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, 4 November 2008
Issue 138

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.

WHY YOU ABSOLUTELY POSITIVELY MUST STEP UP PRODUCT INNOVATION

Economists are no longer questioning whether or not Europe and North America are heading for recession. Rather they are wondering how far the two continents will fall financially. Meanwhile, the rest of the world is suffering from an economic downturn of indeterminate depth and recession is likely to rear its ugly head in many countries. This has consequences for all businesses and many will be tempted to cut back on innovation investment in order to cut costs. This would be a fatal mistake. Indeed, by any rational measure, the opposite course is the safest.

Whether you are selling to businesses or consumers, your customers almost certainly have less money to spend. Unless you and your competitors are able to cut costs dramatically, this reduction in spending power means customers will be buying fewer of those products.

Slashing Prices Is Not Always the Best Option

If you are a rational manager, you would doubtless prefer customers buy more of your products rather than of your competitors' products. One not particularly innovative way to do this would be to slash the prices of your products. But unless you are selling with huge margins, this is not a viable path. Worse, it leaves your company in a poor position once the financial mess passes. You will not be able to bring your prices back up to market norms without displeasing your customers and probably losing sales.

Nevertheless, there may be an argument for reducing your prices and taking the market stance of being the best priced option in your market. If so, your firm will almost certainly need to innovate in order to reduce production, administrative and logistics costs so that you can make substantial price reduction a viable long term option that still brings in profits. This is a route that Dell took long before the market downturn, enabling the firm to be the leader in low cost, quality computers. And Dell did this through innovation in production and logistics. (Sadly their more recent Ideastorm idea portal demonstrates a remarkable lack of understanding of innovation principles -- and this is particularly disappointing in a company with such a history of innovation! See Soliciting Ideas From the Public in the 16 October 2007 issue of this journal: http://www.jpb.com/report103/archive.php?issue_no=20071016)

Being Best Is Always the Best Option

On the other hand, if being the cheapest is not your corporate goal, you need to be best in some other areas. The way to achieve this goal, of course, is through innovation. You need to make your product better than your competitors' products in ways that make purchasing your brand the most compelling option for prospective customers.

Fortunately, some of your competitors are likely cutting their innovation budgets. This means that you can probably derive more value from your innovation budget in terms of out-innovating those competitors. However, your more savvy competitors will also be investing in innovation. Indeed, we have seen little slow down in interest in idea management -- although the profile of clients has changed over the past 12 months. This suggests that many companies are not significantly cutting back on their innovation programmes.

Three Pronged Approach

Bearing in mind the dramatic changes in many markets, your product innovation strategy should take three steps.

1. Determine Where and How to Innovate

Although you probably (or at least hopefully) have a product innovation strategy, there is a good chance you will need to change it. This is critical! Your customers' needs and wants have probably changed as a result of the economic slowdown. Very likely these changes have been dramatic. Moreover, they may well be long term. According to Dean Maki of Barclays Capital, "falling wealth tends to affect consumer spending over many years rather than right away" (The Economist, 1-7 November 2008). Even if you are selling to businesses, they or their customers are probably selling to consumers. So changes in consumer spending affect all businesses.

Thus you need to research (see "Pre-Challenge Research in the 9 September 2008 issue of this journal: http://www.jpb.com/report103/archive.php?issue_no=20080902) your customers changing needs and run ideas campaigns or other creative idea generation actions in order to generate effective strategies for product innovation. This means questioning some very basic assumptions you are making about why customers are buying your products, how they expect to use your products, the level of service they expect and more.

2. Generate Suitable Ideas

Once you have determined the foci of your innovation, the next step is to formulate innovation challenges designed to generate ideas that allow you to achieve the goals you set in step one. Chances are you are familiar with this kind of innovation. But if not, you will find a wealth of articles in the Report 103 Archives at http://www.jpb.com/report103/archives.php and in the on-line JPB Creativity and Innovation library at http://www.jpb.com/creative/

3. Seek Innovative Efficiencies

With step one completed and step two in progress the third step is to identify and develop innovation methods to improve operational, administrative and logistical efficiencies in the continued implementation of ideas generated in step two. Having a more innovative product that is innovative in ways that appeal to your financially weakened customers is a good thing. However, you will still need to find ways to reduce the costs of being so innovative, either to increase your margins or to pass those cost reductions on to your customers -- which may become necessary once your competitors start copying your ideas.

And Don't Stop!

It may be tempting once you have followed steps one, two and three above to take a break and enjoy the profits. But if your ideas are good, you can be sure your competitors will soon copy them. Hence it is critical to remain at least one step ahead -- and ideally several steps ahead -- of them. Otherwise, your precious innovation investment may end up benefiting your competitors more than it benefits you!

You need constantly to review your product innovation strategy, generate ideas to meet that strategy and keep your costs low. If you can do this, it is a sure recipe for long term profitability and market leadership. And if that is not your aim in business, you probably shouldn't be in business!

GETTING TOP MANAGEMENT TO BUY INTO AN INNOVATION INITIATIVE

I was recently asked "What are some techniques to promote innovation to upper management in a large organization and get their buy in?" I would like to share that answer with you as it is a question I am asked from time to time.

If you are in top management, the answer is easy: provide an innovation budget. With that, you can be sure upper management (ie. the level immediately below you) will buy in.

Three Steps

On the other hand, if you are trying to sell innovation up the corporate ladder, it is more difficult. Fortunately, there are a few things you can try.

