INNOBLOG

We've all heard companies give lip service to the idea that failures — course corrections — must be tolerated in order for innovation to happen. Our feature story this issue highlights the work of Rita Gunther McGrath, co-author of the newly released Discovery-Driven Growth, who asserts that failure must be more than tolerated — it must be welcomed and planned for. McGrath cites Procter & Gamble's A.G. Lafley, who famously has said that unless P&G experiences a certain failure rate from innovation efforts, not enough of innovation is happening, as an example of a good approach to failure. McGrath talks more about how to plan for and manage course corrections in this issue's feature story. Here's an excerpt (full story is here; book excerpt is here):

Q. My understanding from having read the book is that we seem to be synched up in this area of what we're calling “emergent strategy.” We've covered this in Chapter 6 of The Innovator's Guide to Growth, among other places, yet we don't often go into as much detail about how this works as you do. You've taken that one concept and detailed it.

A. Yes, I call that “strategy dynamics” — this idea that when the data doesn't exist, you need to be taking action before you can begin to understand what's going on. The whole strategic planning idea, where you're going to sit there and project out five years — in a lot of today's markets, it's not practical and it's not really going to get you anywhere. So it's the whole concept of you just realizing the right strategy as you go. We call it “discovery-driven” mainly to get the idea across quickly that this isn't about planning, it's about discovering.

Q. Can you give me the capsule description of what discovery-driven growth is?

A. Sure. Discovery-driven growth had its genesis in the recognition that existing planning systems make a lot of assumptions that are just not borne out in highly uncertain situations. So the book is really about ways that you can take strategic action, minimize your risk, and move forward, even without all the data that conventional planning systems assume you have.

Also in this issue is our monthly Disrupt-O-Meter, this one a look at the new OnLive gaming service (full story is here):

The brand-new gaming service OnLive has been surprising and delighting consumers and pundits since it was announced about a month ago. The service proposes a very different and novel way of delivering games — users stream the games over the Internet instead of running them on physically local hardware. In so doing, OnLive challenges the conventional wisdom that the Internet just isn't good enough to stream content like graphically intensive games at high resolutions without perceptible lag. If OnLive can deliver against this ambitious goal it may have substantial disruptive potential.

As always, thanks for reading Strategy & Innovation! Archives are free with registration here.

An interesting article in the Wall Street Journal this Monday raised a provocative question: are we entering a new era where consumer electronics retailers will wrest competitive advantage from consumer electronics manufacturers?

Over the past couple of decades, the balance of power has been squarely in the hands of the manufacturers. Companies like Apple, Sony, Panasonic, LG, and Garmin have largely competed by introducing better performing products.

General retailers like Amazon and Wal-Mart who sell electronics along with other products have done well in this era. The leading U.S. specialist retailer, Best Buy, has also thrived. But other specialty retailers have struggled. For example, Circuit City sought bankruptcy protection late last year and liquidated this year.

Monday's article described how Best Buy's store brand business is booming. For example, the company sells a global-positioning system that has Google search functionality and a digital picture frame that lacks many of the expensive bells and whistles of products made by Philips and Kodak. Best Buy recently reported that sales of products under company-controlled brands like Geek Squad, Insignia and Dynex soared 40 percent in its most recent fiscal year.

Historically, these kinds of efforts struggled as consumers sought status symbols and demanded the latest and greatest set of features.

The success of Best Buy's program could be an early sign that the era of feature- and function-based competition is waning in some categories, opening the door to customization- and cost-based competition.

Read the rest at Scott's Harvard Management blog, Innovation Insights.

A new wireless microsensor that measures oxygen levels in brain could become the basis for tiny devices to help test drugs and other treatments for patients with traumatic brain injury, Alzheimer's and Parkinson's diseases, and other conditions, report scientists from Italy and Ireland who have been working on the technology. In addition to being much smaller than current brain monitoring technologies, the new microsensor gives second-by-second, real-time readings of brain oxygen levels that help provide a better understanding of the brain in health and disease, the researchers say.

