Rewarding Innovation

Sheldon Laube | Chief Innovation Officer, PwC

How should an organization reward innovation related activities?  The answer seems simple:  reward equals money, therefore, give money to the people who provide the best innovations.  In the real world, however, things are rarely so simple.

Using Money to Reward Innovation

Companies have had mixed experiences with compensation based incentive models for innovation.  In the examples which work, the story is always of an employee who comes up with a brilliant idea which saves the company thousands (or millions) of dollars, and, in a large public ceremony, the employee is handed a check for his or her contribution.  Unfortunately for every example where this has worked, there are even more examples of where this strategy has encountered difficult unintended consequences.  Let me describe a few of these hazards.

• Who should get the money? In most large organizations, getting an idea implemented is a torturous process.  Many different people are involved in this process, many of who make small changes and enhancements to the original idea.  In addition, other people may be involved with turning the idea into reality, and still others with the ongoing maintenance.  It is rare that an idea can be taken as-is and simply implemented.  By the time the idea is in full production it is hard to decide just who should get the money.  The originator?  The implementers?  Those who enhanced it?  All of the people involved?  Some?  In many cases it is just too hard to actually determine who is entitled to the money.  And whatever decision is made, it is sure to make some people unhappy.
• It’s never enough.  One of the most interesting things I have discovered is that rare is the employee who believes that compensation for his or her efforts is adequate.  Regardless of level, virtually everyone feels that they are underpaid.  The same problem holds true for innovation rewards.  For example, someone comes up with an idea which saves the company $1 million, how much are they entitled to?  10% of the savings? 20%? 1%? And for how long?  Just the first year, all years etc.  What if the idea costs money this year to implement, but potentially saves money in future years?  It is easy to see how this can quickly become complex and potentially contentious.
• Money is a zero sum game. Every company, regardless of size, has limited resources.  Therefore, there is a limit to how much can be distributed in innovation rewards annually.  This creates the interesting dilemma of what happens where money has run out for innovation incentives?  Should people be told to stop implementing new ideas?  Do you stop the idea pipeline?  In addition, every dollar awarded in innovation incentives is a dollar which is not being spent elsewhere in the organization.
• Money is not the primary motivator? It is popular to believe that employees are primarily motivated by money.  However, in employee study after study, money is rarely the most important motivator.  Recently here at my own firm, we asked the leading participants in our idea management system what type of reward or recognition they would value most.  Number 1 was development opportunities with 55% of the votes, with monetary compensation as Number 3 with only 11% of the votes.

Other Approaches to Recognizing Innovation

As a direct result of some of the dilemma discussed above, many firms have adopted alternative reward programs for innovation which have many of the benefits of compensation rewards with few of the downsides.

• Recognition for innovation. When I walk around our offices, I am always amazed at how people choose to decorate their offices with artifacts of their achievements.  Symbols of recognition like certificates, tombstones, medals etc. are proudly displayed.    This is a picture of the office of one my firm’s senior executives.  Regardless of level, people want to display their accomplishments.  Recognition is not a zero sum game, and it is possible to award an unlimited number of certificates, plaques etc. to as many people as needed.  Additionally, the more people who are recognized the greater the marketing effect.
• Participation in implementation. Many companies have incorporated the idea originator into the implementation team for that idea.  The person who originally comes up with an idea may not be the best person to lead the implementation (for any number of reasons) but has the passion and creativity to help out any team charged with implementation.  Depending on the situation this involvement can be full time or part time.
• Development opportunities. A number of firms have used participation in innovation activities as a criteria for admission to management development programs.  Other firms have created special courses around innovation and have invited top developers to participate as both teachers and students.  Our firm is looking for ways to involve our top innovators in other types of activities which broaden their perspective on our firm and, hopefully, enable them to provide innovative ideas against a broader set of problems.
• Recognition by local leaders. One of the great paradoxes of large business is that the higher up one is in the organization, the less influence that person has on the rank and file workers.  Emails from the CEO often carry less weight than the opinions of a person’s immediate manager.  When my own team was setting up our innovation recognition program, we originally proposed that one of the potential rewards for our top innovators would be the opportunity to have lunch with a national leader.  The feedback we got led us to change the program to lunch with local executives.  Local recognition can be far more valued than national recognition.

