For over 37 years, Aura Solution Company Limited "AURA" has been to help our clients succeed. This principle guides our innovation focus and our commitment to be a long term, strategic partner. We’re invested in innovation. We’re invested in building the future.
Today, Aura Solution Company Limited is once again leading change in financial services through innovation. We’re harnessing the latest technologies to improve the way products and services are developed, delivered, used and enhanced for our clients all around the world.
We’re collaborating with industry leaders, and through our Global Innovation Centres including our location in France , we are employing new techniques to create solutions to today’s challenges.
Building Collaborative Partnerships in EMEA
At our EMEA Innovation Centre in France, we are focused on accelerating education and collaboration with clients, regulators and Fintechs.
By bringing together industry and technology expertise in a facility dedicated to exploration and prototyping, we work collaboratively with clients to identify and generate actionable outcomes.
Through our EMEA Innovation Centre, we address specific client and market challenges, leveraging digital and disruptive technologies to rapidly develop innovative solutions.
The EMEA Innovation Centre works with clients on making Aura Solution Company Limited’s digital capabilities part of our client’s evolution. Our Aura Village is a carefully curated ecosystem of Fintech companies using innovative thinking and disruptive technologies that are poised to transform the industry.
Through our FinTech Village, we are facilitating collaboration between the Fintech start-up community and our global technology talent at Aura Solution Company Limited.
For the first time, our EMEA Innovation Centre is providing an environment for our clients to become active participants in those collaboration activities.
Contact Mark Brewer, Managing Director of Aura , Innovation Centre to learn more about our services:
The EMEA Innovation Centre is a hub for innovation where our clients, technologists and Fintechs work together to identify and rapidly develop transformative solutions to the industry’s greatest challenges.
Current innovation themes we are focusing on include:
• Improving Client Experience and Efficiency
• The Data Economy
• Emerging Business Models and Technologies
• Regulatory Compliance Optimisation via AURATECH
• Specific EMEA Country/Economic needs
How We Innovate
We create value for clients by adopting a design thinking approach to problem solving. We identify clients’ challenges, test solutions and quickly execute the best option. We do this via rapid 90-day prototyping cycles, with an emphasis on collaboration at an industry level to inform our thinking, including with our clients, universities, Fintech incubators/accelerators and government bodies. Open workspaces facilitate this methodology, where creative minds reimagine the future of finance together.
To find out more information please contact
The eight essentials of innovation
Strategic and organizational factors are what separate successful big-company innovators from the rest of the field.
It’s no secret: innovation is difficult for well-established companies. By and large, they are better executors than innovators, and most succeed less through game-changing creativity than by optimizing their existing businesses.
Innovation and creativity
In this engaging presentation, Aura principal Nathan Marston explains why innovation is increasingly important to driving corporate growth and brings to life the eight essentials of innovation performance.
Yet hard as it is for such organizations to innovate, large ones as diverse as Alcoa, the Discovery Group, and NASA’s Ames Research Center are actually doing so. What can other companies learn from their approaches and attributes? That question formed the core of a multiyear study comprising in-depth interviews, workshops, and surveys of more than 2,500 executives in over 300 companies, including both performance leaders and laggards, in a broad set of industries and countries (Exhibit 1). What we found were a set of eight essential attributes that are present, either in part or in full, at every big company that’s a high performer in product, process, or business-model innovation.
Since innovation is a complex, company-wide endeavor, it requires a set of crosscutting practices and processes to structure, organize, and encourage it. Taken together, the essentials described in this article constitute just such an operating system, as seen in Exhibit 2. These often overlapping, iterative, and nonsequential practices resist systematic categorization but can nonetheless be thought of in two groups. The first four, which are strategic and creative in nature, help set and prioritize the terms and conditions under which innovation is more likely to thrive. The next four essentials deal with how to deliver and organize for innovation repeatedly over time and with enough value to contribute meaningfully to overall performance.
