Front End of Innovation Blog

Color Me Creative: A Visual Trip Through Color Psychology

2012-05-25T09:00:00.000-04:00

Are you harnessing the effects color has on us to promote creativity within your workplace, relaxation at home or trigger excitement or some other emotion in your clients and consumers?

Here's a look at how color influences our perceptions and triggers different responses and behaviors from us: *Keeping in mind that many of these perceptions maybe learned or cultural behavior and may differ globally.

Credit: Men's Health

Credit: Lit Lighting

FEI 2012 Review: Keynotes Recap Part 1

2012-05-18T14:52:00.000-04:00

Adaptive Business Models, Futurist Physics, Open Sourcing Innovation and Storytelling Dominate Day One Keynotes

By Marc Dresner, IIR USA

Now that FEI 2012 has concluded, it seems prudent to take a moment to reflect on what we heard and learned while it’s fresh. I can think of no better way to do so than by highlighting a few of the defining moments from a handful of this year’s outstanding keynotes. Part 1 of this two-part post will focus on the first official day of the conference general session.

The 10th Annual Front End of Innovation (FEI) general session kicked off old school style Wednesday May 16th with an overhead projector welcoming attendees to 2002—FEI’s inaugural year—courtesy of FEI Chairperson Peter Koen, Director of the Stevens Institute of Technology’s Consortium for Entrepreneurship and Co-Founder of Myideashare, and Kim Rivielle, Managing Director of IIR’s Marketing and Business Strategy Division.

Editor’s note: Congratulations to Kim, an innovator in her own right whose tireless quest to evolve the conference experience at IIR earned her the additional appointment of company-wide Innovation Czar earlier this year!

Koen and Rivielle took us on an amusing and provocative journey through a decade of radical change and beyond—landing the audience squarely in the year 2022—and set the tone for the opening keynote…

Leading Growth and Renewal: A Blueprint for Business Model Innovation

Innosight Co-Founder and Senior Partner Mark Johnson delivered a morning jolt more potent than my double espresso with his incisive take on business model innovation, noting that the average lifespan of S&P companies has been in precipitous decline for decades.

“Even the most successful business models will sooner or later be disrupted,” Johnson said, with a special emphasis on sooner given the accelerating pace of change.

Indeed, one need not strain to find examples of companies that stubbornly refused to change things up and which now reside in the business boneyard. (Remember Smith-Corona’s response to word processing? The electric typewriter. If all you’ve got is a hammer…)

The challenge, Johnson noted, is balancing our current day jobs with our future day jobs.

The need to continually adapt and change your existing business model while simultaneously nurturing and growing it is so crucial to survival that Johnson argued business model innovation is the front of the front end of innovation, Johnson insisted. And it ain’t easy.

Fortunately, Johnson proffered a solution to this universal dilemma.

Four prescriptive steps for organizations to thrive in a state of continuous, disruptive business model bliss:

1. Create a common innovation language across the organization

2. Set strategy

3. Build the right structure to sustain it

4. Create a process

Key takeaways:

Assess and manage your organization’s knowledge-to-assumption ratio. Challenge your business model assumptions by “future-backing”—craft a narrative of what your business and the context in which you exist might look like 20 years out.

Don’t try to predict the future; envision it. Think in terms of an impressionist painting, not a photograph, Johnson advised. Then work backward to understand the path you’ll need to take to arrive successfully at your destination.

Cramming technology into existing business models is not business model innovation, he stressed. The publishing industry—newspapers, in particular—learned this the hard way. They reluctantly reacted to the advent of the Internet by migrating their terrestrial business model online, while the Craigslists and Google AdWords of the world completely changed the game.

Music industry, too. Now Apple owns it.

These massive industry disruptions were enabled by technology, but driven by people who saw possibility and opportunity by looking through a completely different lens in order to upend business models.

Every successful business has rules, norms and metrics. They’re necessary on a day-to-day basis, but they’re also blinders that effectively bind organizations to the status quo. Create a team devoted to breaking them.

One of the biggest problems in modern corporations is that the structure dictates strategy. Co-locate autonomous, business model disruption teams and set them free.

And work outside-in. Keep a constant dialogue with those outside the organization. Identify the “job to be done” and design around it. Meet that unmet need.

And again, Johnson stressed, don’t assume the way you make money today will apply tomorrow.

Unpacking the Physics of the Future

Theoretical physicist and famed futurist Michio Kaku complemented Johnson’s points quite well with a guided tour of the future based on what’s happening in the lab front lines today. My colleague, Valerie Russo, hit the high points well in her live summary on Wednesday.

I would add that Kaku noted science is the source of all wealth and the primary economic driver. It comes in waves and the cycle from invention to bubble to burst is entirely predictable because wealth is restless; it needs to move. Kaku illustrated this using the crashes of 1850, 1929 and 2008, respectively, as examples.

The fourth great wave, he predicted, will occur roughly 80 years from now and will involve nanotech, biotech and artificial intelligence. Look to Moore’s Law for inspiration and confirmation.

The most radical disruption will occur in healthcare. Like Johnson, Kaku cited the publishing and music industries as examples. “Medicine is the next to be digitized,” he said.

Consider that we now have nanoparticles the size of molecules that can locate and precision target cancer cells. “Chemotherapy will be viewed by the modern science of tomorrow much as leeching is viewed today: crude, absurdly inefficient and ineffective and almost cruel in a medieval way.”

We’re also on our way to producing MRI technology the size of cell phones.

And by the way, we’re growing organs. Today. Donor cards will in 50 years be completely unnecessary.

Tissue engineering thanks to gene sequencing—think of it as an owner’s manual for your body—will enable healthcare providers to produce a new heart or liver customized to you inside of 48 hrs.

Lastly, cancer will be flushed down the toilet, literally. Your commode will come equipped with a DNA chip that can identify cancer colonies 10 yrs before they become tumors.

In summary, there will be more computing power in your can and your cell phone than in most major hospitals today.

Sounds like science fiction, but it’s already on its way to becoming fact.

“The future is a lot closer than you think!” said Kaku.

Open Sourcing Opens Pandora’s Box?

Yours truly had to sit out Chris Anderson’s initial talk because I was in our private studio conducting interviews for the 2012-13 FEI TV series. Stay tuned!

What I do know is that the Editor-in-Chief of Wired and author of the legendary “Long Tail” and other best sellers gave a whopper of a presentation. The place was absolutely buzzing about it!

I did manage to get a seat in the interactive dialogue that followed Anderson’s speech, which took place in FEI’s “Greenroom” topical session—aptly fresh and one of eight such breakout learning forums unique to FEI.

Unscripted, uninhibited and entirely interactive, the session turned Anderson loose on the audience and vice-versa.

Much of the dialogue centered on open sourcing and the democratization of information and production via online communities and CAD.

