The term has experienced a recent resurgence in the corporate world. Google’s moonshots include expansive projects like its driverless car and Google Glass efforts. In response to a reporter’s question, last week Yahoo! CEO Marissa Mayer said her company’s moonshot is to be “on every smartphone, every tablet, every day, for every Internet user.”

Organizations should have their moonshots. They’re a keystone of what we call a “future-back” approach to strategy, which unlike the “present forward” nature of most strategic-planning processes, doesn’t operate under the assumption that tomorrow will be pretty much like today, and the day after pretty much more of the same. In stable times, present-forward approaches help optimize resource allocation. But in turbulent times, these approaches can lead companies to miss critical market inflection points.

At the heart of the future-back process is a consensus view of your company’s desired future state.This isn’t scenario planning, where you consider a range of possibilities. This is putting a stake in the ground — specifying what you want your core business to look like, what adjacent markets you want to edge into, and the moonshots you’ll try for. And, as Kennedy did, a good future-back strategy goes well beyond the three-year planning horizons that typify most corporate strategy efforts.

A good moonshot has three ingredients. First, it inspires. Reading Kennedy’s quote raises the spirit; a more typical corporate goal of increasing return on invested capital from 13.4% to 13.9%, not so much. That kind of financial target might be important, but it’s unlikely to get people to do extraordinary things. Second, it is credible. It’s easy to assume that a moonshot is just a ridiculous stretch target. But before Kennedy made his speech he had Vice President Johnson do a detailed assessment of underlying technological trends to ensure that the goal had a reasonable chance of success. Finally, it is imaginative. It isn’t an obvious extrapolation of what’s happening today (which for Kennedy would simply have been to fly farther into space), but something that offers a meaningful break from the past.

Google’s moonshots seem to fit these characteristics. Take the driverless car, for example. It’s certainly an imaginative strategy for a company whose core business is selling advertising. It’s undoubtedly inspirational. And there are many reasons to believe that technology will make mass adoption of driverless cars conceivable in the next generation.

On the other hand, while Mayer’s goal is a good one for Yahoo!, it would seem like there’s a need for more inspiration and imagination to really get the company to return to its heyday as one of the world’s most innovative organizations.

Read the rest at Harvard Business Review.

Scott Anthony is the managing partner of Innosight.  Mark W. Johnson is cofounder and senior partner of Innosight.

I have repeatedly stated that the next wave of innovation will come from companies that harness the transformational power that too often lies latent inside their organizations. There is a growing sense that so-called lean start-up techniques — developing a minimal viable product, learning in the marketplace, and pivoting based on market feedback — can help to unleash this potential. Indeed, in this month’s Harvard Business Review cover story, Blank notes that the development of the lean start-up toolkit comes “just in time” to “help existing companies deal with the forces of continual disruption.”

If I had a quibble with lean techniques it is with the extreme perspective that some practitioners take that research and thinking are useless — that learning comes only from developing prototypes and testing in-market. That’s not right. Any initial strategy for a new growth business will be partially wrong, but the thinking that went into it is likely to be partially right, too. Good innovators invest the time to research their opportunities and formulate as robust hypotheses as they can so that they focus the learning from their experiments.

Consider the research Jeff Bezos did before he founded Amazon.com that led him to focus on books rather than music, clothing, or electronic appliances. Studying the book market then led Bezos to locate his company near some of the major book distributors. Sure, he might have gotten there through experimentation, but studying market dynamics helped him to cut a couple of corners. There’s no doubt that people inside large companies over-engineer business plans, but don’t let the pendulum swing too far the other way.

Of course, the value of a tool depends on its application. Innosight’s field experience helping large companies more systematically pursue the creation of disruptive growth businesses suggests that leaders looking to leverage lean should heed three pieces of advice.

• Create mechanisms to enable experiments. One of Blank’s most important points is that there are no answers inside the building — entrepreneurs need to learn in the marketplace. Corporate leaders can take steps to encourage this kind of market-based learning. Consumer packaged goods companies can test ideas in the corporate store where employees shop, for instance. Telecommunications companies can create a small secondary network where they can test ideas without running the risk of interrupting service to millions of customers. Service companies might have a handful of clients that agree to be guinea pigs for new ideas. These kinds of mechanisms help to reduce the friction of testing — and accelerate the process of learning.

