Innovation is the hottest buzzword in today's organizations. But are the enormous efforts invested in it yielding results? And if not, how can organizations make innovation work? Read this article and learn how can innovation benefit your organization, while using the Lean Startup.
Innovation is one of the hottest buzzwords, for some years now.
Innovation is "sexy". We are living in an era of unprecedented, blazing fast introductions of new technologies and innovations. Not only that, but stakeholders and stock-holders are expecting companies and managers to "do" innovation. Most companies are doing something around this theme (some more, some less), and declaring innovation as a high priority.
But after some years, questions arise, mainly around the effectiveness of the efforts invested in promoting innovation: are these efforts yielding results? If not, what are the reasons, and how can we make innovation really work?
To answer these questions, let's first explore the reasons for doing innovation.
There are multiple drives here, which can be categorized per the type of the innovation. Note: while there are many ways in which we can categorize innovation, and many terms that may be used in this context (sometimes inconsistently), we'll use a simple, short categories definition, as follows:
1. Process Improvement: The goal here is to get better performance in executing a process, possibly by re-designing it or finding some technological improvements and creating productivity gains. This may lead to cost and time savings.
2. Incremental Innovation: The company tries to increase its competitiveness in its own, market by improving its current products or services vs. the competitive products existing in the market This may enable the company to keep or strengthen its competitive position in its current market, but only for the near future.
3. Breakthrough Innovation: The innovation effort is externally geared toward customers, similar to the second innovation type. Only this time, it's for creating new growth engines that can be based on a new product, service or business model.
Fig. 1: Innovation Types
While all types of innovations may be beneficial, Breakthrough Innovation is the most strategic one, and its importance in recent years has grown dramatically. The reason for this is the acceleration in the pace of change, where companies feel less secure of their ability to survive in the long term without creating new growth engines. Companies that cannot come up with new growth engines fast enough miss out on big market opportunities, which are taken by others, more nimble ones.
Notable examples of companies missing out on Breakthrough Innovation are Nokia (vs. Apple's IPhone), Kodak (missing the digital photography revolution) and Blockbuster (losing the market to Netflix). All of them were highly successful companies that could not bring to market breakthrough innovations, while others have moved fast and made it.
Of course, there are severe risks for failing in the process of developing Breakthrough Innovation. On the other side, winners gain a tremendous advantage and all the fame and fortune that go with it.
This seems like a strong motivation for managers to make Breakthrough Innovation a priority, but here comes the catch: doing it is very risky and takes time. Hence, Management is required to allocate resources for some projects which may or may not yield some great outcome in the longer term.
It's like investing in a startup: you don't know if it's going to be successful, and if yes, when is the time you'll be able to get your Return on Investment (ROI). It requires a longer-term vision and commitment, not just seeing the next quarter or year. Unfortunately, most managers are busy with burning issues, focusing on shorter term efforts that can yield benefits within their term at the job – missing the longer term horizon.
But, since the business environment of the company (customers, shareholders, analysts, etc.) still wants to see strong Breakthrough Innovation, something must be done. Then the company starts with "innovation theater" activities, such as faking real innovation by creating a lot of buzz, ongoing discussions of innovation both inside and outside the company, and maybe having some training and ideation sessions.
But no real breakthrough innovation is even moving beyond the first step of the "innovation funnel". This funnel starts with many ideas and ends with a few, selected ones offered to the market. It has so many gates, and each is an opportunity for an executive to get rid of his risky breakthrough innovation initiative(s).
Still, let's assume Management is willing to take the risk and is really committed to creating growth engines. Now the company has a Strategic Process in which the executives will decide on which bold move to bet. This decision is made per some market research and theoretical business plan, which includes many critical, unproven hypothesis and a lot of intuition. Putting all the eggs in one basket, the company invests heavily in a dedicated team, develops the product, creates the marketing buzz, etc.
But since a breakthrough project is a risky new business, when the new product faces the market, there is a high probability that customers won't come or their flow will be scarce or much slower than expected. The project is defined as a catastrophic failure, the project manager and others fired, and the rest of the employees may not embrace any personal risk the next time Management says "we need innovation".
Some companies replace or augment the Strategy Process for taking innovation approval decisions through an employees' Crowd Sourcing process. This process may have some benefits, but it's still similar as the decision is taken without any or enough customers' validation, and delaying customers contact until the company has already over invested in the project.
How can managers go for the Breakthrough Innovation, while minimizing risks and moving fast? The Lean Startup may assist us.
The Lean Startup started as a concept and a methodology for startups, and has taken over the startups space worldwide as the standard management concept. But in recent years it is rapidly becoming the golden standard for corporate innovation (or intrapreneurship) space, with advocates such as General Electric, Intuit, Telefonica, Humana and many others.
The Lean Startup addresses corporate innovation on two levels: the innovation program management side (company level) and the individual project side. It pertains to innovation strategy, organizational structure, processes, Key Performance Indicators (KPIs), and more. It also provides a mindset and hands-on tools for managing early stage, internal corporate "startups".
In this short article, we can't get into a deep discussion of this methodology, but here are some important elements of Lean Startup:
1. Moving Fast: along with having an impressive vision for your startup, part of the Lean Startup methodology is moving super-fast, focusing first on finding customers that really care for the problem you want to solve for them (early adopters), learning from them, and then implementing your vision while taking into account the relevant insights.
