Wow, I've been really latent in posting blogs, but I guess I have to get started again one way or another. I am actually at a conference this week, so I am getting a chance to lift my nose up from the work immediately in front of me. I wrote a mail to my team about the conference, and thought it would be fun to share it more broadly. Here are my notes...
I am attending the Front-end of Innovation Conference here in Boston as a training exercise this week, and thought I’d share some of the thoughts from today with the PM team in case anyone was interested.
Interestingly, the conference started with a quick presentation from Lego. Everyone got a free set of building blocks and was encouraged to “fiddle” with them while presenters talked. Their theory being that since the hands are connected with 70-80% of your brain this must be a good thing to use your hands while learning (hmmm, non-sequitor perhaps?). Anyway, I did think it was poignant that as kids it is easy to just start building whereas we kill a lot of that spontaneity in business by assuming there must be immediate results with a clear plan of action. It’s also interesting to think what would happen if we brought Legos to our next design meeting… hmmm J
The first in-depth presentation was given by the CEO of Clorox, Jerry Johnston. He walked through how Clorox has used innovation to go from a $60 million revenue company in 1969 to $4.3 billion in 2004. These results are all the more impressive, because Clorox is relatively small compared to some of the companies it competes with such as Gillette or Proctor & Gamble, spending far less on R&D. The presentation went on to focus on how three myths are really not true:
Innovation is a game of chance
Chance is dramatically reduced by getting close to customers
Plant lots of seeds and see what works
Great innovation is about eliminating distractions
Spend lots of money
Manage where you want to invest vs. sustain
Not surprising, this starts with identifying a company’s purpose, and then developing a product portfolio that aligns to that purpose (i.e. don’t innovate where you’re company isn’t setup for success) and then lastly a set of strategies to engage in those areas. It was interesting to hear just how much he emphasized staying close to customers, not only in the beginning of the design phase but throughout and not only with marketing but with the developers of the product. It sounded like I was listening to Soma for a minute. The product team used their touch with customers to come up with insights (e.g. want a way to control application of bleach) and then turns those into requirements for the product. In the case of bleach pens, they took a product that sells in bulk for ~$2 and marked it up to $4. Not only that, but they created a whole new category of products.
Johnston also combated the myth that you have to throw lots of ideas up against the wall and see what sticks. By cutting the number of projects the company invests in, Clorox is able to focus 50% more resources on the remaining projects and derive 50% more value out of them. They recognized that in several categories they didn’t need whole new products or platforms, but rather just needed to innovate in their marketing or partnerships. This was an eye opening point, because I often think of innovation being about developing a whole new product or at least adding features to it, where as in actuality you can milk more value sometimes by simply targeting a new area for marketing (e.g. get people excited about BBQ’ing during football season, in addition to just the summer boosted the bottom line for their charcoal business). This is actually a great example of why our effort with aftermarket solutions is so critical. While we’re heads down building new products for 18+ month cycles, there are significant things we can do to enhance the value of products that are already on the shelf.
Peter Senge, who authored The Fifth Discipline, gave the next talk. He focused on how companies create learning organization, which in turn unleashes increased potential for innovation. Senge touched on several subjects, so there wasn’t necessarily a consistent thread. He posited early on that most challenges are not technical ones, but rather social. The more interesting point he made is analyzing Peter Drucker’s take on innovation management, and why people fall short so often. Drucker broke down innovation management being a process of:
This sounds brain dead simple, but surprisingly often key parts of this are missed.
Senge started by focusing on how many companies start with great missions and values, but when you really talk to people on the ground floor the company moves to a different beat. One enlightening example was a t-shirt he saw: on the back it outlined the company’s key values such as honesty, integrity, focus on the customer, etc; on the front was the Enron logo. So often the focus is on “just make money anyway you can and go from there”. I thought it quip back was interesting: “Money is like oxygen. Companies need money to survive, but likewise no one lives just to breathe.” While he’s creating a bit of a false dichotomy, my take away is that you have to appreciate both the path and the destination—they are both connected. If all you appreciate is the destination, you’re going to be really bored and frustrated on the long journey. Conversely if all you enjoy is walking on paths, but don’t have a direction (i.e. profitable business) you’re not going to go anywhere either. This makes me glad one of the key things we focus on at MS in our interview loops is fundamental passion for software and technology. It’s amazing how so many things will just take care of themselves when you bring in people who are intrinsically motivated rather than extrinsically motivated. Senge suggested asking yourself a question to reconnect with your company’s core mission, “Who would miss you if you were gone tomorrow?” This is pretty illuminated for MS, since so many people run their business on our software. And this is also why managing the product across it’s lifecycle and servicing it is so important for MS.
He spent the rest of the talk focusing on how people mess up the feedback loop between choosing results to go after and measuring progress against them. Assessment is about objective information that is taken and internal judgment that is applied to it. So often we come up with a pre-canned judgment and find the data that justifies it. For example, I desperately want to lock down my spec, so I’ll argue with anyone who says I need to explore a whole new area. Meetings then become an exercise in arguments where “listening” is “that time where I am waiting to talk” rather than really processing what’s being put on the table. This boils down to the difference between “discussion” and “dialogue”. If you really study the etymology of those words, you see that “discussion” is about “breaking apart” and not surprisingly results in arguments. “Dialogue” comes from the Greek words dia and logos, taken literally it means meaning coming through—letting the dialogue be about getting to a heightened understanding rather than proving a preconceived notion. He cited the book Car Launch, which looked like an interesting place for more depth on the topic. The example he cited from there is two teams in the same auto company that at first tried short term fixes without talking to each other; each fix caused ripple effects that hosed the other’s business model. When the teams looked for more fundamental solutions, the re-work was reduced. This is sooooooo evident in the work that we do where we are constantly affected by other teams that make short sighted decisions without engaging to see what partners they’ll affect. I am curious how other companies are able to tighten the loop here while still maintaining a bottom-line efficiency. There weren’t obvious lessons from the talk, so the book might be insightful.
