https://www.linkedin.com/learning/paths/ayala-land-inc-digitali-cx-pathway?

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dalapo.alfie@sedahotels.com

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Lead with innovation

- Innovation is the mantra of this era. If you have just created a one or two person
company, you know that without innovation, you have no hope of getting anywhere. -
Or if you are running a larger organization, you wake up every day deathly scared of the
wolves somewhere in a garage, planning to snatch away your breakfast, lunch, and
dinner. - Hi, I'm Anil Gupta, The Michael Dingman Chair in Strategy, Globalization, and
Entrepreneurship at the Smith School of Business, the University of Maryland at College
Park. - Hi, I am Haiyan Wang, Managing Partner at China India Institute, a research and a
consulting organization based in Washington, DC. Over the last 20 years, we've written
extensively on strategy and innovation, and worked with dozens of companies. - We
find it mind boggling that far too many managers behave as if merely uttering
innovation several times each day will make them and their organizations more
innovative, as if there is a God of innovation who will somehow listen to them and
answer their prayers. - Many people also just assume that whether or not you are
innovative is a matter of random luck. So how can you learn to become more
innovative? - In this course, our goal is to help you become smarter at innovation
systematically. We do this by laying out the core logic of innovation, discussing how you
can nurture the process, and how you can uncover the multiple pathways to
innovation. - We also shared dozens of examples from companies small and large,
young and old, profit-oriented as well as nonprofit. These examples make the concepts
come alive and make it easier for you to think about how you could apply them in your
own organization. - So if you are ready, come join us on this journey.

Why organizations stumble at innovation

- Back in 2007, Nokia and Blackberry were the dominant players in the mobile phone
market. Nokia's global market share was almost 40% and Blackberry was the preferred
choice of people including President Obama who wanted a device for secure email
communication. But within five years, both companies would be swept aside by the
iPhone Juggernaut. Leaders of Nokia and Blackberry completely failed to anticipate the
innovations that Steve Jobs had already been working on for several years. Worse, they
pooh-poohed Apple's prospects even after it stunned the world with the iPhone
launch in January 2007. Jim Balsillie, then co-CEO at Blackberry, said that Apple was just
one more entrant in an already busy place and hardly mattered as a sea change for
Blackberry. So why do Nokia, Blackberry and millions of other organizations stumble at
innovation? Let's explore five of the most important reasons this can happen. First is the
baggage of past success. People at the top with the power to say yes or no to projects
and to allocate resources know the past far better than the present. They have been
industry insiders for years. They probably created yesterday's business models. If not,
they at least know how to implement them very well. As a result, they tend to look at
tomorrow from the lens of yesterday. In 2007, Microsoft's then CEO Steve Ballmer said
in an interview with USA Today, there is no chance that the iPhone is going to get any
significant market share. No chance. It's a $500 subsidized item. The next stumbling
block is earnings pressure. Organizations become prisoners of investors'
expectations. How well did you do in the last quarter becomes far more important than
what you might do the next year, the next five years or even the next 10. The third is
following customer feedback too closely. People get trapped in the dilemma of whether
or not to listen to customers. Clearly, it's always foolhardy to not ask customers what
they think of current products and what else they might need. Yet it's also dangerous to
assume that customers always know what they need or want. In the late 1950s, leading
market researchers told the founders of Xerox that based on customer surveys, there did
not appear to be any need for photo copiers. And as we know well, no one was
clamoring for smartphones either before Steve jobs waved his magic wand. Next is the
fear of cannibalization. People get scared that new products, a new lines of business will
hurt the sales of existing ones. If we embrace digital media, will it hurt the sales of our
print newspaper or magazine? If we embrace e-commerce, will it hurt the sales of our
retail stores? What people overlook is that fear of cannibalization is a trap. As surely as
the sun will rise tomorrow, the new will sweep away the old. The only question is
whether you are the one ushering in the new or another player who wants to eat you
alive. And the last stumbling block at innovation are well-honed processes designed to
maximize efficiency. Mastery at efficiency makes it difficult to become skillful at
experimentation and the search for new ideas. Companies are often quite innovative
when they're young, yet as they find their footing and begin to grow, they realize that
they must put in place processes to deliver efficiencies. If you want to scale, you have to
become a well-oiled machine. This is entirely desirable, yet it's also dangerous as people
begin to worship order and start looking at uncertain experiments as frightening
endeavors. Still, as large as these barriers to innovation are, they are surmountable. The
first step is to always remain humble and run scared. As Andy Grove, Intel's legendary
CEO, famously advised, only the paranoid survive.

The core logic of innovation

- Renowned scientist Charles Darwin is famous for his series about biological
evolution. Through the natural selection of small, inherited variations, species change
over time so they can better compete, survive, and reproduce. Really the core logic of
innovation comes also from biological evolution. In more concrete terms, evolution is a
result of a three-step process repeated again and again and again. The first step is
creation of variety. In a natural world, the offspring of people, animals, or plants are
never replicas of their parents. They share some important similarities, but are different
in many other ways. This variety makes things novel and drives innovation. In Silicon
Valley, we see this in a large variety of ideas pursued by startups in each and every
space, medical devices, mobile gaming, or artificial intelligence, you name it. The second
step is the brutal competition for survival. Darwin famously called it "survival of the
fittest". For instance, the deforesters seeks out the weak saplings so the stronger ones
can benefit from more sun, water, and nutrition. In the ecosystem of Silicon
Valley, venture capitalists, that is VCs and consumers, play a similar, merciless pruning
role. The top VCs invest in only about 10 out of 1,000 business plans they look at. Of
these 10, consumers weed out 9, leaving only one that gets to live. And the third step is
amplification. That is scaling up of the surviving genes. As the survivors among the baby
lions grow up, the stronger ones get to mate more often and spread their genes at a
broader and a faster pace. An identical process occurs in Silicon Valley. Google killed off
Intel ME, Ask Jeeves, and other search engines to become the place to go for internet
search. Facebook came to dominate Friendster, MySpace, and other social media
upstarts to become the social media giant that we know today. This three-step process,
creation of variety, brutal selection from among many options, and scaling up of the
best ideas, is the core logic behind all innovation. Each step is crucial and none can be
side-stepped. This three-step process must be repeated endlessly, in nature or in
innovation ecosystems such as Silicon Valley. This type of iteration happens
spontaneously. Not withstanding Google's massive success, perhaps the best engineers
are not the one work for Google. Instead, they are the ones somewhere in an unknown
garage who are trying to upend Google. If you are the leader of a company or a unit
within it, the implications are clear. Ask yourself, what can my team and I do to cultivate
the logic of Silicon Valley inside my company? What can we do to promote relentless
experimentation and the generation of new ideas? How can we ensure that our
biases based on past experience don't end up muzzling the best ideas in favor of ones
that appear safe, but won't really help us change the rules of the game? And how good
are we at feeding and nurturing the innovative ideas, even though they may appear
threatening to people within the company? As a wise man once said, if you are not busy
being reborn, you are busy dying.

