I am pleased to attend Enterprise 2.0 Innovate on the West Coast for the first time. It is occurring November 12 – 15 in Santa Clara Convention Center. Here my notes from this year’s Enterprise 2.0 2012 conference in Boston. Here are my notes from the session: From Project Portfolio to Innovation Funnel, led by Dave Rochlin, Executive Director, Haas @ Work Program, Institute for Business Innovation, UC Berkeley Haas School of Business. Here is the session description.
“Rigid stage-gating, incremental change requests, and project portfolio evaluation methods can inadvertently crowd out investment in more impactful innovation opportunities. Yet unlike start ups, established firms need to focus resources against the “sure things” rather than speculative development. This session discusses the application of an “innovation funnel” approach to your project portfolio, by adopting lean startup principles and innovation best practices.”
Dave said that innovation needs to be embedded in the company strategy and you need to have a culture that allows for failure. An innovation funnel approach can help in these issues. He quoted Cathy Benko of Deloitte that a predictor of future success is your current project portfolio.
Dave mentioned that many of his students do not know how innovation emerges. They also do not see it happening in their companies. One problem is that there is disconnect between traditional project evaluation practices and innovation. With innovation you need multiple approaches, you need to be able to learn and to experiment. You need rapid prototyping so you can fail fast. There needs to be cross-boundary work. You need to focus on problems rather than solutions.
If you follow the traditional project portfolio process you miss what is on the edges where innovation can occur. His students are placed in firms. They find many maintenance projects and those for incremental improvements that have big backlogs. They also found only 20% were using web services and there was low customer loyalty and significant customer churn.
He said that you need to send out expeditions. You need a big picture approach. Project portfolio practices are the enemy of innovation. They way to solve this is to use an innovation funnel.
Dave then mentioned that companies said they needed more graduates that could help with innovation and not simply execute tasks well. So they made some changes in their program at Haas to support this request.
The innovation funnel starts with problem finding. Then there is opportunity assessment, concept design, modeling, experimentation and finally real innovation. It is a funnel so stuff gets thrown out as you proceed. However, you can know the answer before you start.
He showed a pizza delivery company that provides a button that you can place on your fridge to place orders. It is Redtomato.biz in Dubai. Here is a video on the red Tomato magnet. To develop this capability they looked at the issues. Customers switch pizza vendors often and the time to order than turn people off. Also, nothing in the fridge often calls for pizza. Here is an article on it (Fridge magnet lets users order pizza at touch of a button).
So they created this button with your preloaded information and present options to order. It uses your phone to make the orders. The user syncs the ‘VIP Fridge Magnet’ via Bluetooth with a smartphone, which they use to select their pizza order. The order is then tied to the user’s account. It increased sales five fold and had a huge ROI. This would have not happen in the large pizza firms in the US because of too many obstacles. It would have been too complex and did not have a known business case.
Innovation comes when you can get a lot of attempts so one will work. If it does not work, do not stop. Learn what went wrong and attempt to correct it and try again.
So Dave asked how do you create this funnel mentality? First, embrace the duality of the CIO role. You have to be both responsive to the business AND drive innovation for them. If you have tight budgets that all allocated to projects it is harder. Be sure to spend time on problem finding rather than simply problem solving. Agree on what you are solving before you start to solve it. Do insight identification before data gathering.
ROI can be an enemy of innovation. Look for other measures such as return complexity. In other words how can you reduce complexity?
Dave next discussed insight versus data. Find the “why behind the what.” Otherwise you will not properly understand the data. Beware of what you know you know. For example, Bill Gates’ statement that “640k ought to be enough for anybody.” Challenge assumptions. You can jumpstart innovation by challenging what you know.
Innovation does not come for free. You need dedicated resources. Partner with business units and other stakeholders. Do not have stage gates but rather a process for each step. Avoid the concept that you too many ideas already. Avoid the statement, “do not come to me with problems but with solutions.” Actually defining the problems can be the most important contribution.
It was asked what is keeping firms from doing this? One factor is that they have processes that work for them. They are reluctant to go away from these proven processes. Then someone comes along and changes the game and they lose.