Now this is a "Reverse Innovation" that makes sense!

I bet this short story will bring a smile to your face. If not, I owe you another story :). There was a Japanese soap manufacturing company in which the soap blocks were made, then wrapped in wrapping paper automatically on the assembly conveyor belt, and finally packed in cartons. Typical Japanese automation at its best. Unfortunately, there were times when the wrapping machine created an empty packet without a soap inside. To rectify this problem the Japanese company bought an x-ray scanner from the US for $60,000 to check each packet on the assembly line and find the empty ones.

Not surprisingly, the empty packet challenge was not unique to the Japanese company. Nirma, a premier Indian soap manufacturer, faced a similar problem. Their solution was just a bit different and way cheaper. They simply bought a big fan (about $60) and placed it at the end of the assembly line. Problem solved: the empty wrappers without soap just blew away!

Now that's what I call a "Reverse Innovation" that makes sense to adopt worldwide! :)

HBR - Nine Rules for Stifling Innovation

We all talk about how to create a fertile culture to spur and encourage innovation.  In her recent blog posting, Rosabeth Moss Kanter has done a nice job of identifying nine ways to completely derail any innovation efforts whatsoever. They're actually quite funny, although if you are facing any of these where you work then you have my full sympathy...

The nine rules she identifies are summarized (and slightly paraphrased) below:

1. Be suspicious of any new idea from below. After all, if the idea were any good, we at the top would have thought of it already.
2. Invoke history. Find a precedent in a an earlier idea that didn't work, so it won't work this time either.
3. Keep people really busy. If they don't have free time, they won't try to think as much.
4. In the name of excellence, encourage cut-throat competition. Get groups to critique and challenge each other's proposals, preferably in public forums, and then declare winters and losers.
5. Stress predictability above all. Count everything that can be counted, and do it as often as possible.
6. Confine discussion of strategies and plans to a small circle of trusted advisors and make sudden, big announcements. 
7. Act as though punishing failure motivates success. That'll stop people from trying new things.
8. Blame all problems on the incompetent people below.
9. Keep reminding everyone that the top people already know everything there is to know about this business.

You can read the complete blog posting here.

Book Review - The Wide Lens

Why do many innovations fail? It is a question that baffles the best of us and keeps many a corporate executive awake at night. This anxiety is not unwarranted. Despite having a brilliant idea based on true customer insight and needs implemented with flawless execution, many innovations simply fail to meet the expectations set of them by their creators and by the market for which they were created. The Wide Lens by Ron Adner is a must read to gain insight into why that might be the case. In his thought provoking book, Adner explains how most innovation initiatives focus solely on managing the "execution" risk i.e. ensuring that a valid customer need exists, vetting the idea, and ensuring appropriate leadership and implementation. Adner explains that this "narrow lens" view is a root cause of why these innovators are blind sighted by failure. A "wide lens" view reveals two other major risks that need to be mitigated for success:

1. Co-innovation Risk - This risk represents the extent to which the successful commercialization of an innovation depends on the successful commercialization of other innovations. 
2. Adoption Chain Risk - This risk represents the extent to which partners and others will need to adopt the innovation before the end customer can reap the full benefit of the value proposition.

Adner illustrates these risks very clearly in explaining how Michelin’s big innovation in tires - the PAX System, which was designed to run for 125 miles after a blowout - failed to take off, despite the backing of major automakers, because the company failed to foresee the need for a robust network of service centers to repair these run-flat tires before going to market. The inability to service PAX tires and the resulting additional expenses incurred by consumers who had to buy new tires led to mass consumer backlash and even lawsuits that ultimately turned automakers off of these truly innovative tires. The PAX system falied because Michelin had failed to mitigate the adoption chain risk.

As Adner explains, co-innovation and adoption chain risks lurk in the blind spots of traditional strategy. They remain dormant as long as an innovation follows established lines (such as Michelin's successful introduction of Radial tires in the 1946). However, as soon as an innovation goes beyond being incremental in nature (such as the PAX tires), ecosystem challenges arise, which can only be addressed with a wide angle lens.

History is replete with examples of innovation failures that occurred despite brilliant execution. Nokia spent millions to be first to market with a 3G handset, but failed to profit because critical partners in its ecosystem did not complete their innovations in time. By the time customized video streaming, location based services, and automated payment systems were finally ready, so was the competition. Phillips suffered a similar fate as it tried to introduce HDTVs in the 1980s. And we are observing a similar dynamic with 3D TVs today. All of these are examples of failures stemming from the lack of "co-innovations" that need to happen for consumers to be able to realize the full benefits of an innovation's value proposition.

The Michelin story above illustrated an innovation's failure due to non adoption by a critical player in the ecosystem. Pfizer’s suffered a similar disastrous fate with its miraculous inhalable insulin, Exubera, which was approved by the FDA, hailed by Wall Street analysts, and launched with huge fanfare. The $2.8 billion write-off, widely acknowledged as one of the biggest failures in the history of the pharmaceutical industry, can be traced directly to endocrinologists not embracing the requirement of lung function testing imposed by the FDA.

Contrast the above examples of failure with two innovations that have been successful. Digital Cinema Initiative (DCI) is an example of a consortium of movie studios coming together in a unique way to overcome the cost of adopting digital film within the theater value chain. In essence, they subsidized and shared the cost of capital investment in smaller theater chains to ensure that digital film would enjoy the broad distribution and availability critical to its growth. It was a direct result of this innovation that director James Cameron was able to regale us with his 2009 blockbuster movie "Avatar". Amazon's success in the e-reader market with its Kindle product is also an example where Amazon overcame publisher reluctance by subsidizing their participation in addition to  robust digital rights management both of which Sony was unable to accomplish and therefore failed despite having a technically superior e-reader.

