It’s that way in the business world. too. Companies can create tidy org charts and draft neat process maps to describe how they work, but the unseen reality outside the visible systems may be what really dominates operations. Increasingly, experts in knowledge management are learning that easily overlooked and often invisible intangibles can dominate corporate value and performance. Numerous intangible transactions may be essential to the success of a company, including casual information sharing between trusted friends, helpful exchanges of tips and best practices between employees or between external partners and internal employees, or loyalty that is gained when people are included in decision making. The invisible linkages and hard-to-observe exchanges in a company’s internal an external ecosystems may be the real engines of value creation, regardless of what is on a process map or workstream. By not understanding the value of such intangibles, corporations can easily break key linkages and crush subtle engines of value creation.

Many companies focus on their “value chains” – a term popularized by Michael Porter in his seminal 1985 work, Competitive Advantage. The value chain describes the linear chain of events as materials and products move from sourcing through manufacturing and out to the market. It is a highly useful paradigm for manufacturing and was highly applicable to much of the economy in the era when Porter was doing his research. But since that time, the explosion of the knowledge economy has changed the way we work and create value. One of my favorite authors, Verna Allee, a revolutionary expert in knowledge management, has detailed the move from the value chain to modern ecosystems and Value Networks in her book, The Future of Knowledge: Increasing Prosperity through Value Networks (Burlington, MA: Elsevier Science, 2003). Verna Allee and Associates have introduced a clever, methodical tool called Value Network Analysis for analyzing and visualizing the transactions of intangibles and tangibles that affect a business.

After my training in Value Network Analysis by Verna and her associate, Oliver Schwabe, an exciting new perspective on business and human behavior opened up. I have been highly impressed with the power of Value Network Analysis and the insights that it can rapidly deliver for a company. The Value Network Analysis work that Innovationedge has done as part of larger projects for some of our clients has been a very exciting part of my work since joining Cheryl Perkins’ exciting company. We value the tool enough that we had Verna Allee speak at the 2008 CoDev conference to introduce other business leaders to the basic concepts behind Value Network Analysis. I’m very pleased to see a community emerging of people using Value Network Analysis and developing exciting tools for it.

Here are some resources that you may find helpful in further exploring this area:

• Value-Networks.com
• Hosted Value Network Tools
• A Value Network Approach (PDF) – 2002 Whitepaper by Verna Allee
• ValueNet Works™ Analysis for the Discovery of Viagra (PDF)

Part of the initial output in Value Network Analysis are maps, called “holomaps,” showing human entities as nodes and transactions of tangible or intangible items between them. There is much that can be learned from such holomaps – a topic for later discussion. For now I’ll show you two sample holomaps I created to illustrate simple ecosystems. One shows several external nodes around a manufacturer and the other shows some structure within part of a corporation. For simplicity, the maps lack all the labels explaining the transactions. (Click to enlarge.)

One interesting approach is to use the “holomaps” you get in Value Network Analysis as tools for “what if” scenarios to explore what new partners might do for your business model, or what new business models might do for your ecosystem. Using holomaps to explore innovation ecosystems is a particularly fruitful approach for those doing open innovation and wondering who should be in their external ecosystem.

We have further information on this topic that we’d be happy to share with you. It’s certainly something you should look at to understand how business really works.

Effective IA management begins not with the processing of existing documents, but with the development and articulation of vision to guide the process of IA generation and acquisition. It begins with a roadmap of what the corporation needs to own and protect, and that roadmap can then be infused into a written IA strategy statement that guides the IA-generating community to know what they need to create, and also guides IA committees to know what they should be approving.

Written strategy statements can help innovators be more successful and decision makers more disciplined, though there must also be leeway for out-of-the-strategy-box inventions that could lead to unexpected opportunities. However, most IA generating work in a corporation can and should be targeted and focused on specific objectives.

Once a clear vision is communicated regarding the IA needs of the corporation, IA generating activities can be used to supplement normal new product development and R&D. These exercises can be driven by the IA management team to achieve low-cost IA estates in targeted areas for specific objectives, such as averting a disruptive threat, laying a foundation for future IP in a potentially disruptive area where R&D investment is not yet available, weakening the IP potential of a competitive merger or acquisition, etc. At least a portion of the IA generating efforts of a corporation should be driven from the top with a clear objective in mind, rather than waiting for random invention disclosures to trickle up during the course of normal R&D activities. IA strategy should lead innovation.

