We are in the ‘cusp’ of a fundamental change that technology, platforms and connected ecosystems will bring into the mix for connecting and collaborating in dramatically different ways than in the past.

One of the implications will be our need in measuring the metrics within companies. The measurement of inputs, throughout and outputs need to become far more focused on delivering speed and scale potential as the critical points. We are far more needing to focus on the outcomes as our primary point of measurement.

This is a further post on discussing outcomes as the focal point of our innovation measurements, following my recent one of “Shifting to Ultimate Outcomes”

Recognizing the emergence of the outcome economy

The outcome economy which is emerging has many implications within it and how we measure and value these will become increasingly important. Companies will need better data to calculate costs, evaluate its potential value and will be modelling far more the risks and tracking the factors required to deliver within any outcome-based value promised.

To quote from a recent World Economic Forum report:

“In the outcome economy phase, companies will shift from competing through selling products and services, to competing on delivering measurable results important to the customer. This is a much more challenging prospect. Among other things, providers will require a deeper understanding of customer needs and contexts in which products and services will be used. Value based on output also entails quantifying results in real-time. Both of these requirements have been nearly insurmountable obstacles to scale – until now. It is the digital age that makes the outcome economy possible”.

There are a number of implications as we move from a ‘push’ into a ‘pull’ environment where results are measured by the customer as valuable to them. For example, pricing practices of a solutions end result will clearly change, based on sold performance, as will the emergence of more predictability modelling of delivering certain outcomes and their potential value.

We are becoming part of the connected world, comprising new market ecosystems and technology platforms that ‘look in’ and foresee, expect, and even predict new outcome results. This will require a far more dynamic environment, one that is responsive, agile, fluid and highly adaptive to meeting customer needs, in real-time.

Internally this is going to challenge organizations in significant ways. As we break down the present silo view of ‘our’ assets, bring into more into play a system of assets that we will evolve into a system of systems, this could fundamentally redefine businesses, the way they work, collaborate and utilize what is available to them and what needs to be ‘drawn in’ to get the job done.

We are facing an evolution from “solutions” to “outcomes”.

Our measurement system has been established on “value-added” principles or should have been at the very minimum. These have been based on “pushing out” the end result to customers, products and services offered in particular bundles of broad appeal.

Today we need to target and develop offerings that meet specific customers’ true needs. The customer has been evolving into a far more knowledgeable and increasingly sophisticated one, as they are closer to the end market, hold the relevant data and can determine and decipher changing patterns far quicker than those further back in the supply chain.

They have better visibility today. Often they feel they really don’t need the help of the salesperson, they have most of the means increasingly available to them, in a globally connected world, if they chose to exploit this.

The shift within suppliers of products and services is taking place, engaging even deeper with customers’ needs.

This focus to accelerate and determine their value to the customer needs to have a clearer understanding of their unique needs and then set about designing and delivering true solutions that meet these needs and are seen as highly valuable. Strategic relationships are increasingly important for maintaining ‘line of sight and value’ to the customer.

As we move far more to the art of selling outcomes, it will bring together sophisticated capabilities, based around technology. There will be an increased recognition of ecosystems that are seen as needing to combine for addressing customer strategic issues where higher value can be extracted.

These outcome-based approaches will be strategic, long-lasting partnerships where shared risk and reward become central to all parties. It changes the dynamics of relationships and offers radically different competitive advantages to shoot for.

The traits of outcome-based solutions

These will be very much custom based-solutions, they will be increasingly based on configurable solution- architecture. They will have clarity in “understanding the challenges and commitments to deliver specific outcomes on critical business needs”. They will be based on platforms that can design, deliver and operate the solutions.

This becomes more a customer partnering model, formed on a partner ecosystem strategy and clear solution architecture to allow it to flow. It will be designed for cross-organizational enablement, seeking – in real-time – customer intelligence to provide a better outcome.

The value for all involved is the opportunity to share in a greater value-creating solution that is based for on delivering the outcomes desired and needed.

How GE are switching their approach.