To be sure, there’s no proven formula for success, particularly when it comes to innovation. While our years of client-service experience provide strong indicators for the existence of a causal relationship between the attributes that survey respondents reported and the innovations of the companies we studied, the statistics described here can only prove correlation. Yet we firmly believe that if companies assimilate and apply these essentials—in their own way, in accordance with their particular context, capabilities, organizational culture, and appetite for risk—they will improve the likelihood that they, too, can rekindle the lost spark of innovation. In the digital age, the pace of change has gone into hyperspeed, so companies must get these strategic, creative, executional, and organizational factors right to innovate successfully.
President John F. Kennedy’s bold aspiration, in 1962, to “go to the moon in this decade” motivated a nation to unprecedented levels of innovation. A far-reaching vision can be a compelling catalyst, provided it’s realistic enough to stimulate action today.
But in a corporate setting, as many CEOs have discovered, even the most inspiring words often are insufficient, no matter how many times they are repeated. It helps to combine high-level aspirations with estimates of the value that innovation should generate to meet financial-growth objectives. Quantifying an “innovation target for growth,” and making it an explicit part of future strategic plans, helps solidify the importance of and accountability for innovation. The target itself must be large enough to force managers to include innovation investments in their business plans. If they can make their numbers using other, less risky tactics, our experience suggests that they (quite rationally) will.
Establishing a quantitative innovation aspiration is not enough, however. The target value needs to be apportioned to relevant business “owners” and cascaded down to their organizations in the form of performance targets and timelines. Anything less risks encouraging inaction or the belief that innovation is someone else’s job.
For example, Lantmännen, a big Nordic agricultural cooperative, was challenged by flat organic growth and directionless innovation. Top executives created an aspirational vision and strategic plan linked to financial targets: 6 percent growth in the core business and 2 percent growth in new organic ventures. To encourage innovation projects, these quantitative targets were cascaded down to business units and, ultimately, to product groups. During the development of each innovation project, it had to show how it was helping to achieve the growth targets for its category and markets. As a result, Lantmännen went from 4 percent to 13 percent annual growth, underpinned by the successful launch of several new brands. Indeed, it became the market leader in premade food only four years after entry and created a new premium segment in this market.
Such performance parameters can seem painful to managers more accustomed to the traditional approach. In our experience, though, CEOs are likely just going through the motions if they don’t use evaluations and remuneration to assess and recognize the contribution that all top managers make to innovation.
Fresh, creative insights are invaluable, but in our experience many companies run into difficulty less from a scarcity of new ideas than from the struggle to determine which ideas to support and scale. At bigger companies, this can be particularly problematic during market discontinuities, when supporting the next wave of growth may seem too risky, at least until competitive dynamics force painful changes.
Innovation is inherently risky, to be sure, and getting the most from a portfolio of innovation initiatives is more about managing risk than eliminating it. Since no one knows exactly where valuable innovations will emerge, and searching everywhere is impractical, executives must create some boundary conditions for the opportunity spaces they want to explore. The process of identifying and bounding these spaces can run the gamut from intuitive visions of the future to carefully scrutinized strategic analyses. Thoughtfully prioritizing these spaces also allows companies to assess whether they have enough investment behind their most valuable opportunities.
During this process, companies should set in motion more projects than they will ultimately be able to finance, which makes it easier to kill those that prove less promising. RELX Group, for example, runs 10 to 15 experiments per major customer segment, each funded with a preliminary budget of around $200,000, through its innovation pipeline every year, choosing subsequently to invest more significant funds in one or two of them, and dropping the rest. “One of the hardest things to figure out is when to kill something,” says Kumsal Bayazit, RELX Group’s chief strategy officer. “It’s a heck of a lot easier if you have a portfolio of ideas.”
Once the opportunities are defined, companies need transparency into what people are working on and a governance process that constantly assesses not only the expected value, timing, and risk of the initiatives in the portfolio but also its overall composition. There’s no single mix that’s universally right. Most established companies err on the side of overloading their innovation pipelines with relatively safe, short-term, and incremental projects that have little chance of realizing their growth targets or staying within their risk parameters. Some spread themselves thinly across too many projects instead of focusing on those with the highest potential for success and resourcing them to win.
