Aug 10, 2022 | Innovation, Leadership, Strategy
When are the funds for an innovation initiative generally available?
At the beginning of a project.
When are the funds for an innovation project generally needed?
Increasingly towards the commercialisation, or completion of a project.
To me, this usual pattern of financial resource availability is arse about.
At the initiation of a project, the resource needs are peoples time, lab space, and the commitment from senior management., The need for financial resources is usually limited. However, it is this time that projects need to gather momentum, which means financial resources and forecast outcomes are included in budgets, and formal planning processes. The best way to ensure a project is supported is to ‘boost’ the promised returns and shorten the lead times.
Unfortunately, this locks in expectations that have impacts on the way projects proceed.
A project that promises 25% IRR in 18 months will almost always win the resources race over a project that forecasts 30% IRR in 5 years. This sort of financial analysis is how choices are usually made, ignoring the strategic implications of the differing projects. This is because we have not found a way yet to reliably tell the future, and immediacy is a powerful motivator.
On top of that you have the favouring of evolutionary ‘innovation’ over ‘revolutionary’ innovation.
Most successful businesses become successful by incrementally improving products and processes over time, and are prepared to spend money to keep the evolution going. The challenge of this is that it crowds out the revolutionary innovation, the ones that have the potential to change markets, rather than just do more of the same but just a bit better.
The examples of these abound.
When I was working for Cerebos in the early 80’s, we marketed a muesli under the brand ‘Cerola’. It was in the days when there were only a few breakfast cereals on the market, unlike today. Similarly, confectionary was less fragmented. We came up with the notion of a muesli bar, a ‘healthier’ snack than anything then available, with the convenience and taste of confectionary for kids lunch boxes. We did extensive product development, several pilot plant trials, and a little market research. In the early stages I had done a forecast profit and loss, timeline, and we had established the capital costs necessary for the changes to the existing muesli line. These were included in the Cerebos budgets as project ‘M’. The numbers were modest, but at the time, pushed as far as I felt comfortable. When it came to the final go/no go decision, the project was binned, as the forecast IRR based on my modest sales forecasts did not meet the hurdle. A year later, Uncle Toby’s came out with pretty much the same product and positioning, and did my annual sales forecast in the first month. Opportunity missed, and lesson learnt.
Kodak, that well known exemplar of the missed opportunity, not only invented the digital camera in 1975, they brought out the first viable digital SLR, the Kodak DCS-100 in 1991. While it was bulky, and expensive, it was the first. In 1994 Kodak supplied Apple with the ‘Apple QuickTake’ manufactured in China to a Kodak design. Also in 1994, Kodak brought out the NC2000 designed for photo-journalists.
So, Kodak did not miss the digital camera revolution, they led it, but simply failed to see beyond the boundaries of the photography business model as it had evolved over the previous century. They saw innovation as an evolutionary process, not revolutionary, as that carried the risk that their existing hugely profitable model would become redundant. None of the senior management over that time wanted to fund the risk of shooting the cash cow upon which they all depended.
Cerebos by contrast were shackled by a short-term focus on an unrealistic financial expectation that ignored the strategic value of the opportunity to generate sales, and also to open a new market that carried and solidified the Cerola brand.
In both cases, a huge opportunity that emerged from the fringes of their markets were subjected to a muddle headed and front-loaded financial calculation, ignoring the strategic implications of the opportunity.
Header source: The extensive StrategyAudit ‘slide bank’ built up over 30 years.
Aug 8, 2022 | Innovation, Marketing, Strategy
Black and white thinking is easy, there is right and wrong, you decide which side of the fence you are on, and stick to it.
Luckily, life is not like that. Life is a mass collision of colours, ambiguity built on ambiguity, built on uncertainty. That is what makes it interesting, and worth living.
Following the previous post that offered 9 strategies for more impactful decisions, it seemed appropriate to observe that the great advice in that post is useless in the absence of being able to see a problem from a number of perspectives.
In other words, see all the colours.