One outstanding example of how this outcome-based proposition is evolving, is by evaluating and reading about the GE Predix solution offering the software platform for the Industrial Internet through predictivity technologies covering health, extreme machines, lighting, aviation, oil & gas, transportation and energy.

They are building a platform for igniting the next industrial revolution and their white paper outlines this. This is not an easy sell, it has a significant time lag as many of the existing products already in the market are products that have less technology built-in them and have significant life spans to constrain this concept, but “predictive technology” has the potential in providing a real value-adding story into the GE selling story, where it may provide some changing competitor advantage if structured well.

This new industrial platform is here, we need to focus on outcomes.

With it has come the opportunity to make a broad-based change across the industrial world. The time to start is now and that requires a radical shift away from the past 20th-century measuring and metrics model into recognizing the significant shit to redirecting your business to outcome solutions.

Each person within your organization should be measured on outcome-based solutions, I’d junk all those income, throughput and output ones, these are holding you back if you want to release innovation. We are all in need of just focusing on outcome-based solutions, these are what customers want providing they deliver what they need to improve their business returns.

You certainly do “get what you measure” and that has a real challenge in today’s connected world where we need to collaborate, connect and share far more to achieve greater value-adding outcome-based solutions as the way forward to earn the trust of the customer by providing solutions they need but are also building better, lasting value into your product offerings.

The post The Connected Art of Selling Outcome-Based Solutions first appeared on Building Your Innovation & Ecosystem Intelligence.

From this writer’s point of view, their innovation activity gets caught up in plenty of unintended consequences, to put it mildly, in wasted debate, discussion & bad decisions through wrong measurement criteria.

Firstly, we are still locked in the old paradigm of thinking this is an industrial economy where we set about measuring inputs to innovation (R&D expenditure, capital investment) and then focused on the intermediate step of throughput and then outputs (publications, production units, patent filing, end products).

We also perceive innovation far too much still as an activity within just one company – viewed as linear, with considerations for services more of an afterthought (like ‘bolt-ons’). Production systems remain far too often the driving force of performance judgement.
Today, the world of innovation is completely different. We need a far more open set of resources (many outside our own company) to enable innovation.

The process has clearly been recognized as non-linear. The chase for more ‘real-time metrics reflects the shift to a knowledge-based network economy to accommodate growing uncertainties, the multiple choices and varying outcomes that innovation offers.

We need to move our measuring to ultimate successful outcomes

Recognizing the need to change our measurement culture

This shift means we have to push a whole lot more on challenging established measurements and metrics – question if they are still valuable or just ‘simply’ established and have never been questioned in a way to overhaul the whole process. Everywhere we look within innovation systems, there are significant legacies in place.

We need to do a better job at measuring knowledge flows – it is the increasing emphasis and use of technology that allows us to challenge the old measurement paradigms. We still love to count machinery use, transactions, production of widgets with an engrained efficiency mindset.

Sadly it is not as effective, nor relevant, to the world today. Actually, most of these are just statistics that don’t drive us forward; they constantly make us look back. It is not ‘forward accounting’ for the knowledge built to underlie new creation and valuing the way this is developed and diffused in the future.

This also brings to the surface the need to understand our intellectual capital. If you understand that, you have a better chance to be more innovative, inventive and creative as you move far more towards a learning environment focusing on the value of all the intangibles that generate knowledge or leverage through relationships, human engagement or dynamic structures that shape and respond.

Valuing our network relationships more.

The value of networks is still not accounted for as well as it should be within our measurements. We collect the number of connections, yet we fail to capture the knowledge generated by these interactions; they stay resident often just with the receiver, not captured within the organization’s brain to understand and put to better, more effective use, applying the multiplier effect.

Technology is rapidly changing this, and this collective knowledge and networking are being leveraged more, but is it really being measured as a vital metric that provides value?

The conditions to generate really insightful innovation often remains ‘hidden in plain sight:

• Are we matching context, aligning innovation activities closely to strategic company needs?
• Are we actively seeking to match expectations and capabilities to deliver on the innovation that will lead to new forms of company value?
• Are we searching for ‘intelligent’ indicators where those initiatives shift the ground and advance on previously intractable issues?
• Do we know the true dynamics within innovation, what is either static or just simply repetitive and needs more constant monitoring, more likely through technology than human involvement?

