The last time we met, in the Business Maverick #9, I told you about two interesting methods of taming the innovation beast. You may recall that they were, in brief:
- The Sony Methodnumerous competing teams, early decisions on winning solutions and rewards for individual contribution, regardless of whether the individual innovator happened to be on the winning team or not.
- Imagineeringa method of front-loading the design process by creating numerous solution avenues, focus on problem areas first, and then market-test product modules instead of waiting for complete solutions.
These are truly exciting ideas for managing innovation. They help solve such problems as being chronically late to market, falling prey to safe-bet- itis (avoiding risky product developments), and reluctance to kill lingering, resource-hogging, walking wounded projects.
However, as wonderful as these two ideas are, they simply dont go far enough in taming the innovation monster for many companies.
One monster problem they dont solve is the installed customer base problem. Let me explain this by example, just as Dan Cook, the brilliant Vice President of Merger and Acquisition Integration at Nortel Networks explained it to me.
Say your company has a technology-based product with a fairly short product life-cyclebut a fairly long useful life once its in the customers hands. This wouldnt be a toaster. That has both a long product life-cycle (say decades: I havent seen too much in toaster innovation) and a long useful life. It might well be software or a cell phone or a data switch or a machine tool. For example, you could still use the original Lotus1-2-3 or your old analog cell phonethey are simply obsolete. (Your toaster probably isnt).
As Cook explained, almost from the instant these products are in customers hands they start draining R&D resources. In six months, the products are oldbut the customers are still using them. They want them supported. Whats worse, they want the benefits of the new products while hanging on to the old. After all that was a huge investment you convinced me to make last January! they tell your salespeople.
Customers are funny creatures. They demand innovation. They can be great sources of new ideas (or at least new desires). But they can devastate your innovation budget.
So, you direct your R&D people to make sure that every new generation of your gizmos are backward compatible with the installed base. You direct them to provide workarounds so that when your customers buy the new equipment it will work with the old.
Both of these decisions divert resources from true innovation. As time goes on, more and more proportionately of your R&D budget gets eaten away at serving the past. If your products lifecycle is six months, in one year you have two generations of product to make backward compatible; in two years four; in three years, six. No wonder, as we mentioned, in some companies 70-80% of the R&D budget is backward-looking!
Nowadays everybody talks about being an agile competitor. But few admit that the greatest impediment to agility is: your current paying customers. Its no trick to be nimble when youre new. The trick is to be nimble when you have ten years in the business.
Cooks Spin-off Solution
Dan Cooks solution is as radical as it is logical.
It is to spin-off from your company a parts and service company dedicated entirely to serving the existing customer base. Yes, an entirely separate company. Not a department. Not a subsidiary. Nothing with a claim on your companys budget or executive time.
You may be familiar with the giant J.C. Whitney auto parts catalog. You can be sure that the replacement parts Whitney advertises for antique Model A Fords are not made by Ford Motor Company. Or even the ignition system for that 1964 Buick Skylark your son drives.
Cook points out that this can be a very profitable business. The few remaining vendors of vacuum tubes enjoy high margins just because there are so few suppliers of the old technology to the dedicated audiophiles the warm sound those tubes produce.
By getting this business out of your shop , you are able to corral innovation energy onin future products and customers. Handled carefully, you can avoid disappointing your current customers.
Spin-offs arent the only solution. You could sell business to an existing specialist. Feeling particularly Machiavellian? Sell this business to one of your competitorssaddling them with the problem of keeping your old customers happy. And this has actually happened in the automotive business.
Recently I went through software upgrade hell with my suddenly obsolete 1999 version of Intuits Quicken software.. By my calculations, somebody, Intuit or Quicken Bill Pay, its customer, must have lost 50-100% of the profit it could have expected from me this by chewing up their customer service time. Not to mention deeply damaging my loyalty. Perhaps there would have been a way to carve me off, along with other Luddites, into a group that was happy with the way things were.
The Final Solution: Programmed Innovation
A final, radical solution to taming the innovation monster is programmed innovation. The concept is simple. Its practice is a matter of managerial self-discipline.
Its objective is to keep R&D productivity up, by keeping it from getting sidetracked while providing high-quality product releases that work as advertised. No automobile recalls welcome here!
The idea is to schedule in advance, typically quarterly, the release of new products. The key is that the development of product features is not rushed to meet these arbitrary deadlines. The new product features are released in new productswhen they are ripe.
So, sometimes products are released that are mere evolutionary upgrades of current products. Sometimes theyre more radical, breakthrough products. Either way, new products and upgrades are released with whatever is new when theyre readybut always well-conceived, developed and tested.
The advantages of programmed innovation are many-fold:
- It makes new product development routinenot a matter of pulling team members out of their functional silos on an ad hoc basis. The teams are immediately, continually productive
- It makes new product introduction routinefor both the sales force and the target customers.
- Product launches experience far fewer of the quality problems that plague attempts to cram all the latest features marketing wants into next months product release Thats because your R&D group can chew thoroughly what it has bitten off.
- It leads to just as much cash-register ringing innovation as the ad-hoc approach. When the quicker tasks are finished, the freed up resources can be switched to the harder problems, the more radical innovations. They get done faster and better, too.
- It leads to more customer loyalty. Why? Salespeople can truthfully tell customers the new innovation is coming. Customers will typically wait if youve built goodwill with past quality rather than face the uncertainties of a new vendor.
This doesnt mean innovators can just laze around.You must give them deadlines to meet, too. Its crucial to get started on the hardest innovation tasks earlyeven though the results wont appear in the next product release or even the one after that.
And programmed innovation has a tendency to give too much power to an almighty engineering and product development staff. It can create a huge number of product models in the customer base. But chances are they will be satisfied customers.
In this series of three Business Heretic (Nos. 8-10) articles, Ive given you food for thought about innovationwhy it can easily become too much of the right thing in the wrong placeand four different ways to tame the innovation monster. Try one or two of these approaches today.