Editor’s note: Anderson is also founder and chairman of DIYDrones/3D Robotics, an open source community of amateur inventors focused on unmanned aerial vehicles (UAVs) and robotics. UAV aficionados and DIYers can purchase parts, plans and complete kits at the DIYDrones online superstore.

Complex and controversial fun! We wrangled with:

Q: When you open-source hardware and software innovation, how do you avoid piracy?

A: “We don’t. The same things that empower the community empower pirates. The Chinese steal and replicate typically in fewer than 7 days and sell at 30% less. We compete on brand—for lack of a better term. The value is captured via trust in the equity of the community, not the intellectual property.”

Q: What about regulation?

A: “Regulators can’t keep up, and the open source format allows us to skirt much of the regulatory barriers that encumber major corporations. If your technology is public domain, you have a huge advantage here. My kids can fly drone prototypes in the park.”

Q: Liability?

A: Nil. Almost. Anderson said software and hardware created by a community for free eliminates a lot of liability. Of course, there’s always a danger of some rogue high-schooler flying an unmanned drone over the White House. Open-sourcing gene sequencing can also be a hazardous proposition (another DIY “hobbyist” community). Anderson and his organization work closely with the law enforcement community. Misbehavior can also be discouraged within the community; members police one another.

Also covered:

- The risk of disintermediation is most threatening to less complex products. “If you’re in the hardware industry and your business depends on product IP, open sourcing is a hammer and sooner or later you’re going to get hit…You’ll see some Kodak-style bankruptcies in plastics 10 years from now,” Anderson predicted.

- Reverse engineering consumer commercial goods: How long until it’s considered infringement?

- Atoms are the new bits. E.g., Aerospace physical instrumentation in the cockpit is being converted to apps.

- “We can’t put the genie back in the bottle, but in five years I wouldn’t be surprised if I were called before a Congressional hearing because a community member misused something we open sourced. It’ll be something big and they’ll be shocked by how little they knew about what has been happening in this space—right out in the open—for years. They can lock me up, but they can’t shut ‘it’ down.”

- Medicine is next. “We have high school kids out there synthesizing DNA.”

True Innovation Stories, Told Live

Storytelling was a major theme throughout the event, so I feel obliged to close with a nod to a keynote that drew the audience in like moths to a flame. (Apologies, but I can’t resist a bad pun.)

Acclaimed not-for-profit The Moth imparted a lesson in how to flaut conventional storytelling, literally (an actual flute was employed; no one was harmed).

The Moth’s “live” storytelling methodology opened the door to narratives that might not have been surfaced in a traditional presentation.

Of course, given the innovation theme and crowd, there were some predictable outcomes: rule-breaking, failure (and putting it in proper perspective), embracing uncertainty and stepping outside one’s comfort zone were prized qualities.

Most of all, though, the session provided the audience with a different way of thinking about how they communicate in a business context—an asset well worth investment.

That wraps Part 1 of my FEI 2012 keynote review and recap. Stay tuned for Part 2, which will cover a handful of the final day’s sessions. And keep a look out for FEI’s upcoming executive summary!

ABOUT THE AUTHOR
Marc Dresner is IIR USA’s senior editor and special communication project lead. He is the former executive editor of Research Business Report, a confidential newsletter for the market research industry. He may be reached at mdresner@iirusa.com. Follow him @mdrezz.

Photo Slideshow: Front End of Innovation US 2012

2012-05-18T09:39:00.000-04:00

Here's a look a look back at Front End of Innovation 2012:

Live from Front End of Innovation 2012: The Power of ‘Pop’-Culture to Launch a Brand

2012-05-17T15:25:00.001-04:00

Keith Belling, Serial Entrepreneur, Co-Founder & CEO at Popchips, spoke to us about launching an innovative food product during our Champions/Taste session.

He leveraged health and wellness trend to transform healthy snacking options. There was a void, no real, healthy, great-tasting packaged snacks. they started with "great flavor" that appeal to the whole family. They wanted to create a new category, not just a product.

They continue to innovate. New flavors like Sweet Potato chips, and later this year will launch a new product line.

They were lucky to organically get celebrity taste makers, nutritionists, moms, and high level fans who influenced their followers and audience about the new product, which gave the company lots of social proof and credibility.

Part of their success was in choosing the "right" partners to help build their brands; leading airports, premiere gyms, college campuses....

They do grassroots marketing, lots of social media, they use their spend very, very carefully. They have a field marketing teams and an army of ambassadors covering 15 major markets.

They constantly look for new ways to build awareness especially since they don't have a big budget. They have never paid for product placement but they've been depicted on Twilight, Pitch, ...

They try to tell a story with personality. They are fun, young company, and they want to be seen as healthy, edgy and cool.

Music is a key marketing platform. They do a lot of grassroot and handpicked events like Coachella music festival. Very cost-effective campaigns fueled by social media.

There is so much passion and excitement around the brand. It has resulted in becoming one of the top brands.

Valerie M. Russo is a Senior Social Media Strategist at IIR USA with a technology, anthropology, marketing and publishing business acumen. She is a published poet and also maintains a literary blog. She may be reached at vrusso@iirusa.com. Follow her @Literanista.

Live from Front End of Innovation 2012: Barry Calpino on Doubling Down on Innovation

2012-05-17T12:50:00.000-04:00

Innovation is not for the faint of heart.

You have to be able to look yourself in the mirror, and it's easy to say, but hard to do. It requires honest, frank discussions, that actually mention the proverbial elephant in the room. It also requires transcending the all-too-common risk-aversion in which companies mire themselves.

One of the other demons that companies need to fight is the overfull portfolio. Rather than trying to be all things to all customers, companies need to leverage their strengths, focus on the best projects, and put big bets behind their big brands. As Steve Jobs's advised Nike CEO Mark Parker, "Just get rid of all the crappy stuff and focus on the good stuff." (Orin's aside: see Jim Collins's take on the Hedgehog Concept).

There are two other key strategies that companies should employ:

1) Shift the emphasis to multi-year business plans that drive category growth. Despite the apparent need for instant results, it is important to consider long-term strategies that drive brand growth across multiple years.

2) Increase resourcing and support, especially from the C-suite. Innovation, development, and strategy require resources of all kinds, and that goes hand-and-hand with support from all of the C-level executives.

As noted, innovation requires tough conversations and hard looks in the mirror, but a solid portfolio that brings in hundreds of millions in revenue is hard to knock!

Orin C. Davis is the first person to earn a doctorate in positive psychology. His research focuses on flow, creativity, hypnosis, and mentoring, and it spans both the workplace and daily life. He is the principal investigator of the Quality of Life Laboratory and a freelance consultant who helps companies maximize their human capital and become better places to work.

