Showing posts with label innovation. Show all posts

It's time we stopped idolising failure in innovation

Failure, it seems, is in vogue.

We're told to "fail forward fast", "celebrate failure", give our teams "permission to fail", etc.

But have we gone too far? Have we inadvertently started idolising failure?

It is true that failure is inevitable in innovation. Just as risk is inevitable in earning investment returns.

But we should not lose sight of the fact that our ultimate objective is success rather than failure; returns rather than risk. Failure and risk are means to an end, not ends in themselves.

I recently heard of an organisation who set a KPI target that "at least 90% of innovations must fail". I think I know what they were trying to achieve. They wanted their staff to be bolder. Less incremental. And that would mean tolerating higher levels of failure.

But to actually encourage - mandate even - more failure is perverse. The obvious unintended consequence is that staff will be encouraged to sabotage perfectly good innovations!

Catchy phrases lauding failure had a purpose. That purpose was to break the mindset that failure was unacceptable. To reintroduce failure as an acceptable cost of innovation. But now I fear they have taken on a life of their own. And it is not good for business. Or for innovation.

To quote Frederic Etiemble, "a good idea doesn't have to become a dogma". (Source)

The original intent of those catchy phrases was to enable learning by doing. Its time we focused our attention back on that original purpose.

Innovation does not require failure. Innovation requires you to run experiments. Experiments don't succeed or fail. They produce results from which you can learn.

What we really want, is a more scientific approach to innovation.

In science, experiments don't fail. They either prove or disprove an hypothesis. Or they're inconclusive. Either way, we learn something.

Scientists don't just throw random chemicals into test tubes and hope something interesting happens. Research programmes are carefully planned and structured.

So how should we go about innovating in a more scientific way?

Be very clear on your goals.
Break those goals down into the smallest testable experiments.
Start with the experiments where the greatest uncertainty exists with the greatest impact first.
For each experiment set a clear hypothesis. Know (1) what data you're going to collect and (2) how you're going to collect it to confirm or disconfirm the hypothesis before you start.
Make sure you have a control group. You need to know if the hypothesis was confirmed or disconfirmed because of the experiment and not because of some other factor.
Experiments are not commitments. Make sure you can stop the experiment any time you want.

Words matter. Our focus on failure will lead to failure. Let's change the language. Let's focus on success. Let's focus on learning. Let's focus on a scientific approach to innovation.

We need to move the narrative from:

"we tried a, b and c and failed - awesome job everyone!"
to
"we tried a, b, and c, and learned x, y and z - awesome job everyone!"

The successful innovators already get this. It is the unsuccessful ones, the not-yet-successful ones, who will be misled by lazy, populist slogans.

See also:

Addendum

(June 2023)

In her book, "The Right Kind of Wrong", Amy Edmondson distinguishes between three kinds of failures:

The potentially intelligent ones. Those teach us things in the midst of genuine uncertainty, when you can’t know the answer before you experiment.
The basic ones, that we wish we never experienced and which would be great to get a ‘do over’ on.
The preventable complex systems failure. Those where we ought reasonably to have know it could go wrong and could have prevented it.

In her post on the subject, Rita McGrath puts the loss of the Titan in this third category.

I would add the collapse of FTX to this category. In fact, listening to videos of Stockton Rush of Oceangate talking about risk was very much like listening to Caroline Ellison of Almeda research talking about risk.

5 remedies for your innovation woes

Innovate or die!

These days everyone is either innovating or desperately wishing they were.

Don't get me wrong - innovation is a good thing.

As customers' expectations evolve at an increasingly alarming pace, organisations that fail to innovate quickly get left behind.

Yet, most of the organisations I speak to don't feel they're innovating particularly well.

So, here are my 4 tips for better innovation:

1. Work from the outside in, not from the inside out

Start by describing an ideal world as experienced by the customer. Describe what they do, why they do it, and how they feel about it. If possible, talk a few customers through this and see if their eyes light up or if they start to drift off.