Novel combination of existing ideas

- Contrary to what many people believe,  Henry Ford did not invent the modern
automobile. That honor belongs to Karl Benz from Germany. But Ford was the first to
think of making cars inexpensive enough to be a mass market item. What was his
solution? Make cars on an assembly line. And how did Henry Ford stumble upon this
idea? By visiting meat packing assembly lines. The Ford Motor story illustrates how
powerful innovations can emerge from novel combinations of two or more existing
ideas. Automobile manufacturing and assembly lines for meat packing were both
preexisting ideas. Henry Ford realized that these two disparate ideas could be combined
to create something entirely new and different. Innovations resulting from novel
combinations are all around us. From low tech to high tech. Look at the extremely useful
sand paper which came out of gluing sand, a hard to handle abrasive, onto paper, which
is easy to manipulate. What about post-it notes? The result of attaching a weak
adhesive onto pieces of paper. Or consider the electric toothbrush. The outcome of
putting batteries inside a toothbrush. And what about the mighty smartphone? The
integration of a computer and a mobile phone. Novel combinations of existing ideas are
the engine that churns out a never ending stream of innovations. The old ideas of today
can be combined in novel ways to yield a host of new ideas and the process keeps
feeding on itself. Let's take a look at several ways in which you can boost the ability of
your organization to become smarter at generating innovations by combining existing
ideas in novel ways. First and foremost, avoid silos. Try fostering a culture of
collaboration within your company along with relevant outsiders. You don't want
marketing folks to speak primarily to other marketing people within the company. This
approach is a first class recipe for navel-gazing and groupthink. What about laying
down a policy that anybody who wants to become a business unit general
manager must have worked in at least two functional areas for two or mores. The CEO
of a very successful technology company whom I know, requires his R and D people to
spend about 10% of their time in marketing and sales and vice versa. His logic
minimized the chance of premature self censoring. Otherwise, R and D may conclude
too early that a new technical idea has no market relevance. Or marketing may conclude
prematurely that a new market need is technically infeasible. Another way to increase
the likelihood of novel combinations is to create virtual or in person forums that allow
people across business units, geographies, disparate technologies to learn about what
others are up to and how collaboration might help. 3M Corporation routinely organizes
internal innovation fairs where different labs showcase their technologies. People across
business units can then explore what may be relevant for their own product
lines. Google has created a similar mechanism on its company intranet. Any Googler can
post an idea they're excited about and where they need help. Any colleague can see
these queries and jump into help if they can. Finally, create ongoing learning
expeditions that pose people to venture outside the company. These learning
expeditions could be visits to innovation hotspots, such as Boston or Silicon Valley. Or
they could be trips to emerging market hotspots such as Beijing, or Shanghai or
Bangalore. Or even to traditional companies that are doing a phenomenal job at
morphing themselves for the digital age, such as GE, Walmart and the Washington
Post. The magic of novel combinations is that old ideas may never really become old if
you can combine two or more of them in unexpected ways to create something nobody
had ever dreamed of.

Foster creativity without losing control

- Google has long championed an 80-20 rule. Every Googler, or Google employee, is

required to devote 80% of their time to assigned tasks. Equally importantly, the other
20% is spent on their own side project that doesn't need approval from their
supervisor. Google Now, Google News, and transit information on Google Maps, are
some of the innovations that started out as 20% projects. Google's 80-20 rule is one of
many ways that organizations can foster creativity without losing control. The
foundation of innovation. It's rare to come across a CEO, or any manager, who doesn't
value creativity. Yet, go to any corner of the world, and it'll be hard to find many
organizations that would deserve better than a D grade in how creative they actually
are. This is true, not just of government bureaucracies, but also of profit-driven
companies, including those led by founder CEOs. So, why the mismatch between
intentions and outcomes? It seems that most managers fear that letting go would
resulting a loss of control thereby leading to chaos. But if properly designed, every
organization can foster massive amounts of creativity without risking chaos. The trick to
letting go without losing control is to set up well-defined sandboxes, where people can
experiment as wildly as they choose. Look at Google's 80-20 rule. In terms of allocation
of time, there is a well-defined 20% sandbox. The fact that people are required to
devote 80% of their time to assigned tasks, ensures that the proverbial trains keeps
running on time. The sandbox doesn't have to be a certain percent of people's time. It
could be a subunit of your company. Say you are running a hotel chain with 500
properties. What if the general manager of every property took one wing off a floor,
accounting for a few rooms, and used it as the sandbox to test out their own fresh
ideas? In one go, you'd suddenly have 500 innovation labs within just a single
company. Some of the ideas may well be done, but a few may emerge that are truly
game changers, all without risking loss of control or chaos. Besides well-defined
sandboxes, leaders can also use other ways to spur creativity without losing
control. They can lay down stretch goals that challenge and inspire their employees. If
the market is growing at 3%, asking people to think about how to help the company
grow at 4% can only result in incrementalism, or answers such as let's try harder. But
asking people to think about how to grow at 20% will foster out of the box
thinking. Another approach is to go deeper in understanding customers. Don't just ask
customers what they want or need. Observe how they live and operate. What makes
them happy or unhappy? What are the pain points? A deeper understanding of
customers can uncover their underlying needs before they realize it. Another way is to
look at other industries that tend to be early movers. For example, anti-lock braking
systems were developed first for airplanes. From there, the technology migrated to
commercial vehicles. It was only later that this innovation came to passenger cars. So,
auto companies, which were monitoring innovations in airplane braking systems, would
have had an early mover advantage. Last, engage routinely and actively with young
startups, including those housed in incubators or accelerators. Since they have no
existing baggage to defend, they're far more likely to be fresh thinkers as
compared with incumbent organizations. You may learn something, or a lot from
them. You may want to partner with, invest in, or even acquire some of them. Google's
YouTube and Android businesses started out as acquisitions. The same is true for
Facebook's WhatsApp, Instagram, and Oculus businesses. There is no shame in learning
from others, only in having your head buried in sand.

