Efficiency — The Innovation Trap

IdeaConnection Interview with Jeffrey Phillips, Author of Relentless Innovation and Make Us More Innovative
By Vern Burkhardt
"…I've attempted to demonstrate how a firm can achieve "innovation flow" by rebalancing the operating model between efficiency and innovation, and by refocusing middle managers and encouraging them to embrace innovation." Relentless Innovation, page 196

Vern Burkhardt (VB): In Relentless Innovation you say, in light of global competition, consumer expectations of products and services, technology advances, lower cost of entry due to the web and mobile platforms, and shrinking product life cycles, the only sustainable competitive advantage is innovation. Are the business executives you deal with aware of the need for urgent action in order to ensure sustainable competitive advantage?

photo of Jeffrey PhillipsJeffrey Phillips: They're aware of the need for urgent action, but I'm not sure they always understand what things are going to create sustainable competitive advantage. They don't always have the necessarily insights to say what strategic actions will give them competitive advantage.

VB: They are likely doing a lot of reading and studying about innovation, or are they too busy?

Jeffrey Phillips: Are you speaking of the executives?

VB: Yes.

Jeffrey Phillips: They hear a lot about innovation from the people around them and from their compatriots. I would say they're aware of it peripherally but they're generally not spending a lot of time on it. Many don't understand the implications of launching on a path to become more innovative.

I was on a call yesterday with a large waste management firm. The person who has been chartered with doing innovation said, "The CEO told me we need to do more innovation but when we quizzed him about what this meant, how to do it, and what was the available budget for investment in innovation it became clear there had been no deeper thinking."

VB: The need for innovation is in business literature and the mass media, but the details from an operational point of view is another matter.

Jeffrey Phillips: Well, yes and the operational and tactical aspects matter a lot. A lot of times we see executives talking about innovation but not recognizing how important it is to drill down into the details.

For example, I was talking to another firm recently which had put a big safety program in place. They were talking about making their plants safer. It took them a year to roll out this program to the point they felt it had been effective, and this was doing things people would normally want to do to avoid risk. It didn't require a lot of change and they were making employees feel better about their workplace.

When you are talking about innovation you're asking people to take new risks and new challenges. If it takes a long time and a lot of commitment to roll out something where people are merely avoiding risk, it's going to take even more investment and focus to roll out something that suggests people should take more risks.

VB: "Large businesses, especially, aren't organized to innovate. They are structured for efficiency and to offer existing products and services to current customers." Is this an almost inevitable outcome of size?

Jeffrey Phillips: I don't think it's necessarily due to size. There are large firms that innovate but size and critical mass do become an issue for several reasons.

One reason is that if you're a large firm you have lots of products so any new product more than likely will cannibalize or threaten an existing product. In this case size gets in the way because you already have existing products or services. It's harder to find new white space.

Another reason a large company can find it difficult is they have lots of checks and balances, lots of stage-gate processes, and so they apply much more rigor to any new product or service coming along.

Those two factors hinder larger firms from innovating but I don't think size by itself means a firm can't or won't innovate.

VB: Rigorous processes such as stage-gates and the required depth of analysis – even their annual budget cycle – certainly can be an impediment.

Jeffrey Phillips: Yes, you've pointed out an interesting issue. Most companies budget on an annual basis for projects to take place in the next year. Most of that annual budgeting process happens once a year, usually some time in late summer or early fall, but customers don't care what a company's planning cycle is. They have needs when they have needs.

This dichotomy between the planning cycle for the next year versus the need to be able to react at any point in time to a particular emerging opportunity or emerging threat has always been interesting to me. The annual planning process in and of itself creates a cycle that I don't quite understand from an innovation viewpoint. It locks companies into a short-term process which may or may not make funding available for future activities. Usually longer-term innovation activities are the ones that don't get funded.

VB: "Business models are so focused on efficiency, cost cutting, and short-term outcome, that it makes innovation almost impossible to accomplish once, much less over time." Is this true for firms operating in Europe and Asia as well as in North America?

Jeffrey Phillips: I'm not sure we can generalize.

There are firms in Asia that are more open to innovation than we are or who have embedded it more within their operations. Much of it is the cultural aspect of how you look at your markets and the kinds of challenges you have in your company. From this perspective, I'm not sure you can look at it as being differentiated on a geographical basis.

In the U.S. we have become overly influenced by efficiency – Six Sigma and those kinds of management initiatives. The focus on efficiency is creating a barrier to innovation in many companies, but it's not consistent across the board. Perhaps we tend to adopt management principles like Six Sigma more quickly than firms in some other countries. This may be to the benefit of these firms outside the U.S. because it's becoming a barrier to innovation within the U.S.

Some firms in Europe, Asia, and other locations outside the U.S. may understand better that there needs to be more of a balance between those efficiency tools and an innovation focus.

VB: Would you say dramatic action is needed before it is too late, given the survey in 2010 that found less than 25 percent of manufacturing firms and less than 8 percent of companies in the service industry in the U.S. had created an innovative product or service in the last 3 years?

Jeffrey Phillips: We definitely believe innovation is a core competency. It is becoming more and more of a competitive advantage.

Firms that are able to innovate successfully, and can do it in a sustained way over time, are going to differentiate themselves and pull themselves apart from their competition. You're already beginning to see this with firms like Proctor and Gamble, 3M, Google, or Apple. Those firms are able to consistently innovate, and so there is going to be a separation from firms that can't sustain innovation.

