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Over the course of two days at the World Business Forum we heard from four speakers who particularly focused on the economy: David Rubinstein, co-founder and managing director of private-equity firm The Carlyle Group; economist Jeffrey Sachs, New York Times columnist and 2008 Nobel Economics Prize recipient Paul Krugman, and former President Bill Clinton (pictured).

Rubinstein started by teeing up a list of all the problems and challenges facing us: “debt, deficit, inflation, taxes, unemployment, Social Security, Medicare, Medicaid, the dollar, savings, interest rates, and energy.” Not on this list was perhaps the biggest challenge of all – complex and rapidly shifting global politics that mark a shift from a world in which the United States was the biggest power to a “multipolar world not organized around any one particular power.”

Sachs continued the bad news while focusing his comments on the enormous challenged of climate change and the potential it brings for loss of economic growth.

Krugman discussed the economic politics underlying the financial crisis we are now in. None of these speakers highlighted the opportunities to innovate hidden in the descriptions of the challenges we are facing. Opportunities await innovators who can navigate the new multipolar political world and who can bring new ideas to the table for positive change in areas like healthcare and energy, while still successfully doing business in the post-Lehman, credit-tightened economy.

A sense of optimism about the future came from former President Clinton, who was the conference’s last speaker. His vision of how we can pull out of the financial mess and solve problems involves helping the poor, particularly in developing countries. If we reach out to help those less fortunate then we are, he said, we will create a rising tide that will lift our boats along with theirs. Further, helping others is not just right but brings security. “You can't run away from consequences of things that happen a long way from you -- inequality, instability, unsustainability,” he said.

Another point Clinton made is that there is no such thing as a solution without an unintended consequence, which I believe makes a good point for an experimental, test-and-learn strategy. Experiments are good at exposing unintended consequences.

Ultimately, Clinton issued a challenge that should resonate with innovators: How do you make the most of whatever it is that you propose to do? 

This past week I attended the World Business Forum in New York as one of a group of bloggers. My real-time comments were posted to Twitter and can be found at search.twitter.com/wbf09. Here’s a longer post synthesizing some of the learnings from the first day.

Bill George, former Medtronic CEO and currently a Harvard Business School professor, opened with a dynamite talk on “Leadership in Times of Crisis” taken from his book, 7 Lessons for Leading in a Crisis. You can’t deal with any problem by putting Band-Aids on it, he said. You must deal with root cause of problem In crisis, set aside financial plans made before, and think about getting it right for the long term.

By looking at root causes in the current financial crisis, he said, we can find the universal lessons that are common to all crises. Some of these included: CEOs should admit their own mistakes because that gives others permission to see their mistakes and increases integrity; develop personal habits such as jogging and meditation that give you resilience; dig deep for the root cause because it allows you to question assumptions that may now be wrong; get ready for the long haul; never waste a good crisis (which he noted should not be attributed to Rahm Emanuel, as it has been lately, but to Machiavelli); be ready to take the leadership role and step up to the real problem; withstand the pressure to be someone you’re not and stay true to yourself; and don’t play defense, play offense -- execute rigorously so you will be ready to go when the time comes.

What will be your legacy? George asked. “Never doubt the power you have as an individual to make a difference. I hope you have the passion to see this crisis as an opportunity to change the world.”

Former GE executive Bill Conaty then spoke about talent, explaining the four critical elements in developing and nurturing leaders: Attract, develop, assess, retain. His pint: the majority of companies put most of their effort into attracting, when they should pay more attention to the latter elements, especially to developing and retaining leaders.

Patrick Lencioni, author of Five Dysfunctions of a Team, knocked us out with a very engaging and entertaining talk on teamwork, amply illustrated with anecdotes from his life as a father to four boys.

Most notable to me about what Lencioni presented were his comments on trust. Trust is huge problem is organizations, he said. When there’s no trust there’s no feedback. And instead of the organization being able to capitalize on people’s individuality, that individuality gets lost and brings no value.

Trust, he said, is also a key to handling conflict, which is very important: “Conflict without trust is politics. Conflict with trust is a search for the truth.”

People need to be able to disagree with ideas, because if they can’t, they will then begin to disagree with each other personally. Conflict then ferments around people and destroys relationships, and of course also destroys effectiveness and destroys innovation.

Said Lencioni: Consensus is a 4-letter word. But when people weigh in they buy in. They need to have the ability to disagree and then still commit. Great relationships built on ability to disagree, as anyone who's ever been married knows. People passively sabotage an idea or a plan when they don’t have a voice.

Lencioni offered an interesting idea: When he assembles a team to work on a problem, he gets them to share this information first: Where did you grow up, how were many in your family, what was your biggest challenge growing up? This gets people to open up and gets them to understand each other as people, so that they’ll focus on disagreeing with the ideas and not each other, avoiding the fundamental error of attributing other people’s negative behaviors to their characters, while attributing our own negative behavior to environmental issues (such as being stressed).

I’m participating in the Post2Post Virtual Book Tour for Exploiting Chaos: 150 Ways To Spark Innovation During Times of Change by Jeremy Gutsche. You can read the previous review and interviews of the book here. Exploiting Chaos covers some of the same ground as Scott Anthony’s Silver Lining, specifically the idea that chaotic times breed innovation. Jeremy Gutsche graciously answered these questions by email:

Q: I was interested in your take on the pattern of disruption. What do you think is the one most important thing managers can do to spot potential disruption and innovate an approach to it?

A: The most important thing is to avoid being dismissive of radical business models and smaller entrants. In almost every example of big companies getting toppled, the little guy didn't stand up and start fighting on day 1... New entrants creep up the value chain by offering innovative products and services to customers that incumbents typically ignore. They build strong customer insight and maverick brands. They slowly get stronger until the day they make a big alliance that enables them to compete at a higher level and topple the bigger incumbents and their outdated business models.

There's an urban legend about boiling a frog that suggest if you drop a frog into a pot of boiling water, he'll hop out right away. In contrast, if you drop a frog into lukewarm water and crank up the heat, he'll be boiled alive. Like us, the frog is more sensitive to shocking change. We need to find a way to take the smaller entrants more seriously, and decide whether or not these are companies are in areas where we should be competing, or acquiring smaller brands that we can foster (while letting them have the space they need to grow). Don't expect to be shocked. Find a way to experiment with new ideas and blossoming new entrants.

Q: Is that different from the one most important thing a small company can do to spot potential disruption and take advantage of it?

A: If big companies need to act small, small companies need to act big. Especially in times of chaos. Disney, Microsoft, Hyatt, GE, Apple, Sun, and HP were all founded during times of economic depression. The reason why is that people still buy things, but they become more conscious of what they need and why. They experiment with new things. Consumer needs evolve. Fortunately for small companies, larger incumbents are typically too slow-moving to detect these changes and act upon them. They focus on their core business and attempt to preserve profit margins. By moving quickly, small companies can identify disruptive opportunities and experiment with the business models that exploit that satisfy evolving consumer needs.

Q: You say in the book “Visualize disaster and opportunity.” In order to do that, it looks like you need to visualize the mistakes and unexpected things, and rehearse a strategy for dealing with them. But what’s a good strategy for understanding exactly what to visualize? Is there a way to visualize what you’ll do if you’re completely blindsided?!

A: When the world changes, and outdated business models topple, it's typically not from being completely blindsided. It's something more similar to the boiling-frog analogy described above. The challenge, then, is to identify some of the plausible ways that your industry could evolve, or be disrupted.

In the book, I talk about the way that you cannot predict the future, but you can develop scenarios and capitalize on what happens if those scenarios come true. Here's an excerpt:

In the 1970s, Pierre Wack was planning for the future at Royal Dutch Shell. For nearly three decades, oil prices had been relatively steady, but now the world was changing. Demand for oil had increased, US oil reserves were drying up, Middle Eastern countries grew stronger, and most of these countries resented the West, especially after the 1967 Arab-Israeli war.

