Angela Maurer, Head of Tesco Labs, spoke on Innovation at Tesco at the recent CIO Summit in London. She said that they start with two sources of input – customer needs and future forces. Customer needs include those of internal departments and stores as well as shoppers. Future forces include technical, societal, fashion and demographic trends. Using insights from these two areas they brainstorm with diverse groups to generate a large number of ideas. The best ideas are selected and moved rapidly into concept development. The concepts are validated with customers. The next stage is prototyping and testing – once again with customer involvement. Tesco’s innovation team aims to go from initial idea to a minimum viable product within six weeks.
Once or twice a year they run hackathons where some 350 people work intensively in teams to develop working prototypes of ideas for business challenges. In the most recent such event 12 teams made it to the final of the competition where they demonstrated their working innovations to senior executives who could then select and resource the most promising concepts.
A third element of the Tesco Corporate Innovation programme is the support of selected external start-up companies. Tesco collaborates actively with a small number of entrepreneurs. Speed dating events are organised at which people from the start-ups spend a short time in turn with several Tesco executives from different departments. There are mutual benefits. The executives learn some key trends in say mobile technology while the entrepreneurs are given valuable advice on any topic they want from experienced managers.
Maurer said that there are four guiding principles for the whole innovation programme:
1. Does this idea address a real customer need?
2. Senior level sponsors are regularly involved.
3. Every project is ‘timeboxed’ – given deadlines.
4. Complete openness in the teams.
Tesco faces some tough competition in the retail marketplace and has lost market share. They see innovation as a key part of their rebound.
Speaking at the Chief Innovation Officers Summit in London, Chris Loughlan, Head of Innovation at the NHS, told a story about a quality improvement technique borrowed from a strange source but now adopted in hospitals. Say you go to a Chinese takeaway restaurant and order two spring rolls, one duck in ginger and an egg fried rice. The Chinese assistant will repeat the order back to you, ‘ You want two spring rolls, one duck in ginger and one egg fried rice.’ The assistant does not take the order to the kitchen until it has been confirmed. In a similar fashion when a doctor says to a nurse, ‘Please give Mr Jones 5 cc of insulin,’ the nurse repeats the order, ‘You want me to give Mr Jones 5 cc of insulin?’ It may seem mechanical but it avoids misunderstandings – and a simple misunderstanding can lead to tragic consequences in a hospital.
When absolute clarity of verbal communication is needed we can learn a lesson from the person at the Chinese takeaway counter.
I recently met the CEO of a dynamic small company in a technology sector. He had some great ideas and was actively working with a large company on an open innovation initiative. He also had a radical proposal which would improve services and reduce costs for his local City Council. However, he was disinclined to submit it. ‘If I suggest this idea, I know what will happen,’ he told me. ‘They will ask exactly how it works. They will then say that is a great idea but that they have to put it out to tender with several companies and go through their standard procurement process in order to select a supplier. We will be invited to bid.’ The CEO thinks that the tendering process is complicated and long-winded. He fears that a larger or cheaper provider will benefit from his radical idea so he does not offer it.
Large companies do not operate this way. Alongside their standard procurement methods they have active open innovation policies which encourage small companies to submit relevant proposals. If accepted they will work closely and exclusively with the small company in order to bring a new product to market. Their aim is collaborate to create a win/win. But government agencies are still stuck in the old procurement paradigm where you try to squeeze the best deal out of a supplier through competitive tendering. European Union legislation stipulates that all contracts with a value above £100,000 must be published through the Official Journal of the European Union (OJEU) so any supplier across Europe can bid. This process is understandable. We want the best value for taxpayers’ money. And we want to avoid the corruption that can happen when officials grant contracts to preferred suppliers in return for favours. Open competitive tendering is a good method for acquiring standard products and services. But it does not encourage innovation and the submission of creative new proposals.
The public sector desperately needs innovation in order to meet rising demands for better services. It cannot meet this demand by simply spending more money. It needs to find smarter ways to do things.
Local and central government bodies should copy some of the large company trendsetters in open innovation. They should specify the results that they want rather than how exactly procured services should work. They should have a separate budget for truly innovative ideas. They need a specific officer charged with driving open innovation. They need to find ways to encourage innovative small companies to bring them ideas and to collaborate on their development. This can include an exclusive agreement for a limited period.