Crafting the appropriate reward program for innovation is a critical part of any corporate innovation strategy.  Each organization must take into account its own culture and determine which incentive elements will have the greatest impact and be most cost effective.  Simply adding innovation to existing compensation strategies may not be the most effective approach.

Mixing People. Fueling Innovation.

Mitra Best | US Innovation Leader, PwC

While diversity usually suggests differences in race, gender, ethnicity, religion, sexual orientation and physical abilities, consider how these attributes may be linked to innovation. Imagine these features to embody different experiences, different perspectives, and different skills, and the connection becomes more apparent.

Every day we are inundated with massive amounts of data. We use our filters to select and shape this information into meaningful knowledge.  Our filters develop over time and are based on our experiences –leading to personal assumptions and defining our prediction models. When confronted with problems, we search for solutions based on these filters.

Naturally, we attract people with similar filters — people who think and behave like us. After all, why should we complicate matters with opposing ideas or conflicting points of view?

Yet dissonance can lead to new perspectives and limitless possibilities. Innovation results from a renewal, reinvention or creative reinterpretation of an idea, product, or service, or a completely new application of an existing tool or methodology. A truly diverse team will by definition produce differing perspectives. If we are able to constructively leverage this tension of opinions to explore fresh ideas, we can drive strategic innovation and advance new business models.

Innovative companies such as Google (GOOG), Toyota (TM) and 3M (MMM ), believe diversity to be an invaluable ingredient that leads to sustainable competitive advantage. These companies have long recognized the value of cross functional collaboration and understand that a diverse workforce is a contributing factor to their highly coveted successes.

When we are exposed only to people who agree with us, we continue to operate within our own realm of experience, perspective, and skills. Unquestioned assumptions remain unquestioned and it becomes more difficult to generate new ideas — even if we gather the brightest people from the most sophisticated institutions.

I’ve spent several years working in Silicon Valley where the diversity of brain power conveyed in the breadth of engineers, social scientists, mathematicians, physical scientists and other professionals from varied academic disciplines and different parts of the world contributes to its cache as a technology innovation hotspot.

Today we see the economic benefits of a diverse workforce which by its very nature creates new and innovative value in the marketplace. We should challenge ourselves to think of diversity beyond “tolerance” or “acceptance” and begin recognizing diversity as a critical component of innovation and competitive advantage.

Failing: How Fast Is Too Fast

Sarah Firisen | PwC Innovation Office Staff

“Fail fast, fail often, fail cheaply”. Thus goes the mantra of innovation in 2009. And it’s correct; generate lots of ideas, however absurd, and critique them later. Know when to cut your losses and move on and do so with the minimum investment possible. But here’s the rub: how fast is too fast? After all, it’s very easy to say no, to reject an idea and move on. Innovation may start with the generation of ideas, but that’s not where it ends, that’s merely the beginning of the pipeline. If all that is happening is the generation of large numbers of ideas and the expediting of them through a pipeline to be quickly judged by one or two executives who may themselves epitomize the very barriers to innovation that the process was put in place to help break down, then this is innovation in name only and, ultimately, is unlikely to generate great breakthroughs or cost savings.

True innovation may start with the generation of ideas, but it only moves forward towards implementation when those reviewing these ideas take a big picture view; when they look at an idea, then turn it on its head; when they recognize not its inapplicability for their department or project, but its applicability for another group. Having this vision requires the ability to look at an idea and shift the paradigm over a few notches.

