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Return on ideas: A practical guide to making innovation pay

Book cover

by David Nichols, John Wiley & Sons Ltd, 2007

Abstract

You can get a much better return (“more bang from your bucks”) from your innovation process. The “innovation funnel”, the preferred methodology for innovation in large companies, is stifling new ideas. A new methodology called “Rocketing” produces more, higher quality ideas for less and enables you to get more from all the resources and effort you put into generating innovation.

(Reviewed by Kevin Barham in September 2007)

(These book reviews offer a commentary on some aspects of the contribution the authors are making to management thinking. Neither Ashridge nor the reviewers necessarily agree with the authors’ views and the authors of the books are not responsible for any errors that may have crept in.

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Innovation is today’s growth engine

Return on Ideas is a practical guide to getting “more bang for your bucks” from your innovation process. As the author David Nichols argues, innovation is the growth engine of our age, identified by CEOs all over the world as the route to success in the marketplace. But the process of innovation is taking longer and costing more than ever before.

David Nichols is a marketing coach and managing partner of brandgym, a consultancy that ”coaches teams to create a clear brand vision and the action plan to turn this into growth”. He reveals why the “innovation funnel”, the preferred methodology in large branded companies, is stifling new ideas and proposes a new methodology, which he calls “Rocketing”. This shows how managers can get more from all the resources and effort they put into generating innovation and how to get more, higher quality ideas for less.

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The innovation funnel

More and more resources are being funnelled into the quest for tomorrow’s big innovation but it just isn’t happening, says the author. It’s costing more and more to develop each innovation and they are no more successful. CEOs say innovation is a critical core competence (“innovate or die”) but the innovation task seems to be getting harder and the results are usually “less than sparkling”.

The problem, according to the author, is the key innovation process used in many major businesses today: the "innovation funnel". This is the formal, admin intensive process of developing ideas in stages, at the end of which an evaluation whittles the ideas down to a smaller number so that resources can be focused on fewer “winners” in the next stage. The author believes that the funnel is in fact inspiring low-quality ideas, making the whole process longer and more resource intensive, and ultimately producing poor-quality output.

One suggested solution, noted by the author, is to break the rules and spearhead a drive to “put yourself out of business” before your competitors do by innovating entirely new markets. He argues, however, that attempts at such radical innovation can divert attention away from the core challenge which is to create growth in core markets with current brands – that, he says, is the real challenge for innovators.

Instead of focusing all efforts and resources on whittling down many ideas to a “winner”, Rocketing takes the analogy of a rocket motor and focuses on building ideas up to a maximum impact at launch. It is not intended as a total replacement for the Funnel, but as a reallocation of resources and an upgrading of the principles and methods used within it.

There are four stages to Rocketing:

  • Destination – being crystal clear on your goal.
  • Combustion – generating a larger number of high-quality ideas through continuous insight, multiple ideas generation and efficient ideas management.
  • Nozzle – swift prioritisation of ideas, relying on experience and instinct together with “powerful” valuation criteria, releases time and resource into the rest of the process.
  • Expander – building ideas into prototypes and 360 degree mixes earlier by focusing effort and energy on building ideas, not spotting problems.

The author says he has not written the book in a conventional, linear fashion. He avoids a long preamble and dives straight in, explaining the main principles of the idea, before going back and dealing with all the niceties and detail. Believing that readers can get more out of the book by taking a non-conventional route into it, he sets out a process for segmenting users, based on the time they have available (an “elevator trip” versus a “long haul flight”) and the main need they have in picking up the book (to be diverted versus a genuine desire to be challenged and to learn and develop). The four “needstates” he identifies are:

  • “Instant skill injection” (readers who want to be challenged but have little time available).
  • “Deep thought” (readers who want to be challenged and are prepared to spend time on the book).
  • “Gimme, gimme, gimme” (readers seeking a quick diversion).
  • “Tolstoy with gags” (diversion-seeking readers with more time available).

