The Front End of Innovation 2006


Summaries from the 2006 conference are included below.

Renee Mauborgne, Blue Ocean Strategy

Claudia Kotchka, Design Evangelist, Proctor & Gamble

Clayton Christensen, Creating Products That Do the Job

Terry Jones, Innovation in a Wired World

Burt Rutan, Scaled Composites, SpaceShipOne

Evan Schwartz, Burt Rutan, Rodney Brooks, The Inventors Forum

Eric Von Hippel, Democratizing Innovation

Rob Spencer, Pfizer Global Research & Development


Front End of Innovation 2007

Front End of Innovation - Europe 2008 



Bussiness Week Inside Innovation features Claudia Kotchka

Bruce Nussbaum, Business Week assistant managing editor in charge of the magazine’s innovation and design coverage and online counterpart, NussbaumOnDesign has just launched a new quarterly titled Inside Innovation. In the first issue, he features 5 innovators. Claudia Kotchka: The mash-up artist is among them. A charming piece with fun photography of Claudia at work.


Rob Spencer, Pfizer Global Research & Development

Learning new tricks. Innovation architecture.

Summary from The Front End of Innovation Conference, May 2006.

We may be facing another Malthusian crisis in health care. Thomas Malthus predicted famine based on economics, demographics and agriculture.  He was wrong, however, because he didn’t anticipate the innovations in agriculture would help supply exceed demand

Health care is in the crosshairs of a double whammy, making innovation absolutely essential.
Whammy #1:  The first staggering trend is the aging population. The boomer age spike about to hit, creating a population bubble in the 65+ bracket. The rising cost of healthcare historically paralleled age demographic of contributors. What will the impact be? In 1990, 10% of the population was 75+. By 2020, 20% of the population will be 75+. The disproportionate number of older people will place huge pressure on the system.

Whammy #2:. On average, half of our health care expenditures occur in the last two years of life. How do we solve that problem, continuing to keep healthcare affordable?

Historically, great promises have fizzled. Examples include the miracles of biotech and open-ended profit from the dot-com boom.

Teamwork is essential to solving the problems. A chess grand master has about 50,000 chunks of knowledge on demand. Our problems are for more complex than that. Therefore, we must work, in teams, or circles of trust. The average human has about 150 trusted people within his/her “grooming circle.”  The premise is that circles of trust build slowly and are limited in size. More than half are friends, relatives. A few are business associates. Effective group size is really only about 2-3.

Your team is too small to have the knowledge it needs. So, collaboration outside the core group is necessary. The challenge is sharing information intentionally to the best people, at the right time.

Linus Pauling observed that “The best way to have a good idea is to have lots of ideas.” Pfizer’s goal was to find a way to generate ideas at large scale. The format was not to work in large groups.

Frans Johansson, author of The Medici Effect, says that individuals, working alone, produce more and higher quality ideas than groups. Group brainstorming is note very effective.  

Play to the engaged individuals and emphasize solving real business problems.

Reference: First, Break All the Rules by Marcus Buckingham

Do not “complexify” your goals. Keep it simple. No new policies, initiatives, buzzwords. Make the focus all about the core business. Several observations:
1. Formulation of a problem is more important than its solution.
2. Play to the organization’s strengths by finding serious, difficult problems to solve.
3. Match problem to with business owner.
4. The importance of action: Just do something. Don’t wait for the perfect plan or you’ll never get anywhere. 5. Ideation is not enough. You must do a convergence where all ideas are reviewed, sorted, combined, prioritized and allocated to follow up goals. .

Reference: The Widsom of Crowds by James Surowiecki

Reference: Genius by James Gleick

Dr. Richard Feynman. Most creative of his generation. He was constantly, efficiently, generating and evaluating ideas. Both are necessary.

He continuously performed divergence and convergence on everything he thought about.

That is the secret to successful innovation: Massively parallel evaluation, decision making, continuously.


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Eric Von Hippel, MIT Sloan School of Management

Democratizing Innovation: The increasing role of user communities

Summary from The Front End of Innovation Conference, May 2006.

