Posted onNovember 23, 2016
APQC CEO Carla O’Dell talked with Stephen Wunker as part of the “Big Thinkers, Big Ideas” interview series. Stephen Wunker is a strategy consultant and specialist in finding new markets. He is the author of Capturing New Markets: How Smart Companies Create Opportunities Others Don’t, and has also contributed to publications such as Forbes, Harvard Business Review, and The Financial Times.
Carla O’Dell: How would you define “innovation”?
Stephen Wunker: Innovation is not invention—it’s not the latest techy gizmo that gets people excited. Innovation represents new ways of doing things that are practical and useful. It’s both the newness of a concept and the deployment of it, making it a commercial reality.
Carla: Innovation isn’t the same as creativity; I think that’s where people get confused.
Stephen: I open my book, Capturing New Markets, with a narrative about a man named Hero of Alexandria, who invented the steam engine 2,000 years ago. It was a magnificent idea, but it was never commercialized. Commercializing that idea would have had an enormous impact on the ancient world but instead, it sat in a sketchbook unused. A lot of great ideas are like that, and for innovation purposes, they don’t count.
Carla: You once made the provocative assertion that Steve Jobs is a source of some of the biggest and most harmful misconceptions about innovation. We adore Steve Jobs, so why do you say that?
Stephen: People think they need to be a Steve Jobs or a Leonardo Da Vinci to come up with these amazing ideas that nobody has ever thought of before. The reality is that innovation doesn’t work that way, and innovation didn’t work that way for Steve Jobs. He did not invent the iPod; he saw it somewhere else. An industrial design person came up with the idea.
Jobs’ talent lay in recognizing good ideas and then organizing a team to go after things with a very disciplined process to create some amazing innovations—and also some flops, by the way. He embraced the idea of pursuing innovation through a process. He realized that you were never going to get it completely right, and that you would make mistakes. He really understood innovation as an organizational approach to accomplishing a goal, rather than some amazing idea that just popped into his head in the shower.
Carla: This concept empowers the rest of us to understand that, if we can pay attention to what the opportunities are and have the skills to collaborate in our organization and with our larger ecosystem, it’s possible to be innovative—without being Steve Jobs.
Stephen: If you follow a disciplined process about getting customer insight and really think through the possibilities that insight implies, you can see what you might do to act differently. And that end result may appear obvious, but if you rewind the clock to whet you started the process, you will realize that it wasn’t all that intuitive at the beginning.
Carla: It was the process that caused you to see those “intuitive” or “obvious” insights.
Stephen: That’s right; the possibilities emerge over time, and when you’re in it, it becomes somewhat obvious. For example, back in 1999 I led one of the first projects to develop a smartphone. We had a sense that this was big, but we certainly didn’t realize the full impact of it at the time. What we did see was that the development of this device was actually fairly obvious in terms of building on technologies that were emerging at the time: big LCD screens, wireless data bandwidth, and faster and less power-hungry processors.
The smartphone was building on what had already been there before, with the PDA, but taking it several steps further. When we were really deep in the process, it seemed fairly obvious that we wanted to have a mapping function, email, and some of the other things that we take for granted today.
The other corollary of that experience is that sometimes what’s obvious to you isn’t necessarily obvious to the marketplace. It really took till 2007, with the introduction of the iPhone, for the smartphone to go mainstream. It’s not just about the quality of the idea; there are a lot of other elements that determine how quickly an idea is going to take off. People need to realize this. Recognizing an innovation may be obvious to the person who’s done the research, but it’s often non-obvious to a person who isn’t steeped in the process.
Carla: Engineers and inventors can fall in love with their own product and think it’s perfectly obvious that it’s going to save the world or solve some problem—then the market says, “I don’t think so; I’m not that interested.”
Stephen: When I work with entrepreneurs who are really in love with their idea, I ask them: “Is your idea better than indoor plumbing?” The honest entrepreneur will say, “No, probably not.” It took 4,500 years from the invention of indoor plumbing in the Indus Valley to its broad commercialization in
Victorian England. It wasn’t because there was an underlying technology that had to get perfected, and it wasn’t the quality of the idea—there were just a lot of other things that impeded its broad take-up.
You’ve got to think beyond fascination with a concept. You’ve got to think about the full commercial system and behavior changes that might be required to make any idea adopted, whether it’s a technological invention or a process innovation.
Carla: This concept is also important for change agents within companies. One way or another, change agents are selling some new idea—some new idea, some new way of working, a new process, a new program—and we fall in love with our idea and don’t understand why other people don’t see its benefit.
