Here are three frequently asked questions on how to spur innovation in organizations.
1. Are there schemes that organizations can set up to get employees to generate ideas?
Of course there are. However, when organizations do something like this they have to be very careful of unintended side-effects. Say for example, you paid for each new idea. You would get tons of ideas. Some employees might give up concentrating on their day job and only generate ideas. Say you paid for implementable ideas. Who would act as the filter on these? If this is not judged fairly, it could lead to demotivation and a lack of trust in management.
So if you come up with schemes for innovation they need to be authentic to the core values of your organization. This is not easy. Often some cultural change and a revised view on organizational learning is required.
2. How do you get staff to participate in these schemes?
My advice is to start with a scheme that is relevant to the employee in such a way that it links a corporate objective to something within the capability of the employees. Then keep the rewards aligned to the normal outputs of the employee. In this way the chance of an unintended consequence is reduced.
Show the employees that they can be rewarded for innovations in their day-to-day activities. Over time this gives you an innovative capacity throughout your organization. This is not a quick 'ideas competition' and then everything is OK and we can go back to our desks.
Remember innovation is as much about execution as it is about ideas. So start getting people to innovate locally and they will grow in this ability each and every day. Then when you really need the big ideas they are ready and willing participants.
3. What are the support mechanisms?
Encourage learning and experimentation. If you approach something as an experiment from which are are going to learn, you can't fail. You need to look at the failed experiment and ask "what have we learnt from this? What would we do differently next time?
So for support you need to develop a tolerance for failure and an ability to unpack the learning experience. Obviously, you need to be able to withstand the failures so the experiments need to be carefully structured so as not to put the whole organization at risk. Over time as your capabilities build, you will become more proficient at structuring things so that you can take slightly bigger risks.
You also need to allow the employees time to consider the possible innovations they would like to recommend and experiment with. And then they need the time to do so. This is why a firm like Google gives employees 20% of their week to pursue their own interests. Of course, not every firm can be that generous but you can see the enormous commitment to slack resources. If everyone in your firm is stretched to breaking point, don't expect much innovation.
Monday, May 19, 2008
Thursday, May 15, 2008
There is Nothing Personal about Personal Banking
I recently conducted a "straw man" poll into understanding people's frustrations with their personal banks. The population sample was from LinkedIn members from around the world who are computer literate, mainly professional, and have a desire to interect on electronic systems. There weren't any really surprising results. The frustrations can be seen as product, people and technology related. Here is my take on some of the issues highlighted.
The main conclusion is that the customer experience in branches is poor because of long lines and inadequately trained staff. This is an old issue which banks have tried to solve by moving some of the business into call centres.
The frustrations with call centres are relationship churn (never interacting with the same person and the associated lack of continuity and ownership) and lack of ability to make unscripted decisions.
In general people were happy with the products with some minor complaints about lack of flexibility in terms of product delivery, product rules and cost structures.
The on-line experience is better with frustrations related to site performance, browser support and overly complex and fragmented security.
These findings underline the idea that innovation in banking is really about innovation in service and customer experience. Some of the basic products have been around for centuries.
What banks need to take into consideration is that more and more customers are becoming comfortable with conducting business on-line. However, there will always be a handful of interactions that need to be done between people, either over the phone or face-to-face.
At that point the quality of interaction is the key differentiator and a source of competitive advantage.
The on-line experience is an opportunity for further innovation. This is the dangerous zone for many banks with their legacy of multiple complex, poorly, integrated, monolithic applications. The physical-world analogy of the situation is where you are selling steel bars and coal in high fashion clothing stores in popular shopping malls. You need the flexibility to be able to modify, repackage, and tailor relatively commodity products to the whims and fashion dictates of the customer base.
The scariest part of this is that many customers seem loyal only because there is too much pain and suffering in changing from one supplier to another.
The main conclusion is that the customer experience in branches is poor because of long lines and inadequately trained staff. This is an old issue which banks have tried to solve by moving some of the business into call centres.
The frustrations with call centres are relationship churn (never interacting with the same person and the associated lack of continuity and ownership) and lack of ability to make unscripted decisions.
In general people were happy with the products with some minor complaints about lack of flexibility in terms of product delivery, product rules and cost structures.
