Innovation challenges

Observing the Innovators Dilemma

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In 1997 Clayton Christensen published The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail.  The book (which we highly recommend) proposed an intriguing explanation as to why large companies with seemingly unlimited resources can fail to see their own demise in the emergence of disruptive technologies.  One oft cited example of this phenomenon is the demise of Kodak who not only failed to see the importance of digital photography on their core film business but in fact were the ones who invented digital photography in the first place.  The purpose of this post is not to discuss Christensen’s work however but instead to cast our eyes over some industries and see if we can spot companies who might well be in the midst of an innovators dilemma as we type.

In order to identify where an innovators dilemma might lie we need to quickly describe the required conditions for its occurrence.  A very common approach, and one used by Christensen, is to describe the situation using innovation S-curves as below.

A:  A new technology in its infancy.  Performance improvements are hard to generate as the innovation is becoming understood.  Generally, innovations at this point are only used by very early adopters and the value of the product offering may be limited.  B:  Rates of performance advances are peaking, rapidly catching up to incumbent technology. The technology becomes commonplace and even the industry standard.  New competitor technologies look hobbyist or misaligned.  C:  The technology matures, performance advances are harder to generate as the limitations of the technology are found.  Most people who might use the technology are doing so.  New competitor technologies seem to have higher potential and are gaining acceptance.  D:  The technology fades.  People stop using the technology and choose others.  A new technology becomes the industry standard.  The Dilemma Zone:  Technology A is well understood, the industry standard and an integral part of the business model of those employing it.  The profitability of the technology is peaking.  Technology B looks very promising even to the point where it is the odds on favorite to be the future of the industry; the only question is exactly when.

So, with this set of conditions in mind we will go hunting for some modern dilemmas in the businesses of today.  Kodak followed the red S curve to their well-publicized regret, who might be next?

Dilemma #1, HBO:  HBO are having a great run at the moment, their internally created content such as Game of Thrones and Boardwalk Empire have generated huge returns for their parent company Time Warner.  HBO is one of the most well known and entrenched premium cable channels in the world and its exclusive offerings are an important part of the business model of cable providers such as Verizon and DirecTV.  So where is the dilemma? Well, Game of Thrones Season II has been downloaded illegally about 25 million times over the year1 and HBO know why; there is no other way to get it apart from subscribing to a full cable service.  HBO could provide downloads through their own site or through iTunes or another vendor but (at least for season 2) chose to take the money i.e. maintained the high premiums from the cable providers at the expense of the pirated copies.  Financially this makes sense today but long term HBO may not always have such a gem as Game of Thrones with which to negotiate (or even define) the process of streaming its content on demand.

Dilemma #2, Big Pharma:  Big Pharma is REALLY big and is based primarily on a model that is around as old as your granny.  Two pillars, small molecule chemistry and blockbuster “one size fits all” treatments are what has driven the growth of this industry since the early 20th century but that is coming to an end.  Biotechnology in its many forms is most definitely the future of medicine in the 21st century.  A scan of where the breakthrough patents are being generated in the field and you can see the majority are coming out of small Biotechs and Universities not the massive health laboratories of the S&P 500.  The problem is that small molecule chemistry (what Big Pharma is great at) is not Biotechnology any more than plumbing is interpretive dance.  The initiative needed to transition the capabilities of say, a Pfizer (100,000+ employees2), to a new science is immense, perhaps too immense.  Coupled with this is a reality that Biotechnology tends to make very targeted drugs, limiting the opportunity for another “everyone gets a pill” Lipitor or Prosac, a model that Big Pharma now relies on.  So the dilemma is set, Big Pharma must re-skill, and possibly re-size, but to do it now or to hold on for just one more blockbuster?

Dilemma #3, Microsoft Office:  Microsoft itself is arguably in the middle of an innovators dilemma but I thought I would pose the case for one of its most profitable jewels, Office being very much in the middle of a technology revolution itself.  Office is everywhere, you can’t do business without the ability to open and edit Word, Excel and PowerPoint documents and this has ensured that the Office suite has remained the standard install for companies worldwide for many years.  The knock-on effect of Office being the choice of your company is that you are far more likely to install it on your home PC as well, and why learn two different systems?  So where is the dilemma?  Well, Microsoft knows that it won’t be long before the idea of having to boot up a desktop or notebook to balance the household budget or write your resume will be gone.  People will expect to run their households from their tablets and phones while sitting on their sofa not hiding away in the home office.  So, Office for tablets?  Where is it?  The problem is that fully functioning office products are complex, far more complex that we are used to dealing with on tablets and phones.  Microsoft’s choices seem to be a) cut back on the functionality (losing their technical advantage), b) teach us a new way of interacting (losing the synergy with the company office) or c) lose the home space all together.  You might be thinking that you would still be tied into the Office suite simply because even if you change your home tablet away from Office, other people will still send you Word documents. The simple fact however, is that file type is almost irrelevant these days. Download a free service like Open Office and you will see it is quite capable of opening Word docs and even saving them in Word format so on Monday morning your company PC will be compatible with your weekends endeavor.