A new product from Dyson vacuum cleaners perfectly illustrates this point; while experimenting with a new design for a hand-drier they realized that they had failed at their stated task. But they also realized that they had just invented a bladeless fan. And so a whole new product was born. The easy thing would have been to have rejected the innovation as a hand-drier component; the paradigm shift was having the vision to see the concept through a new lens. To have rejected it out of hand would have been to have thrown away a whole new potential product.

Of course, this is a delicate balancing act to perform; remain too attached to an idea and you risk getting mired down with research and development costs for an idea to nowhere. But say no too soon, and you lose the potential of what the idea might have grown into. How to walk this tightrope? Well, the first step is having as diverse a team as possible reviewing ideas; diverse in every sense of the word: culturally, demographically, and professionally. Out of a diversity of viewpoint, backgrounds and experiences will arise enough unique perspectives to enable the idea to be turned on its head if necessary. Out of a melodious blending of these viewpoints might emerge the idea that the original idea could have been were it crafted better, articulated better, and better thought-out. Or perhaps it was already all these things and just needed someone who could step outside of a particular area of interest and think big picture, “some of the great innovation wins are cross purposing of concepts out of silos” – Jon Bidwell, Chubb.

Ultimately, I think that what needs to happen is a certain suspension of belief when initially reviewing ideas. Suspend belief for a few minutes and think about all the possibilities that the idea brings to mind and see what, if anything, shakes out of that. And if nothing does shake out in a reasonable amount of time, then pull the plug and move quickly onto the next idea.

Teaching Innovation From The Top Down

Sarah Firisen | PwC Innovation Office Staff

These days, much is written about how to encourage employees to think more innovatively, to encourage their creativity. Every few days brings a new blog entry about encouraging design thinking and helping employees engage the right hemisphere of their brain as well as their left in order to facilitate more radical insight for problem-solving. And there is no doubt that most people have more innate creativity than their everyday lives and jobs encourage them to utilize. There is an increasing body of anecdotal evidence that this creativity, if nurtured, properly engaged and channeled can allow a company’s existing workforce to evolve into an army of ideators, problem solvers and potential innovators. But then what?

It seems that the biggest problem most corporations have when it comes to innovation is not generating ideas, it is implementing ideas, and there is no innovation without implementation. There are many, unsurprising reasons why implementation is the hardest part of corporate innovation; it’s often easier to come up with ideas than to actually action them once the real-world constraints of budget and resources are considered. But there are more than just these constraints at work here. The people who need to be encouraged to think more creatively, to engage the right hemisphere of their brains, to make connections across concepts, to recognize patterns and open their minds to unusual possibilities are the corporate executives, the decision makers. Without a re-education of the people in the very top tier of a company, having a corporate innovation strategy and program is less about reducing the barriers to innovation and more about raising them up higher; you may have eliminated the possibility of a middle manager not realizing the potential in an idea but now that idea just has further to move through your organization before being rejected.

Some of the areas in which the innovation re-education of corporate executives could be focused are outlined in this blog entry, the Island of Misfit Ideas and here is a thought provoking short list of 21 innovation-related things that “Great Bosses Believe and Do.” Ultimately, does this mean that companies may have to do some corporate soul-searching followed by a realignment of business strategy? Perhaps, but isn’t this what getting into the innovation game was supposed to be about? Isn’t the very reason that companies are putting together innovation teams, investing in idea management systems for internal and external crowd-sourcing, and reaching out to partners and vendors for open innovation partnerships, precisely because they realize that much of their traditional business strategy will probably not hold up in this new, emerging 21st century economy? As this Business Week article says, corporations will need to “Reconfigure operational models to deal with the increasingly complex nature of innovation”, and what better place to start this reconfiguring than with the executive mindset?

Who’s Who? What’s What? What’s Real In An Internet world?