Experimentation and the lean start-up process

- In early 2009, Jen Hyman and Jenny Fleiss co-founded Rent the Runway, a rental
service for young women's high-end dresses. Their premise? On certain occasions like a
prom, a wedding or a graduation, women would love to wear designer dresses, but they
often don't have the money to buy them. Even if they could buy one, it would just hang
the closet much of the time. What if they created a mail order rental service, similar to
what Netflix had down with DVDs? While the basic ideas seemed promising, the pair
knew they must find answers to dozens of questions before they could be somewhat
confident of success. For instance, how large is the market for such a service? What
kinds of dresses? What rental price? Also, what about operations and logistics? Should
they add other individuals to their two person team? If so, who? When should they seek
external funding? And many others. Questions like these represent sources of
uncertainty, not just for every startup, but also for every innovative idea within an
existing organization. Finding valid answers in a timely and a cost-effective manner is
critical. Maybe the idea sounds promising, but in reality it's not. Or maybe the idea has
legs, but the business model needs to be tweaked for it to be viable operationally and
financially. In both cases, the faster you can zero in on the right answers, the better. So
how do you do that? There are basically two ways. One is to conduct tons of market
research, prepare a well thought through business plan, and then launch. The other
approach is to conduct lots of focused experiments at a rapid pace and let feedback
from the ground teach you. Steve Blank, a Silicon Valley advisor to young
ventures, coined the term Lean Startup to refer to the second approach. The term "lean"
is rooted in the idea that learning through experimentation is the more effective way to
minimize wasting time, effort, and resources. So, back to our example. The co-founders
of Rent the Runway were masterful at learning through experiment. They borrowed or
purchased 130 dresses and sent out invites to 140 undergraduate students, in two
sororities, a dance team, and direct contacts. The goal was to see if there is a social
effect, if women are more likely to rent gowns when their sorority sisters or dance club
friends also do so, versus if they show up as individuals. 34% of the women rented
dresses, which was an encouraging sign. Then they conducted another experiment at a
different university. They adjusted the assortment of dresses based on learnings from
the first trial. Importantly, women could now view the dresses, but not try them
on, closer to the reality of an online rental service. In this trial, 75% of women
rented, clear feedback that for designer apparel, the assortment mix was far more
important than being able to try on the dresses. They conducted many other
experiments on all aspects of the business model, including pricing, operations, and
logistics, always making sure to incorporate the learnings from one experiment into the
next one, keeping each experiment focused, almost scientific, with clear feedback and
moving at a fast pace. Not surprisingly, when the website went live in November
2009, much of the uncertainty had been resolved, and they could be far more confident
of success. Over 80% of new ventures and a similar percent of new product launches
fail, but learning through a rapid fire series of experiments can go a long way towards
reducing the risks of failure, all offering early feedback if the idea is fundamentally
doomed.

Design thinking

- Think about how you felt when you first held, looked at, or used an iPhone. Or, what
was it like when you first walked into an Apple Store? Was it utterly different? Very
intuitive? Pleasing to the eye? Did the experience touch your brain as well as your
heart? Welcome to the concept of design thinking. Design thinking is a process to come
up with creative solutions to problems as diverse as designing a course in math, a voting
machine, or even a city. Design thinking puts the user at the center. The core idea is to
aim for zero distance between the product, the service, or the experience, and the
user. Distance refers to the not just physical distance. It's also other dimensions such as
economic distance, cognitive distance, behavioral distance, and emotional distance. The
idea of zero distance is not as simple as it may sound. Take Amazon. It would be easy to
assume that there's not much the company could do to reduce the physical distance
between you and the company. You have to go to your computer, log into the Amazon
website, decide what you want to buy, place the order, and then wait for things to
arrive, but, consider the stream of innovations that Amazon has been dreaming up. The
company introduced one-click checkout to dramatically reduce the steps and time
needed to complete the process. More recently, Amazon launched an always on and
always connected smart speaker, the Echo, that interacts with users via voice
commands. Amazon keeps trying to eliminate distance, not just on the front end, but
also the back end. Does it really have to take several days for you to get product after
placing an order? What about two days through Amazon Prime? Better still, how about
one day? Or in fact, how about one hour? Economic distance refers to the gap between
what the company wants to charge and what you think the product or service is
worth. As with Apple's iPhones, the goal is not to drive the price down to the lowest
level. Rather, it's to ensure that what you are asking the customer to pay for is in
line with what they think it's worth. Cognitive distance is the gap between your idea and
the customer's idea about the problem that the product or service is trying to
solve. Before Starbucks, cafe owners assumed that what the customer wanted was just a
beverage and maybe a pastry to go with it. Starbucks figured out that what the
customer really wanted was a place to hang out, chat with friends, do some work, the
result, an entirely different store design. Behavioral distance refers to the gap between
your assumptions about how the customer will behave versus how the customer actually
behaves. If you're designing the dashboard of a car, are the buttons and the screens
placed where the user would automatically expect them to be? Or, will the user need to
spend a few hours reading the manual? Finally, there is emotional distance. This refers
to whether or not the product or service is pleasing to the eye and touches the user's
heart. Steve Jobs was obsessive about this aspect of design, that's why Apple's products
achieved a cult status. They were not just highly functional computers, they were cool
objects of desire. Since design thinking puts the user at the center, the starting point of
the process must be a deep understanding of the user, not just what the user says, but
how he or she thinks, behaves, and feels. This requires immersion in the user's world. It's
critical to iterate with various design prototypes repeatedly until your solution can get as
close to the users world as possible given today's technologies, and, even Steve Jobs,
the magician, kept tinkering with Apple products and the retail store until the very last
minute.