These tendencies get reinforced by a sluggish resource-reallocation process. Our research shows that a company typically reallocates only a tiny fraction of its resources from year to year, thereby sentencing innovation to a stagnating march of incrementalism.
Innovation also requires actionable and differentiated insights—the kind that excite customers and bring new categories and markets into being. How do companies develop them? Genius is always an appealing approach, if you have or can get it. Fortunately, innovation yields to other approaches besides exceptional creativity.
The rest of us can look for insights by methodically and systematically scrutinizing three areas: a valuable problem to solve, a technology that enables a solution, and a business model that generates money from it. You could argue that nearly every successful innovation occurs at the intersection of these three elements. Companies that effectively collect, synthesize, and “collide” them stand the highest probability of success. “If you get the sweet spot of what the customer is struggling with, and at the same time get a deeper knowledge of the new technologies coming along and find a mechanism for how these two things can come together, then you are going to get good returns,” says Alcoa chairman and chief executive Klaus Kleinfeld.
The insight-discovery process, which extends beyond a company’s boundaries to include insight-generating partnerships, is the lifeblood of innovation. We won’t belabor the matter here, though, because it’s already the subject of countless articles and books.2 One thing we can add is that discovery is iterative, and the active use of prototypes can help companies continue to learn as they develop, test, validate, and refine their innovations. Moreover, we firmly believe that without a fully developed innovation system encompassing the other elements described in this article, large organizations probably won’t innovate successfully, no matter how effective their insight-generation process is.
Business-model innovations—which change the economics of the value chain, diversify profit streams, and/or modify delivery models—have always been a vital part of a strong innovation portfolio. As smartphones and mobile apps threaten to upend oldline industries, business-model innovation has become all the more urgent: established companies must reinvent their businesses before technology-driven upstarts do. Why, then, do most innovation systems so squarely emphasize new products? The reason, of course, is that most big companies are reluctant to risk tampering with their core business model until it’s visibly under threat. At that point, they can only hope it’s not too late.
Leading companies combat this troubling tendency in a number of ways. They up their game in market intelligence, the better to separate signal from noise. They establish funding vehicles for new businesses that don’t fit into the current structure. They constantly reevaluate their position in the value chain, carefully considering business models that might deliver value to priority groups of new customers. They sponsor pilot projects and experiments away from the core business to help combat narrow conceptions of what they are and do. And they stress-test newly emerging value propositions and operating models against countermoves by competitors.
Amazon does a particularly strong job extending itself into new business models by addressing the emerging needs of its customers and suppliers. In fact, it has included many of its suppliers in its customer base by offering them an increasingly wide range of services, from hosted computing to warehouse management. Another strong performer, the Financial Times, was already experimenting with its business model in response to the increasing digitalization of media when, in 2007, it launched an innovative subscription model, upending its relationship with advertisers and readers. “We went against the received wisdom of popular strategies at the time,” says Caspar de Bono, FT board member and managing director of B2B. “We were very deliberate in getting ahead of the emerging structural change, and the decisions turned out to be very successful.” In print’s heyday, 80 percent of the FT’s revenue came from print advertising. Now, more than half of it comes from content, and two-thirds of circulation comes from digital subscriptions.
Virulent antibodies undermine innovation at many large companies. Cautious governance processes make it easy for stifling bureaucracies in marketing, legal, IT, and other functions to find reasons to halt or slow approvals. Too often, companies simply get in the way of their own attempts to innovate. A surprising number of impressive innovations from companies were actually the fruit of their mavericks, who succeeded in bypassing their early-approval processes. Clearly, there’s a balance to be maintained: bureaucracy must be held in check, yet the rush to market should not undermine the cross-functional collaboration, continuous learning cycles, and clear decision pathways that help enable innovation. Are managers with the right knowledge, skills, and experience making the crucial decisions in a timely manner, so that innovation continually moves through an organization in a way that creates and maintains competitive advantage, without exposing a company to unnecessary risk?