Read the rest at Scott’s Harvard Business Review blog.

Scott Anthony is the managing partner of Innosight.

Life expectancy at birth and health spending per capita

Source: OECD Health Data 2011; World Bank and national sources for non-OECD countries.

This week, as part of the TEDMED conference in Washington, DC, I will lead a small group to tackle the issue of “Whole Patient Care”.  We will explore whether clinicians and the health system in which they operate focus more on symptoms and disease, or on the patient who has them?

Take this real example that elucidates the issue.  A 60 year old male presents to his physician complaining of mild gastro-intestinal bleeding.  With a family history of cancer, the doctor springs into action, ordering imaging and tests to rule out the worst.  No cause is found.  Unsatisfied with the findings and with the situation getting worse, the patient visits the Mayo Clinic, known for their team-based approach to patient care.  Again, after several consultations and a repeat of the previous battery of tests, no cause is found.  The patient then visits his old doctor in another state, seeking another perspective.  The doctor reviews the previous results and asks a simple question – why are you taking aspirin daily?  The patient notes that he was told to do this, as a routine preventative step when he turned 55, despite no cardiac risk factors.  The aspirin was discontinued and the bleeding stopped – 8 months, 3 medical systems, a few dozen doctors, and many tens of thousands of dollars later.

This story highlights the risk of a fragmented, specialist driven US healthcare system.  A patient can be seen at some of the best medical centers in the world with doctors utilizing the newest medical technology, but the value this care is far less than the sum of its parts for a patient with a serious complaint that is unresolved.

There is hope.  Innovation in this space is evolving rapidly and the implications on our health system and on individuals are significant.  Exciting initiatives driven by a range of payor and provider organizations offer interesting solutions.  Patient centered medical home and accountable care organization strategies are beginning to modify incentive structures that influence physician behavior.  The growth in use of “care coordinators” is beginning to knit together disparate physicians and specialties to create virtual care teams.  Health information technology and patient engagement strategies are breaking down care silos and creating market forces that demand low cost solutions.

Learn more about the TEDMED breakout group here.

This is a very functional way of looking at employee wellness. It’s important but not adequate. Wellness programs have the potential to improve employee engagement and foster a supportive, enjoyable work environment. In order to achieve these goals they need to be designed with a laser focus on employees and the jobs they are looking to get done in their lives.

A job to be done is a problem a person is trying to solve. Customers don’t really buy products; they “hire” them to do a job. Companies need to start by looking at wellness from their customer’s perspective, in this case the employee, and observing what jobs they have and how they are solving them today. At my company we don’t sit around at lunch talking about how to save our company money on health benefits. We talk about our Fitbit devices that make it easy for us to track our activity level and see how we stack up against each other (and maybe taunt or cheer each other on) and how we use apps for our smart phones, like MyFitnessPal, to stick to eating healthy. We organize mid-day walks to keep our energy high and get to know each other better and share what we’re working on.

I’m excited to use Jobs to be done at TEDMED to develop innovative solutions to employee wellness that address not only functional jobs for the employer but also emotional and social jobs for employees and their families.

Learn more about the TEDMED breakout group here.

Total Healthcare Spending Per Capita  from 1980 to 2010

For decades, our “fee-for-service” reimbursement model has enabled well-insured Americans to receive the highest-quality innovations available, and over time many have come to expect the “latest and greatest,” without having to consider whether the marginal cost is justified. At the same time, at a systemic level, we aren’t getting what we pay for – the US ranks 27^th in life expectancy, 31^st in infant mortality and an embarrassing first-place in obesity.

With healthcare spending quickly approaching 20% of GDP and a transformation of our payment models on the horizon, every member of the complex healthcare ecosystem will need to re-examine the role that medical innovation can and should play in building the healthcare system of the future. Now is the time to step back and consider how we can make more medical innovations available, more affordably, and more quickly to more people.

