Chief Innovation Officer, Issue 11

THE

LEADING

VOICE

OF

INNOVATION

CHIEF INNOVATION OFFICER SEP 2016 | #11

Do Large Companies Remember How To Innovate? |6

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How Far Is China From Closing The Innovation Gap? The amount of money invested in China recently has seen its innovation process progress from wanting to developed /11

Is Open Innovation Worth The Risk?

Open innovation is great way to speed up or kick-start the innovation process, but many companies hesitate given the perceived risks /21

Chief Innovation Officer Summit December 5 & 6, 2016 | New York

Speakers Include

Contact Dean Marshall +44 203-868-0310 dmarshall@theiegroup.com theinnovationenterprise.com

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ISSUE 11

EDITOR’S LETTER Welcome to the 11th edition of Chief Innovation Officer

Innovation has been a buzzword for a long time now, so much so that no company worth its salt has no consideration for the creation and incubation of good ideas. When many think of innovation, the mind immediately turns to the United States.

Silicon Valley’s worldwide fame, coupled with the number of undeniably innovative tech giants produced by the US in the past couple of decades, has cultivated an opinion among many that the US the undisputed home of innovation.

In reality, the US sits fourth in the Global Innovation Index’s top 25 most innovative countries of 2016, behind Switzerland (first), Sweden (second) and the United Kingdom (third). The report takes into account factors like market sophistication, creative output, research and infrastructure. Though the US’s position is admirable, as the world’s biggest economy one might expect it to be.

Making its way into the top 25 for the first time is China - in fact, it’s the first time a middle-income nation has made the list of otherwise highly developed countries. Positive investment in R&D has been a boon for the innovation sector in the world’s second-largest economy, but innovation requires continuous investment, and China’s economic slowdown is a cause for concern. In this edition, Jaz Khan assesses how far China actually is from closing the innovation gap.

Another recent topic for debate is the many different forms of innovation that companies are striving to achieve.

Continuous innovation has emerged as an alternative to the overused notion of ‘disruptive innovation,’ open innovation has grown in popularity but the reservations around its use are still prominent and real, and datadriven innovation is all but a necessity in an age defined by its collection of information. In this issue, we take

a look at all three, as well as the guidelines companies should follow as they look to maintain their innovation programs in the long-term. Even large companies need to remember to innovate, and decades of success shouldn’t dull that edge, tempting as it is to feel comfortable.

As always, if you have any comment on the magazine or are interested in contributing, please contact me at csammonds@theiegroup.com.

charlie sammonds

managing editor

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Product Innovation Summit September 28 & 29, 2016 | Boston

Speakers Include

Contact Dean Marshall +44 203-868-0310 dmarshall@theiegroup.com theinnovationenterprise.com

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contents 6 | DO LARGE COMPANIES REMEMBER HOW TO INNOVATE?

14 | HOW DO YOU PRACTISE CONTINUOUS INNOVATION?

Large companies are often seen as lacking in innovation when compared to agile, decisive startups, but is this a fair label?

Disruptive innovation is often seen as the holy grail, but being able to implement continuous innovation is a far more stable bet

8 | 4 WAYS TO MAINTAIN INNOVATION Innovation is often thought of as revolutionary, but the main difficulty that companies find with innovation programs is keeping them alive 11 | HOW FAR IS CHINA FROM CLOSING THE INNOVATION GAP? The amount of money invested in China recently has seen its innovation process progress from wanting to developed

18 | DATA-DRIVEN PRODUCT INNOVATION Product innovation is not something that comes easily, but the sea of data available today can help direct the process 21 | IS OPEN INNOVATION WORTH THE RISK? Open innovation is great way to speed up or kick-start the innovation process, but many companies hesitate given the perceived risks

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managing editor charlie sammonds | assistant editor anastasia anokhina | creative director oliver godwin-brown | contributors harriet connolly, charlotte murren, jaz khan, pearl cheng

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entrepreneurs are brave enough to experiment and take risks because they have relatively little to lose

JAZ KHAN, INNOVATION COMMENTATOR

Do Large Companies Remember How To Innovate?

Has a history of success dulled their innovative edge?

When it comes to innovation, many believe that it solely belongs in the startup world. Such association exists because startups must come up with the innovative ideas, fight for funding, and battle larger competitors, just

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to survive. Large companies, on the other hand, have an established reputation and strong financial capabilities that means that they do not necessarily have the same competitive spirit that fuels innovation.

Opinions on this differ considerably, with some suggesting that large companies have as much capacity to innovate as startups, if not more.