1         http://www.forbes.com/sites/andygreenberg/2012/05/09/hbos-game-of-thrones-on-track-to-be-crowned-most-pirated-show-of-2012/

2         www.morningstar.com

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Osmotic Innovation is Moving Past #Sandy

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Nothing like a super-storm to slow down innovation. Here at Osmotic Innovation we’re doing our best to catch-up and will be back with you shortly. In the meantime, you should spend some time learning about Jugaad Innovation and its principle of frugal innovation.


In the wake of #Sandy, we’ve all been reminded that sometimes you’ve got to make do with less. Jugaad Innovation tells the story of how some people don’t just adjust to that reality, they thrive.

Here’s My Innovation, So Call Me, Maybe?

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Hey, I just met you, And this is crazy, But here’s my number, So call me, maybe?

The era of Open Innovation appears to require any successful company delivering goods or services, particularly to the consumer segment, to find a way to utilize external ideas in their product development process – or to at least make an effort to appear to do so. The successes supposedly generated through Open Innovation (OI) are touted to customers, suppliers, potential partners, and even investors on the Street. Many companies go so far as to brand their OI to have it stand out further. (see Connect & Develop as one prominent example of branded OI)

One particularly big out-growth of OI is programs that seek to involve the wisdom of the crowd or to open firms up to ideas from individuals, rather than companies, outside the firm. This component of OI (let’s just call it Crowd Sourcing) requires a high degree of trust on the part of the collaborating partners – often small companies or individual inventors hoping that the company will respect their invention, work with them, and pay for their effort. This translates to large amounts of time spent by the companies evaluating ideas, providing feedback, and chasing imperfect leads so that the contributor feels valued and receives the desired follow-up call and feedback.

Too often this part of the process of OI is white-washed by the press and enthusiastic consultants looking to help you build your own system. The promise that every company can have its own ‘Connect & Develop” (P&G’s prototypical model of how to run an OI system) seems irresistible. To the press it’s a great story that connects with the everyman – ‘you too could get rich off your ideas!’ – but should the Osmotic Innovator put time into Crowd Sourcing or are external sourcing efforts better focused in other ways?

The Problems with Crowd Sourcing

–         Technical Literacy: While it’s true, as Chesborough and many others argue, that the smartest people in the world don’t work inside your company that doesn’t mean that everyone is positioned to equally understand your business model, supply chain, and regulatory pressure. This means that a large volume of the ideas you’ll see from Crowd Sourcing ignore basic realities of the business you’re actually in or are obvious incremental developments with low value to the organization. Getting a real insight or connection you haven’t seen already if you’re running an efficient OI program is rare!

–         Information Overload: The next problem with Crowd Sourcing is that once the gates are open and you start advertizing your willingness to pay for ideas you’ll be sorting through significant volumes of requests – trying to give each contributor an answer or feedback can become a job of its own, one with little return on the investment besides from a PR standpoint.

–         Exposing Your Achilles Heel: Once you’ve created your Crowd Sourcing program in order to cut back on the noise and obvious ideas you can always put out specific technical challenges to properly direct those seeking to work with you. The balance that needs to be considered with this is that the more detail you provide on the real issues you are facing, the better the feedback, but the more your competitors can come to understand your weaknesses and potentially exploit them.

The Benefits of Crowd Sourcing

–         The Door is Open: There’s a well-known saying that begins, “when opportunity knocks . . .” that is very apt for a Crowd Sourcing program. Simply having the Crowd Sourcing program in place makes it easier for real opportunities to find you, perhaps before they find your competitor. A main point to having the Crowd Sourcing component of your OI program might well be argued to be as an advertising program for your R&D department.

–         Wisdom of the Crowd: If you’ve ever watched the hit game show ‘Millionaire’ you know that having the crowd on your side can be a huge help. A volume of research also exists to prove that crowds do have a particular ‘wisdom’ that can direct decision making appropriately. Interfacing with the outside world has the benefit of allowing your innovation program to leverage the crowd.