Learn more about the TEDMED breakout group here.

Stinson’s challenge is common at big organizations, but overcoming bureaucracy and breaking down silos is especially critical in healthcare. To tackle these obstacles at SickKids, CEO Mary Jo Haddad in 2010 elevated innovation to a “strategic direction,” and engaged Innosight to help devise a full system needed to spur innovation. The resulting system has three major components:

1. An Innovation blueprint detailing the types of innovations the organization wants to encourage. SickKids prioritized encouraging doctors, nurses and clinicians to look for unmet needs they could address, rather than wait for solutions from IT or top management. That required creating a focus group with 25 front-line healthcare workers to discover and catalog key “jobs to be done” (like reducing the length of hospital visits), surveying all 5,000 employees, and training most of them on how to integrate the innovation system into their daily practices.
2. An innovation pipeline to reliably take ideas from concept to reality. This involved establishing a new 18-member Central Innovation Group of leaders from different areas of the hospital, a team that was tasked with prioritizing and advancing ideas and projects through various stages. The team helped innovators test prototypes, make adjustments, and then scale to a wider population.
3. An innovation culture that features the right people, in the right roles, speaking a common language of innovation. A key enabler of this culture was the establishment of a $250,000 Innovation Fund to provide seed money for promising ideas. Now, instead of being stalled by permission hurdles that suppress initiative, promising new ideas could be funded, fast-tracked and prototyped.

Consider how the new system helped Stinson bring a transformative innovation to life. Every year at SickKids, thousands of children are battling various forms of cancer. It’s vital that they keep accurate diaries tracking their pain, but if it’s not done daily the data are virtually worthless. Typically these diaries must be filled out by hand, an annoying task that children with cancer aren’t motivated to do. The result is poor reporting and suboptimal pain management.

Stinson had the spark of a solution: use technology that kids love to turn the pain-reporting chore into a game. Her idea went into the pipeline before the hospital’s own innovation fund was set up, but with outside funding she set out to develop and test an iPhone/iPad-based pain diary. A design firm called Cundari contributed $80,000 in-kind services to develop the app. To motivate patients to complete the diary, Cundari and Stinson recruited support from two of Canada’s most popular police detective shows, Rookie Blue and Flashpoint, to provide actors and visuals for the reward system in the app. She called the app The Pain Squad. The numbers so far are impressive. Whereas pain reporting with paper diaries yielded compliance rates below 50%, and Web-based diaries yielded 70%, Pain Squad has boosted rates to more than 90%.

The hospital is now scaling the innovation by making the app a standard part of care, and other hospitals in Canada are adopting it too. This spring, SickKids will launch it for free on the Apple AppStore for hospitals all over the world.

Continue reading  at Harvard Business Review. 

David Duncan is a senior partner at Innosight.

Who is the world’s most innovative company? The editors of Fast Company say Nike. Last year, number crunchers at Forbes found that Salesforce.com is the company with the highest “Innovation Premium” baked into its stock price. MIT Technology Review didn’t pick a winner, but on its recent list of top 50 “disruptors,” the magazine mixed stalwarts such as General Electric and IBM with up-and-comers, Square and Coursera.

The difference of opinion isn’t a new thing — in fact, if you look back a few years at similar lists you’ll see less than 50% overlap. Why? Perhaps a company’s ability to innovate doesn’t last long. Or perhaps it is difficult to really tell how well a company’s innovation engine is functioning — so magazine editors are susceptible to the latest hot product or service.

There’s no doubt: measuring “innovation” is a fuzzy business. Part of the problem is there isn’t a clear consensus on what marks an innovative company. But there are some measurements that try.

Since the primary purpose of innovation for private companies is financial impact, ” Return on Innovation Investment (ROII) is a reasonable, aggregate measuring stick for innovation — you can calculate ROII by taking the profits or cash flows produced by innovation and dividing that figure by the cumulative investment required to create those returns. Conceivably, this ratio could look backwards (measuring the actual results of historical investment) or forward (measuring the expected value of current investments in innovation).