1. Develop a compelling presentation including case studies from similar and competing businesses. These should demonstrate the value innovation has brought to the respective companies. You can also point out that with the market slow-down, you really need to innovate in order to grab market share from your competitors before they do the same to you! At the same time, you shold show managers he article above! Finally throw in some numbers about the results that can be expected (see next item) from your innovation initiative. Upper management usually love numbers!

2. Prepare some scenarios based around innovation. Since the economy is tight, I would suggest focusing on cost cutting innovation. This is not only a major concern of management, but also has the advantage of having a more predictable return on investment (RoI) than new product innovation. If you can show that an innovation initiative that would cost (for example) US$100,000 to run, but could be expected to cut operational costs of US$100M/annum by 2-5%, you can demonstrate a very compelling RoI indeed!

3. Launch a limited innovation initiative in one division, which may only need the department head's approval. Once you start generating results, share them and make a proposal for a larger, enterprise wide innovation initiative. Several of our clients have taken this approach.

The exact steps you take depend on your industry. It is also worth applying a little creativity to your innovation proposal! After all if you are convinced that a better innovation policy in your firm is essential, the best place to start with innovation is in your proposal to management. Business innovation is, after all, the profitable implementation of creative ideas.

Your Experience

Have you had to sell innovation to top management in your firm? Have you succeeded? Has it not worked? No matter, I would love to hear about your experiences!

JENNI IDEA MANAGEMENT

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WARNING: MANAGERS' EGOS CAN BE DETRIMENTAL TO INNOVATIVE HEALTH!

Managers, particularly high level managers, can often have executive sized egos. That's not surprising. Rising to the highest level of a big company often requires more than competence and skills. Self promotion and self belief can help talented individuals climb higher up the corporate ladder than their less self-promoting colleagues might do. Likewise, insecure people finding themselves at management level often counterbalance self doubt with enhanced ego, at least at the surface.

Unfortunately, a manager sized ego can be -- and often is -- a serious barrier to the development of creative ideas that might become profitable innovations in the hands of a more empathetic manager. Here are some typical problems caused by the egotistical manager.

The Egotistical Manager Will Not Be Outdone by a Subordinate

When a subordinate (let's call him John) shares a great idea with an egotistical manager (let's call her Margaret), Margaret may feel intellectually threatened by John's idea. She will think that John will look good to his colleagues for being clever and that he will temporarily get more attention than her. If her job stability is in doubt, she may even become worried that John's great idea is a danger to her job. On the other hand, she may simply not like John being cleverer than her. All of this thinking may well be at the subconscious level. Nevertheless it affects Margaret's judgement and, as a result, she is likely to be critical of John's idea, thus establishing her superiority and reinforcing her higher position in the corporate hierarchy.

The Egotistical Manager Believes Being Critical Is Being Superior

Many people, particularly egotistical managers, believe that being critical of an idea demonstrates their intellectual superiority. If Margaret criticises John's idea, she feels she is demonstrating her superior knowledge and experience. As a result, John is likely to change significantly or even give up on his idea. The irony is that the opposite of Margaret's thinking is true. Being highly critical often makes a person seem closed minded and negative -- not intelligent. Being complimentary, supportive and giving John challenges (based on knowledge and experience) to help improve his idea would be a better demonstration of intelligence.

The Egotistical Manager May Steal Ideas

Margaret, upon learning of a good idea from John may well decide to steal the idea and present it as her own. This may not even be a conscious action. She may convince herself in her mind that she had the idea and John just gave her a little inspiration.

However it is stolen, the consequences are bad. Very likely John will be demotivated as he listens to Margaret take credit for his idea. This will discourage him from sharing future ideas with Margaret and other managers.

Moreover, the idea in John's mind is probably far more developed than the information he shared with Margaret. After all, he has doubtless spent time thinking about the idea, how to implement it and more before determining whether or not to share his idea with Margaret. By stealing John's idea, Margaret is unlikely to benefit from this additional information. To make matters worse, Margaret may well not have the necessary creativity, knowledge and skill to develop the idea as well as John might be able to do.

As a result, John's creativity has been squelched and a great idea might not be developed as well as it could have been. Worse, it may not be developed at all!

The Egotistical Manager Does Not Like Being Proven Wrong

If there is one thing a manager like Margaret does not like, it is being proven wrong. That's hard on the ego. So, if she criticises and idea only to see it successfully implemented, she will be proven wrong in a big way. If she does not approve an idea and John takes it to a higher level manager in order to get it approved, she is not only proven wrong, but she is shown up by a subordinate. Hence if Margaret fears that following her criticism, John is likely to go ahead with his idea, she will probably go to great lengths to prevent the idea from being developed. Again, the result is that a great idea is lost to the firm.

The Ego Is About the Individual Not the Business

The biggest problem with the egotistical manager is that her concerns will always be about herself. However, organisational innovation is about the business. If Margaret is primarily concerned about how ideas affect her, she is putting her ego before the firm's growth. That may be good for her ego, but it is not good for her business.

In short, egotistical managers consciously and subconsciously have a tendency to stomp on creative ideas at an early stage, preventing them from being developed into innovations which would benefit the firm. Unfortunately, there are many of them in many firms.

How about you? Do you have experience with Egotistical managers killing ideas? If so, what did you do about it? I'd love to know your stories.

LATEST IN BUSINESS INNOVATION

If you want to keep up with the latest news in business innovation, I recommend Chuck Frey's INNOVATIONweek (http://www.innovationtools.com/News/subscribe.asp). It's the only e-newsletter that keeps you up-to-date on all of the latest innovation news, research, trends, case histories of leading companies and more. And it's the perfect complement to Report 103!

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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