In the past, we’ve discussed the history of innovation, what it means to be innovative, and some of the challenges facing organizations when it comes to straight up innovation.
But now, it’s time to talk about something more specific...lean innovation.
While understanding the need for innovation at the enterprise level is important, the word innovation alone does not paint the full picture of what needs to occur in order for an organization to harness the power of “entrepreneurial spirit” and effect the permanent, transformational change of your company, so that it survives and thrives in the 21st Century.
Lean Innovation Definition
At Moves The Needle, we define lean innovation as “reducing waste in the discovery, creation, and delivering of new value to customers."
We base Lean Innovation principles upon the 3 E’s of Lean Innovation: Empathy, Experiments and Evidence.
And in practice, we combine three important ideas: design thinking, Lean Startup, and agile methodology.
When facing uncertainty, we need processes that allow us to optimize learning, not just execution.
Methods are needed that focus on the customer experience, allow us to adapt to new information, and help us make decisions based on market-based evidence.
Applying these principles or methodologies throughout an enterprise helps mitigate the risk of producing products or services no one wants, and allows the allocation of capital and resources to ideas that create value.
What is Design Thinking?
Design thinking is a way of problem solving that evolved out of applying the scientific method to the process of design.
In this way, lean innovation and design thinking go hand in hand.
When designing something, (ie: a technology, a product, a marketing material…) it is paramount to keep the needs of the end user in mind.
In the context of lean innovation, design thinking holds the empathy portion - the customer-centric focus and the first “E” in the 3 Es of Lean Innovation - which allows organizations to truly pull back the curtain on their customers and understand their desires and needs.
Centered around customer empathy and prototyping, design thinking is a compelling framework for ideation and the discovery of new value.
Instead of believing that we know what our customers need, as we attempt to serve them — why not seek to learn what they need through a variety of techniques that build customer empathy?
Design thinking is a step above “customer development” because it takes a real human approach to getting to the root of an intrinsic problem.
It’s not about sending out a yearly survey and then creating a bunch of features based on customer responses, but rather, the creation of multi-disciplinary, human-focused hypotheses that involve deep research and empathy work in order to find the best solutions.
But design thinking alone is not enough.
Classic design thinking is problem-focused and ends where ideation and prototyping solutions come into play.
Many large organizations tend to stop after prototyping solutions that indicate desirability, and subsequently revert to traditional development methodologies.
This is problematic because they might never actually solve the problem, nor is there any indication that the product would be successful in the marketplace. The “solution” is one aspect of often very complicated business models.
Where design thinking ends, Lean Startup begins.
What is the Lean Startup Model?
The Lean Startup Model is a set of principles that help answer the question “Should this idea be brought to fruition”.
The process for determining this is based up on the framework known as the build, measure, learn loop.
Build something that proves the viability of the “riskiest assumption”, measure the results, decide where to test next based on the results.
While design thinking focuses on empathy, Lean Startup takes it a step further into the realm of testing assumptions through rapid experimentation (the second “E” in the 3 Es of Lean Innovation).
The idea was conceived by Eric Ries and brought to life in his book The Lean Startup back in 2011.
Since then, his methodology has gained popularity among startups and large organizations alike by giving companies a process for reducing production waste and bringing products to market faster than ever before.
As they relate to lean innovation, the Lean Startup principles are applied to instill rigor around testing the riskiest assumptions of bringing a product to market.
In other words, it’s not just about the product, but testing throughout the business model, including marketing and sales activities.
This involves brainstorming and prioritizing business model assumptions, creating a hypothesis, defining a key metric and running a specific experiment to validate or invalidate the hypothesis.
The data derived from these tests, plus the insights gleaned from ongoing empathy work form the evidence (evidence - the third and final “E” in the 3 Es of Lean Innovation) that informs and helps guide the entire decision making process.
A company deploying these processes continuously looks at evidence to determine whether to continue experimenting, move on to the next assumption, or to kill the entire idea. In this way, organizations don’t end up relying on the HiPPO in the room, or biases, or turf wars, and so on.
Why are Enterprises Thinking About Lean Startup Now?
Some organizations are adopting lean startup now because they need to create new growth. In many companies, older products are coming to end of life and they need to make way for new ideas.
Others are being disrupted. Competition is now global.
But, arguably, the biggest and most relevant change is that customers have more information now than ever before and can change direction more quickly.
Reviews, social media, mobile devices and so on mean that the quantity of information customers have on products, services, support issues, and ethical behavior makes them agile than the companies who serve them.
This has had an astounding effect on the concept of brand loyalty. Nowadays, there isn’t much, unless businesses directly attempt to create passionate customers.
In an article from Cabforward.com, Ash Maurya of LeanStack talks about the synergy between Lean and Agile like this:
“Lean is the agile mindset applied for business where the business model, not just the solution, is the product. While agile focuses on build velocity, lean focuses on customer traction velocity.”
The fact is, companies need to be way closer to their customers than they have been in the past.
And as you can guess, it doesn’t stop with lean startup.
There has to be the component of agility to match that of the customer baked in to the company strategy.
What is the Definition of “Agile”?
You can’t have a complete lean innovation practice without the agile component.
Agile refers to a set of values noted in the Agile Manifesto and primarily refers to a company or unit being able to quickly adapt and respond to new information rather than being forced to stick to a plan.
The agile manifesto, which was introduced in 2001, prioritizes short product development “sprints” in order to incorporate new information which might come from a variety of places such as new technology, customer input, insights, or development issues.
Instead of assuming that businesses know exactly what the customers need and then build the product heads-down over the course of months or years, they can release early versions quickly and incorporate customer input.