Today we are working through the impacts of the Industrial Internet (IoT)

This promises to be transformative; it will change the basis of competition and, through this, the basis of how we measure ourselves. Not only will the industries have their boundaries withdrawn, but there will also be a new wave of disruptive companies challenging the incumbent since they don’t suffer the legacies of the past.

Technology is driving the change:

• The world will improve its operational efficiency in dramatically different ways (time, asset-utilization) through more predictive maintenance and increasingly remote management.
• We will become far more comfortable with connected ecosystems, forming around software platforms that will break down and blur traditional industry and working boundaries.
• We will see increased collaboration between humans and machines, and even machines to machines, which will shift productivity into a new realm – which we need to understand to capitalise on the potential this offers.
• Lastly, we are rapidly moving to the outcomes economy, fuelled by software-driven services, innovation built into the hardware, and the increased visibility into products, processes, location, customers and partners.

It is in this last shift of outcomes that we need to build our measurements and metrics around.

We constantly move towards the era of outcome-based services.

Businesses will be forced to shift from measuring the inputs and outputs of products to outcome-based results, where a business competes on its ability to deliver measurable results to customers.

This delivery on outcomes will radically shift how we measure and reward our progress. It will call for significant levels of increased collaborations across a growing, ever-changing ecosystem of business partners, bringing together those involved to combine products and services with meeting customers’ needs.

Platforms and ecosystems will become far more commonplace to facilitate and capture the data, translate the pockets of knowledge, so these are shared, aggregated and exchanged across these growing ecosystems, where we are all increasing working to create and capture value for ourselves and contribute to others within the platform ecosystem.

Our participation in platforms is helping us to facilitate transactions, interactions and mobilization and increasing extending out to learning platforms, each of us looking to achieve a successful and ultimate new outcome that improves on the existing.

These shifts in the ways we form collaborations give us broader connected knowledge that creates different insights and eventually new business models. To achieve this, we are becoming increasingly reliant on the partnership network or relationship we form within different (chosen) ecosystems to learn, distribute and monetize these in new products and services that fit our needs, all occurring at unprecedented scale and speed to capitalize on opportunities and create a new competitive lock-in or contribution to our needs.

These are providing increasingly new products and services that meet customer needs based on the learning outcomes and exchanges.

Moving from outdated measuring criteria

How we embrace the daily changes means we must challenge much of the way we presently measure and manage innovation. Innovation can’t stay hidden behind closed doors, safe within a selected group or siloed off. We can’t keep working with outdated measuring systems that focus on inputs, throughput and outputs.

We need to shift to the greatest judgement criteria. Our measures and metrics all need to become outcome-based solutions as the only really measuring point. In successful outcomes, we come closer to solving the real needs, tackle the problems and opportunities you find in innovation as others measure success seen and judged on the outcome.

The ultimate outcome from innovation that understands the real customers need and then understood, constantly iterated, translating what we learn and building with increasing speed and scale towards the lasting solution – and we all get paid or rewarded far more on the value of the result from successful ultimate outcomes judged by focusing only on the result.

The post Shifting to Ultimate Outcomes first appeared on Building Your Innovation & Ecosystem Intelligence.

The reality of lasting ownership is much tougher; there are huge, often yawning gaps, in innovation accountability. The right answer should of course be everyone but making that statement on its own is a little bit of a cop-out, an easy answer to a complicated dilemma. So let me offer a connected way.

Working through the Executive Work Mat , jointly developed with our friends at Ovo Innovation, this Work Mat was designed for many reasons but principally to gain leadership engagement within all things involving innovation.

One of its overarching principles was the quest to gain alignment from the top, at the board level, through its interconnected structure and their strategic inputs so as to establish and make the critical connections all the way down and throughout the organization.

What we needed also was putting in place a fairly rigorous ‘litmus test‘ to establish if this is achieving the positive reaction required and the Work Mats intent.

These are my thoughts on this.
To achieve the alignment of innovation to the organizations strategy goals and objectives is so critical to have the best chance to deliver the necessary impact needed; to gain growth and improvement on the existing position.