Avoid the temptation to start by describing how you could improve your existing products, services and processes, or how you could leverage some exciting new idea.

This helps to ensure that all of your innovations serve a genuine customer need. Only then should you consider whether you have, or could gain access to the technologies and capabilities required to deliver it.

2. Don't try and boil the ocean

Once you have a clear picture of what you want to do, don't try and do it all in one go.

Instead, break it into the smallest chunks that you can that will still deliver some value to the customer.

This delivers customer value sooner, and with less risk and less cost. They also allow you to learn what is and isn't working, and to adjust your approach accordingly as you go.

"Big changes fuel executive egos and line suppliers' pockets. Small changes deliver measurable results." (Tweet this)

Note that these small chunks are not the proverbial quick wins or low hanging fruit. Because you've started from the outside in and broken your propositions down, they are integral components of your strategic transformation programme.

3. Measure twice, cut once

Determine measurable hypotheses and build your measurement systems into the solution right up front.

Test your hypotheses on a scientific basis - that is with control groups. If you don't have control groups, you will never have any way of knowing whether your innovation caused the observed improvement, or whether it was caused by some other factor.

Don't try to collect data after the fact. It is too tempting for people to try and collect data which proves the hypothesis.

Don't try to collect data manually. People get lazy and start to cut corners. People want to move on to the next idea, and you want them to be free to. Instead, build the measurement into the solution, so that the measurement data is generated as a by-product of the process.

Make sure your hypotheses, and the measurements you use to test them, are linked to your strategic goals. If they are not, then why are you doing them?

See also:

4. Make sure you build a reverse gear

If your hypothesis fails - the innovation does not produce a measurable improvement, or worse still, produces a measurable decrease - then you need to be ready to reverse it out.

All too often, it is technically too difficult for organisations to reverse failed innovations out. Other times, they just don't want to because they are too emotionally invested in them. Generally, it takes a little more effort to build innovations which you can easily reverse out. But it is worth it, in the long run, to keep your innovation process honest.

Lots of pundits talk about the need to embrace failure. You can only do so if you can reverse it out and learn from it before trying again.

"Don't give your teams permission to fail. Give them the tools they need to learn." (Tweet this)

5. Look relentlessly outside of your business for new ideas

New ideas come from surprising places. Look outside of your business. Look outside of your industry.

Your customers are not comparing you just to your competitors, but to everyone who can solve their problem or meet their need.

Be curious - constantly. Talk to people you wouldn't normally talk to. Talk to people you fundamentally disagree with. Keep learning, all the time, in everything you do.

See also:

7 steps to master competitor analysis for business strategy

photo credit: wuestenigel Socket on the wall via photopin (license)

The digital spiral towards innovation at the core

The nature of what the digital revolution means is evolving as organisations adopt digital in more mature and fundamental ways and as AI becomes an increasing factor in organisation's digital strategies.

Digital started at the edge of the organisation, where the organisation touches its customers and has evolved ever deeper into the organisation to where it now enables completely new ways of creating and delivering value.

This evolution is a continuum of change. But, I find it helpful to divide it into four distinct phases.

1. E-commerce

The first phase allowed businesses to market and sell their (existing) products and services to more customers more easily over digital channels. It started with marketing. Using informational websites, email and social media to reach customers. It gradually grew to include selling and eventually servicing.

This first wave of e-commerce is often referred to as Web 1.0. A myriad of startups flooded the market selling everything from books to pet food, whilst established pre-e-commerce business struggled to keep up. The inevitable bust which followed the boom left a much smaller number of massive winners (think Amazon.com), a much larger number of failures (think Pets.com). Almost no businesses exist today without a website.

E-commerce had more fundamental impacts on business strategy, though. Most importantly, it exposed how a lack of integration within the organisation and its system made it difficult if not impossible to deliver coherent DIY and self-service solutions to the end customers. From this, the concept of customer-centricity was born. (Although this term has now taken on a life of its own and been widely misappropriated.)