The highlight of the day was getting to hear a Q&A session which Jack Welch, which really had little to do with innovation I thought and more just a great primer on how leadership works. Welch is of course the former CEO of General Electric who oversaw the company as it rose to the most valuable publicly traded company in the world with something like a $400 billion market cap (MSFT is #2). He talked a bit about how he strived to make GE a boundary-less organization where compensation was changed from bonuses to be stock option focused. This was teams would be willing to give up stars so that the bottom-line paid off. Interestingly, even though MS employs a stock award model, I really wonder if we get all of the result we should in terms of motivating teams to make the right calls for the company rather than their team. While I think we hire people that try to do the right thing, there’s really not a tightly matched reward system. Interesting food for thought…. Welch was all over the place given the question, but a quote I jotted down that I really liked comes to mind: “gut instinct is really just pattern recognition”. I thought that was a great distillation of something that many people get confused and wrapped up in. In fact the #1 thing that impressed me about him is how he took complex things and made them simple. I think it’s no surprise why he was so successful as a CEO when you see this in action. I thought this was shown even better when he cited another anecdote: while talking to heads of Human Resource departments he asked how many got more time with the CEOs than their CFO peers. Of course none of them raised their hands, which really didn’t surprise me given the focus on financial results. Welch pronounced this is “nuts”. He used the analogy of a sports team, ‘no one in their right mind would you so much time talking to the score keeper when they could be developing their team and acquiring better talent.’ When left in the domain of corporate strategy it’s hard to see this, but Welch’s analogy to sports makes it so clear why developing people is vastly more important. My other final enjoyment came when an audience member cited a report speculating how America will need more innovation in the 21st century to compete globally and then asked who Welch thought is responsible for this, as if it was some centrally appointed person or a government agency that needed to be formed. Welch said simply: “you!” Everyone in America is responsible for innovating. He pointed out that the only job security is customers, not companies—something that’s so true, yet so under appreciated in America.
Speaking of America, over lunch we listened to Sir Harold Evans talk about his book They Made America. He started by noting how many critical inventions originated in England, yet only became commercially successful when they were spun up in America. Throughout the talk Evans focused on the difference between invention and innovation. The former is useless until the idea is taken into the marketplace (i.e. until innovation happens). It was fascinating to listen to someone with such great conviction and recognition of this, since Microsoft is really one of the greatest examples of this. We are infamous for not inventing, but in truth I think our greatest inventions are about realizing how to make software fit into the marketplace and what customers really value. The key distinguishing characteristic that Evans identifies is the ability innovators have to be system builders. They don’t just have a great idea in singularity, but rather figure out how to fit it into the broader fabric of society. I can’t remember the exact invention, but he cited the notion of the innovator who during the nineteenth century gave farmers his harvesting tool for free initially with a promise that they would pay after their harvest, recognizing that farmers would never be able to afford it until after they reaped the benefits. This seems obvious in retrospect, but in truth was the first time an installment plan was ever used in business. One of the surprising points is that innovation is not black magic, it’s right in front of you. The installment plan idea is really not so amazing, so much as it is a careful attention to reality and the current needs of the moment—you just have to open your eyes wide enough to see it. After lunch, I snagged the opportunity to meet Jack Welch who was sitting right in front of me. It was cool to shake his hand and say “hi”. He was very gracious.
The last talk of the day I sat in on was given the by VP of product development at Visa USA. Reiterating the theme throughout the day, she focused on how she took front-end product development which was black box or “the cloud” at Visa and turned it into a more predictable process. Her first point was to focus on what the competition really is, not just in terms of obvious competitors for them (e.g. Mastercard, American Express) but other forms that compete (e.g. writing checks, paying with cash). For software this is obviously critical, since we’re often supplanting something that has no direct competitors in the marketplace. She went on to discuss various strategies for choosing where to introduce innovation:
Pain Point Analysis: this is what it sounds like. You figure out what the pain points are for the customer and identify possible solution. However, you have to focus on the root problem, not just the symptom. If the root problem is outside the domain of your product (e.g. it’s the banks issue or government regulation), you might not want to go after solving the symptom since the value generated is limited.
Lever analysis: this boils down to recognizing that there are several layers in the stack where you can introduce innovation…
Promote existing product
Could be a change in messaging or going into new channels.
Modify existing product
Could be a change to the fees or enhancements to the structure
Could be a whole new product platform or technology
Often people jump to the conclusion of going after a whole new platform, when it might suffice to simply promote a product that already exists in a new way. I was thinking how in the acquisitions space, you can align the acquisition to one of these categories. Pointcast, which was acquired in the dot com boom for ~$1 billion, is arguably just a new feature in IE, not a whole new platform. When you reconcile it in those terms, it’s easy to see that’ s a ludicrous amount of money to spend.
FRCP: this system postulates that customers decide which product to buy in a hierarchical fashion, first on function, then reliability, then convenience and finally on price. If you’re losing to competitors you have to figure out where in the stack you’re losing. If you’re losing on reliability, you’re wasting your time trying to make your product cheaper. It’s also worth noting that function and price are easier to clone since they are externally visible, whereas reliability and convenience are harder for competitors to clone.
That was all for the day. Time for me to get some sleep and get ready for tomorrow.