Do you want to understand the power of design-driven innovation without needing a visionary leader like Steve Jobs? Interested in how companies like GE are using reverse innovation to develop products for emerging markets? Curious to learn about the role of collaboration in driving effective innovation within a company? Learn how Intuit transformed into a design-driven innovation powerhouse, how discovery-driven planning can help avoid costly mistakes, and how to navigate the risks and rewards of innovation.

HBR's 10 Must Reads on Innovation

In 2007, Scott Cook, co-founder of Intuit, realized he wasn't the next Steve Jobs during a lackluster PowerPoint presentation. Cook had envisioned Intuit achieving design-driven innovation akin to Apple. However, he discovered an alternative approach that transformed Intuit into a design-driven innovation powerhouse.

The turning point came in 2004 with Intuit's adoption of the Net Promoter Score (NPS), which gauges customer likelihood to recommend a product. Despite initial success, by 2007, NPS growth stalled, prompting Cook to seek advice from Claudia Kotchka, P&G's VP of design innovation. This led to a pivotal off-site meeting for Intuit's top managers focused on design's role in innovation.

Cook's lengthy presentation fell flat, but a hands-on exercise led by Stanford's Alex Kazaks captivated the participants. This sparked the idea that grassroots innovation could drive success. Cook enlisted Kaaren Hanson, a talented design director, to create a team of "innovation catalysts"—design-thinking coaches who would help teams across Intuit develop prototypes, run experiments, and learn from customers.

Hanson's team began implementing Design for Delight (D4D), a process involving "painstorms" to identify customer pain points, "sol-jams" for brainstorming solutions, and "code-jams" to quickly develop prototypes. This approach dramatically increased innovation activity. For example, a tax group created SnapTax, a highly-rated mobile app, by iterating with customers weekly.

Another success story emerged from India, where Intuit developed Mobile Bazaar, a text-based marketplace for farmers. Rapid experimentation led to significant price increases for farmers, demonstrating the power of D4D.

Under new CEO Brad Smith, Intuit expanded the innovation catalyst program, training more employees and embedding design thinking into leadership training. This led to a surge in customer experiments and successful mobile apps.

Ultimately, Intuit's transformation proved that while Cook wasn't another Steve Jobs, the company didn't need one. By empowering employees with design thinking tools and fostering a culture of experimentation, Intuit achieved remarkable innovation and customer delight.

The Innovation Catalysts by Roger L. Martin

While working with a client at a Fortune 500 company, the authors suggested forming a special group to execute a new growth strategy and casually referred to it as the "innovation team." The client's reaction was startling—he rolled his eyes and dismissed the idea, fearing the team would lack discipline and accountability while the rest of the organization did the real work.

This hostility is common. Innovation teams often view the operations people as bureaucratic dinosaurs, while the latter see the innovators as undisciplined upstarts. Many executives believe separating these groups is essential for innovation, but isolating them is a mistake. Innovation initiatives thrive on a partnership between a dedicated team and what we call the performance engine—the unit responsible for ongoing excellence.

This partnership bridges hostilities and leverages a company’s existing resources and know-how. Over the past decade, we studied numerous innovation initiatives and found that a collaborative model is versatile and effective across various innovation categories.

Take Westlaw, a legal publisher that faced stagnation in growth after transitioning to online databases. To restart growth, Westlaw expanded its product line, launching new digital products like an online database of legal briefs. The effort succeeded because Westlaw created a partnership between a dedicated team and its performance engine, following three essential steps: dividing labor, assembling the right team, and proactively managing conflicts.

BMW faced similar challenges when designing its first hybrid vehicle. The project required deep collaboration among battery and brake specialists, which their existing structure couldn't provide. By forming a dedicated team, BMW accelerated progress while letting its performance engine handle other aspects of vehicle design.

Lucent, recognizing the need for a new approach to services, launched a dedicated team that grew to generate $2 billion in revenues. The team included outsiders and adopted new HR policies to ensure success.