Users are taking over many of the functions at the fuzzy front end of innovation. Through networked communities, committed and passionate people share their ideas for improvements to existing, or completely new products, generating fresh innovations. This process is self filtering, through trial, error, feedback and revision. Innovations reflect the hands on desires and needs of the users. These are often lead users, the early adopters who voluntarily provide knowledge, opinions and designs.

At the very early stages of development, every product is an information product. Communities of interest are where information is recorded and refined. These lead users generally foreshadow the greater market need, which is why their contribution is vitally important to manufacturers who are wise enough to observe and listen. Lead users also provide benefit where market demand is small or unclear.  

Citing the kite surfing industry as a supreme example, Von Hippel demonstrated the cycle of user driven innovation. Extreme sports excel in user product improvements. Approximately 37% of innovations in equipment design come from users. When early designs for a combination surf board and harnessed parafoil were combined to create a “kite board,” windsurfers were the first adopters. Communicating through online communities, they began posting highly sophisticated designs and CAD generated templates. These were downloaded by users who then hired local sail makers cut and stitch. The designs were superior to those of the manufacturers. Users provided ideas, testing, discussion and refinements. Manufacturers, bearing little risk, participated as the designs evolved, then purchased designs that the market had already proven to be successful.

That is a pattern seen in many industries. Users provide the need and imagination. Manufacturers provide the expertise to refine the production process and distribute. Most manufacturers do not want small, niche innovations, but watch for potential idea that match their capabilities and markets.

User innovations frequently combine elements readily available. Manufacturers often fail to recognize these as viable products initially. But, once the operating principles and value/use established, most of the hard work is done.

Another example cited was the Camelbak Hydration System developed by a bicycle racer who was frustrated with the cumbersome water battle holder attached to the bike frame. A paramedic by profession, he gathered familiar elements, IV bags and tubes, and sewed them to a shirt. Further refinements replaced the shirt with a modified back pack which also improved the biker’s balance. Constant hydration became a seamless activity. This is an example of functional novelty.

When Lego released Mindstorms, a robot building kit, they targeted an 8-13 year-old market. Within 3 weeks of introduction, 900 users (many adults) had hacked solutions, overwhelming the 5-10 Lego engineers with ideas which far outperformed the original product. Initially unsure whether to sue or integrate, Lego wisely decided to embrace the user community. It has become a vital part of a networked team of zealots for Mindstorms.

User innovation communities range widely from food, to paintball to mountain biking. Where manufacturers recognize opportunity, they acquire the designs. When markets appear as niches, new companies grow directly from the innovator groups. There are many models for the relationships between innovation communities and manufacturers. The models are not limited to manufacturing, but also extend into services.

With far more information than time, Von Hippel was forced to summarize quickly. No doubt he could have mesmerized the audience for another hour with his examples. In the end, communities and the information they share comprise the fuzzy front end innovation. How companies participate and the kinds of deals they make with the innovators are as varied as the products and services involved. But the voice of the customer is alive and well. In a symbiotic relationship of information and shared expertise, customers and companies can benefit from creative alliances.

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Inventors Forum: The Essence of Thinking Different

Summary from The Front End of Innovation Conference, May 2006.

Moderator: Evan Schwartz, Walker Digital Laboratories and Author of Juice: The Creative Fuel That Drives World-Class Inventors


Rodney Brooks, iRobot Corp and Director of MIT Computer Science and Artificial Intelligence Laboratory

Burt Rutan, SpaceShipOne and Applied Composites


Evan: There is a commonality between storytelling and innovation. There are 12 steps in the epic storytelling structure of the hero’s journey, as defined by Joseph Campbell in his book Hero of a Thousand Faces.

These 12 steps define the plot of many epic stories, and also the plot of many films: The Wizard of Oz, Star Wars, October Sky and many others.

Burt Rutan lived in an ordinary world. At a young age, he was called to adventure by the appearance of a formation of planes overhead. In October, the young boy, Jake, sees Sputnik in the evening sky and is inspired to venture skyward. Both are true stories, and typical, according to Schwartz, of many innovators. These are heroes who must pass through the many stages of the epic journey to achieve recognition and success. This pattern repeated many times when compared to the lives of innovators throughout history.

