MAKING LEAN INNOVATION WORK

Tucker J. Marion, Ph.D. Associate Professor Director, Innovation Masters Programs D’Amore-McKim School of Business Northeastern University

To many, lean innovation is simply drawing from the world of startups, creating a minimally viable product, testing it, learning and refining, rinse and repeat until you get it right – in the most resource efficient manner possible. For corporations, this notion is resonating, and rightfully so. If a team of novice 20 something’s can create the next iNEEDit app by reading The Lean Startup, why can’t they do it with highly paid and skilled innovation teams? You might be able to, but… that viewpoint is incomplete, there’s more to lean innovation than rough, rapid, repeat to be truly transformative.

At the Northeastern University’s D’Amore-McKim School of Business we set out to understand – from firms that are new and established, large and small, the important factors that constitute lean innovation. We found that it is a combination of three important areas, that when used alone are important, but when brought together are a catalyst for innovation. They are the integration of a lean development process, design thinking, and an iterative model of development.

The Importance of Lean Innovation

For firms, both large and small, the ability to be ambidextrous in their innovation efforts is essential. Innovation ambidexterity is the ability to be effective at not only exploiting current technology and product/service lines, but skilled in realizing truly new opportunities. Unfortunately these skills are rare. All too often we cite Apple, but beyond its over citation, their last 15 years remains the business case study of our generation. Diverging into new markets (e.g. iPod and iPhone), creating new services (e.g. iTunes), improving and enhancing high margin staples (e.g. the iMac and MacBook lines) and rethinking how those products and services touch the consumer in new ways (e.g. Apple stores and the Genius Bar) have taken Apple to new heights in profitability and market capitalization. There are other examples as well, like BMW. As one of the world’s most profitable automakers, they have done an amazing job at exploiting existing platforms into market different segments (e.g. all the variants of the 3 and 4 series) while investing heavily into exploratory R&D resulting in vehicles like the electric/hybrid i Series (e.g. i3 and i8). There are new venture examples as well, from Tesla to the now Alphabet (Google)-owned Nest.

In innovation research, we look to see how these firms, large and small, new and established can acquire, hone, and leverage their ability to be effective and efficient at both exploitation and exploration of their assets. Over the last decade and half,

Copyright Tucker J. Marion 2015 1 our research with both new ventures and established firms has pointed to a key attribute in developing these skills.

Lean Innovation is a combination of three main methodologies. Each one of them is powerful by themselves, but it is their combination that can be transformative. The first is the ability identify new opportunities and gain a deep understanding of the user through the use of design thinkingi. Design thinking, popularized by design firms such as IDEO, enables individuals and groups to obtain considerate, empathetic knowledge of the user and their context, and through observation, uncover unique and non-obvious insights that can translate into opportunity. Within this methodology are ways to perform structured brainstorming, near zero cost prototyping, and approach user research not from a traditional perspective of quantitative data, but to understand problems in their natural environment. I recently had the opportunity to be involved in a design thinking workshop at Kaiser Permanente innovation labs in Oakland, CA, with leading practitioners and academics. The work being done surrounding healthcare innovation using design thinking was truly inspiring, from rethinking hospital room layout to changing the interaction between doctor and patient. At Northeastern University, the School of Law has used design thinking to develop a law innovation lab, the first of its kind. The potential to leverage design thinking methods to uncover new opportunities has potential in all industry and governmental sectors.

The second methodology is the ability to quickly, and with few resources - develop, prototype, learn, validate, and improve solutions that may leverage an opportunity discovered during the design thinking process. The Lean Start-upii and associated work by Steve Blank is now required reading for any budding entrepreneur.iii And rightfully so, it’s lessons are simple and powerful. However, the concept of fast learning iterations, early validation, and minimal prototypes that illustrate key, but bare-bones functionality are not new. The Wright Brothers, the Apple I computer from 1976, and Microsoft’s early efforts with both MITS and Apple are all examples of a ‘lean start-up’ methodology. Within large firms, these philosophies are starting to take hold. Apple’s iPod was developed by a small, empowered team comprised of individuals both inside and outside the corporate walls. Project Purple, which spawned the iPhone, was run in a similar fashion. Firm’s like the recently acquired EMC have enacted a systematic innovation process that seeks new ideas, funds winners, and allows these teams to pursue their projects through commercialization. Information technology firms like ConstantContact and Citrix are also exploring how internally funded start-up teams can create new businesses. So far, the results have been promising. Through our research, one thing is clear, setting-up idea hunts and having winning teams is the easy part. The hard part is establishing an engrained innovation ecosystem that funds, mentors, empowers, and rewards individuals and teams for these efforts. Building an innovation space and hoping the new ideas come is a sure fire way for the effort to run a short course, and have it fall into the bone yard of failed corporate initiatives.