–         Perception: Its been mentioned briefly before, but it deserves its own mention – simply having a Crowd Sourcing as part of your OI program is visible proof to the market that you’re a modern company fully taking advantage of current thinking on innovation and R&D. As well, small and medium sized companies can see the Crowd Sourcing program as proof that your company is equipped to work with them.

It’s fairly obvious that there are downsides to running a Crowd Sourcing component of your innovation program, particularly the resource needed to fairly and appropriately respond to ideas. However, the author tends to find the arguments in favor of Crowd Sourcing to be compelling. In the modern R&D world, no company can expect to go it alone without extremely deep moats. Even with that kind of protection ignoring outside innovation and opportunity is a dangerous game. Having a Crowd Sourcing program, and advertizing its successes no matter how small, is invaluable in communicating with the outside world that you are truly open for business and innovation. The next time someone gives you their number be sure to pick up the phone, and call them, maybe.

The Forest: A Perfect New Conference Room?

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Is the traditional conference room really a good place to hold an innovation session? Are creativity, energy, and involvement from participants predicated on where the event takes place? In this post I will show you how it really is all about “Location, Location, Location” – a phrase realtors often use in explaining how the value of a home can increase or decrease drastically depending upon where it is.

Many times when planning an innovation session, a lot of attention is given to the structure of the events, schedule for the day, and participants. There are lots of ideas all over the internet and available from consultants on what events to include and their proper implementation. However, when it comes time to find a location, typically a conference room within either the company or some hotel is booked and no more thought is given – the task is done.

Although many hotel conference rooms are convenient due to their catering, climate control, and familiar corporate setting (think large well lit room with table and chairs around it) they still fall short of being an ideal venue for holding an innovation event for the following reasons. First, they keep participants within a familiar surrounding enabling it easy to remain in the corporate mindset. Because of this, participants tend to check emails, talk to colleagues about projects, and in general not be as completely immersed as they should be in the creative process. Secondly, people equate conference rooms with long tiring meetings, and so innovation sessions can unfortunately fall victim rather easily to this psychological association. Overcoming this requires numerous breaks throughout the day to keep peoples attention span at peak performance and hopefully prevent them from fatigue. This takes valuable time away from actual ideation and can become a factor which limits the number of activities that can be done in the allotted time span. Lastly, nothing beyond ideation effectively happens outside the planned events. If you want little extra bonuses like team building or people getting to know each other better, they would have to be built into the events in some way – and even then it is not completely effective. This also takes time away from the main goal of generating new ideas and tends to make it seem as though the team bonding aspect is in some way forced.

So then if the traditional conference room is ineffective, what are some good alternatives? Here is where creativity on the part of the session planner is required. Take some time to choose completely different and non traditional locations. Try to think of places that would either be challenging to the senses or elicit an emotionally uncomfortable environmental response. Off the top of my head, some suggestions may be using an abandoned building, going deep in an underground cave, or ideate while on different rides at an amusement park. Going even further, why not consider renting out an empty space and transforming it into the surface of the moon or some distant planet. Why not be innovative in the construction and planning the innovation event? Recently, Osmotic Innovation was made aware of a large global company within the NJ/NY area that took participants out into the middle of the forest to innovate. No comfy climate controlled conference rooms here – but just imagine the ideas and team building that came from camping overnight while trying to avoid bears and other wildlife! As I am sure most Social Psychologists would agree, a highly effective way to brings teams together while simultaneously engaging different parts of the brain would certainly be that of everyone experiencing and overcoming some sort of emotional experience together. Can you visualize how different the environment would be sitting with colleagues in an old abandoned building? What do you think the ominous sounds, musty scents, and graffiti sprayed on the peeling wallpaper would contribute towards forcing participants to forget about work and be in the moment? Imagine the unique and effective events one could plan while in such an environment (taking safety precautions, of course). I don’t know about you, but I know for sure if I were there, checking work emails and worrying about project deadlines would be last on the list!

Therefore, as Osmotic Innovators, lets push ourselves to think of ways to overturn the traditional (cookie cutter type) innovation session and find ways to challenge participants beyond the events by immersing them in new and stimulating environments. Retire the thought of using boring conference rooms and make innovation sessions both an event and experience. Why do we expect participants to provide creative ideas if the innovation sessions themselves are not dynamic? After all, wasn’t it stated that insanity is doing the same thing over and over while expecting different results? Well, the same phrase can certainly be applied to innovation sessions. Push participants even further by removing their comfort zones and you will be amazed at the output and level of engagement you will begin to see in response.