Others believe that the startup world is breathing innovation; at the start, entrepreneurs are brave enough to experiment and take risks because they have relatively to lose, compared to the multi-million dollar revenues, reputation, and historical recognitions of the larger businesses.

There is a big difference between how startups run their businesses compared to larger companies. The challenges are different, with startups worrying about how to get capital and make sure the business won’t fail before they even launch. On the other hand, large companies are concerned about retaining revenue and making sure there is a stable growth.

However, larger companies can innovate, and have all the same capabilities to do so; it’s the wrong prioritization that may be disrupting such processes. Scott Cook, co-founder of Intuit and a Director at eBay and Procter & Gamble, believes that large enterprises have to change their decision-making process.

Instead of decisions being driven by bureaucracy, persuasion, position and power, they should be driven by experimentation. However, reversing the strategy for the sake of experiment is challenging, to say at least.

It is often the ‘do-or-die’ attitude that startups have that forces them to innovate

One of the factors that indicate a company’s potential for a change is a good leadership team as it is them who are responsible for encouraging employees to generate new ideas and innovate even with limited resources.

CEO of Idealab, Bill Gross, recalls the example of Steve Jobs who managed to retain Apple’s innovation culture by taking risks and experimenting.

In an interview with McKinsey, Gross pointed out that it was Jobs who ‘cannibalized’ his iPod’s $5 billion a year revenues by integrating mp3 players into his phones. Some colleagues at that time warned him not to, but his decision ultimately paid dividends.

Another example that shows large companies’ innovation capability is Google X, an experiment platform where Google boldly invests millions in various projects. This includes driverless cars, deep learning techniques, wearable technology and robotics.

Whilst Alphabet Inc, the umbrella company, funds these new ideas, it is also sensible enough to reject many more. The projects rejected for further development are done so at the earliest stage when their lack of viability becomes clear, saving money that can then be reinvested elsewhere.

The failed projects included a space elevator, that turned out to be unfeasible, a user-safe jetpack which sounded exciting but would be too energy inefficient and loud. The most mind-blowing was teleportation, that was found to violate the laws of physics. It is good for Google to be considering even the craziest projects whilst being careful and filtering those with real potential from those that sound good but may not be worthy of funding. A risk aversion to investing in products which may fail is another element that often holds large companies back from innovation. It is often the ‘do-or-die’ attitude that startups have that forces them to innovate and adapt to make a project profitable.

Startups have one advantage in that they don’t have a huge catalogue of past successes. Sometimes large companies adopt the same approach because it is shown to work. However, this is exactly what often stops them from innovating today. Not all fall into this trap, though, and those that can put real money and effort into their innovation efforts are finding they are just as innovative as their smaller counterparts.

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4 Ways To Maintain Innovation Innovation is rarely spontaneous and without good management companies have fewer chances to succeed

Noisy environments and a lack of space for individual work can become a serious problem Charlotte Murren, Innovation Writer

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There is seemingly an equal proportion of confidence and confusion around practising innovation. Some businesses struggle to define the concept, others are in a process of creating innovation programs, and the rest are already enjoying great results. One common belief among those who deal with it, though, is that innovation is of paramount importance and should be placed at the core of a company’s agenda, even if it is sometimes a challenge. Here are 5 practices that can help innovation naturally flow through your company:

Innovation happens in places where creativity is continuously present, but in order to stimulate it, the right environment must be built. It’s important that leadership teams spend time on building good relationships with employees. Friendly interactions and humor can be useful, especially if one lacks creativity or experiences too much pressure. It’s also important to provide innovation teams with space to generate ideas. Albert Einstein used to take long walks alone to analyze his theories, the same approach can be useful for innovators in your company.

Noisy environments and a lack of space for individual work can become a serious problem. Therefore, equipping an office with a quiet area can be a game changer. Also, by providing flexibility, creative minds will feel more comfortable and more free.

can’t be measured and only occurs spontaneously. Generally, an analysis is focused on ROI - the number of registered patents and percentage of revenue from new products. However, there are other ways to measure innovation. It’s worth measuring how much time it takes from the point when the idea is approved to its first profit, and also, record the number of ideas submitted by employees to assess the state of creativity. In the digitized world we live in, it’s easy to install an ‘innovation platform’ where participants can share ideas without fear of judgement. It will drive engagement, produce valuable feedback and, most importantly, will help to keep an eye on how active the team is. It’s also worth considering launching ‘innovation programs’ that can be in the form of brainstorming sessions, exercises and competitions, which can stimulate a competitive spirit and motivation.