This flexibility is typical within small company and software environments, but much more difficult to achieve at an enterprise level, which is much of the reason why many large corporations are slow to act in the face of disruption and cannot move as quickly when customer tastes shift.
Again, agility is not just for products.
Agility in opportunity assessment, development and commercialization s key because you can’t just come up with the plan and execute. You need a structured process for pausing, incorporating customer empathy and validating assumptions before moving to the next step.
Agile methodology provides this structure.
It’s not that everyone will have sprints as fast as a small software company, but that the cadence is determined by complexity of the product and business model.
Think of a product that didn’t perform in the market as you expected.
Can you think of anything you could have tested prior to launch that might have indicated you were going down the right path?
What sort of sprint length would you need have needed to capture that opportunity to test viability?
Lean Innovation Examples
Now that you have a better understanding of what lean innovation is, here are some examples of companies we’ve worked with who have been able to integrate these ways of working into their organizations.
While they have each excelled in different areas, their results are a powerful indication that enterprise companies can and do use the lean innovation methodology to drive significant impact.
Example 1: ING
The first example of an enterprise doing lean innovation correctly from a transformation perspective is ING, a global financial institution.
At one of our Innovation Executive Dinner events, we discussed the ROI of Innovation and the 3 Horizons of Growth.
What ING has been able to do really well is develop different programs as they relate to each one of those growth horizons.
Their innovation transformation program PACE addresses the need for Innovation across the 3 time horizons, near term, mid-term and long term.
"PACE Everyday" teaches people how to be entrepreneurial, in order to improve existing products and markets, but PACE programs also look to answer the question “What is banking going to look like in 5, 6, 7 years and what can we do today to lay the foundation for that."
Not only have they developed internal programs that address each of the growth horizons, but they’ve also incorporated this way of working from the practitioner level all the way up to senior leadership.
They are extremely ambitious in their innovation goals and plan to have 50% of their workforce (50-60,000 people) working this way by 2020, and are continuously experimenting with the structure of their company to see how they can maximize the efficiency of working as a lean innovation company.
Key Takeaway:
Creating innovation programs that are tailored for each growth horizon and for all levels of people within the company is a great way to transform the way the entire organization functions and create growth and new revenue for the company near term and in the future.
Example 2: AIA
Where ING was a stellar example of a company going through innovation transformation, Malaysian Insurance company AIA has seen immediate results with lean innovation principles on a tactical level.
AIA started their lean innovation journey by identifying a handful of people who would go on to become Innovation Champions: individuals inside the company who would be in charge of spearheading the innovation efforts for the company through workshops, accelerator programs, and provide mentoring and advising for teams that were learning how to work in an “entrepreneurial” way.
Over the last year, we’ve been working with these innovation champions to get them up to speed while working through a several innovation sprints.
Out of those sprints, AIA has launched 2 new products and received funding for two additional internal startups. Their sprints have been so successful because, in a typical 3-5 day sprint, 5 teams run over 30 experiments and interact with upwards of 700 customers!
The sheer amount of work that these innovation teams accomplished during a single week is mind blowing.
And while AIA might not have all of their ducks in a row with regard to all areas of innovation, when it comes to hitting that first milestone of having an impact, there’s no other company that’s been able to do this faster.
Key Takeaway:
Aggressive sprints and high levels of experimentation and customer interaction can drive impact quickly.
Example 3: Medical Device Company
This last example is a medical device company (whose name has been withheld to protect their privacy) who already had an internal group that leverages design thinking as a method for evaluating future growth opportunity areas.
And it’s a good thing, since their current business model is facing massive disruption...
What makes this company truly exciting though, is the idea that they are not merely hoping that “innovation” practices will result in new products that might eventually unlock massive growth and save them from the enterprise graveyard.
But rather, They are looking to use these principles for the commercialization of current products into emerging markets.
For them, it’s not just about product development but about how they can use lean innovation to affect different aspects of finding growth opportunities with their existing business model.
Typically, companies that just do design thinking are only finding a solution that addresses a specific market need. The company then focuses on the product, and only the product.
That’s a problem.
Even if you prove the product is desirable, that doesn’t mean that people are going to pay for it. They typically don’t tackle anything in terms of the business model or whether it’s scalable.
But in this example, the organization is using lean innovation to commercialize a handful of existing products into emerging markets.
They must figure out channels, messaging distribution, sales methods.
They must learn whether other products or features are necessary to complete the picture from the customers’ perspective.
To do this, they use the 3 Es of Innovation: Empathy, Experiments and Evidence.
Key Takeaway:
Realizing that it’s not just about building new products, but about tying innovation to growth allows organizations to answer the question: “How do we apply lean innovation to what we already have in order to discover new opportunities and reduce waste in the commercialization of our products.”
Lean Innovation in A Nutshell
Enterprises define innovation poorly.
Marketing thinks of it differently than does R&D, who think differently than leadership. This leads to no real innovation at all, and leaves the company vulnerable to competition, disruption and the natural deterioration of existing products and markets.
Innovation must be tied to the current product lifecycle, technology trends, and the strategic priorities of the company.
Large enterprises require a broad portfolio of initiatives that develop growth opportunities over a time horizon spanning from today into the distant future.
Uncertainty lurks across this continuum.
Lean Innovation reduces the waste of discovering new value across the time horizon, wherever there’s uncertainty.
Using Empathy, Experiments, and Evidence, all employees, from the front-line to the C-suite, can reduce the risk of the unknown, in their quest to create new value and grow.