Live from Front End of Innovation 2012: Business Innovation

2012-05-17T12:30:00.000-04:00

Whirlpool’s Third Diamond: A disciplined Process to Realize and Extract Maximum Value of Innovation in Marketplace was presented by Moises Norena, Global Director of Innovation, Whirlpool.

At Whirpool, Innovation is about customer needs and taking that to innovate and create value for customers - fill that demand.

Their innovation process is about discovery and then developing opportunities and experimenting. They also measure innovation: innovation funnel, pipeline, revenue.

3 Diamonds:
Discovery
Develop Opportunities & Experiment
Measure Innovation

One example is the Fabric Care Pilot: Alpha platform which identified 20 opportunities to maximize value extraction. This case study is now used as the process for the company and the principles are applied on all their projects.

It’s Just Numbers, Right? Prioritizing Investments across the Global Business Portfolio with Ryan Frank, Director of Marketing, Global Innovation, Abbott

Brand categories often address consistent core needs for consumers globally. But global portfolios carry diversity and complexity. Lots of work but little return, but crucial for global expansion. Must do the homework.

For example, baby boomer trends, like healthy aging are becoming global trends, not regional: US, Asia, etc., Find those similarities or differences, understand the insights before placing something in the pipeline. Often, it's the internal artifacts of our business that drives the real differences.

Start with insights
Leverage core knowledge for phased impact of new tech
Value early investments

Innovation Buy-In: Enabling Effective C-Suite Decision-Making Support for Breakthrough Innovation Efforts: with Gordon Hui, former AVP Innovation, The Hartford, Director of Business Design and Strategy, Smart Design LLC

Begin with the end in mind: what is the business going to look like when you bring this to market
Know why the pilot is happening
Think about long term growth, near-term impact

Valerie M. Russo is a Senior Social Media Strategist at IIR USA with a technology, anthropology, marketing and publishing business acumen. She is a published poet and also maintains a literary blog. She may be reached at vrusso@iirusa.com. Follow her @Literanista.

Live from Front End of Innovation 2012: Michelle James on Using Improv to Foster Innovation

2012-05-17T12:23:00.001-04:00

Yes...and!

There are few words as potent and powerful as "Yes," but it takes an improv experience to learn the exponential power of adding the word "And." Over the course of several exercises, we did not just imagine the force of saying "Yes...and," we watched it happen.

Here's one example: Working with a partner, draw a creature one line at a time. Each line can be straight, curvy, loopy, or otherwise. Work in silence, and do not communicate with your partner in any way. With each contribution, accept the prior line, yes...and draw your line. When the creature is completed, name it with each of you adding one letter at a time. At first, it seems weird. Then, the idea takes some shape. Then it gets weird, and then it takes shape again. This process repeats over and over with each partner bringing new twists and ideas into the drawing, and it goes in ways that are creative, interesting, and often beyond the imagination!

When I did this with a partner, we ended up with a creature that sort of resembled Count von Count. At first, I was posing him giving a "Thumbs-up," (see the drawing), and then watched with a snicker as my partner turned it into a cigar. The most humorous moment (which got us roaring with laughter when I told her afterwards), is when I drew what I thought was a button on the creature's jacket. My partner thought I had started naming the creature, and put a "P" next to my O. Our creature quickly found itself with the moniker "Skopellasti."

This is only part of the power of "yes...and" -- you never know what interesting things will come out! But, those incremental steps capitalize on trust, creativity, partnership, and enthusiasm, and unleash the total power of innovation. Improv and the insights it elicits are a direct translation of the innovation process and, like any gestalt, is a whole far greater than the sum of its parts.

Orin C. Davis is the first person to earn a doctorate in positive psychology. His research focuses on flow, creativity, hypnosis, and mentoring, and it spans both the workplace and daily life. He is the principal investigator of the Quality of Life Laboratory and a freelance consultant who helps companies maximize their human capital and become better places to work.

Live from Front End of Innovation 2012: “New” Mr. Potato Head:

2012-05-17T10:09:00.002-04:00

Mr. Potato Head and Friends (Photo credit: Wikipedia)

One of our first Sandbox/Touch sessions here in Orlando, on the final day of Front End of Innovation 2012 was on “New” Mr. Potato Head: The Starch Reality of Refreshing an Icon and Finding Creative Inspiration in a Spud That’s No Dud with Wayne Marcus, Senior Director, Design & Development at Hasbro, Inc.

His superpowers are observing, playing, imagining, learning, collaborating - use your strengths, claim your power and stand it. One must have skill is definitely versatility, especially with the speed of technical progress.

Mr. Potato Head's superpower IS versatility.

Recently, he was redesigned and this was incredibly hard - how do you redesign an iconic beloved product?

They began with deep dive into consumer insight and concept design.

Added legs and pants for Mr. Potato Head, made Mrs. Potato Head's nose smaller, added cooler boots and lightened skin. They both now have legs, slimmer bodies, more expressive accessories to give them a sense of being more animated.

During the session, we also began drawing and conceptualizing our own redesign collectively. Have many tools to be able to constantly transform, readjust, look at things with an open mind and look at known things with a fresh lens, focus - have clarity and vision and tune into what people are really saying. Lastly, have fun.

Don't forget your super strength!

Live from Front End of Innovation 2012: Jaspar Roos on Bringing Back the Fun in Innovation

2012-05-16T18:38:00.000-04:00

Orin's Introduction: Jaspar presented a number of incredible ideas, so rather than try to reproduce his presentation, this post is going to challenge readers to think about several of the most interesting points he made.

* Attention becomes the major currency in content commerce.

* We can learn from failure (in fact, there's even a repository for it), and we should make sure to do so.

* How much, and in how many ways, do companies need a Chief Humor Officer?

* We take ourselves far too seriously sometimes.

* Are we too professional?

* Humor leads to more energy and increases the possibility of innovation. (Orin's aside: To find out why, check out Barbara Fredrickson's Broaden-and-Build Theory).

Orin C. Davis is the first person to earn a doctorate in positive psychology. His research focuses on flow, creativity, hypnosis, and mentoring, and it spans both the workplace and daily life. He is the principal investigator of the Quality of Life Laboratory and a freelance consultant who helps companies maximize their human capital and become better places to work.

Live from the Front End of Innovation 2012: Cultivating and Celebrating the Journey of Student Entrepreneurship

2012-05-16T18:27:00.004-04:00

Gordon Jones, the Director at Harvard Innovation Lab, believes every student should have the opportunity to put their ideas to use and push them as far as they can go. Innovation flows from many fields and the intersections can lead to all sorts of great innovation.

They work with students at every stage of the innovation pipeline: Idea refinement through scaleability and also helps them become agents of change.

The program includes:

Incubation and mentoring
Internship and residency
Laboratory and practicum
Entrepreneurship fundamentals

I-lab strives to fun, purposefully fun.