Other research by Harvard University Professor George Whitesides has resulted in diagnostics devices made of paper. The result is a disposable, quick, inexpensive test that can check a tiny amount of urine or blood for evidence of infectious diseases or chronic conditions. The finished devices are squares of paper roughly the size of postage stamps. The edge of a square is dipped into a urine sample or pressed against a drop of blood, and the liquid moves through channels into testing wells. Depending on the chemicals present, different reactions occur in the wells, turning the paper blue, red, yellow, or green. A reference key is used to interpret the results. The test could make diagnosis much more effective in undeveloped areas. For example, in order to use the devices in remote locations without medical facilities, the researchers have also begun work on coupling the paper tests with cell phones, so that the results can be photographed, sent to a center, and read by a technician who can send recommendations back via phone.

Image courtesy of Discover magazine.

This post is the last stop on the Post2Post Virtual Book Tour for the book The Designful Company by Martin Neumier, who is also author of The Brand Gap and Zag: The Number One Strategy of High-Performance Brands. I'm glad I had the opportunity to read this book and talk with the author, because I have to admit to some skepticism about the entire design-thinking movement and the effort to make all innovation be about design. However, after reading this book and engaging in the following email dialogue with Marty Neumier, I now understand more about the entire point of design thinking than I did before. It all hinges on how you are defining design and how much latitude can be given to using that broader description to drive corporate innovation.

Here's the interview:

R: Clearly when you talk about “design” as a way of apprehending and seeing the world, you are not talking about the design of room décor. For those not already on the “design thinking” bandwagon (and not already designers), what is the working definition of “design” that makes it appropriate as a system and not an action?


M: In my view, design can be a system, an action, or the outcome of an action. For example, I work in design (the system of thought), I design things (the action), and the results are various designs (the deliverables). I especially like Herbert Simon's definition of a designer. Simon was a Nobel-winning social scientist who helped pioneer artificial intelligence. He said: "Everyone designs who devises courses of action aimed at changing existing situations into preferred ones."

My purpose in writing The Designful Company was to show that the discipline and the activity of design can be applied to more than "posters and toasters," or communications and products. It can also be applied to higher order challenges such as brand-building, decision-making, organizational structure, and management models.

R: You say that you can apply the principles of aesthetics to strategy and organizational change. How can aesthetics work for these things in a prescriptive way, rather than a descriptive — i.e., how can aesthetics be used to drive and guide strategy and organizational change, as opposed to being used to looking backward at those things and assign aesthetic principles to the results after the fact?

M: Nice observation. We normally "ascribe" aesthetic qualities to things we already believe are beautiful, don't we? But that's because most of us don't think like designers. We think like audiences who have little control over our experiences, except the control that comes from choosing. We've become a culture of shoppers. We expect to choose our solutions off the "solutions rack," instead of creating new solutions that weren't there before. When you start "designing" solutions, you bring along the need for aesthetics — concepts like contrast, rhythm, pattern, scale, simplicity, and efficiency — to inform your solutions, instead of noticing them after the fact. You become a maker instead of an audience member.

R: I'm particularly interested in the concepts of simplicity and efficiency. How can these be used to drive innovation at the organizational level?

M: It's easy to be innovative once. Most great businesses are founded on one great innovation. It's much harder to be innovative time and time again. To do that, you need a culture of innovation.

But what happens is that companies start building on their first successful innovation by adding more complexity — extra processes, controls, brand extensions, and so on — to bolster and commercialize what's working. This added complexity makes it more difficult to recreate the conditions that gave rise to the original innovation.

So what they need to do is to break down the silos, the complexity, and the rigid thinking so that they reclaim the simplicity that first allowed them to innovate. They need to become "designful" again.

R: There’s an ongoing debate as to whether a company culture must be innovative in order for the company to be innovative, or whether putting one innovation foot ahead of the other and pushing forward anyway can lead a company to develop an innovation culture. You seem to be in the first group here. Please talk about why you feel it’s important for a company to develop an innovation culture *before* trying to innovate, and talk about how they might go about doing that.