2. Supply chain automation

Whilst the focus of this first phase of e-commerce was on end consumers, the second phase tackled the B2B relationship between corporate buyers and their suppliers. B2B e-commerce sites quickly evolved to provide more direct integration between buyer and supplier systems. Standards, such as XML, evolved to facilitate this, and more recently we've seen a drive towards API-first business models.

Supply chain automation makes existing exchanges of information more efficient. It also increases the flow of information. For example, RFID allows retailers, distributors and manufacturers to track stock levels and movement, automating stock management and better integrating with robotics.

Not only did this improve efficiencies, with smaller orders and faster delivery cycles, but it also allowed previously monolithic organisations to disaggregate into networks of smaller interdependent and more specialised suppliers.

In 2017 McKinsey & Co estimated that whilst 49% of companies invest in E-commerce, only 2% of companies invest in digitalising their supply chain. A more recent 2023 study by PWC, found that 83% of executives said their supply chain technology investments haven't fully delivered expected results and that few said their companies are using or panning to use technology to enhance the execution of their supply chain over the next 24 months. A 2024 study by KPMG, in contrast, found that 50% of supply chain organisations will invest in application that support AI and advanced analytics, and that 2/3rds have already adopted low-code int their supply chains.

3. Workforce automation

With both the customer and supplier ends of the value chain being digitised it was inevitable that digitisation would begin to encroach on the work done by employees in between.

Although we've had expert systems for many years, it is the development of digital customer and supplier interfaces which generate the data required to move them towards true artificial intelligence. For an explanation of this effect, see More data usually beats better algorithms.

The now general release of Generative AI has significantly accelerated this trend.

Information-based jobs will inevitably be hardest hit first. Think of insurance underwriters and claims managers, fund managers, accountants, etc. But inevitably most jobs with any element of repetition will be impacted. Taxi drivers are at risk from autonomous vehicles, for example, and there is already talk of robots performing some surgeries more accurately than skilled surgeons. There is already evidence that banks are hiring fewer people with finance backgrounds to do the work, and more people with technology skills to automate it.

I prefer to think of workforce automation in terms of augmentation, rather than replacement of people. The industrial revolution provides a well-established narrative of technology replacing labour and yet somehow creating new and different jobs in the process. Most of us are grateful that we don't have to do the heavy labour now replaced by machines. And future generations will be grateful not to have to do some of the repetitive and uncreative jobs many people do today. (The emerging millennial workforce is already rejecting much of this kind of work.)

Ultimately, however, we should expect that computers and machines will eventually become better than humans at all tasks.

It strikes me as anachronistic that organisations are slow to adapt and to provide their employees with the same level of tools to use in their jobs as other companies provide them to use as their customers. Ultimately, this flows through into the customer experience when call centre operators are unable to provide quick and definitive solutions, leaving you with the impression they are still switching between multiple disconnected systems to get answers and process requests.

4. Digitisation

The resulting end-to-end digitisation of the value chain opens up possibilities. Not just for delivering existing products and services more effectively. But also for creating entirely new products and services.

Again, this started with information-based products. Think of the development of subscription-based streaming media services, compared to purchased physical media or broadcast services. But it is now moving increasingly into physical products as well.

This is enabled by the Internet of Things (IoT): a network of sometimes semi-autonomous things able to sense elements of the real world and communicate with each other and controlling systems. Already we have devices fitted in cars which can collect data about the performance of the car and can communicate this to service technicians and insurance companies. We also have activity trackers. These measure things like sleep, activity levels and heart rate on a continuous basis. They upload this data to servers for more detailed analysis.

Of course, it is still hard to imagine where this could go. Imagine that your calendar/organiser is able to determine where you are now, where you need to get to for your next meeting, and can arrange for an autonomous vehicle to take you there, all without you needing to do anything.

Note only does digitisation replace or enhance physical products, and create completely new entirely digital products, it also often develops whole new ecosystems of digitally connected organisations, people and devices which collaborate together in previously unimaginable ways.