Is IP Stopping Innovation

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Are we poised to enter the post-IP age? Has the concept of the patent or trademark as we know it today been so muddled by modern corporate strategy and greed that it no longer serves the purpose it was originally conceived to support? In reading about the upcoming Apple vs. Samsung patent trial one has to wonder how the consumer or public good is served as these two giants of the tablet and smart phone industry prepare to battle it out over the right to own the market. Rather than focusing on how to make their product substantially better than the competitors they prefer to fight over how to block them from competing. The question is – does this hurt innovation?

Patents have been used to support invention since at least 1474 when they were formalized by a Venetian Statute. Even prior to this they existed as ‘letters patent’ issued by the king or queen to inventors in England or even further back in ancient Greece where inventors of new ‘refinements’ were afforded 1 year of profits. In the US the Congress passed the first patent act in 1790 to ‘promote the progress of useful Arts.’ Over the two subsequent centuries patent law has been refined and altered to more appropriately suit the now global marketplace and economy but many aspects of these legal grants have stayed the same.

Do the same rules make sense in the new, constantly evolving digital economy? After all, the original intent of providing patents was to incentivize disclosure of invention for the public good. Is that still happening? Let’s break down some key characteristics of patent law today to review how this helps or hurts innovation.

 

–         Filing Process: the process of applying for a global patent is a byzantine one, involving multiple organizations and sets of laws. For any company hoping to commercialize and protect a new invention the process can be daunting. Not only does this add cost and time to commercialization (often lots of both) of a new innovation, the differences in the examination and discovery process mean that what is novel in one state could be found ‘not inventive’ in another. By the time the examiners and lawyers are finished amending and shifting the filings what is protected in one region might be unprotected or infringing in another! Additionally, this expensive and time consuming process tilts the scales against individuals and small firms, leaving them essentially out of the process. The very people meant to be protected by the patent system – individuals with great ideas – are excluded unless they can muster significant resources to go through the filing process. The patent system then becomes a game that is played by large firms with the resources to engage in de facto patent war with their competitors!

–         Lifetime: patents last for about 20 years – great news if you can get one, bad news if you come up with a substantial but infringing product improvement 5 years later (or even 15 years later!). In the world of telecom and digital this is several lifetimes but in pharmaceuticals this is just the start for a successful product. The differences in these industries mean that a one-size-fits-all approach is not necessarily the best one. As well, the speed of knowledge improvement has so substantially shifted in the digital era that one has to wonder why any law written to support innovation in the age of the horse and carriage is still being used in the age of the Dreamliner!

–         Infringement Liability: the substantial rewards that might be expected from winning a patent lawsuit have led to the rise of an entirely new industry, patent trolls. These companies or firms buy up patents and use them as leverage to extort payment from other companies. It also encourages opposing firms to face off in court rather than work together. All this time litigating drains firm resources and limits real innovation, while providing a disincentive to making new and innovative products without obtaining firm IP protection. Too often companies look at the ability to create a sustainable IP position as a major factor in developing a new product, rather than looking for the best products. We’ve progressed from twenty patents in a year to thousands – shouldn’t the legal system have changed to allow speedy resolution of these cases in a fair and equitable fashion as well?

It’s obvious the current system isn’t doing much to drive innovation in most industries. Perhaps its time that governments and innovators came together to reform the patent system in a way that lets both companies and consumers win. Imagine if Apple and Samsung were to focus the resources currently tied up in lawyers and patents with creating new products – the consumers and companies might never look back!

In the meantime what does this mean for you, the osmotic innovator? Avoid falling into the trap of worrying about maintaining a defendable position at the expense of the consumer experience of your product. Don’t infringe on others IP but wasting resources unnecessarily protecting short term innovations won’t pay off in the end! And if this post interests you take a look at some previous posts on this blog regarding Enlightened IP Strategy – hopefully you’ll start to see a light at the end of the dark IP tunnel.

Why is Desktop Manufacturing Important for the Osmotic Innovator?

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MakerBot 3D Printer (source: Hack N Mod)

In recent months there have been increasing mentions of the concept of “desktop manufacturing” in both technical and lay press. “Desktop manufacturing” refers to the use of 3D Printing technologies to generate products using designs developed on or delivered to a user’s computer. This revolution has been coming for some time; with Fast Company stating that “the end of the  current production- manufacturing economic model may be on the horizon” back in 2009. In a keynote at the FEI 2012 conference Chris Anderson of Wired magazine spoke on the new business models that these technologies are enabling –enthralling the audience with stories of successful application of the technology. Anderson went so far as to say we are only at the dot-matrix stage of this technology, with massive growth and development poised to occur.