VB: This separation could get wider if the laggards don't get on board and systemize innovation.

Jeffrey Phillips: Absolutely. It's likely firms which aren't innovating are going to struggle because the firms which are innovating are going to be able to create new products and services at a faster clip. They're also going to be able to create products and services that are more relevant so they'll have fewer "failures" in the marketplace.

VB: You identify the 'real barriers' to innovation as being business-as-usual and middle management. Is this always the case in firms not known for being highly innovative?

Jeffrey Phillips: We think business-as-usual and the middle managers who support it are the two key barriers to innovation. Whether or not you're moderately innovative is a matter of degree. Innovation becomes more difficult the more you hone the business-as-usual model, build perspectives and mental models around this approach, and allow attitudes to adjust to doing business-as-usual.

It can be a small or large company – it doesn't matter about size or geography—but the adherence to a business-as-usual model is the big impediment to innovation.

VB: "…innovation threatens BAU [business-as-usual] more than almost any other initiative… And like any bureaucracy, the operating model will defend itself vigorously." Innovation is perceived as a threat rather than a solution?

Jeffrey Phillips: What U.S. companies have done, especially over the past 20 or 30 years at least, is spend a great deal of time and effort honing their operating models for efficiency. They've right-sized. Outsized. Downsized. Outsourced. Applied Six Sigma and Lean. They've honed very efficient models. Those models work well when the products, services and concepts are consistent and look like things they've seen before, but innovation changes all that.

Innovation takes the model that is well honed for efficiency and asks it to become more willing to embrace variances, changes, and disruptions. What happens eventually is innovative ideas become a threat to the efficiency of the operating model that we spent so much time trying to build.

VB: I gather from what you've said in Relentless Innovation it's your observation that businesses in the U.S. have been successful in becoming highly efficient to the point where there isn't much room left for further efficiency measures?

Jeffrey Phillips: I recently read in either Forbes or it may have been in >i>Fortune that most economists believe the amount of productivity and efficiency, which most U.S. businesses demonstrate, is something they never would have believed possible. The amount of productivity they're getting out of the inputs from labor hours and from the other kinds of inputs are off the charts.

This is not to say it's impossible to become even more productive but, from my experience, most are already working 50 to 60 hour weeks. We've got organizations that have downsized to the point where they have half the staff compared to the size of the workforce previously doing the job. You begin to reach a point of diminishing marginal returns in terms of efficiency.

We're reaching a point where we've done everything we can for efficiency. I'm sure there's more juice to squeeze out of the orange but recovering more juice is going to get more and more difficult.

The other issue is efficiency doesn't lead to growth. We can continue to pull more costs out of the model but eventually it's going to be a diminishing marginal return. We're going to need to start looking at the other side of the coin for growth which is revenue.

VB: Companies squeeze the last bit of juice out at their peril.

Jeffrey Phillips: It's a peril in that eventually you're going to have squeezed out all the juice and be as efficient as you possibly can be and not be able to effect any more cost savings. There's not going to be any additional bottom line opportunities to remove costs, but you won't have done any investment in terms of growing the top line.

What we're talking about is returning to a balance. It's fine to look for productivity increases, but we need to return to looking for opportunities for growth, for innovation, and for differentiation.

VB: How can you recognize a 'relentless innovator'?

Jeffrey Phillips: From what we've seen in the market place relentless innovators are firms that have a very different mentality about how to approach innovation. They don't see it as a threat. They don't see it as an unusual occurrence.

They see innovation as an expectation that people should arrive at work trying to generate ideas, both incremental and disruptive. In these firms ideas will be evaluated fairly, and there's a transparent process for effectively moving ideas to become new products and services.

Relentless innovators are constantly creating new products and services which the market values.

VB: In these companies the expectation of constant innovation is for all employees, not just for the R&D department?

Jeffrey Phillips: The bigger question when we talk about innovation is what are we talking about? Most organizations have some R&D capability, but R&D is focused on whatever is their core technology.

If you think more broadly about innovation, it has to do with products, services, business models, and the way customers experience or have interactions with the organization. So there's more opportunity for innovation beyond what is the focus of the R&D team.

Anyone who thinks innovation is located solely in the R&D team is missing a tremendous opportunity for innovation. Sure relentless innovators create new technologies, but they also create new experiences, introduce more design into applications, and think more about the whole of product solutions.

Let's use Apple as an example. If I'm listening to music, where's my music managed? There are a lot of things beyond just a product that are parts of Apple's innovation process.

VB: How would you describe an 'innovation business-as-usual operating model'?

Jeffrey Phillips: We're trying to shift from traditional business-as-usual which says, 'Let's do things the same way but with ever more efficiency, and let's view things that are different from our existing concepts and products as unusual or as threats'. The innovation business-as-usual model would suggest we need to be efficient, but we also need to balance efficiency with openness to new ideas.

Traditional business-as-usual models look at new ideas as risky and uncertain, and the fact is to a certain extent they're going to be risky and uncertain. An innovation business-as-usual model is going to say, 'We understand that they're risky and uncertain, but we're going to operate, use, and manage new ideas in an effective way to identify new business opportunities.'

VB: "…innovation is a strategic choice rather than an act of fate." Given this, and all the focus on innovation in recent years, why are so few firms relentless innovators? Or are there many more in existence than are identified by the media and business literature?