Weaving this information together, Wack realized that Middle Eastern countries could spark an energy crisis. That fear led him to develop two potential scenarios.

The first scenario was based on the conventional wisdom that oil prices would remain relatively stable.

The second assumed an oil crisis, which he conveyed in detail with vivid storytelling. The potential impact was so severe that Wack’s managers were inspired to prepare for the worst.

In 1973 the world did encounter an oil price shock, but Royal Dutch Shell was ready. Once the weakest of the “big seven” oil empires, the company emerged as the most profitable and second in size.

In The Art of the Long View, Peter Schwartz refers to Wack’s example as one of the first modern uses of scenario analysis in business.

By developing multiple scenarios, you can avoid the certainty of being incorrect, and instead prepare for disruptive change.

Q: Your book talks about ideation. The hardest part of that is building on ideas. What are your rules of thumb for building on ideas?

A: Basically, start off by realizing that there is no point innovating if you think you already know the answer. We tend to enter brainstorming meetings with pre-existing ideas - especially if we are senior - and then we listen to other ideas and in our heads we reinforce our original idea. Instead, you need to throw away your favourite idea and build upon the ideas of others. Truly successful ideation happens when we springboard off the ideas of others.

In another excerpt from Exploiting Chaos, here are some ways to prevent ideation from sucking:

Set the stage: Invite the best people, create a useful space, and review the rules.

Crank it up: Get people out of their boxes. Start with a challenge like how to sell more pantyhose to men. Let sparks fly: Structure (create very specific questions). Seek flexibil¬ity (push for range and variety in the ideas suggested). Keep it fun (create group energy and encourage humor).

Add some salt and pepper: Reshape the question. Take an idea and dive deep. Contribute a crazy idea. Encourage physical movement.

Challenge with specific problems: For example, if you are trying to sell more pantyhose to men, try to answer the question, “How do we rename the color ‘pantyhose brown’ to make it more masculine?”

Wrap it: Get people to vote for their favorite ideas. Circle the room to see if there are any important comments.

What would you suggest people do who are working for a company that doesn’t move quickly and doesn’t embrace the ideas in your book? How can they develop a track record as an innovator?

I would say that right now, more than ever before, people stuck in those companies can wave a crisis flag to push the company to try new things. Now, more than ever before, it is possible to use the external credit crunch to cut through red tape, try new ways, and enhance our knowledge of evolving consumer needs. 

Clayton Christensen is a wise man. Back in 2002, Erik Roth and I were having a discussion with Christensen about how we should approach the writing of what became Seeing What’s Next.

“Don’t start by writing,” Christensen advised. “Instead give a bunch of talks. That’s the only way you’ll learn the best way to communicate your ideas.”

Six months after Seeing What’s Next came out and I gave about my 10th speech on the topics in the book, I realized how right Christensen was. Condensing a complicated argument in a compelling way provided vital (and, sadly, unusable) guidance on how to write the book.

It’s no surprise then that I learned this lesson again the other week when I gave about my tenth speech on the topics in The Silver Lining and the gears in my brain finally clicked.
The book’s core argument is that innovation is possible no matter how dark the times, innovation has moved from a strategic nicety to a strategic necessity, and innovation can be mastered. To drive the transformation that today’s times require, companies need to do six things:

1. Prudently prune your portfolio based on potential, not performance. In his 2001 book Creative DestructionInnosight Director Dick Foster noted that sometimes you have to destroy before you create. Companies need to make sure they stop some ongoing efforts to ensure their innovation efforts are focused in the right places. Future potential, not past performance, should drive pruning efforts.
    
2. Take an outside-in view to inform cost cutting and opportunity creation. When times get tough, the “more with less” drumbeat starts. But you can’t deliver more with less unless you know what more means. And you can’t know what more means unless you invest in deep market understanding. That same outside-in bias helps companies to identify the highest-potential opportunities and to develop the instinct to share the innovation load with third parties that are all too happy to help.
    
3. Build a minor-league system for innovation. My article in this month’s Harvard Business Review noted how major league baseball teams rarely bring highly touted prospects straight to the major leagues. Instead prospects start in the minors where competition is less intense, teams can provide more hands-on coaching, and gather data to determine which prospects really have it and which ones don’t. Companies need to create an innovation minor league to address the critical strategic issues behind their innovation efforts.
    
4. Create an innovation factory. Today’s leaders face a conundrum. The increasingly transitory nature of competitive advantage demands increased innovation. But a popular perception that innovation is risky and expensive makes innovation investments difficult to justify. An “Innovation Factory” that more reliably churns out new growth businesses breaks this conundrum. Companies that craft an innovation strategy, implement an innovation process, create innovation structures, and invest in innovation systems can dramatically increase the returns on their innovation efforts.
    
5. Learn to love the low end. In the dark days of October 2008, shining corporate stars included noted low-end lovers like McDonald’s, Southwest, and Wal-Mart. Companies have to figure out how to connect with value-conscious customers in existing markets and still elusive customers in emerging markets. Doing so requires mastering business model innovation.
    
6. Help drive personal reinvention. The current generation of business leaders is largely unprepared for the challenges it now faces. Leaders need to master paradoxical demands, such as pushing for precision in core businesses and embracing uncertainty in emerging businesses. Leaders have to go back to innovation school to build the muscles required for today’s times.

It only took 340 days since I pitched the idea of The Silver Lining to Harvard Business Publishing for these ideas to crystallize to the degree that I could describe them in fewer than 700 words (and don’t get me wrong, I’m plenty happy with The Silver Lining, particularly since the book was written in less than 90 days to make sure it hit shelves while it was still necessary!).

As long as the next book – whatever it is – doesn’t involve responding to a crisis I swear I’ll heed Christensen’s advice.

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.

Innosight's Scott Anthony will present a webinar as part of a series put on by the organizers of the BrandManageCamp conference. Scott will speak on "Leading Innovation in the Great Disruption" at 1 pm EDT, Friday, August 14. In the webinar Scott will discuss how you can learn how to:

• Spot and seize innovation opportunities
• Increase innovation productivity
• Reduce investment in organization initiatives through strategic experiments
• Build a common language of innovation
• Use innovation as a management tool to get the most out of your executive team   

The webinar is free to BrandmanageCamp resgitrants. For more information, go to this link — http://www.managecamp.com/events/ — and scroll to the bottom.

• Tide Turns 'Basic' for P&G in Slump, By Ellen Byron - WSJ.com

  Interesting story of how P&G learned to "love the low end" not by introducing a new low-end brand but by the riskier bet of introducing a low-end version of a premium brand.

• A123Systems Awarded $249m Federal Grant, by Sean Sposito - The Boston Globe

  Federal stimulus money finds its way to a Boston-area electric battery company, but the batteries will be made in Michigan. Story notes that another Boston start-up, Boston Power, which had planned to manufacture batteries in Massachusetts, got none of the stimulus money.

• Culture at Netflix | SlideShare.net

  Lengthy slide deck released by Netflix offers insights into its recruiting and talent management, optimized for innovation. Example: "We're like a pro sports team, not a family. Coach's job at every level of Netflix is to hire, develop, and cut smartly, so we have stars in every position."

• Le Whif: Inhaled Chocolate

  Inhaled chocolate -- a new product meant to offer benefits of chocolate without the calories. Illustrates the principal of "de-featuring"!