Open innovation is providing a wealth of innovations. It blossomed in the fast moving consumer goods sector with the likes of Proctor and Gamble and Unilever. Now it has spread to many other commercial fields. It is time that it was adopted with enthusiasm by the public sector.
One of the most common obstacles to effective decision making by teams is groupthink. The term is used to describe the observation that many groups make poor decisions because they try to reach a consensus and minimize conflict. In doing so they suppress dissenting viewpoints, eschew controversial issues and isolate themselves from outside influences. The result is that they do not seriously consider alternatives to the group’s view.
The phenomenon of groupthink was researched in the 1970s by Irving Janis, a research psychologist at Yale University. He identified various causes including the desire for cohesiveness, lack of impartial leadership, homogeneity of the group members and stressful external threats.
In his seminal book on the topic, Group Think (1982), Janis recommends eight ways to prevent groupthink:
- Leaders should assign each member the role of “critical evaluator”. This allows each member to freely air objections and doubts.
- Leaders should not express an opinion when assigning a task to a group.
- Leaders should absent themselves from many of the group meetings to avoid excessively influencing the outcome.
- The organization should set up several independent groups, working on the same problem.
- All effective alternatives should be examined.
- Each member should discuss the group’s ideas with trusted people outside of the group.
- The group should invite outside experts into meetings. Group members should be allowed to discuss with and question the outside experts.
- At least one group member should be assigned the role of Devil’s advocate. This should be a different person for each meeting.
A much discussed example of group think is the Bay of Pigs fiasco in 1961. The Kennedy administration team uncritically accepted the CIA plan to invade Cuba. They ignored dissenting voices and outside opinion and underestimated the obstacles. President Kennedy learnt from this disaster. During the critical Cuban Missile Crisis in 1962 he used ‘vigilant appraisal‘ to deliberately avoid groupthink. He invited outside experts to share their viewpoints. He encouraged group members to voice opinions, ask questions and challenge assumptions. The President deliberately absented himself from some meetings to prevent his opinions dominating.
There have been countless examples of groupthink in executive teams leading to business disasters. Swissair, Kodak and Enron are salutary lessons. Business leaders can avoid similar catastrophes by learning from Janis and Kennedy in order to fight to the scourge of groupthink.
Researchers discovered that the height of the ceiling in a meeting room can affect the outcome of the meeting. Apparently a high ceiling encourages people to think more creatively while a low ceiling discourages imagination and influences people to think in a constrained way. So if you want an effective brainstorm choose somewhere with plenty of headroom.
The concept extends beyond the physical. In addition to material headroom we need lofty ideals too. Many people will approach a meeting as a low value exercise unless we inspire them to become engaged and try harder. The meeting leader should start by stressing the relevance of the topic and by explaining the consequences for the business of success or failure in the meeting. ‘It is really important that we generate some great ideas for how to market our product because we need to implement something to boost demand. If we don’t the product will flop and that will be bad for the company and the department. If we get this right we will be the heroes.’
So think high – high ideals, high goals and high ceilings!
How did your organization acquire its skills in quality, sales, marketing, people management, finance and all the other myriad competences that you use? You hired people with the skills, and you trained people so that they acquired the skills, and people learned skills on the job. So if you want to develop expertise in innovation then the same approaches apply. You hire creative people. You train people in the cultural and procedural aspects of innovation. And people learn about innovation by practising it.
The main areas for training include:
- Problem Analysis
- Idea Generation
- Managing Brainstorms
- Idea Evaluation
- De Bono’s Six Thinking Hats
- Prototype development
- Project gating
- Project management
A needs assessment will identify which areas are the most important. Some businesses find it difficult to generate creative ideas, others generate plenty of good ideas but very few make it to implementation.
Generic training courses are available and there is some benefit in mixing with people from other environments. Most organizations prefer to run their own-in-house courses tailored to their needs and addressing their issues. The primary purpose of the training is to develop skills and teach methods that can be applied. However, a secondary benefit that is often overlooked is that the training can yield useful ideas or help evaluate difficult choices. In order to do this it is important to set out with the objectives of ensuring that the right issues are addressed and that the best ideas in the day are captured.
It is important that the leaders attend training rather than assigning junior executives to the courses. It is no good training all the lower levels in how to generate and implement innovations if the senior team does not understand or commit to the processes.
