“Innovation, as far as we’re concerned, is one of the key drivers of everything that goes on in business,” said Sir Andrew Likierman, the dean of London Business School. The school opened its Institute of Innovation and Entrepreneurship this year.

Innovation drives differentiation. You can’t define and dominate a market niche without it. But how do you innovate. Hopefully I’ve trapped a few thoughts worth considering.

Sources of Innovation

Clearly a little art meeting science here but there are there some obvious techniques to produce some innovative ideas. I’m thinking product and service innovation that is delivered to customers.

  • Customers – customers can be a terrible place for ideas, pushing you down a large list of enhancements, or new products that will never sell. Ironically the customer that suggested the new product is now hiding and can’t be found with a search warrant! However working with long standing customers in an early adopter type program can lead to great innovation. You need to be clear on agreed concessions e.g. customer gives you critical feedback in return for a price break.
  • Staff – I’ve seen “Innovation Days” work well in terms of generating a collection of ideas including staff not directly related to development or production. Sales professionals who are living inside the world of your customers are a particularly rich source of ideas. Your marketing team who are studying the market constantly for breakthrough stories should also be tuned into ideas that might get traction.
  • Influencers and trusted advisers – You might be close to some key journalists or analysts in your sector who see trends or themes that might jump-start some innovative thinking. Lawyers, ad agencies, Board members can all be rich sources of ideas especially if you are clear on the niche you are trying to dominate.
  • Process Maps – sometimes it is possible to stand back and position your product as part of a bigger picture e.g your products solves some of the issues within the Software Application Lifefcycle or within the Supply Chain Process. As you look at the complete process, obvious gaps often appear in your product road map. To offer a client say a complete service in some aspect of IT Governance or Value Engineering Services or Payroll Services or Publishing Consultancy then you need to deliver a new offering to stay credible.
  • Competitors – A fairly easy source of ideas but here is a contrarian idea: it might also lead to you simplifying down your offering, curating the features of your product as a differentiator from all the other overblown products.
  • Query Resolution lists – Maintaining a formal bugs/enhancement database is essential to ensure you constantly have a repository of ideas worth considering before throwing resources at more ambitious projects.
  • Business Drivers – One of the shocking realities is that we tend to worry about why we lose deals, we concentrate on the negative. Reverse thinking is needed. Ask the question, why do our customers buy from us? What are the business drivers motivating customers to spend money?

Managing Innovation

Of course not all ideas are born equal. How do you allocate resources? What ideas do you chase down?

One fun idea to keep everyone focused on the right stuff is to break all innovation into three big color buckets (spreadsheets):

Red – Bugs, enhancements needed urgently to satisfy existing customers, to ensure we remain competitive. The stuff that’s killing us in the marketplace.

Blue – Enhancements to our products that deliver uniqueness, more sophistication, less sophistication, improved integration with other systems, improved user help, faster performance.

Green – Brand new products. (New versions of existing products can be either blue or green). Generally speaking these products offer a new line of business. These have the potential to quantum leap sales.

With all product innovation we need to be clear the customer notices. Does this innovation deliver a value proposition that the customer will be able to use. Is there instant gratification at the customer end? Is it a priority? I’ve had innovations presented to me in the magazine industry, the software tools sector, investment banking world where I was not convinced the customer would value the new product or service and certainly there was serious doubt over their willingness to pay for it.

iRobot designs and builds robots that make a difference. iRobot was founded in 1990 when Massachusetts Institute of Technology roboticists Colin Angle and Helen Greiner teamed up with their professor Dr. Rodney Brooks with the vision of making practical robots a reality. Today after a roller coast ride for shareholders the company is moving back to their peak valuation at just under $1Bn. Their approach to innovation is quite simple. Three horizons. Short term defined as the next 12 months, medium term defined as going out 18 months to two years and long term. However all innovation has to pass the same stern test. There needs to be a well defined value proposition for the customer wrapped around it.

There are two levels of Return on Investment (ROI) at play here. The ROI of your R&D ie what are the true investment costs needed to bring this product to market compared with the potential revenue streams. Secondly the ROI at the customer end. Make no mistake even for the smallest of purchases our customers are working out ROIs on their investment in your products.

Be as clear as you can on both levels of ROI.