Collaborative innovation

- While Olay has long been a Procter and Gamble beauty care brand, over a decade ago,
Olay Regenerist became one of its most successful products. This happened through a
collaboration with a French company, Sederma, which developed a chemical
compound that helps rejuvenate and repair the skin from the inside. P and G had no
prior experience with this type of compound and would almost certainly not have
developed Olay Regenerist had it not been for the partnership with Sederma. Procter
and Gamble considers Olay Regenerist one of many new products to emerge from a
relatively new approach to innovation, that is, collaborative innovation, which has
dramatically boosted the company's pace of new product development. Today, P and G
openly spells out its innovation needs on its corporate website and invites anybody to
submit a potentially relevant idea for mutual benefit. Like P and G, a growing number of
companies are now embracing collaborative or open innovation. This is the
development of new technologies, products, and processes in partnership with other
independent entities. The innovation partners could be universities, government labs,
other companies, or even individuals. Two factors are driving a growing embrace of
collaborative innovation. The first is that most products now require an integration of
multiple technologies and no company can master all of them. Take Apple and
Samsung. Every smartphone is a tightly integrated system of multiple
components. Developing the next generation smartphone requires pushing the
envelope, not just at the level of the entire system, but also at the level of many
components, such as the processor chip, the camera, the touch screen, and so forth. Not
even Apple and Samsung have mastery over all of the critical and interdependent
component technologies. The second driver is the rapid pace of technology
development and the increasing ferocity of competition. Many companies find that even
in their core areas, they need to partner with other companies that may be more
nimble. Take, for instance, Barclays, the British bank. Barclays rounds a 13-week
accelerator program targeted at young startups in the financial technology sector at
some of its offices around the world. The idea is that this type of collaborative
innovation could help Barclays move faster than its competitors. Like all
partnerships, success at collaborative innovation requires being smart about who to
partner with and how to manage the relationship. The ideal partner is one that is
complimentary and poses little risk of becoming a competitor. Sometimes, however,
companies have little choice but to work with frenemies, companies that are
competitors, as well as collaborators. Case in point, Apple and Samsung. Even though
they compete ferociously in the smartphone market, Apple also relies on Samsung for
some iPhone components, such as display panels and memory chips. In terms of
managing a collaborative relationship, it's important to have upfront
agreements regarding who will contribute what, who will own what, how the resulting
intellectual property will be shared, and how decisions will be made and conflicts
resolved. It's also crucial to cultivate trust while keeping a watchful eye on the
partner. It's difficult to openly share information without trust. Yet over time, new
developments, such as changes in leadership, could make a trustworthy partner less so
or vice versa. Partnerships between companies are unlike marriages. At some point, they
will come to an end. Until then, they can pay off handsomely.
Corporate skunkworks and innovation

- The term "Skunkworks" refers to a unit of a company  set up explicitly to encourage

exceptional creativity and the pursuit of new ideas. Located some distance from
corporate headquarters, the unit takes a group of people away from their regular work
environment and gives them freedom to pursue radical innovations. During World War
II, Lockheed Martin used the Skunkworks approach to develop high-speed fighter
planes to help the allies win the war. In the late 1970s, IBM used the Skunkworks
approach to allow some workers to break away from the company's mainframe
mindset and launch the PC in record time. For many years, the IBM PC remained the
most successful response to Apple's computers. Amazon's Lab126, located in Silicon
Valley, away from corporate headquarters in Seattle, provides a recent Skunkworks
example. It's charged with designing and engineering high-profile consumer electronic
devices. A slew of extremely successful products like Kindle e-readers, Amazon Fire
TV, and Amazon Echo all emerged from Lab126. The Skunkworks approach can offer key
advantages, including freedom from the baggage of a legacy mindset, the ability to
pursue high-risk projects that are likely to pay off in the longer, rather than shorter,
term, and support from senior-most corporate leaders. Yet, Skunkworks have had a
mixed record. Sometimes it's poor design or poor implementation, or leaders fail to give
Skunkworks the autonomy they require. Or they populate the projects with people who
lack the right mindset or needed capabilities. Or they expect the results to be too
grand and to happen too soon. Even when the Skunkworks are well thought
through, their advantages can come with negative side effects. For example, they may
be unable to leverage the technical, operational, or marketing strengths of the rest of
the company. In the 1970s, Palo Alto Research Center, located 3,000 miles away from
parent Xerox Corporation, developed most of the technologies that went into what
would become Apple's Macintosh. Yet, Park hardly received any support from
Xerox. Imagine what Xerox could have been. Or they may be viewed with
suspicion, increasing the risk that later on, it may be impossible to integrate the
project back into the existing business. Or top leaders may start looking at
Skunkworks as the only path to glory, sometimes weakening innovation within the core
business units. Learning from their own and others' experiences, seasoned innovators
such as Google, Amazon, and others, have come up with the following guidelines about
how to capture the benefits of Skunkworks while minimizing the toxic side effects. First,
bring a portfolio mindset to your company's innovation agenda. Moonshots serve only
one type of purpose. To borrow a term from Google, you also need
"roofshots." Innovation needs to be viewed along a spectrum rather than in binary
terms. While moonshots would aim for innovations that disrupt the industry, roofshots
would aim for those that lead to incremental improvements in existing products and
services. The entire spectrum is critical but in different ways. Moonshots should not
distract from roofshots, and vice versa. Second, use appropriately tailored processes to
pursue the different innovation programs. These programs may include not just
Skunkworks but also corporate venture capital units, accelerators and incubators in
areas closely related to your company's businesses. Moonshot projects should be given
a high degree of autonomy and staffed by freedom-craving pioneers. They should be
managed in a high-risk, high-reward manner and overseen directly from the corporate
center. At the other end, roofshot projects should be embedded within existing business
units. Finally, maintain transparency about your various innovation programs. Other than
the caveat of protecting information that could benefit competitors, secrecy within a
company breeds suspicion and prevents various projects from benefiting from
corporate strengths. Give everybody the option to be considered for any innovation
project. Groundbreaking ideas can come from anywhere. Creating a friction-free internal
market for labor helps the right talent find the right home more easily and benefits
everyone in the company.