We need to test for alignment, we need to see if innovation is being adopted, if innovation is cascading through the organization. Is it having a positive effect on how the organization and its people view innovation? How do we harness all the necessary efforts for a positive ‘reaction’?

The Litmus Test required for Innovation.

There are two handy definitions of a “litmus test” and why I think this can be applied nicely here in evaluating the value of the Executive Work Mat.

One, a litmus test is used in chemistry to test and establish the acidity or alkalinity of the mixture- I think innovation does prompt plenty of ‘reactions’ so this works well.

The second, is a litmus test becomes a critical indicator of future success or failure, exactly what the Executive work Mat is attempting to influence in managing the innovation efforts.

The other  aspect is the ‘cascading’ or ‘waterfall effect’ we need.

To enable the Executive Work Mat to permeate down the organization, it needs to be “cascaded.” This needs to be completed though developing a common language as well as having a constant communications and variety of dialogues, so as to make better connections up and down the organization on the levers, resources and issues to ‘enable and promote’ innovation.

Often a cascading affect is regarded as more of an unforeseen chain of events that suddenly effect the system, they trigger often an unfavourable ‘reaction’.

The effects of any cascading can be analysed and these are often through consequence/impact analysis or even event trees.  One can view this within my litmus test explanation in this case, as an impact analysis assessment, to achieve a better alignment and move towards a more positive set of reactions:

1. Working through the logic of the work mat, what works, what doesn’t?
2.  Is it being understood and aligned with the objectives laid out?
3. What are the main contributors (and inhibitors) to managing this effectively?
4. Is there the exercising of regular sets of dialogues to monitor its effectiveness in place?
5. Is it supporting and enabling a more effective allocation of resource?
6. Does it assist in the design of the innovation system, if not how can it?
7. The work mat becomes in itself a diagnostic tool to identify and correct causes and inhibitors as well as accelerate the parts that provide real sustaining impact

The Seven Parts of the Litmus Test – a short summary

Translation points in value, impact and alignment – the value of the Executive Work Mat is to gain alignment, to promote value and achieve a better positive impact from innovation.
The Leadership Commitment – how leaders chose to engage, to encourage and promote innovation activity is critical. They need to mentor, coach, listen and respond to the concerns, opportunities and offer their contribution and judgment.
Peoples involvement – In some recent research by Deloittes on what is required for successful collaboration they felt three conditions needed to be in place. These I really resonated  with, in where I feel any litmus test for innovation should focus upon when it comes to people:

• Do they Belong: people collaborate on behalf of organizations they feel connected too.
• Do they Believe: people collaborate when they commit to carrying out specific actions
• How do they Behave: people collaborate when they share a common understanding of how things are done.

Designed-In – the effectiveness of any innovation system is within its design, its processes and functioning. Here within the litmus test you are looking far more at establishing, generating, exploring, validating and using what is available and learning from it. It is in the care and thoughtfulness of the design.

Engagement & Understanding Outputs – the ability to communication, to find a growing common language of innovation is vital to sustaining success. It boils down to the relating, the responding and the respecting of this. Identification and dialogue allows innovation to flow more freely. Respect generates growing trust. Trust is vital to innovation.

Risk & Rewards – Always the risk and fear working on innovation naturally comes up, it consciously needs to be addressed. To assess the exposure, the barriers, the balances and checks needed, the learning from success and failure needs openly exploring.

Finally, we always need Outcomes – Any effort or initiative has to have outcomes measured on its return of effort and cost involved. It is focusing on effective implementation, on execution, on gaining a ROI and on achievements you can raise the awareness and value of innovation. Outcomes become essential to drive and sustain innovation. People hunger for success, leaders also.

Adoption and cascading become our litmus test for delivering sustaining innovation

So for me, to achieve a lasting value out of the suggested Executive Work Mat you need to do these litmus tests and impact assessments to gauge the successful cascading and alignment effects. You are looking for the connection between engagement, alignment and ownership through growing identification.