Jeffrey Phillips: There 0are few firms that do innovation well, and especially very few firms that do innovation well over an extended period of time. Doing it well over an extended period of time is what I call a relentless innovator.

There are a lot of things that hold firms from doing relentless innovation. There are a lot of firms that do innovation as a project or an initiative, but then they don't follow up on that success to compound their opportunities by innovating over time. Firms, which look at innovation as if it is a project, reach a point in their life cycle where they need a new thing, they innovate to create that new thing, and then go back to business-as-usual. They don't see innovation as a discipline. They see it as a one-time event or as a sporadic opportunity as opposed to a consistent business discipline, which they can leverage.

Another reason holding firms from being relentless innovators is a lot of organizations don't want to put the investment into innovation that's required in order to do the things I just talked about. While they may have a large purchasing department because they're constantly purchasing things, a lot of organizations may not have a large innovation department because they don't intend to be constantly innovating. If they are going to be constantly innovating they need to have a defined process, and they need to have people to support this work.

VB: You said they don't intend to be constantly innovating. This might be the choice of some companies?

Jeffrey Phillips: I don't think it's an intentional choice. It's a series of trade-offs. Managing a large business today is a question of strategic and financial trade-offs to the point it's almost always easier to default to something that is short-term and proven, as opposed to something that may be slightly longer-term and unproven.

I know I can affect my bottom line next quarter if I cut costs. I don't know what my top-line revenue, differentiation, or new product development's going to be if I invest in innovation. The trade-offs are so much easier, clearer, and proven when cutting costs rather than investing in innovation.

VB: "Since innovation introduces new tools, goals, and risks, clarity about the strategic direction of the firm is paramount to ensure that innovative efforts don't pursue interesting but irrelevant technologies, products, and services." What advice do you have about how such strategic direction should be described so it is useful in guiding innovation and so employees don't become discouraged because their activities related to innovation seem to go nowhere?

Jeffrey Phillips: I just read today an article about Best Buy in which the author describes them as being strategically bankruptcy. His point was that there is no clear strategy for Best Buy. I thought it was an interesting concept.

We could argue the question of whether or not Best Buy has a clear strategy, but one of the things that is really important for innovators to succeed is they need clear direction, strategy, and vision. Otherwise what happens in an innovation team or an innovation process is people will generate ideas, but usually then an executive team makes a decision about whether or not to fund those ideas. If there's not a clear strategy a lot of times it's hard to ascertain which ideas are "good" or "bad", and which ideas will benefit the company and which won't.

Conversely, if you look at relentless innovators – such as 3M, Apple and P&G – almost all of them have a fairly clear vision of where they're trying to go. Whether it's an open innovation model at P&G to build incredible new products for the consumer market or Apple's strategy of improving the customer experience for technology goods, generally speaking good innovators have a clear strategy.

Firms that struggle with innovation in many cases have very poorly defined strategy, if any at all.

VB: And this poorly defined strategy rests at the feet of the C-level executive?

Jeffrey Phillips: To a certain extent, yes, but an expectation of innovation can also be embed in a vision.

One of my favorites is 3M. For 50 or 60 years, regardless of who was the CEO or the type of CEO at various times, there's been a pretty clear vision about what 3M should do and how it should do it. Some CEO's emphasized it more, some less, but there was a fairly clear almost innate corporate strategy and understanding about what the company's goals were. This is unusual. There are not many firms like that.

VB: You advise businesses to start with communication, compensation and culture. Would you talk a bit about this?

Jeffrey Phillips: There's an interesting trade-off between what we call mind-set and tools. What happens in many organizations is they decide to become more innovative so they search for tools and methods.

We talk about compensation, culture, and communication as the building blocks of an innovation culture. You should first look at how people are compensated, what the culture is going to do – is it going to embrace or inhibit ideas – and also what people say and what they mean when they talk about innovation. It's easy to talk about innovation but sometimes that talk isn't pursued with further action.

To use an example I used earlier today in another meeting, I may have the best bat, glove, and cleats but I may not want to be a person who plays baseball. I may have all the tools and all the equipment for innovation, but I don't have the passion, desire, or willingness.

I can give you an example of the vital importance of compensation, culture, and communication. We've worked in a number of firms where a CEO will say, "We want to be more innovative," but when you talk to the people who are called on to innovate they will tell you point-blank "I'm not being evaluated on how innovative I am. I'm being evaluated on the job I have 9 to 5, or 8 to 5." This places these individuals in a real quandary. Should they work on innovation, which is what the CEO has said is important, or should they do an excellent job in their "day job" because that's how they're going to be evaluated, compensated, and rewarded in the coming financial cycle?

VB: It's about having clarity of intention and aligning intention with actions.

Jeffrey Phillips: Absolutely. It's about having clarity, but it's also about putting some factors in place which demonstrate that what we say when we communicate the importance of innovation is going to be fulfilled when people actually do it.

VB: You talk about the dichotomy of executives asking for disruptive ideas while expecting the business to continue to operate at full effectiveness and efficiency. Do most executives need a better appreciation of how to implement major and lasting change in a large organization?

Jeffrey Phillips: I think it depends on the kind of change you're talking about. Some changes are easier to roll out than others.

I previously mentioned our client who was talking about improving safety. Improving safety meant that everyone was going to be safer on the job, and this might lead to more revenue, less down-time, and even bonuses. It meant that employees would have a safer work environment if they avoided doing some things. This kind of an initiative is much easier to roll out because it seems to be in everyone's interest, and it doesn't change the status quo much.