Disciplined Innovation

Setting Up Labs

Innovation is all about new ideas and experimentation with potential products or services. Since not everyone understands it, not everyone pays attention to measuring innovation. Firstly, companies should stop thinking that innovation

Innovation labs - also known as innovation teams, funds or units - can come in various sizes, with differing methodology and resources.

Most companies with labs find the practice a valuable addition and a worthy investment. Instead of asking

Innovation Friendly Environments

people to deliver innovation being spread across various departments, it can be useful to have them in one place, with the right resources on hand. Labs generally work on scanning and defining problems with products and their solutions. They are also responsible for testing and prototyping products. Among the advantages of a lab, problem-solving efficiency and product development organization probably stand out the most.

Securing Success And Retaining Results If a company wants to achieve great results in innovation, it has to be consistent. Providing essential funds, launching labs but later abandoning such initiatives due to poor management, can turn into a serious problem, causing the appearance of ‘zombie projects’ (the ones that stopped developing but are still sucking from a budget).

Innovation won’t cause a headache if it’s continuous, thus, leadership teams have to ensure all practices work like clockwork.

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How Far Is China From Closing The Innovation Gap? More investment in R&D is a good sign for the innovation sector but there are still problems to be solved Pearl Cheng, Innovation Practitioner / 11

It’s undeniable that China has the potential to have a strong innovation sector and startupfriendly environment Innovation in China has long been a victim of government interventions, with new entries, ideas, and projects stringently reviewed and supervised before they are launched.

This is the result of a number of factors, but primary among them is that the Chinese authorities are concerned about perceived innovations that could pose a threat to national security if not controlled. Whether or not such concern is justified, the bureaucratic processes implemented in the country have greatly slowed the innovation sector and will continue to do so even with increasing investments in R&D for new technologies, products, and services. It’s undeniable that China has the potential to have a strong innovation sector and startup-friendly environment, but will not come close to achieving it if does not relax its approach.

During the meeting of the 12th National Committee of the Chinese People’s Political Consultative Conference (CPPCC) in Beijing, Wang Zhibiao, a member of CPPCC, pointed out that, despite the nation being gripped by a wave of innovation and entrepreneurship, problems related to policy implementation and risk awareness need to be addressed.

Chinese and foreign entrepreneurs find dealing with legislation and getting the essential paperwork done intimidating, and poor communication between authorities and businessmen that results from the complex process disrupts the innovation growth. / 12

However, Wang Zhibiao also added that local and central authorities provide more than 2,000 supportive policies for those who are in need.

The vast majority of the surveyed entrepreneurs then argued that they weren’t even aware that such policies exist or thought that applying for such support would be too difficult and time-consuming.

China has suffered, by its own high standards, terrible economic growth over the last few years. If this situation is to change, it’s in the country’s interest to drive a new wave of innovation, by taking steps to improve communication between authors and business, and ensuring that regulation activities are easier to understand and supportive policies are well publicized.

In 2015, 4.4 million new enterprises were successfully registered in China.

The Chinese government is also soon to announce its state-level innovation platform. Some even say that, by 2019, the amount of money invested in R&D may surpass the United States. It seems like the country is finally moving in the right direction.

However, the same problems remain for the majority of the emerging startups, and their projects are often of poor quality and not capable of disrupting established industries in the way that has been done in other parts of the world.

Investment in R&D is also often not properly managed. The robotics industry is a good example of this.

China has suffered, by its own high standards, terrible economic growth over the last few years

The tech world was once shaken

by China’s success in the robotics industry, with the country considered the center of a revolution that would change the world. Today, the industry is on its knees, caused by the mass duplication of technology, over-investment, and low-quality models.

Industry and Information Technology Vice Minister Xin Guobin says that China’s robot sector had too much blind expansion during the years it was growing. The lack of focus in investment has meant that there is now a dearth of high-tech performance products, while the market is now drowning in low-end industrial robots that most of the time are only capable of basic functions like carrying and unloading items.

China has more than enough capacity to innovate, with strong financial resources, a well-developed infrastructure, and an influential position economy-wise. The Chinese innovation gap is narrowing to a degree because of the increased spend on R&D and government-led initiatives, but it’s critical to focus on how money is invested and making sure bureaucracy is not too overwhelming to ensure the quality and exclusivity of upcoming products.

Open Innovation Summit September 28 & 29, 2016 | Boston

Speakers Include

Contact Dean Marshall + 1 415 799 9986 dmarshall@theiegroup.com theinnovationenterprise.com / 13

How Do You Practise Continuous Innovation?

