Archive for May, 2010

Swinging at the Innovation Pinata

Swinging at the Innovation Pinata

Finding a hit in innovation is a lot like swinging at a piñata blindfolded. You know a treasure is there, but success is a matter of random luck because you don’t where where and when to strike. Add a pair of outside eyes, though, and your ability to reap rewards greatly increases. Outside eyes, freed from corporate and cultural blindfolds, are sometimes the key. That was one lesson I learned at the PaperCon 2010 conference when I listened to Steve Wilhelms of Appleton Papers talk about their successful microencapsulation technology that is now being used in many open innovation projects with companies like Procter and Gamble.

Appleton Papers invented carbonless copy paper about 50 years ago. Their chemists found a way to place a clear liquid inside tiny fragile spheres that could be coated onto one side of a paper. When the spheres were broken by the force of a pen or pencil pressing down on the paper, the liquid would be released and could then react with a chemical in an adjacent layer of paper to form a dye. The newly formed dye in a lower layer of paper creates a copy of what was written on a top layer. Over the years Appleton Papers developed many improvements in the microencapsulation process, but remained focused on creating paper products such as many variations of carbonless paper or thermal paper that develops images when exposed to heat. Their encapsulation systems were brilliant but huge potential was being missed. Only when a team of outside consultants came in to review the opportunities of Appleton’s technology did the company begin to realize just how many new product opportunities might be possible. Outside eyes were needed because those inside the company had grown up with blinders in place that governed the assumptions they brought to the innovation table. Opportunities were framed in terms of what improvements could be made to their paper business, not what new products in other industries could be enabled or enriched with microencapsulation technology. The outside eyes helped Appleton know where to swing, and goodies were soon falling from the innovation piñata after swinging in the direction of Procter and Gamble.

Procter, of course, is famous for its laundry products such as Tide® detergent and Downy® fabric softener. There was a need for controlled release of fragrance from fabric softener that Appleton Papers was able to meet for P&G. By encapsulating fragrance and delivering those microcapsules to clothing, the fragrance could be protected and released gradually as capsules are broken while the clothing is being worn. Sustained released of the aroma made clothes smell fresher longer. Now Appleton encapsulated huge tankloads of aroma for the Downy business, showing the power of open innovation as technologies are applied across disciplines and shared between corporations. Steve said that Appleton had that technology for 50 years, but only recently realized its innovation potential in areas outside of paper, thanks to a secret weapon for those swinging at the innovation piñata: outside eyes.

Gene Quinn’s article, “ Proposal: Unlocking Job Growth with Patent Acceleration” over at IP Watchdog, reminds us of the powerful link between IP rights and economic growth. It’s an issue we take up in Conquering Innovation Fatigue when we discuss Hernando de Soto’s findings (countries with respect for property rights have much better economic growth than those that don’t respect property rights). It’s an issue that Congress needs to take up if they really want to stimulate economic recovery and growth. As Thomas Jefferson said, innovation needs encouragement, and a strong, efficient patent system is one of the best encouragements.

Gene offers some specific suggestions that could help stimulate innovation, entrepreneurship, and job growth through a more efficient patent system. Change is needed. The years of waiting to get a patent and the other inefficiencies of the US system in recent years need addressing immediately. Strengthening our system and making it more manageable for start-ups and lone inventors would be an important step forward in mitigating innovation fatigue.

The lifeblood of innovation is capital. Investment of capital is the primary difference between great ideas and great teams that go nowhere and those that change the world. From the airplane to the iPod, from wonder drugs to wonder software, innovation requires invested capital to bring concepts to commercial reality. Angel investors play a crucial role in the ecosystem of invention, but they may soon be shut down by Congress in their efforts to “protect” Americans from financial risk.

Risk is a dirty word for those who don’t understand business. Wouldn’t it be nice if government could just protect us from the risk of failure and ensure that we are always safe? But this kind of thinking means stagnation, captivity, and the death of innovation, for the opportunity to succeed inevitably is shadowed by the risk of failure. If success is guaranteed, why put forth the effort to create and innovate? If a venture is protected from failure, we are also protected from the kind of success that inspires innovators and their backers to undergo risk.

