INNOBLOG

We're pleased to announce that Scott Anthony, formerly president of Innosight's consulting business, has taken on the Managing Director post at Innosight Ventures. Innosight Ventures is an Innosight-owned venture building and investing business with offices in Singapore, India, and the U.S. Scott's byline has very often appeared in this publication, with today's issue no exception. He's contributed an article on experimentation in media businesses, which is the latest installment in our ongoing series on innovation experimentation that started last issue. Here is an excerpt:

The bad news for media companies? It’s never been easier for entrepreneurs to launch new businesses that threaten your core business. The good news for media companies? It’s never been easier for you to fight back. While many industries have felt the Internet’s disruptive impact, media truly is the epicenter of disruption. For decades, major media companies took advantage of scale economies to build profitable businesses. The Internet blew away many of those scale advantages. Today an entrepreneur can launch a viable media business for peanuts. Competitors now number in the millions, if not billions.

The second feature in this issue is an article Scott contributed that describes why emerging markets are such a hotbed for innovation. Here is an excerpt:

When Bob McDonald took over as Chief Executive Officer of Procter & Gamble earlier this year, he used simple math to demonstrate the importance he was going to place on emerging markets. In his first call with analysts, he described how if the consumer products titan could just grow per capita consumption of its products in India and China to the levels of per capita consumption in Mexico, it would represent 50 percent growth (or an incremental $40 billion in revenue). Just about every company needs to step up efforts to compete in emerging markets. Want proof? Eighty percent of the world’s population and 40 percent of the world’s economy (adjusting for purchasing power parity) constitutes just 10 percent of revenues for S&P 500 companies.

From the InnoBlog, Renee Hopkins uncovers a new way to cool computers and engines in the emerging technology watch. Also, Kathleen Poe discusses the effectiveness and overall potential of Internet-based psychotherapy.

• The Promise (and Perils) of Open Collaboration by Andrea Gabor | Strategy + Business

  Article looks to the quality movement for clues as to how open innovation, particularly open collaboration, can find wider adoption and greater success.

• Is This the Light Bulb of the Future? by Eric A. Taub | NYTimes.com's Gadgetwise Blog

  Phillips is the first company to enter the U.S. Department of Energy's $10 million contest to create a viable LED-based alternative to a 60-watt light bulb. Article discusses how the DOE plans to use the contest to come up with a technology that will address the faults of the launch of CFL bulbs.

• InnoCentive: A Market for Ideas | The Economist

  Discusses the initial success of Innocentive's partnership with the charitable Rockefeller Foundation to use Innocentive's approach to help solve problems posted by non-profits working in poor countries.

• Netflix Awards $1 Million Prize and Starts a New Contest by Steve Lohr | NYTimes.com's Bits Blog

  Article details the collaborative nature of the Netflix contest whose goal was to identify technology to better predict movie matches among users: "The way teams came together, especially late in the contest, and the improved results that were achieved suggest that this kind of Internet-enabled approach, known as crowdsourcing, can be applied to complex scientific and business challenges."

Helen Walters, BusinessWeek.com's Innovation and Design Channel editor, noted in a blog post this afternoon that Scott Anthony, formerly president of Innosight's consulting business, has taken on the Managing Director post at Innosight Ventures. Innosight Ventures is an Innosight-owned venture building and investing business with offices in Singapore, India, and the U.S. As Helen writes, this is a big deal for Scott, since he and his family will be relocating to Singapore in 2010. But it's also a big deal for Innosight, as Innosight Ventures allows us to practice what we preach: identify key areas we think are ripe for disruption, and build sustainable businesses in those areas. There'll be more in coming issues of Strategy & Innovation on the businesses Innosight Ventures is launching.

Purdue University researchers have made a breakthrough in designing cooling systems with highly efficient heat-transfer rates, reports CNet News. These researchers have developed and tested new mathematical formulas concerning the properties of boiling liquids in "microchannels," which are tiny channels through which fluid is directed in some types of high-power electronic cooling systems. The idea is that "allowing a liquid to boil in cooling systems dramatically increases how much heat can be removed, compared to simply heating a liquid to below its boiling point," according to the researchers' report. "Boiling occurs differently in tiny channels than it does in ordinary size tubing used in conventional cooling systems," lead researcher Dr. Suresh Garimella said in a statement. The results of this research could be used to improve cooling systems for computer chips and hybrid cars. 

Earlier this week, Netflix announced a winner in a $1 million contest designed to help the company improve its recommendation engine. While other companies shouldn't blindly mimic Netflix's specific program, they ought to step up efforts to share the innovation load as widely as possible.