M: I'm actually in the second group. Realistically, a company can't wait until its culture has been fully transformed before starting to innovate. In my book I outline 16 "levers of change" that can be used separately or in concert to move the organization from a spreadsheet-driven company to a design-driven company. Of course, the further along the transformation curve, the easier it is to innovate.

R: I sense a tension in your book between asserting that everyone can be trained in design thinking and that you need real designers to be able to innovate. Are you saying that there’s a class of people who are designers and therefore able to do this, and another set of people who don’t have this talent and therefore are doomed to always need a designer to turn to for creative thinking?

M: No. I've found that most people are already design thinkers — they're just unaware of it. If designing is about changing an existing situation into a preferred one, then we're all designers. The only question is whether we can martial the principles and processes of design to apply them deliberately and effectively.

People don't easily acquire new skills, much less a new way of thinking. So the best way for a company to jumpstart a culture of innovation — at least in my experience — is to build a strong internal brand department that can work across silos to influence the rest of the company. The process starts with hiring the right people.

R: How would you go about training non-designers to think more like designers?

M: I'd use a "branded training program." I'd start a company-wide educational program that teaches rarefied skills in the areas of innovation, collaboration, communication, brand strategy, and brand behavior. I say "branded training" because the skills shouldn't generic — they should be aligned with the unique purpose and strategy of the business. The fact is, company can't out-innovate the competition unless it can first out-learn it.

My view is that anyone can think more like a designer by simply making it a priority. Like the zen master says, when the student is ready, the teacher appears

Here are links to the previous reviews, interviews, and podcasts on the tour: 

• Monday, April 20: Brand Autopsy
• Tuesday, April 21: The Marketing Fresh Peel
• Wednesday, April 22: Idea Sandbox
• Thursday, April 23: Principled Innovation
  

• Yes, I'm A CEO Who Really Uses Twitter - Forbes.com

  Communispace CEO Diane Hessan discusses why she's found Twitter compelling: "Twitter has brought me new ideas and new friends, and it has connected us to a world of people who are trying to be adventurous and innovative."

• How to Save Newspapers (Or, Why the NYT Should Acquire Twitter) - Umair Haque - HarvardBusiness.org

  Haque points out that Twitter is a great way for a newspaper to build four resources and capabilities that will save them: viral distribution, context, relational capital, and business model experimentation. And — "conversely, if Google snaps up Twitter instead, it likely really will be the end of newspapers as we know them."

• The Challenge of Recipes on Twitter - NYTimes.com

  The strict 140-character limit on Twitter posts is predictably enough inspiring creativity, including from Marueen Evans, whose tweets are entire recipes that work, once decoded. According to this article, Evans' tweets are "awesome acts of compression. Ingredients, actions, quantities, times and temperatures — both Fahrenheit and Celsius — boiled down to utmost richness, density and clarity. A dish, a meal, a trip to deliciousness magically packed into the tiniest carry-on bag."

• Kind of Blue: Pushing Boundaries with Miles Davis — HBS Working Knowledge

  MIels Davis as inspiration for business innovation: "Davis' ability to nurture talent is legendary...and...the process that led to Kind of Blue is an example of pushing boundaries and taking experimentation right up to the edge of failure in the pursuit of something new; Davis pushed his musicians 'to the edge,' but he did it in a way that effectively managed the risks. This might be something we can learn from in business as well."

• Understanding Dolly Parton, Broadway's Newest Composer -- New York Magazine

  Worth reading for the description of Parton's leap into Broadway, for which she has composed the music for a stage version of 9 to 5, and also for a description of her process for singing harmony: "She keeps trying variations on her riffs, which she calls 'my little curls' — an astonishing armamentarium of baroquely detailed turns, runs, melismas, appoggiaturas...not so much performed as shed. You’d think you could pick them out of the carpet when she was done."

As the launch of Microsoft's next operating system draws near, the company is facing an interesting dilemma regarding how it approaches the exploding netbook market. Signs currently suggest that Microsoft will shift to an overly defensive strategy that runs the risk of unintentionally aiding competitors.