If a company is agile enough to handle continuous innovation, there is no need for disruptive innovation

Continuous innovation doesn’t require end customers to change their behavior

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Charlie Sammonds Managing Editor

the AirBnB valuation is set to become higher than Marriot, Starwood and Expedia

Despite innovation having become a buzzword in the business world, many companies still struggle to understand its true meaning and how to practise it. This knowledge gap can distract entrepreneurs from the full benefits. There are also concerns that innovation has to be permanently ground-breaking, but in fact, it’s not what guarantees its success. Businesses need to learn how to practise continuous innovation and stay agile.

Continuous innovation doesn’t require end customers to change their behavior and, generally, doesn’t fundamentally change the dynamics of an industry. The television industry is a prime example of where it has been applied for decades. From black and white bulky sets, the television industry has evolved to customized flat screens and panels - HD-programming has improved the quality, and 3D features enable different user experiences altogether. All of these features had an impact on the industry, although they weren’t disruptive, rather they were gradual and continuous.

Disruptive innovation (also known as discontinuous) delivers the opposite. It usually appears in the form of a completely new product or service, capable of creating new markets, changing industry growth rates, pricing assumptions and consumer perceptions. If disruptive innovation exists in a good customer environment and there are gaps in the market, it can drive greater and quicker results. However, those results are much harder to maintain, therefore, continuous innovation is considered a safer option, especially for SMEs. In a world of technological breakthroughs, businesses that focus on continuous innovation have a higher probability of maintaining a strong market performance. However, there are also challenges due to compression of innovation cycle times caused by hyper-competition. Thus businesses have to be prepared to keep up with the fast pace that disruptive innovation creates. For example, according to CB insights, the AirBnB valuation is set to become higher than Marriot, Starwood and Expedia, / 15

growing by 140% from its last valuation in 2014. In order to compete, businesses have to adjust by applying a strategy built around agility.

It can be useful to break down large-scale, high-risk product development efforts into smaller, low-risk experiments. Any experimentation has to be performed quickly, this can be achieved by setting fixed intervals of time, for example, three to five months. Thus, teams have to be provided with the essential budget without disruption, in order to be able to test multiple ideas quickly. They also have to be able to clearly define a problem and to identify appropriate

metrics to measure success from experiments.

Despite disruptive innovation being capable of driving greater results, it’s a high-risk practice that can cause many complications following its success. Companies that implement continuous innovation achieve growth that is easier to retain if an effective strategy is put in place. It’s critical to not stand still and keep experimenting with existing products, whilst keeping an eye on the development of new ones. An agile company will, invariably, have a better chance to succeed.

Despite disruptive innovation being capable of driving greater results, it’s a high-risk practice

RISK

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Chief Innovation Officer Summit October 19 & 20, 2016 | London Speakers Include

Contact Dean Marshall +44 203-868-0310 dmarshall@theiegroup.com theinnovationenterprise.com / 17

Data-Driven Product Innovation Data has a key role to play in product development today Anastasia Anokhina, Assistant Editor

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Henry Ford famously said: ‘If I had asked people what they wanted, they would have said faster horses.’

Whenever a new product is created, many have an idea that it should only ever be to solve a problem that somebody has. Sometimes it is to totally change the way that people perceive something, for instance the iPhone totally changing the mobile phone market. It could also be to take an existing product and simply mane it better, like how Uber created a better way to order taxis.

Regardless of the exact reasons for the product, whether it is brand new, an iteration of a previous version or the same version with added features, the goal is always innovation.

Until recently, this was down to individual brilliance and foresight, such Henry Ford who famously said: ‘If I had asked people what they wanted, they would have said faster horses.’

The invention of the car was only down to his foresight and innovative thinking that flew in the face of public perception at the time. However, in modern times, although this kind of thinking is important, it is taking a secondary role to the use data to inform designs and entirely new products.

The first and most obvious way that data is used to create new products is through web tracking which can suggest what people like, dislike or don’t care about. Netflix is a prime example of using this effectively when they created House of Cards, their award winning political drama. Although the concept (the BBC mini-series’ basic plot with David Fincher and Kevin Spacey attached to the remake) was up for bidding, Netflix could see a cor-

relation between people who watched the original mini-series, films by David Fincher and films with Kevin Spacey. It worked perfectly and became the first internet-only show to win a Golden Globe.

However, this is a fairly basic use of data in the creation of a new product, especially as just seeing what a customer might like from previous actions is fairly simple and it is essentially a slightly more complex suggestion engine. There are some companies taking the concept to the physical world though, one of them being Procter & Gamble (P&G).