  
  

This week's virtual book tour for Scott Anthony's book The Silver Lining: An Innovation Playbook for Uncertain Times has wrapped up. Thanks to all the bloggers who participated. Here's the final list of links to all the reviews and interviews:

Monday, July 20: Chris Flanagan, BIF Speak

Tuesday, July 21: Jeff De Cagna, Principled Innovation

Wednesday, July 22: Josh Kutticherry, futurethinktank

Thursday, July 23: Jim McGee, FastForward Blog and McGee’s Musings (review here; interview here)

Friday, July 24: Boris Pluskowski, The Complete Innovator 

Bonus:  Review and interview with Scott published today by Braden Kelley at Blogging Innovation

This week's virtual book tour for Scott Anthony's book The Silver Lining: An Innovation Playbook for Uncertain Times  continues. Here are links to all the posts that are up so far: 

• Monday, July 20:  Chris Flanagan, BIF Speak
   
• Tuesday, July 21:  Jeff De Cagna, Principled Innovation
   
• Wednesday, July 22:  Josh Kutticherry, futurethinktank
   
• Thursday, July 23:  Jim McGee, FastForward Blog and McGee’s Musings
   
• Coming Friday, July 24:  Boris Pluskowski, The Complete Innovator

This week Scott Anthony's book The Silver Lining: An Innovation Playbook for Uncertain Times will be featured in a virtual book tour. Five different bloggers will be running reviews of the book, as well as video and/or audio interviews with Scott. The schedule is below. The first review, by Christine Flanagan of the Business Innovation Factory's BIF Speaks blog, is already up! 

•  Monday, July 20:  Chris Flanagan, BIF Speak (http://www.businessinnovationfactory.com/weblog/silver_lining_review)
• Tuesday, July 21:  Jeff De Cagna, Principled Innovation (http://www.principledinnovation.com/blog/)
• Wednesday, July 22:  Josh Kutticherry, futurethinktank (http://futurethinktank.com/)
• Thursday, July 23:  Jim McGee, FastForward Blog (www.fastforwardblog.com)/McGee’s Musings (www.mcgeesmusings.net/)
• Friday, July 24:  Boris Pluskowski, The Complete Innovator (www.completeinnovator.com/)

A central tenet in The Silver Lining is that the tough times today are actually a hidden boon for innovation — scarcity will drive discipline, forcing innovators to focus on critical assumptions and make quick decisions. 

One organization that is trying to live these principles is Y Combinator. For those who haven't heard about it, the company was founded in 2005 by Paul Graham, who sold a startup venture to Yahoo in 1998 for about $50 million.

In just a few years, Y Combinator has funded 150 different software and Web services startups. Well known Web 2.0 companies Scribd, Xobni, and Loopt are Y Combinator alums, and me-too funds are springing up across the United States. Sequoia Capital invested $2 million in the business earlier this year.

Y Combinator's basic approach is to give promising ideas a small amount of seed capital (the average investment is less than $25,000), then house those startups for a short period of time. The startups get the capital, strategic input from the Y Combinator team (Graham and his wife), access to a robust network of potential investors, and the opportunity to learn from other Y Combinator–funded startups. In return Y Combinator gets a slice of the business.

In essence, Y Combinator is trying to develop a process to systematize early-stage angel investing. As Fred Wilson, a well known venture capitalist, told Inc. magazine, "Y Combinator is transformative. Paul gives these kids money, but he also gives him a methodology and a value system."

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

• The Mossberg Solution Reviews Logitech Vid, by Katherine Boehret | WSJ.com
  Review of new good-enough videoconferencing-software aimed at non-techies: "If this was a free download for all, Logitech Vid would be a slam dunk for the consumer. But as of now, it is free only for people who use Logitech Webcams....For everyone else, the software expires after 30 days, with no option to pay for continued use. This means Logitech misses out on the growing number of people whose laptops and desktops have built-in Webcams, but who don't want to buy a Logitech camera just to use Vid (and shouldn't have to)." 

• Is Gen Y teamwork killing creativity? by Rebecca Thorman | Modite
  The group-forming inclinations of Gen Y aren't good for creativity, but "reverting back to a command and control structure is obviously not the answer, but decentralized leadership doesn’t mean we all have to hold hands. We can’t let the pendulum swing so far from one extreme to the other that we miss that happy medium where innovation soars." 

• In Recession Specials Small Firms Revise Pricing, by Dana Mattioli | WSJ.com
  Small businesses innovating during the recession by inventing ways to go after the low end. 

• Interview with Retired President X, by Braden Kelley | Blogging Innovation blog
  Report from a lunch with the recently retired president of a multibillion-dollar company. Nuggets include: "When people have an idea, they often just jump in and start developing the idea...often reinventing the wheel and repeating many mistakes...consider having people submit a short research paper...to show that they have researched those that have gone before them. At the same time, somehow we have to find a better way of capturing the learnings from failed efforts for those undertaking new projects to learn from." 

It's tough out there, but companies that think their choice is to innovate or to survive are missing the point. Innovation is a corporate necessity, not a nicety. 

There's little doubt that innovation is going to become harder as resources become tighter and competition becomes fiercer. But, those companies that continue to focus on innovation have a rare chance to create substantial space between themselves and their competitors — those that don't will fall further and further behind.

The Silver Lining: An Innovation Playbook for Uncertain Times makes the case that today's turbulent times make mastering innovation a competitive necessity. The book aims to provide corporate innovators and entrepreneurs with practical guidance to seize the ample opportunities that still exist in today's markets.

The following 10-point checklist synthesizes The Silver Lining's key messages and provides practical guidance for leaders looking to realize opportunities in their markets. Each item links to a blog post describing the item in more depth

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

This article is part of a 10-part series highlighting what companies need to do to transform uncertainty into opportunity. The full list will be posted on HarvardBusiness.org and SilverLiningPlaybook.com. The Silver Lining is available now.

9. Does your organization have systems and structures to make innovation repeatable?

There is a long held view that innovation is random. Because innovation is unpredictable, the best a company can do is to identify important innovations early and react appropriately. But decades of research and applied work has brought great clarity to the world of innovation. While we're still far from perfect predictability, companies that manage innovation like a process can sharply boost the returns on their investment in innovation.

One example of a company that has built an "innovation factory" is Procter & Gamble. The company follows a very structured approach to innovation. At the heart of its effort is an obsessive focus on the consumer. It has systems to encourage innovation, such as different processes for different types of ideas. It has a range of structures to support innovation, such as a $100 million corporate fund to invest in ideas that wouldn't naturally fit within an established unit. And it treats innovation as a strategic effort, with senior leaders actively involved in innovation efforts.

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

This article is part of a 10-part series highlighting what companies need to do to transform uncertainty into opportunity. The full list will be posted on HarvardBusiness.org and SilverLiningPlaybook.com. The Silver Lining is available now.

8. Does your organization have a plan to "love the low end" in existing and emerging markets?

Customers in established markets are becoming increasingly value conscious. Competitors are growing increasingly fierce. 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.

Companies around the world have to figure out ways to love the low end, or they will fail to deflect looming threats and miss promising growth opportunities. Loving the low-end requires doing more than stripping out features and costs. It requires that companies build business models that deliver what low-end customers value.

Start by identifying market tiers where your existing solution provides too much performance, or customers that should consume your offering, but can't afford it or access it.

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

While it is far too early to say that the skies have parted, it at least feels like the ground isn't shaking as much as it was in late 2008. Companies are generally turning from asking, "What surprise is coming next?" to "What do we need to do differently to thrive in today's tough times?"

One thing that almost all large, established companies need to do differently is 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.

University of Michigan Professor C.K. Prahalad has long urged companies to tap into the fortune at the bottom of the world's economy pyramid. What once was a strategic nicety is increasingly a competitive necessity. Companies that don't find ways to love low-income markets will struggle to meet growth targets, and increasingly cede the innovation agenda to companies based in those markets.

In Chapter 7 of The Silver Lining, I argue that companies seeking to win in emerging markets need to fundamentally re-thinking their strategic approach. In yesterday's "era of optimization," companies could succeed by selling tweaked versions of their existing products or services to relatively wealthy consumers in emerging markets. They could further succeed by shrinking or de-featuring those solutions to reach less wealthy consumers.

