Ten Things to Think About In Place of Innovation
Innovation is something of a bogey – every company needs it, not many companies know where to go with it, investors want to hear about it. But actually innovation is really about methods that lead to small scale renewal. The big challenge is not innovation, it is transformation, or revolution. Nick and I listed out ten things we think people should think about instead of innovation:
1. Move from episodic to continuous strategy: the question repeated in different ways by executives responsible for innovation is how do I deal with disruptive change and continuity at the same time? We phrase that as episodic versus continuous change. Companies need not just change but a platform for continuous change. Episodic strategy fails on many counts, but its chief limitation is that strategy and execution is radically detached and forces an incremental approach that cannot adapt fast enough to market conditions.
2. Renew core competency – Companies with a strong tradition of innovation are having to take a new look at their core competency. Lab-based R&D and innovaation pipelines are slow and provide insufficient differentiation. The elastic enterprise, due to its business platforms and use of business ecosystems, is fundamentally inclusive of a wide variety of skills and changes, and hence has a greater capacity to add to, bolster and in certain cases renew its core competency as well inaugurate and augment new competencies. In some cases the platform becomes the competency.
3. Dismantling the system of acclaim, decision making, core and branding.
3.1. Reputation systems in a company embed and preserve products longer than they deserve and reinforce the pattern of episodic change. We forget that we humans are recurrently innovative. Even so we are passionate defenders of the status quo and build esteem systems around past innovators.
3.2. Innovation at the level of brand. As we move away from R&D as a dominant innovation-mode many companies are struggling to generate a new identity that convinces investors they still have a hard-edged IP advantage in the market. Platforms represent a strong alternative to IP. An elastic enterprise incorporates new ideas and new IP into the business through the sheer scale of its activity, often incorporating many thousands of innovations at light speed, and is therefore vastly greater a barrier to entry than the IP of a traditional enterprise.
3.3. Pushing decision making outside the walls. New funding processes re-establish deleagated decisoin making but only outside of the core processes of the firm. These tend to be based around funding for novel ideas. The funding processes vary but typically a contingency fund or internal venture fund to kick-start new products (in some cases this can be an external fund – e.g. Lilly, BMW), incremental or radical; incubator type facilities to grow a new business to a scale that it can withstand the corporate immune system; and closer coordination and better access to very top management to get accelerated decisions for radical innovations.
4. Being the innovation platform. Elastic enterprises force innovation on the platform leader and the ecosystem. The purpose of the relationship is to do new types of business. P&G for examplehas become the exemplary case of a company transformed itself into an innovation machine, advertising its size and market access as its most significant assets, and using that to attract partnerships and innovations to it, which it then pushes to market.
5. Foresight. Multiple geographies and radical adjacency moves are creating a heightened need for sensing change (Samsung specifically use the role description ‘sensing’) and creating better scenarios (Ericsson). The expectation that surprising things can and will happen is pervasive and most executives we talked to see this in a positive light. It represents opportunity. Foresight is therefore as important as the ideagora. Most innovation literature focus on Front of Innovation (FEI), generating and evaluating ideas – but foresight is more significant than ever and we are seeing a revival of the use of foresight-tools like scenario planning.
6. Disruptions to the value chain and transitioning from process to product. Innovation has mvoed close to the point of consumption trhough various design thinking and open innovation processes. This creates a chaotic value chain as players at different points in the production process seek end customer access. The chaotic value chain works to the advantage of companies with platforms, because platforms are like an adaptive engine for the enterprise. Its purpose is to support adaptation.
7. Dealing with enterprise complexity – Enterprises are buckling under their complexity, employees are freelancing the innovation game forcing change on to the firm by bringing their own smartphones, laptops and software. Enterprises need a new operating system built around platforms that scale internal communication ecosystems.
8. Understanding the impact of globalization on market structures and consumer needs as we move towards mass differentiation. The idea that a product belongs within a demographic is now a dangerous assumption. The growth of mass differentiation – the breaking down of old product categories based around class, gender, income group or geography is reflected in niche markets going mainstream. Coca Cola now manages 3500 brands – that’s a lot of differentiation. In highly differentiated markets platforms are the only way to manage vast, diverse, customer ecosystems that typically have a high expectation of scaled intimacy.
9. Organising and utilising partnerships and IP issues associated with open innovation. Open innovation introduces a requirement to master partnership development (visible in large MNCs now creating partnership advisory roles and creating large scale partnering opportunities (Microsoft Biz Spark). In advanced business models like API strategies, that process is automated (e.g. Apple’s Apps Store). But for many companies developing partnerships in an atmosphere of trust and with well developed IP sharing principles is an asset they are chasing. They’d be better off reducing business friction through the automated partnerships that platforms bring.
10. Real-time information, expertise and decision making. In the old industrial model we relied on static products for information – books, reports, training modules or documents. These were valued because they took time to produce, were invested with authority (if they were good) and often existed within an established paradigm or research tradition. It is difficult now to compete without access to flows of information (which can derive from something as simple and potentially banal as employee status updates) and to have the analytical capacity to capture the meaning of flow. Platforms are good for data and analytics.