In a knowledge society, a company’s competitive advantage derives from the capability to generate and apply insights to innovation. Below, Alessandro Di Fiore considers the principles of the Toyota Production System, and argues that harnessing the power of individual insights as a driver of innovation and growth could represent the ultimate competitive advantage.
In a recent article published in the fall issue of the London Business School BSR magazine we explained why companies are overlooking the compelling power of qualitative judgment and insights in innovation. This article builds on our previous contribution and explains how to develop insight generation skills in our organisations.
In today’s knowledge society, a company’s competitive advantage should derive from a long under-developed asset: the capability to generate and apply insights to innovation. Consider Apple, which has been built thanks to insights rather than analytics. Steve Jobs’s resistance to quantitative research is well known.
The trouble is that most companies invest heavily in developing analytical skills and big data while making limited investments in the insight skills of their personnel. Business leaders believe that creativeness is genetic, its practice cannot be standardised. This is what we call Schumpeter’s bias. We all pay lip service to Schumpeter’s vision of the lone and creative entrepreneur. This image is so entrenched that people unconsciously tend to believe that the magic of an insight is not replicable.[ms-protect-content id=”9932″]
This belief is strictly correlated to the practice that responsibility of innovation and strategy is in the hands of few people. There is an autocratic view: ‘the elected’ are the ones who should do it. The implication is that companies make very limited investments on the development of democratic insight generation skills.
But scientific evidence of the last 30 years proves just the opposite. A famous study on identical twins aged between 15 and 22 years found that while 80 per cent of IQ differences were attributable to genetics, only around 30 per cent of the performance on creativity tests could be explained that way. Many of the traits we assume to be genetically determined are in fact the product of one’s environment. That’s a tremendously significant finding in support of the idea that we can work on learning and improving our creativity and insight generation performance.
So, what we can do to develop the innovation insight generation skills of our organisation?
Learning from the Toyota Production System
Researching and analysing best practices we arrived at a counterintuitive conclusion, which opposes common beliefs and practices. Companies embracing the same principles of the Toyota Production System are the successful ones. Two worlds (manufacturing effectiveness and innovation insight generation), which seem so remote, share the same underlying philosophy for success. The two core principles of the Toyota Production System are:
Responsibility for problem solving is democratic: the search and implementation of ideas to improve performance is spread across units and is pushed down to the lowest possible level in the organisation;
Standardisation of learning and practice: methods and tools to improve operational performance are selected and standardised; then, personnel is systematically trained on them.
Those principles apply to companies that aim to build insight generation skills broadly in their organisation. So, we should first identify and standardise the methods on which to develop our personnel and then train the masses, using a democratic and inclusive view of insight generation.
Insight Generation Skills
Based on our research and experience, there are three main areas on which to invest to boost the insight generation skills of our personnel: the customer’s explorations; strategic innovation’s methods and creative thinking techniques
Those three are areas interrelated and synergic. Let’s see why they are so critical to boost the power of your workforce.
The Customer’s Explorations
We looked at innovative entrepreneurs and analysed their sparks. By considering as a unit of analysis the entrepreneur’s qualities, we didn’t go very far. By shifting the focus to the insight generation process, on the contrary, we found communalities and learned a lot. Innovative entrepreneurs develop their winning value propositions or products through observations and probing of a single or very few customers. It is not a data crunching game. Their sparks are generated by ‘explorations in depth’ of few customers.
Take Geox, the leading footwear brand in Italy and the second worldwide. Geox was built on an initial, groundbreaking insight generated by ‘a day in the frustrations of your customer’ lived in first person by Geox’s founder, Mario Poletti Polegato. Frustrated by his overheated feet during a business trip in Reno, he carved holes in the rubber soles of his sneakers, which immediately gave him some relief. Back to Italy, Polegato started experiment with this new concept of breathable shoes in the workshop of a small footwear company. In a few years, he successfully built a company around an idea that was dismissed by the rest of the industry as ridiculous.