The Harvard Innovation Lab opened 8 months ago. You can follow them @innovationlab.

Valerie M. Russo is a Senior Social Media Strategist at IIR USA with a technology, anthropology, marketing and publishing business acumen. She is a published poet and also maintains a literary blog. She may be reached at vrusso@iirusa.com. Follow her @Literanista.

Live from Front End of Innovation 2012: Bret Huff on Innovation Days

2012-05-16T18:11:00.002-04:00

Eli-Lilly attempted a series of Innovation Days based on Atlassian's Fed-Ex Day (see Atlassian's FAQ). It is effectively the full day analog of Google's 20% Time. (Further thinking from Brad Power.)

The recipe for an Innovation Day

A very small organizing team
Sharepoint site setup for project submission
Projects evaluated by a small senior scientific team
Team members choose their projects
Make the day fun!
Readout day afterward

Some master tips from their three attempts at an iDay

A little preparation is necessary
Area management must be participating
Make it fun!
Readout days are tough and long, but worth it
Do it again
Prototype to see what works for you
Get feedback surveys to help you perfect it
Beer and wine add to the fun!

Orin C. Davis is the first person to earn a doctorate in positive psychology. His research focuses on flow, creativity, hypnosis, and mentoring, and it spans both the workplace and daily life. He is the principal investigator of the Quality of Life Laboratory and a freelance consultant who helps companies maximize their human capital and become better places to work.

Live from Front End of Innovation 2012: The Art of Storytelling with Noelle Chun

2012-05-16T15:46:00.000-04:00

Noelle Chun gave a nice presentation on story telling, based on her experience at Yahoo. She spoke about how to identify, craft, and how to drive adoption of that story.

She said that storytelling has been around from "ancient Greeks to modern geeks."

What makes a good story?

First, set your values. This creates the foundation. All of the stories will trickle down from your main story. Your values should address who you are. It sets a clear direction for the future and informs innovation. And you must be consistent in all of your stories to reinforce those values.

A good story needs to be: memorable, engaging (speak to heart and head), and actionable (what are they going to implement)

3ABCs of a Good Story

Always be clear
Always be concise (one line hook that can be repeated)
Always be setting context

She mentioned that stories need characters: personality of the team or personality of the innovation.

3 Types of Stories

Great aspirations - someone who thought of something and achieved it.
David vs Goliath - a hero against all odds...small start-up wins against the establishment
Contrarian stories - things that break out of the mold of what we believe to be true
Personal stories - stories from your own life (versus those of someone else)

Make it easy to distribute. Make it easy for word of mouth. Make it social (pre-written tweets). Find advocates. Put in a format that others can send.

Make it easy, create ripples, make it social.

Here's my question: "If a story is told in a forest and no one is there to hear it, does the story exist?" From today's presentation, the answer would be, "no." The best story not heard does not create the desired change.

Thank you Noelle.

Live from Front End of Innovation 2012: From the Long Tail, to Free!conomics, to The New Industrial Revolution

2012-05-16T15:00:00.001-04:00

Chris Anderson, Editor-in-Chief, WIRED, Best-selling Author of Free, The Long Tail, and The New Industrial Revolution introduced to the MAKER revolution that is currently happening and its repercussions on the future.

Anderson recalled his grandfather's invention of the automatic (timed) sprinkler and making parts out of blocks of metal with him.

The old model of invent, patent, license is over. Now anyone can own end-to-end including manufacturing and speed to market. We are going to use the web's model to re-energize manufacturing in this country - CAD programs now have MAKE menu option.

Kickstarter is one of the most radical #innovations of our age, enabling physical entrepreneurship. The epebble watch sold out online and is one of the most innovative gadgets of the year, brought to market solely via Kickstarter. Created by three guys in basement it raised $10m in weeks and will eventually beat out the Sony ewatch. Kickstarter is the venture capitalist for the maker movement.

The US can regain manufacturing lead via democratized production. We're all designers now, we might as well be good at it. Kids need design classes/tools in order to create the next gen of innovators. They're already creating their own toys. You heard it here first - The Hot holiday gift for 2012 kids - Makerbot - Make what's in your head!

It took twenty years for the paper revolution to happen it will happen in ten in physical 3D printing revolution.We're creating next generation of manufacturers in same way web/social media created next generation of publishers. We can capture reality, change it, and make it...on an iPad, for free.

Valerie M. Russo is a Senior Social Media Strategist at IIR USA with a technology, anthropology, marketing and publishing business acumen. She is a published poet and also maintains a literary blog. She may be reached at vrusso@iirusa.com. Follow her @Literanista.

Live from Front End of Innovation 2012: Storytelling by The Moth

2012-05-16T14:59:00.002-04:00

With a flutist's flourish, The Moth began with an introduction to the need for people in business to be able to tell a story (and the reminder that rambling will get you attacked by a flute!).

If you could have one superpower to change your world, what would it be?

For one thing, if you can teleport, you can travel, and you might discover along the road that failure depends on how you look at it, and likewise on how you define it.

For another, if you are going to draw "a nekkid man's essence," you are going to have to accept that there is no one way to do it. It means being willing not to follow the rules, and being willing to excel in ways that you might not have expected. That can be hard for many, but, if you can do that, you can do anything!

One of the amazing aspects of novelty is that it not only opens you up, but, if you embrace it, it can lead you to new and stunning realizations, and be the gateway to the ideas and experiences of a lifetime.

A final thing to consider is that sometimes taking a little step can lead to exponential change. Building a network, a business, an endeavor, or a dream, may be a little bit crazy, or even a lot crazy, depending on the goal. Despite the odds, however, taking just a small step on the journey, and perhaps getting just one small win, can launch something incredible.

Orin C. Davis is the first person to earn a doctorate in positive psychology. His research focuses on flow, creativity, hypnosis, and mentoring, and it spans both the workplace and daily life. He is the principal investigator of the Quality of Life Laboratory and a freelance consultant who helps companies maximize their human capital and become better places to work.

Live from Front End of Innovation 2012: Peter Koen on Innovation Outside the Core

2012-05-16T12:47:00.003-04:00

If Sony came out with the Walkman, why didn't they develop the iPod? Why don't innovators take it to the next level?

One might suggest that this is because large companies are not innovative, but this does not explain why some companies (e.g., Apple) are innovative. Perhaps the lack of innovation is rooted in the business model (Mark Johnson said that the business model "Defines the way the company delivers value to a set of customers at a profit."), which is based on sustaining innovation.

Sustaining innovation involves existing customers and extant financial hurdles with technology that is either incremental (add a little something), architectural (rearrange what exists), radical (revolution). Anything beyond that, but using any of the technological levels, is innovation outside the core (any combination of [recent customers, new non-customers] and lower-than-expected financial hurdles).