Sheldon Laube | Chief Innovation Officer, PwC

The New Yorker published a cartoon in 1993 which showed one dog sitting at a computer terminal saying to another dog, “On the Internet, nobody knows you’re a dog.”  A few years ago, I attended a presentation given by one of the computer graphics experts who worked on the movie Jurassic Park.  He described how they created many of the dinosaurs completely by computer.  He continued by saying that within a decade, they will be able to create human beings on film completely by computer without any need for actors.  The power of Photoshop to recreate photographic reality is frequently demonstrated as magazines are caught digitally manipulating images to meet their needs.

Over 15 years after the original New Yorker cartoon, there is still no widely deployed mechanism for verifying the identity of anyone or authenticity of anything found on the Web.  As the Web becomes the primary source of information for more and more of the world’s populace, it becomes increasingly difficult to discern truth from fiction.  The question is, “Whom do you trust?”

Over time, as technology has evolved, new trust models have been developed.  Recommendations through friends – This is perhaps the oldest method of establishing trust.  You simply ask someone you trust for a recommendation, e.g. you move to a new city and ask a colleague to recommend a doctor or attorney.  You believe the story because you know and trust  the source.

• Recommendations through trusted third parties – Restaurant, movie, or wine reviews in a newspaper are examples of this model.  Because you trust the judgment of the reviewer, you trust their recommendations.  Gartner evaluates IT products and vendors, and their ratings of consulting firms demonstrate the effectiveness of this method.
• Process creates trust – Traditional journalism requires the validation of a story from more than one source.  You believe what you read in the New York Times because you trust the vetting process they use before they print a story.  Wikipedia is also an example of this trust model.  You trust the contents of Wikipedia because you believe that the “crowd sourcing” process  is effective.
• Community ratings – Zagat guides demonstrate the effectiveness of this approach.   Rather than depending on a single trusted third party, you simply aggregate the opinions of a large number of people to create a recommendation.  Based on their success with restaurants, Zagat extended their model to hotels, nightlife, movies, music and now even dating (and dumping).  This model has been dramatically expanded on the Web to everything from local repair shops to attorneys and doctors.
• Reputation systems – eBay’s trust model is perhaps the most novel.  With most eBay transactions, an auction winner sends payment to a completely unknown seller.  The seller then ships the product to the winner.  There is no formal recourse if the product does not meet the buyer’s expectations or even if the seller never ships the product at all.  Within eBay, the system of community reputation encourages  buyers to rate sellers.  For a prospective buyer, a high reputation score equates to a quality seller with satisfied customers, which means they can be trusted.

However, as information continues to explode and search engines now include results from Twitter and Facebook, clearly a new trust model is needed.  Recently David Pogue, the respected New York Times columnist, was accused of a conflict of interest by several Twitter posters.  One such Twitter post was from a  user with the name “John C. Dvorak,” which also happens to be the name of another well respected computer journalist.  David Pogue gave an interview about the incident and took John Dvorak to task for his Twitter posts.  Unfortunately, the Twitter poster was not the computer journalist John C. Dvorak but someone else with the same name.  The journalist actually posts under the Twitter name “TheRealDvorak” and had made no comment at all about Pogue.  In this case even Pogue, an experienced New York Times Reporter, didn’t realize he had mistakenly assumed the identity of the poster.

Twitter responded to the growing problem of mistaken identity by providing a program which attempts to verify the identity of some Twitter users.   Unfortunately, the program is limited to a very small number of celebrities and given the rate at which Twitter is growing and their limited resources, may not be expanded any time soon.  However this problem will continue to grow as more and more people believe what they read on Twitter.

Solving this problem represents a great challenge which will require significant new innovations.  If you can’t tell who’s who, or what’s what on the internet, its value as an information repository will begin to diminish.

For more of Sheldon’s thoughts on these topics, check out his video interview on IdeasProject.

