Blocking breakthrough innovation

The announcement of Steve Ballmer’s retirement as CEO of Microsoft has been accompanied by the recital of a sad list of major innovations created by that company, but rejected by the management during his term of office and exploited successfully by competitors – notably by Apple.

The list includes the iPhone and the iPad. And they are probably just the tip of the iceberg. What’s more, the company did launch a stream of new products that failed.

Poor Ballmer [?] is by no means alone. He’s just more famous than the other CEOs who routinely block breakthrough ideas.

The central problem in innovation isn’t coming up with ideas, nor with implementing them. It’s with recognising and supporting them. After all, the more disruptive the idea, the less likely it is that consumer research will pick it out as a winner, and the more likely it is that it will contravene an existing mindset.   

Distressingly there’s no evidence that senior managers are any better at picking breakthrough winners than my mum.

Spending on marketing in hard times

When I started work on Rowntree’s Fruit Gums and Fruit Pastilles in 1967, my rather ancient and knowledgeable boss, Michael Evans, told me that the reason those brands had survived the Second World War was that the company had continued to advertise throughout that time, whereas many competitors had withdrawn from supporting their brands, which had in turn died post-war.

Now there’s a powerful article in the current issue of Market Leader magazine by my colleague at City University London, Vincent-Wayne Mitchell. He’s Professor of Consumer Marketing there.

The article lines up the reasons that marketing spend in hard times can be highly effective. Here are a few of his points (all derived from recent research):

Increased share of voice (as competitors rein back)
Increased saliency and perceived brand quality
Boosted consumer confidence
Helps to justify premium prices
Increase in brand switchers to our brand
Reduction in media costs in a recession
Market share gains

Mitchell adds: “Breakthrough innovations can build firm value significantly, while small innovations preserve firm value.”

Wise words!

Bought your Nespresso machine yet?

I’m often asked how large, established corporations can organise to create breakthrough innovations which really succeed in the marketplace. To be honest, there isn’t one easy solution. So many of them invest vast sums of money in innovation and R&D, and all that happens in reality is that they give birth to a steady stream of more minor, incremental offerings.

If Microsoft can spend some nine billion dollars a year on it (see “Microsoft and their search for breakthrough innovation”, 2 March 2011) and have such limited success, what hope is there for the rest of us?

Well, one strategy that worked extremely well for Nestlé was embodied in the way that they went about developing their Nespresso brand. The company realised quite early that, given their worldwide dominance of the instant coffee market, if they were to enter the ground coffee market with a bang, they needed to have a completely new approach that would rewrite the rules of the game.

To do this, they set up a stand-alone business, geographically and organisationally separate from the “corporate machine”, Nestlé headquarters in Vevey, Switzerland.

And the concept itself is radically different. It is a superpremium product for a much more sophisticated consumer. The relationship with Nespresso starts with the purchase of a coffeemaker/espresso machine. Those things are bought once every eight or so years - and the purchase involves 100+ euros.

Then, having a consumer who has bought a machine, it is about home-delivery of coffee – and a one-on-one communication program including accessories, services and rewards. This required a totally different mindset, different marketing capabilities and completely different structural solutions.

Certainly wouldn’t be without it myself. And it’s a massive success around the world.

Would that have been possible if they had remained part of the mother-ship? I doubt it.