The on-line experience is better with frustrations related to site performance, browser support and overly complex and fragmented security.
These findings underline the idea that innovation in banking is really about innovation in service and customer experience. Some of the basic products have been around for centuries.
What banks need to take into consideration is that more and more customers are becoming comfortable with conducting business on-line. However, there will always be a handful of interactions that need to be done between people, either over the phone or face-to-face.
At that point the quality of interaction is the key differentiator and a source of competitive advantage.
The on-line experience is an opportunity for further innovation. This is the dangerous zone for many banks with their legacy of multiple complex, poorly, integrated, monolithic applications. The physical-world analogy of the situation is where you are selling steel bars and coal in high fashion clothing stores in popular shopping malls. You need the flexibility to be able to modify, repackage, and tailor relatively commodity products to the whims and fashion dictates of the customer base.
The scariest part of this is that many customers seem loyal only because there is too much pain and suffering in changing from one supplier to another.
Monday, May 12, 2008
Frameworks
Strategy was easy in the '70s. According to the Boston Consulting Group all you had to do was "milk your cash-cows, get rid of your dogs, and turn your question marks into stars". This well-known BCG matrix was perhaps one of the first strategic frameworks. It was effective because it provided people from different backgrounds a common language to use when analyzing problems.
Many other frameworks have followed. Perhaps the most famous is that of Michael Porter who analyzes organisations in terms of five competitive forces; competitors, customers, suppliers, substitutes and new entrants. Porter also set out numerous ideas about value chains. His latest works concentrate on country and regional competition.
I mentioned the need for an innovation value chain in an earlier article. This article investigates how you can use an anlysis of your present value chain to give ideas for places to innovate.
The starting point of the analysis is to describe your existing business within your existing industry. Any one of a number of frameworks can be used. You can even develop one of your own. The important thing to remember is that the framework helps to establish a common understanding of the organisation in its competitive environment. There is a lot of value in having the discussion with your teams in order to develop your own framework. Although this is time consuming.
I find the one suggested by Alex Osterwalder to be quite useful in financial services.
Clients are considered under the sub-headings of relationships, segments and distribution channels; products and services are considered under the sub-heading of offer; operations is considered under the sub-headings of resources and competencies, partner networks and known issues; finally an understanding of the financial implications to revenue and expenses.
This nine point framework lets you ask key questions of each item. "In respect of [each of the nine]: what can we learn from our competitors and other industries? What would our organisation and industry look like if we moved to this? Do we have the experience and capability to do this? What are our risks if we do nothing while others do this?"
For example, "In respect of distributing equities, what would our organisation and industry look like if we distributed over the internet? Do we have the experience and capability to do this? What are our risks if we do nothing while others do this? What happens to the revenue and expense cycle from doing this?"
So the role of the framework is not simply to describe what happens today, it helps focus our attention on what could happen into the future. It gives us a common language on which to base our discussions. The key questions for strategy are; Do we have the common language today to hold this discussion; Is it rich and diverse enough to consider the changes taking place around us; Do we have the desire to develop our own framework; Will doing so be beneficial or simply too time consuming?
Many other frameworks have followed. Perhaps the most famous is that of Michael Porter who analyzes organisations in terms of five competitive forces; competitors, customers, suppliers, substitutes and new entrants. Porter also set out numerous ideas about value chains. His latest works concentrate on country and regional competition.
I mentioned the need for an innovation value chain in an earlier article. This article investigates how you can use an anlysis of your present value chain to give ideas for places to innovate.
The starting point of the analysis is to describe your existing business within your existing industry. Any one of a number of frameworks can be used. You can even develop one of your own. The important thing to remember is that the framework helps to establish a common understanding of the organisation in its competitive environment. There is a lot of value in having the discussion with your teams in order to develop your own framework. Although this is time consuming.
I find the one suggested by Alex Osterwalder to be quite useful in financial services.
Clients are considered under the sub-headings of relationships, segments and distribution channels; products and services are considered under the sub-heading of offer; operations is considered under the sub-headings of resources and competencies, partner networks and known issues; finally an understanding of the financial implications to revenue and expenses.
