What Canada Can Learn From Israel About Innovation

I've written before about our concern that Canada is experiencing an innovation void.

In my opinion, Canadian companies are very reliant on the Natural Resource Sector - the drill it, mine it, chop it mentality. This could be holding them back from innovating. To fully embrace a culture of innovation Canadian companies need to learn from their counterparts to the South and take more chances.

Recently we posted an interview with Mark Krupnik who earned a PhD in applied mathematics from Technion - Israel Institute of Technology. Now, I ran across an article in the Globe and Mail that looks deeper into what makes Israelis so innovation focused and what is holding Canada back.

Interestingly, it's not lack of innovation that seems to keep Canada consistently behind those countries with reputations for not only developing, but also commercializing innovation.

Our national output of discoveries is impressive. University of Toronto professors, as just one example, are third in publication totals world-wide, exceeded only by Harvard and Tokyo. But the commercialization record of Canadian universities is modest. Our best performers generate far less revenue than their U.S. or Israeli counterparts. And, when it comes to turning discoveries into popular products and services, our outputs are underexploited.

Israel by comparison has strong connections between researchers and business and government support and direction - all focused toward the future. Israel, unlike Canada, is a country virtually devoid of natural resources and so, perhaps has a greater incentive to develop an array of innovative industries to support its economic growth.

On the other hand, in less than a generation they have been able to go from exporting primarily agricultural goods to exporting primarily technology. Can Canada, or should Canada take the same route, de-emphasizing our export of natural gas, timber and oil and focusing solely on technological innovation? Probably not, but a future focused innovation strategy has its benefits.

In Israel, as in most countries leading the innovation parade, there are close connections between those involved in pure research and business leaders that can take these products to market. Funding for new research is backed by and encouraged the government and generous grants, both public and private are available for good ideas with good foreseeable, as well as unforeseeable commercial application.

In Canada by contrast, while innovation is heralded as a way in which to fuel our economic engine, the focus, too often has been on incremental changes to our major existing industries. One might consider that giving lip service to true innovation.

To truly take its place in the roster of countries leading innovation in the 21st century, Canada needs to refocus and rethink about the connections between industry and government. It needs far seeing entrepreneurs, as well as, leaders in established industries to advocate a change of course as T. Boone Pickins has in the U.S., rattling an industry entrenched with and supported by the current presidential administration.

Until Canadian companies re-evaluate the roles they play in innovation and our path toward the future, unfortunately Canada will lag behind.

Predicting the Future - Interviewing Retalon's Mark Krupnik

Retalon develops and markets inventory management and forecasting tools that helps Gillette, InterTAN (Circuit City), Danier Leather and other retailers and distributors accurately predict demand. The net result is improved overall profit margins and performance. This is achieved by optimizing the price, quantity and discount levels over time.

We interviewed Retalon's co-founder and president Mark Krupnik who has earned a PhD in applied mathematics from Technion - Israel Institute of Technology. He has worked as a forecast scientist and project manager at Stirling Douglas Group, and later at NCR (Teradata) after it acquired Stirling. Retalon was founded in 2002. We managed to catch up with Mark in Toronto to find out what he had to say about innovation and how he and his technology-based company approaches the subject.

What are some of the ways you quantify success in innovation at Retalon?

We have three different indicators that would tell us about success in innovation. All three indicators need to work together.

1. We should like it ourselves. Our people need to feel like they are involved in something big and interesting. We should be excited about it. This is less quantifiable than our second indicator.

2. We have a proof of value exercise that mathematically gives higher gross margins for a retailer. Our business is in helping retailers optimize their ordering processes to manage price, quantities and discounts to their benefit. We use before and after comparisons to determine success for our customers. We do this by taking a piece of data for the past few months and comparing it to the next period. This is highly quantifiable.

3. We track the number of converts. When you bring new technology, the more people who buy in, the more people like it, the better. This is not as quantifiable.

What type of internal systems or strategies does Retalon use to foster innovation?

Our company has very strong ties with universities and consultants. We work with Ryerson, University of Toronto and the University of Waterloo. Also consultants from Lakewest, IBM, CGI, etc.

Our approach is that we try to go to a customer and seek to understand what they need. Sometimes they cannot express it clearly enough because they only understand the existing technology. Then we go through the university and consultant group, gather the research and match it with the customer needs.

We have two independent streams: the customers and the university & consultants. By staying on top of the research, we know what technical possibilities there are that can be applied to the customer needs. Likewise, we can use customer needs to give more direction to our research efforts.

Who does Retalon look to as being leaders in successful innovation?

I don't want to offend any particular company, but we divide innovation into two groups:

1. Strategic - something that is completely new and that others don't see. Examples include Apple, Google and RIM (Blackberry).

2. Tactical - technological development. They innovate methods and are kind of predictable. Examples include Adobe and Agile.

Do you have an example or two of best practices Retalon has learned from other companies?

For best practices, we like Microsoft and Google. The user interfaces give small numbers of options or features. Exactly the right stuff at the right time. We imagine the same interface as to what will be next. If you are our customer, you will find the next thing in your dynamic needs. The options and features change proactively but they represent what you would need at each stage of your work.