While ROII can be of some utility, it doesn’t precisely measure how a company achieved a particular result. That’s where the Dupont analysis come in.

In the 1920s, while companies used return on equity to assess their performance, DuPont recognized that the single metric had its limits. So it began disaggregating return on equity into three components.

Return on equity (net income divided by equity) results from multiplying three key operating ratios:

1. Profitability (net income over sales)
2. Operating efficiency (sales over assets)
3. Financial leverage (assets over equity)

This simple formula provides rich insight into a company’s business model, and can quickly diagnose a company’s strengths or opportunity areas.

With Dupont in mind, we can come up with a better measurement by sub-dividing ROII as follows:

1. Innovation magnitude (financial contribution divided by successful ideas)
2. Innovation success rate (successful ideas divided by total ideas explored)
3. Investment efficiency (ideas explored divided by total capital and operational investment)

This split would highlight different innovation strategies available to companies. Companies that played it relatively safe could have a high success rate, low magnitude, and high efficiency. A company could achieve the same returns by compensating for lower success rates with higher efficiency or magnitude.

This kind of breakdown would be valuable for both leaders and investment analysts who want to assess a company’s innovation capacity. It might even turn out that this framing highlights a few archetypical strategies that are more (or less) appropriate for different corporate circumstances.

Read the rest at Scott’s Harvard Business Review blog.

Scott D. Anthony is the managing partner at Innosight.

There’s no harder job for a corporate leader than transformation. One key to success is recognizing that transforming a business involves three activities:

• Transforming the core business to maximize its resilience (“Transformation A”)
• Creating a disruptive growth engine (“Transformation B”)
• Building a mechanism to share capabilities between the two (“Capabilities Exchange”)

Those three activities (detailed in an article Gilbert co-authored in December’s Harvard Business Review based on his experience transforming Desert Newsand Deseret Digital, Utah-based media organizations) don’t happen accidentally. Instead, they require careful, consistent leadership. We suggest leaders that leaders looking to drive corporate transformation remember the “Four P’s” of Transformation.1. Purpose. Transformation is hard work. On bad days, you will have to deal with stark realities. You may need to cut the core (Gilbert cut 42 percent of newspaper staff in August 2010) or lead a large course-correction in new growth efforts. Naysayers will argue it’s simply easier to sell off or shut down the “legacy business.” But not only are legacy businesses important, they have critical capabilities that, when shared, provide advantages for new growth efforts.

A clarifying purpose — a guiding mission that’s larger than financial returns — provides a reason to pursue both Transformation A and B. Part of that purpose should be a story. What could the organization look like post-transition? Deseret News’ orientation around faith, family, and education gave the organization fortitude to make tough changes and increase long-term sustainability.

2. People. There are plenty of axioms suggesting the importance of people in change efforts. The challenge is that the right people might not be who you think, particularly for new business efforts. Your best people will want to participate in Transformation B. You will be tempted to let them. Don’t. Those people have developed skills and mindsets appropriate for yesterday’s business, not tomorrow’s.

Instead, field a talented team that has honed their skills in the closest comparable business to your new venture. For Gilbert, that meant attracting people who had worked at pure-play Internet companies like Yahoo!, Omniture, and Demand Media to create Deseret’s digital growth business.

3. Paradox. Focus on efficiency and growth. Leverage capabilities and walk away from them. These are just two of seemingly paradoxical demands facing leaders driving transformation. Since dealing with paradox doesn’t come naturally to most, minimize the number of people who have to straddle two sometimes inconsistent paths. This will be a challenge because your management team is used to being involved in strategic decisions. They still will be — for either kind of transformation, but not for both. That is a job for the CEO, a handful of trusted executives and select Board members.

4. Persistence. Transformation doesn’t happen overnight. Historical success stories like Apple and IBM had their dark days; other case examples in the HBR article like Xerox and Barnes and Nobles did (and do) too. Leaders need to stand fast in the face of these challenges, going beyond consistently exhorting the organization to work harder. Leaders need to push for, and celebrate, small wins that reaffirm progress.

Read the rest at Scott’s Harvard Business Review blog.Scott D. Anthony is the managing partner at Innosight.