One of the social media trends for 2011 continues to be the gathering and leveraging of opinions. Not just opinions of those who like one brand over another, but of those who are so influential as to change the minds of the folks who very well could be your new customers.

Klout, a network that allows users track the impact of opinions, is becoming a powerful tool for companies who want to collect large amounts of data about how people interact with their brands, services, products and overall image. You can use this tool to identify key influencers and keep track of their online influence.

Here’s an interesting case study from a few months back: Virgin America used Klout to  hand-pick a key group of influencers and then took them on a free flight to Toronto–their newest destination—from either San Francisco or Los Angeles.

What did the airline company ask in return? Nothing but a simple online acknowledgement – good or bad – about the flight they had just received. Of course the recipients blogged, tweeted and posted their good fortune and even now the ROI is producing great results!

Trend watching has become a business in itself.  Futurist James Canton is one of many business futurists who make a living by interpreting the signs of what will be in 5 or 10 years.

But what about translating those trends into a solid business strategy?  Interpreting and then planning for the future is crucial to your innovation strategy.  It’s one thing to have information on climate shifts or economic conditions that affect our bottom line, but quite another to interpret these signs in a useful way that will help your business ride the wave and come out on top.

In terms of education and the danger of improper metrics, Linda Perlstein’s article, “Unintended Consequences; High Stakes Can Result in Low Standards,” examines a highly celebrated school in Annapolis, Maryland that received media attention and praise for seemingly miraculous success in education. The new principal arrived in 2000 to find Tyler Heights Elementary School in a dismal state with only 17% of its students getting satisfactory scores on the state test. She began redirecting efforts in the school to address this problem. Eventually her laser-focus efforts paid off, delivering the stunning success of 90% of third-graders performing well on the Maryland State Assessment, when only 35% of third-graders did so two years before. Several newspapers recognized the amazing turn-around and people at the school celebrated the success. But was it real success?

To achieve good performance on the Maryland State Assessment, education for the children was largely focused on how to do well on the test. Students learned how to write BCR’s (“Brief Constructed Response”) to deal with expected questions about poems and plays, and practiced writing these short answers for many hours, without actually studying poems or plays. “What gets tested is what gets taught,” the principal told the teachers, even if that meant leaving behind the material that was supposed to be taught according to state standards. Bins of equipment for studying science were largely unused.

Tyler Heights’ third-graders got only the most cursory introduction to economics and Native Americans, and much of the curriculum was skipped altogether. The students were geographically ignorant. . . . The third-graders had heard Africa mentioned a lot but were not sure if it was a city, country, or state. (They never suggested “continent.”) At the end of the year, the children in Johnson’s class were asked to name all the states they could. Cyrus knew the most: three. He couldn’t name any countries, though, and when asked about cities, he thrust his finger in the air triumphantly. “Howard County!”

The state standards required a broad curriculum, but the metrics for assessing that were based on one particular test and all the incentives were for helping students pass that test. In spite of the praise for the miracle at Tyler Heights, had the children really been helped?

The Campbell Effect

The problem with unintended consequences from metrics such as tests is hardly unique to Tyler Heights. Daniel Koretz, also writing in the same issue of American Educator (see page 3 of the PDF file on unintended consequences), explains that in education and other fields, score inflation is a common and well known but widely overlooked problem. In the social sciences, a phenomenon that leads to score inflation is known as Campbell’s Law. While widely applied to education, it was developed while looking at business. Donald Campbell, a prominent social scientist, examined the role of corporate incentives on the performance of employees. His research led to this general formulation: “The more any quantitative social indicator is used for social decision making, the more subject it will be to corruption pressures and the more apt it will be to distort and corrupt the social processes it is intended to monitor.” (Donald T. Campbell, “Assessing the Impact of Planned Social Change,” in Social Research and Public Policies: The Dartmouth/OECD Conference, ed. Gene M. Lyons, Hanover, NH: Public Affairs Center, Dartmouth College, 1975, p. 35. See also Can New York Clean Up the Testing Mess? by Sol Stern.)

Campbell’s Law is at work when schools game tests to get better scores, at the expense of education. It is at work when cardiologists choose not to operate on patients who might need surgery rather than risk hurting their own published statistics on mortality rates among their patients (Koretz refers to a 2005 story from the New York Times reporting the shocking results of a survey of cardiologists). It is at work when a company tries to boost innovation with metrics or incentives that result in game playing, while leaving the real problems from culture, systems, and vision unaddressed.