Most problems we face in strategy development are wicked ones, where there is no obvious right and wrong answer, where there are nuances on top of nuances, second order impacts, and where definitive data is hard, if not impossible to find.
Thinking in a binary manner means that you dismiss all these opportunities for creativity because it is somehow inconsistent with your existing views.
This also means you lose sight of most of the stuff from the alternative choices, which is where the richness usually hides.
Differences of opinion cause tension, discomfort, and room for conversation which become challenging for a binary thinker.
Thinking and then communicating in a nuanced way is an enormously valuable skill.
Relationships that last can accommodate the differences caused by the grey areas. It requires that you can hold seemingly inconsistent ideas in your mind at the same time.
Binary thinking means you cannot hold those conflicting ideas.
The question every time in a disagreement, is the extent to which the tension created by differences in opinion are healthy.
We are used to seeing things in a binary manner, it is the automatic response, but we need to find a way to manage the inconsistency and ambiguity. We need to be flexible, as well as being driven by the rules.
The biggest challenges we face have the need to be able to dance with the facts, what works today, may not work tomorrow.
Overdoing structure removes the flexibility, and the opportunity to see things that may become important.
We think most problems can be solved, that is the base assumption we always have, but the conventional wisdom does not always work.
As a kid I lived on the beach, surfed a lot. The water pushed into the beach by the waves needs to get back out somehow, so you have ‘rips’. The area that allows the water to return from the beach. When surfing, you go with the rip, it will take you out, try and swim against it, you will just get tired and make little or no progress. You need to be able to swim at an angle, use the rip to take you out, then move across towards where the waves are.
This skill works in problem solving, finding bits of a problem that are resolvable, like getting a single wave in a session in the surf, you get the thrill of that great wave, use the rip to take you back to catch the next one. It is a process
Tension between people who hold differing views is healthy when managed well. This is when there is a recognition that there is no right or wrong answer to a wicked problem, just the better choice at this point. Then the differences in opinion can better hold the outcomes of the decision to account, it will increase the opportunity to pick up the problem molehills before they become mountains.
Ambiguity and bias can be used constructively.
Embrace your opposites. It indicates you recognise there are differences, give permission to voice the unfamiliar perspective. This is the opposite to just having people with you that agree, then there is no tension, no opportunity to see the differing perspectives.
One side of any question is rarely completely right, and the other completely wrong, we must be curious to see the reasons that the others see it differently.
This is how we produce creative new options that reflect life.
Header cartoon credit: Tom Gauld in ‘New Scientist’ magazine.
Jul 19, 2022 | Change, Governance, Innovation
There must be some sort of magic in the water supplied to the Santa Clara valley, just outside San Francisco, originally famous for its orange groves. What started as a ‘nick-name’ for the area in the 70’s, stuck, and we now know it as ‘Silicon Valley’.
Somehow, that same water has infected other places and times, leading to an extravagance of brilliance. Athens in the time of Aristotle, Rome in the time of Marcus Aurelius and Seneca, the Florence of Leonardo and Michelangelo, Paris in the 1920’s that spawned Picasso, Monet, and Modigliani, Hemingway and Scott Fitzgerald. Even a little pub in Oxford with a writers club, calling themselves ‘The Inklings’ that delivered three of the most popular books of all time, Lord of the Rings, The Hobbit, and Chronicles of Narnia from the pens of C.S. Lewis, and J.R.R. Tolkien rates a mention.
Futurist Kevin Kelly in a 2008 blogpost, looked at some of these creative clusters over time and concluded that there were four common characteristics:
- Mutual appreciation. Appreciation implies polite clapping, but real appreciation requires the injection and debate of contrary views, critical peer review, and competition driven improvement.
- Rapid exchange of tools and techniques, facilitated by the common language and competitive instinct moderated by the mutuality of a ‘safe haven’
- Network effects, and the geometric nature of influence and information when something interesting happens.