This approach is akin to saying, "We've made a meal that customers in developed markets find delicious. Who wants it? Can't afford the whole thing? Maybe a bite will do!"

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

This article is part of a 10-part series highlighting what companies need to do to transform uncertainty into opportunity. The full list will be posted on HarvardBusiness.org and SilverLiningPlaybook.com. The Silver Lining launches June 1.

7. Does your organization constantly seek to share the innovation load to de-risk innovation?

In the early 1980s, Bob Reiss had an insight: if he moved quickly, he could capture an opportunity in the then-emerging trivia game market. He invested $50,000 of his own money, and formed relationships with a range of individuals and companies. A friend invented the game for him. TV Guide helped to create trivia questions and brand the game. Swiss Colony helped with warehousing. A specialist helped ensure Reiss collected from slow-paying retailers. In the end, Reiss parlayed his $50,000 investment into a cool $2 million — and all of his partners profited nicely as well.

People often think of entrepreneurs as risk seekers. In fact, most entrepreneurs ruthlessly seek to mitigate risk. They know that what they are doing is inherently risky. Good entrepreneurs find partners who are best positioned to handle key pieces of risk.

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

This article is part of a 10-part series highlighting what companies need to do to transform uncertainty into opportunity. The full list will be posted on HarvardBusiness.org and SilverLiningPlaybook.com. launches June 1.The Silver Lining

6. Does your organization match technological experiments ("can we?") with strategic experiments ("should we?")?

No company would launch a new technology into a market without carefully testing the technology's viability in the laboratory. Yet, companies regularly launch new businesses into a market without carefully testing their strategy's viability.

Companies need to embrace strategic experiments which help to answer questions such as: will the customer buy the product? Will they repeat, if that's necessary? Will competitors crush us? Can we make money? Can we scale? Using smart, low-cost experiments to answer these questions can lower the risk of individual innovation initiatives.

For example, in 2004, Procter & Gamble was on the verge of pulling the plug on a high-potential product due to uncertain market forecasts and high development expenses. The team believed that the opportunity was bigger than the projections, so they cooked up a plan to test the product via the Internet. In-market learning improved the offering and increased confidence in the market potential. P&G launched the product under the brand name "Align" earlier this month.

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

This article is part of a 10-part series highlighting what companies need to do to transform uncertainty into opportunity. The full list will be posted on HarvardBusiness.org and SilverLiningPlaybook.com. launches June 1.The Silver Lining

5. Does your organization always asks, "How does the customer define 'more'?" before asking people to do more with less?

Doing more with less is important when times are tough. However, companies that aren't careful often end up doing less with less. The problem is companies don't stop to ask what "more" means. So they start cost-cutting efforts by looking for the largest line-item in a budget, or elements they think customers won't notice.

A far better approach is to develop a deep understanding of how the customer defines quality. There might actually be elements where a company is providing performance that actually overshoots a customer's needs — a natural target for cost cutting.

This thought applies to internal cost cutting efforts as well. For example, maybe internal stakeholders would prefer a simpler, more accessible IT system over one that has unusable bells and whistles.

A simple tool we call a "performance map" (detailed in Chapter 5 of The Innovator's Guide to Growth) can help to develop a thumbnail sketch of where you are over-delivering against a customer's key purchase criteria, pinpointing ways to deliver more with less.

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

This article is part of a 10-part series highlighting what companies need to do to transform uncertainty into opportunity. The full list will be posted on HarvardBusiness.org and SilverLiningPlaybook.com. launches June 1.The Silver Lining

#4. Does your organization have clear consensus on the one to three top opportunities for innovation?

Growth rarely happens by accident. Companies should thoughtfully approach the creation of new markets or business models. A lack of consensus around high-potential opportunity areas can fracture innovation resources. Alignment on a few broad "innovation themes" can help to bring needed focus to innovation. Themes could be customer segments, geographies, revenue streams, or other areas that could provide the foundation for future growth.

Not sure where to start? A simple way to identify growth markets is to look for "nonconsumers" who lack the skills, wealth, access, or ability to consume your existing products or services. Nonconsumers can often be fertile grounds for disruptive innovation.

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

This article is part of a 10-part series highlighting what companies need to do to transform uncertainty into opportunity. The full list will be posted on HarvardBusiness.org and SilverLiningPlaybook.com. launches June 1.The Silver Lining

#3: Does your organization have a process to prudently prune its innovation portfolio on a regular basis?

Companies that complain about a lack of resources for innovation need to make sure scarce talent and dollars aren't being drained by "zombie projects" that are limping along with no hope of long-term success. Making regular decisions about which projects to accelerate and which to shut down helps to make sure innovation resources flow in the right direction

More broadly, Innosight Director Richard Foster has long argued that to outperform the market, companies have to change at the pace of market, without losing control. That means building new business lines, and disposing of declining businesses.

Companies should ideally be dispassionate about the disposal part of the equation, which means evaluating existing businesses on a regular basis (instead of when their backs are against the wall).

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

This article is part of a 10-part series highlighting what companies need to do to transform uncertainty into opportunity. The full list will be posted on HarvardBusiness.org and SilverLiningPlaybook.com. The Silver Lining launches June 1.

#2: Does your organization have a handle on the future potential of innovation projects and existing businesses?

Like it or not, most companies are going to have to trim their innovation investments. In many cases, this means shutting down some ideas in the development pipeline. In other cases, it might mean shutting down or selling off a product line or a business unit.

Companies shouldn't make these decisions haphazardly. A simple inventory detailing the potential of existing efforts and businesses can help companies make the right strategic decisions.

When making decisions about in-development ideas, look beyond short-term financial projections. Focus instead on upside potential, residual risk, and the cost of testing the most critical assumptions. The degree to which the consumer has an important, unsatisfied job-to-be-done should play a critical role in the process. For existing businesses, look at unexploited potential in existing markets and to-be-created potential in new markets.

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

On June 1, the new book by Innosight's Scott Anthony, The Silver Lining: An Innovation Playbook for Uncertain Times, will be released. As Scott says in a post on his Harvard Management blog, Innovation Insights, "the book's central theme is that today's turbulent times make mastering innovation a competitive necessity. I hope that the book provides corporate innovators and entrepreneurs with practical guidance to seize the ample opportunities that still exist in today's markets."

To help leaders do just that, beginning today Scott is running a 10-part series on his blog, each part describing a piece of a checklist of actions for innovation leaders looking to realize those opportunities. In each post, Scott will describe why each item is important, provide an example of a company that has put the concept into action, and describe "Monday morning" actions to implement the item. We will continue to run excerpts from these on InnoBlog, but you may want to bookmark Innovation Insights now so you won't miss any of this series.

Here's an excerpt from the first checklist item:

In today's tough times, companies may feel like they have a choice: focus on innovation or survival. It is a false choice. Innovation has gone from a nicety to a corporate necessity. After all, remember what legendary trial lawyer Clarence Darrow — clearly channeling Charles Darwin — said: "It is not the strongest of the species that survives, nor the most intelligent, but rather the one most adaptable to change."

It's tough to get started unless there's a common understanding of the challenge. As such, the first item on the Seizing the Silver Lining Checklist is: Does your organization recognize today's transformation imperative?

In today's hyper-competitive world, competitive advantage that takes years to build disappears seemingly overnight. Constant change is the new normal. Companies can't win through operational excellence alone. They have to master the ability to fundamentally transform what they do and how they do it.

However, a lack of common understanding around the transformation imperative can doom well-intentioned efforts. One of the biggest innovation killers is the "sucking sound of the core." Common understanding of the need to change can help to ward off this sucking sound.