Innovator Of The Century: Renaissance Man

Sarah Firisen | PwC Innovation Office Staff

It seems that everywhere I turn in the innovation blogosphere these days there is a constant point of view present among the pundits: innovation is impossible without a healthy cultivation of right-brain, creative thinking along with the more analytical left-brain thinking.  Daniel Pink and many others sound the alarm bells for a society, which increasingly stresses rote memorization and standardized tests over creative thought. The Harvard Review recently published an article celebrating the benefits to business of heterogeneous educational and cultural backgrounds and thinking. And I find these arguments both compelling and persuasive.

Daniel Pink claims that a critical economic shift is occurring, and it is a shift away from the traditional, logical, sequential-based economy that has served this country so well for so long, to an economy that combines these left-brained traits with creativity and empathy, and other elements of right-brained thinking.  And as I read more and more, I realize that everything old is new again; what Pink, and these other writers are describing is not a new concept, they are describing the “Renaissance man”.  Leonardo da Vinci was the archetypal Renaissance man, a scientist, mathematician, engineer, inventor, painter, musician, writer and more.  Thomas Jefferson included on his list of achievements horticulturist, political leader, architect, archaeologist, paleontologist, and inventor.  These men were the embodiment of innovation, combining both passionate creativity and extraordinary analytical capabilities, and they associated and synthesized knowledge in a manner that gets to the heart of innovation.

The concept of embracing all knowledge and developing all of our capacities in order to reach our full potential as people and as a society is not a new one, it’s merely one that, apparently, we have to rediscover.  The thesis put forward by Daniel Pink, and others, is that innovation results from the intersection of left-brain, linear, analytical skills and right-brain, big picture, artistic, empathetic skills. My position is that this notion, that innovation is born of eclectic reading and thinking, a diversity of interests, a patchwork of skills, and the ability to synthesize these skills and interests should not be as newsworthy as it is. The idea that in order to be innovative we must educate our children to be interesting, thoughtful, creative people is not new; it is as old as Aristotle and beyond.

So, perhaps one productive way to view the new age we are apparently entering into is to view it as our own Renaissance of sorts. As the first Renaissance witnessed a flowering of art and literature, and the emergence of a new view of education, equally this Renaissance will return to a greater prioritization of the arts and creativity in both education and business.  “Innovation”, “open innovation” and “crowd sourcing” are today’s hot topics, buzzwords that routinely light up the blogosphere and twitterverse.  Inevitably, they will be replaced tomorrow.  What will remain true, however, is that companies which view creative thought and empathy skills with equal criticality to those of technical skills, be it for recruitment or advancement, will be at the forefront in the coming century.  If innovation in all its many forms is part of what will help save us from the forces of outsourcing, automation, and commoditization, then what we need as businesses, as society, parents and individuals, is to ensure that creative and diverse thinking and learning are encouraged, recognized, and celebrated in every area of life.  And in the march ahead towards that worthwhile goal, we must learn from the great innovators of the past and reincarnate the educational and societal values which inspired their ideas and reduced their barriers to being innovative.

My Personal Top 10 IT Predictions for 2010

Jonathan Reichental | Director of IT Innovation, PwC

One of my responsibilities as the Director of IT Innovations at PwC is to spend a good deal of time researching and developing insights on the impact of emerging technologies. This year, for the first time, I thought it might be fun and, frankly, quite useful to share with you my thoughts on what I believe may be the big IT trends in 2010. While I was somewhat tempted to be bold and creative in my forecast, I decided to ground the Top 10 in areas that have some real momentum. If you agree with the predictions, what might that mean for your work and your industry? In what area do you think I got it completely wrong? I’d love to know what you think.

1. Software as a Service
2010 will be a big year for providers of software as a service (SaaS). The obvious big names in this space will release new offerings to compete with popular desktop applications. New and existing operating systems that are built primarily to support the SaaS model will begin to be more widely accepted and adopted.

2. Netbooks
This popular form-factor will have outstanding sales and may even surpass laptop sales by year-end. Given its remarkable low-cost, we will likely see more offerings that make available free Netbooks.  In addition, the ubiquity of embedded Web-cams will drive further use of personal video in both non-work and work environments.