Yet, innovation outside there core can be incredibly difficult, and there are four key reasons why:

1) Routine rigidity. Leaders will make significant but wrong investments when their business is threatened. For example, when Sony came out with digital camera. Kodak invested $5B in digital over the next ten years. They developed digital CDs and kiosks because that fit into their current channels (e.g., drug stores) -- they tried to leverage their current channels because that made sense.

2) Embedded assumptions based in the current value network. (cf., Mark Johnson) They are hard to identify, and can be hard to articulate. The only way out of this is to be able to prototype with the customer and handle the surprises that come along with it.

3) Unrealistic financial expectations. Leadership is often seeking immediate returns, but it is important to remember that outside-the-core innovations can take time to grow. For example, for the first three years, iPod growth was rather slow, and then started explosive growth in the fourth year. Nespresso started in 1982, but did not break even until 1995. Yet, today, it is wildly successful in Europe.

4) Lack of CEO commitment. The success of iPod and Nespresso was strongly rooted in the company CEO's being committed to the vision. In case studies, it was found that companies with successful innovations understood customer needs (Orin's aside: see also, Demand by Adrian Slywotzky). If the CEO does not want to support the endeavor, it is not going to happen at the company (Koen's suggestion: if you want to innovate, but don't have CEO support, either accept that it won't happen, or leave the company).

The problem with doing something revolutionary is that most companies invest so much time and technique in their own channels that they do not want to give it up, so they stick with what they know. Innovation outside the core requires vision, commitment, and prototyping, and if companies are willing to put in all three elements, they will have the potential to change the way we live.

Orin C. Davis is the first person to earn a doctorate in positive psychology. His research focuses on flow, creativity, hypnosis, and mentoring, and it spans both the workplace and daily life. He is the principal investigator of the Quality of Life Laboratory and a freelance consultant who helps companies maximize their human capital and become better places to work.

Live from Front End of Innovation 2012: A Look to Tomorrow: Physics of the Future

2012-05-16T10:00:00.000-04:00

Cover (Photo credit: Wikipedia)

Michio Kaku, Famed Futurist, Physicist, and TV Personality, co-founder of the string field theory, took us on a guided trip to the future.

Wealth ultimately comes from science and technology and new inventions lead to waves of wealth. The next 100 years will depend on the 4th wave and will be driven by innovations.

Next 100 Years:

The Internet will be everywhere - including glasses.
Children will drive new technology.
Payments and shopping will be moneyless and contactless.
Cell phones will have flexible, intelligent screens.
Computers will be as thin and cheap as paper.
TV cameras will give you xray vision because you will be able to shoot images from cameras on other side of barrier to your eye.
It will become fashionable and normal way of viewing the world to have augmented reality thru glasses or contacts
Your living room wall will be computerized and connected.
Doctors will provide healthcare via a wall avatars
Television will have transparent screens and 3D - without glasses
Computers will be disposable scrap 'faucets" offering access to the Cloud
Cars will drive themselves using GPS, radar and chips
Mass customization instead of mass production will be possible and cheap
The consumer will have the advantage: perfect capitalism
Data mining will be a rich source for retailers
Targeted Cancer therapy: Nano particles will locate and kill cancer cells
Intelligent pills you can swallow will shoot pictures and gather information internally inside the blody
Your toilet will monitor your health and screen for Cancer
MRI Machines will be the size of cell phones
A CD with your entire genome sequence will cost $100
You will be able to grow new organs as needed

Michio Kaku's Future video playlist available here: discovery.com

Let's get Small... and other BIG Ideas

2012-05-16T07:51:00.001-04:00

Consistently low rates of engagement are, by and large, an accepted condition for those providing, buying and using online crowdsourcing technology. According to Neilsen (Participation of Inequality Theory), 90% of invited users never participate in online communities. Lithium’s Dr. Michael Wu explains Neilsen’s rule in more precise terms in his post “The Economics of the 90:9:1”. As an economic buyer and practitioner of crowdsourcing solutions at Quest Diagnostics, and later as a practice manager responsible for customer success across 100+ Spigit client innovation communities, I saw enough data to be comfortable with the overall accuracy of the Neilsen rule. There are of course many factors and mitigation counter-measures that can influence this ratio, but most require continuous heavy lifting described below.

Challenge

Is it reasonable to believe that some portion of that absent 90 population should be heard? Are they not contributing out of apathy or concern that their ideas/comments might be insufficient or bring criticism or ridicule that will impact their standing within the organization? Have they simply made a calculation that the risk of participating outweighs the potential reward?

As consumers and producers, are we satisfied when 90% of a targeted audience does not engage in the conversation? And is the 10% that does show up representative of the population? Do we know why they showed up? Should we base decisions on that sampling? Is there a correlation with voter turn-out in elections? In the interest of answering these questions and in the spirit of author Arthur VanGundy (Getting to Innovation), let’s rally around a single macro-level question:

How might we improve reach and participation in our innovation events by 5X... by 10X?

Beliefs

Some of the beliefs presented in Tuesday's "Innovating with 3i's" talk (Batterii CCO Chad Reynolds), are presented here as the catalyst for the challenge:

1. Stepping back helps us go forward

Stretching the lifecycle upstream (north of ideation) into a less threatening inspiration capture, curation or insight development space widens the top of the funnel and broadens the potential pool and diversity of participants. In this way we can effectively lower the barriers to entry into the creativity process. The cost of the ticket is a simple story or inspirational nugget in a convenient form (snapshot, note, photo, link, movie, tweet, etc.). And you ought to be able to begin your ride from a smart phone, tablet or laptop.

2. Collaboration trumps competition

While two basic crowdsourcing models exist (competitive selection of a winning result vs. collaborative development of a number of alternatives), the overuse of “competitive” game mechanics can diminish the very thing we say we value: collaboration and respect for our employees and customers. We must find ways of engaging people without resorting to Jedi mind tricks that convert every comment or vote into points used to win a game. Not only is this approach largely unwelcome in specific cultures, but it also negates the value of teamwork.

3. Ideas are network of particles

The nature of creativity is still a source of great mystery. We continuously codify and calibrate our learnings through posts and books in an attempt to help ourselves and others on future journeys. Steven Johnson does a wonderful job describing the story of creativity in his book “Where Good Ideas Come From, The Natural History of Innovation Ideas”. In it he asserts the principles of serendipity, error, liquid networks, slow hunch, exaptation and adjacent possibilities. A system that mimics Johnson’s vision, elegantly capturing and depicting the lattice of particles that form ideas and the rich lineage that’s constructed over time between those social objects and their finders or creators. It would explain the movement and development of memes, and expose in more explicit terms the essential value of experimentation, failure and bad ideas whose shoulders better ideas almost always stand. Lastly, this framework would enable organizations to more fully leverage and justify their investment in knowledge management, a business practice that entered a dormant stage (in many organizations) almost a decade ago after being maligned as a “solution looking for a problem”.