Similarly, look at Michael Bloomberg. Before becoming mayor of New York, he was considered a visionary entrepreneur for the strategic insight at the base of his Bloomberg L.P. company’s success. The providers of financial information needed to offer analytics to help users make sense of the data. The idea should have been obvious to anyone who had ever observed and experienced ‘a day in the frustrations of the trader’ using Reuters or Dow Jones Telerate. Traders used paper, pencil and calculator to run analytics and make their trade decisions. Bloomberg simply observed the actions and frustrations of traders and developed his insight, while hundreds of customer surveys and traditional market research didn’t reveal the opportunity.
These cases and many others (Netflix, Intuit …) highlight two important managerial lessons:
All you need to do is focus on a few customer’s deep dives in search of insights which can inform the concept and value proposition development;
To be effective, a good understanding of the business is a must, because observations and probes are the customer’s explorations, whose direction should be steered, diverted from, focused, and accelerated in a path similar to the ancient diviner in search of water.
This latter logical reflection is confirmed by neuroscience studies demonstrating how creativity at individual level is the result of four factors: motivation, applied skills, creative thinking ability and experience. Knowing the subject matter is essential for the creative process. So, we should not delegate to market researchers or even worse to external agencies. Business leaders, managers and employees should do it themselves. They have the business understanding to walk away with relevant insights and act on it.
Unfortunately, when planning new products, most companies often start by segmenting their markets based on quantitative product attributes and demographics and right at the start they develop a business case. Then, they ask an external market research agency to run a quantitative concept test, a product and purchase intention test before making the ‘final go’ choice. Each year 80-90 percent of new products fail. This terrible performance hasn’t changed in the last 30 years. What didn’t work years ago isn’t working today. Companies can’t blame slow growth and external factors for their product failures. Data are undisputable. Traditional descriptive market research tools and practices, when applied to inform innovation, don’t work.
Companies have not yet conceptualised this customer’s depth deficit issue. It is time for a rethink. We should embrace in our companies an Explorative Discipline and develop the customer’s explorations skills widely in our organisation
If managers and employees should do it, then it is critical to strip the intimidation from market research methods and make them simple to understand, learn and practice. The game is less about inventing new stuff and more about translating the known research methods into simple to use material and tools.
‘Make it easy’ is the mantra that, associated with the standardisation of learning, leads to consistent better practices of individuals and improved quantity and quality of generated insights.
The Strategic Innovation’s Methods
The second pillar is represented by the Strategic Innovation’s methods, which help managers to force their strategic thinking out of the box and break their competitive behaviors.
We have developed a theory of the competition evolution that we call herd plus hell. A good definition of herd is the following: unconscious and uniform behaviors of a group without a leader; emulation is the key ingredient, the tendency of animals to conform to what the others are doing to feel safe. This herd behavior leads companies to do more of the same, i.e. offer more performance on the same standard attributes of the industry and then play catch with whoever has made the first move. In this game, what happens is twofold:
Industries continue to compete on the same factors for years;
Customers tend to not value the additional performance offered, they take it for granted.
The combination of those two elements causes commoditisation which leads to the erosion of industry margins. As consequence, the market becomes a real hell for companies.
“Generating insights and ideas is a matter of combination, making unexpected connections between two or more thoughts. We should train people on well known and established methods on creative thinking to raise their creativity performances.”
We should help our managers to think strategically in a divergent way. The Strategic Innovation’s methods serve this purpose. P&G has internalised Christensen’s disruptive innovation theory and methods. Samsung is using some of the Blue Ocean Strategy tools during the concept stage of its breakthrough innovations.
Take Arena, the global swimwear leader, which trained extensively its executives and managers on Blue Ocean Strategy methods and ECSI Consulting Strategic Innovation’s path related to noncustomers. Participants applied the learnt methods to the business. For example, they hypothesised a list of nonswimmers by using a strategic innovation’s method. One attractive segment they identified were beginners who gave up. The principal problem for this group was functional: they struggled to develop good breathing technique. Breathing is perhaps the biggest challenge for novice swimmers. Poor breathing creates problems while executing strokes, making it harder to move comfortably in the water. It is one of the most common reasons that novices give up learning to swim and turn to non-water gym activities.