3. Cloud Services
An obvious growth area in 2010; we will see new and expanded services from all the usual suspects. Expect major announcements from large businesses and government agencies choosing to move some of their core applications and data to the cloud.

4. Mobile Money
By late 2010, paying for products and services via a mobile device such as a cellphone will begin to emerge in the mainstream US. Multiple flavors will be available including custom applications and text messaging. More likely in 2011-12 will be the emergence of banking services from the big Telco’s. Rather than simply being a middleman, the telecommunication companies may announce banking divisions.

5. Free Software
If current trends continue, it’s quite possible that all software will be available in a form of free, but 2010 will be the first year that this trend reaches a point of inflection. A combination of enterprise-class open source, freemium, freeware, ad-supported, and alternate revenue-model software will have lasting and destructive impact on the notion of license-paid software.

6. Harvesting the Social Graph and Web-Squared
2010 will see the introduction of the first widely available and easily usable products for better understanding the mass of unstructured data being accumulated across public and private clouds. The emergence of intelligent solutions to interpret massive related and un-related data in order to create forecasts and identify trends will help people make more sense of the world and see previously hidden signals.

7. More Video
Continued investment in video infrastructures will see greater use in work and non-work environments. It will be more common (but still not ubiquitous) to have video conversations with colleagues and external parties such as customers and suppliers. Rigorous competition in this space between the major players and many start-ups will continue to push the price down for high-quality video. Greater use of PCs and Netbooks with Web-cams will continue towards critical mass. In addition, content creation will continue its profound migration from text to video, further consuming bandwidth and forcing more enterprise investment in network infrastructure.

8. Green IT
This may be a inconsistent area of investment as continued tight budgets and more immediate costs (e.g. migration to updated operating system) distract from major green initiatives. However, going into 2011 and beyond, broad adoption of virtualization and further movement towards hosting in the cloud may help organizations lower their data center carbon footprint.

9. Mobile Location-based Services (LBS) and Augmented Reality
Expect to see an extraordinary number of start-ups and existing technology companies offering mobile LBS-related services. Proximity-based solutions will become more common. Mobile devices will begin to offer compelling overlay data for the real world that help people with existing and new activities. Lots of noise and confusion will ensue as both consumers and providers try to figure out acceptable services. For example: how will people respond when they stroll through a mall and are bombarded with text messages from different retail stores?

10. Social Spaghetti Integration
More social features will begin to show up in ERP apps. New and increased support for ERP solutions that, for example: integrate social networking will see a further blurring of the lines between work and non-work applications and activities.

Do you agree or disagree with any of my predictions? I’d love to know what you think.

Innovating Through Contests

Sheldon Laube | Chief Innovation Officer, PwC

The growing adoption of open innovation strategies represents recognition that no matter how large a company may be, there are lots of people outside the company with relevant good ideas.  Open innovation initiatives like P&G’s Connect and Develop (www.pg.com/company/connect_develop.shtml ) invite “outsiders” to contact P&G with ideas, products, or research of potential value to P&G.

Contests represent a powerful new model for stimulating open innovation.  The basic model is simple:

1. Define a problem
2. Create a public contest to solve the problem
3. Offer an economic reward to the winning solution

The X Prize (http://www.xprize.org) is perhaps the most famous innovation based contest.  Their motto “Revolution through Competition” highlights their belief that by inspiring competition for a prize, breakthrough innovation can occur, and that such innovation would not occur in the normal course of business or government R&D.  Their first prize focused on the creation of a space vehicle which could carry three people into space twice within two weeks.  The $10 million prize was awarded to famed aerospace designer Burt Rutan and financier Paul Allen who built “SpaceShipOne” and won the prize.  The contest motivated 26 teams from seven different countries to attempt to win the prize.  It was estimated that the teams collectively spent over $100 million to win the prize.  Within a few years, innovators previously not associated with spaceflight achieved a major breakthrough in manned space flight.  The success of this initial prize has led to the creation of four new X-Prize initiatives, The Google lunar X Prize to land a robot to the moon; the Progressive Automotive X Prize to create super fuel efficient vehicles; the Archon X Prize to create methods to rapidly sequence human genes, and The Northrop Lunar Lander Challenge to create a new generation of lunar landers.

