Reflections on innovation

XV.6 November + December 2008
Page: 35
Digital Citation

FEATUREDesign


Authors:
Nathan Shedroff

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Three years ago, I got a call from an editor of one of the biggest business magazines in the U.S. (who shall remain nameless, not to preserve his anonymity but simply because I can't remember which magazine it was). What he said over the phone was this: "We're planning on writing a book about how businesses can innovate like Apple does, and I was told to talk to you about it." I'm not sure if he was asking me to write it or just wanted feedback and leads, but my answer stumped him: "You can't write that book."

He thought I meant that it would be best written by another organization. I had to explain that, no, the book wasn't writable. "It would consist of one sentence: Hire Steve Jobs." I went on to explain that what Apple practiced was "expert design," a type of design perspective and process that is highly risky, usually disastrous for most companies, and works only when you have a leader with ultimate authority who also happens to have a keen sense of design and amazingly accurate understanding of what customers need and want. Without this person, no organization, no matter how much money they had to spend, was going to be able to pull off the kind of innovation that Apple has. For proof, just look at Microsoft (and, specifically, at Vista, Zune, MSN, and UltimateTV).

Microsoft is an interesting case, in fact. It spends millions of dollars a year on exactly the kind of user-centric research regaled in the industry (you know, ethnographic research, customer personas and scenarios, user testing, etc.), and yet it can't even create workable products, let alone innovative ones (at least, on average). This is because it has no support for customer experience within the company that has any power to affect change in process, products, services, or strategy. This won't change, by the way, until it either hires someone in place of Steve Ballmer who cares and understands about customer experiences, or hires an experience czar at a senior level in the company with the authority, backed by Ballmer, to kill projects that don't measure up experience-wise.

back to top  Why Innovate?

With all of the talk in the business press over the past four years about innovation, you would think that it would be clear to businesspeople what it means to innovate and why it's important. However, while engineers and designers have an innate appreciation for appropriate and significant innovation, most businesspeople still need to be convinced because of the risks involved and because it's not an easy thing to do.

What most businesspeople don't realize is that everyone who goes to business school, plus anyone else who's simply paying attention to the business press, knows almost exactly what they do. There are only so many paths to stimulate growth, and almost every businessperson on the planet already knows them (and how to implement them):

  • Increase operational efficiencies (including cutting jobs and expenses)
  • Sell off assets (such as technologies, IP, or divisions)
  • Mergers and acquisitions (which are usually only temporary and often actually result in lower growth once they're completed)
  • IPOs (if the timing is right or your business is the kind to which these markets respond)
  • "Rebranding" (again, often temporary)
  • Innovation

What most don't realize is that these paths are now the cost of doing business. Every company does them—or should (though not everyone can implement them successfully)—but there are no mysteries or differentiable strategies among them. Only the last two create an opportunity to differentiate products, services, experiences, brands, or companies, and only innovation creates lasting, organic growth (including forging new markets, not merely new offerings). And as the markets become ever more global, competition from even more players makes innovation that much more critical.

back to top  What Is Innovation?

Innovation can take several forms:

  • Better offerings and experiences (in other words: products, services, and events)
  • Better processes (internal and external)
  • Better organizations (structures and functioning)

Each of these can create an advantage and, oftentimes, one that is both differentiable and protectable (to ensure that it's not one others can quickly use to relevel the playing field). Innovation can also serve to create better markets, not only better solutions, and, ultimately, even a better world. Before you think that sounds too lofty, consider how innovations in clean energy, new materials, new services, and new investment solutions are serving to send us down a more sustainable path—one that is direly needed.

One of the missteps that many businesses make, however, is to equate innovation simply with "new." The most successful innovations are not merely novel, but meaningful and significant. It may be too much to think that any innovation can be sustainable (in the sense that it will create a long-term, lasting advantage) but, certainly, significant innovations create short- and medium-term advantages that last far longer than other solutions.

Appropriate innovations create opportunities for both customer and company that provide value for both. The technology field, for example, is continually awash in solutions brought to market that are novel, well designed, and well engineered (take the Segway, for example) that nonetheless fail because they don't satisfy a real customer need. Some innovations are hidden from the customer (or, often, other stakeholders such as suppliers or partners, competitors, and communities), as in the case with WalMart's restructuring and streamlining of operations and relationships with manufacturers throughout their entire, and multiple, supply chains. Other innovations are visible to everyone engaged to buy, use, interact, deconstruct, etc., such as Method's line of less-toxic cleaning products. Not only are these innovative products but Method is positioning them in the marketplace in innovative ways, which is mostly about effective messaging in packaging, ads, and online.

back to top  Why Can't Most Organizations Innovate Effectively?

