READING 3: SUSTAINED INNOVATION: IDEA GENERATION

THE INNOVATION VALUE CHAIN

→ managers should adopt an end-to-end approach to generating, converting and diffusing ideas.

● There is no universal solution for organizations wanting to improve their ability to generate, develop and disseminate new ideas

○ commonly followed advice can be harmful if applied to the wrong situations● Managers need to take an end-to-end view of their innovation efforts, pinpoint their

particular weaknesses, and tailor innovation best practices as appropriate to address the deficiencies

○ The innovation value chain offers a comprehensive framework for this■ presents innovation as a sequential three phase process. Across all the

phases, managers must perform 6 tasks. Each is a link in the chain: ● three phases

1. idea generation2. conversion = select ideas for funding and developing them

into products or practices3. diffusion

● six critical activities:1. internal2. cross-unit3. external sourcing4. idea selection5. spread of the idea

● firm’s strongest links○ one or more activities that the company excels in

● firms weakest links○ one or more activities that the company struggles with

■ identifies weaknesses → be more selective about which innovations tools and approaches to implement

■ helps realizing that focusing too many resources on perceived innovation strengths can further debilitate(verzwakken) the weakest parts of the chain and the overall innovation capabilities.

■ asks to take and end-to-end view of their innovation efforts● To improve innovation→ view the process of transforming ideas into commercial outputs as

an integrated flow. ● Idea Generation

○ internal○ Cross-unit collaboration

■ difficult to achieve due to decentralized organizational structures and geographical dispersion

○ external■ many companies do this poorly, resulting in missed opportunities and lower

innovation productivity.● Idea Conversion

○ New concepts won’t succeed without strong screening and funding mechanisms. Instead, they’ll create bottlenecks and headaches across the firm.

■ But too tight budgets, controversial thinking and strict funding criteria combine to shut down most novel ideas.

● Result: the flow of ideas dries up.

Summary Idea Generation 1

● Idea diffusion○ Companies must get the relevant constituencies within the organization to support

and spread the new products, businesses and practices across desirable geographic locations, channels and customer groups.

■ diffusion is far from automatic in large companiesFocus on the right links

○ Company’s strongest links are simply no good if they prompt the organization to spend money with little hope of solid returns or if the attention paid to them further weakens the other parts.

■ example: company has 50 good ideas but managers do not properly screen these ideas and new ones just kept coming. By failing to recognize the weak link (idea selection) and focussing more time and resources on an already strong link (idea generation), the management undermined the company’s overall innovation efforts.

○ Stop focussing on the improvement of the core innovation capabilities and start focussing on strengthening the weak links.

○ a company’s capability to innovate is as good as the weakest links in its innovation value chain

○ Organisations typically fall into one of three broad “weakest link” scenarios. 1. the idea-poor company

→ spends a lot of time and money on developing and diffusingmediocre ideas that results in mediocre products and financial returns

2. the conversion-poor company→ many good ideas but poorly screening/developing:

a. ideas dying in budgeting processes that emphasize the incremental and certain, not the novel.

b. Or the too many ideas approach → the need is for better screening capabilities, not better idea

generation mechanisms

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3. the diffusion-poor company→ problem monetizing good ideas.

a. decisions about what to bring to the market are made locally, and not-invented-here thinking dominates.

i. Result: new products and services aren’t properly rolled out across geographic locations, distribution channels or customer groups.

● Fixing the idea-poor Company ○ Why lack of new ideas ?

■ inadequate networks● managers fail to forge quality links with others outside their

company or people prefer to talk to their colleagues rather than reach out to counterparts in other departments or divisions.

○ Solutions: 1. build external networks (to generate ideas from new connections)

■ Two approaches:1. develop a solution network

→ geared toward finding answers to specific problems f.e.: contest

2. build a discovery network→ geared toward unearthing new ideas within broad technology or product domains→ objective: to learn, not to tell

■ The key metric for solution/discovery networks is diversity, not the number of contacts.

● goal: tap as many unique sources of information and ideas2. build internal cross-unit networks (to generate ideas from new connections)

■ What’s needed is an ongoing dialogue and knowledge exchange between two people from different units.

■ These kind of collaborations don’t happen by chance, they are the result of well-established organizational mechanisms.

● Fixing the Conversion-poor company○ Most companies have no shortage of formal systems for managing ideas. The

number and diversity of people involved ,however, can create a risk-averse and bureaucratic process that grinds execution to a halt.

○ Solutions:1. multichannel funding

● it opens up different options outside the boss’s immediate purview - from small discretionary pots of seed money all the way to full-scale venture funds.

2. safe havens ● Fixing the diffusion-poor company

○ You need to create buzz for new concepts by using a variety of catalysts:○ idea evangelist

■ someone who preaches the good word about an emerging product or business

■ the best ones use their network to increase awareness among employees and persuade them to adopt a new product or concept.