If you have not yet considered the Executive Work Mat then I would simply encourage you to reach out and make that first connection, knowing a positive result from the ‘effect’ can make or break your organization.

I’m certainly looking for more workouts in supporting your innovative fitness efforts. Interested?

The post Taking ownership for innovation – the litmus test. first appeared on Building Your Innovation & Ecosystem Intelligence.

It is always pleasing to sometimes be on the same track as the Big Consultants, for working on and moving beyond the trends they are spotting and highlighting, into some clear tangible solutions, to help resolve these. Recently McKinsey Quarterly conducted an on-line survey of just under 3,000 executives on issues surrounding innovation.

The report is entitled “Making innovation structures work”- see the link below. They confirm much that I have seen or gained through my research and point very specifically to the key difficulties organizations are presently having around innovation.
This report feeds directly into the solution work I’m undertaking
The results feed directly into the work I have been undertaking on the leadership gap and the suggested framework of the integrated executive innovation work mat that has been discussed in considerable details in the past few weeks.

These have been on this blog site of mine, as well as ovo innovation’s  my collaborating partners, and also on  innovation excellence’s web site, where we had a whole week of featured articles, discussing the work mat component parts, or as we entitled it, the essential seven domains of innovation that make up this work mat.

So what stands out in the McKinsey report?

The innovation structure is evolving; organizations rely on exploring various organizational models to ‘house’ and execute innovation. They work with multiple structural models to drive innovation efforts and often have separate innovation functions, located in multiple locations. It seems there has been an insurgence of structures in the last three years that are currently being worked through.

 Presently there is no uniformed view on innovation organizational design

According to the report, the innovation’s function has shifted in the functions location, in its financing and ownership and increasingly reporting into a C-Level, or even directly into the CEO.

The designs involved include innovation centres, a dedicated new-business development function, emerging business opportunities and technologies groups (often separate) and having advanced technologies institutes as part of the mix.

It still seems where it ‘sits’ partly depends on the time the innovation function was set up. The older structures, set up more than ten years ago 46% of those surveyed report that innovation “sits” at corporate headquarters compared with 65% at the organizations with younger functions. Younger functions also focus more on profit but presently have fewer market successes as they have had less time.

What is the innovation they are working upon?

These are with functional focus on identifying new business opportunities, such as blue-sky innovation and developing potentially disruptive technologies and those report directly into the CEO at around 44% of the functions at present. That maybe the wrong side of the 50% mark I’d like but we seem to be making progress of linking innovation directly to the leadership of our organizations, or are we? Read on.

The factors of success

This is the area of most interest to me. Although it is prefaced by a matter of maturity (whatever that means) there is a ongoing debate on how separate or aligned with corporate strategy an organizations approach to innovation should be.

To quote from the report “What is affirmed that strategy (particularly one that is focused, clearly articulated and integrated) is key to successful outcomes. At companies where innovation is fully integrated into strategy, executives are SIX times as likely as those without an integrated strategy to say their separate functions meet their financial objectives effectively, actually very effectively or extremely effectively”

Equally where there is a successful integration there is a sharing of the organizational elements across the portfolio. This includes sharing strategic priorities and focus, knowledge and insights, research insights and analysis, leadership teams and approach to governance with lastly a good talent flow and exchange.

The challenge for innovation is still around strategy though

Only one-third of the executives report innovation is fully integrated in corporate-level strategies,  and nearly half say integrating the separate function’s strategic objectives with those of their core businesses is one of their functions most significant challenges.

Those that achieve effective outcomes have clear leadership support

Fifty-six per cent of all the executives surveyed identify C-level and leadership support as a driver of success (second only to strategic focus). There is a more than interesting effective outcome split within the report (exhibit 4) that the level of interact frequency with the C-level team makes a real difference.

Surprisingly but fitting with my own observations and research, is the frequency of interactions between the separate innovation functions and C-level leadership. From this report those deemed as “very frequent” is only at 40%.

Can you image the wealth creation, new growth potential that innovation provides yet C-level engagement is only at 40% for very or extremely frequent in discussions? So is innovation that important to the C-level really?  Something is wrong here, badly wrong.  “Somewhat frequently” comes in at 17% and “rarely or not at all” is 22%.