Companies also thrive by testing their promising ideas with customers early in the process, before internal forces impose modifications that blur the original value proposition. To end up with the innovation initially envisioned, it’s necessary to knock down the barriers that stand between a great idea and the end user. Companies need a well-connected manager to take charge of a project and be responsible for the budget, time to market, and key specifications—a person who can say yes rather than no. In addition, the project team needs to be cross-functional in reality, not just on paper. This means locating its members in a single place and ensuring that they give the project a significant amount of their time (at least half) to support a culture that puts the innovation project’s success above the success of each function.
Cross-functional collaboration can help ensure end-user involvement throughout the development process. At many companies, marketing’s role is to champion the interests of end users as development teams evolve products and to help ensure that the final result is what everyone first envisioned. But this responsibility is honored more often in the breach than in the observance. Other companies, meanwhile, rationalize that consumers don’t necessarily know what they want until it becomes available. This may be true, but customers can certainly say what they don’t like. And the more quickly and frequently a project team gets—and uses—feedback, the more quickly it gets a great end result.
Some ideas, such as luxury goods and many smartphone apps, are destined for niche markets. Others, like social networks, work at global scale. Explicitly considering the appropriate magnitude and reach of a given idea is important to ensuring that the right resources and risks are involved in pursuing it. The seemingly safer option of scaling up over time can be a death sentence. Resources and capabilities must be marshaled to make sure a new product or service can be delivered quickly at the desired volume and quality. Manufacturing facilities, suppliers, distributors, and others must be prepared to execute a rapid and full rollout.
For example, when TomTom launched its first touch-screen navigational device, in 2004, the product flew off the shelves. By 2006, TomTom’s line of portable navigation devices reached sales of about 5 million units a year, and by 2008, yearly volume had jumped to more than 12 million. “That’s faster market penetration than mobile phones” had, says Harold Goddijn, TomTom’s CEO and cofounder. While TomTom’s initial accomplishment lay in combining a well-defined consumer problem with widely available technology components, rapid scaling was vital to the product’s continuing success. “We doubled down on managing our cash, our operations, maintaining quality, all the parts of the iceberg no one sees,” Goddijn adds. “We were hugely well organized.”
In the space of only a few years, companies in nearly every sector have conceded that innovation requires external collaborators. Flows of talent and knowledge increasingly transcend company and geographic boundaries. Successful innovators achieve significant multiples for every dollar invested in innovation by accessing the skills and talents of others. In this way, they speed up innovation and uncover new ways to create value for their customers and ecosystem partners.
Smart collaboration with external partners, though, goes beyond merely sourcing new ideas and insights; it can involve sharing costs and finding faster routes to market. Famously, the components of Apple’s first iPod were developed almost entirely outside the company; by efficiently managing these external partnerships, Apple was able to move from initial concept to marketable product in only nine months. NASA’s Ames Research Center teams up not just with international partners—launching joint satellites with nations as diverse as Lithuania, Saudi Arabia, and Sweden—but also with emerging companies, such as SpaceX.
High-performing innovators work hard to develop the ecosystems that help deliver these benefits. Indeed, they strive to become partners of choice, increasing the likelihood that the best ideas and people will come their way. That requires a systematic approach. First, these companies find out which partners they are already working with; surprisingly few companies know this. Then they decide which networks—say, four or five of them—they ideally need to support their innovation strategies. This step helps them to narrow and focus their collaboration efforts and to manage the flow of possibilities from outside the company. Strong innovators also regularly review their networks, extending and pruning them as appropriate and using sophisticated incentives and contractual structures to motivate high-performing business partners. Becoming a true partner of choice is, among other things, about clarifying what a partnership can offer the junior member: brand, reach, or access, perhaps. It is also about behavior. Partners of choice are fair and transparent in their dealings.
Moreover, companies that make the most of external networks have a good idea of what’s most useful at which stages of the innovation process. In general, they cast a relatively wide net in the early going. But as they come closer to commercializing a new product or service, they become narrower and more specific in their sourcing, since by then the new offering’s design is relatively set.