Reimagine the target customer

- In the late 1970s, Steve Jobs and Steve Wozniak - In the late 1970s, Steve Jobs and Steve
Wozniak weren't the only crazy people imagining that individuals, even children, might want to
buy and use computers. A similar idea was being pursued by engineers at Digital Equipment
Corporation, the world's second largest computer company after IBM. Ken Olsen, DEC's founder
and CEO, was revered as a technology entrepreneur, yet in 1977 when engineers presented
Olsen yet in 1977 when engineers presented Olsen with the prototype of a PC, he dismissed them
with a now-famous observation. he dismissed them with a now-famous observation. "There is no
reason for any individual "to have a computer in his home." The idea of a personal computer was
just too wild, The idea of a personal computer was just too wild, obviously Jobs and Wozniak
thought otherwise. The rest is history. Apple has gone on to become the world's most valuable
company, a loss that is no more. the world's most valuable company, a loss that is no more. In
2000, Tata Motors controlled about 50% of India's market for trucks. controlled about 50% of
India's market for trucks. While the company looked for ways to further increase its market
share, it was especially keen to expand the overall market. it was especially keen to expand the
overall market. This led to a search for entirely new opportunities This led to a search for entirely
new opportunities beyond the horizons of every player in the industry. Managers at Tara
Motors converged on rural farm workers as a possible target. converged on rural farm workers as
a possible target. Many of them would like to be owner operators of small trucks, yet the
smallest such vehicle cost $10,000, yet the smallest such vehicle cost $10,000, more than twice
what a rural worker could afford. The Tata Motors team set itself a challenge. Develop a mini
truck that would meet European safety standards but sell for only $5,000. The team at Tata
Motors conducted 4,000 interviews The team at Tata Motors conducted 4,000 interviews to zero-
in on the features and functionality that would be core to the target customers. Everything else
would be treated as bells and whistles to be included only if the selling price would not exceed
$5,000. Tata Motors did it. It developed the mini truck, Tata Ace, that required innovation on all
fronts. Launched in 2005, the Ace was an instant success. Launched in 2005, the Ace was an
instant success. 70% of the buyers were first-time truck owners. It had the new segment all to
itself for more than five years and continues to benefit from being the first mover in this
market. The Apple PC and Tata Ace illustrate how companies can open up entirely new market
opportunities how companies can open up entirely new market opportunities by a dramatic re-
imagining of the target customer. So, how might you be able to do something similar? So, how
might you be able to do something similar? First, start by identifying a number of currently
underserved markets for your industries' mainstream products and services. Perhaps one of them
might emerge as a viable option. If you currently sell to businesses, could they also be
opportunities in the consumer space or vice versa? If you sell to women, could there also be a
market for men? If you sell to children, might there also be a market for adults? If you sell in the
US and Europe, might there also be opportunities in emerging markets? For example, take
delivery by drones. Given their weak physical infrastructure, emerging markets may well offer
significant opportunities. emerging markets may well offer significant opportunities. Next,
analyze why the potential markets Next, analyze why the potential markets are currently beyond
the industries' worldview. Is it because the price is too high? The functionalities too
advanced? And the product too complex? Or does the product need more advanced features and
greater functionality? Or some other factors? Analyze the functions embedded in the industry's
current products. Could a new customer base be created by using only a subset of these
functions? Take edX, an online venture launched by MIT and Harvard in 2012 as an
example. launched by MIT and Harvard in 2012 as an example. Through video courses and
accompanying homework, edX aims to make some of the professors' knowledge available to a
much larger audience than could be admitted to traditional degree programs. Finally, be open to
rethinking the entire value chain. Finally, be open to rethinking the entire value chain. The Apple
PC needed different types of components, different types of factories, and a very different
approach to marketing, distribution, and sales as compared with mainframes. Every innovation
requires looking outside of today's worldview and today's boundaries. This also applies to who
the target customers could be. Always be on the lookout for opportunities to convert today's
ignored markets into tomorrow's core customers.

