Innovation in a world of data
When creativity must come first and data is used to unlock the full potential of an idea
Innovation (the process of creating a product or service that delivers significant new customer value) is risky and may take too long to translate into spectacular results. Still, the sentiment is widespread: stay ahead of the pace of change or you’re doomed.
Sadly, many companies interested in becoming more innovative fail to recognize that successful innovation relies on data that is vastly different from the conventional data already flowing through the organization.
The data needed to develop breakthrough solutions is vastly different from the data used to pursue operational excellence
When the goal is operational excellence, historical data and established market knowledge are valuable inputs. Those inputs can be used to identify deviations in performance to minimize damage or make the most of an opportunity, and generate predictions for things like the short-term demand for a product or service.
However, when the intent is to produce outstanding and innovative solutions, observation, intuition, curiosity, creativity must be used to defy market knowledge and come up with breakthrough ideas. New data, of a different nature, has to be captured to validate and improve those ideas.
Acquiring new data is essential to the innovation process
Consider the example of Richard Montañez, a first-generation Mexican immigrant with a great story that is being turned into a movie. While the facts around he being the inventor of the Flamin' Hot Cheetos have been under dispute recently, it’s still a great illustration of the steps adopted by many successful innovators:
Discovery through observation. In between shifts, he spent time in the warehouse and watching the machines produce snacks. At some point he asked to tag along one of the Frito-Lay salesmen and happened to visit a convenience store in a Latino neighborhood. There he observed that the products on the shelves were all plain, unlike the Mexican corn doused in chili powder he used to get on the streets. That’s when he came up with the idea of a hot flavor of Cheetos.
Prototyping. Once an idea is conceived, the next step is to create a prototype to demonstrate that it works. During one of his shifts at the production facility, Montañez got some Cheetos that hadn't yet been dusted in cheese, took them home, and with the help of his wife, covered them in his own concoction of chili powder and other "secret" spices.
Low-risk actions to validate the idea. After handing the snacks out to family members and seeing their enthusiasm, Montañez was ready to seek corporate support to keep going.
Source funding to keep the project alive. The janitor called the office of the CEO to describe his idea. The top executive loved his ingenuity, and six months after the first prototype, Frito-Lay began testing Flamin' Hot Cheetos in small Latino markets in East Los Angeles. Demand was verified through popularity in a small market before increasing the investment in the new product line.
As reported by The Hustle, before Montañez joined the executive team, Frito-Lay had only three Cheeto products. Since then, the company has launched more than 20, each worth $300m+.
Richard Montañez (via Twitter)
In addition to being creative and entrepreneurial, Montañez had luck on his side. He might have lacked access to what he needed to create a first prototype to test his idea. The executive assistant might have refused to pass a call from a plant janitor through to the CEO. Executives who were paid big bucks to come up with new ideas might have sabotaged the initiative so that it didn't look like a low-rank employee could do better.
Because lack of innovation can crush a business, companies can’t afford to rely on luck to realize their most innovative ideas.
Every company needs to find the delicate balance between supporting the existing business and investing in the future
In the book Switch: How to Change Things When Change is Hard, the Heath brothers tell the story of Brasilata, a manufacturer of cans in Brazil. In 1987, the founders launched an employee-innovation program where workers became known as "inventors". New employees were asked to sign an "innovation contract".
Top management challenged employees to be on the lookout for potential innovations—ideas for how to create better products, improve production processes, and squeeze costs out of the system. Procedures developed within the factory made it easy for inventors to submit their ideas.
Many of the suggestions led to the development of new products, like steel cans designed to carry dangerous or flammable liquids, and novel approaches to reduce energy consumption during a severe energy crisis in Brazil that allowed the company to not only stay below its imposed quota , but resell its extra energy.
Companies like Brasilata have tools in place to make it easy for anyone to submit ideas. Some of these companies set up a stock-exchange-like “idea market” where employees receive virtual currency to “invest” in the ideas they like. Ideas with enough support are approved, and everyone who supported it receive a share of the profits from the project.
While these models have helped businesses generate both incremental changes and products in whole new industries, companies need to go beyond “idea markets” if they want to mitigate the risk of rejecting notable inventions that could help them gain a competitive advantage.
Gaining support for obvious ideas (like an incremental change that enhances an existing product) is easy. But many lucrative innovations initially look like an "ugly baby" of uncertain promise. In order not to miss out on a product or service that generates millions in new revenue streams, companies must invest in mechanisms to incubate radical ideas that might lead to a complete reset of the customer experience or a new business model.
An effective strategy to keep innovation going beyond incremental change is to give individuals the freedom to allocate a percentage of their time to explore wild ideas without fear of being punished if they fail. Because failure is expected, people will be more inclined to pick high-risk projects promising a great reward if successful (precisely what organizations seeking to become more innovative want).
One of the company I’ve worked for allowed employees to spend 20% of their time in any project they liked. Everyone was encouraged to work on their “weird” or “crazy” ideas on that allotted time. There were also incentives at hand to convince employees to spend some of their "invention time" helping create an experiment to test someone else’s idea. We didn't have to immediately convince a committee that an idea was worth pursuing, and could instead take low-risk actions to see if it showed positive traction before taking the next steps. In that model, I was able to run multiple pilots of a data product to be sold as an add-on to customers buying our software. With the tools available to anyone in the company, in short order I was able to acquire qualitative signals to validate the idea before I had to convince a higher-up to put some resources toward additional validation at a larger scale.
You can't operate innovatively unless you're willing to test (and validate) radical ideas
To foster innovation, companies need the right incentives and tools to encourage people to test their most radical ideas with low risk-actions. They must welcome “good fails” that may result from leaping into the unknown. And they have to be ready to judge novel ideas not based on historical data, but on new data from experimentation.
Innovative work, by definition, challenges the status quo. While historical data can provide some insights into untapped business opportunities, it’s unlikely that it’ll help your company uncover opportunities that go beyond incremental improvements limited to an extrapolation of your past.
To develop new concepts that deliver significant new value and generate impressive new revenue streams, you must be open to subjecting radical ideas through validation steps where data is collected rapidly and efficiently to evaluate your assumptions.
That doesn’t mean you have to spend a lot of time and money in the beginning of a validation process. Remember Richard Montañez taking home plain Cheetos and covering them in a concoction of spices in his own kitchen? Your initial test may consist of a simple landing page with a sign up button, or just low-fidelity wireframes to assess product-market fit. If the initial signals are positive, then you can gradually increase the investment to expand the validation process to the product itself, production process, customer acceptance, and financial value of innovation.
Photos by
Dan Senior
and
Eddy Klaus
on Unsplash