Innovation in Japan

A friend who does much business in Japan emailed me (just hours before the tsunami struck) to say: “I'm in Japan on business again and thinking how much Japanese business needs some creative thinking.”
He continues: “After many years of coming here, I really feel as if the country is reverting to type as an insular, protected society. With due respect to the Japanese, they need to break out of this.”
That’s my sense too. I have been visiting Japan to work with companies there over a thirty year period and have worked with Japanese companies outside of their home market for several years longer than that.
It seems to be something of a mystery as to why the Japanese should be so effective in obtaining continuous incremental innovation, yet so ineffective in developing real breakthroughs.
Of course, the former has a highly systematic approach behind it which really works, a key part of which is a process called nemawashi. Literally, nemawashi means “preparing the roots”, being an metaphor from rice-growing. Preparing the roots so that the plant shall grow strong.
In organisations, nemawashi means building support for a project by gaining feedback (and buy-in) from all the key players ahead of a decision-making meeting. Of course, it is designed to maintain harmony and build consensus.
And therein lies the problem. The more radical, disruptive, out-of-the-box a new idea is, the more certain it is not to survive the process of nemawashi. It’s so deeply ingrained in the culture that breaking away from it would be really hard to bring about.
A possible way forward is to get away from the highly disciplined Japanese workplace, and to create a temporary climate where collaborative wishing and dreaming can take place without the intrusion of nemawashi.

Microsoft and their search for breakthrough innovation

There’s been much discussion over recent years as to why Microsoft has had such a low to non-existent strike rate in developing breakthrough innovations.

Certainly it’s not for want of trying, nor for want of resource. In fact, it’s twenty years since Bill Gates first decided to pour megabucks into R&D. Currently that budget is running at $9 billion a year. But two decades on, aside from a stream of incremental innovations, there’s little to show for all that investment.

Currently the company has high hopes for its Kinect system. But was that really what Gates had in mind when he started on this great creative Odyssey – a games controller?

The fact that Apple has been so successful in creating and introducing one blockbuster after another, has led inexorably to their overtaking Microsoft in market value last year.

Lack of breakthroughs – disruptive innovations – is certainly not confined to Microsoft. My experience is that many large, established corporations have the same problem. And they usually know it and take steps aimed at remedying the situation.

Nearly always they assume that they understand what needs to be fixed – and get on with fixing it. Without noticeable effect.

In reality, there are many possible blockages and barriers, some of them behavioural, often attitudinal, occasionally at organisational, strategic, skills and process levels. And it’s critically important that the right issues are diagnosed and the right treatment prescribed.

“Stunningly arrogant,” as Microsoft has been described, may or may not be the source of their problem. They need to know which it is before spending more time and effort trying to fix it.

In major companies that I know well, the wrong diagnosis, coupled with the wrong treatment, has led to the problem being redoubled.

Lady Gaga: Innovation Princess 2010

My now eight year-old daughter was given “POP Princesses 2010” – CD and DVD – for her recent birthday. It’s been a massive hit with her and consequently I’ve had a good deal of exposure to it myself.

Many of the current diva crop are included – Rihanna, Leona Lewis, Sugababes, Britney Spears, Shakira, The Pussycat Dolls, Cheryl Cole, Girls Aloud and so on.

What has struck me most clearly, however, is what a unique performer Lady Gaga is. While most of them could easily be mistaken for each other, their sound world being so similar, Lady Gaga creates something quite different.

Thinking about this from an innovation perspective, if you want to be reasonably successful with your offering, you swim with the tide. But if you want to cause a breakthrough you take the greater risk of creating something that either may catch on, as Lady Gaga has, or may equally sink without trace.

Of course, Lady Gaga has not only made a different sound, she has given birth to a complete artistic creation, and it may well be other parts of the artwork that have caused the wave to mount up.

Will she remain a one-off? Time will tell.

Innovative vs Conscientious

“Find good people”. “Set them free”. Two of the basic rules set out by Richard Branson in his recent book Business Stripped Bare: Adventures of a Global Entrepreneur. Simple? Or not so easy as it might appear?

One of the most interesting findings in a major new innovation study undertaken for NESTA by my City University colleague Professor Fiona Patterson and her team is that, at work, “innovativeness” as a personal characteristic has an inverse correlation with “conscientiousness”.

One way or another, most organisations treat conscientiousness as a basic given in the recruitment and promotion of staff. The question that arises from this is: are we effectively screening out highly creative people and thus restricting our chances of developing breakthrough innovation?

I wonder if Branson’s Virgin has this cracked? Or you and your organisation?