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

Innosight president Scott Anthony and NPR president and CEO VIvian Schiller will discuss Innovating through the Storm: Insights on the Disruption in the Media Industry in a free webinar from 11 to 12 EST this Thursday, May 14. I will be moderating the event, during which Scott and Vivian discuss the challenges faced by media companies and the possibilities for how they can navigate through truly disruptive times.

Scott is, of course, president of Innosight and author of the forthcoming book The Silver Lining: An Innovation Playbook for Uncertain Times. Vivian was previously the senior vice president and general manager of NYTimes.com and was recently tapped to head NPR.

Among the topics Vivian and Scott will address:

• The dynamics of the media industry and the reality of the disruption it faces
• The expectations of empowered consumers about how they derive, and increasingly drive, value from their interactions and experience with media
• How technology is helping media companies engage their customers and connect them to the content and community they care about
• Where the media is headed, citing interesting experiments and innovative models that are emerging

Go here to register.

This webinar is part of the FASTforward Insight Series, sponsored by Fast Forward and Microsoft.

Change, recession, failure, silver linings. All of these and more were touched on by the major speakers at Day 1 of the World Innovation Forum. The day kicked off with futurist and Stanford professor Paul Saffo, who shared a framework for thinking about the context in which innovation is going to happen over the next decade.

The key to this moment in time, he said, is appreciating how profound the uncertainty is and not allowing our anxieties to arbitrarily narrow possibilities. Uncertainty is also opportunity. Step back and get context, and things start to make sense. At Innosight we often say that innovators should look for patterns when looking for where new innovationsmight come from. Saffo quoted Mark Twain in saying we should “look for things that ‘rhyme.’ ”

Echoing some of Scott Anthony’s thinking from The Silver Lining, Saffo told us that we should cherish failure because of its silver lining — the fact that progress is built on previous failures. Take a look at the S curve that describes innovation adoption, he said. The flat spot in the S curve is paved with the corpses of early innovation failures. “You’ll stand at the start of the curve and be convinced that takeoff is just around the corner,” but you should “never mistake a clear view for a short distance.”

So, if you are looking for success, he said, find something that’s been failing for 20 years. The first web companies were founded by refugees from failed interactive TV companies. We must not be afraid to fail.

Economies are done in by their successes, he said. They do themselves in because they do things so well. We moved from a producing economy to a consuming economy in the 1950s, when the time clock was surpassed by the credit card. The Consumer Economy ended on Sept. 14, 2008, with the bankruptcy of Lehmann Brothers.

Saffo called our current economy the Creator Economy, whose participants consume and create simultaneously. This is not a new thought, but he took it some interesting places. Google is the real indicator of the Creator Economy, he said, because it taps the smallest unit of a creator act: the search string.

Don’t fear change, embrace it, he urged. The new thing will not support the weight of the old thing. Better to start a lightweight small thing and build on it.

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.

• 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!

• Game-Changing Management Ideas - BusinessWeek

  Package of stories highlighting ways businesses are seeking breakthrough management ideas to spark growth during the recession; includes a story about innovations that are now trickling up from emerging markets instead aof the more traditional trickle-down effect innovation has had in the past.

• Attacking_Recession: How Innovation Can Fight the Downturn

  Report from UK-based NESTA puts forward a "total innovation strategy" the UK should use to fight the recession.

• Local Economies Seek Own Revival - WSJ.com

  Some cities are putting together their own "stimulus packages" to help their own economies.

• Pushing the Limits of Crowdsourcing - BusinessWeek

  Crowdsourcing continues to grow as social networking grows.

There's a great deal of talk now about the need for companies to innovate through the recession and to be able to transform themselves in order to continue to grow. But are “transformation” and “innovation” interchangeable concepts? We don't think so. As Scott Anthony writes in this week's feature, mastering transformation requires mastering innovation. Innovation fuels the engine of transformation. And in these difficult times, companies can't afford to cut back on fuel. Read more, including results from our annual transformation survey, here, but meanwhile, here's an excerpt:

A growing realism is setting into corporations around the world. Times aren't getting better any time soon. Times aren't getting more stable any time soon. So the question turns from, “When will things return to normal?” to “What do we do now in the face of the ‘new normal' of constant change?” Charles Darwin serves as a useful guide in today's tough times. Darwin noted that the species that survived weren't necessarily the strongest or the smartest, but the ones that are most adaptable to change. Similarly, a recent annual survey Innosight conducted in conjunction with Forbes magazine highlighted how managers increasingly recognize the new corporate imperative: transformation. A huge majority – almost 80 percent of respondents – said that their organizations recognized the need to transform. Close to 70 percent of survey-takers reported their companies had already committed to transformation. Today's tough economic climate hasn't dampened the desire for transformation; both figures were virtually unchanged from the last annual survey Innosight administered in 2007. Further, close to 80 percent of this year's respondents reported that today's economic environment has increased the need for transformation.

In Innovators' Insight: Thinking Outside the Box — of Wine, Taylor Owings asks, what causes roadblocks in the up-market march of disruptive innovations like boxed wine? An excerpt:

In a down economy and in the midst of a “green” movement, there is good news for oenophiles: high-quality boxed wines are on the rise. Both cheaper and more environmentally friendly, wines packaged in cardboard instead of glass make perfect sense for people who are willing to give up the elegance of the bottle. Boxed wines have had great success disrupting the low end of the wine market, and are now beginning to make the march upward. The question is, will this march continue until the entire wine market has been transformed?

Harvard Business Publishing, in cooperation with Chief Learning Officer magazine, will present a free virtual seminar this Thursday, March 5, from 2 to 3 pm EST.featuring Scott Anthony speaking on Leading Innovation in the Great Disruption: Keeping Organizations Moving in a Downturn.

As Innoblog readers know, Scott is president of Innosight. He is also author of the forthcoming book The Silver Lining: An Innovation Playbook for Uncertain Times (Harvard Business Press, June 2009), in which he counsels that leaders need to be challenged to consider not only new products and services, but also novel ways to look at business processes, organizational structure, and innovative management – especially during an economic downturn. In this Thursday's free virtual seminar, Scott will share examples of how organizations can increase their chances for creating growth through the right tools and actions.

'Overconfidence, Bad Assumptions Can Cause Management Veterans to Underperform Less-Experienced Colleagues' read the subhead in today's Wall Street Journal. The story pointed out that experience can often blind us to new ideas and new solutions, make us unable to cope with new situations, and cause overconfidence.

Now where have we heard that before? Oh yes - in the theories of disruptive innovation. However, the Journal article isn't talking about a new start-up disrupting an incumbent company -- it's talking about newer, younger employees disrupting experienced managers. As Vijay Govindarajan, a professor at Dartmouth College's Tuck School of Business, is quoted: "Companies overestimate the value of experience. Experience becomes a liability in times of change."

All is not lost for the experienced managers, however. Some companies are using computer simulations to train managers how to be more flexible. And although the article doesn't come right out and say it, the implication is that the recession will force that learning on those who have not already been laid off. One manager said, " 'I try to force myself to be nervous. Whenever I find myself falling back on what I did last time, or think I'm doing well, I try to unsettle myself.' " Reading the business news pretty much does that for me these days. It's good to know there's some value to that!

Here are some thoughts about how three pieces of the $787 billion stimulus package could affect healthcare companies:

1. $17B for roll-out of Electronic Medical Records (EMR) over the next 5 years - EMR has the potential to vastly increase payor (e.g. Aetna, UnitedHealth) power over physicians, mandating the use of standardized protocols and evidence-based medicine. This is more bad news for the traditional high-touch sales and marketing model of device and pharmaceutical companies, and means that the days of me-too competition in a therapeutic class will be short in number.