In 2017 McKinsey and Co research suggested that 70% of companies approach digitisation without changing their overall strategy, but that the 30% that do, generate 3 times the profit. More recently, in 2021, an Infosys MIT Technology Review survey of more than 250 business leaders and senior executives revealed that more than half of the enterprises realised new business models because of participating in the data economy. (Source)

When I look at offices and factories full of people hunched over keyboards, screens and other equipment, I always get the sense that somehow it is the people working to satisfy the requirements of the machines. I read today a prediction that in 10 years time, most interfaces will not have a screen. I believe that is because the machines will talk to us, as we now talk to each other, and talk to each other silently using some form of wireless protocol. In a fully digitised world with a fully developed IoT, you can imagine that finally, it will be the machines who serve the people, fading into the background as they do.

Lessons

I think there are two key lessons from understanding this evolution of digital strategy:

Organisations who remain focused on e-commerce alone will eventually be outcompeted by those that embrace all four stages of digitisation. All organisations must now look at all four phases of digital in parallel in order to remain competitive.
Organisations where a high proportion of the total labour cost is direct (that is directly proportionate to the volume of products and services provided to customers) rather than indirect (that is devoted to researching and developing new and improved propositions) will fall behind. Employees should be firmly focused on creating new sources of value, and not delivering existing sources of value.

MoneyVista recognized at the MoneyFacts Awards 2012

One of my clients, MoneyVista, was recently highly commended in the innovation category at the MoneyFacts Awards 2012, coming in just behind the winner, Governor Money. I am very proud to be associated with this success.

Here is a picture of Martin Peterlechner (Marketing Director) on the left, and Karen Savva (Head of Customer Services) collecting the award.

Your brain could be your password

One of the obstacles to online engagement is the number of passwords your customers have to remember.

Using popular sites such as Facebook or Google to provide authentication services is one way to avoid forcing your users to create yet another login and password. However, science is looking for even better solutions: this video from Mashable describes a number of alternatives, the most notable being the use of the unique patterns of brain waves each of us has.

This has obvious advantages over fingerprint and retina scanning, as I am sure we've all seen films where the villains remove someone's finger or eyeball to gain access!

Innovation: It's just like riding a bike

We can all ride a bike, right? After all, people have been doing it for generations.

In the extraordinary video, Danny MacAskill proves that you can innovate in even the most un-extraordinary activities.

Consider it as Parkour on a bicycle!.

5 templates for innovation

How does innovation happen?

Is it a spark of magical genius that some people have, some people occasionally have and others never seem to have?

Is it a natural consequence of really listening to and understanding your customers' needs (perhaps sharing them yourself)? (But you can't always rely on your customers to even know what they want, much less provide you with innovative ideas. Customer's ideas tend to lead to small changes to products and services which often fail to have significant impacts on the market.)

Is it a function of simply trying as many things as you can and hoping that some of them stick? (Most businesses cannot afford the 20% of their time that Google allows its employees to experiment with new ideas.)

Or is it just luck?

A study of innovation reveals that it tends to conform to several patterns. By studying and understanding these patterns, it may be possible to deliver innovation on a more consistent and predictable basis and to harness the creative capabilities of employees, suppliers, distributors, partners and customers.

1. Subtraction or Reduction:

Removing one or more elements from the product or process. The natural tendency is to want to increase the features of a product or service. However, this can lead to feature bloat, a product which is confusing to the end consumer and spiralling costs. The element removed may be:

undesirable, such as the alcohol in beer or the caffeine in coffee, or
revolutionary, such as the speakers in a Sony Walkman, or
replaced by something already in the environment, such as removing the legs from a baby's chair and clipping it directly to the table, or
simply result in a more affordable product, such as the removal of travel agents, tickets, free food and drink, seat reservations and customer care from Ryanair.

2. Multiplication

Adding one or more copies of an element or attribute of the product or service. For example,

adding additional blades and changing the angle of the blades in the Gilette razor, or
adding an additional tray to a CD player to produce an automated CD changer.

