Realtime Valley

Why do up to 95% of product innovations fail? And how does it link to Schrodinger’s cat?

According to HBS professor Clayton Christensen, up to 95% of all product innovations fail.

Is this because those were bad ideas? Were they executed poorly, or did they just come at a wrong time and place?
I find it interesting how similar corporate innovation is to the concept of Schrodinger’s cat.

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As you know, the cat in Schrodinger’s box is both alive and dead until we open the box and check on it. The same happens with innovation ideas. Until the moment we see their business results, they are both a success and a failure at the same time. And maybe as the research shows, most of these ideas (which do not need a funnel, but a funeral) are ill-fitted, non-realistic, non-viable daydreaming? But how could we know which ones? How can we sieve through the funnel and remove the bad ideas early on? And while doing so, how can we improve the corporate innovation process to bring real value to a company?

There is a thick fog surrounding the corporate innovation – it is entangled with creativity, corporate culture, antibodies, vision, timing, moats, technology adoption, disruptive ideas, and whatnot. Luckily the box of innovation is not sealed as the Schrodinger’s box, so we can look at the individual ideas in the funnel and identify the potential issues along the innovation process.

We can look at the innovation activities in four groups:

  • Awareness
  • Idea generation
  • Validation
  • Implementation

Each of them brings different values and requires a different approach to diagnose problems and identify if they are generating dead cats or valuable options. These activities are not always performed in that order, as innovation is an iterative process.

Awareness 

The goal of this group of activities is to bring alertness and anticipation in the dynamic business environment. Its focus is to identify and address existing and future frictions coming from the customers, competitors, regulators, internal or supply chain inefficiencies, or alternative solutions. Peoples’ personalities and skills are essential in the whole innovation process, but at this stage, it is even more critical to have people who are curious and would like to challenge the status quo: Why are the things the way they are? What if we change it? Who can be more satisfied?

This step is essential for innovation as it aligns the outcome of innovation with real-world problems and opportunities. Unfortunately, in many companies, it is omitted, and their innovation process starts with idea generation. A deep understanding of the landscape’s current status and especially its dynamics and the possible futures should be the foundation and vanishing point of corporate innovation. Without such awareness, the ideas will come out as self-centered technology-based experimentations of the type “look what I can do with blockchain (or with a chatbot)” instead of “there should be a better way to help customers.”

There are several key benefits from this phase:

Situational Awareness
You don’t want to start a journey with an outdated map of the landscape. It is essential to challenge the core business’s ground principles and beliefs and update them with reality’s current status. This way, the business decisions are not based on an outdated status of the environment.

Anticipation
Thinking through different hypothetical scenarios about the future. How would this small trend evolve? When and how will it impact us? This type of sensitivity will help the company understand the drivers of change and prepare for the future.

Mandate to act
These benefits can only be achieved if awareness leads to action. Many companies are annually collecting and analyzing trends. While looking at trends regularly is a necessary foundation, an additional, even larger value can be generated by explicitly mentioning how a company deals with each trend. If a company can’t say how they will react to a trend, is the trend even relevant?

Scope
It is not enough to have innovation activities only in product teams. Doing so opens blind spots between the existing products with nobody responsible for addressing them. There should be active portfolio management concerned with more than the sum of their existing products to fix that. They should have the mandate to explore the white spaces between the products and fill them with new offerings.

There are many things that should trigger the awareness of a company – opportunities for new products or business models, alternatives to the core technologies, support systems that need to be updated. And again, awareness without the following action will not bring much benefit to the company. People need to be empowered to step out of their business-as-usual activities and make quick decisions when needed.

How can we measure the value here?

  • Sensitivity – how many early trends were detected.
  • Anticipation – how many scenarios were developed.
  • Transfers – how many initiatives started in response to the new information.
  • Early alerts – How much time it gave us to prepare.

Idea generation

This phase is the fun part. And the part that most people think of when talking about innovation. And it is just this – let the right people find a solution to the problems or opportunities identified in the first step.

Bring experts. Find the available options and pick one or more from them. Think outside of the box. Find out which of the existing resources can be re-purposed and think about what will bring the most significant impact aside from technology and money?

Risks:

  • Getting separated from the current or future business. Solving problems outside of the company’s strategic interest.
  • Converging too early to a solution, before exploring all options.
  • Keeping relevant people out of the conversation.
  • Not assessing the business value.
  • Straying too far outside of the constraints.