Innovation isn't a big mystery either. There are already plenty of books, workshops, consultants, and programs to help organizations innovate effectively. But most organizations are still finding it difficult to innovate. Some of the reasons include:

  • They lack the right context
  • They don't have the right culture
  • They aren't "creative"
  • They don't have the courage
  • They don't understand sustainability
  • They don't understand meaning
  • They don't have the right process

None of these is a complex problem to solve, but without the will, attention, tools, and commitment, it simply can't be changed. In addition, some of these issues are difficult to shift (particularly those dealing with culture, management, and leadership—which is to say, all of them).

back to top  What's the Right Context for Innovation?

One of the most fundamental handicaps that organizations of all sorts don't realize they have is that they don't understanding marketing. At its most basic definition, and this could be a book itself, marketing is not messaging to customers. Most companies position marketing within their organizations as the mechanism they use to tell their customers, partners, competitors, markets, and the world what they want them to know about their products, services, mission, vision, and organization. They often lump in marketing with sales, advertising, PR, and other departments, further erasing the distinctions. But these functions already have their own disciplines, namely: sales, advertising, PR, promotion, etc.

A better way to think about marketing is to think of it as breathing. Marketing is the inhale. It's what you learn from your customers, competitors, industry, market, etc., and PR, sales, advertising, etc., are the exhale. It's what and how you communicate to the rest of the world. Many marketers will tell you that they already inhale, through "market research." But most traditional market research is worthless for innovation because it emphasizes the quantitative over the qualitative, and the techniques often employed are laughably inaccurate and misleading. To distinguish traditional tools from new tools, some use the term "market insight," which refers to ethnographic and other techniques to uncover qualitative attributes that are otherwise invisible or unmeasurable (such as customer needs that operate at the level of emotions, values, and meaning). These are techniques that many designers understand better than their peers and, as such, are often the best people in an organization to connect these learnings with corporate strategy.

To be sure, the best marketers use both qualitative and quantitative techniques, but they do so with only the best tools. To date, most marketing departments inhale only competitor and industry data effectively and find many reasons to discount the need for qualitative customer understanding—especially technology-focused organizations. Yet this is where everything needed to truly innovate effectively lies.

It's also important to look not only at customers but also at all of the stakeholders who have influence over your business. That's stakeholder, not shareholder, and there are, potentially, a lot of them: customers, clients, employees, distributors, wholesalers, retailers, suppliers, partners, creditors, stockholders (shareholders), communities, government courts and departments (city, state, federal, and international), banks, media, institutional investors and fund managers, labor unions, insurers and reinsurers, NGOs, media, business groups, trade associations, competitors, the general public, and the environment (local, regional, and global).


"The MFA Is the new MBA"—Dan Pink, 2004, Harvard Business Review

"Tomorrow's B-School? It Might Be a D-School"—Special Report, 2005, BusinessWeek

"CEOs Must Be Designers, Not Just Hire Them"—Bruce Nussbaum, 2007, BusinessWeek


Different stakeholders can exercise different types of power and be impediments or partners to innovation. Engaging them helps organizations operate effectively and make better decisions (both strategic and tactical).

back to top  What's the Right Culture for Innovation?

Most organizations don't understand that their culture makes it easier or more difficult to innovate effectively and requires a different approach for success than what might work at their competitors. Consultants, too, often fail to understand their clients' culture, which drastically affects their ability to develop successful solutions for them. In 2006 Cheskin identified five different types of innovation cultures common to organizations:

  • Structured Innovators
  • Creative Innovators
  • Dynamic Innovators
  • Ad Hoc Innovators
  • Innovation Outsourcers

Each requires a different approach to engage innovation—in some, like innovation outsourcers, it's probably not even worth trying to innovate from inside the organization. To be successful, an organization must honestly know itself and choose a path that works for it.

back to top  Why Aren't Organizations Creative Enough?

