CIOs Should Help Build Innovation Funnels - InformationWeek

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IT Leadership // IT Strategy
Commentary
10/28/2014
09:06 AM
Jonathan Marek
Jonathan Marek
Commentary
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CIOs Should Help Build Innovation Funnels

Entrepreneurs know that one big idea can give rise to a killer product -- or sink a company. CIOs can take the lead in separating hot from not.

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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.)

Jonathan Marek, Senior Vice President at APT, leads engagements with casual dining, quick service restaurant, specialty retail, big box retail, and banking clients. He has helped clients improve performance through better capital strategy, new concept development, emerging ... View Full Bio
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pcharles09
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pcharles09,
User Rank: Ninja
10/30/2014 | 10:55:17 PM
Re: Culture
@SunitaT0,

Agreed. This is the way innovation flourishes. When people are left alone to be creative & not bound by managers and deadlines.
yalanand
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yalanand,
User Rank: Ninja
10/29/2014 | 11:02:14 PM
Re: Culture
"How do you build a culture where employees are not afraid to throw out ideas that may sound wacky but could end up being brilliant? In some startups this is natural, but in large, hierarchical orgs, I can imagine that lower-level people are leery of putting off-beat thoughts out there. Do you have advice for encouraging wide, top to bottom participation?"

@Lorna: Top to bottom participation in a company is near impossible if there aren't enough managing involved, and managers and engineers don't go well. In an employee meeting headed by the CIO, the management rejected all of our ideas on how to approach the market with a particular product, because we were designing it, resulting the product to show slow growths in that market, before the company decided to reroute the product to a different market site.

In most meetings employees are at the mercy of management. This must change in order to ensure top to bottom participation.
yalanand
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yalanand,
User Rank: Ninja
10/29/2014 | 10:57:16 PM
Re: Culture
"Every employee must know that since they work in a company, they have to be innovative, and thus they must have the ability to hear what the others have to say. Also, every company has very little budget given to R&D, because most of the R&D projects are given after being eliminated in a 3 step process: general voting, practical applications, and funding/profit."

I agree. Most freshers after recruitment are thrust into the grinders of IT industry without being given the full scope of the world they are stepping into. Some are lucky though, when I was recruited I was given a full review by my manager. He clearly pointed out the things he wants. "What you can do, and what we want to accomplish as a company, these are important things to remember."
SunitaT0
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SunitaT0,
User Rank: Ninja
10/28/2014 | 11:27:54 PM
Re: Culture
"How do you build a culture where employees are not afraid to throw out ideas that may sound wacky but could end up being brilliant? In some startups this is natural, but in large, hierarchical orgs, I can imagine that lower-level people are leery of putting off-beat thoughts out there. Do you have advice for encouraging wide, top to bottom participation?"

Every employee must know that since they work in a company, they have to be innovative, and thus they must have the ability to hear what the others have to say. Also, every company has very little budget given to R&D, because most of the R&D projects are given after being eliminated in a 3 step process: general voting, practical applications, and funding/profit.
SunitaT0
50%
50%
SunitaT0,
User Rank: Ninja
10/28/2014 | 11:22:19 PM
Re: Culture
"Put practices in place like Google did with Labs where employees get 1hr each week to do whatever they want sans micromanagement. Then at the end of the month or quarter, they can present what they made."

The direction that Google has gone when managing employees in the marketing/technical sector has been adopted in many companies. GE managers give 2 hours to every technical employee to take part in management discussions, while the employees in management are given the same hours to take part in technical discussions, this is done to bridge the gap between engineers and managers.
pcharles09
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50%
pcharles09,
User Rank: Ninja
10/28/2014 | 8:13:15 PM
Re: Culture
@Lorna G,

Put practices in place like Google did with Labs where employees get 1hr each week to do whatever they want sans micromanagement. Then at the end of the month or quarter, they can present what they made.
Laurianne
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Laurianne,
User Rank: Author
10/28/2014 | 2:23:06 PM
One innovation approach
Take a peek inside Fidelity Labs, an innovation incubator inside the financial services giant:  http://www.informationweek.com/software/information-management/fidelity-labs-financial-services-tech-incubator/d/d-id/1316211
Lorna Garey
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Lorna Garey,
User Rank: Author
10/28/2014 | 11:04:09 AM
Culture
How do you build a culture where employees are not afraid to throw out ideas that may sound wacky but could end up being brilliant? In some startups this is natural, but in large, hierarchical orgs, I can imagine that lower-level people are leery of putting off-beat thoughts out there. Do you have advice for encouraging wide, top to bottom participation?
nasimson
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50%
nasimson,
User Rank: Ninja
10/28/2014 | 9:49:19 AM
Innovation funnels
With this rare blog published today, I really look forward for community participation on this thread.

Its loaded with such practical advice. Our industry, telecom, is struggling with how to manage innovation. In tight budgets, highly regimented structures, decades old ways of doing business, managing innovation is a challenge. I will definietly try out a few models prescribed here.

Eds, we need more of such content please.
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