Redefine customer value

- In March 2012, Sara Blakely become the world's youngest self-made female billionaire. Let me
tell you how. In 1998, Sara was getting ready for a party when she realized she didn't have the
right undergarment to get a smooth look with her white pants. Blessed with a knack for the
unconventional, she cut the feet off from her control top pantyhose. Voila, Spanx, the creator of
footless body shaping pantyhose was born. Now, let's go back to the early 1990s when the
dominant word-processing software was Word Perfect, the dominant spreadsheet, Lotus 1-2-
3, the dominant presentation tool, Harvard Graphics. Within a few years, all would be pushed
aside by Microsoft Office. Microsoft Word, Excel, and PowerPoint were not particularly better,
if at all, than these leading products. So what was Microsoft's secret sauce? Developing and
marketing them as an integrated bundle. The integration made it easier for the user to copy and
paste content from one application to another, a huge advantage. On top of that, the customer had
to pay less for the bundle than for the separate applications. The incumbents didn't stand a
chance. And in 1999, Marc Benioff left Oracle to launch Salesforce.com. At that time, customer
relationship management software, or CRM, was already a rapidly growing product. What was
Benioff's innovation? Offer CRM as a web-delivered solution rather than as a packaged
software. Customers would not need to purchase, deploy, or maintain the software. They could
just pay a monthly subscription fee and access an application from any device. Salesforce.com is
now a global giant with a market value exceeding $60 billion. As the Spanx, Microsoft
Office, and Salesforce stories illustrate, a dramatic rethinking of customer value can allow
companies to discover massive new opportunities or permanently change the rules of
competition in a industry. So how might you be able to uncover similar possibilities with your
current or potentially new business. Start by looking at the industry from the lens of the
customers. In the case of consumer products, focus particularly on the end consumers. The goal
should be to uncover their hidden needs even before they realize them. This cannot be done by
asking them, doing focus groups, or customer surveys. You have to observe them up close by
immersing yourself in their lives, if possible, incognito. Why not live and work with
consumers for a few days every quarter? You may be amazed at what you learn. Think also
about whether there is an opportunity to embed emotional value in your products and services in
addition to the functional value. Steve Jobs did this brilliantly in the case of every Apple
product from a desktop computer to the iPhone. Even in the case of products sold to
businesses, it may be possible to add emotional value by, for example, developing a reputation as
the most trusted supplier in a industry. Also, explore whether there is an opportunity to offer a
more complete solution to the customers rather than simply discrete products and services. This
is the approach Microsoft took when developing the Office Suite. Finally, consider how you
might be able to tailor your products and services to each customers unique needs at scale. The
growing power of technology is making this increasingly feasible. Most companies try to learn
about what customers need by asking them. This is fine, but will never lead to breakthrough
innovations. For that, you need to discover their needs before even they become aware of
them. This requires immersion in the customer's world and looking at the industry from their
eyes.

Reengineer the value chain

- Plenty is a high-tech vertical farming startup in San Francisco that grows 350 times more
produce in a given area than conventional farming and according to its CEO and founder, Matt
Barnard, it does this while you only 1% as much water. So, what's Plenty's innovation? Grow
plants on the side of tall skinny towers, arrange the lights vertically, use gravity to deliver water
and nutrients. And since the space is far more compact, use people and machines more
efficiently. Plenty, which is packed by Bezos Expeditions and other investors has the goal of
building vertical farms, right next to large cities. There would be massive savings on the costs of
energy and distribution. There would be much less pollution and people would get to eat tasty,
locally grown greens and fruit. Plenty's strategy is an example of radical innovation by re-
engineering the value chain. They have taken an existing market need, fruits and vegetables and
completely re-engineered how the goods are services to meet this need are produced and
delivered. Examples of radical innovation by re-engineering the value chain are all around
us. Toyota invented lean manufacturing and related practices such as just in time delivery of
components, total quality management and partner-like relationships with suppliers. The result -
much better quality cars at lower prices than its competitors. Or look at Amazon, which first
eliminated the physical store by bringing books to readers directly from a warehouse and then
started to make printing presses obsolete by bringing an ebook directly to a PC, a smartphone or
a Kindle. Look also at Uber and Airbnb, which have upended the taxi cab and hotel
industries and look at Skype, which relying on the internet has reduced the price of global video
calls to zero. So, how would you explore similar opportunities in your current business or in a
new venture if you are looking to start one? First, map out all of the steps in the industries or
your company's current value chain from dust at one end to dust at the other. You need to go
well beyond what happens inside your company. Lay out the architecture of the extended value
chain, starting from raw materials and going all the way to the end consumer. The biggest
opportunities often lie in overhauling the entire extended value chain. Second, explore how
technology might offer an opportunity to completely redesign the entire system of how goods or
services get created and delivered. This is the approach behind innovations like Plenty in vertical
farming, Amazon in eBooks and Skype in telephony. Incumbents, typically find it near
impossible to copy these types of radical transformation of the value chain. Their existing
operations, processes and culture become liabilities rather than assets in mounting a counter
attack. Third, even if you can't redesign the entire value chain, explore opportunities to transform
parts of it. Pay particular attention to those activities that have the biggest impact on
cost, customer value or cycle time from order to delivery. Toyota saw that the biggest costs were
not actually in the production of cars, but in defective components and the resulting costs of
shutdowns and extra space for parts' inventory. This wastage create an opportunity for re-
engineering key elements of the value chain. Finally, don't overlook how transforming one
element of the chain may require also transforming one or more other activities in the chain. In
order to move to just in time delivery, Toyota had to ensure that its suppliers will deliver 100%
defect-free components. So, Toyota had to extend its approach to total quality management to its
suppliers and build a long term partnership with them. It's important to remember that today's
value chains are the result of past history. They might have been ideal for yesterday's context but
it's highly unlikely that you would do the same thing if you were starting from scratch today. A
thorough assessment can often uncover huge opportunities for innovation.