Copyright Tucker J. Marion 2015 2 The third method is the most familiar to existing corporations, but no less important. That method is lean processes, and not just Total Quality Management or Six Sigma. Those efforts are well established and have a track record for success. Applying lean processes, which are their core are the reduction of waste and continuous improvement, allows innovation teams to tear down some of the bureaucracies and processes that inhibit innovation. All too often promising projects are encumbered by onerous procedures, stage-gates, MS Excel forms, and meetings that detract from value added work. Former Ford CEO Alan Mulally was dismayed at the dysfunction of Ford’s product development process upon taking the reign of Ford in 2006. For a personal perspective, when I was a project manager and lead engineer in the automotive industry (at Ford’s former subsidiary Visteon Corporation), at least half of my time was spent preparing documents to be reviewed in stage-gate meetings.

Entrenched in corporate reports, I thought there must be a better way. In 2001, I began an investigation into product development at new ventures. New ventures represent a unique lens into the innovation process, they either succeed with scant resources or die trying. From biotechnology to consumer products, the research sought to understand key traits in a successful process. My colleagues at Northeastern and I found that the best firms, those that made it to market and were successful, despite overwhelming odds, embraced a few common sense principles. Less paperwork, targeted and effective meetings, fewer decisions points and gates, and an embracing of milestone management were common traits regardless of industry vertical. These firms did not manage the innovation project to a prescribed process, but rather to managed to goals. This is one of reasons why SpaceX has developed rockets and spacecraft in a far shorten timespan and with fewer resources than both NASA and Boeing.

So what does this mean for your corporation? Combine and embrace these three methods: design thinking, lean start-up, and lean processes to develop a sustainable lean innovation process. This can enable you to be ambidextrous at beneficially leveraging your existing products and services, while having the process in place to explore truly new opportunities.

Ten Key Elements of Lean Innovation

In compiling lessons learned from our studies of hundreds of firms, here are ten key elements managers need to know about developing a lean innovation process within your organization:

Embrace the Outsider

Corporations can be insular places. And this inward looking focus can make the innovation process sclerotic. We found that those firms that are willing to ‘shake things up’ and bring in outside resources, from project managers and freelance experts to design firms can clear the cobwebs of your innovation project. Think

Copyright Tucker J. Marion 2015 3 Tony Fadell at Apple – a project manager brought in from the outside, leader of the original iPod team. These outside experts can also be design firms like IDEO or Continuum, designed to help internal projects break the norm. Get a fresh pair of eyes, and not consultants, but hands-on experts to reshape your efforts.

Give Lots of Rope The best innovation teams are those that are empowered, to go inside and outside corporate walls to succeed. In our research, we call these hyper-agile teams, which can leverage the best of what new ventures do best, do anything it takes to move ‘the ball down the field.’ It is essential management give the support and freedom for teams to operate in this fashion. Without it, they are just skunk works teams constrained inside the same corporate bounds.

Spaces are Important

Corporate sandboxes, innovation spaces and labs. Physical space is important. From the work of Thomas Allen in the 1970’s on workspace communication and collaboration to the design of Apple’s new Cupertino, CA headquarters, the layout and fostering of interaction is tied to communication, knowledge flow, and ultimately innovation success. The most innovative firms care about this, and it generates results. However, just establishing an innovation lab will not spur innovation. There’s a lot more than just the space to consider.

Embrace Collaborative Technology

Wikis, Dropbox’s, cloud-based project management tools, video walls. All of these are technology examples designed to promote communication and collaboration. In our research, the highest performing firms from an innovation project perspective embrace these new tools, and are not afraid to try tools from new ventures. These firms don’t wait for corporate IT, they go out and have teams use what they want. Want a video wall? Hook-up continuous Skype between two offices and see what happens. Traditional Gantt charts not cutting it? Try teamwork.com. In empirical studies, we found that new and social tools have a significant, positive impact on the development process.