Along many dimensions, netbooks have been a wonderful success story for Microsoft. When the small, simple, low-priced computers entered the market a couple of years ago, they almost universally used Linux-based operating systems to keep costs down.

Microsoft fought back by offering hardware manufacturers low-priced versions of its operating system. It wisely recognized that losing the low end today could mean trouble in the mainstream tomorrow. Consumers welcomed the ability to affordably access Microsoft-compatible software.

Today, some estimates suggest that close to 95 percent of sub-$500 priced computers use a Microsoft operating system.

There's one small problem, however. Most netbooks run Windows XP, not Microsoft's newer (and pricier) Vista operating system. XP lacks many of the features of Microsoft's latest system, but it is smaller, faster and cheaper.

The low price point is good for consumers but less good for Microsoft — analysts suggest that Microsoft would have made up to $50 more for each netbook using Vista instead of XP. As analysts project 2009 netbook shipments will exceed 20 million, that price discrepancy adds up quickly.

However, as one Microsoft manager told BusinessWeek, "Although we make less per unit, we're making very decent money."

And that's Microsoft's dilemma. The company is gearing up to introduce its new operating system, called "Windows 7," later this year. Early reviews suggest that Windows 7 is a marked improvement to the disappointing Vista. Of course, Microsoft hopes the improved performance translates into premium prices. But how will the quest for price premiums jibe with low-priced netbooks?

Read the rest at Scott's Harvard Management blog, Innovation Insights.

Over the weekend I stopped off at the local Bank of America Automated Teller Machine to deposit a few checks. The company had recently upgraded the ATM to an advanced machine it began rolling out nationwide in 2007. A sign proudly touted how the machines' optical scanning technology enabled consumers to deposit cash and checks without using envelopes.

I dutifully put in my stack of six checks, and the machine started whirring. The machine easily recognized five of the checks (including a handwritten one). But it just wouldn't take that sixth check (which looked indistinguishable from three other machine-printed checks). I tried three times, and gave up. Either I would have to go to the bank branch to deposit the check or I would have to get a new check.

As I walked home, I grumbled to myself, "This is new and improved?"

Of course, I can easily imagine how this kind of service is better to Bank of America, because it cuts costly data entry errors. And there are some clear consumer benefits. You can get a receipt with images of the deposited checks, which can help those of us who still obsessively manage our finances in Quicken. And of course, most of the time I'm sure the system works absolutely flawlessly and saves consumers the hassle of adding up checks at home.

Rightly or wrongly, my check-deposit struggles left me with an image: Bank of America is innovating to help itself, not me.

Read the rest at Scott's Harvard Management blog, Innovation Insights.

Last week MIT Technology Review reported that an advisory panel for the FDA has recommended the approval of a new implantable telescope for the eye that could help with vision loss from macular degeneration, an age-related eye disease that is the leading cause of blindness in people age 65 and older, affecting more than 10 million Americans.

Macular degeneration damages the center of the retina, called the macula, which is especially important for reading, watching television, and recognizing faces. As the Technology Review article points out, while some treatments exist to slow progression of the disease, no treatments are currently available for those in the latest stages of the disease, who have irreversible damage to the macula. An estimated 50,000 to 70,000 people per year fall into this category.

The new implant, developed by start-up VisionCare Technology of Saratoga, CA, consists of two lenses within a small glass tube. Once implanted inside the eye, it works like a fixed telephoto lens, acting in conjunction with the cornea to project a magnified image of whatever the wearer is looking at over a large part of the retina. Because only the central parts of the retina are damaged in the disease, magnifying the image on the eye allows the retinal cells outside the macula to detect the object and send that information to the brain.

The device is implanted in only one eye -- patients use this eye for detailed vision and the untreated eye for peripheral vision. That takes some getting used to, says Eli Peli, a scientist at The Schepens Eye Research Institute, who has consulted for VisionCare. "Instead of using two parts of the same eye, they must switch between two eyes; if they see someone coming but can't tell who it is, they need to switch to other eye."

