CEO Adviser: Hedged Innovation

We all want to increase our revenues and profits by bringing new ideas to the table. But the risk of hurting our business is substantial. So how do we establish both ends?

A solution I encourage is to isolate a small team to vet new ideas. While companies often attempt this by establishing research teams, committees or subcommittees, here are the advantages gained with the isolation of a team:

An entirely different structure, command and set of ideas.

A new set of rules to discourage outside interruptions.

A specific purpose.

Focus on delivering, not polishing.

Focus on small improvements, not rapid ones.

Many Seattle-based companies already do this, including Nordstrom, Ritani and Wetpaint. They took a simple idea and split it off to try it out before bringing it back to the bigger organization. This approach has proven effective at overcoming the risk associated with innovation within an established business.

Nordstrom faced the issue of trying out new ideas while still keeping intact the brand it had worked so hard to achieve. It created the Nordstrom Innovation Lab.

The Innovation Lab operates on one-week assignments, aiming to deliver viable products. While it expects 80 percent of its experiments to fail, the 20 percent that succeed are expected to have a huge impact. One such idea was changing how customers buy sunglasses. In a weeks time, the Innovation Lab interacted with customers at Nordtrsoms flagship store in Seattle and delivered a prototype iPad app that let buyers see how they look in a variety of sunglasses.

Lab ideas are not purely technological; it has also experimented with process improvements to the company, all while functioning as a separate entity. Being separate has given it the latitude to bring valuable improvements to Nordstrom while minimizing the initial risk. It has been able to try ideas while not affecting the bigger organization.

Ritani is a recent transplant to Seattle. Established in 1999 in New York City, it has seen success in the wholesale jewelry business. It was itching to get into the online retail space, so in the course of six months Ritani built a team of technology rock stars from successful startups like Blue Nile and Bonanza, and launched its new website in Seattle. In the meantime, headquarters in New York continued its wholesale business. The e-commerce section of Ritani will most likely stay in Seattle for the foreseeable future, focused on iteration and development of new ways for consumers to buy jewelry. If the new team werent separate, it wouldnt have been able to deliver as quickly. Since it was able to stay separate and focused on the goal, it was able to completely revamp Ritanis business.

Wetpaint started out in 2004 doing wiki sites, which encourage users to contribute, and even change, online content. However, it ran into problems monetizing ad sales because most of its content was user generated. Wetpaint determined that the most lucrative ad segment consisted of females between 18 and 34, and it spun off an entity called Project Adler to test traction with that group in the online entertainment news space. In 2009, Project Adler launched two sites focused on prime-time TV shows appealing to this preferred demographic. (Think programming like Gossip Girl and The Bachelor.) It soon found out that its hypothesis was correct, and the experiment helped create the crux of Wetpaints business today: a distribution system for entertainment news, fashion buzz and celebrity gossip.

It was able to build upon this model over time until it shifted even more into the social media space, delivering optimized content through a distribution platform geared to acquiring audiences that advertisers covet. Thanks to its innovative social-media technology, Wetpaint last year secured a licensing partnership with Germanys Hubert Burda Media, making it both a media company and a technology innovator.

These three businesses have shown its possible to reinvent your company by testing hypotheses in discrete entities. Think about vetting ideas through a separate team. Just remember to shield that group from the rest of your organization, give it a specified purpose, deliver early and deliver often.

MATTHEW KIRK is cofounder of and partner in Modulus 7, a Seattle consulting firm that enacts organizational change through software, business intelligence and human capital development. Reach him at [email protected] or 206.659.8072.