It's not that companies aren't creative, it's that most don't realize that that are. "Creativity," as a term, has been so poorly defined that it's now confused with "wild and crazy" approaches, wacky ideas, and frivolous effectiveness. However, creativity is simply the ability to create new and appropriate solutions to challenges, and people throughout organizations do that every day (when given the opportunity). It's not the exclusive skill or domain of designers or those in the "creative department." It's a skill regularly employed by managers, leaders, and workers in all aspects of an organization, include engineering, operations, marketing, and finance.

Until creativity is restored with an understanding that everyone has a duty to be creative in their job, creativity will be wielded (if at all) as a kind of last-ditch, heroic effort when all else fails. Organizations can't wait for everything else to fail. Creative solutions need to be part of standard operating procedure, not emergency, extracurricular, or offsite procedure.

back to top  Why Aren't Organizations Courageous?

Innovation isn't easy or obvious, and it's often messy. It certainly isn't guaranteed. So many organizations already think they're innovating, and yet most are failing miserably in their efforts. This makes innovation look risky—and it is. But it's a risk that no organization can fail to take.

It may feel like things aren't going forward at times, and the most successful techniques for innovation are unfamiliar to business leaders—or even threatening to their control, stature, or perspective (which is why they're often discarded). However, despite all of this, innovation can be exhilarating and rewarding, and it must be done in order to succeed. Conditions often require wholesale change in an organization's strategy, including the abandonment of old approaches, understandings, and offerings. Innovation can enable this kind of change, but it takes courage to follow this road.

back to top  What Does Innovation Have to Do With Sustainability?

Very briefly, and according to the authors of Natural Capitalism, sustainability is the successful management of four kinds of capital:

  • Financial Capital (monetary assets and financial value)
  • Manufactured Capital (IP plus other organizational assets)
  • Natural Capital (environmental assets)
  • Human Capital (people and sociocultural expectations)

Why is sustainability important to all organizations (as opposed to merely those serving "green" markets)? Because we no longer have the luxury of ignoring it, as organizations, individuals, or as a planet. The competition for resources in all of the forms of capital listed above is now so fierce that all organizations need to address how their strategy intersects with sustainability. However, this is not merely a safeguard against scarcity or competition. Besides being a business imperative, sustainability is a source of tremendous opportunity. Most businesspeople only truly understand the first two types of capital, and the importance of conserving, expanding, and caring for them. One of the problems in the business world is that we measure success only in terms of money. This is often liberating of larger responsibilities but can lead to irresponsible behavior and results—many of which come back to haunt organizations anyway.

As Hunter Lovins, one of the authors of Natural Capitalism, likes to say, "we're managing the planet's resources like a fire sale." There are both ethical and operational reasons why organizations of all types (including nonprofits and governments) need to be paying more attention to all capital resources available to us. And, we don't have to become experts in sustainability before we start operating with this mind-set.

back to top  What Does Innovation Have to Do With Meaning?

One of the challenges most organizations struggle with is in differentiating novel innovation from meaningful innovation. Meaning is a specific attribute of customer experiences that represents the deepest level of significance that customers connect between offerings and their lives. Along the same spectrum of significance as emotions and values, and meaning is the most powerful aspect of customer experience. It can transcend traditional and "rational" price and performance decisions. It surrounds all products, services, and events, whether we acknowledge and address it or not. And it can be the most effective guide for organizations to use in determining whether an idea or solution is truly valuable and not merely "new."

Before you think that meaning (and values and emotions, for that matter) are applicable only to "consumer" offerings, let me remind you that despite protests to the contrary, all customers, even "business" customers, are people and, as such, issues of emotions, values, and meaning are just as powerful players in these relationships. My father, a swimming-pool contractor for most of his life, used to say that "you can sell anything to a salesperson." He meant that people in sales who built relationships by triggering emotions, values, and meanings in their customer were often the most susceptible to these very same elements. Just because a customer is another businessperson, this doesn't insulate them from being influenced by the often subconscious and irrational aspects of evaluation and decision making. Many businesspeople, in fact, can easily cite examples where decisions were made that either downplayed or downright ignored rational issues of price and performance.

Meaning is an attribute of experience that describes how people understand the world around them. Though core meanings are universal—across all cultures—our prioritization and expression of them represent opportunities for organizations to forge connections with customers at the deepest and strongest point possible. This becomes a metric with which to measure the appropriateness of innovative solutions.

The most effective innovation focuses past price and performance and instead starts at meaning, working outward toward the details most companies begin with. In this way, organizational strategy can align all efforts at the deepest connection point with customers, allowing the rest of the tactical decisions to better support these connections. Not only does this create more significant innovations, but it does so in less time with fewer resources—since the focus is always on meaning, throughout development.

