Finding the Silver Lining

I’ve recently finished reading The Silver Lining: An Innovation Playbook for Uncertain Times, a new book by Innosight President Scott D. Anthony. As part of a ‘virtual book tour’ (we’re all very Web 2.0, you see), I agreed to review the book and post a brief interview with Scott. First, the review:

For anyone who’s looking to wrap their head around how to innovate in today’s tumultuous business environment, The Silver Lining offers some great advice. The book, a relatively quick and easy read at 210 pages, puts much of Scott’s previous work and research into a new context; it explicitly spells out how everything we’ve been saying about innovation still applies today. Indeed, the crux of the book lies in the argument that innovation today shouldn’t really look or feel any different from innovation during ‘good’ times. The reality—that innovation efforts in many companies do, in fact, look very different today because of strained resources and heightened risk aversion—simply points to the fact that many organizations weren’t innovating very effectively to begin with.

Scott opens the book with a nice discussion of what he calls “the great disruption,” a term he and his colleagues at Innosight have coined to describe today’s business environment.

An appropriate name for today’s times is the Great Disruption. Change is ripping through markets at unprecedented pace. Competitive advantage that took decades to build disappears seemingly overnight. While output might shrink and unemployment is sure to rise, companies that master these forces still have a chance to thrive; those that don’t are sure to struggle.

This opening sets the tone for the rest of the book—yes, things are different today, and we’re all a little confused and maybe a little scared; but it’s more important than ever to master core innovation competencies to insure you survive the storm and emerge poised for growth once storm has passed.

The seven chapters that follow outline different ways to manage innovation. These seven tactics, from “refeature to cut costs” to “learn to love the low end” are all applicable both in good times and in bad, but Scott argues that it’s critically important that companies embrace these innovation competencies today in order to preserve innovation efforts.

In the end, the core message of this book isn’t all that different than what today’s leading innovators already know. But for organizations whose innovation efforts were just beginning prior to the global economic ‘meltdown,’ or for organizations who are looking to keep ailing innovation efforts alive amidst the storm, this book reframes the basic tenets of innovation to illustrate the fact that innovation can, and should, remain a priority today. For innovators who are looking for a hopeful voice, this book is a must-read.

I caught up with Scott to ask a few questions after I finished the book. Here are some excerpts:

In the book, you talk about how innovation during these turbulent times isn’t all that different from innovation during “normal” times. What do you mean by that?

It’s quite simple, actually. The turbulence we’re experiencing right now feels different, but in reality it constitutes a “new normal.” In other words, even when the recession abates, the turbulence isn’t going to stop. The pace of change is going to continue to increase for the foreseeable future, which has some pretty serious implications for how people think about strategy, growth, and innovation.

In the second chapter, you discuss the importance of trimming the innovation portfolio to avoid wasting resources on dead-end projects and free up resources for growth opportunities. While this makes intuitive sense, many companies we have worked with in the past find this to be an immense challenge. What is the first thing you recommend organizations do when looking to ‘trim the fat’ from their innovation portfolios?

The hardest word for the innovator to say is also one of the shortest: “No.” One simple thing that can help aid the conversation is to set objective criteria that can help to make the decision-making process less politicized or subjective. Another key is to not wait until times are tough to start trimming. If you establish a discipline of pruning during all times, it becomes much easier to make the necessary adjustments when times are bad.

When talking about the concept of disruptive innovation, you often talk about “the job customers are trying to get done” as a way to refocus offerings and uncover potentially disruptive innovations. For organizations that have been asking (and answering) this question for the past few years, do you believe our current economic environment warrants a new audit of sorts? That is, do you think the current economic environment has changed the marketplace to the point that last year’s answers to ‘the job to be done’ question are no longer valid?

Absolutely. There are some companies that I’ve worked with that are still making decisions based on market research that is three or four years old. In today’s quickly changing environment, that’s pretty risky. Companies have to re-think the way they do market research. It has to move from an episodic event to a continual event, or companies will make the wrong decisions.

For established firms that serve high-end, more demanding customers, how do you suggest lowering costs without compromising high quality or brand equity? Should a “luxury” company’s cost-cutting plan of attack be the same as any other company’s?

Well, a luxury company might end up cutting different things, but the process should be the same: make sure the customer’s definition of quality drives any decisions. That’s a change from how most companies cut costs. Cost cutting is typically an “inside-out” activity. That is, look at your budget, find the largest line item, and voila! Instead you really have to look at the customer’s budget. There might be things that don’t matter that much to the customer but are expensive to deliver. Or there could be things that are cheap to deliver but really deliver a customer “wow.”

The three industries that have arguably been hardest hit by the recession are media, automotive, and financial services. From the outside looking in, it seems that all three had been clinging to their ‘core’ businesses for far too long and were due for radical change. Do you think the current pace of change and upheaval, particularly in these three industries, is healthy? Or do you think other ‘stagnant’ industries can learn a valuable lesson and begin planning now for imminent disruption?