At WD-40, CEO Garry Ridge formed Team Tomorrow to develop breakthrough products like the No-Mess Pen. Despite conflicts, the team succeeded by fostering collaboration and gaining support from Ridge, who ensured both innovation and core business teams felt valued.

These examples illustrate that innovation requires a collaborative partnership between dedicated teams and performance engines. By following the steps of dividing labor, assembling effective teams, and managing conflicts, companies can successfully execute innovative initiatives and achieve long-term growth.

Stop the Innovation Wars by Vijay Govindarajan and Chris Trimble

In May 2009, General Electric (GE) announced a $3 billion plan to develop 100 healthcare innovations aimed at lowering costs, increasing access, and improving quality. Among the standout products were a $1,000 handheld electrocardiogram (ECG) device for rural India and a portable, PC-based ultrasound machine for rural China. These products, initially designed for emerging economies, are now finding new applications in the United States—a process known as reverse innovation.

Reverse innovation contrasts with the traditional glocalization strategy, where companies create high-end products in wealthy countries and adapt them slightly for global markets. This strategy worked well when rich countries dominated the market, but the rapid growth of economies like China and India necessitates a new approach.

Jeffrey R. Immelt, GE's CEO, along with Vijay Govindarajan and Chris Trimble from Dartmouth’s Tuck School of Business, explain that GE must excel at reverse innovation to stay competitive. The portable ultrasound machine developed for China exemplifies this approach. It gained popularity in rural clinics and found new uses in developed countries, such as diagnosing conditions at accident sites and aiding anesthesiologists in operating rooms.

GE’s efforts in reverse innovation are driven by the need for autonomy and local focus. Local growth teams (LGTs) in countries like China and India are given the power to develop and manage products tailored to their markets. For example, Diana Tang and J.K. Koo led the compact ultrasound project in China, creating a product that met local needs and budget constraints.

Senior management plays a crucial role in supporting these initiatives. Jeff Immelt frequently visits China and India, engaging with local teams and government leaders to understand opportunities and challenges. This hands-on approach helps GE connect the dots and act as a catalyst for innovation.

GE's strategy also involves creating separate P&Ls for countries like India, giving them access to global R&D resources and considerable autonomy. This shift represents a significant departure from the company’s traditional matrix structure, emphasizing product over country.

Despite progress, challenges remain. Some GE businesses are less enthusiastic about reverse innovation, and the majority of R&D resources are still focused on developed markets. Changing the mindset of managers who excelled at glocalization is essential for success.

In short, GE’s journey of reverse innovation highlights the importance of local autonomy, senior management support, and a willingness to adapt organizational structures. This strategy is vital for thriving in both emerging and developed markets.

How GE Is Disrupting Itself by Jeffrey R. Immelt

We all know that people “hire” products and services to get jobs done, like office workers using word-processing software to create documents or surgeons using scalpels to dissect soft tissue. Despite this, few companies use this perspective to discover innovation opportunities. Instead, they rely on customer interviews, which rarely uncover the best ideas for growth.

Lance A. Bettencourt and Anthony W. Ulwick developed a system called “job mapping,” which breaks down the task the customer wants done into discrete steps. This method helps companies identify where customers might need more help from a product or service at each step. Armed with a job map, companies can analyze the drawbacks of current solutions and identify metrics customers use to measure success.

Job mapping differs from process mapping by focusing on what customers are trying to achieve, not what they're currently doing. For example, an anesthesiologist isn't just checking a monitor but is trying to detect changes in patient vital signs. By mapping out each step, companies can find new ways to innovate and differentiate their offerings.

Over the past decade, Bettencourt and Ulwick have mapped customer jobs in various industries. Their work revealed that all jobs have a universal structure with steps like defining job requirements, locating needed inputs, preparing components, confirming readiness, executing the task, monitoring results, making modifications, and concluding the job. Identifying innovation possibilities within each step can lead to breakthrough offerings.

Take washing clothes, for instance. People often don't notice stubborn stains until after the clothes are dried and folded. A washing machine that detects persistent stains during the wash cycle would be highly appealing. Similarly, Apple redefined music management, enabling customers to acquire, organize, listen to, and share music, creating a new market space.