Schwartz’s role is to tell the story of innovation’s path, and the people who drive it.

Panelist Rodney Brooks was inspired to pursue explorations of artificial intelligence after seeing the Stanley Kubrick film 2001 where Hal, the intelligent computer, called the shots.

Rodney Brooks defined iRobot ’s mission: Build cool stuff. Deliver great products. Make money. Have fun. Change the world. That mission has evolved from his invention of “trash can” robots at MIT, to droids based on insect models, to humanoid bots in the 90s, to planetary rovers. His view is that an aging global population should be more productive in the future to keep society working. When robots can handle routing tasks, people are freed to do more important things.

The Discussion:

Evan: What gets you talking about a problem? How do you get a plane to market so fast? What’s the driver?

Burt: It’s an extension of the model airplane hobby that forced him to create rather than buy balsa to enter competition. That need was the source of his innovation – first to build a model that would fly, then to build one he could fly in. He worked hard. Eventually one of the aerospace primes recognized and hired him for his agility. His team could build in months what took Northrup years.

Rodney: Focus on innovation while other, bigger companies focus on production. It’s hard to be innovation and efficient at production.

Burt: We tried to keep them separate - set up companies separately. The disciplines represent different cultures. Repetitive work and creative work attracts different people.

Evan: How do you pick the projects you want to work on?

Rodney: We try to focus where the others aren’t. We started with many more projects but now focus on a few.
Burt: We do 6-12 programs at a time. Teams stay small. We build team from specialists. A stress analyst will work same job on several teams concurrently.

Evan: How important is competition to innovation. Storytelling has the protagonist and antagonist. What are you working against? How important is to it be driven by competition?

Burt: We were fortunate enough to have real competition on X Prize. Others were working in wrong technologies.

Rodney: It was clear that NASA was the “them.”

Burt: Government may call what they do research, but with so many pressures, economic, technical failures, they paint themselves in a corner where they cannot do research. No ne planned for next decade.

Rodney: My research group has 15. It’s us against traditional world, thumbing noses at the rest. It’s a little different at iRobot. We don’t have a counterpoint to be going against. It’s a different ocean. We explore mountains no one has ever done before.

Evan: You reframe the problem and see what no one else sees. You had a different approach.

Rodney: We look at what everyone else is doing, and don’t do it. Traditional planning is to look at where a robot wants to go. We reframed it to go where the stuff isn’t. It makes computation simple. An assumption is that “walking insect” robots shouldn’t fall done. But, insects do fall down all the time. They aren’t great walkers. This strategy works for small robots. And it negates the thing that everyone assumes is true.

Evan: Do you ever go in a completely opposite direction?

Burt: We question if system is even needed. Groups of engineers have skills that let them develop complex systems. Unsupervised, they will come up with the most complex thing possible because they get joy from building something only then can figure out.

Rodney: Our goal is not to make something complicated.

Burt: But to totally eliminate an entire system.

Evan: When you’re introducing a product, how do you decide what story to tell? With Roombot, for example, why take the robot concept out of the marketing?

Rodney: We made some mistakes along the way. One may have been listening to marketing people too much. We later changed strategy to celebrate the robot. This happens often in new product space. What do you compare it to? Robots used to be like Rosey, The Jetsons, Terminator. Since then we have realized people are willing to accept them and that robots are worth having.

Evan: What is the story you’re trying to tell with privately funded space flight?

Burt: We don’t need to manage excitement. It happens. I don’t think there is such a thing as getting too excited. We could be eliminating the need for transportation with the Internet. Virtual reality could eliminate all business travel.

Evan: What about joyrides for billionaires?

Burt: We want to move beyond comfortable environments and go somewhere dangerous. But, only the courageous went. The weak died along the way. Colonizers were selected for courage and strength. Look at how quickly humans populated the entire world when boats and navigation were still relatively crude.

Evan: Do we need to go to next frontier to survive?

Burt: The only time we’re really threatened is during a vast die off. It’s solved by colonizing to deflect threats. I think we’re passing through a transition. I think allegiance to politics and religion has nothing to do with our country or geography. (This suggests that Friedman’s concept that the world is flat applies on a much broader level.)