Netflix announced its contest in 2006. Teams had to develop a technological solution that provided 10 percent more accurate movie recommendations than Netflix's internal engine. The challenge literally came down to the wire — as two teams provided indistinguishable results, the prize went to the team that submitted its final algorithm mere minutes before the runner-up.

There's a lot to like about Netflix's approach. It focused on a "modular" problem (that individual teams could solve independently) with "measurable" results. It provided 100 million anonymous movie ratings to contestants to help them crack the problem. Thousands of teams from around the world tried to crack the problem, with the winning team ultimately constituting a merger of two other teams.

Netflix now plans to replicate the contest approach, creating a $500,000 prize for a team that develops the best algorithm to turn demographic and behavioral data into a "taste profile."

The seemingly low success rate of Netflix's first contest — less than 0.2% of teams hit Netflix's goal — carries a hidden lesson. If you are inside a company, and you have a single team working on a tough problem, what are the odds that you can beat the dozens or hundreds of groups working on related problems outside your company?

Many companies will tell me they just don't have sufficient resources for innovation. My first reaction to this statement is to ask the company to carefully assess how it currently is allocating its results. Further investigation often highlights that a scarily high number of resources are working on "zombie projects" that really have no hopes of succeeding in any meaningful way. Reallocating those resources can dramatically increase a company's innovation capacity.

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

• Reversing Assumptions Can Often Lead to Innovation by David Mork | Examiner

  While a bit simplistic, the article makes a great point that reversing assumptions about your business is often the best way to uncover possibilities for new growth. However, benefits are not just limited to reversals -- all questioning and examination of assumptions is likely to lead to new ideas.

• Why Solving Other People's Problems Is Easy by Mark McGuinness | Lateral Action blog

  Article discusses the phenomenon of psychological distance in solving problems: "even minimal cues of psychological distance can make us more creative." Researchers discovered that subjects found it easier to solve problems when they were told that the questions had been devised by an institute 2,000 miles away as opposed to 2 miles away."

• Patent Auctions Offer Protections to Inventors by Steve Lohr | NYTimes.com

  "A flurry of new companies and investment groups has sprung up to buy, sell, broker, license, and auction patents...The arrival of these new business-minded players, according to patent experts and economists, could lead to a robust marketplace for patents, where value is determined not so much by court judgments but by buyers and sellers, perhaps, someday, like eBay."

• Amazon Is Selling Designs of Its Own by Geoffrey A. Fowler | WSJ.com

  "For the first time ever, Amazon's second-quarter North American sales of 'general merchandise' -- which includes everything from patio furniture to TVs -- were larger than its sales of media, such as books, movies and videogames." The author attributes much of this growth to growth in Amazon's private-label business.

This issue marks the first anniversary of the digital edition of Strategy & Innovation. One year ago this month we said goodbye to print and embraced digital in hopes of reaching many more people. We’re delighted with the growth of Strategy & Innovation in the past year. Thank you to all our new subscribers!

In this issue we kick off a series of articles on experimentation. Disruptive innovation is often fraught with unknowns and assumptions, but the risks of disruption can be lowered by utilizing an emergent strategy approach that relies on experimentation. Innosight Partner, Julie Sequeira, explains why and shows how leveraging the power of experimentation can turbocharge innovation. Here is an excerpt:

Ever felt overwhelmed by the number of unknowns to be figured out in your innovation project plan? Not sure where you’ll ever get the data to fill in the holes? Or, worse yet, ever get that nagging feeling that you don’t even know what you don’t know? Disruptive innovation is often fraught with unknowns and assumptions. But, that doesn’t mean it has to be “risky business.” By utilizing a different type of approach – an approach that systematically attacks the most critical unknowns with tailored, low-cost experiments – innovators can systematically “de-risk” their strategies and thereby increase their chances of success while lowering the associated investment cost. This type of approach is generally most critical when data doesn’t exist in market research or other reports, but rather exists in behavior that hasn’t yet happened or outcomes that can only be learned in market. In other words, if you can’t GET the data, then CREATE it through market experiments.

In the second featured article on experimentation, Julie Sequeira discusses how to run market experiments in the consumer packaged goods industry.  Here is an excerpt:

As discussed in our article above, “Not-So-Risky Business: Leveraging the Power of Experimentation to Turbocharge Innovation,” experimentation is an important element of emergent strategy that offers innovators the opportunity to test key assumptions early and get the information needed to move forward more efficiently and effectively. When working in the world of consumer products, key assumptions often fall in the domain of the consumer. Will this concept resonate with target consumers? Can we convince them to shift well-established behavior patterns?

In the Innoblog, Renee Hopkins applies constraint-driven innovation to football and Innosight Analyst, Brighton Mudzingwa, discusses Microsoft's OneApp software and how it's disrupting the emerging market.  Also, Senior Associate, Kathleen Poe, writes about the shift away from hourly billing by law firms and how this change calls for business model innovation.