Tom Still of the Wisconsin Technology Council has boldly and bravely weighed in on Congressional plans to protect us from risk, plans that would give them even more control over the things they seem to understand least while making it more difficult than ever for innovators to succeed. Tom Still challenges the financial reform legislation proposed by Senator Dodd and points out that his efforts to protect us will crush angel investing, which in turn will stop many innovators from having a shot at success. Ultimately, Dodd seeks to “protect” people from investing their own money the way they want to, and the unintended consequence will be a painful blow to innovation. Tom Still’s article is “Angels on the head of a sharp pin: Financial reform bill poses threat,” published April 21, 2010 at Inside Wisconsin by the Wisconsin Technology Council. Here is an excerpt:

The financial sector reform bill being pushed by U.S. Sen. Christopher Dodd, D-Conn., takes direct aim at the wings of angel investors for reasons that defy explanation. If passed, this “Washington-knows-best” attempt to regulate some of the nation’s most productive risk-takers could destroy the entrepreneurial economy.

Angel investors are often entrepreneurs who hit a home run in their own start-up businesses and who want to reinvest in other young companies. Angel investors are generally strong business executives with an eye for innovation, and they’re not afraid to take a calculated gamble on companies that are too new to get financing from venture capitalists or too risky for banks.

They usually invest close to home and most often as individuals or within a family, but increasingly angels invest as members of angel networks or angel funds that offer some safety in numbers and more partners to screen potential deals.

In Wisconsin, angel investors have been in the vanguard of fostering the state’s early stage economy. Five years ago, there were only a handful of angel networks in Wisconsin. Today, there are nearly two-dozen networks and funds – and they’re not shy about rolling the dice on Wisconsin companies in sectors such as biotechnology, information technology, medical device, advanced manufacturing and “cleantech.” …

But if Dodd has his way, these individualistic investors will be regulated out of existence.

The Restoring American Financial Stability Act, of which Dodd is the chief sponsor, would tighten regulation of the nation’s financial system in ways large and small. It contains three provisions that would effectively kill angel investing in the United States:

  1. It would require start-up companies to register with the federal Securities and Exchange Commission, and wait at least 120 days for SEC review, before trying to raise money. Currently, fledgling companies can raise money from accredited investors without regulatory approval. Four months is an eternity in the life of a start-up company, and most would die in the vine before they ever get a chance to grow.
  2. It would redefine who is an angel. Accredited investors, who are people deemed wealthy enough to invest in start-ups, would be limited to those individuals with more than $2.5 million in assets (up from $1 million today) or a personal income of $450,000 per year (up from $250,000). This will dramatically decrease the supply of angels, which the University of New Hampshire’s Center for Venture Research estimated at 259,000 in 2009. Those angels invested $17.6 billion in about 57,000 deals.
  3. It would subject investors and start-up companies to state-by-state rules versus a single set of SEC standards. Along with the new SEC filing requirement, that would add red tape, time and cost to the investment process.

In its frenzy to clamp down on Wall Street, Congress is threatening an investment community that fosters innovation, mentors young companies and generally cares about how the economy is faring where they live. Angels have helped to create some of today’s biggest companies – Apple, Amazon, Google and many more – usually without putting anyone’s money at risk other than their own.

Angel investing isn’t perfect; the average return on investment proves that. But it’s precisely the kind of bottom-up, largely self-regulated economic activity the nation needs as it struggles to create new companies and jobs. Only those federal lawmakers intent on a top-down, command-and-control economy would think otherwise.

We have enough innovation fatigue factors on our backs already. Clamping down on one of the major arteries that provides capital to start-ups and entrepreneurs is not going to enhance circulation in the atrophying limbs of this economy. We need to back down and let the private sector thrive on its own, taking on both risk and failure, and when we fail, let us fail instead of taking from those who succeed to prop up failures deemed “too big” to fail. The free market offers powerful solutions to some of the problems we face and powerful incentives for innovation, if we can stay out of the way.

Kudos to Tom Still for his insights into the risks Dodd’s bill poses.

One of the lessons of Conquering Innovation Fatigue is that the choice of metrics business leaders use to track and drive innovation can contribute to innovation fatigue when the metrics drive bad decisions and poor behavior. A recent example of how metrics can actually achieve the opposite of the intended results comes from a Wisconsin grocery chain, where a friend employed there explained the unintended consequences of management’s good intentions. Management is now pushing for higher levels of IPM, items per minute, as a metric for the performance of cashiers. This is a measure of how many items per minute the cashier processes, and sounds like a valuable metric for productivity. Faster checkout means happier customers and shorter lines–of course we want IPM to be high.

However, as with all metrics, the details of how IPM is calculated come into play and may bring unintended consequences. For IPM, the clock doesn’t tick when a lane is closed or, more specifically, when the cashier’s terminal is in “secure” mode. Shut down the terminal to the “terminal secure” state and the clock stops, something that some cashiers use to their advantage while checking out a customer. A new manager at one store is pushing for IPM scores of at least 30 for all cashiers, but as one cashier explained, the only way that you can achieve that high of a score is to routinely go to “terminal secure.” If the cashier has to help with the bagging or do other tasks that reduce IPM, they can secure the terminal and then reactivate it before they continue scanning goods. That gives a higher IPM score, but the back and forth of securing and reactivating the terminals actually SLOWS DOWN the real work because it involves extra steps that eat up valuable time. By focusing on IPM as a proxy for productivity, productivity can actually decline.