Frugal innovation

- Rollin King, Herb Kelleher, and Lamar Muse co-founded Southwest Airlines in 1967. Their
value proposition? At least 60% lower fares than the average of other airlines. They would serve
customers who were being viewed as non-viable by other airlines. That is, extremely price-
sensitive customers who would otherwise travel by car, rail, or motorbike, or not travel at
all. Southwest's success has wildly exceeded the founders' expectations. Its market value remains
higher than United, American, or Delta airlines. In many years, it has exceeded the combined
market value for all three. Southwest's business model has also been copied by a number of
airline startups worldwide, including JetBlue in the U.S., AirAsia and IndiGo in Asia, and
Ryanair and easyJet in Europe. Southwest figured out how to achieve dramatically lower
costs despite flying the newest airplanes in the industry with the best-trained pilots and a
unionized workforce. It continues to be rated as the safest major airline in the world. Obviously,
Southwest did not scrimp on any of the fundamentals in the airline business. Instead, the
company pioneered what I call "frugal innovation." That is, the design of an ultra-low-cost
business model by eliminating waste across the entire system. Let's look at some of Southwest's
wild ideas. First, no travel agents. They use secondary airports in large cities. They have only
one class of service. They used a standardized fleet with just one type of aircraft, resulting in
much lower training and maintenance costs. They have a high level of employee stock
ownership and flexible union contracts and 15-minute rather 40-minute gate turnarounds and
thus much longer flying hours for each aircraft in a typical day than the other airlines. With the
rapid rise of emerging markets, the concept of frugal innovation is now being embraced by a
growing number of companies across a wide range of industries. In emerging markets, one of the
biggest challenges that companies face is the very low buying power of potential
customers. Take China and India, the two biggest emerging markets. The average Chinese is
only 15% as rich as the average American. The average Indian, only 4% as rich. Given the very
low buying power, companies have three choices. They can focus on just the very top of the
income pyramid and ignore the rest for the next decade or two. They can create very basic, good-
enough versions of their rich-country products by eliminating all secondary features. Or they can
pursue frugal innovation and develop a game-changing alternative. Take GE, for example. Some
years back, GE India launched Mac400, a portable electrocardiogram, or ECG, machine, priced
at just a few hundred dollars, a fraction of the price of its standard ECG machines. So what was
the company's goal? To address an unmet need in poor rural markets that otherwise could not
afford ECG tests. The Mac400 was a small, portable ECG machine, a first in an industry
worldwide. Instead of asking a rural patient to visit the city-based hospital, a doctor could carry
the portable machine in a backpack on a trip to the villages. Using laptops as role
models, engineers used leading-edge technologies, such as chip design and software, coupled
with modified versions of existing cell phone chargers. They also opted for components already
in widespread use, such as low-cost printers used for printing bus tickets. To its pleasant surprise,
GE discovered that portable ECG machines have a big market in the U.S. and Europe also. An
upgraded version has been wildly successful in this market. The key to success at frugal
innovation lies in the following: Be extremely customer-centric to figure out core
functionalities and the target end price. Then leverage as much of the current infrastructure as
possible in order to keep costs low. And undertake a complete redesign of the entire system from
the bottom up.

Digital transformation

- By 2013, the Washington Post had become a shadow of its glorious past, which included
uncovering the Watergate scandal. Like most print media, it was dying. First, digital media such
as Craigslist killed off classified advertising. Then the onslaught of eCommerce led to reduced
advertising from brands and retail stores. To add insult to injury, online portals like Yahoo
News, BuzzFeed, and Politico reduced reader's willingness to pay for news content. The Post's
response created a classic case of downward spiral. As the economics of the newspaper
collapsed, managers and editors looked for ways to cut costs. They started by closing foreign
bureaus and laying off reporters. As the digital onslaught continued, they began reducing
coverage of national news. By the early part of this decade, the one-time global giant had
basically become a city-based paper covering the Washington DC Metro region. In 2013, Jeff
Bezos, founder and CEO of Amazon, purchased the Washington Post from the Graham
family using his own personal funds. Benefiting from his very different perspective regarding the
digital era, the Post has become the biggest digital transformation story in the media
industry. Revenues have grown at a double digit rate every year since 2013. It has hired hundreds
of reporters and editors, making it a content powerhouse, and the Post is now solidly
profitable. Bezos' single biggest contribution was not the stability that comes from having a rich
owner. Instead, it was the insight that the internet is not a threat but a gift. The internet creates
not just global competitors, but also global customers. If the Post were to go whole hog into
becoming a content superpower, it would have the world at its feet. This would induce people to
pay for content they could not get for free, create economies of scale and also boost advertising
revenues. Bezos' guidance also led the Post to view itself as first and foremost, a mobile and
internet media company, with the print version just a channel. The Post now publishes 1200
articles each day online. It creates far more in-depth content than a paper ever could. For
example, the Post developed a virtual museum of President Obama's tenure, with five
multimedia rooms, The First Black President, Commander in Chief, Obama and the World,
Obama's America, and the First Family. Only a small portion of this content ever made it into the
print version. The Post is not the only company to have made a highly successful
transformation from the analog to the digital world. GE's CEO, Jeff Immelt, is attempting
something similar. His goal: make GE the world's leader in industrial internet. That is the
creation of hardware, software, and internet-based tools that can enable any industrial company
to maximize the productivity of their machines. He has moved the company's headquarters from
Connecticut to Boston, home to Harvard and MIT, and a much more attractive location to
recruit world-class digital natives. GE's new tagline, the digital company that is also an industrial
company. There are three big lessons from the digital transformations at the Post and GE. First,
don't ever make the mistake of succumbing to the digital lipstick syndrome. What gets
newspapers and retailers into trouble is the simple-minded belief that merely creating a fancy
website that allows customers to shop online What they can get offline is enough. Instead, what
you need is a digital heart transplant. Second, create and nurture a Silicon Valley-like culture
inside the company. This means becoming fiendishly customer-obsessed. In the digital era,
customers face very low barriers to switching across vendors. Without delighting the customer
every time, you can die quickly. It also means thinking in ecosystem terms. Both the Post and
GE now see partnerships with other companies, sometimes even competitors, as a core part of
their strategy. And last, experiment, experiment, experiment. In a fast-moving technology
environment, your only lasting advantage is the speed at which you learn.