2. Validation, Reduced Risks and Extreme Customer Focus: the Lean Startup process focus on deep understanding of potential customers, and gathers "evidence" from them before scaling up (even before developing the product). Thanks to the iterative nature of the process, we do not need to invest upfront, and as such, we reduce time, money and other resources in innovative projects. It allows a fast reduction of risks, avoiding a situation in which a company invests a lot of resources upfront in a project that is going to fail. This concept also enables starting many initiatives, very fast and with minimal resources, unlike the old process which puts all the idea-eggs in one basket.
3. Employee Empowerment: the Lean Startup suggests that each and every employee can become an "intrapreneur". The decisions for approving the idea or project would be based on evidence from customers as the main input. If the idea is rejected by customers, the intrapreneur will feel it's due to a potential issue inherent in it, and not due to the intrapreneur's fault, lacking colleagues' connections (Crowd Sourcing process), or due to wrong managerial judgment (Strategy Process case). This creates a situation in which in the future, the intrapreneurs will feel empowered to take risk and suggest bold, new ideas or join an innovation team. Employee confidence in the innovation process would be high, in this case.
Using the Lean Startup may be accompanied by various complementary methodologies, such as Design Thinking, a methodology with a strong focus on customer empathy, that can yield a much better process for making innovation work.
The Lean Startup is not limited to any specific industry or technology, and it has been implemented even in highly regulated industries such as banking and healthcare. For healthcare it's serving the USA NIH (National Institute of Health), and intrapreneurs in various sub domains and organizations across the healthcare value chain.
One example is a children's hospital in Dallas, which faced significant problems – health indicators in the community as a whole were getting worse, especially with regards to chronic conditions such as diabetes and asthma. The hospital's team iterated through several potential solutions, using innovation in order to find the right solution to their customers, and find the hospital's growth engines.
Another example is a famous one: the case of Humana, a healthcare insurance company that has implemented a Lean Startup based program called "FastStart" in order to foster innovation, improve customers' experience, create growth engines and improve the firm's competitiveness.
Humana's management started by asking themselves questions such as: "Are we consumer-centric enough?", "are we innovating?", "are we moving at a pace that our customers demand, in order to deliver a better experience for them?", and "how can we at Humana move faster?"
Then they began mapping customers' pain areas. They learned about the Lean Startup and based their program on this methodology, simultaneously employing Design Thinking, to develop an innovative program in the company.
Humana defined the program as follows: "'FastStart' is a customer-centered way of working that dramatically accelerates the speed and quality of new idea, product or experience." (Humana's "FastStart" Slideshare Presentation)
The Humana team came up with the following vision: "Humana’s Service Experience is so awesome that consumers could never imagine using another health & wellness partner".
Next, to make it happen, they proceeded with the following process:
After adopting the Lean Startup, Humana reported a shift in the its organizational culture. From an agenda that includes embedded thoughts, such as: "Design without the customer", "Serving the project", "Assuming we are right", "Think right", etc.; Humana's thinking transformed into a new, innovative kind:
With the Lean Startup based innovation program in place, Humana initiated employee education about innovation, the Lean Startup way. They executed a series of boot camps that taught their employees how to apply lean innovation methodology to their work and created a Consumer Experience Lab.
Today, Humana's Service Experience Lab serves as an incubator for employees' innovative ideas. In this incubator, they can come up with innovative, valuable ideas. This program includes projects which improve Humana's customer experience, thereby improving Humana's competitive positioning. The program created $10 million in new value for the organization within the first year.
The way projects are managed within the program defines Humana's "leap of faith assumptions" (the most critical, least-known assumptions that must be true for the solution to be effective). They are implemented in a flow of rapid experimentation leading to failing fast, learning fast, and quickly getting to the right solution, then making the solution valuable – and improving customer service.
One of the projects included in Humana's FastStart program, for example, is the use of Artificial Intelligence (AI) to enhance customer service. The project was formed to address a challenge: customers expect efficient, empathetic, and high-quality service, but customer care specialists miss emotions, intentions, and social nuances during phone calls.
Using the Lean Startup methodology, practicing customer empathy and employing AI, Humana went through fast experimentation until it achieved the optimal solution: an in-call guidance system for agents, based on behavioral signals, which delivers immediate, personalized recommendations to drive better customer interactions. It also provides instant customer experience insights – a live customer experience helps identify actionable best practices and trends, enabling Management to assess and measure performance like never before.
The results included a 28% increase in Net Promoter Score (NPS) rate, which means customers are more likely to recommend Humana to friends and family, shortening the average agent's service handling time, much higher employee engagement, and more.
Executives today recognize the need to get out of the "innovation theatre" to enforce real innovation, focusing on impactful breakthrough innovations (while not neglecting the other types of innovation). Today, there's an opportunity to leverage the Lean Startup to address this need – faster, with less risk and more results.
If you are in a position to do so, you might start small with a few projects, with part time employees running their own initial Lean Startup process with their ideas. If this goes well, then move up to larger endeavors, such as having a corporate incubator. If it all goes well, you could begin extending the pilot to a cross organization innovation strategy and practice.
But just do it – go to the playground and start experiment, fast. Don't be late with innovation, or someone else will innovate before you!
By Rami Gazit, Tefen Professional Associate and a Lean Innovation Expert
Multidisciplinary Performance Improvement Expert