This nine point framework lets you ask key questions of each item. "In respect of [each of the nine]: what can we learn from our competitors and other industries? What would our organisation and industry look like if we moved to this? Do we have the experience and capability to do this? What are our risks if we do nothing while others do this?"
For example, "In respect of distributing equities, what would our organisation and industry look like if we distributed over the internet? Do we have the experience and capability to do this? What are our risks if we do nothing while others do this? What happens to the revenue and expense cycle from doing this?"
So the role of the framework is not simply to describe what happens today, it helps focus our attention on what could happen into the future. It gives us a common language on which to base our discussions. The key questions for strategy are; Do we have the common language today to hold this discussion; Is it rich and diverse enough to consider the changes taking place around us; Do we have the desire to develop our own framework; Will doing so be beneficial or simply too time consuming?
Friday, May 9, 2008
Innovation Lies in Misunderstanding
"You cannot have innovation unless you are able to move through the unknown and go from curiosity to wonder.", claims Dawna Markova in a recent New York Times article.
One of the best tools that creates this "movement through the unknown" is an open and honest dialogue. This takes place when people from different frames of reference, backgrounds, specialities, locations and objectives meet to discuss a common problem.
While this seems so simple and obvious, in the business context this is an enormous task that is fraught with wicked issues.
Do the participants agree that there is a problem? Very often, just getting agreement on the problem itself is a challenge. This is because of the diversity in the group. A natural response is to remove the diversity, which is not helpful.
It is far better to find a way of facilitating the debate, ironing out differences of opinion to get to some consensus on the problem. Even if this consensus was not reached participants should be able to get to the point of "I understand why this grouping of people believe this to be a problem and I have a view on subject, so I will contribute to the discussion."
I have often found in these processes that diverse people have developed 'dialects', local languages and ways of expressing the subject matter, that cause confusion. To operate in a trusting environment and to process these 'locally' induced misunderstanding is the route to innovative problem solving. There is a psychological reason for this. It lies in the functioning of the brain. On hearing and thinking about subjects our brain retrieves our stored patterns of related material for review. In order for innovation to take place, we need 'just enough' overlap. Too much is like having a meeting with yourself and too little means there is no understanding. In between these two extremes is the 'sweet spot' of good innovative dialogue.
In this 'sweet spot', ideas spark off each other and the new pathways that are formed are the basis of the innovation or idea that ultimately will need implementation.
The next, and perhaps most wicked issue, is the level of trust around the table. People who are involved in some sort of posturing or power struggle which they bring into the debate, have clouded their ability to retrieve the useful information and patterns. The patterns being sent back are those needed to interpret the dynamics and power fields around the room.
Then there is the question of time and capacity to hold these discussions. If you are embroiled in a survival struggle, or you have major operational concerns, or you are simply too busy with the mundane grind of doing your daily activities, you do not have the capacity for this process.
For these reasons, I believe that firms need to practice constantly these dynamic skills in order to build up their innovative capabilities. This means having a constant supply of initiatives and experiments that require diverse thinking against a backdrop of known problems. Not only will your known problems get solved in ways you never imagined, but you are building capabilities that will let you stand head and shoulders above your competitors.
One of the best tools that creates this "movement through the unknown" is an open and honest dialogue. This takes place when people from different frames of reference, backgrounds, specialities, locations and objectives meet to discuss a common problem.
While this seems so simple and obvious, in the business context this is an enormous task that is fraught with wicked issues.
Do the participants agree that there is a problem? Very often, just getting agreement on the problem itself is a challenge. This is because of the diversity in the group. A natural response is to remove the diversity, which is not helpful.
It is far better to find a way of facilitating the debate, ironing out differences of opinion to get to some consensus on the problem. Even if this consensus was not reached participants should be able to get to the point of "I understand why this grouping of people believe this to be a problem and I have a view on subject, so I will contribute to the discussion."
I have often found in these processes that diverse people have developed 'dialects', local languages and ways of expressing the subject matter, that cause confusion. To operate in a trusting environment and to process these 'locally' induced misunderstanding is the route to innovative problem solving. There is a psychological reason for this. It lies in the functioning of the brain. On hearing and thinking about subjects our brain retrieves our stored patterns of related material for review. In order for innovation to take place, we need 'just enough' overlap. Too much is like having a meeting with yourself and too little means there is no understanding. In between these two extremes is the 'sweet spot' of good innovative dialogue.