This insight led Arena to develop a new device, called the Freestyle Breather, a pair of plastic ‘foils’ or ‘fins’ that can be attached to most marketed goggles. The Freestyle Breather has two main functions: it facilitates inhalation by enhancing the bow wave, making it easier to breathe into the air pocket; it secures inhalation by protecting the mouth and nose from splashes and water drops. Swimming with a Freestyle Breather makes the pool experience so much easier for beginners that it has the potential to convert many novices into regulars at their local pool. Arena reckons that there’s potential to more than double the global population of regular swimmers.
The Creative Thinking Techniques
In addition to the applied skills of the customer’s explorations and strategic innovation’s methods, companies should develop the creative thinking ability of their personnel. This is a bit like training in competitive swimming, or any other sport, which requires 5 hours in the pool to practice sport (customer’s exploration tools), but also 1-2 hours in the gym (creative thinking) to improve your muscle tone and strength as foundation for better swimming performances.
Generating insights and ideas is a matter of combination, making unexpected connections between two or more thoughts. We should train people on well known and established methods on creative thinking to raise their creativity performances. This activity is not complex. Tools are known: Random Words, Scamper, Feature Transfer and many others. There is an industry of trainers that delivers on proven techniques and is waiting for your call. Nevertheless, very few companies have embraced this lever to systematically raise the creativity power of the company’s personnel. In fact, only 30% of our surveyed companies train their personnel on creativity thinking on a regular bases.
Most of the companies do use creative thinking techniques but in a sporadic way. For example, they invite a lateral thinking guru at an off-site event or they create a pool of professionals, internal or external, who are ‘hired’ to facilitate ‘ad hoc’ workshops. The personnel insight generation performance can be boosted if they master creative thinking techniques in their daily work and thinking.
Training the Masses
In the Toyota Production world everybody is responsible for the search and implementation of ideas to improve operational performance. To facilitate the effectiveness of responsible people, Toyota trains them on standard lean and six sigma tools. To ‘train the masses’ is a key requirement of the Toyota Production System. They want people be responsible and take initiative, but at the same time they want those same people to be effective and perform when they take initiative.
The same logic lies behind a company’s performance of insight generation. In fact, the best companies deliver massive insight skills training programmes to their staff to develop a fully democratic and popular skill throughout their organisations.
The case of P&G during the 10 years tenure of A.G. Lafley is a well-known example. Driven by a democratic and inclusive approach, P&G has widened the responsibility for generation of innovation insights from few professionals to include all the staff, and thus made it one of the company’s core capabilities. With a continuous investment in training programmes and innovation methodologies, P&G has successfully built a broad base of ‘insight generators’ across all levels and units of the organisation.
For example, P&G has imported IDEO and Professor Roger Martin’s design thinking methods to explore customers and users; as well as disruptive innovation’s theory of Professor Christensen for strategic innovation. They have not just imported them but adapted those methods to their context and business goals. Then, they have massively standardised practices with the support of step-by-step methodology and process manuals. In parallel, they have built an internal Innovation College with an offer of 10-12 different courses which has trained thousands of people. Training is widespread across the masses as a way to increase individual skills and also improve the attitude toward innovation across the corporation.
P&G’s efforts under Lafley worked well. Based on their published figures, in 2000 only 15% of its innovation efforts met profit and revenue targets. After 10 years the performance indicator moved up to 50%.
Building insight generation skills broadly in the organisation requires a significant shift for most companies not only on personnel development plans but also on organisation, culture and innovation processes.
For many companies, to develop such capability will remain a source of frustration. For the best ones, however, it will represent an exciting journey. Figuring out how to harness the power of individual insights as a driver of innovation and growth could represent the ultimate competitive advantage in today’s knowledge society. Why wait?
About the Author
Alessandro Di Fiore ([email protected]) is the Founder and CEO of the European Centre for Strategic Innovation (ECSI) and ECSI Consulting (www.ecsi-consulting.com). He is a member of the International Education Committee and global leader of Innovation of YPO, the largest chief executives and presidents network in the world. You can follow him on Twitter @alexdifiore.