More recently, and far more modestly, Netflix created the Netflix prize (www.netflixprize.com/index).  Netflix (www.netflix.com), the popular DVD rental by mail company, offered $1 million to create a better algorithm to create suggestions to Netflix members about movies they may wish to rent.  Over 51,000 contestants on over 41,000 teams from 186 different countries participated.  The winning team’s algorithm was a 10% improvement over the existing Netflix developed algorithm.

The INFORMS data mining contest (www.informsdmcontest2009.org) focused on predicting certain health care quality problems from a cleansed dataset of medical records.  Even in a contest with no prize other than bragging rights, 28 teams participated.  A team from PricewaterhouseCoopers’ Center for Advanced Research participated and was a runner up.

Contests have an incredible multiplier effect on innovation.  Netflix employees under 2,000 employees, but the contest enabled Netflix to harness the creative abilities of 20 times that number of people.  The $10 million X Prize stimulated ten times that investment in space flight vehicles.  Even with no economic price, INFORMS motivated teams to participate solely for the intellectual competition.

Successful contests have a number of common characteristics which should be considered in planning a contest:

• The contest and the results are publically known.  Be sure you are willing to have everyone including your competitors learn about your problem in great detail.
• Consider the potential contest participants and their motivations for participating.  Ensure that the prize incentivizes the teams you wish to motivate to participate.
• Can you provide cleansed data.  In contests like Netflix and INFORMS, participants were provided with a cleansed dataset with which to test their solutions.  Can you insure that you can anonymize the data sufficiently to address any confidentiality concerns?

Companies should consider contests a powerful tool in their innovation arsenal.  Contests have incredible power to motivate creativity and expand the population of people helping solve problems.

Why It May Be Time To Put Your Head In The Cloud

Jonathan Reichental | Director of IT Innovation, PwC

One of the most widely discussed technology buzzwords of 2009 has been Cloud Computing. However, unlike other hyped technology, this one exhibits significant substance. It is worth understanding what it is and why it matters.

While the term is relatively new, some of the core features have existed in different forms for some time. Cloud Computing is all about hosting business technology, typically in an external environment, with application support, infrastructure, and operations managed by a third party. Does anyone remember application service providers (ASP’s)? Since the enterprise is less concerned with where the service lives and more focused on the functionality it enables; it is said to exist somewhere in the cloud — with complexity hidden from view. Similar to the shared nature of municipal power stations, enterprises are able to tap into a supply of technology resources as needed. Since it is on-demand, cost is determined by consumption and the required level of service. Simply put, when utilization of IT resources increases, so do costs; but equally, costs decline as usage decreases.

Cloud computing provides an organization with scalable and disposable technology services without the need to procure and manage a large, internal infrastructure. It provides a pay-as-you-go model for software applications, software services, and full-service application development environments. These can be complemented as needed with the ability to easily reconfigure performance, bandwidth and storage. For example: if you need more space? Simply request it!

The advantages of cloud computing largely depend on the size and nature of the business. For a small organization or start-up, the benefits are clear: low-cost (often free) applications, no infrastructure costs, and considerable speed in making essential, core IT services available to users. With larger organizations, there are additional considerations when evaluating cloud computing as an option. Typically processes are more complex and therefore require a larger degree of systems integration. Currently, this integration makes the cloud option riskier; however this will become less of an issue in the future.

Finally, in all scenarios, security concerns remain central to any hosting solution (but when has security not been a concern?). The organization must assess the ability for the cloud vendor to ensure the integrity of data and applications. For most organizations, cloud computing is not an all-or-nothing proposition. It is likely that applications and data inside and outside the firewall will co-exist in a hybrid manner.