3. Division

Divide the product or process into one or more separately usable, often modular, components. This is common with electronic goods. For example,

the separation of turntables, speakers and amplifiers into separate components. This modularisation of home entertainment units has meant that new devices, such as MP3 players are more easily integrated into existing equipment.

4. Task Unification

Assigning new tasks to existing elements of a product, often combining the function of one element into another. For example,

getting the defrosting wires in a windshield to act as the radio antenna, or
using an iPhone to control other household devices.

5. Attribution Dependency Change

Creating or removing dependencies between the product/process and its environment. For example,

splitting unisex razors into masculine and feminine razors.

Taking an existing product or service and applying the above patterns systematically will undoubtedly lead to many spurious ideas, but may also yield valuable innovations. Sometimes, it may take even more imagination to conceive of uses for the result - it may not have been immediately obvious that a handheld, speaker-less non-recording tape player would find a market with walkers and joggers in the form of the Sony Walkman. But because these innovations flow from the product itself, they are likely to be aligned with the firms' existing skills, production capabilities and client bases. Thus the process of idea generation and execution are more likely to align.

Resources:

Incentivisation may harm performance

Picture of cash roll wound up in a tape measure

In this fascinating (RSA animated) talk, Daniel Pink reminds that management is not a natural phenomenon. It was invented in the 20th century. So, it may not be the right solution for the future.

He further points out that business does not do what science knows. For example:

contingent ("if-then") rewards often destroy productivity, particularly in work where creativity is required
management is great if you want compliance, but not if you want engagement
intrinsic self-motivation often produces better results in complex and creative environments. It relies on

autonomy
mastery, and
purpose

Separately, research conducted by psychologists Edward Deci and Richard Ryan in the 1970s found that when individuals are intrinsically motivated to engage in an activity, such as a hobby or a creative task, introducing external rewards, such as money, can undermine their intrinsic motivation.

This is often referred to as the "overjustification effect" or the "crowding-out effect."

Theories posited for this effect include:

extrinsic rewards shift the focus away from intrinsic motivations
extrinsic reward, create an external locus of control, reducing that sense of autonomy

When considering this subject, it is useful to look at pursuits into which people do pour their time, energy and money. Sports are the obvious choice that springs to mind. People engage with sports, as players or spectators, even more passionately than they engage with arts and culture. And certainly more than most people engage with their work.

I think that one of the reasons for this is that the language of winning is much more straightforward. In sports, everyone knows who the competitors are. Everyone knows exactly what they need to do to score points. The causality between actions and scoring is clear. And everyone knows who is winning and losing at any point in time.

In business, this is less obvious. Companies keep score using arcane accounting conventions. Few employees understand these. Where there is a clear focus on the competition, relative performance is often less than clear. Could we make work more engaging by making it more like sports - effectively by gamifying work?

Resources:

The performance paradox

See also:

Stop Incentivizing “Productivity Theater” at Work - The Decision Lab

Updated 28 February 2023.

photo credit: wuestenigel Euro banknote with measure tape on white background via photopin (license)

Management shortcomings hinder innovation

According to a recent report by Accenture, "Innovation is a top priority for companies seeking to grow in (the) aftermath of the economic downturn, but flaws in managing innovation may hinder their progress”.

The cited 5 flaws in the corporate management of innovation, namely:

failure to learn from mistakes
widespread risk aversion
insufficient collaboration
too much emphasis on making incremental improvements, and
inability to leverage new technology (33% of respondents).

According Accenture's research:

89% of respondents said that innovation is as important, if not more important, than cost reduction to their company’s ability to achieve future growth.
50% of respondents in the U.S. and the U.K. reported that their most successful innovation has been development of a new product or service.
Yet, 74% of the respondents said their companies pursue incremental improvements, such as line extensions, and 66% said their organizations have made short-term financial results a priority over long-term investments.
73% of U.S. respondents and 30% of U.K. respondents said their organizations failed to learn from their mistakes.