To create a job map, companies should deconstruct the job a customer is trying to get done, identifying what must happen at each juncture for the job to be successful. This involves understanding pre-execution, execution, and post-execution steps. For example, Weight Watchers simplifies the resource-planning process for dieters, while U-Haul offers moving kits to streamline gathering supplies.

Once a job map is complete, companies can look for opportunities to improve each step, whether it's by making execution faster, reducing variability, or enhancing output quality. Involving diverse experts in this process can help uncover valuable insights. For instance, Bosch added adjustable levers to its saws to speed up bevel adjustments, and Oracle's software optimizes markdown timing for merchandisers.

Ultimately, understanding that customers hire products, services, software, and ideas to get jobs done enables companies to dissect those jobs and discover innovation opportunities essential for growth.

The Customer-Centered Innovation Map by Lance A. Bettencourt

Innovation is the lifeblood of growth, yet most companies shy away from major risks. Minor innovations make up a whopping 85-90% of development portfolios but fail to drive significant growth. 

From 1990 to 2004, the percentage of major innovations in development portfolios dropped from 20.4% to 11.5%, despite a rise in growth initiatives. This focus on "little i" projects leads to internal traffic jams, delaying all projects and stressing organizations without achieving revenue goals. It's the risky "Big I" projects—those new to the company or the world—that push firms into new markets or technologies, generating substantial profits. 

A study revealed that only 14% of new-product launches were substantial innovations, yet they accounted for 61% of all profit from innovations. Companies often avoid these Big I projects due to their perceived risks and delayed rewards. However, avoiding risk altogether can stifle growth. George S. Day recommends balancing innovation portfolios with a disciplined approach using two tools: the risk matrix and the R-W-W ("real, win, worth it") screen.

The risk matrix helps estimate each project's probability of success or failure based on familiarity with the market and technology. The R-W-W screen, created by Dominick M. Schrello, evaluates individual projects' feasibility, helping reveal risk exposure and business potential. Companies like General Electric and 3M have used these tools to assess over 1,500 projects, ensuring that their innovation portfolios are strategically balanced and risk-managed.

For a practical example, consider McDonald's failed attempt to offer pizza. They assumed it was closely adjacent to their existing offerings and targeted usual customers. However, employees couldn't make and serve pizza within 30 seconds, violating McDonald's service-delivery model, and their brand didn’t align with pizza. This misstep highlights the importance of thoroughly assessing risk and innovation potential.

Day suggests a systematic process to screen projects repeatedly during development, ensuring continuous improvement and alignment with strategic goals. This approach helps companies identify and fix problems early, contain risks, and focus on projects that are worth pursuing. Innovation is messy and iterative, but with the right tools, companies can navigate risk and reward effectively, driving growth and achieving revenue goals.

Is It Real? Can We Win? Is It Worth Doing? by George S. Day

Many product-development managers face difficulties in delivering projects on time and within budget, often due to misconceptions about the process. Stefan Thomke and Donald Reinertsen, who have spent over 50 years advising companies, identify six myths that hinder product development:

1. High Utilization of Resources: Managers believe that keeping employees constantly busy will speed up projects. However, this leads to delays and reduced efficiency. For example, a pharmaceutical firm faced long wait times for animal testing results due to high utilization rates. Solutions like scheduling buffers or increasing capacity can alleviate this.

2. Large Batches Improve Economics: Companies often believe that processing work in large batches is economical. Smaller batches, however, can accelerate feedback, improve cycle times, and reduce defects. For instance, a software company reduced cycle time and defects significantly by testing smaller batches more frequently.

3. Stick to the Plan: Plans often change due to new insights and evolving conditions. Treating the plan as a hypothesis and revising it constantly leads to better results. Thomas Allen's study on aerospace engineers shows how preferences change frequently during development.

4. Start Projects Immediately: Starting projects without full commitment dilutes resources and slows progress. Managing the number of active projects and matching the start rate to completion rate can prevent resource dilution.

