IM: Something about innovation has changed – it used to be about developing new products and services but it seems now to be about so much more – the culture of an organization, the balance between execution and transformation, unprecedented challenges. Could you give me your take on what is different about innovation now compared to say 20 years ago?
AR: Many things are different now.
Technology has allowed so much more massive access to data, enabling almost limitless use, sharing and processing of information, knowledge and insight, at a relatively low cost of capital. While many of these technological advances seem obvious, there are a few worth calling out because of the tremendous influence they have on a company’s approach to innovation; now even more that ten to fifteen years ago.
Think about how the internet has empowered people to find information on just about any subject. First, search totally redefined what it meant to “look for something.” Then, social media and mobile technology opened up the access associated with search. Social media has expanded one’s peer group beyond the circle of relationships with whom he or she connects physically. Social networks now encompass anyone in the world with whom an individual connects with online through a common interest or opinion. Mobile technology enables us almost unlimited connectivity. Social media and mobile technology have redefined interaction by broadening influence, particularly away from traditional advertisers, and saving time.
In general, low-cost access to technology, time-saving and the role of social influence have irrevocably altered the ways in which successful new products and services are developed and brought to market. A tangible corporate structure is becoming less necessary for delivering goods and services to consumers, so there’s more pressure on established businesses to embrace technology in order to stand out. The competitive playing field is being redefined. The media industry’s evolution from print to online is a great example.
Within this ever-changing landscape, strong leadership and a well-defined culture will determine a business’ success as a continuous innovator. But innovation has to be more than simply a groundbreaking idea – it has to be about viable new business concepts that meet real consumer needs better than what’s already in the marketplace.
You were one of the first Chief Innovation officers in American business – can you say how that came about and what it means to be in charge of innovation? It sounds like a very broad remit?
A tangible corporate structure is becoming less necessary for delivering goods and services to consumers, so there’s more pressure on established businesses to embrace technology.
I literally fell into it. I had a background in direct marketing and product development, saw the opportunity to apply what I knew to digital, and was asked by the CEO of Citi Cards North America to “help make the business more innovative.” I started a skunkworks team within the department I was leading at the time, and we focused on identifying and piloting new concepts that could represent new opportunities for our business. I soon evolved into the role of Global Consumer Chief Innovation Officer because innovation is not something you want to confine to a department or other organization unit. We defined our remit around piloting disruptive bets and establishing an innovation portfolio. We also focused on establishing and enabling capabilities that would accelerate innovation potential across the business units, including process, tools, training, and more.
Innovation is much talked about but of course the crucial issue for companies is how they grow a competence. Are you involved in changing or growing organizational competence? If so where are the big challenges – if you were to name the top three….?
Growing skills across the organization is very much part of evolving a culture to create the most favorable conditions possible for innovation to flourish. A pioneer in online trading since 1983, E*TRADE was built on a culture of innovation. So, some of the things we are focusing on now at E*TRADE include: conducting innovation workshops around the company, introducing new ideation techniques, demonstrating through a hands-on exercise that everyone (not just creative types) can play a role in building innovative new businesses and encouraging open dialogue about how employees can help. For example, we’re creating an innovation presence on the corporate intranet where we share tools and useful public domain materials so people who are interested can build knowledge. Our goal is to make it easier for employees to contribute and share ideas and also to acknowledge innovation leadership and results through company-wide recognition programs.
You’re known for taking a VC-type approach to innovation. What alternatives did you consider before adopting that and what are the benefits of your approach?
If you are truly innovative, you are going to have a certain hit rate. I hate to use the word “failure” because I believe every experience is an opportunity to learn. As long as you learn, then you haven’t failed. Realistically, no one has a crystal ball, so the power of the VC approach is in the concept of placing numerous “bets” on what could work, and building out an innovation portfolio. The key to success is to fail fast and fail cheap; harvest the learnings and move on. When you are at the beginning of the road with an idea, it’s almost impossible to answer questions such as: Is it going to be the next Facebook, or just a nice incremental improvement to your business? Will it add no value at all? Taking a VC approach and focusing on the business model potential and the size of the market, as well as the strength of the management team is more applicable, and helps avoid imposing an unrealistic demand for financial precision at too early a stage. One of the best ways to kill an idea is to prematurely pose the question, “How is this going to make any money?” We all tend to frame the answer to this question in terms of what we’ve seen in the past, so naturally, it is difficult to envision a whole new way to serve the market and make money until we’ve nurtured an idea along and can see its impact.
The key to success is to fail fast and fail cheap; harvest the learnings and move on.
A VC approach can be challenging, particularly when an established company seeks to expand into new markets, new product lines or new segments. The motivations, resources and constraints differ from those of an outside investor group who are planning for an exit, so the day-to-day decision making and strategy can end up being different.
Can you lay out some of the main steps innovation managers would need to take to adopt that approach?
What’s an acceptable failure to success ratio?
Innovation is not a one-year return on investment, or time…. you should probably take a 24-36 month view.