The device is expected to win final FDA approval in late 2009 and will be on the market in the U.S. shortly thereafter.

(Photo courtesy of VisionCare)

The good news? Despite today's tough times, many firms are demonstrating their commitment to innovation by fiercely protecting Research & Development budgets. The bad news? The siege-like mentality driving the decision might inhibit the effectiveness of R&D investments.

Innovation has never been more important. Hyper-competition coupled with ever-accelerating technological improvements means competitive advantage that took years to build can disappear in the blink of an eye. Companies that stop innovating to "ride out the storm" are sowing the seeds of their own destruction.

An article in Monday's Wall Street Journal suggests that many executives understand this dynamic. The Journal found that R&D spending at 28 large U.S. companies dropped a mere 0.7 percent in the dismal fourth quarter of 2008.

One interesting example the article cited was glassmaker Corning. The company put R&D in its innermost "ring of defense." While the company has temporarily shut factories and slashed more than 3,000 jobs, it hasn't touched its $600-million R&D budget.

What's not to like about companies continuing to spend on R&D? It's entirely possible that companies are protecting the exact wrong investments.

For example, Corning's Chief Technical Officer described how the company was focusing on "products with a proven track record." Too much focus on existing products runs the risk of improving products beyond what most customers really need — the disruptive literature calls this "overshooting" — and are willing to pay for.

Read the rest at Scott's Harvard Management blog, Innovation Insights.

We often hear it: "Our innovation strategy is to be a fast follower." Too frequently, the person saying the phrase shakes her head as the words come out, oozing irony. The fast-follower approach has ended up pushing the company in many directions, with little strategic coherence. Worse, it has led the firm into competing head-on with entrenched incumbents rather than creating new markets.

Strategies like "fast follower" usually become popular for good reason. Oftentimes, however, they are transplanted from the industries where they emerged into settings where they are inappropriate. The challenge for firms is to distinguish which strategies fit their particular circumstances. We would suggest three settings in which a fast-follower approach makes good sense:

1. Local market power – Businesses with strong local economies of scale, such as grocery stores or newspapers, can easily look outside their home markets at how other firms are innovating for similar customers. The Philadelphia Inquirer may have much to learn from the Detroit Free Press, for example. Oftentimes companies in these industries will eagerly collaborate to share discoveries, and quickly copying successful experiments is sensible business practice.
2. Asymmetric capabilities – Big pharmaceutical companies have made excellent returns by being fast followers in drug categories, leveraging their sales capabilities to win market share even if their drugs’ effectiveness is no better than that of the firms who were first to market. By being somewhat later to launch, they can learn from the pioneers’ clinical trial results and avoid expensive failures. Yet this approach may have a limited shelf-life. In pharmaceuticals, insurers are increasingly pushing for cost-effective solutions, and they are not keen to subsidize large salesforces that may add little in terms of medical outcomes.
3. Ability to create new offerings based on synthesized learnings – Real-world experience is vastly preferable to countless hours spent brainstorming on a conference room whiteboard. The trick is to synthesize among a large number of experiments in-market, and to create a unique offering that draws from these lessons. Rising mobile phone manufacturers such as LG have done this well; they have closely observed how users interact with models currently in the marketplace, and they incorporate key features while adding new ones, such as a mirror to help with applying make-up.

Unfortunately, the fast-follower approach tends to be adopted in a fourth circumstance: as the lowest common denominator on which everyone in a company can agree. After all, few firms will state that their innovation strategy is to be a distant laggard. The result is a fractured portfolio in direct competition with motivated market leaders.

The proliferation of "good enough" alternatives has been a main driver of the current disruption of the media business. Good-enough is, of course, quite relative — citizen journalists offer a product that's good enough on some dimensions, but for some audiences often is vastly superior to professional journalism on dimensions such as immediacy and depth of local knowledge.