Evan: Rodney, you mentioned the personal computer revolution earlier. How does that apply to robotics? Is that a strategy?

Rodney: Personal robots can be a network distributed thing - personal empowerment through computation. Robotics is headed the right direction.

Audience: How do you keep education exciting?
Burt: Kids excited by reality. We don’t give them enough credit. Classrooms are at a low baud rate where we can’t teach them. It doesn’t work well. What they see out side of classroom inspires them. There’s no greatness in classroom environment. We’ll still have classrooms. We still have Greyhound busses. But the failure is obvious. There are ways of vastly improving the way to transfer information to someone’s brain than to have sit in a 30+ room while teacher deals with lowest denominator. It’s just not effective. Kids see and are inspired by what can and is happening.

Rodney: I agree with Burt. MIT is more inclined toward project management teaching. All classes are available throughout the world. Students go online and read modules when needed. Courses are about teams building things. Learning is self motivated, driven by team.

Audience: Comment on creative effort of young and old people on a team. Is age irrelevant?

Burt: I don’t look at age. I look for passion. What someone does on own time is revealing. I don’t look at grades. I look at hobbies and interests. Career test pilot, Mike Melville (65-year old pilot of SpaceShipOne), was too old to fly commercial jets, but he flies 3.5 g’s to mach 3. He’s also rides bike few hundred miles on a weekend. He’s not old. Age is not relevant.

Audience: Is there a significant difference between management and leadership? What is role for leadership?

Rodney: Leaders have to take risks. Push the envelope. At same time, the must exert some sort of quality control. Successful innovative leaps come when faculty lead and guide, but let the students do the exploration.

Burt: In a team, anyone can be creative. Each person on the team is empowered to lead when the responsibility requires leadership.

Evan: Storytelling chronicles exciting incidents. It causes dreams to be born. What’s the current dream? What is your current long term vision?

Burt: What can I seen in my lifetime? As you get older, this haunts you. What is possible? How much fun can you possibly have? I’ve got 40-45 years left. I’d like to see commercial flights take people to the moon. Once I set as goal, I can easily focus on the milestones to achieve it. I’m also fascinated by the potential of children.

Rodney: Grandchildren.

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Burt Rutan, SpaceShip One, Scaled Composites

Breakthroughs: The Product of Innovators

Summary from The Front End of Innovation Conference, May 2006.

Burt Rutan has a young imagination, which may be why much of his presentation focused on the importance of how we nurture imagination in kids today. Rutan headed the team which created the winning entry for the X Prize, a $10 million check for the first group that could put a privately funded ship into space. SpaceShipOne, the innovative design, was funded by Paul Allen. Rutan and Allen shared the belief that the accomplishment would inspire new interest in engineering. The craft was added to the Smithsonian Air and Space Museum’s “Milestones Gallery” of notable aircraft in March of 2005. It was Rutan’s 5th design to be added to the collection. That, in itself, is a milestone.

At the dedication, Rutan offered a list of the most influential people in aviation. He noted that most of the people on his list were inspired as kids by the accomplishments of aviators like Lindbergh.

Many of the accomplishments of the Mercury, Gemini and Apollo teams were the work of those same people. He identified a series of innovations like 7 successful launch systems developed in 5 years. Apollo 8, the first mission to go to the moon, was the first launch of a Saturn 5 booster. High political pressure, national pride and competitive spirit fueled these significant accomplishments.

Looking ahead, he sees higher speed sub orbital travel, but these innovations will not come from NASA. The private sector will be the source of the next great accomplishments.

Retuning to his theme of inspiration at a young age as the way to develop top design and engineering talent, he warned that kids need more challenges. Prefab kits and packaged experiences require no involvement or creativity from kids. That’s a flaw in the system that needs improvement. Playfulness is a valuable trait for innovators. He noted computer games like the ones available for the early Apple computers as one reason desktop computing reached rapid acceptance.

While he sees space flight as too dangerous for the general public, it’s clear that his appetite for speed, new heights, new challenges and new firsts is still unfulfilled. The leader of a team that has produced of 40 different designs, Rutan is still a kid at heart with accomplishments that dwarf all other designers in his industry.