Finally, Adner provides insight into a topic that is near and dear to my heart - "The First Mover Advantage." In my recent book, Living in the Innovation Age, I talk about the fallacy of thinking that "only the first to market" reaps the benefits of innovation. Rather, there are many cases of second, third, and subsequent movers being successful where the first mover failed. Adner sheds further light on this matter by presenting a framework that one can use to determine whether they should even try to be the "first mover". Per this framework, it only pays to be the first mover if your innovation has very little dependency on the ecosystem. The more complex your innovation becomes and the more it depends on co-innovations and adoption, the less beneficial it is to be a first mover (i.e. the risk of moving first goes up significantly). In such cases, it is much more prudent to be a smart mover as Amazon was with its Kindle and Apple was with its iPod.

The Bottom Line

I highly recommend The Wide Lens to anyone involved in innovation strategies, commercialization and new business development. Its unique approach to analyzing that factors that contribute to the success and failure of complex innovations and the supporting tools (value blueprints, leadership prism, first mover matrix, supply chain reconfiguration levers, and minimum value footprint) are sure to, as Adner summarizes in his last chapter, "multiply your odds of success."

Popular Social Media Metrics - A Waste of Time?

I came across an interesting post in HBR today titled "Why Your Social Media Metrics Are a Waste of Time" by Ivory Madison. Popular social media metrics such as page views, unique visitors, registered members, conversion rates, number of Twitter followers, or Facebook likes are "interesting" at best. They're what Eric Ries, author of The Lean Startup, calls "vanity metrics." Vanity metrics look good but fail the "So what?" test. That is, vanity metrics are accurate, but irrelevant. Does it really matter if you have a million Twitter followers (an accurate number), if at the end of the day you cannot trace any product sales back to that metric (no relevance)?

So, Ms. Madison recommends the following four metrics as more useful alternatives:

1. Relevant revenue. Note the word "relevant," which refers to recurring sales in your core business. Don't count revenue from one-time or stagnant sources.
2. Sales volume. This can be a number like units sold or active subscriptions, something that shows whether or not enough people want to buy what you're selling.
3. Customer retention. Metrics like "new customers" can hide the fact that although you may attract 1,000 new users a month, you're losing 900, which means you're not going to scale.
4. Relevant growth. Too often, companies compound the stupidity of their choice of metrics by creating a metric tracking the growth of vanity metrics. You should be looking for a traceable pattern in which the actions of your existing customers create new customers. That's what Ries calls an "engine of growth."

My 2 cents - The above four metrics are "motherhood and apple pie." They are the holy grail of measuring the effectiveness of any activity; social media or not. The challenge is not that no one recognizes that these are the best metrics but that no one has figured out (or publicly announced) how to capture these metrics for Twitter or Facebook or any of the other popular social media sites.

The Bottom Line

As I said, an interesting post but unfortunately it falls short of presenting any new information. Most experts would agree that the current, popular social media metrics are less than optimal. The question is how do you measure the "right" stuff? And is this another example of not letting perfect be the enemy of good enough? 

Want to Innovate? Abandon Best Practices.

"Status quo is the enemy of innovation" is a concept I discuss extensively in my recent book, Living in the Innovation Age. In fact, that conviction is the basis of Principle #3 in my book - Innovation is "Where No Man Has Gone Before."

So, what have "status quo" and "innovation" got to do with best practices? Aren't best practices supposed to be a good thing? After all, best practices are the distilled essence of the learning of many individuals from years of experience, successes, and failures. Best practices are supposed to help ensure success and avoid past mistakes. Conventional thinking would agree. There are, however, two main problems with such conventional thinking and therefore with these so called "best practices."  

The first problem is that many best practices are rooted in past constraints and/or fallacies.  Freek Vermeulen explains this nicely in his recent blog posting titled "Which Best Practice Is Ruining Your Business?" in HBR. He starts the discussion with an excellent example of the best practice of printing newspapers on broadsheet format even though such a practice raised printing costs substantially. Despite the higher costs and inconvenience, newspapers were terrified of going against the established "best practice" assuming that customers equate quality newspapers with broadsheet. When finally, in 2004, the United Kingdom's Independent switched to the denounced tabloid size, it actually saw its circulation surge!

One reason why a best practice's inefficiency may be difficult to spot is because when it came into existence, it was beneficial. Decades ago broadsheet newspapers made sense since newspapers were taxed based on the number of pages. By using broadsheets newspapers were able to cut down taxes, lower costs, and make more money overall. But even when the tax per page was abolished, newspapers stuck to broadsheet printing as a best practice for quality newspapers and forgot that the real reason for broadsheets had nothing to do with editorial or content quality or even user convenience.

The second problem builds on the first problem and serves to reduce a company's differentiation and hence competitive advantage. By default, best practices are well documented, accepted ways of doing things. Also, by default, it then follows that everyone is adopting these best practices, sometimes without even realizing that they are doing so. For example, software packages such as Enterprise Resource Planning (ERP) systems and Customer Relationship Management (CRM) systems that make up the backbone of many company's core operations come with best practices codified in their business logic and database tables. So, when a company implements one of these ERP or CRM systems and leverages the built in capabilities they are in fact adopting the same "best practices" that everyone else is using. Therein lies the issue - best practices only serve to solidify the status quo not challenge it. In an era when customers demand creativity and innovation, that's just not going to cut it. In the long run, relying on best practices will doom you to mediocrity. Instead of getting bogged down trying to reverse-engineer the strategies of others, your time will be much better spent finding your own path. 

The Bottom Line

Innovation requires challenging the status quo and going "where no man has gone before." That cannot be achieved by following best practices since such practices at best solidify the current state of knowledge. Innovation requires breaking away from best practices and creating "next practices" that can enhance differentiation and provide sustainable competitive advantage.