4. Getting small is the key to activating the BIG crowd

To incite an online crowd today, resource intensive non-value work-streams and Jedi techniques are used in combination: innovation contest management (contrived game mechanic), communications management (targeted messaging campaign), incentives management (intrinsic and extrinsic rewards), exclusivity (appeal to vanity) and iron fist in velvet glove (leadership trump card). The big problem with this model is that it simply doesn’t scale down. It’s expensive and operationally inefficient to plan, launch and sustain. Given normal (unstimulated) participation rates, we would need a crowd of 500 to produce an active population of 50. Of course we could hand-pick 50 highly-motivated participants if that’s what we’re after, but these smaller talent pools would start to fatigue after a few events.

Can we build a better model? Yes... please! Let’s start by designing experiences that people actually want to be a part of. Solve the most common value-producing user stories that pivot on collaboration and self-actualization and design others for truly special events. Develop mechanisms that minimize any friction around ad hoc sharing and teaming. Present a co-creation canvas that welcomes and bridges diverse thinking, learning and decisioning styles. Provide role-based tools that help admins and managers pre-form teams of known and desired diversity (or homogeneity). Likewise, provide the flexibility for ad hoc teams to form and self-direct. Advanced capabilities might balance diverse perspectives with compatible collaboration styles as a means of generating creative tension. Perhaps this is closer to alchemy than science today, but it leaves space for learnings that will move us closer to this ideal as community data grows over time. It should connect small teams into the larger community or network where the benefits of big data can be used to maximize participation and the value of our investment. This scaling to a smaller crowd and engaging the individual, not scaling to thousands, is the real challenge.

5. In-Person amplifies online... 1 + 1 = 11

Facilitated in-person innovation labs (e.g. 1-day, 20-150 attendees) consistently capture close to 100% participation. Invitees recognize that labs are a high-value opportunity to learn something new in a non-threatening environment. Imagine Wiley Coyote chasing Roadrunner over the edge of the cliff and arriving safely on the other side of the canyon. That’s what’s happening here. Immersion labs inspire and incite experimentation. They help people forget to look down. They create an infectious spirit of play and wonderment of what’s next. They knock down the functional and stature barriers that inhibit sharing (Marshmallows and Spaghetti). They help us find our flow, and that itch that’s just gotta be scratched. Participants walk away energized and sensitized to the possible. A co-creation platform should integrate in-person and online modalities in a way that amplifies the business outcome.

6. Spending more time in the problem space allows us to think more deeply and differently – and that makes for better solutions.

The journey to a truly engaged community begins not with the asking of the question and testing the crowd while they compete, rather with creating an environment where new ideas can be built. Question the Question. For example, a typical crowd-sourcing question may be, "How can we improve customer service?" The Batterii approach is to start with a cool hunting expedition, seeking examples of great customer service today from any industry. Build on the elements of these experiences and divide the large crowd into sub teams that have similar or dissimilar beliefs. Customer service is a function of training or technology or people or product quality etc. These teams question the question together and approach the solution with fresh perspectives and constructive-disruptive thinking. People will tell you a story and welcome building and making that story better.

What Next?

The opportunity for a next generation solution is ripe. Let me know what you think. Have I gone too far... not far enough? What am I missing? Dive in, but don't expect any points ;-)

Author, Joe Messina (jmessina@batterii.com) is based in Cincinnati, Ohio and serves as EVP of Strategy for Batterii. The Batterii collaboration platform connects you, your coworkers and customers in a real-time experience to collect inspiration, build and execute big ideas. What makes Batterii different is their proven success as innovation practitioners and entrepreneurs, leading business change from within world-class organizations (Apple, Allstate, EDS, Gap, IBM, Landor, Lockheed, Nielsen, P&G, Possible Worldwide, Siemens, Siemens, Sun Microsystems, Quest Diagnostics) and architecting innovation strategies and programs working outside-in for Global 2000 clients.

Live from Front End of Innovation 2012: Scott Mathews on Creating Valuable Innovation Portfolios

2012-05-15T19:05:00.000-04:00

How is it possible to quantify concept value?

One of the difficulties to consider in the financial evaluation of projects is to determine the financial feasibility and profitability of potential innovations. Mathews suggests that companies start moving from tactics to broader strategy.

One way to start is by taking on a strategic innovation framework:

1) Strategic intent (What do you want to do? Grow the strategy throughout the innovation process, and then execute it)

2) Idea generation

3) Innovation portfolio

4) Project portfolio -- starts with a demonstrated technology and execution of strategy

The optimal strategy is to select ideas that require minimal R&D investment and produce maximal value.

As simple as this sounds, however, there are a number of key dilemmas that innovation portfolios face:

Effective management of many small-dollar concepts
Unclear strategies make executives uncomfortable, especially because is hard to determine for certain how valuable a given investment will turn out to be
"Kissing frogs" => investing in many failures
Quantifying value in early-stage concepts -- how do we do it while keeping costs low?
Handling unpredictability

One way for companies to be more effective in managing so many small-dollar innovation ideas and concepts is to use clustering and aggregation. They can figure out the strategies that underlie groups of ideas, and group them into higher-order clusters of ideas that each fall under the rubric of a strategic area. As such, they can use simple rules that reflect the emergent behavior of complex systems. Another important piece of the valuation process is to use strategy emergence. This starts with the recognition that current strategy isn't actionable; it's indeterminate. From there, companies can let the strategy mature as certain clusters come into focus as being of more immediate importance. Firms can then start with small investments tied to success prospects (option and momentum investing). After all, there may be any number of unforeseen factors, which is why small experiments are so important.

There are multiple phases to the development and valuation process, which should coincide with the evolution of strategy and product design:

PHASE 0

-Course screening: use qualitative measures that give broad categories to the ideas that enter the portfolio, which helps to make quick choices. (see also: fast and frugal heuristics)

PHASE 1

-Consider costs and revenues (keep a low threshold for qualification so that people are more willing to come forward with ideas)

PHASE 2

-What potential do ideas have based on best and worst case assumptions?

-Scenario value ranges (use subject-matter experts): risks, opportunities, assumptions, contingencies

PHASE 3

-Reveal hidden assumptions so that they can be tested

-Consider the actual cash flows of each idea

-Mitigate risks (start using gates), and consider aspects like market, customers, competition

GATE A Ready

-Business case and development plans

There are often questions as to whether selection criteria should be quantitative or qualitative. Despite the potential value of qualitative assessments in initial phases, their subjectivity, frequent lack of consensus, and large uncertainty around rating assessments makes them unwieldy for use in real options valuation. Thus, Mathews recommends using 5-8 quantitative selection criteria that are independent and mutually exclusive, and which can be combined to compute additional value metrics. Optimally, these would be applicable at all of the phases noted above.