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Terry Jones, Former President and CEO of

Innovation, Leadership and Success in the Wired World

Summary from The Front End of Innovation Conference, May 2006.

Terry Jones put the scope of online travel into perspective as being larger than the next 4 categories, representing $3.3 billion in bookings with 34 million participants. The acceptance of online bookings was neither fast nor painless. He cited the “Dopeler Effect,” defined as: Stupid ideas seem smarter when they come rapidly. In the early days of Web-based interactions, trial and error created more errors than successes.
Innovation is the introduction of something new…not necessarily something successful. Jones provided some perspective: The average age of newspaper readers is 54. Today, 20% of college students began computing between ages 5 and 8. Younger people get news from TV, cell phones and other online sources. In a mashup of experiences, we purchase food at gas stations, we bank at grocery stores, we take photos with phones and can shop for almost everything in our PJs.
Speed and convenience define the consumer expectation. Web-enabled sales solve time-starved lifestyles. Pricing is transparent. Consumers are smart. Their choice is instantaneous. Their experiences are shared through networked recommendations.
So, why is innovation critical?
From direct experience, Jones shared how American Airlines had no customer loyalty and no real differentiation. AA Advantage was created to correct both faults.
Lessons learned: The innovation required both a top-down and bottom-up culture to make it happen. In a bureaucratic environment with no VCs to offer ideas or challenge thinking, the change was not easy. It required a separate organization, free from rules and the diverse loyalties of committees and multiple agendas.
The location of the new organization was located off campus where independent thinking was easier to achieve. The goal was to create zeal, circumvent the inertia of historic expertise. Funding and support has to come from high up in the organization.
By replicating the “chain of pain” experienced in real world travel transactions, the new Web-based solution had to take advantage of, or invent new online functionality to provide broad customer vision. The team had to innovate page by page to display all flights, all fares, all alternate options to let customers decide and purchase with reassurances that the transaction was real and confirmed.
The process was a continuous cycle of experimentation, measurement, failure and response. In the end, you innovate around what people are already doing. (This theme was echoed in a number of presentations from this event.)
In a wired world, IT, Marketing and Retail all have to play together to create a successful experience. The experience is not isolated, but should be bundled into a “dynamic package” where the information is organized around the need.
Jones cited the REI Website. Instead of searching for individual items for ice climbing gear, you select a pull down for “ice climbing” to see all related products. Jones advises that all channels have to work together.  “Open all the doors all the time and make all work together.”
He predicts that immersive worlds, extremely popular in gaming, will become the next generation experience where customer browse a three dimensional store online.
Innovation is the way to remain competitive. The way to avoid being marginalized is to create your own margins.

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Clayton Christensen - Creating Products That DoThe Job

Summary from The Front End of Innovation Conference, May 2006.

Customers hire a product to do a job. Products find their market only when they help customers do that job. They need something specific from the product. If it fulfills the need, it’s good. If not, the brand is tainted for a long time.

Segmentation of product categories and customer categories reveal very different views of an opportunity. The analysis can be deceiving. The ultimate question of usefulness or appropriateness belongs to the customer, not the product manager.

Identifying the job can redefine who the competition really is. Positioning against the correct competitor may create a unique set of features, greater differentiation and longer life cycle.

Using the Blackberry as an example, Christensen suggested that traditional category segmentation thinking would confine the product as wireless handheld devices. It competes with Palm, Nokia, Sony, and HP products. Each has a long list of features with many similarities. There is little differentiation based on that view. A demographic view might reveal that Blackberries have high penetration among mobile sales people. That redefines the job the device is hired to do. If that device provided access to the corporate resources for sales and customer data, or direct access to travel information, industry news feeds and summaries, simple games or activities to fill time productively while waiting for planes and trains, it would be uniquely different form traditionally defined competitors and provide specific value for the target demographic.

Market segmentation by category reveals little valuable information. Innovation in the dark generates multiple features with no real benefit to the core user, complicates the device, confuses or stresses the user who doesn’t understand, need or care to pay for most of the features.