Suppliers to the industry will need to focus and differentiate, partly through offering total solutions vs. pill or device widgets. Many of these solutions may require partnerships with firms whose identity as long-term friend or foe remains uncertain (e.g. Microsoft, Medco). Pharmacy Benefit Managers will try to leverage EMR and their own databases to be high-value repositories of information. Vendors of decision algorithm software will grow rapidly in number.

The stimulus included privacy and opt-in provisions around health records; the impact of those rules is unclear, but likely it creates benefit for those who own the patient relationship and who therefore can get the opt-in most easily. ...

Read the rest at Scott Anthony's Harvard Management blog.

Last week Harvard Business Publishing hosted an audio conference on my forthcoming book, The Silver Lining. The 90-minute discussion included some great dialogue with moderator Angelia Herrin and the audience. There were a handful of questions that I didn't get a chance to answer during the course of the discussion that I thought would be generally interesting to readers here.

Q: Why are "defined processes" considered "innovation killers"?

This question refers to a slide that made the case that many of the perceived advantages of big companies are actually quiet innovation killers. As such, a silver linings of today's tough ties is it scarcity will force companies to do what they should have been doing already.

The basic problem is that sharply defined processes can stymie innovation. ...

Read the rest at Scott's Harvard Management blog.

Last week's post described my negative experiences with companies that appeared to be cutting down on customer service. I empathize with these companies. They face the tough challenge of figuring out what to cut as demand dwindles.

And after decades of continuous improvement programs, most companies don't have much fat to trim.

It's the "more with less" problem. It's easy to say that tough times demand doing more with less, but hard to figure out exactly what that means. Far too often doing more with less involves slashing the biggest line item on a budget, or spreading cuts across the board (so-called "peanut butter" cuts).

The third chapter of my forthcoming book The Silver Lining provides more direct guidance on this point. The chapter's critical message is that you can't do more with less until you figure out exactly what "more" means. This means any cost-cutting effort must start with a deep understanding of the customer, the job they are trying to get done, and the metrics by which they measure performance.

This knowledge can help spot opportunities to spend less and deliver more value. ..

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

Just about every company faces tough choices about how to improve operations in an increasingly tough environment. Companies need to be careful that short-term cuts don't lead to long-term pain.

I've clearly stated my perspective that the worst thing companies can do in the Great disruption is to stop investing in innovation. Companies might think that innovation and survival are discrete choices. They are not. Companies that stop innovating are sowing the seeds of their own destruction.

Customer service is another investment companies should cut cautiously. Two companies to which I have been a loyal customer for years severely tested that loyalty within the last week. ...

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

In the January 14 issue of Strategy & Innovation, we offer up our annual Year in Preview story (free reg. reqd.) by Scott D. Anthony. This year we've added a new feature to this feature — we asked Innosight partners to write short industry specific predictions of the industries in which they have expertise.

Some overall themes:

• The darkening economic climate is good news for innovation — after all, abundance is at the root of many corporate struggles with innovation.
• It has never been easier to develop and scale an idea. Innovators can draw on high-quality, low-cost tools to develop, test, and begin to commercialize ideas without tens of millions of dollars of investment.
• Innovation has never been more important. Success in what we are calling the Great Disruption requires mastering perpetual transformation.
• Companies that are partially disrupted (such as print media) and those that are innovation novices will have a tougher go of it, as the current economic climate isn't favorable for their challenges.
• On-the-brink disruptive attackers and companies that have progressed in their efforts to make innovation systematic will be more likely to find their efforts paying off.
• Companies that demonstrate an ability to love the low end will find that strategy effective if they are able to master business model innovation and gain a deep understanding of how the low-end consumer measures value and develop unique offerings tailored to key value drivers.

Those industries for which uncertainty in the markets and uncertainty regarding potential governmental policy and regulations changes will struggle this year until the economy settles down and the policies of the new U.S. presidential administration begin to take shape. Finance and healthcare are two such industries.

Here are some of our partners' industry-specific predictions:

• Media: A strong likelihood of continued bankruptcies among media companies.
• Defense: A push toward decentralization and away from aircraft- and ship-specific platforms.
• Manufacturing: A shift toward innovation and away from strict reliance upon Six Sigma and cost-cutting.
• Automotive: No automakers will fold, but we will see consolidation of vehicle models in the saturated marketplace as a better linkage develops between customer requirements and available models.
• Retail: Growth among retailers targeting the low-end as well as those that can add high-level services that high-end consumers will pay for.
• Consumer products: CPG companies that do well will be those that strive to push the boundaries of their innovations, looking beyond just new products to new categories, new business models, and new channels.
• Finance: Reduced scope and size among financial global financial services firms, and an opportunity for low-cost tools and data providers.
• Healthcare: Widespread implementation of Electronic Medical Records, as proposed in the forthcoming economic stimulus package, could radically shift the balance of power between physicians, healthcare provider organizations, and insurers. 

• A Water Landing? You’ve Got to Be Kidding - Freakonomics Blog - NYTimes.com

  Look down in the comments for some suggestions for innovation that were inspired by the Jan. 15 water landing in the Hudson: 1) Play instruction videos in a loop in the terminal while passengers wait; 2) Have a real exit window in the terminal that passengers could try out to see if they really are up to exit-row duty. Also, it's hard to argue with this observation: "in the ubiquitous photos of the passengers standing on the wings (the image here was taken by a survivor from an iPhone), almost none of them are wearing their life preservers! After listening to that song and dance every time you get on a plane, you finally crash in the water and still no one listens to the instructions!"
  

• Super-Efficient Fridge Among the Innovations at Builders Show - WSJ.com

  The housing industry, poster child for the recession, offers up green innovations at the annual Builder's Show. My favorite: Solar HVAC from Lennox, industry's first integrated solar-assisted heating, cooling, and ventilation system. Cost $2K to $3K more than regular systems.
  

• 140 Health Care Uses for Twitter

  "Doctors and nurses share medical information, often as short bursts of data (lab values, conditions, orders, etc.)." says blogger Phil Baumann. Understanding that privacy issues would have to be dealt with, he offers 140 suggestions for ways that micro-sharing service Twitter could be of use in healthcare. There are probably some ideas for new businesses represented there.
  

• Puzzling Over the Invisible Economy - Freakonomics Blog - NYTimes.com

  This economist has no economic explanation for his observation that people are more reluctant to give others electronic gifts (MP3 files, digital books) than they are to give analog books and CDs. I suspect it's because giving these "less real" gifts doesn't satisfy the emotional jobs-to-be-done of the gift-giver.

Due to the ongoing recession, a lot of people have a new job — job-hunting.

Finding a job has a lot of components, and in today’s world many of them require a computer and a working Internet connection. Many people have these at their home, but another place these amenities can be found, and for free, is the library. So it was no surprise to read today in the Wall Street Journal that Folks Are Flocking to the Library, a Cozy Place to Look for a Job.

According to the article, the library provides a job-seekers a solution succeeds along all three of the dimensions that, according to our JOBS^TM methodology, must be present to constitute a perfect solution:

• Functionally, job-seekers need to be able to connect to the Internet for their job-hunt. Libraries offer free Internet access and free computers as well, and an atmosphere conducive to work. As one patron was quoted in the story, “there's something about the library that helps you think, at least for me."
• Emotionally, the job-seekers are trying to get out of the house to stave off the blues. They also need to feel like they are making forward motion with their job search. And they need cheap or free means of entertainment, which the library provides via books, videos, and even video games, which some libraries now offer.
• Socially, the library offers a place job-seekers can connect with others, including some who are in a similar situation. Many libraries offer job-hunting seminars and other help.

Unfortunately, although libraries are fulfilling perfectly the jobs of job-seekers, the influx of job-seekers is overwhelming the jobs of the library. The story notes that higher numbers of patrons using services are straining many libraries that have cut budgets and staff due to the recession.