We have good things to say about IBM. There is something from IBM that I have on my wall that describes the five stages of innovation.

Five stages of adopting of an innovation:

1. People deny that the innovation is required.

2. People deny that the innovation is effective.

3. People deny that the innovation is important.

4. People deny that the innovation will justify the effort required to adopt it.

5. People accept and adopt the innovation, enjoy its benefits, attribute it to people other than the innovators, and deny the existence of stages 1 to 4.

(Editor's note: sometime after the interview, Mark emailed the above 5 stages quote to us.)

It is sad but reality.

What areas would Retalon like to improve?

We would like to put more structure into the innovation process. It does not need to be a contradiction. Innovation is creative, yet we need to set boundary conditions. We don't want to kill the creative process but, simultaneously, we want to put some structure into it. It is a delicate balance.

The marketing is one of the important factors to dictate where we should draw the line.

We would like to again thank Mark for taking time to share his views and Retalon's approaches to innovation.

Innovation Stigma

Reading this post, Innovation Stigma, reminds me of the IBM ads, like this one starring innovation man or this one describing the perfect space for innovation, as if there was one. They play perfectly into the mystique surrounding innovation.

People are conditioned to believe innovation requires "skunk-works" in a specially-designed room to pursue "white space opportunities." Innovation is voodoo.

While creativity and the ability to visualize is key to brainstorming and identifying new ideas, in reality, innovation can be an exacting science, especially when it comes to executing a workable idea. What many, if not most people associate with innovation is but one step in the process.

Like many projects, those dedicated to generating new products for the company, start with one or several people and grow to include a group of people. Like in most projects, the broader the range if ideas, the more likely the right one will be discovered.

And so, what marketers consider the initial stages of innovation - brainstorming and idea generation, too many people consider all of innovation. This is a clearly not the case, to which those of us in the field can attest.

Innovation, in the early stages does require creativity but, successful innovation processes are often not led by managers wearing funny glasses. More likely the process is led by managers well versed in accounting, finance, marketing and often with experience in sales.

Knowing up front the challenges in implementing and selling a new product CAN result in the quashing of good ideas, but those good at innovation know better than to do so. Innovators have the ability to allow a long list of ideas to see the light of day and evaluate each one, over a period of time, outside the room filled with Frisbees and Slinky toys. More often or not, the evaluation process takes place in front of a computer or in a room filled with engineers and finance types.

Unfortunately, the former vision of innovators as "altruistic dreamers" is perpetuated by of all people, the innovators themselves. This is, of course, self defeating and leads more self styled, buttoned up types to be leery of innovators.

One executive described innovation champions as necessary but had low expectations of actual results. Of more concern is the perception executives have about themselves in this role. My sense is business people shy away from championing innovation because they believe the stigma of failing at innovation is more career-damaging than failing at other ventures.

As Drew Boyd concludes in his article, innovators need to drop the mystique and pull aside the curtain. More respect needs to be paid to classic innovators and classic innovation techniques - hard science and solid research.

Corporate leaders need to understand and be involved in the innovation process. Without innovators at the helm of a company, a corporation can easily lose its way and move away from its core competencies and true mission.

Those capable of leading effective innovation programs, the rare mix of analytical and creative skills can be difficult to find, but those who should be involved in the process and champion are and should be legion.

Following Mobile Web Trends Toward Profits

Word of the world of opportunity in the mobile web has been around since the early part of this century. Though still in it nascent stage, a few applications are starting to stand out as areas ripe for innovators as detailed in this post Five trends driving the mobile web or as the authors, Matthaus Krzykowski and Matt Marshall put it:

...those areas most ripe for pillaging by start-ups

As one who spends a fair amount of time thinking, reading and writing about innovation, the mobile web is an area I keep an eye on. Why? Because it is so early in the growth stage. It's always interesting to watch as a whole new technology takes over. Will it follow the same trajectory of those that came before or will it morph and branch off in another direction?

The authors of this article discuss the various stages of market adoption in the technology arena:

Incubation

Early Traction

Acceptance

Adoption

Mapping the various companies and technologies involved in the mobile web right now they come to a not too surprising conclusion. An opportunity exists for well organized, well funded startups with well thought out and well executed, innovative products

You'll see the action tends to happen in sectors that are somewhere between their "early adoption" and "adoption" phases

Reading their fairly technical discussion of mobile phone trends, I don"t always agree with their assessment of where various technologies lie in the market adoption process, but it's interesting to note which applications they have identified as at a tipping point.

The Five Trends

1. Mobile Advertising

2. Mobile Social Networks

3. Mobile Internet Interface- Search

4. Mobile Mapping And Navigation - Mobile maps

5. Mobile Mapping And Navigation - Location based

As you can see, the 5 trends include some that have had entrepreneurs and large companies salivating since the introduction of the mobile web, while others are newer entries. Mobile advertising, early to be considered but slow to gain traction, may need innovative new delivery systems or more likely ways to get around the "hassle" factor to really take off. Others, like mobile navigation seem a given, as evidenced by the explosive growth in sales of GPS devices.

