Three initial thoughts on innovation
Some basic learnings from my career in the insurance industry
In my last newsletter, I shared my reasons for starting Forestview. In today’s edition, I want to share more about my background leading innovation in the industry industry and why I have launched Forestview to help career professionals better focus on the big picture and help plan for an uncertain future. Though not entirely synonymous, I believe that “innovation” and “preparing for the future” are inexorably linked together. I also believe that “innovation” should be directly related to “learning” and “adapting”, which are also crucial to thrive during periods of change.
I was fortunate enough as a child to have a fair amount of stability in my life. While there were certainly unexpected changes and challenging periods during this time, looking back I consider myself fortunate to have had less turmoil and adversity than many others face. This stability translated into my early career working in the financial services industry, especially during the 20 years I spent working at USAA. While there were significant changes at the company during my time there, similar to my childhood, looking back there was a lot less change in the insurance industry than in many other sectors. In fact, when USAA began promoting a culture of innovation starting with the tenure of Gen. Joe Robles as CEO in 2008, it was an exciting turn of events for me. For a large, well-established company based on a hierarchy modeled after the military where rank and seniority were prized, it was energizing to see the entire employee base encouraged to promote change for the benefit of USAA’s military members and their families. This new corporate culture led to my involvement, after years of domain specialization and daily routines, to spark my own passion for innovation.
Over the past dozen years or so, I’ve experienced first-hand the power of ideation, experimentation, and implementation of innovation efforts. I’ve also been a part of the major technological and societal changes that we have all experienced with the development of the Internet, mobile computing, social media and much more. Our lives have been, and continue to be, transformed in ways that were unthinkable only a few years ago, much less when I was growing up as a kid in the 1980s. The days of relative stability are gone, and I don’t know anyone that expects a return to those times. Given the accelerating pace of change in our lives, we must be as prepared for unexpected events as possible. Embracing innovation is a key part of preparing yourself and your organization for an uncertain future.
Innovation is a discipline and more than ideation
While writing about the unique challenges of innovating in the insurance industry recently, I was reminded that innovation remains in many ways a mysterious concept. Innovation is often a nebulous term that is too often confused with ideation, the generation of new ideas through a group brainstorming session or other mechanisms. For some people, myself included, ideation is a fun exercise. I’ve always been an idea person and find it easier than others to generate new ideas. (This is a problem when my wife Dani wants to settle on a restaurant to take our family to.) But too often in my experience, ideation is mistaken for innovation. Ideation becomes an end in itself, not part of a larger innovation process. This is problematic because it usually leads to frustration by employees - a lot of ideas are generated, few if any are followed up on beyond the initial generation, and ultimately the time spent on formulating ideas is wasted. This time might make for a good team building sessions over a nice lunch, but does not produce benefits beyond that.
I am a big proponent of viewing innovation as a discipline, not a side show. Seen as a discipline, innovation should be considered in the same vein as any other discipline in a professional organization - similar to finance, HR, sales and marketing, product management, etc. While everyone can (and should) be involved in innovation efforts, innovation has been studied and written about enough that it merits consideration as its own field of knowledge and expertise and, in my view, should be treated as such within organizations. By arguing that innovation is a discipline, I also contend that there are now well-established best practices to guide innovation efforts. Yet most innovation efforts lack consistency across companies and industries and there are few professional societies and recognized designations for innovation professionals to help codify these best practices and make their adoption more widespread.
One positive development is that many companies have established formal innovation teams over the past decade or more, dedicating personnel whose sole focus is to support innovation initiatives. Such efforts can be through internal projects, external partnerships, cross-functional collaborations, targeted investments and more. Yet I do not see many organizations with a Chief Innovation Officer - and even in those that do, this individual is usually not as empowered or influential as a Chief Revenue Officer or Chief Financial Officer is.
Until innovation reaches the level as a discipline where best practices are well-understood and widespread, professional designations and societies exist to facilitate networking and knowledge sharing, and Chief Innovation Officers are at an equivalent level to other C-suite executives, efforts will remain fragmented and disjointed.
Innovation is novel, not new
When I was responsible for enterprise-wide innovation efforts at AF Group, one of the big challenges was aligning all parts of the organization on what exactly the role of the innovation team was. As a small group of four employees charged with spurring large innovation efforts within a $2B organization of roughly 1,600 employees, we had limited resources in terms of time and budget. As a result, this meant that while we could help build a culture of innovation and spark enterprise-wide ideation efforts, the team could only directly impact a small handful of critical efforts. The question became: how do we choose which efforts to directly get involved in and which ones do we remain on the sidelines for as a cheerleader but not an active participant?