"Meaning research" should be an integrated part of customer research. This is key data that should affect corporate strategy for your organizations and clients. Then, corporate strategy can start reflecting customer meaning. This is the first step toward specifying the right offerings (the right business to be in). As meaning becomes an integrated, accepted part of the development process, organizations can naturally focus on the right offerings and make them as great as possible.

back to top  What's the Right Process for Innovation?

Lastly, most organizations don't know how to approach innovation and integrate it into their established processes. In trying to control and optimize the experience, they make it nearly impossible to innovate. In addition, the lack of understanding from managers at all levels often kills off the products of innovation (and often the process, too), even when truly innovative solutions emerge.

Design-led innovation has an edge on other approaches because of its history of user-centered research, prototyping, critique, iteration, and embracing of constraints. Unlike other development processes, it makes room for meaning and other questions to be addressed before requirements are solidified. In addition, developers have an opportunity to play a role not only in the product development realm but also in the boardroom, where organizational strategy is set (and needs to reflect better customer understanding). The fruit of design and user research is often more valuable at the strategic-management levels of an organization than even at the product-development level. Unfortunately, like the often inadequate market understanding available to leadership and senior management, their "deep" understanding of their customers is often shallow and off the mark.

Implementation and approach, of course, depend on an organization's innovation culture (described previously). But since innovation hasn't been the focus of most organizations, their processes often prevent the possibility of innovation. Also, most business functions, from accounting to operations and even marketing, are focused on optimization and standardization. Innovation is entirely different from these and most often needs to be shielded from other business processes and measurements within an organization. For example, Six Sigma can be a highly effective tool for optimizing quality within a supply chain but it is probably the surest way to kill innovation within an organization. Trying to apply the same management processes to every department and every activity within an organization is, perhaps, the biggest failure of organizations trying to innovate.

In this way, the entire concept of design can be described as the process of meaningful innovation.

back to top  Author

Nathan Shedroff is the chair of the ground-breaking MBA in design strategy at California College of the Arts (CCA) in San Francisco, CA. This program melds the unique principles that design offers business strategy with a vision of the future of business as sustainable, meaningful, and truly innovative—as well as profitable. He is a pioneer in information, interaction, and experience design and author of several books on design, meaning, and interaction. For more information, visit him at www.nathan.com.

back to top  Footnotes

DOI: http://doi.acm.org/10.1145/1409040.1409050

back to top  Figures

UF1Figure. Models of Customer Experience

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UT1Table.

UT2Table.

back to top  Sidebar: Should I Get an MBA?

On a panel in San Francisco this past June, this very question was posed to four leaders, including myself. All agreed that while an MBA wasn't a requirement, what was necessary was for developers (designers, engineers, managers, etc.) to have a better understanding and appreciation for all business functions as well as the ability to use the vocabulary of business to describe design and innovation concerns in relation to traditional business issues.

This is the imperative behind the creation of California College of the Arts' (CCA) new MBA in design management. While it's a business degree, not a design degree, its perspective comes from design thinking and processes. The purpose isn't to create the next generation of leading designers (that's the purpose of CCA's design MFA), nor is it to create a generation of managers of the design function (like the many design-management degrees around the world). Instead, the focus of this program is to create the next generation of innovation leaders, whether from a design or other business background, who can lead organizations through innovation at any level.

The program is structured around traditional MBA courses, though it's focused entirely on innovation. Students interested in MBAs focused on real estate management, international trade, or international finance will, undoubtedly, go elsewhere. However, this program seeks to attract those wishing to understand how to implement innovation in the best possible ways and in a variety of contexts. Every course is infused with the best thinking, perspectives, and tools of meaning, innovation, and sustainability.

Though the program is small (limited to 30 people per year) and new (the first students started this fall), it has already attracted a surprising interest. With only a bit more than four months' notice, we received 90 applications for the 30 openings. Next year we project at least 250 applications.

In the near future, we plan to launch an executive certificate program for those who already have a business degree or extensive business experience as well as workshops for shorter, more intense learning that reach even more people.

To further help people navigate the intersection of design and business, we've created a resources center on the program's website that lists the best articles, books, resources, blogs, and other programs that address design-led innovation, meaning, and sustainability: www.designmba.org.

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