Good Morning Innovation Pioneers, This Post is best enjoyed if you click on e-mail and go to website - where the pictures are visible.
My English friend - Silence Dogood - the CEO of Craven Street Industries has sent me another email. The exchange is humorous however the issue is real. Innovation requires a new mindset for metrics. As Dr. Deming would say, “How could they know?”
I thank Silence for sending the e-mail as it’s an important issue to educate on. It’s important because I get this question from every corporation we work with. It’s also important because when the old metric mindset is used for a company starting innovation a false negative is sure to occur - and innovation will die for the wrong reasons.
I apologize in advance for the length - I realize that 2,000+ words is not proper a modern blog post. However, I am in book writing mode - which involves deeper thinking :).
Below Silence's letter - there are some important learnings from a recent statistical analysis of the IE Labs project database - that details an "alpha" translation for forecasting future value of ideas that are in your innovation pipeline.
Dear Dr. Hall
I must first commend you for your courage in posting my very honest outline of how to stop innovation. While your community of “zealots” thought I was not of sound mind - my friends at the club on Pall Mall were very complementary. I saw on The Google that you are the opening keynote speaker here in the City of London November 21 at the UK Marketing Society annual conference.
Your appearance on this side of the “pond’ is of concern to my friends and I at the club as you inevitably will be raising the hopes and dreams of our employees as you have done in the past. This will generate stress for us.
I write you today to educate you on the reality of innovation metrics. My hopes are that I can appeal to your background as an engineer and as someone who proclaims “In god we trust all others must bring data.”
As I’ve told you - I have sponsored “token” innovation projects so to give the perception that I’m progressive. I never go “all in” but rather I let the few zealots who I make mistakes on hiring do their thing.
However here’s the big problem. In each case I have had my finance department report both 6 month and 12 month sales and profit growth and find very little return on my investment.
The EVIDENCE is clear!
The METRICS PROVE THAT INNOVATION DOESN’T WORK!
And yes - I’ve heard your argument about innovation metrics. I've heard that the academics report that it takes time to develop real innovations.
• The Journal of Product Innovation Management reports R&D takes 19 months
• The Journal of Marketing Research reports R&D takes 23 months
• The Journal of Product Innovation Management reports R&D takes 27 months
• The PDMA Foundation New Product Survey reports R&D takes 26 months
The average of these is 24 months. Therefore, if it takes us 6 months to get organized and get an idea - 24 months to do R&D and 12 months to get impacts that means it will take 3.5 years for me to see results.
Clearly this proves why Innovation is such a BAD INVESTMENT
Dr. Hall 3.5 years to realize a return on investment is just not feasible or reasonable for a CEO such as myself. If you can’t give me results in 6 months ---- or 12 at the most --- then it's simply not viable. Remember, I only have 2 years till my retirement. Why on earth should I make any real investment in innovation on the “hopes” that it will work?
I’ve heard your arguments. I ask that you take a moment to understand my needs. My company, industry, region and personal needs are different than the others you work with. The reality is that if I don’t focus on short term results there is a good chance that my board will nudge me out of my job. And I love this job. I’ve sacrificed my entire life to get to this position. I’m not going to mess it up by taking some crazy risk on new ideas that at best will payout for my successor - long after I'm forgotten.
I honestly don’t see the need to innovate if everyone just did their job. I’ve reached this job because of my expertise in cutting out waste. The math is simple - if everyone did their job 10% just more efficiently every year - and I simply remove the bottom performers I will realize 10% profit growth without taking any risk!
Now I understand that innovation is the latest “business fad” in the media, with professors and by so called experts such as yourself. Thus, it’s important that I give the perception that I support innovation. My practical strategy for how I approach innovation was inspired by a slide you presented of PDMA data at your last presentation here in London. The data proved that if I do ideas that are very small changes I can ship them much faster - giving the perception of support for innovation.
Now - before you explode in one of your rages about the need for Meaningful Uniqueness so to drive profitability - remember your customer.
As the CEO of a well respected 100+ year old company my goal is NOT real innovation. Rather, I’m just looking for the perception that I’m doing it - so that I can simply get through the days, months and years till I reach the retirement that I have so rightly earned.
