The dynamics of innovation

I’ve been riffing for a few years now that creative firms should adopt a different business model. I don’t think billing by the hour is a very good way of sharing risk/reward. And I don’t think that splitting up innovation between engineers, designers and marketers is likely to get the best results. And, most companies are geared towards operation, rather than innovation. So many do need the help of outside firms to help them with the process.

One company I’m a big fan of, Fahrenheit 212, is doing just that. They run entire innovation projects, and deliver everything from a working proto to the marketing strategy and business model. Their compensations depends on the success of the venture, and they are even willing to co-invest. Here’s a recent article in Fortune magazine that profiles their way of working, and some examples of their work.

One of the F212 partners, Pete Maulik, sent me an article he recently published in Chief Executive magazine, aiming to help CEOs run successful innovations in their company. The full article is here, but I’ll give you one of Pete’s most interesting pointers as a teaser:

Step One: Break out of business as usual

Whenever you’re setting out to change the game, define the outcome you want to achieve and then assess what must be true to get there. Working backwards ensures you stay focused on the big goal and becomes a useful filter as you’re defining the challenges and key success factors that actually matter. A great example of this came from NASA in 1961. When President Kennedy proclaimed that the US would be on the moon by the end of the decade, the lead scientist at NASA said something along the lines of “We know where the moon is, we know where the earth is, everything else is just details.” Genius.

Incidentally, the McKinsey Quarterly just published ‘the path to successful new products‘ about–you guessed it–how to innovate well. Their suggestions:

1. Keep it focused – Whenever project requirements were clearly defined and communicated to teams before kickoff, the project had a greater chance of success.
2. Nurture a product culture – [when] the device maker gave senior team leaders ownership of projects from beginning to end, as well as authority over staffing, personnel reviews and, in some cases, profit-and-loss responsibility, the new structure encouraged leaders to make better decisions, resolve conflicts quickly and reduce delays.
3. Talk to the customer – More than 80 percent of the top performers said they periodically tested and validated customer preferences during the development process, compared with just 43 percent of bottom performers. They were also twice as likely as the laggards to research what, exactly, customers wanted. That made them better able to identify and fix design concerns early on, minimizing project delays.

What’s most interesting to learn from all this is that it’s not so much who’s doing the innovation or how they’re doing it (although it matters), it’s mostly the atmosphere they’re doing it in that defines the quality of the outcome. Having a project oriented culture, a workspace that promotes free flowing ideas and also welcomes a critical look, and having people of various disciplines work together rather than in succession seem to be the key to great innovations. Innovating is not a capacity to be acquired overnight.

Another great point made by mr. Maulik: “…many CEOs don’t have the people hard-wired to come up with game changing ideas. And even if they could, the very nature of “game-changing” is incredibly dangerous because it could quite literally change the game.”

And so it’s clear that not every company is going to be good at innovating, just as most innovators won’t be as good at keeping business-as-usual running super efficiently. Which brings me back to the opening statement: as innovation firms begin to take a more fundamental role in the business landscape, I think the typical consultants’ business model of billing by the hour is the first thing that needs some reinventing. We need models that share the risk at the beginning, but also the potential future upside of a successful project.