The reasons given for the failure of new product or service launches included:

57%: inability to meet customer needs
54%: being late to market
52%: incorrect pricing
50%: the lack of a new or unique customer-perceived value proposition
43%: supply chain issues, and
43%: incorrect forecasting.

Source: Vanguard

Natural History - Inside Out

Museums, like everyone else, must struggle to remain relevant in the face of rapidly changing consumer preferences. The new Darwin Centre at the Natural History Museum in London does an examplary job by turning the museum inside out. The new exhibit focuses, not on the animals, minerals and vegetables that are the focus of all of its other exhibits, but on the work that the scientists do behind the scenes. The centre contains exhibits describing the scientists' work, but more significantly, windows into working scientific laboratories where you can watch the scientists at work and even interact with them.

I was there today with my parents and my three year old daughter. Imagine her delight when she spoke to the scientist behind the glass window and he answered her in an engaging and enthusiastic manner. Most of what he said would have been lost on her young mind (but not to the rest of the party), but I am sure that this real life and personal exhibit will have made a greater impression on her than all of the other interactive exhibits put together.

As businesses struggle to adapt to an environment where customers are increasingly disinclined to be treated as faceless members of categorised target markets, they could do worse than to study the way in which the Natural History Museum has turned itself inside out and exposed its inner workings to the public.

Oh, and thanks to all involved for a thoroughly informative and enjoyable day out.

The Bambinoccino

The Bambinoccino must be one of the best marketing concepts I've seen in a long time.

For those of you who don't know what a Bambinoccino is, it is essentially an espresso cup filled with cappuccino froth with a sprinkle of chocolate powder. Or, put another way, a cappuccino without any coffee. It's mostly air.

It is sold by Pizza Express as part of its kid's menu.*

Strategic insights

The success of the Bambinoccino rests on a few strategic insights:

Product margins: I heard somewhere that coffee is one of the highest margin sales for restaurants because it is relatively cheap to make and serve. So you really want customers to buy one at the end of their meal.
Target demographic: One of Pizza Express's core demographics is families with small children. Now, most often, when eating out with small children, after dinner coffees are sacrificed in order to make a quick getaway before the children, having finished their food, start to get bored. So the high-margin coffee sale is lost unless you can find something else to keep the children happy. But, when the Bambinoccino arrives at the end of your kids' meal, you may as well have a coffee yourself while you wait.
Buyer values: There is nothing that small children enjoy more than pretending to be older. So enjoying a Bambinoccino at the end of their meal "just like mummy and daddy do" is a source of great pleasure. (The fact that theirs is missing the actual coffee is not an important detail.) And happy children make for happy parents. A free Bambinoccino keeps the children happy whilst their parents enjoy the high margin coffee - and would could be better for a small child than drinking an after dinner "coffee", just like their parents do!?
Branding: They could have just called it "frothed milk". But that would have seemed 'odd'. Perhaps even a bit of a rip-off. Giving it a cute name helps maintain the illusion for the kids (it sounds like what the parents are drinking**) and is more likely to get the parents talking about it. Same product - different name makes all the difference.

Lessons for business strategists

The small things matter. Strategy isn't just about the high-profile things. Of course, Pizza Express should be worrying about supply chain management, purchasing, staffing and training, restaurant locations, etc. And I am very sure that they are. The Bambinoccino is one of the those simple and cheap ideas which helps to maintain the integrity of the customer experience, and keeps people coming back. It requires no extra raw materials and no new equipment. They already have those for making cappuccinos. It is a (nearly free) by-product, put to good effect.
Insights don't need to be complex or profound. None of the insights listed above are. It's more often the combination of insights than the individual insights themselves that make the difference.
You can find a lesson about business strategy just about anywhere. Even in a cup of coffee at the end of a meal with your kids at Pizza Express. So keep your eyes peeled at all times and keep learning!

* Since writing this post, I believe a number of other chains have started to offer similar products.

** I've seen other brands call their product a babyccino. I am less convinced by that. How many small children want to be told that they are babies?