5. More Features are Better: Adding more features doesn't always add value. Companies like Bang & Olufsen and Apple focus on simplicity and solving problems elegantly. Steve Jobs emphasized finding the key principle of a problem for beautiful solutions.

6. Get It Right the First Time: Demanding perfection on the first try discourages innovation. Rapid and frequent iterations, even if they fail initially, lead to better products. Team New Zealand's iterative approach helped them win the 1995 America's Cup by testing and refining ideas quickly.

Thomke and Reinertsen suggest practical guidelines to overcome these fallacies, emphasizing visible queues, resource slack, smaller batches, iterative planning, and early experimentation. A culture that embraces quick feedback and rapid experimentation fosters innovation and ensures better product development outcomes.

Six Myths of Product Development by Stefan Thomke and Donald Reinertsen

Innovation is an ever-evolving necessity for corporate growth, yet many companies repeatedly fall into the same traps, leading to mediocre results and fizzled enthusiasm. Rosabeth Moss Kanter’s decades of research highlight how innovation cycles recur every few years, often sparked by competitive challenges and technological advancements.

In the late 1970s and early 1980s, the rise of the global information age saw companies like Apple and IBM revolutionizing product development and manufacturing processes. The late 1980s brought a wave of restructuring driven by buyout groups and the privatization of state-owned enterprises. The 1990s digital mania had established companies scrambling to adopt new business models, often leading to failures such as AOL's acquisition of Time Warner.

Kanter identifies recurring mistakes in strategy, processes, structure, and skills which stifle innovation. Companies often aim for blockbuster innovations, overlooking smaller yet profitable ideas. For example, Time Inc. stagnated by waiting for the next People magazine-sized success until it diversified its portfolio under new leadership. Similarly, AlliedSignal’s rigid financial metrics stifled Internet-based innovation by requiring new ideas to adhere to the same criteria as established businesses.

Effective innovation strategies involve broadening the scope beyond products to include new services and processes, as seen in Ocean Spray's successful introduction of Tetra Pak’s paper bottles. Companies should adopt an “innovation pyramid” with a few big bets at the top, a portfolio of midrange ideas, and a broad base of early stage innovations. This approach was successfully implemented by Gillette, leading to a stream of profitable ideas from battery-powered toothbrushes to innovative marketing campaigns.

Adding flexibility to planning and control systems is crucial. For instance, the BBC’s hit comedy "The Office" was born from a flexible budgeting process that allowed for creative reallocation of funds. IBM’s $100 million innovation fund supports ideas arising from its global InnovationJam, demonstrating the importance of flexibility in fostering innovation.

Companies must also facilitate close connections between innovators and mainstream businesses to avoid cultural clashes and missed opportunities. Williams-Sonoma successfully integrated its e-commerce ventures by ensuring they enhanced existing channels rather than competing with them. Similarly, Seagate’s revival involved promoting strong relationship skills over technical prowess, leading to successful cross-functional innovation teams.

Cultivating leadership and interpersonal skills is essential. Leaders like Shelley Nandkeolyar at Williams-Sonoma and Gail Snowden at Bank of Boston succeeded by building cohesive teams and fostering collaboration. IBM’s culture of collaboration, driven by leaders like Sam Palmisano and Nick Donofrio, exemplifies how a supportive environment can propel innovation.

In short, avoiding the classic traps of innovation requires a balanced approach that includes broadening the scope, adding flexibility, strengthening connections, and cultivating leadership skills. Learning from past failures and successes can guide companies in creating a fertile ground for future innovations.

Innovation: The Classic Traps by Rosabeth Moss Kanter

Business lore is filled with tales of smart companies venturing into new territories and incurring huge losses. Consider Disney’s billion-dollar loss with Euro Disney, Federal Express’s $600 million Zapmail fiasco, or Polaroid’s $200 million instant movie misadventure. These ventures highlight the risks inherent in strategic moves into unknown markets, products, or technologies.

