Report 103

Your newsletter on applied creativity, imagination, ideas and innovation in business – delivered to your e-mail box on the first and third Tuesday of every month.

Tuesday, 16 May 2006
Issue 82

Hello and welcome to another issue of Report 103, your fortnightly newsletter on creativity, imagination, ideas and innovation in business.

As always, if you have news about creativity, imagination, ideas, or innovation please feel free to forward it to me for potential inclusion in Report103. Your comments and feedback are also always welcome.

Information on unsubscribing, archives, reprinting articles, etc can be found at the end of this newsletter.

ARE YOUR IDEAS AUDACIOUS ENOUGH?

In most business ideas, there is a direct correlation between how audacious and risky an idea is and its innovativeness and reward potential. Disruptive innovation – in other words, innovative ideas which disrupt industry and dramatically change a business sector – are inevitably audacious and highly risky. They are also highly innovative and, if they work as hoped, bring in huge rewards.

Consider Niklas Zennström and Janus Friis who developed their own voice over Internet protocol (VoIP) devised a business – Skype - around it and offered easy, free telephone calls over the World Wide Web as well as dirt cheap calls from the Web to ordinary telephones. Their business model was audacious: a couple of Swedish guys take on the world's telephone service providers; it was innovative; and it was risky. People might well have decided they were not ready for VoIP; they might not trust the system; or Internet Service Providers, who are often divisions of telecommunications companies offering telephony services, might have tried to prevent Skype calls. In which case, the two Swedish guys would have lost a lot of money.

In fact, Skype has taken off like a rocket. There are more than 100 million Skype users around the world and the two Swedish chaps sold their company to eBay for €1.9 billion (US$2.4 billion) and stand to make another €1.5 billion if certain targets are met. Not bad for an audacious idea.

To visualise the importance of audaciousness in business innovation, look at the image above or imagine a simple graph with X and Y axis. The right end of the X axis is marked “Audacity”, the left end is marked “Boringness”. The top of the Y axis is labelled “Risk/Rewards”. The bottom is labelled “Stability”. Next, draw a narrow diagonal bar from the bottom left corner of the graph to the upper right corner. This bar represents the range where most business ideas fall. Audacious business ideas are risky yet innovative. Boring business ideas are safe and not very risky. But they do not bring high rewards. Most business ideas, of course, tend to fall near the axis.

There are several useful things we can learn from this chart.

1. Although we in Europe and America tend to favour highly innovative ideas, it is clear that a handful of boring business ideas resulting in incremental innovation can also bring benefits to your organisation. Thus, you should not focus all your innovative efforts on big, disruptive innovation. You should also devote resources on capturing smaller, moderately innovative ideas and implementing them on a steady basis. A combination of occasional radical innovation and regular incremental innovation is the best balance.

2. As I have stated many times before. Many companies have an overly strict idea review process that requires every idea pass a number of hurdles and committees before it is implemented. Very often these committees attempt to reduce the risk of the idea. That's understandable, they want to protect the company against risk. Often they want to protect their own jobs by not authorising a risky idea. Unfortunately, they are wrong. By reducing risk, they are also making an idea more boring, less innovative and reducing the potential reward.

3. Conversely, an idea can often be pushed to be more audacious, thus increasing its reward potential – but also its risk. Bear this in mind the next time you brainstorm ideas. When you get a few good ideas, don't stop there. Push the best ideas further. Actively try to make them more audacious.

4. If an idea is very boring and of low risk, its reward potential is also low. Thus you need to be certain that the cost of implementing the idea will not be greater than the rewards it brings in.

So, the next time you have a business idea, go on and be audacious. Push the idea to the limits and don't be afraid to run with it. That's how the best ideas turn into major innovations.

UPSTART START-UPS

Innovative new businesses are usually seen as troublesome upstarts by established businesses. However, upstart start-ups are typically the most innovative companies around. Consider: for decades, IBM was the established computer company. Indeed, there used to be a saying in the business world: “no one ever got fired for buying IBM.” The logic behind this statement was that IBM was an established, tried and tested, reputable company. They may not have had the lowest prices or the most innovative solutions. But they were a known commodity. At the time, their sales focused on huge mainframe computers that served entire companies.

Then, in the late 1970s a little upstart run by a small team of odd looking hippy-like people led by a University drop-out had an idea: the future is in software rather than hardware. They made a deal to provide a simple operating system for IBM's new personal computers.

In the intervening years, IBM very nearly went bankrupt and that little upstart start-up became one of the biggest, most powerful companies on the planet: Microsoft.

Indeed, IBM only saved itself by re-inventing itself and behaving more like, well, an upstart.

Nowadays, Microsoft is an established company that is seldom described as innovative – except by Microsoft managers. However, their greatest fear is of an upstart start-up that began life as University project run by a couple of geeky programmers. That company, of course, is Google.

Microsoft's second biggest fear is the product of a Finnish guy who doesn't even want money for his operating system: Linux.

Such upstarts shaking up the market and scaring the established players happens from time to time in business. Consider the example of Skype above, Amazon in the book business and others.