As always, thanks for reading Strategy & Innovation! All issues are available and free with registration here.

The economic shocks that reverberated through the economy a year ago could easily have marked the end of the nascent "Innovation Movement." After all, how could companies prioritize developing innovation programs in the face of very real questions of fundamental survival?

A year later, it is clear that innovation has never been more important. And, in a strange way, the scarcity forced on many companies has been a hidden accelerator of efforts to systematize innovation.

Certainly companies like General Motors faced such critical operational issues that innovation efforts had to be de-prioritized, if not shut down. Arguably the struggles of these companies highlighted how very important it is for companies to get ahead of the innovation game by investing in innovation before they need to invest in innovation.

More and more executives have come to terms with the fact that the "new normal" of constant change necessitates developing deep competencies around innovation.

The increasing pace of change is not really new. Long-term research by Innosight Board member Dick Foster shows how the pace of "Creative Destruction" has been accelerating for some time.

One simple way to demonstrate this increase is to look at the turnover in Standard & Poor's index of leading U.S. companies.

The S&P index goes back to 1923. Foster's research found that in the 1920s (when the list contained 90 companies), when a company got on that list, it would stay on for about seventy years. That meant that people who joined an S&P company might be joining the same company their parents worked for and might expect their children to work there as well.

In the 1960s, a company that entered the S&P index could expect to stay on it for about 40 years -- long enough for one career at least.

Today, a company that enters the S&P 500 index will stay on it for less than 20 years. That means if you join an S&P 500 company today, it most likely won't be an S&P 500 company by the end of your career because it will have failed, shrunk, or been acquired.

Increasingly, companies that buck the trend and last 30 or more years will do so only by mastering the ability to perpetually transform themselves. As Foster notes, "It's an entirely different world where the balance between continuity and change has moved to change."

Companies that continued to focus on innovation in the midst of the downturn, such as Amazon.com, IBM, and Procter & Gamble, are very well positioned to create substantial distance between themselves and their competitors. Their success will provide further fuel to arguments that innovation isn't a nicety, it is a necessity.

The good news for companies evaluating their innovation investments is that innovation is one area where less truly is more.

For example, time and again resource-constrained entrepreneurs have won disruptive battles to transform existing markets and create new ones against large companies with hordes of talented employees, great brands, and deep pockets.

The root cause of large corporate struggles, ironically, is abundance. Too much patience. Too much investment. Too many people. Abundance leads companies to lock into bad strategies early. It leads to overly slow decision-making processes.

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

"College and high school have long been the Petri dishes of football innovation," wrote Charles Seibert last week in the Wall Street Journal. I made note of this last December in this post about the innovative nature of the spread offense in college football.  Innovation in football is a classic case of constraint-driven innovation. Colleges have smaller budgets than pros and make less money, so there's less to lose and more to gain from doing something radical. High schools have even fewer financial resources and even less to lose.

Besides financial resources, there are two main constraints driving innovation in football.  One is talent. High school coaches have the least amount of choice over their players. They don't draft players as the pros do, and they don't generally recruit as colleges do. The play with who they have. And many of the wackiest and most creative offensive schemes in football are designed to level the playing field, so to speak, to make a team that has fewer talented players competitive with teams that do.

The second major constraint driving football innovation is the set of rules that governs the game. If you can come up with something that exploits a loophole, it has the added advantage of initial surprise, until other teams begin to adjust for it. Over the off-season I came across a mention of the A-11 offense being practiced since 2007 in some California high schools. A-11 exploits a couple of loopholes: in scrimmage-kick formation, every player on the offense is eligible to catch the ball. And if you have no offensive players wearing numbers 50 to 79, there can be no ineligible receivers on the offense. After last season, in an effort to take some of the sting out of the A-11, the National Federation of State High School Associations added a rule mandating at least four players on the line of scrimmage wearing numbers 50 to 79.

But the A-11's creators simply tweaked the offense, noted the Oakland Tribune last week: "True innovators don't concede to roadblocks. Not surprisingly, they're still going around, through and over them at Piedmont, executing wacky double-reverse flea-flickers with two quarterbacks in the backfield, three men up front and six players split wide." The A-11's creators suit up those "ineligible" receivers, but just push right out to the edge of what they are elegible to do: they can still carry the ball, throw it, catch screens, and block. They just can't go downfield to catch passes.

In other words, these players can still mess with the minds of the defense, which was a big part of the original point of the A-11 and part of the point of all innovations that push at rules. Noted the Washington Post, "Throughout football's history, offensive innovation has been based on misdirection and deception, from Knute Rockne's box shift at Notre Dame in the 1920s to the spread option of today. But [the A-11] spurred a debate about the sport's tradition and rules of play."