A further consequence of securing a terminal is that the customer may need to swipe his or her credit card a second time. The card readers in each checkout lane allow customers to swipe their credit card during the scanning of goods, but when the cashier switches to terminal secure mode, the swiped credit card information is discarded and the customer will have the annoyance of having to swipe a second time. By focusing on IPM as a proxy for customer satisfaction, the annoyances to the customer and the time to check out actually increase.

Unintended consequences of metrics can easily follow similar patterns when it comes to innovation, intellectual assets, and new product development. Leaders need to step back and observe the impact of their metrics on those in the ranks and on the actual performance of the company. A carefully selected basket of metrics with frequent reality checks are needed to avoid hindering real productivity and innovation with your good intentions.


Innovation and Sustainability: Lessons from the Paper Industry at PaperCon 2010

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The international conference on the paper industry, PaperCon 2010, was held April 2-5 in Atlanta, Georgia, where nearly 1300 attendees gathered to learn the latest developments in areas such as papermaking, coating, and broader issues such as innovation, leadership, and sustainability. The “broader issues” are handled in the 1/3 of the program managed by PIMA, the Paper Industry Management Association, and I had the privilege of being the PIMA Programming Chair for 2010, working with a terrific team of people to bring in a series of great speakers. shows details of the PIMA track.

I was especially interested in our Carbon Management track, where we had a lineup of experts giving us insights into trends and challenges the industry will face. These speakers included Marilyn Brown, the Nobel laureate from Georgia Tech; Don Carli of The Institute for Sustainable Communication; Don Brown of Agenda 2020, Ben Thorp, a former industry executive widely recognized for his expertise in biofuels and energy issues; George Weyerhaeuser Jr., former Weyerhaeuser executive and Senior Fellow, World Business Council for Sustainable Development; and Tom Rosser, Director General of the Policy, Economics and Industry Branch of the Canadian Forest Service at Natural Resources Canada.

From these speakers, I learned that issues of climate change and environmental responsibility are far more complex than one would ever imagine from listening to popular pundits in the media. Don Carli, who recently made quite a splash in the media with his essay, “Is Digital Media Worse for the Environment Than Print?,” explained that many groups making environmental claims of “saving trees” by using digital technologies such as electronic bill pay, online content, or email versus paper have failed to provide any plausible basis for their claims. In fact, the use of digital media currently promote deforestation of old growth forests in the form of West Virginia mountain tops that are leveled during the mountaintop coal mining that provides much of the coal used in producing much of our electricity (for an intro to the horrors of mountaintop coal mining, see But Carli points our that there are huge opportunities for innovation in this area, with the potential to improve the electrical efficiency of digital media and data center by an order or magnitude or more. In my opinion, this must become a priority for innovation in sustainability, not shutting down sustainable, managed plantations of trees which are actively replanted and remove large amounts of carbon from the atmosphere without blowing the tops off mountains and dumping the remains into once-pristine streams.

I also learned that green innovations in energy can sometimes result in valuable energy sources being used poorly. Ben Thorp, for example, explained that a standalone turbine using biomass to produce electricity might have an overall energy efficiency of only 18-20%, but if that same turbine is integrated with, say, a papermill to allow waste heat to be more effectively used and to gain other benefits, the overall efficiency can reach 70%. A reasonable approach to sustainability must include using our energy resources efficiently. Simply assuming that biofuels or power from biomass is inherently desirable is unjustified if much of the potential is being wasted.

Meanwhile, some environmental activists are beginning to see the wisdom of wood as a sustainable, replenishable material that takes carbon out of the atmosphere (whether that’s truly desirable or not is still an issue of controversy). The “Je Touch du Bois” (“I touch wood” in French, literally, but this is also similar to English’s “knock on wood” saying expressing a wish for good luck) campaign in Canada led by a former Greenpeace activist is evidence of that. Watch for this perspective to grow.

As with innovation in general, it’s difficult to get the right answer even when one does their homework. Finding breakthroughs that solve real problems and become adopted in society for positive change requires iteration on several fronts: iteration in the technology, in the business model, and in the message and how it is shared. One rarely gets it right the first time, and the winners are those who have something left to keep moving forward as they change and respond to the brutal realities of the marketplace and of science, which is often tentative due to limited human understanding.

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