There are many factors involved and no single right answer to this question for firms, but one of my core principles is to focus on the ideas and efforts that were novel, not new. What does this mean? In my view, innovation efforts should be directly towards large opportunity areas that contain risk and uncertainty. Innovation is most fruitful where investing a smaller amount of time and money in areas can help you learn enough to reduce the risk and uncertainty and better assess whether you should fully pursue an opportunity. Generally in these circumstances, there are a certain amount of unknowns that need answers before an informed decision can be properly made - in other words, there are some novel aspects about the proposed idea. If there are cheap and fast ways to answer these key questions that come at an acceptable cost relative to the potential size of the opportunity, then innovation efforts can pay off.
By contrast, many ideas may involve something new but there is little risk and uncertainty involved. For instance, perhaps your department is using an outdated software package and a new offering may be better, cheaper, and/or faster. You may already have determined this through your research and simply need to provide you with the budget necessary to make the purchase. You likely will have to make a business case to purchase the new software, and this business case is competing with other business cases for similar investments from other departments all across the company. While your area may lose out on the budget battle and not be able to purchase the software, funds dedicated for innovation efforts should not be repurposed for this use in my view. The software may be new, but it is not novel - there is no key questions to answer, no major risk or uncertainty involved.
The question of novel vs. new generally applies to whether a situation involves disruptive innovation vs. incremental innovation. If the change is incremental and your subject matter experts can build a fairly robust business case for investment without leaving too many key questions unanswered, it is likely not worth investing innovation resources in. On the other hand, if a business case cannot be reasonably built because there are too many unknowns but the potential opportunity looms large, this may indicate a disruptive change that is worthy of focused innovation efforts.
Some firms shape the future, but all must adapt
What is your motivation for innovation? Similar to ideation for the sake of it, too many companies focus on innovation for its own sake - that is, innovation efforts are not tied to a higher purpose. What should that purpose be? Fundamentally, I believe that innovation should be an integral part of how a company prepares for an uncertain future. More concretely, firms should first focus on what the future will look like and then where they want to be positioned going forward. Since the future cannot be predicted with much accuracy, this necessarily involves scenario planning and what-if analysis. Based on the best information available at the time - guided by current trends that are expected to play a role in shaping the future - organizations must formulate a strategy that guides their progress from the as-is reality of today towards the anticipated to-be state of tomorrow.
Along with a firm’s strategy, companies should take care in clearly documenting both the assumptions that underpin the key choices made in setting their future direction as well as the key unknowns or missing pieces of information that cloud the ability to make confident decisions. In both the assumptions and unknowns lie risk, and this is where innovation efforts can help to answer questions and reduce uncertainty to allow your organization to both shape the future as well as adapt to the future. Shaping the future is what most people think of when recalling successful firms that are seen as innovative. Apple, Google, and Amazon are just a few of the major firms who have been and continue to shape the future. But whether or not your company is shaping the future, all organizations must adapt to the future.
Firms that are the most successful in adapting to the future usually have innovation as a core competency. Most of the firms I’ve spoken with that have had success over the past two years during the pandemic cite several innovative efforts as critical to their ability to adapt. Crucially, these firms were already investing in innovation efforts - not because they anticipated a worldwide pandemic, but because they saw opportunities and were able to capitalize on these investments once the pandemic hit and they were forced to quickly make changes to their business model. When firms adapt to the future, they are not looking to bend the future world to their will but rather quickly change as the world changes in order to keep pace and capitalize on opportunities that appear. Additionally, when innovation efforts are directly tied to your corporate strategy, it builds organizational support and momentum that can help sustain it even as leaders and short-term objectives change over time.
Taking time to see the forest
One final thought: innovation is not possible if you don’t see beyond your day-to-day reality. Unfortunately, so much of our professional lives are dominated by the mundane but necessary tasks that need attending to: e-mails, meetings, invoices, etc. Every day can feel like a struggle to swim: to simply keep your head above water. While well-meaning advice to block off your calendar for much needed “think time” is great, too often the reality of the CEO’s calendar or other demands can quickly occupy those small pockets where you were planning to come up for air.
In publishing Forestview, I hope to provide you with a brief respite during your busy day to spend a moment focusing on the broader picture. Your comments are critical towards achieving success, so please feel free to leave them below or send me a message on LinkedIn.