In our experience, metrics and incentives can play a valuable role in driving innovation, but only when the corporation has a culture that genuinely encourages innovation, when there is a shared vision of innovation and success, and when sound systems are in place to advance innovation. Without those, you can not only waste a lot of resources in attempting to drive innovation with metrics and incentives, you can actually make a weak culture become pathological and lethal, sometimes exacerbating fatigue factors like the Not Invented Here syndrome, theft of credit for innovation, and breaking the will to share. Adding incentives linked to metrics without the right culture and systems can be sort of like throwing raw meat into a school of sharks or piranhas. You can generate a lot of activity, a lot of exciting thrashing and splashing, but in the end there will just be a lot of blood in the water and fewer thinkers and producers in your school.

As always, innovation success requires that you carefully monitor for harmful unintended consequences from the policies, programs, and incentives you have in place. Innovation metrics, incentives of all kinds, and employee performance evaluation systems and other tools associated with metrics can backfire. Unless you are tuned to the voice of the innovator and understand the impact of unintended consequences, you can be like the company we treat in Chapter 8 of our book that felt like it was a rock star of innovation while they were actually squelching it. Don’t let the unintended consequences of well-intended policies and metrics crush your innovation success.

Let Innovationedge Strengthen Your Approach to Innovation

With our experience at Innovationedge, we are prepared to evaluate your culture and innovation-related systems to help you strengthen your innovation capabilities and create greater ROI. Not happy with the innovation performance you’ve seen? Not sure you are measuring it correctly? Worried about the unintended consequences that your incentives might have? Give us a call and let us help you diagnose your state and provide a roadmap for future innovation success.

The company paid millions of dollars for its Pizza Turnaround Campaign, airing their customers’ biggest complaints about “cardboard crust,” and “ketchup-like sauce.”  The commercials then showed real Domino’s employees working  to create something better.

The commercials attracted curiosity at first, and then rave reviews. Go check out their pizzaturnaround.com site to see what I mean. Domino’s is brave enough to display all the news coverage and Twitter comments–whether good or bad.

The risk paid off, and Domino’s reported last month that its fourth-quarter profits rose to $23.6 million–more than double last year’s figure. And franchisees report store sales are up 1.4 percent.

With all the corporate scandals and big bailouts that have made headlines these past few years, I find that kind of honesty refreshing. Apparently, so do pizza lovers.

While mechanical defects, fatigue, and bad weather are often involved in the seven degrees of separation, these airliner disasters almost always involve flaws in interpersonal communication. For example, there may be a copilot who is afraid to speak up and challenge the pilot when an obvious mistake is being made, or there is a lack of clarity in communicating a problem to the air traffic controllers. When trouble is brewing, success often requires extensive communication between the flight crew, other crew members, ATC staff, and sometimes others. Plans must be made, checked, implemented, revised, clarified, conveyed, and so forth, at many levels to handle an emergency properly. When crew members keep their mouths shut and don’t share what they know or sense, when courtesy or fear stops urgent information from being shared, or when there are cultural or linguistic barriers to effective communication, multiple mistakes and miscues can accumulate, whittling away at the separation between survival and disaster. It’s that way in the world of innovation as well.

Superior IQ and innovative genius is often far less important than the ability to communicate. Disasters in innovation and new product development are often due not to lack of intelligence among the innovators and corporate leaders, but gaps in communication. Launching a product and safely navigating it through the storms of the market can be much trickier than flying an airplane. The flight of a new product always involves malfunctions and emergencies that require communication skills above all. Information from the market must be effectively shared with the developers. Plans must be shared and communicated with external partners and internal teams. Benefits and features must be effectively communicated to end-users. Expectations must be clearly conveyed to suppliers and service providers. A plethora of data must be handled and shared in ways that inspire, motivate, drive action, and keep all parties aligned.

As in an airplane emergency, “yes men” are not the people you need around to help. You don’t want devil’s advocates either or professional naysayers–you need people willing to share what they know and challenge directions and assumptions that may mislead the project or the company. You need people who can help you confront and conquer the brutal facts of your present reality, as Admiral James Stockdale has famously said.