Clark Gilbert is President and CEO of the Deseret News and Deseret Digital Media and an Innosight advisor.

Also make sure to check out companion resources, such as:

• The Building a Growth Factory iPad app, available for free in the Apple App Store
• A collection of videos and supporting materials at innosight.com
• And, of course, the Building a Growth Factory ebook available at Amazon.com, Harvard Business School Publishing, and the Apple iTunes store.

Now, on to the questions

1. How do I align my leadership team?

Since most companies are built to execute a known business model, it’s hard for innovation to stick without active participation of the top leadership team. A common challenge is that when companies have degrees of freedom to innovate, they often don’t feel a need because their core business is running so well. Then, when the need for innovation becomes acute, it’s too late to follow the right behavior.

So, someone on the leadership team has to be an innovation champion. You don’t necessarily need to win the hearts and minds of the entire leadership team at once. Find a senior leader or a Board member that can begin to make the case for change.

If you can’t identify that champion, create one. Raise awareness of the need to innovate by identifying and describing early warning signs of transformation. If you wake up on a burning platform, your degrees of freedom to transform are pretty narrow. If you can spot the sparks early enough, there’s still hope.

If those warning signs get discounted, build a time machine. It’s hard to really understand the impact of long-term change when you are locked in a day-to-day grind. One simple technique is to imagine how what would happen if you stepped out a time machine in 5, 7, or 10 years and the company strategy had not changed. In almost every industry, today’s successful strategy is insufficient for tomorrow’s world. Seeing that disconnect can help to crystallize the need to invest more in innovation

2. How can I identify future trends that will impact my business?

Remember the old line from the technology writer William Gibson: “The future is already here – it just isn’t very evenly distributed.” In many industries, tomorrow’s periphery, among early adopting consumers, or smaller companies One technology company we advised in Asia recently held a Board meeting in Silicon Valley. The company does almost no business in the United States, but it was a way for the company’s leadership team to feel the dramatic pace of change around its industry. It helped the company redouble its commitment to transformational innovation.

3. What metrics should I use to assess my innovation performance?

This is a very common question, and a particularly tricky one. The default answer – project an idea’s net present value and then track how well it performs against those projections – can be problematic. After all, markets that don’t exist are notoriously difficult to forecast. And the best ideas often emerge out of a process of trial-and-error experimentation. Overly rigid metrics can cut off the twists-and-turns that lead to greatness. There aren’t hard and fast rules about how to measure innovation performance, so consider the following guidelines:

• Balance quantitative and qualitative metrics. Intuit’s Scott Cook once quipped, “For every one of our failures we had spreadsheets that looked awesome.” Cook looks for the combination of a deep customer need and a unique solution. The numbers ultimately have to work too, but his experience shows him a qualitative pattern connects success. Disruptive innovations tend to adhere to a basic pattern too – so follow the pattern to find success.
• Remember when assessing an early-stage idea that you should be more interested in the assumptions behind success than a particular answer.
• The best way to not get stuck in the fog of innovation – and endlessly iterate ideas – is to blend analysis and intuition.
• Ask different questions at different stages of an idea. In the very early stages you might simply be seeking signs that suggest the problem you are targeting really matters. Later on you might care about economics of a single transaction. Before final launch the return on investment might matter more.

4. Is it better to have a team focused on innovation or require all employees to allocate time to innovation such as what 3M and Google do?

A key point in our Webinar is that at the heart of a growth factory that makes the pursuit of innovation-driven growth more reliable is a growth blueprint – a strategic guide that details desired growth types, growth goals, strategic opportunity areas, and growth goals and boundaries. Without a growth blueprint it is very hard to answer questions like this, because the short answer is it depends on your strategic intent.

Further, the impact that comes from having people think of innovative ideas during their “spare time” depends on the entire innovation system and culture. Google and 3M have internal systems that help to ensure that radical ideas that start at the fringes to attract sufficient time and attention to achieve commercial impact. Most companies lack those systems – which means that ideas that people think of in their “spare time” never go anywhere.