Innovation, by definition, precedes market acceptance. In Christensen’s view, consumers change habits or learn new skills associated with new products only when it makes the job they need to do easier. The digital camera system is another example. An innovative early feature was a feature to edit out “red eye.” Additional features included online photo sorting, storage, sharing and automated distribution. After reviewing habits of traditional photographic print buyers, the job most photos are hired to do is to share with a friend or relative. Few people use the edit features. Everyone uses the “attach” function to send copies to others.

The focus becomes the foundation for what he termed a “purpose brand” where the name of the device helps define its purpose. A purpose brand, like a Walkman, identifies the job it is designed to do. In this example, it makes music mobile in a form the boom box was not able to do.

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Claudia Kotchka, Design Evangelist, Procter & Gamble Company

Summary from The Front End of Innovation Conference, May 2006.

Business people don’t need to understand designers better, but to adopt design principles into their problem solving approach.

Design Thinking is a different method of problem solving which stems from how designers manage the world. The core principles: Every project is an opportunity for invention. Start differently to end differently. Leave the world better than you found it.

Designers at Proctor & Gamble historically were called at the end of the project for superficial decoration. Design thinking puts designers and several other critical personas together at the inception of the project. The power of design is leveraged at the beginning and all through the development.

Levels of Design Understanding:

1. Clueless – The TV remote is an example. It’s not intuitive or friendly, from packaging to end product.

2. Style – Make things look good. Communicate brand or emotional connection.

3. Function & Form – Make things work better. Examples: The entire experience from hotel reservation through check-in, stay and checkout.

4. Problem Solving/Framing – Find new business opportunities or entire new industries by asking different questions. Design for the user experience, not for competitive features and benefits.

Claudia Kotchka’s Principles of Design Thinking:

1. Make it user centric through a deep understanding of user habits, need – physical and emotional.

2. Make it collaborative. Never work alone. There is no one right answer, so it’s not cheating to share information. A mix of skills are essential. (See  Ten Faces of Innovation

3. Challenge Mental Models. Ask different questions. The problem will look different, requiring a different type of solution.

4. Abductive. Start with prototype solution and test it. Learn backwards and logic the way to explain the result.

5. Experimental. Designers prototype with visual and tangible models. It’s easier to discuss something you can see. Prototyping starts the dialogue. It’s not the solutions, but first of a continuous series, if possible solutions. The second version can be radically different.

Example of design thinking:

Situation: The Mr. Clean brand represents powerful cleaning products, but not often used outside the kitchen. The challenge was to get Mr. Clean into the bathroom.

The traditional analytical process explores qualitative data: How often is the bathroom is cleaned. What are specific dirt problems are encountered? Watch consumers clean. Determine their thoughts on time, effectiveness of products and define who does the task. Brainstorming solutions identifies multiple solutions. Concept test gets reactions and advances the discussion. Most popular options determine the formula for testing. Consumers test the new products and compare. A business case, packaging and launch strategies are created.

The design thinking process applied to the same problem begins with creation of an integrated team: Marketers, Human Factor Expert, Designers, Engineer - variety plus diversity. P&G partnered with IDEO, and immediately reframes the question: How do we give people Saturday morning back? How can we reinvent bathroom cleaning?

Next steps include observing extreme users – professional cleaners and bachelors. How to different groups approach the problem? This reveals a variety of new possibilities.

Ideas are quickly converted to visuals and discuss tangible images collaboratively. Next, convert several ideas to prototypes. Test these with users. Involve users in the dialogue. What do they think, like, hate? Create multiple revisions and cycle through consumer test and feedback to close in on a workable solution.

When customers don’t want to give the prototypes back, you know you’re getting close.

Example Result: The final format was Mr. Clean MagicReach, radically different from the bottled product they started with.

User centered. Extreme users for inspiration. Interate with users all the way through.

Collaborative team. Everyone contributes from different expertise.

Challenge mental models. Assume nothing. Look at the higher problem concept.

Abductive thinking. Generate solutons. What if?

Prototypes and Iterate. Experimentaton

These principles work in service industries, products,

Prototype with audio, video, dance, acting, whatever works.