I think the pace of change in these industries is finally beginning to catch up with the pace of change in and around their markets. The biggest complaint I have is that in each case, it really take a crisis to precipitate action. And when a crisis sets in, it is very hard for even the smartest companies to take the right action. The question isn’t whether or not your industry will be disrupted. It is when, and by whom. Schumpeter would love today’s times, because it really is an era of constant creative destruction!

A famous innovation tidbit over the past few years talks about how Bank of America executives mandated that 30% of ideas had to fail. The rationale, of course, was that comfort around failure bred experimentation, and that experimentation is good for innovation. Along the same lines, Google famously mandated that employees spend 20% of their time on side projects and experiments that are generally unrelated to Google’s core search business. Many of these experiments go nowhere, but a few have become runaway successes for Google. Today, I think many are reluctant to tout these tidbits as a smart business practice—everyone seems to shrink back when the word ‘failure’ is tossed around. Even Google’s executives have pulled back on the 20% rule in favor of more carefully focusing resources on income-generating products. Do you think Bank of America and Google had the right idea initially, or is their new, more conservative approach more sustainable for growth?

I believe that rigor and experimentation are not actually opposed goals. In other words, you can be rigorous in the selection and scaling of businesses, while still encouraging rampant experimentation. It’s about making sure you shut off the bad experiments and double-down on the good experiments early. So I applaud Google’s effort to bring more rigor to its process, because while Google has been great at inventing new things, it hasn’t been that great an innovator, because it hasn’t built many large-scale new businesses. I love Bank of America’s approach. Some of the clients I work with try to make sure they don’t push for too high a success rate, because that’s a good way to stamp out any real innovation.

You walk through a lot of powerful examples of companies who have launched smart innovations during economic downturns. But many of our clients in the public sector, or those that work in nonprofit organizations, feel as if innovation is a different animal in their worlds. Do you have any advice for these types of organizations? Is there anything they should be doing differently than the P&Gs and Googles of the world?

I think the process by which these organizations should think about finding new opportunities should be the same. Of course, public sector or nonprofit organizations have different constraints, but they also have different opportunities as well. For example, without shareholders focusing on the next quarter’s results, nonprofit organizations can take a longer-term perspective. As you probably know, my colleague Clayton Christensen wrote two books last year on how to apply the disruptive innovation principles to two industries with a heavy public bent: health care and education. And boy, is disruption needed in those two industries!

We’re seeing companies increasingly turning to Foresight practices (scenario planning, long-term trend analysis, etc.) to fuel a smarter innovation program. And in The Silver Lining, you touch upon the importance of these activities. What advice would you give to an organization who currently has no structured foresight capabilities? How should an organization get started with mapping out the uncertainties of the future?

My view of process-based innovations is the same as my view of product-based innovations. That is, find a way to start small and learn as you go rather than launching an overly complicated effort that collapses under its own weight. Get some smart people together for a day to talk about the future. Bring together people with different perspectives because you never know what happens when those different perspectives interact. Pilot something at the level of a brand, or individual product line. And expand from there.

In The Silver Lining, you dedicate an entire chapter to ‘sharing the innovation load’—smart ways to reduce the risks and expense associated with innovation activities by partnering with external parties. We’ve been seeing a tremendous increase of external partnerships and ‘open innovation’ over the past decade. How do you think the current economic environment will effect these partnerships? In your experience, are companies more or less willing to enter partnership agreements in an environment when resources are so constrained?

One of the basic themes in the book is the scarcity that many companies are facing will force them to do what they should have been doing already. This is one of these areas. What company wouldn’t want to find a way to defray costs and risk? It’s an easy sell to management. I think the current economic environment will be a boon for external partnerships and open innovation.

Finally, what does innovation look like at this time in 2012? Will the innovation success stories we talk about 3 years from now be any different from the success stories we talk about today? What is your single most important piece of advice for an organization who is dedicated to becoming a success story in one of your future books?

I really think we are going to look back on this as a seminal moment in the innovation movement, where innovation went from being a field filled with mystery and misperceptions to one increasingly filled with rigor and discipline. We’ll be talking about healthcare, education and cleantech companies that are poised to transform their respective markets. We’ll watch with wonders as companies pioneer new ways to create growth and improve lives in emerging markets. It’s a bit cliché, but my one piece of advice is to keep focused on the silver lining. It’s very easy to get caught up in the doom and gloom. And if you succumb to it you will get defensive and miss the great opportunities that still exist in today’s markets. Remember, history shows us that no matter how dark the times, innovation is still possible. So go write your own success story.

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For more reviews of The Silver Lining and interviews with Scott, check out the other stops on the virtual book tour:

Monday, July 20th: Chris Flanagan, BIF Speak

Tuesday, July 21st: Jim McGee, FastForward Blog

Thursday, July 23rd: Jeff De Cagna, Principled Innovation

Friday, July 24th: Boris Pluskowski, The Complete Innovator