This is the leadership gap we have suggested needs addressing, urgently. Clearly innovation “sounds good, a good sound bite” but is not top of mind for C-level as they would like us to believe, it seems.

Then McKinsey outlines the involvement with separate innovation functions at the C-level as actively involved in the innovation process, from idea generation to commercialization, is only 38%. Those involved in the evaluation and feedback on major innovation decisions, about strategic decisions and priorities of investment makes up another 35%, yet only 26% serve on an innovation council or committee and 14% report that their leadership is not involved with innovation functions at all.

So we are still badly lacking that deep C-level engagement, although the line into them is improving. The need is to get the C-level strategically engaged at least and convince them to provide the innovation framework for others we are proposing, so they do become fully involved and those responsible to work within innovation can conduct their work through the framework we are suggesting to strengthen the C-level engagement and cohesiveness of strategy with innovation activity.

Divergence and philosophical tension in innovation

So the McKinsey report is more than helpful (and timely) on providing a snapshot of practices, successes and challenges but they do suggest there is a divergence and reflection on the struggle and philosophical tensions surrounding innovation. For instance, equal shares of those surveyed, state their function exist to turn a profit, or have no financial targets at all.

Equally there are large splits on measuring individual performance with only 30% having the same performance metrics as the rest of the organization, while 32% have innovation-specific metrics and some (23%) seem to straddle the middle of the two. The lack of leaning to one form of measurement or the other needs resolution or is it evenly split due to the nature of the innovation activity the function is working upon?

The one aspect within the report I find really shocks and disappoints me

The concern lies in the number of dedicated employees on innovation, 35% of executives (out of 2,927) have ten or fewer full-time equivalents working within their function and 30% saying at least 51 full-time equivalents dedicated and working on innovation.

That is staggering low in my opinion for the area that is reportedly consistently within the top three priorities of the CEO. No wonder we have the slow innovation cycles, the poor success rates and the lack-lustre performances from innovation if these are the dedicated numbers working on innovation.

This is appalling. I just wonder how many efficiency and effectiveness people are employed across some sizeable organizations yet innovation seems grossly undeserved by these results. Putting your future into too few hands, to work on breakthroughs, those new disruptive areas means you must be forced to end up with incremental innovation for maintaining performance, and we all are seeing that clearly emerging time and time again, from most organizations not balancing their innovation activity in a well- structured and thoughtful way.

Risk, poor incentive, under-resourcing innovation and fear still dominate. When will stakeholders start asking more direct innovation questions to the boards of organizations?

The last part of the report deals with the difficulties aligning innovation.

The significant challenges in meeting strategic objectives are hampered by a range of difficulties, the highest as a % of respondents was 53% on the competition coming with short-term priorities from other parts of the business, 42% for difficulties in integrating functions strategic objective with those of the core business, 29% in difficulties in defining the functions business case or value proposition to company leaders, with 19% seeing the challenge of being separated from the rest of the company.

The conclusions  drawn from the report.

The report concludes many of these issues are cross-cutting and perennial challenges not just for innovation but for the organizations as a whole.
It reaffirms the absolute need for strategy to precede structure when organizations decide to create new innovation functions and the enabling effect an engaged C-level support brings in driving innovation success. Also it suggests that a real care to tailor the function to existing organization objectives and culture are important.

The report recommends the following:
1)      Organizations should not rely on a single innovation function, it must integrate with the entire organization
2)      There must be first a well-established and clear strategic focus
3)      A clear garnering-in from top management
4)      That C-level support is a key factor for innovation success
5)      The measures should focus more on the performance and success on the functions role in the innovation value chain, not necessarily financial targets as these can be an unreliable measure or guarantee of success.

This report is timely

After the last few weeks in laying out the business case for having an integrated framework for innovation through our executive innovation work mat, this McKinsey report reinforces that we are on the right track.

I feel even more confident that this framework we offer to bridge the innovation leadership gap can make a solid, maybe significant, contribution to reducing some of the issues and challenges that have been raised within this McKinsey report.

The McKinsey report can be found through this link.

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