Our own Scott D. Anthony will lead an online "virtual seminar" on The Silver Lining Project: How Innovators Lead in a Downturn from 12 to 1:30 pm (EST) on February 11. The webinar is sponsored by Harvard Business Press, and here's how their site describes the event:

For companies passionate about growth and innovation, the unprecedented market events of the past months seem to contain nothing but dark clouds. Financial titans fail, Wall Street trembles, Main Street freezes and everyone seems to hesitate while waiting for stability to return. The notion that innovation must enter a period of dormancy might seem inevitable.

Yet, the fundamentals of creating compelling growth businesses haven't changed. It's hard to argue that it is not going to get tougher and that the bar for success is going to get higher. But there remain ample opportunities to be seized by those who don't freeze.

This webinar will provide practical steps to guide innovators through today's tough economic climate. Innosight President Scott Anthony, author of Seeing What's Next, The Innovator's Guide to Growth, and the forthcoming book, The Silver Lining, will draw on field work and research to describe how innovators can: 

• Do more with less through intelligent re-featuring and smart risk sharing
• Prudently prune the innovation portfolio
• Increase innovation productivity by taking a more systematic approach
• Learn to love the low end to deflect disruptive threats and seize previously unreachable opportunities
• Dramatically reduce investment in individual initiative through the smart use of strategic experiments
• Drive the personal reinvention required to deal with the new reality of constant change

Scott will draw on in-depth case studies from companies like P&G, Time Warner, Scripps, and General Electric and provide tools to make the concepts actionable — and help innovators find new ways to prosper.

Scott has written about this subject both on his Havard Management blog and in Strategy & Innovation. Anyone who is interested in why it's necessary to innovate through the recession, and how you can do it, should consider this webinar.

While the global economy began slowing down in late 2007, forces transforming the face of business trace back more than a decade. Over that time period, technological improvements have made it ever easier to start and scale a business. Convergence went from being a cliché to a reality. Companies from countries like China, India, and Brazil burst onto the world stage. The global slowdown coupled with the credit crunch in late 2008 accelerated these forces.

If sagging employment and dwindling economic prospects led historians to term the 1930s the Great Depression, perhaps it is appropriate to tab today's hyper-competitive market where competitive advantage dissipates in a heartbeat the "Great Disruption."

In 2009, managers will realize that they are no longer dealing with a crisis; they are dealing with a condition. In the Great Disruption, companies simply can't anticipate that today's competitive advantage to last for more than a few years. Former Intel Chairman Andy Grove anticipated this more than a decade ago when he wrote, "Only the paranoid survive."

While companies might want to return to the corporate equivalent of comfort food--cost-cutting and a focus on the core business--the Great Disruption won't allow it.

Some companies have been developing their innovation abilities for years. They are in good position to seize the opportunities that always present themselves in tough economic climates. ...

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

A recent New York Times article mentioned how the media still hasn't found a compelling way to describe today's economic climate. Everyone agrees that something important is going on, but no one has found a simple, memorable phrase that captures that importance.

A Thursday Times blog calling for nominations has generated more than 150 comments. My suggestion: the Great Disruption.

Why the Great Disruption? In the Great Depression, demand, output and wages declined across the board. Today's times are different. It isn't just that demand is sagging. It's that change is ripping through markets at unprecedented pace. Competitive advantage that took decades to build disappears seemingly overnight.

The Great Disruption didn't start in 2008. Over the past decade, technological improvements have made starting and scaling businesses easier than ever. The rise of China, India, Brazil, and Russia mean market leaders have to deal with more sharp-elbowed competitors than ever before. And industries are frantically converging and colliding.

Certainly the pace of change has accelerated over the past few months, but leaders in media, retail, defense, health care, automotive, and high-tech can attest that they have been grappling with the Great Disruption for some time.

The Great Disruption creates real challenges for managers who have made a career out of focused execution.

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

The following is a guest post by Juan Pablo Vázquez Sampere.

To be a CEO these days is an especially difficult task. The economic crisis can unexpectedly shorten your legacy and your tenure. Your competitive advantage might be eroding and you are constantly worried your top talented individuals might feel disappointed or want to leave. While CEOs are asking everyone and anyone where they see the next wave of growth, they pray their competitors won’t detect it first.

The disruptive innovation model can help CEOs find the next wave of growth. Our research, using disruptive innovation, has isolated the impact the crisis will have on almost any industry. This research has been distilled from the last six months of data we have from our clients in Europe that, overall, operate in 16 industries.

Here’s what the current landscape looks like when viewed through the lenses of disruptive innovation:

1. Upsurge in overserved consumer demand: More and more consumers are migrating to products that deliver less for less. Their willingness to pay for almost any product has decreased. They have finally realized they are just as well satisfied with a good-enough solution that is more simple, convenient and affordable. In a way this is a massive upsurge in demand that has been left unattended. It is also a demand that is not going to return to where it was before the crisis emerged. We have found that the best recipe to tackle this opportunity (before your competition does) is picking from your portfolio a cadre of your worst-performing products and making them more simple and foolproof. They must be carefully adapted to a very specific moment of consumption and the features your corporation values the most must be dramatically reduced. How do you know you are doing this assignment well? If you and your organization think the product is getting unacceptably worse… then you are on the right track!
2. The fastest learning moment: This coming year 2009 will be one of the best years ever for entrepreneurs and new business ventures. The reason is that the crisis has shortened substantially the time you need to realize you made a mistake. If you launch initiatives based on “invest a little, learn a lot” this is the year when you will learn “the lot” very quickly. This is because when the economy is thriving consumption is incentivized and that generates an inverse-selection problem, that is, consumers you are not interested in are buying your product without realizing its full value. Unfortunately since they appear in the market research studies, they subsequently drive investment bias in the next sustaining innovation. This biased input makes the product less attractive to consumers who do find its true value. Paradoxically, the payoff for experimenting in a crisis scenario is tremendously high.
3. Main competitors will be frozen: Corporations focused on chasing the next high-margin consumer have frozen their initiatives because of uncertainty. The reason is that getting approval from the board is now very difficult. These days you might only get it if you are proposing a cost-reduction initiative. In my opinion this is a gift from your competitors. They are going to be paralyzed for the next couple of years! Next year their projects aren’t going to pass through the board scrutiny. The year after they will have to update their pitch and put the resources and team together, as you know, a very time consuming process. When was the last time you knew what your main competitors were going to do for the next couple of years?

Here is a winning formula for those planning to launch a new product or to start a venture in these crisis-imposed circumstances: Pick an industry that is very fragmented, that has three or more weak economic substitutes (same need served with different technologies), that has more than 80 percent of its demand overserved, and has demand that is underserved and has remained so for at least five years.

This should be the central point of your conversations. There are quite a few industries that meet these attributes. If you don’t start this initiative somebody else will. If so, solid research shows that will be the last mistake your company will make.

Juan Pablo Vázquez Sampere is a Partner at Stratemic and an Associate Professor at IE Business School in Madrid, Spain. 

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The issue leads off with an excerpt from the much-anticipated January 2009 book The Innovator’s Prescription by Clayton M. Christensen, Jason Hwang, M.D., and Jerome H. Grossman, M.D., which looks at our health care system through the lenses of disruptive innovation. Our excerpt, Disrupting the Hospital Business Model, argues that hospitals are burdened with multiple business models and jobs-to-be-done. Hospitals can heal — if they focus on one business model and stop trying to be all things to all patients. Specifically, according to the authors, “Hospitals providing much of today’s health care cannot and therefore ought not to be relied upon to transform the cost and accessibility of health care. Instead, hospitals need to be disrupted. We need them to cede market share to disruptive business models, patient by patient, disease by disease starting at the simplest end of the spectrum of disorders that they now serve.”