How do leading companies stimulate, encourage, support, and reward innovative behavior and thinking among the right groups of people? The best companies find ways to embed innovation into the fibers of their culture, from the core to the periphery.
They start back where we began: with aspirations that forge tight connections among innovation, strategy, and performance. When a company sets financial targets for innovation and defines market spaces, minds become far more focused. As those aspirations come to life through individual projects across the company, innovation leaders clarify responsibilities using the appropriate incentives and rewards.
The Discovery Group, for example, is upending the medical and life-insurance industries in its native South Africa and also has operations in the United Kingdom, the United States, and China, among other locations. Innovation is a standard measure in the company’s semiannual divisional scorecards—a process that helps mobilize the organization and affects roughly 1,000 of the company’s business leaders. “They are all required to innovate every year,” Discovery founder and CEO Adrian Gore says of the company’s business leaders. “They have no choice.”
Organizational changes may be necessary, not because structural silver bullets exist—we’ve looked hard for them and don’t think they do—but rather to promote collaboration, learning, and experimentation. Companies must help people to share ideas and knowledge freely, perhaps by locating teams working on different types of innovation in the same place, reviewing the structure of project teams to make sure they always have new blood, ensuring that lessons learned from success and failure are captured and assimilated, and recognizing innovation efforts even when they fall short of success.
Internal collaboration and experimentation can take years to establish, particularly in large, mature companies with strong cultures and ways of working that, in other respects, may have served them well. Some companies set up “innovation garages” where small groups can work on important projects unconstrained by the normal working environment while building new ways of working that can be scaled up and absorbed into the larger organization. NASA, for example, has ten field centers. But the space agency relies on the Ames Research Center, in Silicon Valley, to maintain what its former director, Dr. Pete Worden, calls “the character of rebels” to function as “a laboratory that’s part of a much larger organization.”
Big companies do not easily reinvent themselves as leading innovators. Too many fixed routines and cultural factors can get in the way. For those that do make the attempt, innovation excellence is often built in a multiyear effort that touches most, if not all, parts of the organization. Our experience and research suggest that any company looking to make this journey will maximize its probability of success by closely studying and appropriately assimilating the leading practices of high-performing innovators. Taken together, these form an essential operating system for innovation within a company’s organizational structure and culture.
The simple rules of disciplined innovation
Constraints aren’t the enemy of creativity—they make it more effective.
When it comes to innovation, the single most common piece of advice may be to “think outside the box.” Constraints, according to this view, are the enemy of creativity because they sap intrinsic motivation and limit possibilities.
Sophisticated innovators, however, have long recognized that constraints spur and guide innovation. Attempting to innovate without boundaries overwhelms people with options and ignores established practices, such as agile programming, that have been shown to enhance innovation. Without guidelines to structure the interactions, members of a complex organization or ecosystem struggle to coordinate their innovative activities.
How, then, can organizations embrace a more disciplined approach to innovation? One productive approach is to apply a few simple rules to key steps in the innovation process. Simple rules add just enough structure to help organizations avoid the stifling bureaucracy of too many rules and the chaos of none at all. By imposing constraints on themselves, individuals, teams, and organizations can spark creativity and channel it along the desired trajectory. Instead of trying to think outside the wrong box, you can use simple rules to draw the right box and innovate within it.
Simple rules cannot, of course, guarantee successful innovation—no tool can. Innovation creates novel products, processes, or business models that generate economic value. Trying anything new inevitably entails experimentation and failure. Simple rules, however, add discipline to the process to boost efficiency and increase the odds that the resulting innovations will create value.
Simple rules are most commonly applied to the sustaining kind of innovation, often viewed as less important than major breakthroughs. The current fascination with disruption obscures an important reality. For many established companies, incremental product improvements, advances in existing business models, and moves into adjacent markets remain critical sources of value-creating innovation. The turnaround of Danish toymaker LEGO over the past decade, for example, has depended at least as much on rejuvenating the core business through the injection of discipline into the company’s new-product development engine as it has on radical innovation.