Rita McGrath and Ian MacMillan propose a solution to these costly failures: Discovery-driven planning. This method differs from conventional planning, which assumes that future outcomes can be predicted based on past experiences. Discovery-driven planning, on the other hand, acknowledges the high ratio of assumptions to knowledge when starting new ventures. It systematically converts these assumptions into knowledge, evolving the plan as new data emerge.

Take Disney’s Euro Disney venture, for example. Despite their success with Tokyo Disneyland, Disney assumed Euro Disney would follow a similar trajectory. They predicted half the revenue from admissions and the other half from hotels, food, and merchandise. However, assumptions about pricing, visitor behavior, and spending habits proved flawed, resulting in significant financial losses. Had Disney employed discovery-driven planning, they could have tested and adjusted their assumptions early on, potentially saving millions.

McGrath and MacMillan suggest a five-step process to ensure successful venture planning:

1. Bake Profitability into Your Venture’s Plan: Start with a reverse income statement, determining the profit required to justify the venture, and then calculate the necessary revenues to achieve this profit.
  
2. Calculate Allowable Costs: Identify the activities required for production, sales, service, and delivery, and ensure these costs align with the required revenues to deliver significant returns.

3. Identify Your Assumptions: List all assumptions behind your profit, revenue, and cost calculations. Use disagreements to trigger discussions and adjust as necessary.

4. Determine If the Venture Still Makes Sense: Check assumptions against the reverse income statement. If the venture cannot achieve the required profit, it should be scrapped.

5. Test Assumptions at Milestones: Use milestone events to test and update assumptions, postponing major resource commitments until justified by evidence from previous milestones.

Applying this to Kao Corporation’s entry into the floppy disk market in 1988, Kao leveraged its surfactant technology from soap and cosmetics to produce high-quality, low-cost floppy disks. Using discovery-driven planning, Kao could have started with a reverse income statement, identifying necessary profits, revenues, and allowable costs. They would have tracked key assumptions and tested them at milestones, ensuring the venture’s viability before making significant investments.

Discovery-driven planning offers a disciplined approach to new ventures, transforming assumptions into knowledge. It helps managers address uncertainties at the lowest possible cost, potentially avoiding the pitfalls of ventures like Euro Disney, Zapmail, and Polaroid. This method is invaluable for any strategic undertaking fraught with uncertainty, from new market entries to technology development, providing a robust framework for navigating the unknown.


Discovery-Driven Planning by Rita Gunther McGrath and Ian C. MacMillan

Peter F. Drucker explores the essence of entrepreneurship in "The Discipline of Innovation," debunking the myth of the entrepreneurial personality. Instead, he emphasizes that successful entrepreneurs share a commitment to systematic innovation. Innovation, Drucker argues, is not limited to any particular type or size of business; it is the driving force behind entrepreneurship, aiming to create or enhance wealth-producing resources.

Drucker identifies seven key areas where innovation opportunities arise: unexpected occurrences, incongruities, process needs, industry and market changes, demographic changes, changes in perception, and new knowledge. For instance, IBM's unexpected success with libraries, Ford's pivot from the Edsel's failure to the Mustang, and Alcon Laboratories' enzyme modification for cataract surgery exemplify how unexpected events can be leveraged for innovative breakthroughs.

He highlights the significance of understanding process needs, as demonstrated by Japan's traffic system and the birth of modern media through innovations like Linotype and advertising. Changes in industry structures, such as the rise of Donaldson, Lufkin & Jenrette in the brokerage industry, present another fertile ground for innovation.

Drucker underscores the importance of demographic changes, noting how Japan’s foresight in robotics led to a significant competitive advantage. Similarly, changes in perception, like America's obsession with health despite improved statistics, create new markets for health-related products and services.

Knowledge-based innovations, while often celebrated, require long lead times and the convergence of various kinds of knowledge. Drucker cites examples like modern banking and the computer, which evolved from multiple strands of knowledge over decades. Despite their complexity, these innovations can be managed with careful analysis and understanding of user needs.

Effective innovation, according to Drucker, starts small, focuses on clear applications, and aims for leadership from the outset. It demands hard, purposeful work rather than flashes of genius. The foundation of entrepreneurship, he concludes, lies in the disciplined practice of systematic innovation, which involves looking, asking, listening, and working analytically to satisfy specific opportunities.