In closing, I must admit that the boys at the Club really enjoy your blog - but probably not for the reason others do. We find your rants about the need to grow an innovation mindset very humorous. Please don’t take offense to our not posting comments - we are a proper group of gentlemen who avoid public debate.
I enjoy our discussions - the challenge of writing my thoughts makes me "creative" as you would say. I hope to see your presentation this November. I also hope that in some small way our dialogue will "educate" your thinking. After your presentation I'd love to have a wee dram with you at the club. That is - if you can see fit to wear proper clothes and shoes - we have standards on Pall Mall you know.
I remain, Sir,
Your Humble Servant,
Craven Street Industries
Dear Mr. Dogood,
It’s always good to hear from you. To paraphrase Sir Winston Churchill "I will never, ever, ever, ever give up educating you on the virtues of an innovation mindset."
While it’s true that the transition to an innovation mindset will take longer than you have till retirement - I encourage you to think of your legacy and your stock options. Your investment today - will result in a growth of your stock options and company valuation while you are in retirement.
I respect your challenge with Innovation Metrics. It's a common challenge. And in fact, the shift to an Innovation Mindset requires more than ideas for new products or services. It requires development of new systems of thinking - within your management systems. By management systems I mean the "inter connective tissue" between your departments i.e. how you work. This includes your systems for strategic planning, stage gate, decision making and yes evaluation of employees, programs and departments.
Your current systems of operation are very effective for your existing mindset. However as you move to an innovation mindset - you need to change your systems to support the new way of working. This is accomplished by confronting the realities of what are your real strategic challenges. For some it's VIO - Very Important Opportunities with current or new customers. For others it's VIS - Very Important System projects to improve how your people work together.
I will discuss the need for changing your systems of work during my London key-note. It's also covered in the 400 Level Innovation Engineering course taught at universities. In the meantime, here's some ideas for you to consider regarding innovation metrics...
Use the Metrics The World's Smartest Innovators Use. In my work with the world’s most effective innovators such as P&G, Nike, Walt Disney, American Express I've found that they understand that real innovations takes time. They know that if they were to use 6 or 12 month measurements to quantify their innovation system they would "kill" all big ideas - i.e. Meaningfully Unique ideas. Big ideas that can grow profitability would be replaced by short term solutions that use up lots of energy and resources but don't generate profitable growth.
The way top corporate innovators measure and asses their innovation process is by quantifying their Innovation Pipeline. When assessing the Innovation Pipeline of business units they require clear and specific documentation of the sales and cost estimates of each project at each stage. This includes clear documentation of ALL assumptions, calibration versus past results, Fail FAST Fail CHEAP experiments on key issues, independent concept testing of concepts and a clear articulation of Critical Issues/Death Threats.
Even government innovation experts understand the lag effect and the need to use pipeline as a predictive measure. Two weeks ago I received the final evaluation report by InterTradeIreland of their Challenge Program Pilot (powered by Innovation Engineering). In the report the researchers stated "it is widely recognized that there is a time-lag (which can amount to years) between businesses undertaking innovative business development activities and the achievement of any tangible outputs and outcomes." Balancing the challenge of time lag with the need to provide quantitative feedback - the researchers went on to document some quick wins at some of the companies and as best innovation practices suggest - the valuation of the innovation pipeline for all of the companies in the pilot.
To enable the "pipeline metric" system - that is the industry best practice - we have designed Innovation Engineering to make it easy for everyone to "do the math" and to transparently show their innovation pipeline.
The obvious challenge with using innovation pipeline is that not all ideas will become real. The challenge then is how to "weight" ideas early in development for future planning purposes. Your e-mail sparked Greg Lemon - the official statistician of the Innovation Engineering Institute to do some digging into the IELabs database plus emails and phone calls to project leaders and CEO's to quantify impacts. Recall, we are just now getting to the point where "early adopters" of Innovation Engineering are taking ideas to market.