- High tolerance for the novel, and different, with barriers to prevent the status quo responding. The renegades are protected by the herd, rather than expelled
Kelly concluded that these groupings of genius were spontaneous, and self-supporting over time, and the best you could do was ensure you do not kill it. They also occurred after a time of considerable social and economic disruption caused by war, rebellion, and plague. Catastrophe it seems leads to innovation, as many if not most of the usual institutional barriers to change are removed, and there is a hunger for the new to replace the old.
Lurking amongst these four common characteristics are several other common elements. There may have been mutual appreciation and exchange of tools and techniques, but there was also fierce competition. Michelangelo and Leonardo were ferocious competitors, Monet and Picasso never agreed on anything. The characters involved in the morphing of a slice of semi desert into Silicon Valley, William Shockley, Sherman Fairchild, Gordon Moore, and the companies they worked for and founded were intensely competitive, while building on the successes of their peers.
Also present is a communal meeting place and ritual, usually in a coffee house or pub, as in the ‘Inklings’ meetings in the Eagle and Child pub in Oxford. These places were the key node in the generation of the network effects that characterises all these innovative ecosystems. They are the neutral, informal point from which the magic water of innovation is first dispensed.
These informal places attract intellect and experience from diverse fields, enabling a range of perspectives to be brought to the discussion table that can then be applied to complexities and problems in entirely new ways.
As we observe the world we are now in, on its own, the Corona pandemic might qualify as a catastrophic incident, sufficient to create another explosion of innovation. It could be easily argued that it has already created such an explosion. The rapid development of mRNA vaccines involved networks of researchers, companies, and public funds from around the world to commercialise with unprecedented speed, technology that has been slowly evolving for 30 years. On top of that, we now have another war in Europe, which has kickstarted the restructuring of the global economic and political status quo, shattering the ‘globalisation’ of trade and giving huge impetus to the development of renewable energy. Together with the rise of China, and the relative decline of the US, this surely rates as a global geopolitical pivot point.
How can Australia leverage this seismic restructuring of the global order?
If Kelly’s observations have any validity, and to me they reflect what I have seen over a long career, we should consider our strategies in the light of the constraints imposed by the current status quo, and rebuild those guiderails in a more appropriate manner. Constraints are useful for innovation, only so long as they direct the process productively.
- Divert academic attention from the necessity to spend significant time chasing grants and dealing with bureaucracies to keep working, to creating safe spaces for intellectual exchange and competition. The pub and coffee houses of the past have been partly replaced by Slack and Zoom, although the value of face to face cannot be understated. The tools are there, the guiderails are just in the wrong places.
- There must be a shared mission that motivates and engages the best minds. This will be the catalyst to assembling the resources enabling the pressure to innovate to be felt. Public funding is essential, but the governance of that funding needs to be driven by those funded, and in a position to leverage the outcomes, rather than by non-scientific bureaucrats and political appointees.
- The ‘field’ in which the ideas will be planted needs to be fertilised and watered consistently, again over a long term if the seeds are to germinate and grow. There also needs to be the recognition that many seeds will not germinate, and they must be seen as a learning experience, not a failure.
Sadly, our mindset works against this.
It is a mindset built by the 20th century, one characterised by a combination of catastrophe in the first half, and unprecedented advances and comfort in the second. However, it is now the 21st century, and the institutions that evolved in the 20th are inadequate to accommodate the 21st.
Unless we can change, we will remain hobbled.
The header photo is of the Eagle and Child pub in Oxford where ‘The inklings’ met from the early 1930’s to 1949.
Jul 11, 2022 | Change, Innovation, Strategy
When you look over commercial history, there is a cycle in scale.
A new industry emerges, then scales using the capital captured to build production and productivity, which in turn leads to scaled volumes, fed by sales and marketing dominance. At some point, a ‘tipping point’ of some sort emerges and industry fragmentation and change occurs.
Out of the fragmentation emerges a new set of products/services that renew the cycle of scale.
Perhaps the first modern industry that emerged from cottages, leveraging scale and branding, was Charles Darwin’s uncle, Josiah Wedgewood. The industry he created established a global dominance that lasted to 1940. After the war, Wedgewood was replaced by a host of cheaper, more utilitarian products emerging from a reconstructed Japan, and other low cost suppliers.