■ their relationships must span many different parts of the organization for companywide and across-company diffusion to ensue.

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● New measures, new roles○ if executives tailor their solutions to the right problems, over time, a weak link in the

innovation chain will become a strong one and some other part of the chain will need tending instead.

■ you constantly need to monitor each link in the chain in order to continually improve the whole

○ implement new KPI’s that focus on the specific deliverables from each link in the chain.

○ Adopting the value chain view of innovation will also need to cultivate new roles for employees.

IDEATION FOR PRODUCT INNOVATION: WHAT ARE THE BEST METHODS

● need for a deliberate, systemic and managed approach to generating game-changing new product ideas.

○ idea management has the strongest impact on the increase in sales by new products.

● Cooper-edgett Ideation study:○ objective: to determine how extensively each ideation method is used(popularity) as

well as to gauge management’s perception of the effectiveness of the method in generating excellent, high-value new product ideas.

A CLOSER LOOK AT VOC METHODS

● V oice-Of-Customer methods○ Eight VOC methods were investigated.

■ rated highly in terms of effectiveness1. Ethnographic research

■ this approach involves camping out with or observing of customers for extended periods, watching and probing as they use or misuse products

■ this method doesn’t suit all product types and markets● f.e: you cannot camp out in someone’s kitchen or bathroom

2. customer visit teams■ With this approach, visit teams (cross-functional) visit your customers or

users. They use in-depth interviews based on a careful-crafted interview guide to uncover user problems, needs and wants for customers.

3. customer focus groups for problem detection■ Focus groups are run with your customers or users to identify needs, wants,

problems, points of pain and new product suggestions.● a moderator leads the discussion

■ note: focus groups are normally used to test a product, not to generate ideas

4. lead user analysis■ the idea: if one works with innovative customers, then innovative product

ideas are the result.■ the technique often entails assembling a group of particularly innovative

customers/users (a group workshop) to identify problems and potential solutions.

5. the customer or user designs■ Customers/users are invited to help you design your next product■ can only be implemented in certain categories or products

● f.e. not possible for pharmaceuticals, aerospace equipment,..

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6. customer brainstorming■ it entails gathering a group of users and then employing a formal

brainstorming session with them to come up with new product ideas.● often inverse brainstorming is used in the beginning to uncover

product deficiencies and shortcomings○ =the group tries to be super-critical: your group takes a

product and brainstorms to uncover what is wrong with it: they find all the creative ways they can to attack and destroy the product. (GOOGLE)

● Then brainstorming follows to propose solutions to the identified deficiencies.

■ often at a customer event (B2B) or in lieu of a focus group session for B2C 7. customer advisory board or panel

■ it entails using a customer advisory board or user group to advise on problems and new product needs?

■ This approach is better for maintaining good customer relations instead of idea generation

8. community of enthusiasts■ your company forms a community of enthusiasts who discuss your product,

often on the internet:● In doing so, problems are identified and ideas for new products

emerge

OPEN INNOVATION APPROACHES

● six different open innovation approaches to getting new ideas:1. Partners and vendors

○ it entails seeking new product ideas from outside partners and vendors.2. accessing the external technical community

○ it solicits ideas and technology solutions from the external scientific and technical community.

■ the method tends to be used more for seeking technology solutions than for seeking new product ideas

3. scanning small businesses and businesses startups○ this accesses small and businesses to get ideas from these entrepreneurial firms.

4. external product designs○ this involves using the internet to invite your customers, users and others from the

external world to submit finished product designs (not just ideas!).■ the method is sometimes called: crowdsourcing

● F.e.: the T-shirt company Threadless (see slides)5. external submission of ideas

○ this involves using the internet to invite your customers, users and others from the external world to submit their product ideas.

6. external idea contest○ It involves hosting an ideation contest and inviting the external world to submit

ideas

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FOUR OTHER IDEATION METHODS

1. Peripheral vision ○ in this deliberate and formal strategic exercise, you asses the external world to

identify trends and, in the process, define potential new products. ■ approach is based on the tenet that most firms get blindsided by major

external events and miss opportunities for products because they lack peripheral vision

● =all that is visible to the eye outside the central area of focus = side vision

2. disruptive technologies○ to monitor technological trends formally , to identify disruptive ( radical and step-

changes in) technologies and define the resulting new product ideas3. patent mapping

○ mapping or mining other's patents to see where technical and competitive activity is and to identify the potential areas for new products

4. idea capture internally○ it involves formally soliciting new product ideas from your own employees (often via

an internal web page) and screening and handling these ideas via some form of structured process

HOW TO USE THE MAGIC QUADRANT DIAGRAM● it gives an overview of the popularity and effectiveness of various ideation methods and

sources

Regardless of which approach you use, recognize that effective ideation is a vital part of a solid idea-to-launch system- a critical best practice.

