What do you do? It is hard to tell your engineers that something they worked day and night for a year is not going to go to market because now the business case does not make sense. Ideally, you can keep the Intellectual Property [IP] you have development in some kind of library which is available for future use. However, that usually does not result in anything fruitful because of organization dynamics. 

How do know that the market is ready for your innovation? 

6: Are you slave to your thinking?: What you do depends on what you think. How do you think? For most people, it comes from memory. And, memory is the result of the past. So, all thinking is based on the past. How can you create new things with old thinking? Can you really see things objectively without the past influencing what you are seeing? I recently took a workshop on paining and I learned the concept of negative space. The artists know how we don't have the ability to see objectively and the negative space helps with that. It is the space around the subject of your painting. When you are looking at something (subject) and painting it, you are not painting what you are seeing, you are painting an image of the subject from your head. To overcome that, the artists paint the areas around the subject and the unpainted space left on the canvas is the subject. This gives a much more realistic image of the subject. It works because the shapes around the subject are new to the mind and it can not invoke memory to see the shapes it wants to see it. 

How do you think objectively? 

Despite all the challenges, risks, low probability of success, it is a lot of fun to create new things. Innovation makes the world progress.