Social innovation

- Each year, about 20 million premature, low birth weight babies are born around the world. This
is a challenge everywhere, but especially in developing countries. Incubators are extremely
expensive. So most hospitals don't have any. Some hospital may have donated incubators, but
these can be confusing to operate and difficult to maintain and repair. The result, a high rate of
mortality for these infants. In 2008, a student team in a Stanford University course designed for
extreme affordability, came up with a groundbreaking solution that cost only $25 versus the
$20,000 price of a traditional incubator. This incubator, called Embrace, is like a sleeping
bag with an innovative high-tech wax pouch embedded in it. The wax maintains the baby's
body at exactly the right temperature for four hours. After that, the pouch can be recharged by
dipping it in boiling water for just a few minutes. The incubator has no moving parts and does
not need electricity. It's small, light, portable, inexpensive to transport and intuitive to use. The
entire sleeping bag can be sanitized in boiling water. Embrace Innovations is now an award-
winning for-profit social enterprise. The portable incubator has already helped more than
200,000 babies in 20 countries. The company recently launched a new line of products for the
U.S. market called Little Lotus baby. Whenever a customer purchased a Little Lotus product, the
company donates a Embrace incubator to a baby in a developing country. Embrace incubator is
an example what I call social innovation, that is an innovative solution to a social problem that is
far superior to, and more sustainable than current solutions. By definition, a social innovation
must aim for what's often called the triple bottom line. It must address a social need, be
environmentally sustainable and financially viable. With sustained commitment from leading
institutions like Stanford, the Gates Foundation and the World Economic Forum, the concept of
social innovation has now become mainstream. This approach is also politically
acceptable across ideological lines. The solutions come from and are sustained heavily or
entirely by private sector and community-level efforts rather than government handout. Khan
Academy, a nonprofit education company launched by Salman Khan in 2006, is another well-
known example of social innovation. What was Sal Khan's goal? To provide a free, word-class
education to anybody anywhere on a variety of subjects, including maths, sciences and
humanities. The organization produces short lectures in the form of YouTube videos. The
website also includes supplementary practice exercises and tools for educators. All the resources
are available to users of the website at no cost. For specialized content, Khan Academy partners
with organizations like NASA, the Museum of Modern Art, the California Academy of Sciences,
and MIT. On the financial front, the organizations backers include a who is who list of the
world's leading institutions, including the Gates Foundation, Google and Tata Trusts. So what
are the core principles of social innovation? First, think of an important social need that's
currently ignored, unmet, or inadequately met. Second, design a novel solution. Like Embrace
incubator or Khan academy, you almost always need to look at technology as the basis for truly
groundbreaking solution. Next, be extremely user centric. Will the product be intuitive to
use? Will it be used as it should be? Fourth, pay attention to whether or not the novel solution
can be sustained and scaled? The graveyard of social innovations is paved with good intent and
novel ideas that remained one-off novelties. Finally, whether you set it up as a for-profit or
nonprofit organization, never ignore the economic viability of the venture. Otherwise, your
innovation will touch only a few people and only temporarily.

How to nurture order and chaos

One of the toughest challenges for any organization is pursuing two conflicting goals at the same
time. Being consistent, while also being innovative. Consistency in processes enables you to
learn how to accomplish the same task, better, faster and perhaps cheaper. Consistency in
products and services also give customers the assurance that they will have the same
experience whether it's at the same or a different location. Yet, in our dynamic world taken to the
extreme consistency can also be the surest path to an organization's depth. It's easy to manage an
organization for consistency and order. You streamline the processes, lay out the standard
operating procedures, ask people to stick to the stated policies and rules, and manage in a top-
down manner. It's also easy to nurture an organization for chaos. That is a never ending departure
from the routine. All you have to do is to tell people to do their own thing and just sit and
watch. As you might imagine, neither complete order nor complete chaos is good for an
organization's health. Instead, you need an optimal mix of the two. So how do you effectively
pursue both within the same company at the same time without creating confusion or an awful
mess? Here are some guidelines. First, much like a train station, think in terms of a stable
platform, coupled with dynamic action. The look and feel of Amazon's website, and how you
navigate through it, is like a platform. Amazon cannot risk changing it too often. But the
products and prices are thoroughly dynamic. Similarly, the layout of a Walmart store is like a
platform. It shouldn't change too often. However, what they sell and at what prices can be a lot
more dynamic. Second, create well defined sand boxes for experimentation. Phillips Exeter
Academy, a renowned boarding school, has literally created a section called Sandbox Courses in
its course catalog. This is where the school engages in curricular innovation such as cross-
disciplinary courses or courses which integrate classroom learning with core or extracurricular
activities. Some of these experimental courses may eventual become part of the regular course
catalog. Others may not. Third, set up simple rules regarding how people allocate their
time between routine tasks and experimentation. 3M Corporation has long implemented the
policy that every employee should feel at liberty to spend 15% of their time on projects of their
own choice. Fourth, consider conducting experiments in units that are geographically separate
from other units, this way you minimize confusion amongst staff and customers. Also, when
some experiments fail, as they surely will, you minimize damage to your core business. Take
Uber or Lyft. Rather than experimenting in every city across their U.S. network, they might
choose a few cities like Atlanta, Miami and Denver to try out new ideas. And fifth, if the
interlinkages between various units are weak, consider separating them organizationally. Look at
Alphabet Inc, Google's parent. Alphabet is a collection of companies such as Google with its
own subunits, search, advertising, maps, YouTube and Android. Waymo, self-driving
cars. Calico aging and age related diseases. And XLAB, moonshot projects such as Wing that's
focused on delivery by drones. This organizational separation allows each unit to pursue focused
experimentation within its own domain. As you can see, nurturing both order and chaos at the
same time is like playing jazz. Creativity, coupled with harmony, can result in beautiful
music and foster innovation in your company.

Next steps

- Congratulations on having mastered the fundamentals of innovation. You have looked at the

core logic of innovation. You are armed with an understanding of the processes which help
organizations innovate, and you know many of the concrete ways in which the organization can
discover new, often radical ideas. So what's next? We suggest three steps. - Step one, building on
ideas in chapter two, assess your organization's ability to innovate. Do you have a culture of
collaboration, not just within the company, but also with external partners and even unknown
individuals? Do you believe in relentless experimentation? Do you apply the tenets of design
thinking and zero distance to everything that the organization does? - Step two, building on ideas
in chapter three, launch innovation projects to discover how you might change the rules of the
game by re-imagining the target customer, by redefining customer value, and by re-engineering
the value chain. As everything goes digital, keep asking yourself how you can use new
technologies to create more value for customers, to expand your reach, and become more
efficient. - Finally, step three, make innovation a lifelong journey. Google, Amazon, Microsoft,
Facebook and GE are some of the most innovative companies on earth. You may find it useful to
keep track of what they are up to. We particularly like "How Google Works," a book, co-
authored by Eric Schmidt, the chairman of Google. - Our all-time favorite on innovation is Peter
Drucker's "Innovation and Entrepreneurship." It's a gift that keeps on giving. You've come so
far. Don't stop. Keep going.