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INNOVATION TOURNAMENTS

TO ILLUSTRATE THE NUTS AND BOLTS

● American Idol resembles an innovation tournament:○ many contestants compete but only the fittest survive

FOUR EXAMPLES OF INNOVATION TOURNAMENTS

● The innovation Quest of Deloitte○ consisting of three phases

■ ideation● all employees can submit ideas electronically

(the best go to the next round)■ collaboration

● idea owners build a team and solicit feedback on their ideas (the best go to the next round)

■ evaluation● all deloitte personnel are encouraged to provide their views on the

most promising concepts-they vote for the best ideas- which is a significant factor in determining the winners

○ Dow chemical innovation tournament to save energy and reduce waste■ submissions are peer reviewed

○ Innocentive (see slides)■ a company that organizes innovation tournaments so that its customer,

typically large technology-based companies, can overcome specific technological challenges

■ it publicizes a problem to a broad audience, including academics like us.these people then submit their proposed solutions

● innocentive+customers pick one or more winners○ Terrapass

■ tournament for designers and architects

DISTINGUISHING ATTRIBUTES OF INNOVATION TOURNAMENTS

1. is the tournament open or closed ? ○ open tournaments

■ are run in public and anyone may enter■ who: the government or non profit groups

○ closed tournaments■ employees identify the opportunities and the firms keeps the proceeding

proprietary ■ who: companies

2. Is the tournament a pure cascade or does it allow renewal and iteration ○ pure cascade

■ contest are evaluated and either advanced or eliminated● once eliminated→ no second chance

■ iterative● allowing the initial opportunities to spawn others or letting

eliminated ones be improved and then reentered in the competition

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3. does it play out in one or multiple rounds ○ One round

■ Thousands of opportunities compete in a single round of evaluation● does not happen often

○ Multiround tournaments■ It quickly weeds out the mediocre opportunities, making it possible to

devote more time and resources to evaluating the most promising ones 4. does the tournament employ absolute or relative filters (to judge opportunities)

○ Absolute standard■ opportunities are evaluated against a fixed benchmark or threshold of

quality● if an innovation clears the threshold, it advances

○ Relative standard■ it operates like a beauty contest: the best opportunity wins, not because its

absolute worth, but because it beats the other entries● f.e. contest for a novel design for a logo or a toothbrush

THE POWER OF TOURNAMENTS

● tournaments are the SECOND-BEST way to innovate○ tournaments require a lot of time and money and then you abandon most of the

opportunities.○ a better approach is innovation based on rigorously tested scientific theories.

■ f.e: size of fuel tanks required to supply an airplane intended to cross the Atlantic.

■ problem: most innovation problems don’t allow this approach● they need trial-and error- exploration.● f.e. the movie production,

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● For every individual opportunity you consider, whether molecule, movie pitch, mousetrap, you face a range of possible outcomes and thus uncertainty regarding the payoffs of the opportunity.

○ In statistics: you create draws from a payoff distribution.○ comparison: When you create opportunities, you essentially print lottery tickets; you

only care about the winning tickets. This is the same with innovation tournaments. You only care about the exceptional opportunities that create the bulk of the financial value from innovation.

● We Illustrate this variance in the quality od the created opportunities with a Bell-shaped curve. Great ideas are scarce and lie out on the upper tail of the payoff distribution.

○ How can you increase the quality ?1. Increase the average quality of your opportunities. If you create better ones

on average, more will clear the hurdle. 2. Increase the quantity of your opportunities. If you produce more

opportunities, you’ll see more exceptional ones3. Increase the variance in the quality of your opportunities

a) this is a direct, though not immediately obvious, implication of statistics. Holding the average quality and quantity constant, you’ll generate more exceptional ones if your process exhibits greater variability- that is, if it’s less consistent in the quality of its output.

NOT A SIX SIGMA PROCESS

● Many business people have been trained to try to eliminate variability, driving toward highly consistent, repeatable outputs.

○ this is the logic of modern quality management, including the concepts of process capability and Six sigma

■ WRONG WAY TO THINK ABOUT INNOVATION

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WHERE DO INNOVATION TOURNAMENTS FIT INTO YOUR BUSINESS

● Most firms have structured the product development portion of their innovation efforts, often with a phase-gate process.

○ Presumption: the target opportunity, if addressed effectively, will result in a successful product or service.

○ Strength: it applies the structure and managerial rigor you are used to from production or sales to the development of new product and services

○ The fuzzy front end = activity upstream of the product development process■ innovation tournaments provide a structured way to manage this

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