Originally published in 1985, Drucker's insights remain relevant, emphasizing that innovation is a structured process accessible to anyone willing to commit to it.

The Discipline of Innovation by Peter F. Drucker

For years, the authors wondered why smart, hardworking managers in well-run companies struggle to innovate successfully. They've identified several culprits, but now they point to three financial tools that hinder innovation: discounted cash flow (DCF), net present value (NPV), and the emphasis on earnings per share (EPS).

Misapplied Tools:
Discounted cash flow and net present value calculations often lead to underestimating the real returns and benefits of innovation. Managers mistakenly compare the cash flows from innovation against a scenario where the company's current health persists indefinitely, ignoring that competitors' investments could deteriorate financial performance over time.

Fixed and Sunk Costs:
Leveraging existing brands and structures instead of investing in new capabilities shackles established companies. Nucor's entry into the sheet steel market showcases how disruptive innovators, unencumbered by fixed and sunk costs, can outcompete incumbents like USX, which clung to outdated technology.

Earnings per Share:
The focus on EPS growth drives managers to prioritize short-term stock performance over long-term health, leading to reluctance in investing in innovations with delayed payoffs. This pressure is compounded by the principal-agent theory, which ties executive compensation to stock price, further skewing priorities.

Stage-Gate Innovation vs. Discovery-Driven Planning:
The stage-gate process favors incremental improvements over disruptive innovations due to its reliance on projected revenues and profits. Discovery-driven planning offers a better approach by focusing on testing assumptions that must prove true for success, thereby supporting intelligent investments in future growth.

Managers need better tools to understand markets and develop strategies for innovation. By challenging traditional financial paradigms and adopting alternative methodologies, they can foster successful innovation and long-term growth.

Innovation Killers by Clayton M. Christensen

One key insight is the transformative power of design-driven innovation, which doesn’t necessarily require a visionary leader like Steve Jobs but rather a culture that empowers grassroots creativity. Tools like the Net Promoter Score and methodologies such as Design for Delight can help identify customer pain points and foster continuous experimentation and prototyping, driving substantial innovation.

Another interesting point is the importance of collaboration between dedicated innovation teams and the performance engine of a company. Effective innovation requires leveraging existing resources and expertise while managing the potential conflicts that arise from different working styles and priorities.

Reverse innovation is also crucial, with companies like GE demonstrating the value of developing products for emerging markets and then adapting them for developed economies. Local autonomy and support from senior management are essential for the success of such initiatives.

Understanding customer jobs through job mapping can uncover new innovation opportunities by focusing on the tasks customers want to accomplish, rather than just improving existing processes. This approach can lead to breakthrough products and services that better meet customer needs.

Balancing risk in innovation portfolios is vital, as minor innovations often fail to drive significant growth. Tools like the risk matrix and R-W-W screen help companies strategically manage their innovation efforts, ensuring a mix of both incremental and substantial projects.

Practical guidelines for overcoming product development myths include maintaining visible queues, allowing for resource slack, working in smaller batches, iterative planning, and promoting early experimentation. This fosters a culture of quick feedback and rapid iteration, crucial for successful innovation.

Innovation cycles tend to repeat, often driven by competitive pressures and technological advancements. Effective strategies involve broadening the scope of innovation, adding flexibility, strengthening connections between innovators and mainstream businesses, and cultivating leadership skills.

Discovery-driven planning offers a disciplined approach to new ventures, converting assumptions into knowledge and evolving plans as new data emerge. This method helps address uncertainties and avoid costly mistakes.

Innovation is not about flashes of genius but a structured process that involves systematic analysis and purposeful work. Adopting disciplined innovation practices can lead to significant breakthroughs.

Finally, traditional financial tools like discounted cash flow, net present value, and earnings per share can hinder innovation by prioritizing short-term gains over long-term growth. Managers need to adopt alternative methodologies that support intelligent investments in future growth.

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