Today we already see this model implemented across businesses. In many ways, large organizations have the ability to evolve their own infrastructures to provide an internal cloud. IT architects and other technology professionals need to consider a cloud computing delivery model to solve business problems. Business leaders should be informed about the opportunities, costs, security and risk considerations.

What should you do now? If you’re a business or technology professional, I encourage you to learn more about cloud computing. This important technology paradigm is rapidly rising in importance and will become an essential part of your technology toolkit. It’s time to put your head in the cloud!

Evolution of Corporate Innovation Programs

Sheldon Laube | Chief Innovation Officer, PwC

Enterprises of every size are focusing more attention on innovation.  The number of books, articles, seminars and conferences which cover innovation seem to be multiplying at a dizzying rate.  And of course, the emergence of professional innovation gurus clearly evidences that we have reached some new milestone in the science of innovation.

Underlying all of this activity is an ongoing evolution in organizational innovation strategies.   At its core is the expansion of innovation from the realm of the few to the domain of the many.  As innovation strategies evolve, I believe they will be characterized by an ever expanding number of people who become part of the innovation process.

In 1876 Thomas Edison moved his employees to Menlo Park, New Jersey, (menloparkmuseum.org) where he established the worlds’ first research and development facility.  At Menlo Park, Edison and his team created over 400 inventions including the phonograph and the electric light.  Edison coined the term “Invention Factory” to describe what was happening in Menlo Park. This approach to innovation is a core part of virtually every organization’s innovation strategy.  Bell Laboratories, Microsoft Research and the Xerox Palo Alto Research Center (PARC) are the modern equivalents, founded on the notion that innovation and invention are best performed by a select few.

More recently organizations have realized that their innovation strategies must evolve to enable a greater number of employees to participate in the process.  In 2006, Matthew May wrote The Elegant Solution:  Toyota’s Formula for Mastering Innovation in which he described how Toyota managed innovation:

“Defining innovation as an incremental process, in which the goal is not to make huge, sudden leaps but, rather, to make things better on a daily basis…  And so it rejects the idea that innovation is the province of an elect few; instead, it’s taken to be an everyday task for which everyone is responsible.  Toyota implements a million new ideas a year, and most of them come from ordinary workers.”

Toyota realized that by expanding the number of people involved in innovation — from the relative few who worked within their R&D labs to almost everyone within the organization — they could dramatically increase the speed of innovation.  Today many companies (including my own) are incorporating Toyota’s organizational model innovation into their own strategies.

Even as companies work to extend innovation to their entire organization, it is clear that there is yet a further stage of innovation expansion.  Open innovation expands the potential source of innovation far beyond the bounds of any single organization. As Henry Chesbrough wrote in Open Innovation: Researching a New Paradigm (2006):

“Open innovation is the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively. [This paradigm] assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as they look to advance their technology.”

A handful of pioneers have already begun the open innovation process.  In the book Game Changer, A.G. Lafley — recent chairman and CEO of P&G — describes how P&G’s approach to open innovation is instrumental to their ongoing success.  In contrast to conventional wisdom that true game changing innovations come mostly from small companies, Lafley shows how open innovation has enabled P&G to become one of the most innovative and successful companies of the 20th century.

Open innovation is also at the core of the open source software development model (en.wikipedia.org/wiki/Free_and_open_source_software).  Individual software developers from around the world collaboratively developed the Linux operating system.  It is widely believed that the Linux quality meets or exceeds the quality of more traditionally developed commercial software and was developed with far less resources.

Each innovation strategy, from laboratory to organization to open should be considered as part of every corporate innovation strategy.  Laboratory models have had the greatest success in creating dramatic innovations while organizational models have been used to create large numbers of small, incremental innovations.  Open innovation is in its relative infancy but early results indicate it may have the greatest potential of all.