Different routes through the book are suggested for each of these needs. Very early on, for those who want a quick illustration of the main ideas, the author provides a case study of Calippo Shots. This presents the story of a “great innovation that took an impossible innovation brief and delivered in spades” to produce a multi-million dollar global success. The case shows how the marketing team working on Unilever’s water ice brand Calippo followed an unusual innovation process for a large company and came up with a product that changed the market into which it was launched. The case encapsulates the key themes and ideas from the book and explains the key success factors – adopting a mindset of problem solving rather than flaw spotting; repeated prototyping until the product is right; using a real test market, not a simulated one; and never giving up. It puts these within practical structures that readers can apply to their own innovation process.

The book does not deal with radical innovation (for that, the author recommends Blue ocean strategy by W Chan Kim and Renée Mauborgne). Core innovation, he says, is harder to do than radical innovation. The latter faces fewer constraints (business systems, distribution, etc are all new), it enjoys real autonomy (it doesn’t impact others until near the launch), and aims for fuzzy targets (just getting it off the ground will be good).

Core innovation, on the other hand, faces massive constraints (existing systems are all built around the current offer), has no autonomy (everyone has a valid opinion so nothing happens without a big debate), and has to meet the toughest targets (all current sales are at risk so a sales dip is not tolerated).

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Why innovation isn’t working

The author describes innovation as the “magic” that all businesses urgently need to thrive in today’s ultra-competitive markets. It has never been more central but success rates are dismal and not improving, despite the scrutiny being devoted to the idea development process by business process engineers and others. It is taking too long in big companies and nimbler, smaller competitors are often getting there first.

The culprit, according to the author, is the Innovation Funnel. The very process put in to make innovation more of a certainty is undermining it. It is stifling it with bureaucracy, poor decision making and a focus on picking faults rather than building competence. The alternative promoted by books on innovation is to reinvent your business from the ground up but that won’t do for core brands in core markets that need to achieve growth day in and day out.

Innovation Funnels were introduced to improve the innovation process and make it more efficient. The aim was to introduce a best practice method that would raise the quality of every project, to split innovation into clear steps that could be measured, and to channel resources into fewer more successful ideas. The funnel methodology is used by many branded businesses across many markets. The idea is to progress only those ideas that meet all the criteria (feasibility, big potential, etc) so that resources are only used where they will most likely produce results. But the funnel is constricting and squeezing out creativity and inspiration.

The author lists ten ways that the funnel stifles innovation:

  • The focus is on picking winners not creating winners – the aim is to find weaknesses rather than find solutions to the problems each idea poses.
  • Admin is at the core, not ideas – a strong desire for accountability and objective measurement leads to admin outweighing creativity.
  • It promotes a “not invented here” syndrome – development teams compete to get picked as the winner.
  • It makes it take longer – evaluating, justifying and writing up why an idea is worthy of resources for development takes longer than producing the idea in the first place. (The author provides an “innovation timesheet”, a quick test for you to estimate the admin to creativity ratio in your own business.)
  • Senior expertise is focused on evaluation and spotting the flaws, not improvement.
  • It adds cost – the desire for certainty (where there can be no certainty) triggers more and more tests.
  • It assumes good ideas are easy to come by – funnels tend to get indiscriminately filled with low-quality ideas; generating ideas is often a “low-status affair” in which senior managers don’t participate.
  • It is hugely wasteful of ideas – funnels are a one-way street; no-one wants to be associated with failure so ideas that don’t make the grade are not revisited.
  • It demands no insight – rather than digging for new insights, a concept that doesn’t make it is killed off.
  • It creates gaps in marketing plans – because of the increased likelihood of failure, marketing plans built around key innovation launches often fall apart.

As a result, the funnel produces a self-perpetuating spiral of decline. As innovation projects fail, the requirements for accountability rise and the cycle repeats itself, destroying value and wasting resources. We need to reverse the spiral so it becomes easier to make innovation pay and can then become a cycle of return.

The author provides a “Stifle-Meter”, a checklist for you to assess whether your funnel is stifling innovation.