Keys to success:

1. Culture fit. Can the organization with the ambiguity of a design thinking approach? Designers love ambiguity, collaborative, wall-free work space. It can be messy. Let accidents happen. Let things flow.

2. Are key stakeholders willing to engage? It’s not about the design. It’s about the process.

3. The process is not linear. Chaos generates prototypes which evolve into a design. It appears that there is no process. Be prepared.

4. It’s requires long term commitment. Resources and support are critical. Don’t constrain with demands. Let the process grow solutions.

Parting notes: Learn more

1. Help senior leaders understand design thinking. Spend a day at a design school. Understand how non-linear processes work. Get comfortable the culture of creativity. Understand how to reframe questions. It’s not engineering school.

2. Read material outside your real. Examples: The Art of Innovation, Creating Breakthrough Products, Mental floss, Print and Communication Arts magazines.

3. Practice reverse mentoring. Take a field trip with a designer. Learn to see what they see. Listen to what they observe.

4. Attend a conferences outside your field to open up a new dialogue.

5. Finally: Take the design thinking principles and just try it!

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Renee Mauborgne, Co-Author of Blue Ocean Strategy

Summary from The Front End of Innovation Conference, May 2006.

I had an opportunity to see Ms. Mauborgne’s co-author, W. Chan Kim, when he spoke in New York City last December. Their perspectives on the research are uniquely different. They agree on their interpretation and conclusions, but their examples and deliveries are refreshingly different.

Summary: The primary concept is simple: Blue Oceans represent unknown, uncreated market space. They become wide open opportunities once discovered and executed. Red Oceans, on the other hand, represent known markets. These are highly competitive, segmented, bloody, shark-infested waters with shrinking opportunities. Throughout history, markets are born as blue oceans and evolve to red through competition, commoditization and over supply. The goals of a blue ocean strategy:

Create uncontested space

Make competition irrelevant

Create and capture new demand

Break the value-cost trade-off

Align your entire system in pursuit of low cost, high margin

Red ocean strategies are self focused, obsessed with their organization’s internal perception of the industry condition, size of opportunities, competition, consumers and timing.

Blue oceans are about creating new opportunities, not creating new varieties of existing products, services or processes. Patterns can be identified and applied to generate innovative thinking. Based on research that included hotels, cinema, retail, airline, industry, computer, home construction, software, cosmetics, steel, auto and energy, common paths were identified for blue ocean strategies.

Innovation comes from seeing across industries, not competing within them. Using Southwest Airlines as one example, Mauborgne cited how they recreated the experience/expectation of auto travel in the air. Expectations included speed, low cost and high convenience. These are the points that Southwest focused on to differentiate their service and break away from the pack. In the process, a number of services that were industry standard were revealed to be unnecessary or a willing trade-off for a large number of fliers.

A second example cited was Yellow Tail wine. Increasing competition for wine retail (including Wal Mart and CostCo) has driven margins down. Eight players dominated a market of 4000 competitors. The market has segmented into lower cost and higher cost wines with a gap in the middle. Rather than fighting for the gap by taking share from the high and low, Yellow Tail focused on beer drinkers. Careful testing identified a segment of this huge demographic as occasional wine buyers who are often intimidated when ordering wine in restaurants. Priced between the high and low, the appeal functioned on multiple levels. With simple labeling, an easy to pronounce name, the slightly fruitier product reached the CostCo floor where salespeople were dressed in Yellow Tail shirts. They recommended the product as “easy to drink” to wine department browsers. The results: Year 2, Yellow Tail became the #2 import. By year 3, it outsold California's top wine.

Four questions to ask when evaluating strategies:

1. What can you eliminate? Features, services, components? As much as 30-40% of features may be irrelevant.

2. What can you reduce or simplify? We make things complex because the ability exists. But unnecessary complexity creates stress, not value or loyalty.

3. What can you create to differentiate?

4. How can you raise the price?

Innovation is essential for organizations that find themselves on a path where growing competition drives price and profit down. When you find yourself here, it’s time to wake up and overcome the inertia.

In the end, innovation is not about R&D, but about thinking. See things differently. Then use that insight to drive strategy, development and execution.

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