Month: April 2013


5 core principles for successful innovation


There are a plethora of lists citing the most innovative companies in the world; all differ in their membership, but there are common  principles of innovation that can be drawn from the companies that are expertly surfing ahead on the wave of creativity.

It was interesting to read the Fastcompany’s “Most Innovative Companies of 2013” article published last week. Avoiding the debate of who should be in and isn’t and who is in who shouldn’t be, there are some great insights into the approach these companies take to innovation and why they are good at it.


1) Understanding what Innovation is.

You have to get this right. Inventing is not innovation without the invention adding significant value.  Clearly captured in Rube Goldberg’s cartoons that became well known for depicting complex devices that performed simple tasks, creating something new or doing something differently does not automatically mean it is innovative.  It has to tangibly or intangibly provide greater utility for the user and/or customer.

Innovation can occur at 4 broad levels:

a) Process innovation – doing something differently that makes it easier/cheaper to complete a task/fulfil a need.

b) Product/service innovation – delivering something new to customers that significantly surpasses the value of substitute products/services.

c) Business model innovation – Changing the way your business works in a way that is different to competitors to enable scale, lower costs, greater profitability, more customer value.

d) Industry innovation – changing the way the industry competes, price focus to quality of service focus, premium pricing to freemium.


2) Understanding the customer.

So often we think we know what the customer wants without really asking them, or, better still, watching them and understanding them. Our own pain points may be representative of a certain demographic, but we must verify our hypothesis with the wider market, with other experts, with stakeholders. The most innovative companies really “get” their customers and innovate to improve their lives in the right way with the technology that they are ready for. Spending time in discovering needs and opportunities, analysing scenarios, modelling benefits and customer journeys and outcomes will save time and money in the longer-term development process.


3) Experimentation.

Call it what you will, Rapid Application Development (RAD), Lean Development…..the idea is pretty much the same. Prototype, build a low cost demonstration of your product or service and test it with the market. Do it frequently and do it early on. Don’t waste money thinking your idea is right, going all out in development only to find no one really wants it.


4) Managing failure and learning from it.

It is not about eradicating failure; failure is actually crucially important to the innovation process as it provides even more insight into customer behaviour. No, it is about ensuring that failure, when it occurs (and it will), occurs early on the process of innovation, within the discovery phase as part of experimentation.

In the vein of the Black Swan, a belief that something works/is right for the customer should be validated by proving that other avenues are wrong or not as valuable. That is sound practice. Failure at the end of the process of development is costly both in terms of capital and people’s jobs. Creating an environment that encourages people to perform low cost experimentation that may or not work, without repercussion (as long as they learn from it) is vitally important to building a culture of innovation.


5) Aligning incentives.

Don’t reward risk taking, reward progress. Show that those that get ahead in the company are the ones that follow the right process for coming up with ideas and implementing them, not the ones that may have stumbled on a product that luckily hit the mark and made the business money. Not many are that insightful, not many have the genius to intrinsically understand human behaviour with the ease that most of us ride a bicycle. They are unlikely to be that lucky again.

Demonstrate to your team that it is the richness of sharing and working together to come up with the right solutions that builds the company and their careers. Give credit and rewards where they are due, but equitably, to all the people involved.  Praise and openness contribute a lot to building a sense of ownership and instilling motivation – people like to feel they are contributing to their company’s success, that they are making a difference and that it is recognised.

Banks win again – SMEs are losing the fight for capital

going out of business2012 was a tough year for small businesses. The Eurozone crisis rumbled on and economies stagnated or contracted. Government initiatives, such as the Funding For Lending (FLS) scheme in the UK have done little to relieve the cash flow pressure on businesses that, as Vince Cable, Secretary of State for Business, Innovation and Skills, trumpets, “are the lifeblood of the UK economy”.

The latest Bank of England figures show that net lending in the last three months of 2012 was £2.4bn less than in the preceding three months – despite banks participants in the Bank of England’s funding for lending scheme drawing down £9.5bn of available funds. The banks have ignored the cries of all around them to do what they are supposed to do – lend.

The release of the figures has exposed the FLS to an inevitable backlash from the media as well as from consumer and business bodies. George Osborne, Chancellor of the Exchequer, set up the Funding for Lending scheme as a solution to previous schemes, such as Project Merlin, which failed to deliver credit to cash-strapped businesses. However, the conditions under which banks could access cheap capital included large corporates tucked away within the small print, a more profitable and less risky customer segment for banks. The broad criteria have been exploited to the benefit of the banks and the detriment of small business.

Under banking regulation, lending to SMEs carries a heavy capital cost to a bank. On top of this, the return on investment to assist SMEs is also very low. As a result, the service small businesses receive from their banks is equally poor; getting a bank loan is like juicing a stone and the process and experience are far from easy or friendly.

The government has repeatedly failed to rectify its policy errors and implement the right incentives for banks to lend. The banks have received cheap and easy access to capital in exchange for only a token gesture to help the 95% out of 4.8 million businesses classed as SMEs in the UK.

Fortunately, a plethora of New Finance firms are stepping forward to challenge the oligopoly of high street banks and provide a real and transparent alternative source of funding and financial services for SMEs. These technology firms were born to better support businesses with a vision to deliver a fairer and more accessible portfolio of financial services.

The government is waking up to the value of these challenger services, pumping £110m to alternative finance schemes for lending to SMEs. This is the best indicator yet that these firms are now in the mainstream. Given the clear failure of the Funding for Lending scheme, firms such as Funding Circle, Squirrl and Funding Knight may offer the lifeline that small business, and our economy, needs.