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A new innovation paradigm: The rocket motor

The author proposes a much better way for branded businesses to develop their ideas; a “powerful” new paradigm for innovation based on the way a real rocket motor works. The four components consist of:

  • Destination – having a clear vision.
  • Combustion – generating high quality ideas.
  • Nozzle – quickly getting to the strongest ideas.
  • Expander – building them into winning mixes.

Rocket motors use simple but potent fuel to generate vast amounts of energy to lift themselves, and the heavy rockets they are attached to, up and out of the Earth’s atmosphere. In other words, “simple inputs produce an outsized effect that lifts the entire parent structure up and out of the gravitational field that holds it down”. This is precisely the job that innovation is intended to do for brands and businesses.

Rather than a funnel shape that starts empty, attracts random inputs and attempts to squeeze out a few drops of innovation at the end, we have a rocket with a clear destination, creating ideas as it goes and focused on producing maximum impact from the resources we put in.

1. Destination

Being clear on your goal is the first crucial step. The six key elements are:

  • Clear vision: Starting with a clear vision of where you want to end up, together with strong direction from the brand and its core value drivers, and building them in as the first step of the innovation process, greatly improves efficiency and the likelihood of generating ideas that deliver results. Ideas are created within the framework of a clear destination. You have to make sure it delivers on your brand vision and is “writ large” on your team’s mind.
  • Design the process with the end in mind: The whole design of the innovation process is dictated by the end goal. If you don’t demand a clear vision of the end point, it’s too easy to end up “hamster-wheeling”, going round and round getting nowhere. The scope of the opportunity, the urgency to deliver, the personnel involved, and the competitive context must all dictate the design of the process.
  • To avoid losing momentum, to keep the team’s energy up, and to galvanise innovation, follow the example of Steve Jobs of Apple – turn your deadlines and project milestones into immovable, unavoidable “drop-dead” lines that every single person in the organisation (“including the sandwich delivery guy”) knows about. Drop-dead lines (perhaps based on knowledge of a competitor’s forthcoming new product launch) force decisions and ingenious solutions, create priorities, and make more projects deliver on time.
  • Map tomorrow, not today: Defining the destination forces the team to consider the end point – modelling what the context will be when the innovation comes to market, with all the likely changes in competition, distribution and consumer behaviour. It forces you to build innovations for the way you expect the market to be.
  • Write a good innovation brief: The clearer, tighter and more focused the brief, the easier the innovation task becomes (“less is more”). Its elements should include a clear vision, business objective, role in brand, target, source of gains, channel and drop-dead lines.
  • Paint the vision “loud and proud”: It will leave your people in no doubt and will force you to follow through.

2. Combustion

The author suggests we think about the idea generation process as a continuous combustion process. Combustion tackles the key issue of not having enough high-quality ideas and has three components:

  • Creating a continuous source of potent “insight fuel”: An insight is a deep new understanding that leads to action. Seeing insight as a vital component of an explosion drives you to dig deeper, go broader and take more risks with your insight inputs. This is what is needed to ensure that the most “incendiary” idea generation is produced. A 360 degree insight process encourages you to find insight from all angles, including qualitative research, observation, retail visits, trends, fringe consumers, semiotics (described as the “body language” of brands), competitive landscaping, and global category trawl (looking for the “weird and wonderful”), among a whole host of techniques. An insight checklist can be used to inspire your team to look wider for ideas.
  • The multiple ignition process: Turning insight into a healthy stream of high-quality ideas needs more than just one brainstorming session. Multiple simultaneous “ideation” sessions with different styles, techniques and outputs can dramatically increase the quality and quantity of ideas created. One suggestion is to hold at least two simultaneous brainstorming sessions with the same inputs but in totally different circumstances (perhaps a different country), with different types of participant and producing output in different formats. Different types of brainstorming session described by the author include focused, blue sky, insight platform, and “quickie”. Brainstorming techniques that anybody can use include “heaven and hell”, role play, random word games, break category rules, corporate and personality takeover, cross-referencing, etc. Choosing the right concept format makes things clearer and faster; the basic types are the idea sketch, the core concept, the technical core concept, the “adcept” (a mock advertisement), and the detailed concept.
  • The Three Bucket Principle: With so many ideas around it is vital they are managed effectively. This is a potent, simple method for sorting, retaining and recycling ideas. Never ditch an idea, no matter how odd it seems, as there may be value in some time in future. The three buckets help you get the most from your ideas and include Bucket 1 for all the ideas you create, Bucket 2 for ideas that show promise, and Bucket 3 for ideas that seem to have real potential. The Three Bucket Principle allows you to do some “grave robbing” – stealing ideas from the past to improve what you know today.