Innovation, on the other hand, requires a lot of change and a lot of commitment because you're asking people to do things against the status quo, against business-as-usual. This means pushing against a culture that has a lot of inertia around it. Those kinds of changes require a lot more focus over a long period of time. It requires a different set of skills and a lot more commitment.

VB: "If executives and middle managers actually discussed and debated the needs [for innovation to achieve growth goals] associated with the request [for resources and investment], executives would learn more about the resource needs and, subsequently, innovation could occur." In your experience why doesn't something as fundamental as this occur?

Jeffrey Phillips: There's a dichotomy at work. Middle managers are the efficiency experts. They are the train conductors who make the trains run on time. They make sure the business is operating at full efficiency by effectively using the company's inputs and resources. It's what they're asked to do.

Middle managers are also called on to implement the executive team's vision. This is where a real issue arises because in a business most people are compensated based on achievement of short-term financial goals. We measure businesses on a quarterly drumbeat. Every quarter the issue is how did we do this quarter? With that kind of reward and recognition process middle managers are going to be highly attuned to do things that make the quarter financial targets and sales quotas, not things that may help meet targets and quotas next year or the year after.

CEO's, on the other hand, although interested in the short-term also have an investment and a reason to care about the long-term. What they often don't understand, and I'm speaking of CEO's here, is how much change they're asking for when they ask middle managers to think not just about the quarter but also the 2- or 3-year window where innovation matters.

When you ask someone to do something but then don't provide the resources or the tools, it becomes a weighting process. The middle managers ask, is the priority innovation? Is it efficiency? And they almost invariably decide it's about efficiency because the tools and compensations are weighted and focused on achieving their short-term financial goals. Other than some talking points, very little is delivered around innovation.

VB: And in terms of the roll out of an innovation strategy, not a lot of effort is directed at providing innovation skills, methods, and capabilities.

Jeffrey Phillips: That's right. We quite frequently compare this with the approach to the implementation of Six Sigma. Innovation is often looked at as some sort of magical process whereas Six Sigma is looked at as a very scientific process.

Many businesses identified a lot of their people to become experts in Six Sigma, sent them away for training or brought experts in to run classes, and identified Six Sigma projects to implement. They invested a lot in Six Sigma and expected outcomes and benefits from it.

On the other side, few of those things happen from an innovation perspective. Few resources are assigned and little training is provided, but a lot is expected out of it. So you have people using unfamiliar tools who also have day jobs. They are trying to understand how to do innovation in a vacuum, and very rarely is it successful.

VB: It shouldn't be a surprise that middle managers and their employees go to their comfort zone, which is their day job.

Jeffrey Phillips: Not at all. It is a logical consequence of not implementing an innovation program complete with innovation skills, methods and capabilities.

VB: "Culture eats strategy for breakfast." What is the lesson for establishing innovation as business-as-usual?

Jeffrey Phillips: I love this saying 'Culture eats strategy for breakfast'. Formal and informal culture, formal and informal business models, and formal and informal reward systems will always win out over someone coming along and saying we need a new idea or we should be more innovative.

If we want more innovation in any organization we have to look at the cultural enablers or inhibitors to innovation. We talked about a couple of those being things like compensation and rewards, communication, and training. It even includes things like how we hire people and the kinds of people we hire. If I'm hiring lots of efficiency experts I may have more difficulty getting more and better ideas.

VB: In Make Us More Innovative you talk about large firms establishing a corporate-level innovation team to be the repository of techniques, tools, and processes, and to take on corporate innovation initiatives. Is this almost always a prerequisite to establishing innovation as business-as-usual in large firms?

Jeffrey Phillips: We think if you're going to move towards becoming a relentless innovator or a company which sustains innovation you need to have a consistent innovation team.

We like to think of a corporate innovation team as the kernel of innovation. It's the corporate center of excellence for innovation. In the innovation team you have people who are doing white-space innovation because they're not tied to a particular business or product. They can look beyond the business or product. They are also the keepers of the language and culture of innovation, and of the tools.

Generally speaking, the innovation team – the center of excellence – is valuable to keep the innovation flame alive. It assists product development groups, lines of business, or geographies within the business to become better at innovation.

VB: The trite expression, "to keep the torch alive" is the role of the innovation team.

Jeffrey Phillips: Yes, I was going to use the fire or torch analogy but I was afraid it might be a little too trite. But you do need a torch carrier. You do need someone to keep the fire stoked and burning and, what's more, to bring new ideas, technologies, learnings, and methods into the business because innovation, like anything else, changes. A snap shot of the tools and techniques we use today may be relatively different 3 to 5 years down the road. If you're not refreshing those tools, learnings, and knowledge about innovation you are unlikely to be as effective as you'd like to be.

VB: "These two words, passion and engagement, are what your firm should strive for when building an innovation team." Would you talk about this?

Jeffrey Phillips: Absolutely. You need people who are constantly talking about how interesting, valuable, and exciting it would be to create new products. I like to say that you also need people who can pull themselves up over the cube and look beyond the next quarter.

It's one of the reasons we describe these innovation teams as floating above the business. If they're tied down to the specific business deliverables of a particular business or product, then they become very quarterly or, maybe at the best, yearly focused. If we can float them above the business or above the product lines, then they have the chance to do things like white-space innovation or look further afield for new innovation opportunities. So it's a matter of perspective as well.