In this 'sweet spot', ideas spark off each other and the new pathways that are formed are the basis of the innovation or idea that ultimately will need implementation.
The next, and perhaps most wicked issue, is the level of trust around the table. People who are involved in some sort of posturing or power struggle which they bring into the debate, have clouded their ability to retrieve the useful information and patterns. The patterns being sent back are those needed to interpret the dynamics and power fields around the room.
Then there is the question of time and capacity to hold these discussions. If you are embroiled in a survival struggle, or you have major operational concerns, or you are simply too busy with the mundane grind of doing your daily activities, you do not have the capacity for this process.
For these reasons, I believe that firms need to practice constantly these dynamic skills in order to build up their innovative capabilities. This means having a constant supply of initiatives and experiments that require diverse thinking against a backdrop of known problems. Not only will your known problems get solved in ways you never imagined, but you are building capabilities that will let you stand head and shoulders above your competitors.
Monday, May 5, 2008
China Rising
Why does China owe a huge debt of gratitude to a little known US trucker?
In 1953, Malcom McLean, a trucking magnate in the United States, got tired of seeing his trucks stuck in traffic jams. He hit on the idea of driving them onto ships at one end of the states and shipping them to a port at the other end where they could continue their journey.
Malcom soon realised that he was wasting a lot of money shipping the engine and wheels together with the goods. As soon as he left these at the harbour, the shipping container was born. As is usually the case, others had similar ideas and for a number of years there was competition around the format (size and shape) of the containers.
Eventually, McLean's company won significant contracts to ship supplies to the Vietnam-war effort. This led to a ready acceptance of container shipping. The US Government imposed standards on the format of containers used in these efforts.
People realized that not only was containerization feasible but the innovation dramatically reduced shipping costs. Manufacturing started moving from high-cost areas to low-cost areas, first domestically and then internationally. This allowed companies to take advantage of low labour costs and not have the savings eaten up in exorbitant shipping charges.
Over 50 years of this process has led to seismic shifts in economic development with the phenomenal growth in the economies of Japan, followed by India and now China.
This clear example of disruptive innovation illustrates some key ideas in innovation. First, the length of time these developments can take; second, the far reaching industry changing consequences of a seemingly simple initial change; third, the resistance to such a change when it is noticed by the incumbent powers.
The management challenge in these situations are enormous. First, how do you recognize that what you are looking at is a disruptive innovation that cannot be ignored? Second, and perhaps more importantly, how do you allow both the old and the new to develop side-by-side during the transition?
I believe that it is almost impossible for an incumbent to recognize a disruption until it is too late. Instead all firms should develop an experimental capability in which a reasonable amount of scanning and prototyping becomes a constant part of the organization.
This is not a trivial thing. Organizations taking this route will need to develop significant dynamic and deep learning capabilities. They will have to develop cultures that are flexible and reflective, that tolerate mistakes, regarding them as failed experiments from which much can be learnt.
In 1953, Malcom McLean, a trucking magnate in the United States, got tired of seeing his trucks stuck in traffic jams. He hit on the idea of driving them onto ships at one end of the states and shipping them to a port at the other end where they could continue their journey.
Malcom soon realised that he was wasting a lot of money shipping the engine and wheels together with the goods. As soon as he left these at the harbour, the shipping container was born. As is usually the case, others had similar ideas and for a number of years there was competition around the format (size and shape) of the containers.
Eventually, McLean's company won significant contracts to ship supplies to the Vietnam-war effort. This led to a ready acceptance of container shipping. The US Government imposed standards on the format of containers used in these efforts.
People realized that not only was containerization feasible but the innovation dramatically reduced shipping costs. Manufacturing started moving from high-cost areas to low-cost areas, first domestically and then internationally. This allowed companies to take advantage of low labour costs and not have the savings eaten up in exorbitant shipping charges.
Over 50 years of this process has led to seismic shifts in economic development with the phenomenal growth in the economies of Japan, followed by India and now China.
This clear example of disruptive innovation illustrates some key ideas in innovation. First, the length of time these developments can take; second, the far reaching industry changing consequences of a seemingly simple initial change; third, the resistance to such a change when it is noticed by the incumbent powers.
