When you're trying to drive innovation, one of the key shifts to make as a leader is that you have to give up on the need to get it right the first time.
Tendayi Viki, Associate Partner at Strategyzer and author of Pirates in the Navy, The Corporate Startup, and The Lean Product Lifecycle, joined a recent Innov8rs Connect event to discuss the leadership challenge in driving innovation.
Tendayi provided a new toolbox for leaders to use in making decisions and in effectively coaching teams to design new business models, extract what needs to be true for ideas to work, and decide which ideas to test first. Here’s a summary of the conversation we had.
The Leadership Challenge in Driving Innovation
First, accept that innovation is a “wicked problem”. There is no right or wrong in innovation and no definitive formulations. There will always be an infinite set of potential solutions, which makes it hard to make decisions. With constantly changing requirements, the innovation process is never over.
Everything changes the moment innovation leaders embrace the foundations of a wicked problem and stop looking for a right or wrong way to address it. Instead, innovation leaders create the context for winning ideas to emerge.
The core of leading innovation is to ask the right question at the right time in order to:
- Inspire breakthrough business design. The tendency is to keep pulling a team back to the familiar, what’s worked before, because leaders, companies, and people in general want to be right. But innovation is driven by pushing the boundaries to arrive at breakthrough design, not just asking linear questions based on what is already known.
- Ensure progress towards value creation. After a team reaches the edge, leaders need to coach on what things would have to be true for the idea to work. This is when the testing and iterating process starts.
Design Like You Are Right, Test Like You Are Wrong
David Bland, co-author of Testing Business Ideas, illustrates the principles of business design with two intersecting circles, one representing the Design phase, and another representing the Test phase.
On the Design side, the process is a continuum: Ideate > Business Prototype > Assess. At the Assess point, leaders need to curb their inclination to question how good the idea is—the focus should be on whether the idea is breakthrough enough. If not, then the design iteration needs to start over. Only after you’ve arrived at an innovative idea can you move to the Test phase.
The Test side is another continuum: Hypothesize > Learn > Experiment. Here you question what it would take for the idea to work. And you give the team the time, resources and space to test their ideas. Over time they can use the lessons they learn to return to the Design phase.
Thinking Beyond the Current Business Model
The most successful companies are the “need seekers,” those companies where business and innovation are highly aligned. Tendayi shared a methodology, from his colleague Alex Osterwalder’s new book The Invincible Company, for coaching teams to think outside the box and iterate through the Design and Test phases.
- Do NOT fall in love with your first idea. You want to trigger a thought process that will result in multiple prototypes.
- Inspire Front Stage Innovation. Use trigger questions to coach the teams along the business model canvas, focusing on:
a. Market Explorers: How can we tap into new, untapped, underserved markets with large potential?
b. Channel Kings: How can we increase market access and build strong and direct channels to our customers?
c. Gravity Creators: How can we make it difficult for customers to leave by increasing switching costs in a positive way? - Drive Backstage Innovation. This means focusing on your key resources, activities, and partners.
a. Resource Castles: How can we make difficult-to-copy resources a key pillar of our business model?
b. Activity Differentiator: How can we create significantly more value for customers by performing new activities or configuring activities in innovative ways?
c. Scalers: What can we do differently to make our business model more scalable (e.g., eliminate resource and activity bottlenecks)? - Stimulate Profit-Formula Innovation. Continue to push the design, this time focusing on how it can be profitable.
a. Revenue Differentiators: Which new revenue streams or pricing mechanisms can we introduce to capture more value from our customers or unlock profitable markets?
b. Cost Differentiators: Can we change our cost structure significantly by creating and driving value with different and differently configured resources and activities?
c. Margin Masters: How can we find ways to eliminate the costliest aspects of our business model and focus on value that matters to customers for which they are willing to pay a higher price?
It’s again crucial for the innovation coach to accept that there are no finite solutions or correct answers and that any stage may alter another channel or differentiator.
Business Model Exploration: Staying On Track
No one has the time or money to run experiments for the sake of them. The point of reviewing the design is to reduce risk, and the iterations of design and testing get us closer and closer to a business model that will work.
The Business Model Canvas helps map hypotheses and prioritize them as important vs. unimportant, evidence vs. no evidence, always asking what needs to be true for the idea to work. At this stage, you can begin to measure expected profitability against innovation risk.
Great entrepreneurs already have an innate sense for this balance, but leaders can model it using the Innovation Project Scorecard, which measures:
- Strategic fit within organization
- Opportunity in the marketplace
- Risk reduction
- Is this feasible? Can it be done with our key partners, activities, and resources?
- Is this desirable? Should it be done, examining the value proposition based on our customer relationships segments?
- Is this viable? Can it be done profitability?
Asking teams—your explorers—to go out and find something useful to work on is the complete opposite of traditional work, where you’re solving problems and fixing things. It’s no surprise that leaders feel lost when coaching teams during this period of seemingly endless exploration.
You can stay on track by measuring progress with these guiding questions:
1) Is the project idea aligned to strategic goals?
2) Is the business model described well, or do you need more information?
3) Is it clear how much progress the team has made so far in testing hypotheses?
4) Has the team identified the right hypotheses to test next, or is anything being missed?
5) Will the experiments produce the kind of evidence that will allow you to make informed decisions later?
6) Is there a project committed to driving the idea forward?
7) Has the team made reasonable requests in terms of budget and resources given the stage in the innovation journey?
8) Are you and the company committed to supporting the team’s next steps?
In order to foster an innovation culture innovation teams feel secure to explore, Tendayi finally suggested to separate the innovation units from the core business. The core business is run on budgets and rewards based on P&L; innovation needs a playground or sandbox environment. Separating the two, and the metrics and management styles required to be successful in each, will enable an environment where innovation—and innovators—can thrive.
