Two categories of "investments" in your innovation portfolio merit extra attention. Here's how to leverage them for success
(An erroneous fact about the founding of Chipotle has been removed in the third paragraph on page 2.)
We should have anticipated the question. Last time, we talked about how to construct your innovation portfolio. And as you will recall, we said the analogy to keep in mind is personal financial planning.Just as you divide your personal holdings among various asset classes??tocks, bonds, and cash??ou want to divide your innovation efforts among different approaches. And then we rattled off the four to use: 1. Evolutionary Innovation. (Technically easy and a clear customer benefit.) This is where you keep current cash cows fresh and incubate brands in the market. 2. Differentiation. (Technically difficult and a clear customer benefit.) This portion of your innovation budget is used for making a distinction between your products and those of your competitors. 3. Revolutionary Innovation. (Technically difficult, and there's no way of knowing ahead of time if the customer will accept it.) Here you search to find groundbreaking ideas for products, services, and business models. 4. Fast-Fail Innovation. (Technically easy but no way of knowing if the customer will accept it.) This is the activity for which you go to market and do your testing and learning there. O.K., a bunch of readers said, "This makes sense to us. But where should we focus our attention?" Well, with the caveat that no two companies are the same, we'd have to say fast fail and evolutionary merit the most attention. [Have faith in your team's adeptness at using customer and sales feedback to fill your pipeline with evolutionary ideas and fast-fail ideas.] Note: When done with rigor, this is more than a full-time job. Are we diminishing the importance of the other two categories? No. But our guess is you don't have to spend a lot more time on differentiation. You are probably pretty good by now at pointing out how what you have is different from what the competition has. And as for revolutionary products, we'd all like to create a category such as the iPod (AAPL), but these ideas are by definition revolutionary, so they most often come from entrepreneurial companies and people currently outside your industry who aren't constrained by your paradigms, fears, politics, etc. So evolutionary innovation should come from inside your halls, and revolutionary from outside your walls. With that by way of background, let's talk about how you beef up your pipeline in the evolutionary and fast-fail categories. Here are two simple techniques to make sure you have plenty of evolutionary ideas: Solution 1: Employ VOS brainstorms. We've all heard of the voice of customer research, where you capture customers' wants, wishes, desires, and expectations (plus the things they hate). But how about the voice of sales? Typically nobody has more immediate and relevant feedback than your frontline sales people. They can create the outcome you want. People support what they create, so make sure your sales team has a fun and consistent process for creating evolutionary product and service ideas. One caveat: If members of your sales team are highly commissioned, they may hold on too tightly to products or services with higher rates, even when your customers are seeking alternatives. Solution 2: Eavesdrop. It's rumored that in the early years, Michael Dell would have his call centers keep small notes on all customer feedback. He would spread these notes out on a table and read them like tea leaves, then create services and products in response to what he saw in the notes. Auditing your call center, attending research sessions, and participating in online discussion boards are all simple, proven ways to hear needs. Here's a build on the idea above: Don't listen alone. Bring along an expert "listener" or two from outside your industry. They will hear things differently from the way you do and point you toward simple opportunities you may otherwise miss. On to the second technique: fast fail. We love this approach. It is fairly low risk??ou don't spend much before you send the product out into the marketplace??nd has an extremely high potential reward as customers express exactly how they want you to alter it. Two ideas on how to do it. Solution 1: Rapid prototyping. One of the best ways to test an idea is to find a company that can launch the concept regionally and would love to do so because it complements its services, products, or brand. You get in-market data and a partner who gives you momentum and future options. This technique allows you quickly to assess and profit from ideas you don't have time to manage. It even allows you to broaden your portfolio by investing in or selling great ideas that don't fit your model or brand. For example, Redbox started within McDonald's (MCD), tested well, and wound up being a great business the hamburger chain's venture arm decided to cash in on by selling. Solution 2: Take it online. Google (GOOG) runs multiple tests on ads and then goes worldwide with the ones that work best; companies are using Twitter as a potential customer relations and resolution channel. Online communities are a great way to get rapid feedback, particularly if you can establish a relationship with the leader of the community and have him or her post the queries. As in personal investing, you want to overweight certain portions of your innovation portfolio. The evolutionary and fast-fail segments probably have the highest potential returns for your internal innovation group.