Critical aspects of the portfolio valuation system:

Decision support systems
Comprehensiveness
Transparency
Analytics
Access to data, expert opinions
Quick, insightful analysis
Innovation teams
Cross-enterprise/industry
Agility

Ultimately, a company that wants to innovate should develop "a portfolio of portfolios," which allows for diversifying risk and innovation at a number of levels, and enable organizations to innovate across the board, from the micro to the macro.

Live from Front End of Innovation 2012: A.K. Pradeep on Secrets for Selling to the Subconscious

2012-05-15T17:58:00.002-04:00

"Consumers may not be able to tell you what they like, but they know it when they see it." -- A.K. Pradeep

This was a fascinating talk about the possibilities of applying neuroscience to sales, product lifestyle, and innovation in the future. He proposes that neuroscience will be able to "innovate innovation," and leaves us with the hope that the field will catch up to, and exceed, his vision.

At the root of neural measurement, neuroscientists are assessing three things second by second:

-Attention[*4]
-Emotion[*5]
-Memory Retention[*6]

For innovation to be effective, it must command attention, elicit an emotional response, and be memorable [*1]. We can measure the brain to assess whether solutions elicit responses in attention, emotion, and memory retention, in order to ascertain which ones are effective. By measuring the brain second-by-second, it may be possible to determine the most salient features of the solution. Likewise, it may be possible to assess the consumer's response to all of the steps of a product's development process [*2] in order to differentiate between the innovations whose seeds will grow and bloom successfully and the "innovations" that contain nothing but fertilizer.

Another important possibility is being able to adjust prototypes dynamically in synchronization with neural responses to the product. This goes way beyond the opportunities of surveys and focus groups![*3]

Dr. Pradeep also talked about how companies create signature experiences. There are iconic aspects of experiences that have a subtle profundity that capture the attention and stick in one's memory[*1]. In the future, neuroscience may be able to guide businesses toward creating that sticky signature that could turn innovation, product creation, and even product consumption, into a more meaningful experience.

Orin's Asides
(As background to these asides, Orin's undergraduate work was in neuroscience, and his doctoral work was in organizational behavior and positive psychology.)
*1. For some complementary perspectives on this topic, read Demand by Adrian Slywotzky
*2. A look at the peer-reviewed research shows that much of this work is still in its infancy, and there are many possible interpretations of the test results. Yet, the techniques and analyses are improving at an exponential rate [at least!], and neuroscience may not be that far from being able to do this more concretely.)
*3. Yet, surveys and focus groups will remain valuable for getting specific questions answered, and also for playing ideas off of each other at a higher-order level of cognition. Neuroscience may soon be able to understand what is happening at the basic levels of attention, memory, and emotion, but this is a long way from being able to measure higher-order cognitive constructs in the brain.
*4. For more on this, see research by Nancy Kanwisher and Michael I. Posner, among others. If you are interested in more technical information, see Michael I. Posner's (ed.) book.
*5. For more on this, see research by Antonio Damasio at the Brain and Creativity Center, among others.
*6. For more on this, see research by Michael Kahana, Marc Howard, and Daniel Schacter, among others.

Orin C. Davis is the first person to earn a doctorate in positive psychology. His research focuses on flow, creativity, hypnosis, and mentoring, and it spans both the workplace and daily life. He is the principal investigator of the Quality of Life Laboratory and a freelance consultant who helps companies maximize their human capital and become better places to work.

Live from Front End of Innovation 2012: Shauna Brummet on Innovation Across Business, Academia, and Community

2012-05-15T16:05:00.003-04:00

One of the major challenges facing innovation today is the integration of stakeholders across business, academia, and the general population. Yet, there are a few strategies that can help link people from such disparate areas.

Critically, it is necessary to understand and articulate what is needed, what is possible, and the path to market. It is a process that starts with idea generation and proceeds to rapid evaluation and prototype development that is specifically aimed at commercialization.

There are four key aspects to the process:

Identify market needs
Develop innovative solutions
Commercialize new technologies
Create companies and jobs

There are several keys to implementing this successfully:

Utilize best practices -- build on success
Create deep relationships with both private and public sector stakeholders, and provide bottom-line value to client companies
Maintain high energy engagement of stakeholders (develop success stories)
Execution! Get things done and work at the speed of business.

Though academia, business, and society at large have completely different foci (and at different levels at that!), work at different rates, and have vastly different perspectives, it is nonetheless eminently possible to integrate all three under the banner of innovation to produce results that can change the world.

Live from Front End of Innovation 2012: Alfred Malouf and Diane Powell on Innovations for a Sustainable Future

2012-05-15T15:37:00.002-04:00

"If you look in the obvious place, you are not going to find an innovative solution." -- Alfred Malouf

"Innovators: People with disruptive world-class ideas, technologies, or programs that show great promise in making tangible and impactful progress for society in...key...areas." -- Diane Powell, NASA

The power of Grand Challenges, is that they involve outreach to both the technical community (e.g., research centers, suppliers) and the general public (e.g., government, NGOs) so as to create synergy between their diverse perspectives.

These are the elements of a successful Grand Challenge:

Dual outreach -- strong marketing campaign to general public, targeted technical campaign
Credible, clearly define technology objectives
Incentives
Judging panel and process -- this is critical, because the criteria need to be understandable to all

Here is an overview of the process of a Grand Challenge, with some of the key steps articulated (each phase is roughly 3 months):

Phase 1: Program Design

Select Challenge topic
Articulate aspirational and need statements -- need to be clear, concise, and compelling
Create search strategy -- cast a broad net
Develop prize strategy (includes having multiple winners and diverse incentives [money, access to resources, mentoring, etc.])
Define judging process (make sure that there is evidence that solutions are viable)

Phase 2: Submission Period

Launch grand challenge
Execute search and broad casting
Manage submissions
Implement communications plan
Manage support and communications
Reporting and metrics

Phase 3: Close and Assess

Implement review process (which should affirm credibility and fairness)

Phase 4: Award Prizes

Outcomes of a Grand Challenge

Expertise from adjacent, and non-obvious fields
Motivation urgent call to action, achievable objectives, and prizes

Overall, a Grand Challenge is a great way to bring disruptive, world-class innovation that can make an important and significant impact on society. But, it can also be scaled down to the needs of almost any group or organization.

Orin C. Davis is the first person to earn a doctorate in positive psychology. His research focuses on flow, creativity, hypnosis, and mentoring, and it spans both the workplace and daily life. He is the principal investigator of the Quality of Life Laboratory and a freelance consultant who helps companies maximize their human capital and become better places to work.