"Do-it-yourself" media got another shot in the arm last week when HP announced its MagCloud service, which would allow anyone to create a glossy magazine: "Charging 20 cents a page, paid only when a customer orders a copy, H.P. dreams of turning MagCloud into vanity publishing's equivalent of YouTube. The company, a leading maker of computers and printers, envisions people using their PCs to develop quick magazines commemorating their daughter's volleyball season or chronicling the intricacies of the Arizona cactus business."

John Boddie, formerly of Innosight Ventures, sent me an email commenting on this development:

"Print on demand has been around for a while and there may have been other companies that have tried to offer many of these features. One of the difficult things about disruption is watching the churning mass of contenders for a given disruptive play and figuring out which will finally arrive at the right combination of jobs-to-be-done and respect the right set of restrictions so that consumers on the other end can finally adopt. In this case, the choice of PDF for submission (rather than mucking around with a custom magazine generator) is key. Almost everyone now has some means of converting most document formats to PowerPoint. Almost everyone now has some means of converting most document formats to PDF. Eventually they might want to allow uploads from other content creation/distribution engines such as Slideshare and Blogger, but this is a great start."

The New York Times story also offers a couple of other clues as to the innovative potential of this idea, one in the very lead: "For anyone who has dreamed of creating his own glossy color magazine dedicated to a hobby like photography or travel, the high cost and hassle of printing has loomed as a big barrier." People who are intent on communicating around an interest about which they are passionate offers an attractive niche market to get the service off the ground and growing. Once that happens, there could be the up-market move that would potentially displace some existing print magazines.

Also, at the end of the story, HP offers a clue that they're going about this right: "For H.P., MagCloud is also a way to provide customized service at low risk. And if the niche does not thrive, the company will simply move on. “We are trying to experiment with these new types of business models,” said Andrew Bolwell, head of the MagCloud effort. This kind of emergent-strategy approach of setting up a business unit to experiment with a new model is what we would recommend any existing company like HP. In order to grow, they will have to find new markets. Setting up this kind of low-risk test is exactly the way to go about it.

Since The Wall Street Journal reported this week that PC makers are testing the Google Android operating system as a replacement for Microsoft Windows in netbooks, the blogosphere has been abuzz and the debate is on. The big question amongst tech bloggers is whether Android will be able to replace Windows, or in Innosight-speak, if Android will be able to disrupt Windows.

Android is an open source platform that has recently been incorporated into several devices, notably the T-Mobile G1. Google does not charge manufacturers per copy of Android, which is fundamentally a different business model than Microsoft has taken with Windows, and provides some financial incentive for device manufacturers to adopt.

The question is whether the financial benefits of using Android outweigh the potential technical limitations and user interface issues. Most PC users are used to a Windows operating system (OS) and Microsoft products, and as a result, it may be difficult for users to switch to a different interface and set of software products. Similarly, because the software is not designed for compatibility with Windows, work that is done on one OS may not be transferable to another.  You can get a taste of this debate on popular technology websites, from PC World to CNET.

So, what would it take for Android be able to disrupt Windows? Android could disrupt Windows by finding those circumstances for which consumers are willing to trade-off familiarity for other benefits.

Android is unlikely to disrupt Windows from the traditional PC market in the near or medium term. Windows has a death-grip around the PC market and transitioning users to a new interface and programs is highly unlikely. With two newer device classes, netbooks and smartphones, Android stands a better chance of being successful.

We recently posted to the Innoblog about netbooks as disruptors. By going after the low-end of the computer market and solving simple jobs (e.g., send email and browse the Web), learning the new interface for a couple interactions in exchange for a low price point can be a reasonable trade-off. Smartphones are often used to accomplish similar jobs and because they need not support, for instance, word processing software, there are few barriers to Android adoption there as well. A disruptive play for Android today in low-end computing devices like smartphones and netbooks could also potentially move up-market over time to disrupt Windows on PCs as consumers get more familiar with the Android environment.

Will Android disrupt Windows? We’ll keep you posted as this story develops further.