3M’s insistence that staff give 15% of their time to “free” innovation is one way to keep ideas continually bubbling up throughout the year. Two other techniques that can create a continuous flow of ideas in your team are impromptu brainstorming “quickies” to generate ideas for Bucket 1, and a once or twice-yearly “ideas amnesty” asking people to turn in their “hidden treasures” – unspoken ideas or “the ones that got away”.

3. Nozzle

As the author makes clear, getting lots of good ideas down to a few great ideas is one of the toughest parts of innovation. The two main reasons why the whittling down process takes so long and is so uncertain are poor internal screening (“death by PowerPoint”) and poor external screening – consumers killing good ideas in concept tests. Performing rather than presenting ideas, together with prototyping (e.g. making a mock-up) and visualisation, brings them to life and gives the best chance of showing their true potential. Key principles here include:

  • Apply “theatre rules”: New ideas are very vulnerable and unable to fend for themselves in large organisations. Using showbusiness techniques can dramatically change the way you carry out all your innovation meetings for the better. Performing ideas, telling stories and bringing ideas to life with music and other props is much more fruitful and fun than allowing them to get lost in endless PowerPoint. Make sure you practise presenting your ideas.
  • Objective evaluation: The author proposes the “Idea Power Matrix” as a way to give an idea a meaningful ranking that focuses on its potential drawn from a number of sources. This combines objective evaluation criteria (including quantitative concept testing) and “gut instinct” based on experience. It allows you to prioritise the best ideas more accurately and swiftly than in the standard funnel-gate process. Using such a set of agreed evaluation criteria (e.g. fit to brand, consumer appeal, differentiation, margin, the team’s passion about the product, etc) to capture all feedback on new ideas is a simple but highly effective way of getting the clarity of objectivity into innovation decision making. It avoids the tendency of consumers to kill new ideas if they show the slightest weakness (replacing it instead with the question: “How can this idea be strengthened?”). It also stops internal politics derailing projects.

4. Expander

This is where ideas are turned into launch-ready products and services. This shortcuts the standard go-to-market process by building the idea into a mix much earlier. You need a positive attitude throughout the business so everybody is adding value and not just spotting flaws.

  • Building/expanding ideas: The priority is to stop the evaluation after the nozzle stage, and focus all energy and resource on making the idea bigger and better. If you spend more time and effort during development in building a new concept than in evaluating it, you will end up with a stronger product at launch. Few ideas are born as complete mixes; very often they only become really powerful when other ideas are built in across different parts of the mix.
  • 360 degree mix development: Rather than just developing and refining a concept to “pass” a hurdle, the Expander process looks at the full mix. It takes the principle of prototyping to the next logical step, developing an idea across the full 360o spectrum of the mix. The 360o Mix Checklist helps you think through every part of the mix when developing a new concept (including questions about product benefit, format, pack design, communications, new channels, pack structure, pricing, etc.) Sometimes the best ideas only come to life when added to by some other seemingly less important part of the mix, such as new secondary packaging or a different communication channel. The aim is to achieve the optimum impact at launch, rather than at the next stage-gate.
  • Better use of senior expertise: In the funnel process, senior expertise is used almost exclusively to evaluate ideas and point out failings. In the Innovation Rocket, the most senior people focus on building ideas, adding to them and solving problems in order to maximise impact.