More than words alone are involved in the communication relays that are essential for a successful new product flight. Intangibles related to trust, loyalty, and common agendas must be in place. It’s all about relationships, and these take time and effort to build and maintain. Unreliable or misleading communication can break those relationships and jam navigation systems, as can abusing or taking advantage of partners and employees. Bonds of trust and mutual respect inside and outside the corporation are essential to maintaining effective communication and bringing about the alignment and common purpose needed for innovation to succeed.

As Gladwell notes, the seven errors that tend to accumulate in major airline disasters “are rarely problems of knowledge or flying skill. . . . The kinds of errors that cause plane crashes are invariably errors of teamwork and communication.” Ditto for the risky, high-flying adventure of innovation, where crashes are the rule rather than the exception. It’s not that the team wasn’t skilled or clever, but fundamental gaps in teamwork and communication resulted in the product launch smashing at full speed into barriers they failed to notice or attempting landings on runways that weren’t there. These disasters are always going to be far more likely than airplane disasters, but improved communication and teamwork across your innovation ecosystem can do much to bring you safely home.

In Conquering Innovation Fatigue, our chapter on the Horn of Innovation is devoted to illustrating the importance of including the innovation team in feedback loops that bring data from the marketplace to the innovators to allow them to make rapid on-the-fly adjustments for iterative innovation. Cut off that communication, and your innovators are flying blind. Blind innovation is what fills the convention “innovation funnel” with numerous abortive attempts that need to be weeded out. Keeping innovators inside the loop with clear and instant communication gives them a more clear map and helps them work with your team to develop the right flight plan for success.

Innovation success is all about abundant communication and teamwork, not hand-offs that isolate those with the vision from those at the helm. Innovation is disaster prone enough when everything is running well–no need wiping our a half-dozen of your degrees of separation from disaster by your own communication and relationship mistakes from the beginning.

At Innovationedge, we are committed to helping your team build the processes, systems, and culture that can translate outstanding skills into outstanding success. We are ready to work with you to review your internal and external ecosystems, strengthen your innovation flight plans (or your innovation roadmap), and help your build healthier approaches to new products and innovation systems that are far more likely to succeed. Give us a call today!

The Circuit of Innovation™ from Innovationedge

This image from Innovationedge is used in our book, Conquering Innovation Fatigue, to describe the relationship that needs to exist between intellectual assets and the marketing plan to complete the circuit that connects the power of the market to inventors. Leave out either a sound IA strategy (holistic or 360 IA™) or the marketing plan, and you’ve short-circuited your chances for success. Ideally, your intellectual assets are in synch with your marketing plan, meaning they reinforce the marketing story and tell a marketable story of their own, in harmony with the marketing plan. The strengths you sell to the market had better be reflected in some way in the intellectual assets (think more broadly than patents alone, of course). This will be part of our conversation tonight on Brian Fried’s hit radio show, GotInvention radio at GotInvention.com, broadcast at 7 pm Central Time.

Be sure to tune in next week on March 25 to hear Cheryl Perkins, CEO of Innovationedge, share more about what it takes to achieve innovation success.

Green Innovation: Do You Have a G-Rated Business™?

The many pressures for businesses and products to become green offer numerous opportunities for true innovation, not just in products and services but in entire business models and in the web of relationships (the “value network”) around a business. But in spite of the rich opportunities for innovation, many companies boast of being green after doing little more than adding a little recycled material to a product or package, or adding some “earth friendly” furniture to their offices.

How can a business pursue the changes and innovations needed to become really green? And what does it mean to be green?

Let’s discuss what green is, and then we’ll address approaches to green innovation.

G-Rated Business™

We recommend that companies think about green issues and sustainability in terms of becoming a “G-Rated Business™.” This concept from Innovationedge draws upon an analogy to movie ratings. For a movie to be G-rated, it needs to be free of gratuitous sex, violence, and profanity. A two-hour movie with 119-minutes of mild content can lose its G-rating for just a few seconds of material. It’s not enough to avoid graphic violence of nudity for 99% of the movie – it generally needs to be clean throughout. While we recognize that there are abundant imperfections in movie ratings, we expect a movie to be substantially free of certain content for the entire movie, not just most of it, to be G-Rated. Now if we let “G” stand for “green”, what is a “G-Rated Business™”? It’s one that seeks to be green throughout its operations, consistently, not just in selected scenes. It is one with sustainability integrated into its operations and business model at many levels.

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