So, does this mean that innovators in the mobile field should focus on developing applications in those segments deemed to be hottest and most ripe for exploitation? Well no. Perhaps, and it seems likely given the attention given to the study on which this analysis was based, that venture capitalists and angel investors will be looking for companies operating in those spaces.

However, as we've seen as Web 1.0 had morphed into Web 2.0, the biggest opportunities are often not visible until the technology AND the marketplace matures. Who would have guessed that social media would play such a big role with users of the web 10 years ago?

My advice to innovators is to continue investing time into your ideas, whatever they may be. Ensure that your technology works well and smoothly. Make sure it meets current consumer needs and don't be surprised if user input turns your idea in a whole new direction. Just ask the founders of Ebay ( a market for exchanging Pez dispensers) or Youtube (a place to store videos) or even Yahoo, originally just a directory for friends.

Consumers Choose "New" - It's More Than Just a Word

Last week I wrote about how sometimes it pays to be second to the market with a new idea. Those of us involved in innovation try to look at all angles.

But what is it about developing new products that makes it worthwhile? Why do companies large and small put massive efforts into creating new products? The answer is that new products make money. Sure, the vast majority of new products fail, but those that make it, often make it big, bringing millions of dollars of profit to successful innovators.

A recent post, The Power of New, at Marketing And Strategy Innovation Blog delves a little deeper into the why of new products. Why do consumers like new products? Why do we keep changing the products we buy? Of course, technological advancement drives new product efforts in techie fields, but why do we feel the need to keep changing cereals?

Because it gets us high; that's why! Choosing something new releases dopamine, the same pleasurable sensation associated with a "runners high".

The UK Telegraph, reports that:

Scientists in London have found that we all possess the key brain region which acts on the same pleasure pathways that make drugs addictive. They discovered that people are programmed to try out something new, such as a familiar product in an unfamiliar package or one that boasts a new formula.

Consumers are drawn to the word "new, as well as a change in packaging or product design that convinces the brain that it is looking at an unknown.

"Seeking new and unfamiliar experiences is a fundamental behavioral tendency in humans and animals," says Dr Wittmann. "It makes sense to try new options as they may prove advantageous in the long run. For example, a monkey who chooses to deviate from its diet of bananas, even if this involves moving to an unfamiliar part of the forest and eating a new type of food, may find its diet enriched and more nutritious."

The neuromarketing message, then, seems simple - making a product "new" in some way may give it a boost when compared with competing products.

As professionals involved in innovation, keeping in mind the power of "new" certainly makes sense. However, we do not believe this necessarily should impel companies to step up their new product efforts or slap "new and improved" on existing products that boast incremental changes. Yes, consumers are preprogrammed to seek out the new, but mindless product development and poor execution can still hamstring the most well financed new product effort.

Innovation or Imitation - Sometimes The Answer Might Surprise You

Much as we laud true innovation, in the real world, the word, "new product" often means "line extension" rather than "new to the world". The reasons are obvious.

"It is estimated that there were over 50,000 new products introduced into the consumer products sector last year, up 77% from 10 years ago. Since the typical store has only 40,000 SKU's, it can be pretty difficult for a consumer products company to succeed today!"

The cost of true innovation can be staggering and the risks inherent in following that path can tip the balance toward business as usual. This is one reason often truly new ideas seem to percolate up from the ranks of entrepreneurs with little to lose and large industries with extensive regulatory protection (i.e. drug companies, etc.)

But, an alternative approach, as discussed in this post, Am I Better Off Being An 'Imitvator' Than An 'Innovaor' ? is to be a speedy second.

"Speed doesn't necessarily mean being first, you can be choose to be a strategic fast follower and there are plenty of advantages to that."

The first mover advantage is often exaggerated or blatantly wrong. In many cases the company that seems to have been first to market actually has followed in the footsteps of innovators with strong product ideas, but inadequate execution.

Since good innovation is often an iterative process, this makes sense. Despite extensive exploration into consumer buying behavior and eliciting of consumer opinions, it is good to remember that... research can be wrong. The history of marketing is littered with research failures, the most famous perhaps being New Coke.

The advantage in being second is in the opportunity to improve. Often the errors made in the product development process are not clear until after the initial launch, when it becomes glaringly obvious that a feature was left out or usability is less than desired.

Similarly errors in marketing execution become obvious only after launch. A great product supported with a lousy marketing plan is doomed to failure. While the first mover struggles to correct those errors a nimble second to the market can move into first place with a sharp and rapid launch.

Peak Products, a local Richmond, British Columbia company that was a fast follower providing low cost, but high quality - product and package design - copies to big box retailers, is a good example. Coming second to the market, but improving upon design and supporting the launch with a strategic sales and marketing plan, Peak Products has now been able to position themselves as an innovator. It has become part of their core business.

A key component of innovation is the ability to think outside of the box. Sometimes that means looking beyond pure innovation and toward improvement. While "me too" products and line extensions abound, finding success by being second requires looking beyond the obvious to what might have been.

In our innovation sessions we pay particular attention to competitive products, possible products and newly launched products. Often a pipeline product has already been introduced by a competitor. That isn't necessarily a deterrent. Rather it could be an opportunity.