VB: It seems Wall Street and shareholders' expectations are major hurdles to innovation of many companies.

Jeffrey Phillips: It's only because we've allowed it to be that way.

There are some firms that don't give quarterly financial estimates. This is a fairly smart approach because once you give a revenue and bottom line estimate you're tied to those estimates, and you're going to do everything you can to achieve these estimates regardless of what it means for your business in the longer-term.

Wall Street, to a certain extent, has a valuable proposition in asking what is your profit and are you growing or shrinking, but too often we allow it to become too incremental and use too discrete a judgment. Of course, in the present system driving people to do what Wall Street suggests is important because their compensation includes options and stock shares.

I don't know how we break this conundrum but it's become an issue that is exacerbated by how people are measured.

VB: CEO's and other senior executives are compensated based on quarterly and annual financial targets so it's difficult to change their primary focus.

Jeffrey Phillips: Not only measured but measured in such a short timeframe. It's almost impossible to get anything done in 90 days, especially if you're talking about innovation.

Even if I have a great idea, in many companies the average time to implement a really interesting new idea as a product or service can be 2 or 3 years. When you're accustomed to measuring things in quarters and then start talking in years or even multiple years, peoples' eyes glaze over. It's so far into the future, and so many things can change in that timeframe that they almost feel it's out of their control.

VB: In your December 21, 2011 blog entry you say, "There's an appropriate team size or number for almost any effort, and we at OVO have decided that the magic number is eight. As in, eight people." How did you arrive at this conclusion?

Jeffrey Phillips: This is especially true for firms trying to do radical or disruptive innovation, but we believe it's true in general.

With too many people on an innovation team – 10, 12, or 15 – you will begin to acquire people who may not be fully bought in or who may not fully believe in the vision or strategy. The interesting thing about an innovation team is it only takes one person to drag the rest of the team down. Generally, you're looking at a team driven by consensus and if one or two people aren't fully bought in they can drag the team down to more incremental ideas and away from radical or disruptive ideas.

Conversely, of the team is too small you end up with the risk of groupthink. You also run into the risk that everyone on the team can't come to every meeting or every event.

You need enough critical mass in order to have a broad range of perspectives and enough people in case someone has to miss a meeting, but if the team gets too large then what you're almost guaranteeing is incremental ideas instead of disruptive ideas. In our experience we found that somewhere between 6 to 8 is about the right number, and we settled on 8.

VB: With a team of 6, 7, or 8, it's important to have a very strong leader of that team, isn't it?

Jeffrey Phillips: Whether the team has a strong leader is a less important than whether or not the corporation has a strong vision and they're aligning to that vision.

We try to get a really good charter, we call it a charter but you could call it a project document. Or you could call it a vision statement or a mission statement. What we're really interested in is everyone on the team working to a very clear vision or goal. The team may or may not have a strong project leader, but if it has a clear vision about what it's supposed to do and why this is important to the business then they can work effectively.

Of course, we'd like to have a strong leader on the team but even more important is vision, mission, clearly stated goals, and everyone on the team buying into them.

VB: You suggest that perhaps there should be a 'black belt for innovation' similar to the black belt for Six Sigma. What might the qualifications of a black belt for innovation entail?

Jeffrey Phillips: When we do innovation work with our clients it is interesting that a lot of them have recognized they have a problem and need to generate ideas. So the first step in many innovation programs, at least in corporate innovation programs, is to start generating ideas.

Idea generation is a tool or a technique but one of the things that many organizations don't understand is a lot of work should happen before they start generating ideas. When you're talking about a black belt, you're talking about someone who understands the entirety of the problem and the entirety of the process. When you're talking about innovation, a lot of times people leap to generating ideas when they should step back and ask themselves, "Where are we in the process?"

What I'd like to see for a black belt for innovation is the people will understand the entirety of the innovation process from spotting trends to understand potential future needs and opportunities; gathering customer insights, needs and jobs to be done; within the context of this information generating ideas; managing, developing, and evaluating ideas; prototyping and piloting the ideas; selecting the best ideas to commercialize, converting the ideas into new products and services, and finally launching the new products and services.

What's happened in many cases, and the reason we need to moved toward the idea of a black belt, is there's a range of tools and techniques that need to be structured in an effective end-to-end process. If you can do this you will have a true innovation black belt instead of people simply pulling the same tool off the shelf each time and using it in an inappropriate way at an inappropriate time.

VB: In addition to all the skills you've talked about, would another skill of a black belt holder be the ability to teach and instruct others about the innovation tools and methods?

Jeffrey Phillips: It's certainly another reason we like the parallel with the Six Sigma black belt. With Six Sigma as you earn advanced belts you attain knowledge and gain mastery of the information, and you then commit it to other people. Not only are you gaining skills and insights about the innovation process and the sets of tools and their linkages, but also as you gain this mastery you begin to teach others.

Absolutely, it's a valuable part of the process.

VB: In Relentless Innovation you say, "This gap in the innovation process, between the selection of good ideas and the development of a new product or service, is perhaps the most significant hurdle faced in transforming ideas into products." Would you talk about this?

cover of Relentless InnovationJeffrey Phillips: We talk about a chasm when we think of innovation. This chasm exists between what many people call the front end of innovation, which is what you and I have been discussing – trend spotting and scenario planning, understanding customer needs, and generating ideas – and in the beginning of product development where you begin to rank order your product development priorities and develop products and services.