In the final stages of evaluation, the author recommends you put the innovation in a real test market, not a simulated one, to get real feedback. Maximising impact is the aim, not just making something “fit” the market. An idea will have maximum impact on launch when it has been expanded and developed in all dimensions of the mix to such an extent that it fits perfectly well into the market space it was intended for and “retailers grab it with both hands”.

The innovation work is not over at launch, however. Monitoring and making adjustments in the first year is critical for long-term success (i.e. “launch then tweak”).

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Ten successful innovations

The book is illustrated throughout with examples from companies as varied as Yo! Sushi, Apple, Vodafone, P&G, and Ben & Jerry’s. In addition, the author describes ten innovations that he says have taken on the challenge of “turning innovation into rocket science” and have succeeded. He suggests you can use these as an inspiration when brainstorming.

  • Danone (Actimel) – create a new daily habit.
  • T-Mobile (Mates Rates) – sell the benefit, not the feature.
  • Hovis (Best of Both) – resolve a fundamental trade-off.
  • Motorola (RAZR) – never underestimate the power of design.
  • American Express (Red) – “when everyone else zigs, zag”.
  • Renault (Scenic) – break category rules.
  • Johnson’s (Holiday Skin) – create hybrids to build new categories.
  • Yoplais Petits Filous (Frubes) – deliver extraordinary convenience.
  • Gü (desserts) – “premiumise” a commoditised category.
  • Ocado (Online Grocery) – add service in a commodity market.

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Doing it faster

In today’s fast-moving markets, carrying out innovation projects faster brings big benefits. The author suggests five key factors that can increase speed without affecting quality and that, he claims, could complete a typical 12-month process in 8 weeks:

  • Planning decisions in advance – identify the decisions that need to be taken at each key stage and plan them in at the appropriate juncture.
  • Keeping to small teams – this makes it easier to fix meetings, helps you take decisions more quickly, and keeps you focused and accountable.
  • Doing multiple brainstorming in parallel – this can halve the number of output meetings and status sessions required.
  • Getting insight in real time – bring consumers into the “ideation” session and expose them to the ideas as they occur.
  • Using fast agencies – e.g. use smaller agencies who can give you dedicated resources; demand quicker turnarounds.

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Avoiding innovation pitfalls

The author sets out nine “deadly” innovation pitfalls and how to avoid them. These include:

  • The product’s failure to live up to the claims made for it.
  • The “not invented here” syndrome.
  • Over-eagerness to improve and refine an idea.
  • Over-testing.
  • Killing by proxy (i.e. editing out ideas because “the boss wouldn’t like it”).
  • The off-guard boss (briefing or updating senior managers when they are unprepared or preoccupied with other issues).
  • “Yes, but…” (the “old dame of innovation killers”).
  • Poor casting (the need to get the right mix of people in the innovation team).
  • Giving up (often the result of a protracted concept test phase).

Where the last pitfall is concerned, the author says “Do a Dyson” (of vacuum cleaner fame) – have faith, persevere and never give up. The great innovators believe that “failure is but fuel on the fire of their eventual success”.

This is clearly a book written by someone who has “been there and done it” and is bound to be a hit with big company marketers seeking to sustain and renew their brands. The author’s notion of radical innovation as a diversion from the core challenge needs some comment, however. It’s a debate that runs through many recent business books. As Clayton Christensen argues, for example, in The innovator’s dilemma, continuous, incremental innovation may not be enough by itself. Trying to grow mainly by finding better ways of providing goods and services in existing markets runs the danger of not spotting the opportunity in disruptive technologies. It allows disruptive innovators, who may one day threaten the firm’s core operations, to incubate their businesses undisturbed. Even James Collins and Jerry Porras in Built to last, while pointing to the virtues of steady improvement as opposed to permanent revolution, believe that all firms need occasional BHAGs (“big, hairy, audacious goals”).

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