Early in the 20th century, there were hundreds of companies building their versions of horseless carriages. Henry Ford launched the first Model T in 1908, and built a further 15 million by 1927, almost squeezing out everyone else. Those that remained in the US merged to survive and became General Motors, evolving to be for a while, the biggest company in the world. They dominated until the mid 1970’s when the Japanese, followed more recently by Korean suppliers, almost destroyed them.
By the end of the 20th century there were few legacy car companies left. They are now in the throes of being disrupted by a new generation of electric cars. The incumbent manufacturers completely missed the emergence of battery stored electricity as a replacement for the internal combustion engine, leaving an open playing field to Tesla.
Today, Tesla is the biggest auto company in the world by market capitalisation, bigger than the value of the next 10 manufacturers combined. In terms of unit sales, Tesla is a relative minnow, demonstrating the capital markets view of the power of the trend towards EV’s. Few remember that cars and trams were run on batteries in the earliest days of ‘motorised’ transport.
You can track similar trends in all major industries. Media, communications, heavy engineering, retailing, technology, the only things that vary much are the speed and amplitude of the cycles, which are now accelerating at an unprecedented rate.
Picking where your industry sits in the cycle is an important strategic consideration, as it offers some insights about the types of investments required to stay competitive over the long term.
Jul 8, 2022 | Innovation, Marketing, Strategy
A former client has been providing engineering services to the fossil fuel industry for decades. Having breakfast with him a while ago, he expressed the view that the prospects for the industry in which his business competes, and thus his business are dismal.
He is right, so long as he continues to see his current capability set through the perspective of how the business has operated in the past.
The challenge is to position yourself to take advantage of opportunities as they arise. Emerging technologies of various types are opening substantial opportunities for which his business has deep capabilities, but which are hiding in an alternative perspective of how those capabilities can be leveraged. Changing the strategic frame through which they are seen provides a path forward.
The challenge of the future is to reposition yourself quickly towards the point at which there is real, monetised value to be added.
You must be prepared to make early bets on those opportunities with the best odds of success in the medium term with a minimum of information by which to make those decisions. Equally, you must be prepared to walk away from the sunk cost when new information emerges which reduces the odds of the expected success.
Stripped back to basics, you must set yourself up so that as clarity emerges you are in a position to accelerate into it.
In my younger days I spent half my life on a surfboard. In a big swell, the position on the wave you took after the take-off was critical. Done right, you were able to accelerate out of the bottom turn into the fastest part of the wave, and, hopefully, make it through the break above you. Get the timing of the bottom turn just a bit wrong, and ‘Wipeout!
It is the same in business, positioning yourself going into uncertainty in the manner that puts you in the best position to accelerate out as it becomes clearer will be the difference between those who make it, and those who do not.
Photo credit: John Morris via flikr
May 26, 2022 | Change, Innovation, Leadership
Opportunities abound, and are hard to ignore.
They emerge to consume resources, distract attention, divert investment, obscure the focus on strategy, and generally disrupt operations.
How do you ignore, or better still, systematically, and quickly assess them, learn, and then execute or walk away?
- Relentless focus on the long-term objective, and the framework that is the strategic plan and supporting operational plans that will deliver that objective.
- Consistency between the long-term objectives and the activities that are shorter term, tactical choices.
- Have a bias for action, coupled with the discipline that any action needs to move the enterprise towards that long term goal.
- Never underestimate the power of the status quo to water down and divert the bias for strategically oriented action.
- You need the right people, those that will measure every decision against the agreed strategic objectives. This is not to remove any opportunity to divert from the strategy, it just requires more short-term agility to take advantage of tactical situations as they occur.
- Make sure you have all the facts and are working from first principles.
Strategy is all about making choices, and making a choice for option A precludes also choosing option B. This cascading of choices becomes a Bayesian decision tree as the choices cascade through the organisation from the top to the points of tactical implementation.