The other main point of A-11 is to add randomness to the offense that results in many more scoring opportunities, as Scientific American pointed out: "In a standard formation with five fixed linemen, a play can unfold with 36 different scenarios for who receives the snap and who ends up with the ball — including a quarterback sneak. In the A-11 offense, because the receivers and linemen (and even quarterbacks) are interchangeable, the number of different possibilities for what can happen on a given play skyrockets to 16,632."

Innovation in the offense hasn't completely sidestepped the pros. Seibert's article discusses the rise of the Wildcat offense in pro football, noting that "Even the biggest and most heavily favored juggernauts can on any given day be suddenly undone by a group of scrappy upstarts with a wealth of passion and a well-wrought stratagem: some riotous, rhythm-ruining array of timely defensive blitzing packages, or a stunningly inventive attack formation such as the new Wildcat offense."

Image from Chicago Sun-Times Sports Pros(e) blog

• The Wall Street Journal 2009 Technology Innovation Awards | WSJ.com

  Innosight's Scott Anthony served on the judging panel for this year's awards, which looked at business that were "truly groundbreaking and whether their application would be particularly useful in a time of economic hardship."

• Will 'The Jay Leno Show' Reinvent Network TV? by Alan Sepinwall | NJ.com

  Critic wonders whether new Jay Leno show is the first instance of a legacy network retooling to be as nimble as a cable network: "What if NBC's fall to rock bottom allowed management to see things more clearly than its more successful competitors? What if 'The Jay Leno Show' isn't a desperation move, but the wave of the future?"

• The Good Enough Revolution: When Cheap and Simple Is Just Fine by Robert Capps | Wired

  Wired explores Clayton Christensen's concept of "good enough": "Customers would sacrifice lots of quality for a cheap, convenient device."

• What Will Be Disrupted Next? by Jeffrey Phillips | Innovate on Purpose blog

  Good blog post and comments about how to scan the possibilities and see where disruption might happen next.

Last week, I wrote about the dangers of overly relying on quantitative market research when developing innovation opportunities. A tendency to seek "safety in numbers" causes a similar problem in another part of the innovation process: managing the creation of intellectual property.

Harvard Business Review Senior Editor Julia Kirby forwarded me a survey of intellectual property managers in firms. How do these managers measure their program's effectiveness? They look at the numbers.

Close to 80 percent of respondents said they measure effectiveness by looking at the number of patent applications filed. Other measures include the number of patents granted and invention disclosures reviewed.

It's no surprise that intellectual property managers chose these metrics. Patent activity is easy to track and facilitates industry benchmarking.

But as Albert Einstein said, "Not everything that can be counted counts, and not everything that counts can be counted."

Patents can be a source of competitive advantage. They can indicate that a technological community is on top of its game. But patents for patents' sake can be a waste of time. Remember, there is a marked difference between invention and innovation. The output always matters.

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

The other day one of my clients asked me a deceptively simple question: What is the best market research technique? It turned out to be a leading question, as he had in his hand an article from a recent article in Inc. that said, "Given limited resources ... it generally makes sense to go quantitative."

While of course quantitative surveys can generate important learning, it's dangerous to assume there is any single "best" market research technique.

Quantitative research certainly has its place. It is particularly useful when a company is trying to determine how it can steal share from existing competitors. In this circumstance, the company can define the market space and rattle off performance dimensions that might matter to customers without much difficulty.

Qualitative techniques can also help to identify non-obvious ways to delight current customers. Consider a story told by Procter & Gamble Chairman A.G. Lafley about his own learning while working on the Tide brand in the 1980s:

"Every year consumers would rate the Tide powder cardboard package as excellent; excellent to shop; excellent for opening; excellent in use — on, on, on. So, I'm in basements in Tennessee, in Kentucky, doing loads of laundry with women, and after three or four or five of these one-on-one sessions, I've realized that not a single woman has opened a box of Tide with her hands.

Why not? How do you open a box of detergent? Why don't you open the box of detergent with your hands? You'll break your fingernails! You're not going to subject those nails to a box of laundry detergent. So, how did they open the box? They had nail files; they had screw drivers; they had all kinds of things sitting down on the shelf over their washing machine, and they thought our package was excellent! And you know what? We thought our package was excellent because they were telling us our package was excellent."

Qualitative techniques become even more important when a company is hoping to grow an existing market or create a new one. Quantitative research into non-existent markets is fraught with difficulties. How can you describe performance dimensions the customer can't imagine? How can customers project usage of something they have never experienced? As the old saying goes, "Markets that don't exist can't be measured and analyzed."

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