Interestingly, upstarts usually do better when selling to consumers rather than selling to businesses. Early sales of PC computers largely went to consumers who used them to play games initially and later to write documents and do spread sheets. Only later did business discover the advantages of putting a self-contained computer on every knowledge-workers' desk.

Linux, likewise, was initially adopted by computer professionals as a hobby to work on in their spare time. Only later, as Linux became more robust and reliable and known, did the computer professionals start using Linux on the computer servers in their offices. Nowadays, more web servers run on Linux than on Microsoft servers.

That business initially shuns upstart start-ups is not surprising. Businesses tend to be conservative and risk adverse. They would rather invest in tried and tested, well established products and – especially - services rather than risk investing in a new service.

However, this is not an effective innovation strategy. If you are using the same services as your competitors, who probably also prefer the established tried and tested service providers, you can expect similar results to your competitors as well.

However, when you are brave enough to partner with upstarts for products and particularly services, then you also benefit from their innovativeness.

For example, if you sell products that target young adults and partner with a traditional advertising agency, you will probably end up with an advertising package that is broadly similar to your competitors' and which makes use of television, print and perhaps the Internet.

On the other hand, if you partner with an innovative start up that specialises in electronic media, such as mobile telephones, computer games and on-line communities, you will probably reach young people via media they are using and in ways very different to your competitors' approaches.

As a result, you are perceived by your target market as being more innovative and more understanding of their needs. However, in order to make that jump, you need to be bold enough to choose to work with an upstart with comparatively little business experience, comparatively unusual ideas and a limited reputation. Such a decision is hard for many businesspeople to make. Moreover, the established service providers will often go to great lengths to discourage you from working with upstarts. That's because they are scared of the upstarts.

And so they should be.

IDEAS ARE FRAGILE

If you are in charge of innovation at your firm, one of the most important things you should bear in mind is that ideas are fragile when they are first conceived. It is only with time, acceptance and implementation that they become strong and durable.

When an idea is first born in the mind of an employee (or anyone, but since this eJournal focuses on creativity, imagination, ideas and innovation in BUSINESS, we'll look at a business example) that idea can be destroyed ever so easily. The initial threat is from the employee herself. She may well decide that the idea is too radical for her company or so crazy that she dare not share it with her colleagues. Unfortunately, the craziest ideas are often the most creative as well as most fragile.

At other times, a creative idea is forgotten because the worker has to focus on other tasks and so pushes the idea to the back of her mind where it quickly fades away.

If the idea isn't destroyed by the idea owner, it becomes strengthened. But it is still fragile and threatened by colleagues and managers. Indeed, if a manager squelches her idea with a “you'll never get that past the financial people” or “we've already got a perfectly good system for that” or “We don't do things that way around here”, the idea will almost certainly die. If a colleague likewise squelches the employee's idea, it will be seriously hurt, if not dead.

Compliments and encouragement, on the other hand, strengthen an idea and embolden the employee to push it harder and take pride in it.

Implementing the idea and rewarding the employee behind it strengthen the idea further. Empowering the employee to take charge of the idea herself, makes the idea even stronger.

Even if an idea is not implementable, complimenting the employee and encouraging her to think about how her idea could be made implementable strengthens her idea and, more importantly, strengthens the employee herself to be more innovative.

Ideas are fragile when they are first born. But given proper care and encouragement, they can grow into big, strong, durable ideas.

How do you treat ideas in your firm?

BRAINSTORMING THREATS TO FIND OPPORTUNITIES

If you are brainstorming – or using other ideation techniques on - ways to improve your products or services, try brainstorming threats instead. It's a powerful way to look at your problem from a different perspective.

For example, if you are brainstorming the challenge: “In what ways might we improve product X?”, instead try the challenge “In what ways could our competitor(s) improve their products that would scare us?” or “What are the worst things (from our perspective) that our competitors could do with their products?” It goes with out saying that when you get the ideas, you won't ring your competitors and share those ideas. No, you'll implement the scariest ideas yourself – before your competitors have such ideas.

If you are looking for new business opportunities, you could work with the challenge “What new business ideas might we launch in the US market?” But you might get more interesting results with challenges like: “What business could our competitors launch, in the US market, that would be a serious threat to us?” or more creative still, “What new businesses might our non-competitors launch that would turn them into our competitors?” Or “What changes to the US market or legislation would disrupt our business?”

By looking not at what you might do, but what threats your competitors, non-competitors and the market itself could dredge up, you are looking at your problem from a different perspective and the result will most likely be creative new ideas that you can implement – and very likely pose a threat to your competitors. And that's what innovation is all about, isn't it?

Happy thinking!

Jeffrey Baumgartner

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Report 103 is a complimentary weekly electronic newsletter from Bwiti bvba of Belgium (a jpb.com company: http://www.jpb.com). Archives and subscription information can be found at http://www.jpb.com/report103/

Report 103 is edited by Jeffrey Baumgartner and is published on the first and third Tuesday of every month.

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