In most organizations the product development process is well defined and it's often documented for years in advance. If I go into an organization today and ask, "What's your product development portfolio look like?" they'll list a number of products and how they plan to build them over time. But they don't have a good front end to this process for introducing valuable new products and services, nor do they have a well-established approach to re-prioritize the existing product or service portfolio.

The chasm happens when people generate ideas but then don't have the means or opportunity to place the new product or service idea they'd like to create in the sequence of products and services that are already scheduled for development. This means it doesn't get placed in the development process. What generally happens is they generate an idea and it goes to number 15 or much lower on the product development priority list. Even if it's a great idea and very timely, the product development team may not be able to get to it for 3 or 4 years and by that time the business opportunity may have passed.

There's a chasm between generating a really good idea and not being able to convince the product or service development team to prioritize and rank it high enough in the portfolio, and give it the funding needing in order for it to be commercialized quickly. This means even if good ideas are created nothing of value has been created for a customer.

VB: Do you think the chasm often reinforces incremental innovation?

Jeffrey Phillips: It can, yes. If the idea is a small idea and a tweak to an existing product, it's a lot easier to incorporate into a product development road map than it is to introduce a completely new product.

VB: It's less of a threat.

Jeffrey Phillips: Absolutely, and it doesn't disrupt what has been laid out for a set of products as the path forward. This path may have been locked in for several years.

VB: I gather you are optimistic that most middle managers can meet the challenge of becoming multidimensional managers who maintain a 'perfect' balance between efficiency and innovation in the firm's operating model?

Jeffrey Phillips: My experience is that most people enjoy innovation. They enjoy having good ideas and, if you were to allow them a little bit of time in their day, almost all middle managers could generate incremental and disruptive ideas that would provide benefit for their organization.

If those things are true, then the real question is how do we help them bring those innate skills, interests and insights to work for use within their existing processes and roles? How do we enable them to move from being so heavily focused on efficiency?

VB: You advise that patience is necessary in making this transition to an innovation business-as-usual culture because it takes a number of years – at GE it took 7 years. What else is needed to create a balance between efficiency and innovation that we haven't talked about?

Jeffrey Phillips: We've talked a lot about culture, and I think it's important. We've talked a lot about training. You need to train people and give them a new set of skills because they've been trained to be so efficient that they need to understand the new sets of skills that are important from an innovation perspective.

One of the other interesting things is to consider whom you hire and the type of new people you bring on board. Let's look for a second at social media and it's impact to how people are marketing and communicating with their customers. Today you would likely need to hire people with social media experience where this may not have been true a few years ago.

The same thing is going to become true over time from an innovation perspective. You will look for people who have creativity and innovation experience, and who can deliver value quickly using innovation tools and capabilities. You likely didn't specifically hired people with those skills in the past.

VB: Should every firm engaged in the transition to an innovation business-as-usual operating model have a 'Cortes Moment'?

Jeffrey Phillips: Yes, if you're going to try to become a relentless innovator. Yes, if you're going to try to put in place a set of processes and disciplines that reinforce the message, 'We're going to innovate more consistently from now on; this is not merely a one time project'. The 'Cortes Moment' refers to the idea of arriving on a foreign shore and burning your boats. There's no going back.

The only way people are going to completely and effectively make this change is if they see a lot of commitment, investment, tools, and training for skills about innovation. And it is abundantly clear there's no going back to the old way.

The 'Cortes Moment' is the symbolic moment where you demonstrate to people we've done things a certain way in the past and we're not going back to that way. We are never going back because the ships have been burned and we're now in a new land.

VB: This is not just another management flavor of the month.

Jeffrey Phillips: I talk a lot about flavor of the month and, unfortunately, innovation for some reason often becomes a flavor of the month. If they're not careful an executive team can ask for innovation, not sustain and reinforce it, and then those initiatives die. Then a few months later they again ask their middle managers and employees for innovation.

It seems to be the short-term, almost cynical request that becomes the so-called flavor of the month.

VB: A lot of middle managers realize that executives have a short attention span for new initiatives.

Jeffrey Phillips: Yes definitely, and probably one of the reasons you don't see more sustained innovation is that CEO's are pulled in a number of different directions.

We've recently done a lot of work in the financial sector. If you look at all the new regulations coming out of Congress in the U.S. you'll realize they're being pulled in a lot of different directions. Their focus is on trying to understand new regulations one day, trying to understand customers the next day, trying to achieve goals for the market the day after, and these are only a few examples of the numerous different directions they're constantly being pulled toward. This causes them to be short-term focused, and to not sustain a focus on innovation.

When executives do talk about innovation, and these discussions are usually only brief, it seems many middle managers filter the conversation out because they don't see follow up.

VB: This is a classic example of miscommunication. The executives set a new direction, assume it will be done, don't refer to it again for another year, and the message to middle managers effectively is it obviously wasn't important.

Jeffrey Phillips: One of the things we talk about regarding communication is you'll see a lot of people talk about innovation, but the executives of organizations which are relentless talk about it with specific manageable goals.

3M talks about being able to drive 20% of its revenue from products that were created in the last 3 years. P&G talks about 50% of all its ideas coming from outside the organization. Not only are they talking about innovation they're doing it in a way that's measurable and quantifiable. You can go back to a point of time in history and say, "This is what you said then, and I'm measuring you against what you said."