This issue’s Innovators’ Insight, by Scott D. Anthony and Tim Huse, asks How Do Disruptors Perform in Recessionary Times? Conventional wisdom would be that up-and-coming disruptive companies that have had some early success but haven’t broken through to the mainstream would certainly become casualties of today’s tough economic climate. Not so — Scott and Tim went back to look at how up-and-coming disruptors did in the face of the last three economic downturns in the U.S. In 1979 and found that 11 such companies, including Intel, Home Depot, Nucor, and Southwest, fit our criteria. Their compound annual growth over the recession between 1979 and 1982 was 22 percent. Between 1989 and 1991, the sample of 11 up-and-coming disruptors, which included Best Buy, Cisco, and Charles Schwab, grew revenues by 33 percent.

This issue wraps up with Voices of Disruption, featuring an interview with Ron Gonen, Co-Founder and CEO of RecycleBank, an interesting start-up that rewards households for recycling. Former Innosight Senior Associate Lillian Zhao did the interview, after exploring RecycleBank in this blog post.

It started with a Nov. 4 exchange on Twitter:

@innovationtools, Do you have a compilation of all the 'innovating in the economic downturn' articles? Planning one? Would be a good idea.

@ReneeCallahan, Compilation of all "innovating in an economic downturn" articles? Great idea!

One month, a couple of dozen email interviews, and more than 60 article and blog post links later, Chuck Frey of InnovationTools.com and I have finished Innovation Strategies for the Global Recession. This free 30-page report summarizes the best thinking that's been published so far by innovators inside and outside of corporations on how innovation can help companies survive and even thrive through the current recession. In today's interconnected world, it's impractical for companies to suspend their innovation initiatives until the worst of the storm blows over. To do so is to risk being well behind the curve when the economy does recover, and losing precious ground to competitors who found creative ways to keep their innovation initiatives moving during the darkest days of the downturn.

Respondents quoted in the report include some of the best and brightest innovation authors, bloggers, consultants, and practitioners.Innosight respondents include Scott D. Anthony, Kevin Bolen, and Rebecca Waber. And, Scott's contribution to this report represents only the tip of the iceberg regarding his thinking on innovation and hard times — Harvard Business Press will publish his book, The Silver Lining: An Innovation Playbook for Uncertain Times, in March or April 2009.

Kevin Bolen co-authored this post.

It seems that everyone wants to know what the automakers will do differently in the increasingly unlikely event that they receive a massive Congressional bailout. Leaders suggest they'd like automakers to "be more innovative" and "reinvent their business model." But what exactly does that mean? And how would government officials monitor progress against these goals to see if the bailout is being well spent?

First, let's look at what it would take to "be more innovative." Our research and field work suggests watching whether automakers:

1. Place the customer at the heart of the innovation process: Firms that succeed in innovation are obsessed with learning more about the customer and, more specifically, the jobs they need to get done. Clayton Christensen likes to describe how millions of people use their car as an office, but no auto manufacturer has designed a car with desk space, power options for laptops and phones, Wi-Fi connectivity, and other features that would help get this job done. Looking for important, unsatisfied jobs-to-be-done could help auto manufacturers identify attractive growth segments and avoid commoditization. One sign that auto manufacturers have appropriately shifted their attention: an increase in the ratio of market research spending to advertising spending.

 

2. Have senior leaders actively engage in innovation: Leaders in many of the firms we work with and admire participate daily in innovation efforts. And this is not passive involvement. They join focus groups, observe behaviors, review project plans, help set prioritization parameters, evaluate funding requests, and develop and oversee unique organizational models to incubate the best concepts. Innovation is not simply a budget item for these leaders; it is second only to talent development on their personal to-do lists.

 

3. Create a diversified portfolio of ideas: No one can accurately predict what market demands will be five to 10 years from now. No one knows what the energy situation will look like. No one can predict the economic climate. No one knows precisely which early-stage ideas will take off and which will stagnate. Pinning a firm's future on a single breakthrough is unrealistic. A broad, diversified innovation portfolio can help companies withstand shocks and respond to market shifts. The freedom to fail in one area because of emerging opportunities in another is the hallmark of an effective innovation program.

Second, what would it really mean for the U.S. automakers to "reinvent their business model"? Our colleagues Mark Johnson and Clayton Christensen have an article with this very title in the latest Harvard Business Review.

One of the fundamental problems the article highlights is that many companies are held captive by their capabilities....

Read the rest at Scott's Harvard management blog.

In conjunction with Chuck Frey from InnovationTools.com, I am compiling a report on how and why to keep innovating during the economic crisis. We would love to hear from practicing innovators.

In essence, we would like to know how would you answer this question: What strategies should organizations use to maintain or expand their innovation initiatives, despite the current global economic downturn?

Please post your thoughts in the comments or email to me at rcinnosight -at- gmail.com. Replies will be compiled into a report and posted on innosight.com and on innovationtools.com. We'd like to get replies by Wednesday, November 19.

The Oct. 29 edition of Strategy & Innovation features a must-read for the current times: the Innovator's Survival Guide, which offers insight into what innovators should and should not do as they attempt to adapt to difficult economic times for their companies.  The long version of the story is at the link above (free registration required), and a shorter version is at Scott Anthony's Harvard Management blog here.  Here's an excerpt:

Innovators, are you feeling a bit lonely at the moment? Don’t take it personally. During turbulent economic times, companies naturally tend to focus on what’s familiar. Talking about the core business is like eating comfort food. Friendly discussions with loyal clients ease the anxiety generated by the media about the state of the broader market. Releasing incremental enhancements to existing offerings provides low-risk reasons to celebrate accomplishments at a time when so much seems out of control.

These prevailing sentiments have the effect of alienating those focused on the “new and different.” Whereas just a few short months ago, your programs were the lifeblood of the corporate strategy, suddenly you find yourself on the outside looking in. This is a lonely place, and prolonged isolation can lead to rash, unproductive behavior. However, a more thoughtful response during such times can actually accelerate and expand returns on innovation initiatives.

To help you make the right decisions, we offer a brief list of actions that innovators should and should not be taking in today’s skittish climate. We focus on the two main areas most likely to provoke the wrong behavior: your relationship with an increasingly nervous core business and the efficient allocation of scarce funds.

In terms of working with colleagues and leaders in the core business, Innovators SHOULD accept the realities of the marketplace and lend their help to the cause. Innosight’s research has shown that innovation can only succeed when the core business is stable. Without this foundation, management’s time and attention will be overwhelmed by the need to appease stakeholders such as clients and partners. Their ability to think constructively about any concept more than three months out will be impaired.

Innovators SHOULD NOT react to leadership’s focus on core offerings by trying to cram their new offerings into the core. There are reasons why new concepts are kept outside the core — it was the right choice in a booming economy and it is still the right choice. Trying to push new technology or service offerings through the traditional business model will fail.

There's much more — the whole article can be found here (free registration required).

No matter what phrase you use to describe it — nature abhors a vacuum, necessity is the mother of invention, every cloud has a silver lining — common wisdom suggests that every crisis presents opportunities.

The current economic turbulence is no exception. I'm no expert economist, but I think it's pretty safe to say we're not done with markets vacillating from dizzying highs to plummeting falls, and that there's plenty more pain to feel in the U.S. and World economies.

Does that mean that would-be innovators should go into deep hibernation? Instead of thinking of the next great thing, should they find the safest operating role they can find until the current storm passes? Certainly not.

Perhaps the good times are in fact dead. And certainly someone thinking of forming the umpteenth "Web 2.0-widget-to-grab-audience-and-find-advertisers" ought to pause to think whether they really have some kind of defined competitive advantage that can translate into a sustainable business.

But real customers continue to face real problems. And as always, innovators who figure out different ways to solve those problems — and make money doing so — will have opportunities to create new growth businesses. In fact, the creative destruction unleashed by a crisis always opens up opportunities for innovation.

Read more at Scott's Harvard Management blog.