Stephen: That sounds absolutely right. As you collect information and insight you have to be somewhat disciplined about making that accessible to others. If possible, you want to bring people along the innovation journey with you. So don’t just report out at the end—invite people along to talk with the customer or observe some awkward workaround that people use because your innovation hasn’t made it to the market. That makes the value of the idea come alive in a way that some static report never will.
Carla: What are some other principles and truths about innovation that everyone should know?
Stephen: There are different types of innovations. There are innovations that will sustain your core business, and there are ones that will fundamentally disrupt it. Sometimes it’s about making things not better, but actually worse; it’s about trading off some aspects of performance to make something much more broadly accessible, easier to consume, or less expensive.
It’s also not just about the core product. Innovation can happen around some enabling process, like the revenue model, brand, or customer experience. Some of the most valuable innovations are a result of people combining many types of innovations at once. A combination of innovations is very difficult for competitors to copy, and it’s often an indicator that the organization has been really thoughtful about connecting the idea with what a customer really wants.
Consider, for example, the history of the automobile. There were a lot of automakers 100 years ago. Henry Ford actually struggled at first; he started three different companies to try commercializing the automobile. Ultimately, it wasn’t the quality of the Ford engine that made the Ford Motor Company the dominant firm in the industry—it was the assembly line and the business model of aggressive standardization.
Then 20 years later, Ford was knocked off its pedestal by General Motors. That wasn’t entirely due to the electric starter or other technologies GM embraced back then, although that certainly helped. GM succeeded because the organization started thinking about marketing in a different way. GM had a multi-brand strategy called the ladder of success, with different brands at different price points. GM propelled itself to dominance through new ways of thinking about financing and working with automotive dealerships. It’s more than the product or core service—it’s that enabling system that creates a huge amount of value.
Carla: You need to make a complete package for the customer, that’s what makes an idea ubiquitous.
Stephen: If you expand beyond a foothold market, it becomes very rare that you’ll be independent of other industries and how they interact with you. A company in the frozen food business is dependent on the emphasis that a grocer puts on the frozen food sections in stores. If the frozen food cases don’t exist or are in a bad part of the store, the frozen food company has a very different marketing challenge.
That’s a direct customer purchase example. Certainly in a business-to-business environment there’s a whole lot of context and interaction with other industries that impact success and failure.
Carla: This idea also relates to how change agents within organizations need to partner with other departments. The best solutions are those that come out of integration and collaboration.
Stephen: There are some industries, like health insurance, where it’s just inherently multi-functional: risk, operations, the medical network, marketing, and your regulatory people—they all have to get involved. In retail, you’ve got to integrate store operations, IT, HR, and marketing. If it doesn’t come together, it’s hard to operationalize. The problem is, a lot of companies’ organizational structure doesn’t allow for that sort of multi-functional and multi-business-unit collaboration. Oftentimes, these people are set up as rivals and not as collaborators.
If you’re in the middle ranks of an organization trying to initiate change, it’s often about your personal networks—it’s about getting people together and getting a champion. If you’re at the senior level, managing change is about taking initiative. You need to make the system work for you by bringing people together and having a common compass, which is frequently that in-depth customer understanding.
Coming back to Steve Jobs, this was one of his great strengths—he embraced process, but also had an intuitive feel for the importance of understanding user experience and thinking about it holistically. By holistically I mean not just in the silo of hardware or software design, but the whole user experience: from the retail experience, to first use of the device, to becoming a fanatic. Very few organizations have that as part of their DNA. If you’re leading an organizational change initiative or some other innovation program, making customer experience a foundation of what you do helps establish that compass, and it helps ensure that everybody is growing in the same direction.
Carla: Elon Musk [founder of Tesla, SpaceX, and SolarCity] is widely admired in the field of innovation for his integration of software development and web design methodologies (such as “fail forward, fail fast”) into a business context.
What’s your perspective on Elon Musk’s business models and how they fit into the innovation landscape?
Stephen: There are different requirements depending on what business you’re in. At SpaceX, the penalty for failure is extremely high at the late stages of projects. By contrast, if you’re working on battery technology for Tesla, as long as you’re not doing anything dangerous with combustibles, your penalty is lower.
The point you made about these methodologies being translated into a business context makes a lot of sense. A good agile development team will go out and collect what they call “user stories”—narratives of how people interact with an application. It’s a very user-centered way of framing what this thing must ultimately accomplish. Then they create priorities and, through a series of rapid sprints, they quickly develop first iterations of the application so they can get real feedback from real people.