Have you been to the Edinburgh Fringe? It is a remarkable experience. The Fringe is the world’s largest annual Arts Festival. There are some 3000 different shows featuring comedy, theatre, music, dance, magic and improv. There is no selection committee (in their terms it is unjuried). Any type of performer with any type of act can participate. This means that it has become an experimental playground and launching pad for emerging talent. At the same time many well-established artists perform at the Fringe because they love being part of it. Something like 2 million tickets are sold for the shows over the 25 days of the festival but many shows are free. It runs every August and attracts visitors from all over the world. It has launched the careers of many who went on to become stars including various members of the Monty Python team, Derek Jacobi, Rowan Atkinson, Stephen Fry, Hugh Laurie, Steve Coogan and Emma Thompson.
The success of the Fringe can teach us some lessons about innovation and entrepreneurship because each show is like a small business start up. It may succeed or fail based on whether customers and critics like the idea and the performance. What precepts can be taken from the festival to the business world?
1. The Fringe provides a platform for experimentation. Edinburgh in August is a place where artists can try out new, dangerous, edgy material with relatively low cost and low risk. They are sure of some audiences and will get instant reaction and feedback. The basic infrastructure is in place – there are venues of all shapes and sizes, a computerized booking system and most importantly lots of visitors. The artist can focus on giving a great performance and leave the logistics to the organisers. Every start-up needs time, space and exposure.
2. It is a safe place to fail. Artists whose shows flop one year may return the next and try again with a different approach. They will get support and encouragement. They quickly learn what works for audiences and what does not.
3. Diversity stimulates innovation. Performers from different genres, backgrounds and nationalities rub shoulders and see each others’ works. New ideas and collaborations are spawned.
4. The Spotlight is the reward. Very few shows make serious profits at the Fringe. The main benefits for the successful are exposure and coverage. Many magazines and newspapers publish reviews of shows at the Fringe and there are a number of prestigious awards. (See the list of Comedy Award winners.) These accolades can lead to further bookings for the shows and the artists and put them on the road to stardom. Similarly many start up internet businesses crave viral exposure ahead of revenue.
If we want more entrepreneurs and more new businesses then the Edinburgh Fringe might be a useful model to follow. We need safe places for creative entrepreneurs to try out their great ideas.
A culture in which people are blamed for their failures and mistakes is highly damaging for innovation and for learning. If staff are worried that the finger will be pointed at them for trying things that don’t work then they will not try them. And if people are scared of recriminations they will not own up to errors and mistakes which means that an opportunity for improvement and learning is missed.
This problem is particularly acute in the health care sector where a blame culture can discourage whistle-blowers and individuals who want to report errors – their own or those made by others.
Dr Gary Kaplan
The Daily Telegraph reported that in 2002 Dr Gary Kaplan, Chief Executive of the Virginia Mason hospital in Seattle visited a Toyota factory in Japan where he was surprised to see at first hand the company’s remarkable ‘stop the line’ philosophy. Any worker on the multi-million pound production line can stop the line if he or she experiences an unexpected problem or difficulty. Senior technicians and managers rush over – not to berate the worker but to help them and to learn. That way they can improve the process for all workers and all Toyota plants. It is all part of the company’s famous ‘kaizen’ or continuous improvement concept.
Dr Kaplan wanted to introduce a similar process at the hospital so that staff would immediately report any incident which could be harmful to a patient. But he ran into opposition. The existing culture was ingrained. People did not want to go over the heads of doctors or to report things that might get colleagues into trouble. Doctors feared that admitting mistakes might lead to lawsuits.
It took a dramatic accident in November 2004 to trigger the change. A 69 year-old mother of four tragically died after she was injected with the wrong medication. The hospital immediately issued an apology and took full responsibility.
It made staff realise that Kaplan’s policies were designed to save patients and not to chastise staff. There are now about 800 safety reports every month revealing everything from tiny defects to major mix-ups. The reports are acted upon with the aim of improving the process so that the mistake cannot occur again. Blame and fear have been replaced with learning an improvement. The result is that Virginia Mason is now recognised as one of the safest of hospitals. Remarkably the change to an ‘owning up’ culture has led to a 75% reduction in lawsuits and a corresponding reduction in the cost of liability insurance premiums.
