Lean Innovation

The term lean is applied to many things today. What started with manufacturing by the Toyota Production System has spread to several other areas, such as software development and startup companies.

In the case of the startup, the book Lean Startup by Eric Reis presents an excellent model for applying lean principles to what is, fundamentally, an exercise in innovation. A startup company must compete by doing things uniquely better than its competitors. They must innovate to come up with new products or business methods. By applying lean principles they increase the likely hood that they will be successful in business by testing assumptions as early as possible with the least amount of time and money spent. This way if they need to adjust things or start over in an entirely new direction they have the financial opportunity to do so because they did not bet the farm on one idea. The same principle applies equally to established companies looking to come up with new products.

What is Lean?

Think of lean as a way of becoming super efficient. A ‘lean’ approach is one where you try to eliminate wasted time and resources while trying to produce something a customer will buy. In the lean world anything that does not produce something that customers see as valuable is wasteful. Basically it means producing things that customers will buy for less cost. Who doesn’t want that right?

So how does lean apply to innovation and why is it so important? Almost any company, given enough time and resources, can produce a new and innovative product or service. Unlimited time and money doesn’t guarantee your ideas won’t fail, just that you get to experiment with unlimited ideas. Odds are you will eventually meet with success. But the trouble is, unlimited resources rarely exist. And sometimes vast amounts of money and time are counterproductive to innovation. The formula below represents how most companies think about innovation.

Figure 1.

The keys to innovation are uninhibited thinking, iterative experimentation, and luck. Lean does a better job of getting you to iterative experimentation. By better, I mean faster and cheaper, which means more iteration, which, in turn, increases your chances of hitting on a product or service that customers will love and spend money on. Promoting uninhibited thinking within your company is achieved by having a culture that encourages innovation and risk taking. I call this type of company culture an Innovation Culture.

What is an Innovation?

For a moment lets focus on what an innovation is exactly. Many people will say that incremental improvements are not innovations. I disagree. When Steve Jobs made an incremental improvement to the MP3 player he changed the face of the music industry. Who can argue that the iPod was not an innovation? Sure, ground breaking and life changing innovations are more impactful than small incremental improvements, but if your customers spend more money with you because of it, then they obviously appreciate the incremental value you provided.

Innovation Culture

Company culture is very important to producing innovations, hence, it is a key part of my formula for Lean Innovation. I’ll get into more detail later, but in summary, think of a company where new ideas are fostered, rewarded, and revered; where employees are passionate about building the future and working on something much bigger than their own careers. The figure below shows how an innovation culture is an important factor for lean innovation.

  • Figure 2.

I’ll explain what I mean about learning loops later in this post. A company that encourages an innovation culture does not punish people for trying something new and falling short. At the heart of many innovation cultures you can clearly see the reason they exist beyond simply making profits or creating shareholder value. Innovation cultures just assume they must be profitable for their shareholders so they can realize their dreams of changing the world. Making your mark, having a why is the purpose at the heart of an innovation culture. In my experience, innovation cultures are also employee-centric cultures, meaning they take care of their employees first.

If we just had the right people

The central element of innovation is people. Rarely do algorithms find new ways of doing things. Yes, inspiration can come from data, but it is people who come up with ideas. A colleague of mine found a nugget of wisdom in the reams of data his power company employer kept about its customers. He proved statistically that customers who had better credit scores were also much more likely to be longer-term customers. Armed with this information, any company can strive to attract high credit score customers with more competitive rates because it will pay off over the long term.

How do you attract and keep innovative employees like my colleague? Though I have no empirical evidence, my experience has shown me that innovative people are attracted to companies that offer more than just competitive benefits and salaries. Those are just the table stakes now. Notice my formula for lean innovation in figure 2 above. You do not see a ‘pay the highest salaries’ factor included there. The ‘right’ people look for a company that pays competitively and has a strong employee-centric culture where the excitement for the big picture goals is palpable. These are the innovation cultures and they are powerful magnets for innovative people.

Learning Loops

As I stated at the beginning of this post, the lean movement is not just about manufacturing anymore. A systematic approach to testing ideas and innovations is applicable to every industry and company. Think of the process of testing ideas as a never ending loop where in each iteration you learn more about what your customers want and will buy. The more iterations you have in this ‘learning loop’ the more you learn and the greater your chances of success.

You make learning loops systematic by building a documented repeatable process where employees are routinely trained in the required methods and the appropriate measurements are recorded. Through these measurements you know which ideas to pursue for full implementation and which ideas to pass over. In my opinion, implementing a system that measures the right factors is the hardest part of lean innovation. Taking the time and expending the effort to build a decision support dashboard to guide you on ‘go’ or ‘no-go’ decisions is extremely worthwhile.

You increase the likelihood of hitting the optimal balance of features and value to the customer with each additional learning loop. You also improve the probability of coming across a killer feature or product. This is the dream is every product designer and leader. Sometimes you have to try what no customer has asked for. If that idea brings more sales or customer satisfaction, then it’s a keeper. If it doesn’t, then it is pushed aside for other ideas – ideas that trigger the growth you desire.

This rapid fire learning loop approach to testing ideas also reduces costs and risks by failing quicker than before, and that means you can be successful sooner. Failing quickly avoids large costly projects that tie up valuable resources and produces no additional revenue. The book Lean Startup refers to this iteration as the ‘Build-Measure-Learn Feedback’ loop.

The testing discussed here is more about market research than quality assurance. Testing for quality is always important, but in early stage prototypes and mockups the customer reaction and usability score are more important than the bug count. Real market research is more doable than ever with available services like usertesting.com and affinnova.com.

Every company needs customers who are trusted advisors guiding their product and leadership teams. These customers partner with you to ensure that your innovations will truly go somewhere. But I cannot overstate how vital it is that testing in these learning loops is conducted with your target market customers as well as your network of trusted advisors. Building customers into trusted advisors requires product managers who love talking to customers and love solving their business problems.

In summary, innovation leadership and learning loops increase the likelihood that your products and services will out-sell competition and, perhaps, deliver that game changing innovation.

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