Their CEO, Robert McDonald is attempting to make the company the most technologically enabled in the world. A key to this is their use of simulation analytics, which uses data to model a product with slight variations in material, design or ingredients. This can then be tested without producing a prototype, saving money, time and ultimately creating a superior product.

This process requires powerful modeling capabilities and comparatively powerful computing power, but will ultimately create significant value for both the P&G brands and the customers who use them.

Data is driving product innovation across the entire business spectrum / 19

The use of data doesn’t even need to be especially complicated and some of the most basic elements of data analysis can simply help to show which of two potentially innovative products is likely to be a popular product. Julep, a Cosmetics startup are a prime example of this.

As a startup, they naturally don’t have the same kind of technological or data-driven capabilities as a $219 billion company, but they have still managed to utilize data to decide between two potentially innovative products.

This is through simple A/B testing of standard advertising and social media campaigns. It is certainly not as impressive as being able to change the basis of a product on a screen thousands of times, but it allows them to see which of a small number of products is the best received. It is similar to how many startups are using crowdfunding sites. It gives them the opportunity to not only raise capital, but also, by providing multiple options of the products, gives an early indication of which have the most commercial potential.

Data is driving product innovation across the entire business spectrum, from those who are just starting out, to the biggest companies in the world.

There is little argument that there is certainly still a place for minds like Jobs, Ford or Zuckerberg, but we are seeing with the use of data that it is no longer a prerequisite to creating truly innovative products.

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Is Open Innovation Worth The Risk?

How to effectively practise Open Innovation and avoid the risks of disclosing too much

some companies struggled to solely rely on their own research and started looking for innovative ideas and trends elsewhere

Harriet Connolly, Head of Innovation / 21

The paradigm of Open Innovation (OI) appeared not long ago, firstly described by Henry Chesbrough, in the book Open Innovation: The New Imperative, published in 2003. OI has become increasingly popular amongst businesses, but many also see challenges and risks in its implementation.

One of the attractive features is its cost effectiveness, especially among SMEs, where financial resources may be limited. It was one of the reasons it appeared - some companies struggled to solely rely on their own research and started looking for innovative ideas and trends elsewhere.

The trend evolved and created many opportunities for innovation growth and development in productivity.

OI is not as easy in practice as it may sound, though. Henry Chesbrough suggested that there are three factors that OI creates, and of

innovation than a company is already trying to solve. One such example is Boeing and its 787 Dreamliner model. The design development was initially divided into subsystems, where different external partners were responsible for the development of each one. When Boeing came to the point of proofing the final aircraft design, the company discovered it couldn’t get the pieces work together and as a result, the model was now years behind schedule. Thus, a failure in framing a challenge to external participants may result in an inability to deliver the final product if what comes back is incoherent.

Another challenge in OI is trust. The frames and strategies might be in place, but there is a human factor. As a company dealing with innovation, sharing problems and disclosing project details with others may

a failure in framing a challenge to external participants may result in an inability to deliver the final product which businesses need to be aware.

Firstly, it is the acknowledgment of the competitive risks of sharing your problems, the limitations in knowledge for framing a challenge, and finally, the impact of interdependencies on innovation. Competitive risks can be avoided if innovation seekers describe their need not as a problem but as a challenge for external organizations. Understandably, a company doesn’t want to lose its competitive advantage, thus it may fail to properly describe a problem, due to an attempt to protect critical details of their IP, to remain safe from ideas being stolen. Thus, it is critical to pay attention to how effective the company’s IP management is and how resistant it is to possible legal risks.

The third factor is a risk of interdependence with proposed solutions.

It may create a bigger problem with / 22

be intimidating, but the chance of creating a great impact, sometimes wins over a fear of ideas being stolen.

Companies should learn how to build trust without disclosing too much.

When addressing the problem, it’s not necessary to disclose the final function of the product, thus, narrowly focussing on the specific problem rather than a product performance can be useful. Also, IP management is critical, and can be achieved by making clear agreements between seekers and providers, and ensuring IPs are legally protected.

An effective unification of forces can only happen if ideas are shared confidently, with a clear understanding of each other’s commitment. With the right preparation and aligned expectations, companies who seek innovation and those who can provide solutions can generate mutual value. Rosabeth

Moss Kanter, a professor of Business at Harvard Business School, once said: ‘After years of telling corporate citizens to ‘trust the system,’ many companies must relearn instead to trust their people - and encourage their people to use neglected creative capacities in order to tap the most potent economic stimulus of all - idea power.’

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