The Importance of the Formulation Phase in Innovation

I just gave a webinar jointly with Rich Duncombe of HP on “Fire Up Your Cross-Company Breakthrough Innovation“. During the audience polling questions, I was struck by how low people set their sights. They take potentially great ideas and make them small, worth only a few million. And then they ask questions like “How to I get executive support?” Making an innovation worth pursuing requires real attention to Formulation, which is often overlooked and needs significant improvement in about 75% of companies.

In giving his Top Ten lessons on how to be successful in Breakthrough Innovation, Rich concluded with one of his major insights: “The more outrageous the vision, the more resilient the program.” In his experience with about 40 major innovation projects, he concluded that people want to take small, safe steps and that this instinct is exactly wrong. Innovation is hard, and fraught with obstacles where the only way forward is for people to pull together and accomplish the unreasonable. It is precisely the motivating power of the outrageous vision that causes people to rally and make things work.

On a poll result during the webinar, largely attended by representatives of large public companies with important growth goals from innovation, about 60% of the respondents said that their innovation could produce $5M or $10M in new revenue (40% answered $50M to $1B). It is hardly worth the effort!

But I don’t think these people are wasting their time, but rather, have missed an important step in the innovation process: Formulation. Most companies think innovation starts with some kind of ideation process, and then a team runs with it. But most projects start as business idea fragment or key insight, not fully Formulated business options. As discussed in the webinar, there is a significant effort that goes into Formulating (and Reformulating) an opportunity, shaping it into something really worth doing.

For example, one company I worked with had the idea that motor oil could be packaged in cardboard boxes. They had a committed innovator with unique insight into the market and the problem working on it. He had a great vision: to change the value chain for how motor oil is distributed through new packaging, as his company had done in other industries. There are many benefits such as greener packaging, better storage and lower cost. The innovator skipped the Formulation step and jumped right into to developing the product with a lead customer, a major motor oil brand. Against all odds, the product worked and delivered the benefits. Yet because of the way the project was run, the company was blindsided when the lead customer took the key patent and then decided to sit on the innovation because it competed with their traditional product line.

This is a failure of Formulation: the innovator just assumed that if they could make it work for a lead customer they would make a major dent on the world. He had never even considered important questions like how many lead customers he would need, who really wanted the product (is it the oil producer or the retail store or the shop or …), how it the product would be best sold, etc. Further he had never considered the major contingencies and proof points between his idea and changing the world. Certainly, getting a lead customer is one of them, but not the only one.

This is not an isolated instance. In another poll question, people were asked which step in the innovation process they most needed to improve. About 75% mentioned the Formulate phase as most needing improvement! Overlooking the Formulation phase is a systematic issue. And its absence results in a sort of trap of mediocrity, where ideas stay in one’s immediate comfort zone and are never expanded to be the truly great opportunity they really present.

As the webinar illustrates, HP’s idea started small, as a high precision sensing device. Through a series of Formulations and Reformulations, they joined with Shell and expanded the idea to seismic sensing for oil fields, a billion dollar idea.

You can do the same.