The well-known marketing publication MarketingSherpa has just published a Strategy & Innovation case study (available free for about 10 days and only to subscribers afterward). The article describes our project last year to transition Strategy & Innovation from a bimonthly, paid, print publication to a biweekly, free, online publication. Innosight Marketing Director Gretchen Rice and I spoke with the MarketingSherpa reporter about why we felt we needed to make such a transition and how we did it.

Many of you are Strategy & Innovation subscribers and thus are aware of some of the things we told the MarketingSherpa reporter — that we felt if our priority was getting into the conversation about innovation and being able to share our insights, we needed to be able to distribute them more freely in a form that people could pass on. We're glad that it's worked out so well.

If you're a relatively new subscriber to Strategy & Innovation (or don't subscribe at all) you may want to go to the S&I page on our website and delve into our archives. There's a wealth of information in these articles that we're happy to share with you. Enjoy!

(Note: If you have not previously registered at our site, you will need to register once — a free and relatively painless process — to be able to access the content.)

• Unboxed - How Crisis Shapes the Corporate Model - NYTimes.com

  A modern version of the kind of technology-aided shift in management practice and corporate organization that characterized the Great Depression could be in the offing now, says John Hagel III,the co-director of the Deloitte Center for Edge Innovation.

• From Good to Great... to Mediocre | CustomerThink - CRM, CEM & Social Media - Think, Feel & Connect

  Blogger Graham Hill cites two recent studies by economists suggesting that the companies in the Jim Collins book Good to Great that went from being good to great have continued their evolution to mediocrity. One study found that none of the 11 companies delivered superior market performance over subsequent periods using modern market performance measures. The second found that the 11 companies in fact performed no better than an average S&P 500 company.

• 27 Visualizations and Infographics to Understand the Financial Crisis | FlowingData

  Pure fun although the subject is sobering — charts and graphs that attempt to explain the current financial crisis.

• Scrabble and Other Games Have Overvalued Points - WSJ.com

  On the heels of the home value bubble, Wall Street Journal "Numbers Guy" Carl Bialik notes that recent additions to the the official Scrabble word list "za," "qi" and "zzz" — all featuring 10-point letters — have contributed to a a general overvaluation of Scrabble scores. And no, that's not a fake April Fool's story!

I had an interesting dialogue with an innovation practitioner in a large corporation the other day. We were talking about how the high rate of innovation failure can hamstring innovation.

"The failure rate is actually irrelevant," he said. "It's the risk associated with those failures that gets you into trouble."

In other words, failure would be fine, if it wasn't so darn expensive. Because failures cost money (and time), high failure rates can cause corporations to become very gun shy about innovation.

Of course, one way out of this problem is to increase the innovation success rate. A noble aspiration for sure. But be careful. Following that seemingly sensible path can lead to some perverse behavior.

For example, a company can almost always "succeed" by introducing "new and improved" products that cannibalize what they already sell. A company can confidently state that all of its revenue comes from products launched within the past two years, feel good about its innovation efforts, and actually be falling further behind competitors.

The real answer is to dramatically decrease the cost of failure. A leadership team seeking to achieve this aim has three levers at its disposal: 

1. Lower the costs of experiments. Running experiments need not be expensive. There are tons of low cost ways to test critical assumptions (chapter 5 of The Innovator's Guide to Growth describes about 30 such approaches).  

    

2. Change the order of experiments. Many companies spend a lot of money answering the wrong questions. They'll seek to perfect a technology without understanding whether there's a market need. Assess strategic risks first, because they are often what sink an idea.  

    

3. Increase the pace of decision making. Entrepreneurs with clearly bad ideas typically don't have the luxury of spending money on those ideas for too long. Companies, however, can let bad ideas linger for inordinate amounts of time because of slow decision-making processes. Shutting down flawed projects early avoids needless spending — and focuses resources on the best ideas. 

Pulling these levers requires embracing the notion of "good enough." Experiments are often expensive because companies seek perfection in their own eyes before they run any sort of test. Remember, the less you've spent, the more freedom you have to change your approach. ...

Read the rest at Scott's Harvard Management blog, Innovation Insights.