Addendum 2023

Apparently some coffee shops (e.g. Starbucks) are now selling puppuccinos - frothed milk or whipped cream for your dog!

Innovation in Personal Financial Management: Culture or just numbers

I was recently bemoaning how far behind the USA the UK lags in personal financial management ("PFM") web-sites (see for example @mikelinskey's write up of Finnovate Start-up 2009, as well as in search of perfect PFM at Finovate).

Why is that Americans are so much more innovative? Is it a cultural issue? Surely that must be a factor - after all, America was seeded with those Europeans who had the gumption to up sticks and move there in the first place.

However it also strikes me that the USA is simply a much larger market (United Kingdom: Pop 61m, United States: Pop 306m).

So any mass retail online product such as PFM in the USA has an 5 times larger target market than the same in the UK - a 5 times larger prize to play for. And financial services are a product that does not travel well, so your target market is stypically fairly limited to your national market. Its not just the currency (although all those $ signs are usually the first clue that a product is used-based, as the US-based web-sites are surprisingly silent about the fact that they are US-targeted), the tax and product rules are also very country specific.

Where does that leave UK competitors? Clearly the economics are, at least in this respect, less favourable towards innovation.

One solution is simply to copy and adapt solutions from the US. The UK certianly has a track record of doing that.

On a policy level, it also demonstrates the value in belonging to a larger currency, tax and product regulatory unit. The EU seems ready made for that purpose, certainly on the currency front, although there is a long way to go yet on the tax and regulatory front.

Why banning Facebook could be bad for business

Many organisations still insist on banning access to Facebook at the office. Here's why that makes no sense:

The reason companies give is usually that Facbook is a potential timewaster. However, banning Facbook won't stop bored employees from wasting time. I've worked in an organisation that banned Facebook even as its staff read "Hello" magazine at their desks. The onlyway to stop saff wasting time is to give them interesting work that keeps them engaged and motivated. The fact is, it's easier to ban Facebook than it is to stop staff reading "Hello" magazine or to give them interesting work that keeps them engaged and motivated. So companies ban Facebook in order to be seen to be taking taking decisive action against grafters. But no-one will be impressed.
If staff can't access Facebook on their computers, they'll simply do it on their cell phones. And that's bound to be slower and so take more time.
Sooner or later (if not already) the best and brightest staff will start to avoid the sorts of companies that implement such antiquated, restrictive and futile policies. Graham Jones writes that social networking is increasingly a part of how people think about the world - soon, they'll expect to find access to it in place in the same that way we now exect the telephone and e-mail to be in place (and to allow a certain, albeit limited, personal use). Companies that ban Facebook will be seen as punishing the creative and innovative,whilst failing to address the underlying problems of the unengaged and underperforming. So you'll get fewer stars, and more staff reading "Hello" magazine at their desks. (You may think this is not an issue in the current economic environment, but people won't just forget when the economy turns, and companies won't learn fast enough.)
And don't be fooled into thinking that Facebook is just about teenagers, Facebook is growing fastest in the core employment ages.

So, instead of banning Facebook, you could use and channel it within your business:

Encourage your staff to build networks and reslationships with suppliers, customers and competitors. And find ways to leverage those relationships.
Your staff could be your best advocates, and achieve more than your conventional marketing initiatives.
Your staff can use those networks to stay up to date with what is happening in your industry. It'll be cheaper and more effective than conventional training.
Your staff can get closer to your customers - learning what they think about your products and services and how they us them, and collaborating with them on ways to improve them.
And finally, if all of the above is not enough, according to the University of Melbourne, employees who use Facebook and watch YouTube are more productive than those that don't.

If a company has problems, banning Facebook will not solve them. Your staff can either use Facebook to evangelise your company / product during office hours, or criticise it from the privacy of their own homes. Either way, they will speak and be heard by their peers. You can influence which it will be.
Of course, I've used Facebook purely as one popular example of social media. The same logic could be applied to Twitter, Digg, SocialMedian, and a host of other services. If you're not up to date on what these are and how they are or could be being used within your company, its time to catch up.