Google, 3M, and W.L. Gore Associates are exceptions. In most companies you will get far better results having a small group of people fully dedicated to the task versus a large group of people partially dedicated to the task.

5. The best people tend to be so sought after by the current business. Do they need to be separated or can they manage to do both their day job and innovation?

There are two points worth considering. The first is whether the best people in the core business really are the best people for innovation. They might be, but they might not be. After all, when Michael Jordan switched his high tops for cleats in 1994, he was hardly a world-class baseball player, and watching LeBron James play ice hockey would be similarly interesting.

Secondly, if you are trying to do something that really represents a big break from the core business, then it is next to impossible to “squeeze it in.” Most startup businesses fail, and that’s with constant attention from their founder. New businesses need their innovation pig – the person who is fully committed to the task – or they have no chance of succeeding.

6. How widely applicable are the growth factory concepts to smaller businesses or diversified conglomerates that act more like investment holding companies?

Not everything fits perfectly, but we certainly use pieces at Innosight, which is a reasonably small professional services company. In general, small companies should ensure that they:

• Are as strategic about growth as large companies. Obviously the planning mechanisms should be simpler, but it is no less important to pick key strategic opportunity areas and make strategic choices about targets and tactics that are on and off the table.
• Have mechanisms to keep abreast of the periphery of their industries to spot future opportunities and threats
• Create a portfolio of innovation efforts – even if that portfolio only has one or two things in it at a given time
• Build a culture that supports prudent risk-taking

At the other end of the spectrum, holding companies should at the very least:

• Create a clear growth blueprint that ensures alignment around growth types and markets that are on and off the table both for the parent and for investment companies
• Create mechanisms to capitalize on opportunities that lie at the “seams” between portfolio companies
• Build robust portfolio tracking systems to minimize unnecessary redundancies across portfolio companies
• Ensure leadership teams have the appropriate incentives to invest in innovation-driven growth

Please feel free to send additional questions to santhony@innosight.com or dduncan@innosight.com. Good luck in your efforts.

Scott D. Anthony is managing partner of Innosight. David S. Duncan is a senior partner here.

The irony of using anytime, commercial-free media to watch advertisers work in a world with only three television channels got me thinking about the social implications of advertising in that old world and our new one. Back in the 1960s, it was a good bet that your neighbor watched the same episode of Bonanza you did last night, with the same advertisements for Coca-Cola and Goodyear. Neighbors, colleagues, and communities shared in the media experience together to a much greater degree than we do today.

But so what? The benefits of increasingly targeting advertising are easy for both advertisers and customers to see. Who wouldn’t want to stop wasting money advertising to people you don’t want to sell to? And who wants to waste time seeing ads for things you don’t want to buy? (Certainly not me, as I watched Mad Men commercial free.) As advertisers and their agencies continue to experiment with the technological possibilities, it’s not hard to imagine reaching the ultimate end, depicted in the 2002 Tom Cruise film Minority Report. If you haven’t seen it, check out the Gap store scene here on YouTube. In this future world, billboards and retail signs can recognize you and call out to you by name, asking how you liked your latest purchase. In the real world, companies like NEC are already creating systems that recognize and respond to age and gender of passers-by.

Still, the unbridled search for the ultimate in personalization has a downside. As media — and the advertising seen on it — become more focused on smaller groups of individuals, we see less of the same advertising content as other people do. And that’s a potential blow to advertisers for several important reasons:

• Shared experience shapes our perception of products. Our opinions of a product, and the pleasure and value we get out of it, don’t just come from our own personal contact with it. We perceive a soft drink or a beer, for example, differently when we know its brand and how others feel about it. If other people have a quite different (or no) understanding of what it means to use an Apple product or drive a Mercedes, that will sensibly decrease our joy in owning them.
• Sharing an experience helps encode new memories. Sharing an experience in general makes it more likely that you’ll remember it, research shows. And in the context of advertising, this means discussing an ad with another person makes it more likely you’ll remember the product when you have the opportunity to buy it. This is a challenge given the amount of advertising that people now view alone.

Read the rest at Harvard Business Review. 

Rebecca Waber is a manager at Innosight.