Indeed, increasingly advanced 3D printers and the computer-aided design (CAD) programs that support them are being made available at lower and lower prices to small companies that rent time and capacity to other companies and to individual consumers with the interest.

But why should this topic be important to the Osmotic Innovator?

–         Rapid Prototyping: the ability to quickly turn-around prototype products should not be underestimated. Only 10 years ago prototypes were used sparingly due to cost and time to manufacture, limiting consumer interactions with test concept designs to 2D images and descriptions. Even today many large companies have their own 3D printing capacity to churn out test designs quickly. The 3D printers of tomorrow may be simple enough to allow product developers with no design experience to create and modify innovative new solutions early in the process. It appears inevitable that the 3D printers of tomorrow will be capable of handling multiple materials to create complex mechanical objects. Making efficient use of these systems has the potential to transform the product development process even further.

–         Do-It-Yourself Mentality: the students of today (as well as many of the tinkerers) are beginning to see this technology as a normal part of doing business. Whereas teams that want to have the capability to model and create products on the fly currently need to staff individuals with design competency and engineering backgrounds the skills needed to use these tools are increasingly part of a basic technical education. Workshops that allow creative people to access these tools in their free time are also democratizing the product development process, making it possible that competition (or opportunity) for your company is going to come from unanticipated sources in the future. Your best customers might become your worst competition as they are able to harness this technology to make their own product improvements. Having a strategy to harness this technology and those with the skills appropriately will part of doing business in the future.

–         Future Technologies / Business Models: just as desktop publishing transformed the creation and distribution of printed content innovators should be ready for desktop manufacturing to have a similar impact on the creation, manufacturing, and distribution of new products. How your company will respond to, or position itself within these changes will go far to determining its future.

Regardless of your experiences with desktop manufacturing in the past, it is clear it is a concept that is poised to transform a multitude of industries. As an Osmotic Innovator there are a number of opportunities that can be leveraged to boost your teams’ effectiveness. Are you ready to seize the chance before your competitors do?

The Amen Break & Musical Innovation

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Take a listen to the clip below.

Whether you recognize it or not, you have heard it before. The six-second long break beat, known as the “Amen Break,” is claimed to be one of the most sampled loops in music history. It has appeared in such diverse settings as Oasis’ D’You Know What I Mean, car commercials, and the NWA’s Straight Outta Compton. Some claim its inherent popularity is due to the loop’s waveform aligning with the mathematical Golden Ratio. Regardless of why it is so ubiquitous, the history behind it is a valuable lesson for the innovator.

The Amen Break originally appeared in the song Amen Brother by the Winstons in 1969. The track itself was the B-side to their single Color Me Father, recorded more out of necessity than anything else.  Though the Winstons won a Grammy for Color Me Father, the band had already split up and the record faded from the public eye. It wasn’t until almost twenty years later, with the advent of the sampler and hip-hop, that the Amen Break rose to prominence. The sampler allowed producers to record and loop music to provide backing for a rapper’s performance.  Amen Brother appeared on a compilation album of break beats for easy sampling, and took off from there.

However, while the Amen Break was used considerably in early hip-hop, its influence was even larger in the UK. Producers began to experiment with the break sample; rather than simply looping it, they chopped and layered it to create an entirely new sound. The genres of jungle and drum-and-bass were essentially born of this manipulation, with producers participating in an “arms race” [1] of sorts to see who could do the most with the sample. Sometimes they pushed the envelope too far and made tracks that were impossible to dance to. Though the popularity of these genres waned, the Amen Break continued to live on in countless productions, and has become such an integral part of the modern audio landscape that it’s often taken for granted.

So what can we learn from the Amen Break? I’d say the first thing is never to throw out something just because it isn’t immediately useful. Sometimes it takes a fresh perspective, or new technology, to truly make the most of an idea. Hip-hop artists looking through old funk tracks rediscovered it, and along with the sampler, utilized it to meet their needs. Furthermore, innovation isn’t necessarily coming up with new ideas, but adapting existing ones. Using the same building blocks, producers were able to create completely different tracks. Though there is an entire debate over copyright law pertaining to this sample (that I won’t get into here), the fact is that sampling created entire genres of music through a mere six second loop. And if that’s possible, think of what you can do with even more time and resources.

[1] http://www.economist.com/node/21541707