Others who talk about innovation make one wonder if it's only the 'flavor of the month'. For example, recently I was listening to an interview with Scott Thompson, the newly hired CEO of Yahoo, who said, "We're going to become more innovative." My question was to what end? To what extent? How will it be measured? How will we know Yahoo has become more innovative? I felt it was a throwaway line on his part, whereas some of the other executives are talking about specific initiatives, projects, and goals that can be measured.

VB: Should executives set a BHAG [Big Hairy Audacious Goal] to ensure there is a sense of urgency for this transition?

Jeffrey Phillips: I think it's the only way to be successful. You need to set big stretch goals for innovation and demonstrate that, as a CEO, you are involved in those big goals. You're involved in those big projects. You have a commitment, and you're invested in those project. Otherwise it's so easy for the day-to-day business-as-usual work to crowd out innovation.

VB: Would you tell us about the services provided by OVO Innovation?

Jeffrey Phillips: We work with our clients to help them do a lot of what we've talked about. We think of it as building innovation discipline.

We use the word 'discipline' intentionally because we think of innovation as a consistent business process just as you would accounts payable or purchasing. In the same way that a purchasing organization has people, systems, processes, and documentation we think a good innovator has those same things but they are focused on innovation. There are people who do work related to innovation, they're trained for their roles, it's a consistent process, and it's being done all the time. Our job given that viewpoint is to attract people to innovation teams, train them, define innovation processes, and start changing the culture of the organization to ensure it is ready to embrace innovation opportunities.

VB: Do you work with a company for a prolonged period of time to ensure innovation actually becomes a way of life, that it becomes business-as-usual?

Jeffrey Phillips: We do two things in this regard.

One is we try to kick off innovation projects that are short-term in nature so clients start to see immediate benefit of the things we're talking about.

The other thing we do is begin to implement longer-term change because, when you talk about defining and changing processes and corporate culture, you're talking about things that take longer to accomplish and are less relevant in terms of immediate benefit. They take longer to change but they have more benefit over time.

So we often run in parallel two types of projects. One is a short-term project focused on generating new products and services quickly, and another is a project focused on creating institutional change that will last over time.

VB: What led to your interest in innovation?

Jeffrey Phillips: Three of us founded OVO. We had been in one type of consulting service or another, and one of the things that struck us was that increasingly all of the interesting businesses were beginning to move overseas or they were being outsourced. We felt we were losing our creative edge in the U.S.

We thought it was necessary to try to re-invigorate a spirit of innovation in mid-sized and larger companies. There's so much value locked up in these companies but so little process and methodology for innovation. We felt it was important to unlock that value.

We're all fathers with young children. We felt that our children won't have nearly as many opportunities when they enter the work world as we did when we entered it unless this situation is changed.

VB: Is helping companies unlock their innovation potential your passion?

Jeffrey Phillips: My passion is helping mid- and larger-sized firms understand that the vast amount of knowledge, which walks around in the heads of their employees, provides the potential for a vast wealth of opportunities.

It has been said the vast amount of a company's asset walks out the door every day at 5 o'clock. I believe most companies undervalue the insight, imagination, intelligence, and ideas walking around in their employee's heads. If we could unlock it we could create so much more value at any kind of corporation. This is what really drives us, and gives us our passion for innovation.

VB: It's also been said that after many employees walk out the door they demonstrate incredible innovation skills in their personal lives and volunteer work.

Jeffrey Phillips: I've always wondered how could organizations help people bring more of their own passions and interests to work.

It seems to me a lot of the people I encounter put in 8 or 9 hours at their job, leave work, and then have an interesting life. It should almost be the reverse. Why can't you bring your passions, insights, and ideas with you to work, and capitalize on them in the context of your job rather than feeling like your job is a place where you have to do very specific things that are locked down? Why are almost all of your interests and passions pursued elsewhere?

VB: Are business executives and middle managers hearing your key messages?

Jeffrey Phillips: I'm hoping they will, through our work at OVO Innovation, my writings, and opportunities like this interview.

My sense is that many are becoming acutely aware of the need for innovation, but there are many individuals and organizations that are only talking about innovation. One of the big challenges is there's no one clear method or process.

There are a lot of different ways of doing innovation, a lot of different types of innovation, and a lot of people who are talking about innovation. While they're becoming aware of innovation there are a lot of conflicting messages about how to become relentless innovators. They're trying to weed through these messages to find which ones will actually work for their specific circumstances.

VB: I was interested to read your article "Innovation Evaluation Framework: The Seven Cs Together." One of the significant challenges is to establish evaluation criteria to evaluate new ideas and move them to a new product or service. Do you have any advice?

Jeffrey Phillips: The way we typically work with a firm is to first ask what's the problem opportunity – the problem statement or the opportunity statement – that you're trying to address? What needs do your customers have, or what needs does your firm have that you're trying to fulfill? If we can define this then we can begin to understand these needs and opportunities in the context of their daily life or their daily work?

Using the understanding about the needs and opportunities we can begin to create a framework that says, 'Here's how we should evaluate an idea that has been presented'? We also use a framework which examines whether an idea is feasible. Can we build it or can someone else create it? Is it beneficial? Does a customer want it? Do they need it? Is it relevant in their lives?

The third key question is whether it can be profitable? Can we, or someone else, make money producing or doing it?