NEW DISCOVERIES on METRICS
Innovation Engineering is Working In A Way We Didn't Expect: Analysis of the couple dozen +/- projects we have complete data on that have gone to market we find that .... projects with companies following the Innovation Engineering approach - actually grow in value by 28% from when they are first Defined to when they reach Delivery. This is an amazing finding - as it's a direct contradiction to the historical pattern of ideas becoming smaller as they go through the innovation process.
It's Possible To "Score" Pipeline Valuation: Greg also did a review of the "flow" of projects - assessing the value of projects at each stage, the rate that projects "die" and the final marketplace value of projects. There is much more to be done on this - however he has created an "alpha" release that allows you to translate the value of projects at each stage of development with what value they are likely to realize in the marketplace.
If you wish to estimate - the future marketplace value of innovation pipeline - the following is an appropriately conservative set of factors for making your estimates...
For ideas in Define (not archived) take 4%
For ideas in Discover take 12%
For ideas in Develop take 41%
For ideas in Deliver take 100% (it appears that the odds are as good to be high as low with Meaningfully Unique innovations that have had the disciplined approach of IE thinking applied on the math)
Obviously, company and country results will vary. However, these numbers give us a starting place to work from. And - as you'd expect there is more research underway.
IMPORTANT: These results assume all projects have math. In truth we know that not all projects have math. The biggest reason for not showing math is a lack of confidence by the team in estimating. The first step in doing estimates for the projects without math is obviously to simply DO THE MATH. Interestingly, companies who have leadership engaged have nearly 100% compliance with math! In the absence of this - you can ratio values as analysis indicates that overall projects with math and without math follow similar patterns. In this case simply provide results as a range.
Projected Net Value of Innovation Engineering Pipeline: As an example, for the Total Innovation Engineering Pipeline we can say that projects have a projected marketplace value of between $1.3 Billion and $2.7 Billion.
Even more importantly - these projects are focused on innovations that are "Meaningfully Unique" thus the odds are good that this sales growth will realize a double benefit of greater profitability.
For perspective these results are of the order of magnitude of the NIST MEP program from the USA Department of Commercie - considered one of the USA's most successful business development programs - and a strong supporter of Innovation Engineering. NIST MEP's most recent annual report of survey's of their clients found they had helped generate $2.5 Billion worth of new sales for USA Manufacturers.
Mr Dogood, if you want to restart your profitability you need to drive for meaningful uniqueness and that's going to take time. Ideas that use breakthrough technology take time. To be clear - the time to market can be easily accelerated through the use of: 1) The Patent Flea Market on IELabs, 2) Tech mining and open innovation collaboration, 3) tools like the USA National Innovation Marketplace introduced by Vice President Biden and by the US Congress and 4) Innovation Supply Chain programs that are supported by Multi-National OEMs.
The good news is - if you build a pipeline of innovations today - within a few years you will have a steady stream of innovations. You can even project future growth. And, in time, as your staff becomes more skilled with doing the math - as a result of smarter calibration, look up tables, learning lag systems, etc. - you will now be in even greater control of your destiny versus being a victim of the economy and competition.
NO HARM MEANT -- Debate, Shoes, Clothing & Scotch
In closing, I mean no harm by my nudges. Rather, I seek open discussion and dialogue to discover truth and wisdom that will enable us to Change the World by transforming innovation from a random art to a reliable system.
As a sign of my openness to learning from you and the men of the club - and in hopes that I can educate them as well I look forward to having a wee dram with you. If I can be so bold - I’d like a Macallan 18 for the first round the world's most precious Spirit - and I’ll buy you a Highland Park 18 for the second so that you can experience the world's #1 Tasting Spirit according to Paul Pacult of The Spirit Journal. It's from Orkney near Thurso where my mothers family lived before immigrating to Canada.
Regarding shoes and dress for going to your club I will make the personal sacrifice and wear a suit and shined leather shoes. This is a supreme sacrifice for me as I am more comfortable dressing like Jimmy Buffet than James Bond. It's a sacrifice that prior to this I have only made when my high school girlfriend / wife of 37 years requests it of me.
Your humble "Truth Teller" from the Colonies :)