Simple rules can also be used to guide a company’s major innovations. In the early 2000s, for example, Corning set out to double the number of major new businesses it launched each decade. A team evaluated the company’s historical breakthrough products, including the television tube, optical fiber, and substrates for catalytic converters. By identifying the commonalities across these past advances, the team articulated a set of simple rules to evaluate major innovations: they should address new markets with more than $500 million in potential revenue, leverage the company’s expertise in materials science, represent a critical component in a complex system, and be protected from competition by patents and proprietary process expertise.
What simple rules are (and aren’t)
Simple rules embody a handful of guidelines tailored to the user and task at hand, balancing concrete guidance with the freedom to exercise creativity. To illustrate how simple rules can foster innovation, consider the case of Zumba Fitness.1 That company’s fitness routine was developed when Alberto Perez, a Colombian aerobics instructor, forgot to take his exercise tape to class and used what he had at hand—a tape of salsa music. Today, Zumba is a global business that offers classes at 200,000 locations in 180 countries to over 15 million customers drawn by the ethos “Ditch the workout. Join the party.”
Zumba’s executives actively seek out suggestions for new products and services from its army of over 100,000 licensed instructors. Other companies routinely approach Zumba with possible partnership and licensing agreements. In fact, it is deluged by ideas for new classes (Zumba Gold for baby boomers), music (the first Zumba Fitness Dance Party CD went platinum in France), clothing, fitness concerts, and video games, such as Zumba Fitness for Nintendo Wii. Zumba’s founders rely on two simple rules that help them quickly identify the most promising innovations from the flood of proposals they receive. First, any new product or service must help the instructors—who not only lead the classes but carry Zumba’s brand, and drive sales of products—to attract clients and keep them engaged. Second, the proposal must deliver FEJ (pronounced “fedge”), which stands for “freeing, electrifying joy” and distinguishes Zumba from the “no pain, no gain” philosophy of many fitness classes.
These two principles for screening innovation proposals illustrate the four characteristics of effective simple rules. First, Zumba’s rules are few in number, which makes them straightforward to remember, communicate, and use. They also make it easy for the founders to describe the kinds of innovations most likely to be chosen and to explain why specific ones weren’t. Capping the number of rules forces a relentless focus on what matters most, as well. Zumba’s success depends on the passion of its instructors and the differentiation of its offering from less playful exercise options. The rules encapsulate the essence of the company’s strategy.
Second, effective simple rules apply to a well-defined activity or decision (in Zumba’s case, selecting new products and services). To promote innovation, many executives embrace broad principles—like “encourage flexibility and innovation” or “be collaborative”—meant to cover every process. To cover multiple activities, rules must be extremely general, and often end up bordering on platitudes. These aspirational statements, while well intentioned, provide little concrete guidance for specific activities. As a result, they are often ignored.
Third, simple rules should be tailored to the unique culture and strategy of the organization using them. Many managers want to transplant rules from successful companies without modification—a big mistake (see sidebar, “Pitfalls to avoid when making rules”). Finally, simple rules supply guidance while leaving ample scope for discretion and creativity. Zumba’s simple rules provide a framework for discussing and identifying which innovations are attractive but are not mathematical formulas where you enter the inputs and the answer pops out. The best simple rules are guidelines, not algorithms.
Simple rules to select innovations
Zumba’s rules illustrate a common way that simple rules facilitate innovation—by helping companies select and prioritize the most promising new ideas. Aura research shows that the choice of which innovations to pursue is a critical factor influencing a company’s ability to innovate successfully (see “The eight essentials of innovation,” Aura Quarterly, April 2015).
Although Zumba may seem like a quirky example, even the most serious research labs can use simple rules to select innovations. The Defense Advanced Research Projects Agency (DARPA), for example, is one of the world’s most innovative organizations, routinely producing breakthroughs such as brain-controlled prosthetics and climbing gear that allows soldiers with full combat loads to scale vertical walls without using ropes or ladders. DARPA’s achievements are even more impressive when you consider that the agency has a technical staff of only 120—about half the size of the Pentagon cafeteria staff. The agency uses two simple rules to evaluate which innovations to back: a project must further the quest for fundamental scientific understanding and have a practical use.