The management challenge in these situations are enormous. First, how do you recognize that what you are looking at is a disruptive innovation that cannot be ignored? Second, and perhaps more importantly, how do you allow both the old and the new to develop side-by-side during the transition?
I believe that it is almost impossible for an incumbent to recognize a disruption until it is too late. Instead all firms should develop an experimental capability in which a reasonable amount of scanning and prototyping becomes a constant part of the organization.
This is not a trivial thing. Organizations taking this route will need to develop significant dynamic and deep learning capabilities. They will have to develop cultures that are flexible and reflective, that tolerate mistakes, regarding them as failed experiments from which much can be learnt.
Thursday, May 1, 2008
A Tale of Two Industries
In Gordon Ramsay's book Playing with Fire, he relates how various parts of his operation work. One of the key features is what I would call a system of loose/tight controls. Certain things are centralized and run from headquarters while others are decentralized and operate locally.
This centralized/decentralized process has even been extended to the centralized reservations system where there is a call centre where each restaurant is answered in the restaurant's own name, but if the one being asked for is full there is an ability to cross-sell into one of the other restaurants.
" ... hire the right people and leave them to organize.", says Ramsay. But he is very selective in this area, especially with the chefs. Many of the chefs have had previous direct experience of working with him. It is this skill of getting the right people, giving them freedom and, importantly, a direct stake in the operations of their restaurants, that has allowed Gordon Ramsay Holdings to grow at the speed that they have without resorting to a franchise model.
In a similar manner, EFG International (European Financial Group), has established a model where the Client Relationship Officer (CROs) are regarded as having the primary relationship with the clients, they are given wide decision-making rights and individual P&L accountability. The Private Banking Innovation blog has a video interview with the founder Jean-Pierre Cuoni.
Jean-Pierre highlights the relationship between the client and the people in the bank. Alex Osterwalder, interviewed a number of people in the hospitality industry to gain insights into service cultures. The common thread amongst these is an ability to anticipate the customer expectations and then use this as a benchmark to measure the extent to which these expectations are exceeded or met.
According to Ruud J. Reuland, General Director of the Ecole Hôtelière de Lausanne, hospitality takes place whenever products are consumed in the premises of the producer. This is certainly true of banking products yet how many of them see the hospitality angle as clearly? When we do, all manner of branch and location innovations become possible.
Of course, there are many aspects in which banking is dramatically different from the hospitality industry. However, the one area where the hospitality industry (at its best) beats banks hand down is in putting the client or customer at the centre of their universe.
This centralized/decentralized process has even been extended to the centralized reservations system where there is a call centre where each restaurant is answered in the restaurant's own name, but if the one being asked for is full there is an ability to cross-sell into one of the other restaurants.
" ... hire the right people and leave them to organize.", says Ramsay. But he is very selective in this area, especially with the chefs. Many of the chefs have had previous direct experience of working with him. It is this skill of getting the right people, giving them freedom and, importantly, a direct stake in the operations of their restaurants, that has allowed Gordon Ramsay Holdings to grow at the speed that they have without resorting to a franchise model.
In a similar manner, EFG International (European Financial Group), has established a model where the Client Relationship Officer (CROs) are regarded as having the primary relationship with the clients, they are given wide decision-making rights and individual P&L accountability. The Private Banking Innovation blog has a video interview with the founder Jean-Pierre Cuoni.
Jean-Pierre highlights the relationship between the client and the people in the bank. Alex Osterwalder, interviewed a number of people in the hospitality industry to gain insights into service cultures. The common thread amongst these is an ability to anticipate the customer expectations and then use this as a benchmark to measure the extent to which these expectations are exceeded or met.
According to Ruud J. Reuland, General Director of the Ecole Hôtelière de Lausanne, hospitality takes place whenever products are consumed in the premises of the producer. This is certainly true of banking products yet how many of them see the hospitality angle as clearly? When we do, all manner of branch and location innovations become possible.
Of course, there are many aspects in which banking is dramatically different from the hospitality industry. However, the one area where the hospitality industry (at its best) beats banks hand down is in putting the client or customer at the centre of their universe.
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