Live from Front End of Innovation 2012: Colin Nelson on Optimizing the Creation of Breakthrough Innovation

2012-05-15T14:49:00.002-04:00

"There is no innovation without execution."

Open Innovation (OI) helps harness the collective expertise of diverse employees, customer, and supplier groups, and then manages the insights, ideas, concepts and projects to deliver business value.

The guidelines of OI can help solve the common innovation problems that we hear about on a daily basis:

We need to look in new places

We need more diversity, and to include non-experts (and this makes some people nervous)

Information can come from anywhere, so we need to go beyond the team, beyond the department, and even beyond the enterprise. But, extending this far means less control, less security, and more worries about protecting intellectual property. Also, those beyond the enterprise are less well-understood and are harder to engage.

There is currently no systematic way to support ideas coming into the organization, especially because different people in the organization talk to different third parties all the time. How can the firm bring these third-party ideas to bear? One way to do this is to follow the lead of Nokia Siemens and to put the innovation team front and center. They can react to the needs of the business and pull in outside expertise as necessary. (Orin's aside: Along those lines, consider setting up the innovation team as a repository for third-party ideas to which various members/teams are exposed. Make sure that those who bring in ideas are also part of the team that gets to test and executes them. Take a cue from Google or Valve.)

For that matter, how do we ascertain which third parties deserve the company's time for collaborating on innovation? There are four key questions we can ask:

Do they have a vested interest in the company and its innovation?

How is the quality of the relationship with these people?

Can we access the people we need?

Can we still protect our IP? Do we have the requisite legal protections to work with these people?

Moreover, when engaging in Open Innovation processes, there are seven factors that need to be considered:

Purpose (e.g., co-creation, feedback)

Addressee (e.g., supplier)

Driver (e.g., business development)

Transaction (e.g., insights, solutions)

Motivation of invitees (e.g., enthusiasm, brand loyalty)

Engagement model (e.g., joint engagement)

Legal framework (e.g., NDA, disclaimer)

Building a Roadmap to Open Innovation

Objective setting -- be clear about what you're looking for

Internal campaigns -- test your approach with a safe audience and fine-tune the question

Target identification -- focus on the third parties best suited to helping you

Online collaboration -- use your own employees to drive discussion

Action on outcomes and communications -- act on good content and provide feedback

For a great example of competitors using Open Innovation while working together for a common benefit, take a look at the Englight Project.

Orin C. Davis is the first person to earn a doctorate in positive psychology. His research focuses on flow, creativity, hypnosis, and mentoring, and it spans both the workplace and daily life. He is the principal investigator of the Quality of Life Laboratory and a freelance consultant who helps companies maximize their human capital and become better places to work.

Live from Front End of Innovation 2012: Establishing Innovation Pipeline Management in a Global System

2012-05-15T14:31:00.003-04:00

The Coca-Cola logo is an example of a widely-recognized trademark representing a global brand. (Photo credit: Wikipedia)

John Hodgson, Director of Innovation Pipeline Management at The Coca-Cola Company spoke today about Establishing Innovation Pipeline Management in a Global System.

At Coca-cola, their challenge is to make innovation sustainable. They began by innovation - that is their corporate history and heritage. They invited coupons, the six pack, they were one of the first sponsors of the Olympics.

Coca-cola has created various dashboards to visualize their innovation pipelines throughout development stages. Are they balanced across time - is the model effective, is it sufficient globally? Is the foresight for this innovation valuable? Does it meet our targets? Will the market accept it? Probability success score?

Transparency and visibility helps focus on value. Pipeline is also looked at from a consumer needs perspective.It needs to be balanced across strategy, risk, value, efficiency, project types, ...

Valerie M. Russo is a Senior Social Media Strategist at IIR USA with a technology, anthropology, marketing and publishing business acumen. She is a published poet and also maintains a literary blog. She may be reached at vrusso@iirusa.com. Follow her @Literanista.

Live from Front End of Innovation 2012: Scott Mathews on Using the Real Options Method to Valuing Innovation

2012-05-15T13:05:00.001-04:00

While most valuation methods (e.g., NPV, DA) tend to over- or under-value investments when they attempt to factor in risk and timing (respectively), the Real Options (RO) Method values investments correctly while taking risk and timing into account.

The key to RO is differential risk levels. Unlike NPV, which discounts cash flows (e.g., launch costs, operating profits) at the same amount, RO discounts each of them at a different level of risk.

The method starts with a product/service being proposed, and then considers the many decision and design paths using a Monte Carlo method. In line with the principles of project management principles, one then removes the poorest [financial] outcomes.

As Mathews notes, "a real option is a limited-commitment investment in an asset with an uncertain payoff that conveys the right, but not the obligation, to make further investments if the technology looks attractive." Thus, only the upfront cost is at risk.

RO = Probability of Success x (Operating Profits [given success] - Launch Costs)

Probability of success is discounted using the differential discounting of cash flows, and thus it is the percentage of times in the simulation in which the outcomes [in the Monte Carlo simulation] are successful.

As such, RO is the value of the project given all of the risk, and suggests the maximum amount to invest in R&D. That does not guarantee success, and thus it is crucial to be ready with contingent decisions (terminate, delay and do more R&D, launch immediately).

Much of the value of RO is the thought processes that it inspires. "Real options thinking" involves:

Gathering all of the information for different scenarios

Understanding project risk and opportunities

Making small investments to reduce risk and increase certainty

Being flexible and understanding contingencies

It sounds simple, but the execution is the tricky part!

Live from Front End of Innovation 2012: New Rules for Innovation Partnerships in Emerging Markets

2012-05-15T12:08:00.001-04:00

General Mills/Headquarters #2 (Photo credit: GeneralMills)

This morning's panel on New Rules for Innovation Partnerships in Emerging Markets brought Gary Gerber, Former Vice President, Product Innovation at Visa
Dan Malina, Former Senior Vice President, Corporate Development at General Mills, Nick Reilly, Former President at GM Europe, and moderated by Nat Milburn, Former Vice President of Global Business Development at Newell Rubbermaid to the stage at the PARTNERING & CO-CREATION SUMMIT at Front End of Innovation.

Rules to go by:

Know your purpose
Look beyond the usual suspects
Ensure win-win
Assess cultural fit
Cover your assets - early
Establish relationship model & follow
Proactively manage internal expectations

Tips from the panel:
- Start slow, do the front work then go fast
- Look for companies that have a similar customer base
- Give back to your partners
- Look beyond your blinders
- Be flexible
- Put the CEOs in a room together to find resolutions

Valerie M. Russo is a Senior Social Media Strategist at IIR USA with a technology, anthropology, marketing and publishing business acumen. She is a published poet and also maintains a literary blog. She may be reached at vrusso@iirusa.com. Follow her @Literanista.