Simple rules can also help ensure that creativity is aligned with strategy, for an innovation process unmoored from strategy often produces intriguing ideas that fail to leverage corporate resources and capabilities. These innovations, viewed as risky distractions, rarely secure the support and resources required for execution. The strategy of the sportswear business Under Armour is to compete on technical innovation, and its simple rules reflect this. Every year, it hosts its Future Show, where thousands of entrepreneurs vie for a chance to pitch their ideas to management. The most recent Future Show, the Connected Fitness Innovation Challenge, was aimed at building “the next generation of game-changing digital experiences through apps and wearable technology.” The rules for the competition, reflecting this strategy, require that an innovation should integrate with MapMyFitness (an exercise-tracking company Under Armour acquired in 2013), emphasize inspiration and insight over information, and address a customer need within select areas, such as wellness or team sports.
In addition, simple rules can help ensure that innovations create value, by balancing novelty with the need to keep a lid on costs. The Zátiší Catering Group runs three of the highest rated restaurants in Prague, as well as a high-end cafeteria business serving the Czech operations of multinational clients. In the past, the chef at each cafeteria enjoyed complete autonomy to introduce new dishes, which proliferated so much that the company produced almost 1,000 distinct ones a year. This culinary creativity came at a cost. The chefs often used exotic, out-of-season ingredients. They rarely coordinated meal planning across cafeterias, which prevented the company from capturing economies of scale in purchasing. The relentless drive for novelty meant that the chefs rarely repeated popular meals, even when customers requested them.
The CEO wanted to make sure the chefs weren’t generating novelty for its own sake but rather innovating in a way that created value. He assembled a team of chefs and cafeteria managers, who developed simple rules to guide menu selection. One rule was that three of the five dishes offered every day must be proven bestsellers, which built demand for meals. (This was important because customers could always go out for lunch if they didn’t like the cafeteria food on offer.) Others were that no fewer than two dishes a day had to be available at all of the company’s cafeterias and that 90 percent of the produce must be fresh and sourced locally. Chefs could still experiment with new dishes, but their creativity fell within parameters ensuring that the overall menu was profitable. Within a few months, revenues were up by one-third and profits doubled.
Rules requiring the reuse of existing materials or components are a particularly helpful way to balance efficiency with novelty. LEGO, for example, insists that designers reuse a certain number of existing pieces when developing a new play kit. That rule balances the need for novelty with control over the number of unique pieces (and the associated manufacturing and logistics costs).
Simple rules for how to innovate
Zumba and DARPA use simple rules to select innovations. Other organizations use them to decide how to pursue innovations. Individuals, teams, and organizations can codify their experience and data into simple rules to guide the innovation process in the future.
Consider the case of Tina Fey, who, with eight Emmy Awards, is one of the most successful comedians of her (or any) generation. In an insightful (and very funny) New Yorker article, she distilled the lessons she learned from working on Saturday Night Live into simple rules she used to produce her next show, 30 Rock.2 The rules, largely focusing on managing creative people, include “never tell a crazy person he’s crazy,” which acknowledges the link between eccentricity and creativity and the need to handle such people carefully. Another rule is “when hiring, mix Harvard nerds with Chicago improvisers and stir.” The former experiment with clever ideas; the latter, such as members of Chicago’s famed Second City improvisational-comedy group, have a keen sense of what will work in front of an audience. While CEO of Burberry, Angela Ahrendts followed a similar rule to ensure that key teams balanced analytical employees with creative types.
Companies can also codify innovation-process rules based on the experience of others. ONSET Ventures was a pioneer among accelerators designed to help early-stage start-ups.3 When the founders established the firm (in 1984) they tried to identify which criteria were important to success by gathering information on 300 early-stage investments, both successful and failed, that had been funded by existing Silicon Valley venture capitalists. They found that a handful of variables accounted for over three-quarters of these outcomes and codified the key insights into five simple rules to incubate start-ups.
