How To Evolve The Concept Of Innovation

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Whatever happened to innovation?

At mid-20th century, the prospects of innovation seemed bright. Legendary figures like Joseph Schumpeter and Peter Drucker wrote of executives who “operated as entrepreneurs, who continuously searched for better ways to satisfy their consumer base with improved quality, durability, service and price— searches which may come to fruition in innovation with advanced technologies and organizational strategies.

Yet when firms began committing in the 1970s to maximizing shareholder value as their only goal, the first victim was often innovation, which appeared too risky for short-term-profit-seeking firms.

What to do?

20th Century: Palliatives

In the late 20th century, a common approach was to adopt palliatives, which mitigated the problem but didn’t solve it. This included (a) setting up think tanks, like Xerox PARC, or (b) open source innovation, in which ideas from outside the firm were welcomed, but did nothing for the lack of openness to the ideas that were already available. or (c) give employees free time to innovate, like hackathons, which created a semblance of openness to innovation, but often without the reality.

None of the three palliatives resolved the underlying problem, namely, that industrial-era management itself was at odds with innovation.

21st Century: Metaphors

This century, firms are being encouraged to resort to metaphors.

· Thus, for the last two decades, INSEAD professors Kim and Mauborgne have been urging businesses to create “blue oceans” of innovation which are happily empty of the bloody shark-filled “red oceans” of intense competition.

· Emeritus professor Richard Rumelt tells us that innovation is a matter of finding “The Crux”, the one thing will really turn your firm around.

· Meanwhile executive/writer Safi R. Bahcall urges firms to pursue “Loonshots”, separating creative “artists” and execution-oriented “soldiers,” and maintaining a fragile balancing act that guides the artists toward tangible applications and prods soldiers to pilot approaches that will inevitably need further refinement. In effect, despite the fancy metaphor, we are back with the “think tank” approach of separating innovators from the rest of management.

If you felt confused by this barrage of metaphors, you are not alone. It’s not that these metaphors are worthless. But they fail to add to an intellectually coherent view of innovation that can be evaluated, implemented, and steadily upgraded.

First Step: Understand The Root Cause

The first step towards clarifying the concept and implementation of innovation then is to get beyond palliatives and metaphors, and to address the root cause of the problem: the fact that for half a century, large firms pursued a goal of maximizing shareholder value and adopted bureaucratic mindsets, attitudes, values, principles and processes, that are at odds with a commitment to innovation.

The fact that in 2019, the Business Roundtable declared that goal to be no longer defensible, did not remove principles, processes, goals, attitudes, that are remain embedded in most of these firms.

The first step then is to assess the firm’s readiness for tackling change, for instance using the diagnostic tool shown in Figure 1 and assess the possibility of innovation.

Second Step: Select And Implement An Innovation Process

With this information in hand, and with cognizance of the obstacles that lie ahead, the second step is to select an innovation process which has demonstrated success and which your firm feels comfortable with. There are several such models to choose from:

· Curt Carlson’s Three Laws of Innovation and NABC; The approach is summarized in Carlson’s LinkedIn article, which elaborates the four step examination of Need, Approach, Benefit and Competition

· Roger Martin’s process described in A New Way to Think (HBRP, 2022) is anchored in “What Would Have To Be True”. It offers a seven step approach, in the structured formulation of well-articulated strategic possibilities—for strategists to choose between. It examines what would have to be true about the world for each possibility to be supported. Only then does it unleash the power of analysis to determine which of what-would-have-to-be-trues is most feasibly attainable.

· Amazon’s PR-FAQ Process Working Backwards from the Customer. The approach is explained in Working Backwards: Insights, Stories, and Secrets from Inside Amazon (Macmillan, 2021) by Colin Bryar and Bill Carr. It starts from the customer’s needs in the future and works backwards to how that need can be met by a unique approach, regardless of the firm’s current products and services.

All three processes are strongly grounded in putting the customer first and foremost.

Each of the three processes has particular strengths.

· Carlson’s NABC process is perhaps best suited to uncovering major innovations.

· The Amazon process is well-suited to a context in which customer-first thinking is already well established.

· Martin’s process js strong in settings where participants having difficulty imagining alternatives to the current arrangements.

Step 3: Continue A Multi-year Effort To Inculcate Digital Age Management:

The fact that you have started the innovation process is important, but it is also key to recognize that it will only be successful if continuing effort is made to shift the entire set of management arrangements from industrial-era thinking to digital age thinking.

The Blue Ocean authors recognized this issue briefly in their book Blue Ocean Shift, where they said: “Is your organization dysfunctional? Ridiculously bureaucratic? Or highly political so that getting things done feels akin to walking through a minefield? … You [may] want to think about enlisting …. As a respected insider, [who] can advise the team and provide air cover from potential detractors, as well as garner support from individuals who might otherwise want to thwart the initiative actively or through passive aggression.”

Enlisting a single respected insider is unlikely to be enough. The innovation initiative will likely need a coalition of a supporters at the top of the organization steadily working to change the whole management orientation of the firm. And it will take more than merely announcing the change: they will need to live the change on a daily basis over a period of years.

For a significant innovation to have any real chance of success, steady progress will be needed on all the dimensions of management, as shown in Figure 1. This will be a multi-year undertaking, as shown Figure 2, which illustrates the progress of change at SRI International when Curt Carlson was the CEO.

At the outset of the 20 year period, the firm was fully in the grip of industrial-era management, as shown in Figure 2-1. After several years with Carlson as CEO the firm was beginning to make progress in that direction, as shown in Figure 2-2.

Some ten years after that, the firm under the same CEO had essentially completed the transition to 21st Century management as shown in Figure 2-3—a feat accomplished with several notable innovations and a major expansion of revenues.

Figure 1: Principles and processes of industrial-era and digital-age firms

Figure 2: SRI International: Principles and processes as of 1) 1998; 2) 2000; 3) 2014; and 4) 2020.

And read also:

Why Strategy Now Means Working Backwards From The Future

How To Create An Innovative Culture: The Extraordinary Case Of SRI



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