Two pertinent lessons for innovative leaders are clear from the story of Dr Kaplan and his hospital. First, a great way to innovate is to copy an idea from an entirely different field – in this case automobile assembly. Secondly, corporate cultures are remarkably resistant to change and it often takes dramatic actions to alter them.
If you have a blame culture in your organisation and you want to change it to one of transparency and honesty then here are some practical steps you can take.
- Focus the message on the benefits of innovation and continuous improvement and on the risks inherent in covering up failures.
- Senior executives and managers should lead the way by pointing out mistakes they have made and how similar errors can be avoided in the future.
- Whistle-blowers who point out serious flaws and failings should be singled out for praise (unless they wish to remain anonymous).
- You could invite an external speaker from an entirely different industry (e.g. Toyota) to tell their story.
Transparency will shine a spotlight on reckless or incompetent individuals. But that is not its primary purpose which is to enable continuous improvement based on all the little fears, problems and errors that clog the current systems and stop us from being more efficient and more innovative.
It is nice to meet and talk to happy customers. They like your products or services and often recommend them to others. As a business leader you get a warm glow from a happy customer – it seems to make all your efforts worthwhile. Unfortunately you do not learn a great deal from the happy client. They just confirm what you already knew – that you are doing a great job. They reinforce complacency. On the other hand, the unhappy customer is a mine of valuable information. They are dissatisfied with your current efforts. Consequently they are the best source of ideas for innovations and improvements in your product or service.
Each of Apple’s store managers allocates time for talking to customers who have complained. They have a target to call any unhappy customers within 24 hours. The results of these communications are fed back to other stores and to Apple headquarters where they form a vital input for developments and improvements. But there is a more immediate benefit. Analysis shows that on average the unhappy customers who spend time talking to store managers go on to spend substantially more on Apple products and services than other customers. Studies show that every hour spent in calling displeased clients resulted in over $1000 of incremental sales leading to over $25m in extra revenue per year across all stores. (Reichheld F (2011) The Ultimate Question, Harvard Business Review).
How can business leaders find and speak to really unhappy customers? One way is to spend time on the phone at your call centre or service department. Another is to search social media for critical comments and to reply both publicly to the group and privately to the individual. Find out what really bugs them, listen to their tirade of criticism and ignore the fact that they never read the manual. Do not argue; simply listen, sympathise and help them resolve their issues. If possible offer them some compensation e.g. a voucher or download. You may think that they are rude, lazy and ignorant (and you may be right) but they have given you something valuable – an insight into how customers think and act. For every customer who complains you may have ten others who have the same problem but keep quiet.
Many companies who are desperate to innovate add features to their products which their development teams think are really cool. But all this extra functionality may deter the average user. A better source of incremental innovation is the customer. If you keep making your product better and easier to use for him or her then you are adding value rather than just adding features. The unhappy customer is the place to start – so seek him out.
Many organizations are adopting Open Innovation and Crowdsourcing as ways to generate new products or services. Opening up your innovation initiatives to outsiders is seen as more effective than relying solely on your internal R&D or marketing departments. However, because this approach is so new there is a dearth of guidance on how to measure the success of open innovation activities. This issue is addressed directly in a paper by Erkens, Wosch, Piller and Luttgens from Ernst Young in Germany and the University of Aachen. They point out that 90% of corporate innovation efforts do not result in new products or services so a tool to help us understand how to measure success is badly needed.
The authors advocate three principles:
1. Use separate metrics for each different OI method – e.g. leadusers, contests or broadcast searches.
2. Use measures for input, process, output and outcomes.
3. Use metrics in ways which are instrumental, conceptual and symbolic. (You have to read the article to understand what they mean by this.)
They carried out a survey among major European companies in different sectors and analysed 117 responses. They propose three different scorecards with up to 14 metrics on each depending on the type of OI initiative being used. Each scorecard has sections for initiation, implementation and overall KPIs with metrics for inputs, process, outputs and outcomes. The two most highly rated metrics on each scorecard might seem obvious but they are absolutely telling:
1. The degree to which top management is committed to Open Innovation
2. The customer benefit from the innovation provided.
The report is a valuable addition to the OI literature and the scorecards are very useful even if they are little over-engineered in my opinion.
Also recommended is the earlier work, A Guide to Open Innovation and Crowdsourcing.