What do we measure here?

  • The number of ideas per identified problem.
  • The number of filed patents
  • The number of selected ideas to follow up.
  • The number of people participating.

Validation

This is the most critical step in identifying dead cats in your funnel. It requires answering challenging questions, honesty and rigor.

The main goal of validation is to separate the assumptions from facts. And the rule of thumb is to start by validating the riskiest assumptions. We need to validate the technical feasibility of the solution and, more importantly, the severity of the problem (usually the riskiest assumption), the desirability of the solution, and the financial viability of the product.

What needs to be validated:

  • The problem – Should we do it? How many customers are affected? What are the alternative solutions?
  • The fit to the company strategy – Do we care about this type of problems? Do we want to be in this business?
  • The solution – Would the customers like to pay for a solution? Would it bring non-customers?
  • Is it feasible – Can we develop it? Dependencies on internal resources (are they available, supportive), on vendors – are they able and willing to support the initiative?
  • Is it viable – Can we profit from it? – will the business model hold water? When will we break even? Do we have available resources – skills, technology, time? Would the business case justify the cost of acquiring the new assets?
  • Will it fit the core technology and services? The other products in the portfolio?
  • Timeline – Do we have time to prepare?

Risks:

  • Not validating at all – assuming that assumptions are facts.
  • Confirmation bias – filtering only positive replies.
  • Answering the wrong question.
  • Measuring only what is easy to measure. Avoiding the real issues.
  • Believing that “if you build it, they will come” or “If Henry Ford asked his customers…”

The metrics in this phase should be set with the goal of reducing the uncertainty about the outcomes of the solution.

Implementation

This is the step of the realization of the innovation concept. It is an iterative step going back and forth to validation and even to idea generation step.

It consists of two main phases:

  • Development – preparing the components of the solution. 
  • Integration – connecting the new elements to the existing infrastructure and processes and going into production.

Both of these phases can kill the cat in many different ways.

Development
In the development phase, the three critical components are skills, resources, and time. Each stage of the development process should be validated with the internal and external stakeholders to keep it aligned with the dynamic business requirements.

Risks:

  • Developing the wrong solution – one that doesn’t solve a validated problem.
  • Developing a bad solution – unscalable, monolithic, fragile, etc.
  • The development infrastructure is very different from the deployment environment.
  • Not finishing it or taking too long and missing the window of opportunity.
  • Not validating with users and customers.
  • Reaching for perfect product instead of value delivering product.
  • Lack of commitment and change of priorities

Integration and Scaling up
Integration with the existing infrastructure creates one of the biggest hurdles of corporate innovation. This is the step where many of the innovative ideas are killed, but as we saw so far, it might be because they were not adequately validated or developed.

The problems here start when the existing infrastructure is an amalgam of legacy systems, supporting different protocols and interfaces. Connecting a new solution to it usually exposes bottlenecks in performance, capacity, or reliability. Trying to fix the outdated system’s bottlenecks opens the worm box of cascading dependencies and gridlocks that all need to be fixed before the new solution could be even turned on. And of course, before seeing any benefit from innovation.

Keeping the infrastructure modular using modern architecture can enable the development and integration of innovative services.

Risks:

  • Outdated interdependent environment
  • No spare capacity
  • Trying to fit the new with the old to keep its utilization.

 

Author: Stefan Petzov 
Email: Stefan.Petzov@swisscom.com
Title image: “cat in a box“, by Robert Couse-Baker, licensed under CC BY 2.0.

What is the role of the Outpost?

We see many startups in Silicon Valley and read and hear about how they measure success. A large part of our job is to help Swisscom in the Awareness and Idea Generation phases. We also scout for specific solutions and run proof of concepts for technical validation with partners from Silicon Valley. What stage of innovation are you currently in? What metrics are important in your solution? Whatever your goal is, take some time to become properly aware of the big picture. We’d love to hear from you, so feel free to get in touch.

About the author

Swisscom Outpost

Swisscom Outpost

As a leading technology provider in Switzerland Swisscom established Outposts in innovation hubs around the world. We identify and develop new solutions for our internal and external customers in Switzerland.

We identify technology development and new business opportunities. We do this by fostering the exchange and cooperation with existing major technology firms and ambitious young startups to satisfy rapidly developing customer needs and market requirements.