Some people talk about 10:1. I don’t really focus as much on the ratio right now, because we are more focused on establishing our portfolio. I think it’s helpful to look at total dollars invested. You could have a low rate of wins, but a good return on the dollars invested. Innovation is not a one-year return on investment, or time. Assuming you are focused on innovating beyond incremental enhancements to your current business (those that are continuous, predictable and have limited impact), you should probably take a 24-36 month view.
What metrics do you personally most value in innovation?
It depends upon the specific goals and business situation. The short answer is that in the early stages an innovation team is better off focusing on hitting milestones (e.g., getting X number pilots in market by Y date), and moving to more precision and metrics more directly related to the P&L once the business model hypotheses are defined and you are on the road to piloting and validation. Depending on the business model, you may be looking at fairly traditional metrics. I like to consider the answers to these questions:
The role of each revenue driver, and some of the specifics, may be very new to your business or even to your industry. It’s often hard to see these before you actually pilot your innovation strategy and see how the market responds.
Are you somebody who thinks they have a great pipeline or do you fret over missing the next big thing? What contingencies do you build into front-end innovation?
The keys to ensuring you’ve developed a pipeline or portfolio that works are:
This cycle, like any aspect of business involves choices, contingencies and constraints. I am one of those people who believe that constraints breed creativity. Constraints can help you stay focused and keep you moving forward with momentum. Capital also helps, but a lot of capital will not turn a bad idea into a good one.
What’s your evaluation process like? Do you, for example, use crowdsourcing at all internally or externally or do you rely more on expert judgement?
It’s really a combination of factors. Market insight is the driver. Internal and external experts are extremely helpful, as long as expertise doesn’t make them wedded only to familiar concepts. In my experience, co-creation presents a lot of opportunity, but we haven’t directly experimented with crowdsourcing yet. Great things seem to be happening in this arena, however I think you need to be cognizant of the management time and skill needed to get crowdsourcing to work. Crowdsourcing has the potential to result in loads of raw material which you may not have the bandwidth to interpret and process. Tapping into employees’ collective knowledge can often be a powerful source of insight, not only for what it can produce, but for how motivating it can be and what it starts to say about your culture and employee values.
What are the key characteristics of good people in the innovation space? What do you look for and value most in people who work with you and around you?
Where does/ should the Chief Innovation Officer sit in the senior peer group in the modern organization. Is it the new CIO, CMO?
It depends. I’ve been a Chief Innovation Officer at two companies. I’ve seen the Chief Innovation Officer responsibilities wrapped into the CMO role, and I’ve also seen the Chief Innovation Officer encompass responsibilities of head of strategy, the Chief Technology Officer (CTO), or the Chief Information Officer (CIO). I believe the right structure is defined by whatever it takes to get organizational support and allow for dedicated focus. Innovation isn’t an initiative you can do on the side or fully delegate out. As a direct report to the CEO, you have to feel accountable for innovation, and the CEO has to be directly engaged in your strategy.
Is there a move you regret not having made, do you feel in becoming a strong innovation leader there are aspects of your skills base you’ve neglected and wish you hadn’t
As I mentioned earlier, innovation relies on leadership and culture. Culture is formed and embedded over time, and is not readily changed. This is probably the most important lesson I’ve learned. And any innovation leader, no matter how strong and resolute, cannot maximize his or her success if the cultural conditions are not right. And if cultural change is required, the CEO must be willing and committed to own and drive that cultural change agenda. Having the CEO on board is a must-have condition for innovation success.
The innovation literature is pretty much dominated by a male viewpoint – some writers are now suggesting that this reflects a gender stereotyping of change that we need to break out of. Do you think that this change too can be the catalyst for further change and innovation, bringing a different perspective on corporate objectives?
Innovation requires diversity of perspective. It helps to have teams of men and women from a broad range of demographic backgrounds – from education, to country of origin, to career and life experiences. If the team is made up of people with similar opinions, it’s much less likely to achieve innovation success.
About the author
Haydn Shaughnessy, senior editor, has worked at the epicentre of innovation in a 25 year career spanning journalism, consultancy and research management. He began his technology career as a manager of application research in broadband, mobile and downstream satellite services and has maintained a continuous production of analysis and intellectual material around innovation since then, having written on Wired Cities, Fibre to the Home, Future Search Engines, and international collaboration. He is an emerging thought leader in systemic innovation building on his PhD research in large scale economic transformations. He was previously a parter at The Conversation Group, the leading global social technologies consultancy where he helped companies such as Alcatel Lucent, Volvo, General Motors, Symbian Foundation, and Unilever adapt to the current transformations in the global digital economy. He has written for the Wall St Journal, Forbes.com, Harvard Business Review, and many newspapers as well as making documentaries for the BBC, Channel 4 and RTE. His consultancy and research work encompasses changing enterprise structures, new business models and long-term trends in attitudes. He is in demand as a speaker on the impact of changing attitudes on business and on gearing innovation to new consumer requirements.