Design Beyond Appearance and Usability

Design, like innovation, is somewhat of an overused buzzword. A well-designed product that is beautiful, intuitive, functional, and delivers a world class user experience are now baseline features. Every product and service must have those qualities. What sets apart the truly innovative firm is the drive beyond traditional design into business model and service innovation and integration. Tesla doesn’t just sell an electric vehicle, they sell a new approach to buying, maintaining, servicing, fueling and updating a transportation device. Yes the Model S and X are beautiful and clever, but above everything else, it is the underlying business and service model that is transformative.

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Maximize the Minimal

Lean startup methods prescribe the development of functional prototypes to test and validate ideas early, refine, and pivot is needed. Developing a minimally functional prototype (MVP) is a good philosophy, but new technology allows quick and inexpensive development of very credible prototypes. Examples include painted 3D printed prototypes that look and feel like a final product, clean and slick software demos. If you are interfacing with lead users, investors, lead channel partners - spend just a little more time leveraging new prototyping technology to have a more resolved MVP. However, be careful to managing design iterations, as digital technology can foster a culture of endless iterations and churn.

Develop Your Support Network

Having a ‘blackbook’ of expert vendors and partners readily available can maximize lean innovation efforts. This select, expert set of vendors and partners that can design, supply, manufacture, fulfill, etc. with blinding speed and quality. And think about having them be local. While firms like Foxconn and other contract manufacturers (CMs) are great for the largest of firms like Apple, don’t overlook smaller firms and individuals. These can substantially lower costs and speed time to test.

Lead with your Lead

Bring in your lead potential customers early, and have them be a part of the validation process. These can include OEMs, channel partners, and even investors. Have them become vested in the project and its success. Forty percent of new product launches fail, so increase the success of your innovation process by validating with the people that may write the first purchase order. It’s simple and commonsense, but all too often innovations are developed in a vacuum.

Establish ‘Corn Mounds’

In Native American agriculture, careful planting and arrangement of nourishment for the seeds substantially increased crop yields. The corn mound approach was passed through generations and eventually onto European settlers. For your internal innovation projects, create a culture of R&D corn mounds. Idea hunts, structured seed investment, thoughtful incentives for team involvement, a culture tolerant of failure, and a mentoring and coaching structure. While each individually is important, together they represent a thoughtful approach to innovation cultivation. Money, like water in horticulture, is by itself not a recipe for growth.

Strip the Process

Copyright Tucker J. Marion 2015 5 In our investigations of new ventures, the most successful firms eschewed traditional processes like stage-gates, traditional approaches to marketing, and established a culture in which milestones were key. Progress was valued much more heavily than process. For your lean innovation efforts, remove red tape, bureaucracy, and procedures. Focus on milestone management rather than traditional project or program management. A task list in Basecamp.com can be much more effective than a complicated, and always out of date, Gantt chart.

Final Thoughts

Firms need a new approach to the innovation process. Product and service failure rates have remained essentially unchanged for over 40 years. Global competition, pressure from startups, and dynamic technology means that established firms need to be more agile, resource efficient, take more risks, and empower their employees. The process with which they approach new product and service development needs to be more entrepreneurial. Lean innovation is a method that can foster this change. By combining lean startup methods, design thinking, and a lean approach to process and procedure, firms can realize the inherent entrepreneurialism within their employees. But it will take time, investment, and support of upper-level management to engrain these elements.

End Notes i https://hbr.org/2015/09/design-thinking-comes-of-age ii http://theleanstartup.com/ iii https://hbr.org/2013/05/why-the-lean-start-up-changes-everything

For further reading, check out:

Meyer, M.A. and Marion, T.J. 2010. Innovating for Effectiveness: Lessons from Design Firms. Research-Technology Management, 53(5): 21-28.

Marion, T.J. Dunlap, D. and Friar, J.H. 2012. Instilling the Entrepreneurial Spirit in Your R&D Team: What Large Firms Can Learn from Successful Start-ups. IEEE Transactions on Engineering Management, 59(2): 323-337.

Marion, T.J. and Friar, J.H. 2012. Managing Global Outsourcing to Enhance Lean Innovation. Research-Technology Management, 55(5): 44-50.

Marion, T.J., Friar, J.H. and Simpson, T.W. 2012. New Product Development and Early- Stage Firms: Two In-Depth Case Studies. Journal of Product Innovation Management, 29(4): 639-654.

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