But this idea can be translated beyond a software context. For example, there’s a large consumer products company that engages as early as possible in what it calls “transactional learning”—selling a real product to a real person. They create a situation where you see the sort of questions that consumers have, the hesitancies that they have, and how much they’re willing to pay. You get so much more information from that than from “old school” concept tests, because you’re making it as real as possible. In Lean terms, you’re identifying the minimum viable product, the smallest thing that you think people will actually part with real money to experience.
Carla: You’ve previously mentioned the idea of conducting low cost, low risk experiments—ways to find out whether anybody cares about the product or idea at all, but without spending a lot of money.
Could you tell us more about the role of low cost experiments in the innovation process?
Stephen: Companies have different names for this idea; Campbell Soup calls them lemonade stands. The idea is to take the real product into a grocery store, see what people ask, and figure out if they will buy it. Low cost, high-ROI experiments help to leverage that minimum viable product. They also might provide other insights, for example: Are regulators going to go for it? How will our IT partners be able to interface with it?
There are some rapid test-and-learn activities that you can do to take risks off the table. This is what a venture capitalist would do when they make an investment in a company. They’re not looking for that company to build a miniature version of the whole enchilada; they want them to take two or three key risks off the table before the next round of investment comes in. I have a venture capitalist friend who likes to say that he’s in the information acquisition business. When you translate that to a corporate context, it’s not about trying to get it perfect or even perfect at a small scale, but rather about buying some information. The television game show Wheel of Fortune used to call it “buying a vowel.” You’re spending a little bit of money to take some key risk off the table, and then you can move on.
Carla: What is the biggest and most frequent mistake that companies make in their quest to be innovative?
Stephen: I think companies get bewitched by a couple of ideas, which often come from senior executives and are often technology-centric. That’s not to say that senior executives don’t have good ideas or that technology shouldn’t be used, but those are means to an end. What you need to do is have a strategy, which starts with asking questions like:
- Why are we trying to be innovative?
- What are we trying to accomplish in terms of strengthening the core business or developing new growth options?
- How many bets do we want to have out there?
- How risky and costly are they going to be?
- How much failure do we expect?
- How many varieties do we want in that portfolio?
Based on that, let’s not just jump right to the idea, but instead do some discovery and learn about what the marketplace needs. By that I mean not just what people are using today and what they say they need. But what are those underlying jobs that people are trying to get done that they’re not accomplishing well today? Then, we can create a lot of ideas. Not just one idea, but a whole range of ideas—this way we don’t just fall in love with the first concept and subsequently move on to a disciplined process of experimentation. Way too frequently, people jump right to the idea, that idea is rendered glitzy somehow, and they go implement that idea without engaging in that broader setting of the stage with the strategy.
Carla: If organizations and individuals used this process you just described, it would probably increase the rate of success by a factor of two or three. What you said about the mistake of focusing on technology also resonates for me. The biggest complaint I hear in knowledge management circles is that people spend money on technology without understanding how it’s going to solve a problem, or without building the strategy for engagement.
Could you talk more about this problem of being “bewitched” by technology?
Stephen: I’ve seen it a lot; for example, there’s the idea of having an interactive wall at a bank branch that allows you to look up your portfolio performance or the interest rate on CDs via touch. While that looks great in a promotional video, who actually wants to do that? Who wants to advertise their investment portfolio to the world or interact with a wall rather than a screen or person? Is technology looking for a problem to solve?
Carla: Are there any new technologies or capabilities that are going to have a profound impact on how we innovate moving forward?
Stephen: You’ve got to be careful about embracing technology too much, because many people aren’t ready for it and it can be a solution looking for a problem to solve. However, I think the smartphone is truly transformative. Smartphones enable two-way communication with end-customers, and their processing power today is similar to that of a Cray supercomputer only a few years ago. Through smartphones, there’s an immense capability to connect with customers—whether it’s consumers or business-to-business customers—and make your product or service truly interactive, accessible, and multi-dimensional (in terms of the degree of information or connection that is provided). We are just starting to tap into that capability today.
The rate of change in the mobile industry is still at a blistering pace, and that’s going to continue for quite some time. Perhaps the smartphones of the future aren’t going to look that different or have a different processor speed. But the ways we leverage that sort of connection with real people on an immediate, real-time basis—and in a location-specific or context-specific manner—that is truly transformative, and that will be transformative 20 years from now.