CIOs Should Help Build Innovation Funnels

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Bookstore chain Borders seemed ahead of its time when it decided to partner with Amazon to sell books online. We know how that ended up. A few years ago, Netflix decided to spin out its DVD-by-mail business under the Qwickster brand, a misstep that ended with a big drop in the company's stock price and a public apology by CEO Reed Hastings. Anyone remember Bic disposable women's underwear? No?

Big, innovative ideas always sound great in concept. Bic had a strong brand, a massive market, and keen knowledge of pricing disposable items. Borders knew books and Amazon knew e-commerce. It's synergy, right? Hastings wanted Netflix to be free to focus on streaming, which he (correctly) saw as the future, so why not divide and conquer? Yet business school curriculums are littered with these and other ideas that sounded like sure winners but failed to pan out.

Today, as CIOs are pushed to come up with innovative, IT-enabled products and services, a key goal is to not become a cautionary tale.

[Are you juggling chainsaws while walking a tight rope? See 3 Common & Costly CIO Mistakes.]

One way to achieve that is to use in-market tests for new ideas. This process involves experimenting with an idea in some markets or stores, or with some employees or customers, and measuring the performance of the test group relative to a well-matched control group. It helps organizations accurately understand which of their ideas work, which should be refined, and which should be thrown out.

But what if such testing is a luxury you can't afford? Maybe your organization is at a critical juncture. Revenue is flat. You've got one big, unproven but innovative-sounding idea that could jump-start profitable growth. But it's risky -- there's a possibility it could actually drive away customers. If you don't make a move, however, your firm's value will continue to slide. If you launch the idea and it doesn't work, you and your company are back to where you began, or worse. In this case, testing won't help you. You have to roll out the idea because you don't have any other alternatives.

This scenario will be all too familiar to executives who have placed all of their eggs in one idea basket -- but it's an avoidable problem. The answer is an "innovation funnel," a formal process for continually collecting lots of ideas, testing them, and implementing the ones that are most effective.

Start this process well before your back is to the wall.

The key to a successful innovation funnel? Don't limit the testing process to just a few big-bang ideas, or those from executives, or those that sound like winners. Ideas for testing should come from across the business and be developed from a broad range of sources, including talking to customers and store managers in the field, monitoring what competitors are doing, and looking at other industries that target your customers.

CIOs can also take the lead on using big data to generate ideas. Analyze historical sales and space-allocation data to generate hypotheses for how to more profitably make space tradeoffs within a store. Mine transaction-level data to understand which items might perform best on the end-cap or in circulars, or which items restaurants should feature in menu inserts. Grab all the ideas, throw them out there, and test each in the real world. That will allow decision-makers to invest more in ideas that work, refine ideas that work in only some situations, and immediately kill the ones that destroy value.

Further, with a healthy innovation funnel in place, executives can prioritize the testing schedule -- that is, try the ideas that have the biggest potential benefit, but also the most risk. In fact, creating a low-risk environment to test the riskiest-sounding ideas (especially those not being pursued by the competition) is the best way to create a sustainable competitive advantage and move the needle on profits.

Put in place a repeatable process to institutionalize test-driven innovation as a part of how your business makes decisions. Organizations become truly innovative only when testing becomes the de facto way to bring innovations to market. Software suites that automate and improve the accuracy of the testing process are enabling many retailers, restaurants, and banks to run hundreds of new ideas through the innovation funnel every year.

CIOs know, maybe better than most, that iffy products and services can be gussied up with fancy names and descriptions, creating an illusion of evidence and success potential. The truth is, most ideas must be considered unproven until they are tested in the real world. A store-within-a-store concept could be an added expense with no net benefit. New promotions could subsidize customers who would have paid for the item at full price. Targeting Millennials could alienate other customer segments.

Smart organizations have enough ideas in the funnel so that they can toss out the ones that don't work and refine and put resources behind the ones that do. A healthy innovation funnel, combined with test and learn capabilities, is the secret sauce for marrying caution with revolutionary success.

If the world wasn't changing, we might continue to view IT purely as a service organization, and ITSM might be the most important focus for IT leaders. But it's not, it isn't and it won't be -- at least not in its present form. Get the Research: Beyond IT Service Management report today. (Free registration required.)