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Innovation Agreement

Innovation is the ability of an organization to change as its outside world changes. You’ve got to have that in an organization.

—Sir Terry Leahy,

retired CEO of Tesco

A Major Mistake

As we embarked on bringing system thinking to the world of innovation, we made a major mistake. We assumed that everyone understood what innovation was and why it was important.

The mistake was discovered and quantified during a quarterly review of data from our Innovation Culture survey. The survey measures employee and management perceptions and their mindsets toward innovation. We have fielded this survey before every innovation project the Ranch and the Innovation Engineering community have run since 1995. What we learned was shocking.

7 out of 10 managers DON’T AGREEthat there is a need for their organization to innovate!

8 out of 10 managers see NO URGENCYfor their organization to innovate!

It was an embarrassing moment for me. For years, I had mistakenly thought that everyone saw innovation as I did. The reality is that the majority of managers and business leaders don’t see innovation as needed or urgent.

As an aside, we missed this data insight because of the way we had been reporting the data. For 20 years we reported results relative to a world-class standard. During this analysis we looked at the data in the absolute, not on a relative basis. The result was an entirely new insight.

A New Beginning

To address the lack of agreement and urgency that we had discovered from our analysis, we implemented a program of beginning all of our conversations and classes with a discussion on:

WHAT is an innovation?

How do you know one when you see one?

WHY innovate?

Explain in a way that would motivate workers and leaders.

If you can’t agree on WHAT an innovation is or WHY it’s important to innovate, then the rest of the conversation on HOW to innovate is irrelevant.

WHAT Is an Innovation?

If you want to be entertained, ask five people in your organization how they define an innovation. More specifically, how would they know one when they saw one? The word innovation has been used and abused to the point where there is little agreement on its definition.

Our Definition of Innovation

The Innovation Engineering community’s definition of innovation is precise.

Meaningfully Unique

MEANINGFUL in that it has an obvious value to the customer. That is, the idea is so meaningful that customers would willingly give up their existing behaviors for it. Importantly, it is also instantly understandable as to “Why should I, the customer, care?”

UNIQUE in that it is a genuine original. It’s a nonobvious leap that doesn’t exist in the world. Often it offers a quantifiable advantage such that you can put a number on how much better it is versus the existing alternative, if there is one.

How to Evaluate if Your Innovation Is Meaningfully Unique

The simple way to identify if your new or improved product or service is innovative is to ask the question: “Are customers willing to pay more money for it?” No customer wants to pay more money for anything. If they are willing to pay a premium, then the offering must be both meaningful and unique.

Conversely, if they are not willing to pay a premium—because they can achieve essentially the same benefit or effect elsewhere—then it’s a commodity. It’s not a requirement to charge a higher price for an innovation. It’s also possible to charge the same as competing offerings and use the increased demand to drive increased sales volume.

For system improvements or nonprofit causes, the equivalent question is: “Does the innovation offer a value that is so meaningful and unique that other stakeholders (departments, employees, partners) are willing to invest their time, energy, and/or money into changing from what they are doing now to the new approach?”

You can quantitatively assess your Meaningful Uniqueness by asking potential users, customers, and stakeholders for their ratings of Purchase Intent (Meaningfulness) and New and Different (Uniqueness) each on a 0–10 scale. Then you weight the average ratings 60/40 (60% Purchase + 40% New and Different). Our research has found this is the single most predictive measure of marketplace success with an innovation. Details on the data behind this can be found in the academic research article, “The real-time response survey in new product research: it’s about time,” published in the Journal of Consumer Marketing. I wrote it with Lynn Kahle of the University of Oregon and with Mike Kosinski.

Other qualitative ways to identify if an idea is meaningfully unique include:

Is the idea so surprising, so original, so newsworthy that it will generate word-of-mouth? Ideas that offer real news spread by word of mouth. Is your idea so original that customers would share it with others and on the internet via their social media outlets? A common question I ask is: “Would a customer post this innovation on Facebook, and, if so, what would they write?”

Does the idea instantly spark additional ideas? Great innovations set off a chain reaction of ideas because they open our minds to seeing the world in a new and different way.

Is the idea patentable? This is my personal favorite. Patentability is arguably the most clear and specific definition that exists for what is a true innovation. To be patentable, the innovation has to be a “nonobvious leap” for someone who has ordinary skill in the field. And, frankly, an idea that is obvious to someone like your competition would be hard to defend as a real innovation, wouldn’t it?

An innovation is also genuinely Meaningfully Unique when you just can’t stop thinking about it. When an idea is a real innovation, you have an urgency to get started on making the idea real as soon as possible. This is especially important with today’s Millennial generation. They rightly give an even greater importance to working on things that matter. Richard Branson of Virgin put it this way in Screw Business as Usual:

These days I think you’ve got to talk about your value proposition—why are you so proud of your product? And you’ve got to communicate that pride in ways that add up to a young generation that’s very well informed and very idealistic. The young care about where products come from. They care about what the company that makes the product actually does in the world—or not. But you can’t fake it. You have to say, screw business as usual and just do it.

The Three Dimensions of Meaningfulness

For innovative ideas to go from idea to reality, it takes energy. The more meaningful they are, the easier it is to gather the energy required to make them happen. There are three dimensions of meaningfulness:

1. Meaningful to CUSTOMER is a given. The innovation must matter to customers. If the customer doesn’t see the innovation as offering greater benefit value relative to the price charged, then they will demand the benefit of a lower price.

2. Meaningful to the COMPANY is a given. If the organization cannot profitably develop, produce, and deliver the innovation, then there will be no energy to pursue it. And, if the innovation is not aligned with the leadership’s vision of where the company needs to go in the future, then the idea will not happen, no matter how potentially profitable it is in the short term.

Meaningful to customer and company are classic requirements for innovations. However, they are not enough. Making meaningful change happen is hard work. In order to generate the energy needed for change, the idea must have a third level of meaningfulness.

3. Meaningful to WORKERS is critical. For ideas to happen, they must be meaningful to those who are working on the project. Academic research on innovation success confirms that for meaningful change to happen it must be driven by intrinsic motivation.

Quite simply, you can’t “bribe” people to change. They must want to make the change happen themselves. They must love an innovation to see it through from idea to reality.

As Wilbur Wright, one of the Wright Brothers, wrote to his father: “It is my belief that flight is possible, and while I am taking up the investigation for pleasure rather than profit, I think there is slight possibility of achieving fame and fortune from it.”

Meaningfulness Is More Than Skin Deep

A classic mistake is to believe you can take the same old product or service and dress it up with a new “skin” and see dramatically different results. The reality is that, with the internet, your “smoke and mirrors” will be found out very quickly. A bad painting in a fancy frame is still a bad painting.

A classic example of this is the horse carriage business in Cincinnati. In its day, Cincinnati was one of the world’s leaders in the manufacturing of horse-and-buggy carriages. One of the leading companies of the day was the Alliance Carriage Company. As the automobile developed, they rejected it. Instead of innovating their carriages by adding a motor, they turned their energy toward design and marketing—investing in massive variations of design and the mailing of a “successful salesman” brochure that enabled endless choices and a new direct-sale business model. In the end, they resorted to price as their point of difference. As the advertisement above indicates: “We actually give more for less money than any other Buggy or Harness factory in the world.”