Fresh Trouble

The four new challenges facing business leaders—an excerpt from Adam Richardson’s new book, Innovation X: Why a Company’s Toughest Problems Are Its Greatest Advantage.

Photography by Darius Ramazani

A mysterious entity called dark matter takes up over half the universe. Though it has been theorized about for decades, until recently no one knew whether it existed at all. The only way to detect its shadowy presence is by observing the influence it exerts on visible matter, such as how it alters the orbits of planets. In the business world, something equally enigmatic is interfering with our ability to be consistently successful at innovation. Though hard to define, its effects are clear enough in newly released products that fail to achieve the desired goals of growth, competitive advantage, new customers, or revitalized brands‚ and in organizations that struggle to find a focus and identity amid turbulence and ambiguity.

It is a truism now that too many innovations get stalled, squashed, sidetracked, or warped beyond recognition by byzantine organizational processes and decision-making edifices. Innovation processes are frustratingly unpredictable in their success rates. The word “innovation” itself is so widely overused that it has lost its meaning.

Innovation has become an end in itself, rather than the means to create a successful business, improve the lives of our customers, and make the world a better place.

Clearly, innovation is broken. But innovation is not the problem.

The problem is the problem.

By this I mean that the scope and complexity of problems that businesses must solve has changed, and we lack the tools not only to diagnose them, but also to focus our innovation efforts to be more consistently successful. I call this new breed of innovation problems X-problems. These are the dark matter of the business universe, mysteriously causing innovation efforts to go off track.

X-problems consist of a cluster of four challenges that come up over and over again for companies of all sizes, across many industries. Often each of the four is looked at and dealt with in isolation, but in reality they are interrelated and must be treated systemically in order to be solved. Doing so allows us to unlock the opportunities that lie inside.

1. Disruption is the new normal.

The worlds of consumer electronics, digital entertainment, mobile communications, and computing are colliding head on, and companies that used to operate in just one of those areas are now finding themselves competing against one another in unpredictable ways. And this isn’t just happening in technology: Almost all categories are facing hypercompetition as too many companies fight it out in increasingly commoditized markets. Companies are driven to search out new growth areas, bumping them up against new competitors in new markets in unexpected ways.

Would consultants who advise small businesses on how to run their organizations have predicted they’d be competing against shoe retailer Zappos? That is exactly what started to happen when Zappos Insights launched, a subscription service that advises small- business owners on customer service and company culture. Zappos realized that it could sell two of its well-known assets—its reputation for excellent service and a quirky, fun culture—and created the spin-off to do just that. This is a great example of a company looking at innovative ways to grow and reach new customers, and at the same time disrupt others.

2. A deep understanding of customers is more vital than ever.

Customers are becoming more sophisticated and demanding, and expectations about a product’s ease of use and quality of experience are often getting reset by other products in completely different categories.

This is increasingly true even in “utilitarian” environments. In the high-pressure world of stock traders, the conventional view is that traders put function above form when it comes to the equipment they use to track the market and make trades. IPC, a manufacturer of sophisticated phone systems that allow traders to handle hundreds of calls a day, recognized that today’s traders have grown up with iPods, cell phones, and Xboxes. This meant that they had a very different set of expectations about how to interact with high-tech devices.

In working with frog design on its new generation of systems, IPC set out to dramatically improve traders’ usage experiences. The result was that IPC achieved a 70 percent adoption rate in the first year, a large improvement over the standard of 10 percent adoption for new IT products in the financial services sector.

3. Create ecosystems not products.

Customer demand is shifting from individual products to ecosystems of hardware, software, and services. Aligning and integrating these elements is a major challenge as ecosystems cut through conventional org charts, requiring previously separate groups to collaborate toward crafting a common customer experience.

Many look to companies like Apple and Google as exemplary ecosystems, and rightly so, but many others are also doing interesting work. Zipcar is the leading car-sharing service in the U.S.‚ but it has been a long road to the top. Car-sharing was previously seen as something complicated, inconvenient, and mainly appealing to hard-core environmentalists. Zipcar changed this perception and gave it mainstream appeal by turning it into a service that is fun and easy to use.

It did this by integrating physical products (cars, wireless communications) with software (Web site, back-end databases) and services (membership policies, insurance) in a way that is seamless for customers. These smart choices as a start-up ultimately helped give Zipcar proprietary advantages that others would find hard to replicate.

4. There is no clear right or wrong answer.

X-problems are highly ambiguous‚ and usually there is little agreement on what the problem actually is, let alone how to solve it. But the pressure is on to bring something to market quickly because competitors are also likely trying to solve the same issue. A nimble, experimental approach works best here, with feedback loops that allow the organization to learn from each experiment and then carry that knowledge forward into the next version.

Hewlett-Packard took this approach with its line of all-in-one touch-screen TouchSmart PCs. HP recognized a major shift in how people were using computers at home and launched its TouchSmart PC as a kitchen device focused on family communications.

It was moderately successful, but TouchSmart hit its stride with the second generation when HP repositioned the product as a living-room device for playing casual games, looking at photos, and listening to music. HP could have killed TouchSmart after its initial “failure,” but learned and turned the product into a success in the next round.

Do these four challenges sound familiar? They should. These tough X-problems are becoming the norm. Taken together, they create massive complexity that stands in the way of effective innovation. We need a new approach to innovation that tackles that complexity head-on. When tackled properly, X-problems unlock new ways to engage with customers and create sustainable competitive advantage.

Adam Richardson is a creative director at frog design’s San Francisco studio and the author of Innovation X.

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