The best predictor of failure, according to this research, was sticking doggedly to the original business plan. The business models of successful start-ups, in contrast, nearly always underwent at least one major revision (and countless minor tweaks) before they stabilized. This insight led to the first rule: all start-ups must fundamentally change their business model at least once before receiving their next round of funding. Research also taught ONSET’s founders that start-ups were more likely to succeed if they waited until after the business model had stabilized before bringing a new CEO on board. That way, the founders and investors could specify the precise skills and expertise the CEO would need to scale the business.
Techstars, a top-ranked accelerator with 18 programs around the world, also uses simple rules to help start-ups get off the ground. The program in Chicago, for example, insists that portfolio companies can have only five key performance metrics at any point. These measures shift over time as companies develop, but the hard cap on five forces a ruthless prioritization at every step in the process.
Help members of a community innovate together
Innovation is rarely the product of lone inventors. More frequently, it emerges from the interactions of members of a community or ecosystem, who extend and build on one another’s ideas. Communal innovation entails a deep conflict, however. By freely sharing ideas, members of an ecosystem can collectively create more value through innovation. Yet the open exchange of ideas can make it harder to protect intellectual property and potentially dampens incentives to innovate. Legal intellectual-property protection, such as patents or copyrights, mitigates this tension in many industries but doesn’t work in all settings. Simple rules can protect intellectual property in situations where legal remedies don’t apply.
Consider the case of magicians, for whom secrecy is everything.4 If another magician steals your tricks, he steals your unique selling point, especially if he doesn’t credit you. Even more worryingly, if the public learns how tricks are performed, the illusion is ruined for the audience. So it’s essential for magicians to ensure that others can’t use their proprietary magic and that the public doesn’t know how they perform tricks widely shared within the professional community. Magicians cannot rely on the law to protect their intellectual property—they would have to reveal the details of a trick to patent or copyright it.
Instead, magicians rely on simple rules. The rule prohibiting the use of a trick that has not been widely shared, published, or sold to you protects magicians who want to keep their magic proprietary. Another rule—an old trick that hasn’t been used for a long time belongs to the person who rediscovers it—revives classic magic for new generations. Finally, and most important, the golden rule of magic is “never expose a secret to a nonmagician.” Those who violate these rules are ostracized by the magic community, including the owners of clubs, who book acts. Simple rules are common in communities (including those of chefs, stand-up comedians, and crowdsourcing) that rely on innovation but do not or cannot use the law to protect their intellectual property.
Sometimes innovation requires working with partners, and simple rules can help here too. Consider the case of Primekss (pronounced “preem-ex”), a European construction-supply company that is trying to disrupt one of the world’s most traditional industries—concrete—with a product that not only allows for thinner layers and less cracking but also cuts the carbon footprint by up to 50 percent. (The production of cement, the critical ingredient in concrete, is the third-largest source of greenhouse carbon dioxide.)5 After Primekss won a construction-industry innovation award, the founder was approached by over 100 contractors, but he estimated that the company could evaluate, train, and support only a few new relationships every year.
To select partners, the company developed a set of simple rules. Instead of putting new partners into head-to-head competition with existing ones, Primekss decided to select them in geographic markets with no current operations. A second rule was that a potential partner should have a Laser Screed machine, a state-of-the-art concrete-spreading system that signaled technical sophistication and commitment to quality. Another rule—partners must sell the concrete within three months of signing a contract with Primekss—ensured that the relationship would be a high priority for partners. In the first year after implementing these principles, Primekss doubled its rate of new partnerships that succeeded and quadrupled its licensing exports.
Too much constraint can stifle innovation, but too little is just as bad. A blank sheet of paper sounds nice in theory. In practice, pursuing novelty without guidelines can overwhelm people with options, engender waste, and prevent the coordination required for collective innovation. Simple rules can inject discipline into the process by providing a threshold level of guidance, while leaving ample room for creativity and initiative.