If you use those criteria effectively along with the seven components in our Seven C framework you will be well along the way. It's about understanding how relevant an idea is to a customer by looking at things like does this idea provide more choice and control? Is it compatible with other things in customers' lives? Does it spawn or sponsor a community of other people around it?

The seven C's are about the viability of an idea once it's generated.

[Vern's note: The seven C's which Jeffrey Phillips identifies are: Choice/control (Does the innovation offer the user more choice and control than what is currently available?), Convenience (Does the idea provide more convenience to the user, enough to make them change or reinforce their existing behavior?), Community (Does a broad market exist with an unmet or possibly unknown need?), Compatibility (Does the idea align tightly to existing technology and reinforce existing compatibility standards or does the concept create a new standard?), Completeness (What will it take to make the idea "complete" from a user's perspective?), Coolness (Does the idea create an "aha" moment for the consumer?), and Cost (Has the business considered the cost to the consumer and created a model that suggests the cost for the consumer is correct?)]

VB: Is it also important to communicate to the evaluators of innovation initiatives they should be biased toward a decision of 'yes we should pursue the idea' rather than 'no'?

Jeffrey Phillips: Our methodology isn't necessarily to get to 'yes' or 'no', but rather how to get to 'better'. If this is an idea and it's not working, how do we make it work? If it's an idea and it is working, can we make it better? So as evaluators we're not trying to get to 'yes' or 'no' so much as asking how can we make this idea better?

The goal isn't to shoot down ideas so much as to say, "Here's why it won't work but here's how the idea will work if we change it." Sometimes what you will discover in the evaluation process is the idea has been changed in such a way it no longer meets our original goals and expectations, so the question then is can we use it in some other way or do we need to go back to the drawing board?

VB: Do you have any final advice about what works and what doesn't in relation to 'relentless innovation'?

Jeffrey Phillips: The most important thing is what we like to think of as a culture of innovation. Sometimes I'll call it an atmosphere; I'm not really sure what the right term, gestalt, or exactly what it is but you know it when you see it. You know it when you go into an organization where people are saying, "I like this idea and here's how we can make it better" as opposed to, "We've heard that idea before, and it didn't work last time."

In our experience so much of this is about the perspectives and mind-sets of an organization. If you could start anywhere, if you could fix only one thing, try to create more passion, interest, and excitement about innovation. Create a culture that embraces innovation rather than denies it. If you can do those things you will have creative people, and you'll create processes that will allow you to become more innovative.

VB: Are there any questions I didn't ask but should have?

Jeffrey Phillips: One area we haven't talked about which I think is really interesting is the idea of Open Innovation. There's increasingly more Open Innovation initiatives occurring, and I'm reading a lot about it. There's both a benefit and a caution I want to leave you with.

The benefit is there are far more people and far more intelligence outside your organization than inside your organization. This means, therefore, there are probably more ideas and more good ideas outside your organization than inside which are relevant to your business.

The cautionary tale is that many people are beginning to argue that everyone should be an open innovator. Eventually anyone who is trying to do innovation will need to be open but the challenge of being open is that you're going to receive more and more ideas from more and more people. It also layers on the question of intellectual property – whose idea is this? Is it an original idea?

While there's a lot of market discussion right now about Open Innovation the first thing most organizations should do is become good at doing innovation internally. Then they can begin to stick their toes into the Open Innovation marketplace, and slowly begin to roll it out.

Eventually we won't talk about Open Innovation because everything will be open innovation. Every firm will have some aspect of open innovation. But if you're just starting, or if you're just beginning to get started, first make sure your internal innovation capabilities are strong.

VB: Walk before you run.

Jeffrey Phillips: Yes, but get to the state of running and becoming a Relentless Innovator.

Author Jeffrey Phillips provides useful advice about why innovation must become a core competency within organizations. He not only explains 'why,' he gives much useful advice about what needs to be done within an organization for it to become a relentless innovator.

Relentless innovators have established an innovation business-as-usual operating model and ensure they have well-trained employees who are given the necessary tools and processes to ensure this model is sustained. Shifting from efficiency business-as-usual to innovation business-as-usual is the key to consistent innovation success.

Jeffrey Phillips also provides useful advice related to Open Innovation. For example:
"Open innovation doesn't eliminate the need for well-understood and well-defined innovation processes within a business, but it can widen the scope and range of ideas that are generated and assist with market validation, prototyping, and other innovation-related tasks. With an engaged customer base, open innovation can create many ideas in a short period of time, and provide some sense of the enthusiasm behind the ideas, reducing the evaluation time and risks of choosing the "wrong" idea." (Page 152, Relentless Innovation)

Jeffrey Phillips' Bio:
Jeffrey Phillips is a senior consultant for OVO Innovation, and is located in Raleigh, North Carolina.

He has served as VP of Marketing and Sales, Strategic Marketing Manager, Consulting Manager and various other positions at firms such as Texas Instruments, Price Waterhouse, Clarkston Consulting, iSeg Technologies, and QlikTech. He received his undergraduate degree from the University of Virginia, concentrating in Systems Engineering, and his MBA from the University of Texas at Austin, concentrating in Marketing.

Jeffrey Phillips is the author of Relentless Innovation: What Works, What Doesn't – and What that Means for Your Business (2012) and Make Us More Innovative: Critical Factors for Innovation Success (2008). He also has a blog titled "Innovate on Purpose" which provides insights and perspectives into innovation methods, tools, and challenges.

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