Five modes of innovation

OK – brace yourself. Bit of a long post coming up here…

“Innovation”. Many people talking about it. Not that many people understand it (I include myself there). Hard to do. Easy to talk about and so let’s add to the kerfuffle…

Let’s start with the etymology:

So, innovation – doing new things, or doing things differently. And in that I see the crucial distinction. Over the years, many organisations have organised themselves around the principals underpinning the latter definition. The continuous improvement, Kai Zen, TQM and Six Sigma-types of organisational improvement and change have all been about refinement. Continually improve what you do, refining and evolving as you  go. It even underpins much of what goes on at an individual level with HR Performance Management approaches.

And if you have a business that’s never really looked at how it operates, this type of approach can reap plentiful reward. The trouble is that it tends to operate on an reverse curve. The first time you do it there is potential for huge improvement, the second time less so, and so on and so on until you have processes that are so refined that the cost of further improvement outweighs the benefits of making further changes.

At that stage you enter into a world prone to the innovator’s dilemma – you’ve become so good at what you do, and so refined in how you do it, that when someone comes along to deliver something new, that achieves similar or the same outputs but by a totally different method, you’re scuppered. The tendency is to discount the new way, and then try to force your world view onto the new model. Take, for example, the way Western Union dismissed the telephone as a mere gimmick, and then tried to see how it could be used to drive more telegraph use. Or the way that Microsoft has struggled to conceptualise tablet computing in any other context than as a way to provide Windows.

Now continuous, refinement-type innovation is really important to keeping a business competitive and profitable (or a public service cost-effective). It shouldn’t necessarily be seen as the only approach, though, as any business that differentiates on it’s artisan credentials will know. But even artisan businesses are able to innovate through new methods of selling and marketing their products can testify (take http://www.notonthehighstreet.com/ as a case in point).

However, how can a business create new things to do, rather than just new ways of doing things? I’m sure that there are more, but here are a few ways that are in various stages of fashion at the moment:

1. The R&D approach
This is the traditional model for large-scale businesses to discover new opportunities and businesses. Run a pseudo-academic division that focuses on researching and developing new product and service ideas. Bring together a bunch of smart people to come up with great ideas – what could possibly go wrong?

Pros:

• By dedicating resource into thinking up new stuff, new ideas will probably emerge.
• Talking about how much your company invests in R&D is great from a corporate PR perspective.
• Getting the smart folk thinking about things within your organisation stops them thinking about them on the outside, either for existing competitors or emerging as new ones.

Cons:

• Preventing R&D becoming an ivory tower is a challenge.
• Having R&D separated from the rest of the business can make the rest of the business think (rightly or wrongly) that innovation isn’t part of their role spec.
• If the rest of the organisation is based on continual improvement models, then bringing R&D ideas to market can be challenging from a process perspective.
• If the R&D work is too far away from the day-to-day of the business, then ideas can be rejected (Xerox’s work at PARC in the 1970s is often cited here – Xerox couldn’t think of themselves as anything but a photocopying company and so did nothing themselves with the work that led to the Apple Mac).

Conclusions
The great days of innovation in R&D departments in tech (I’m thinking particularly at AT&T in the post-war era up until its breakup in the 1980s, and organisations like BBC Research) was in a time when there was a view held by large monopolistic organisations that they performed a valuable social role by being near-monopolies. As such, their R&D was academic and wasn’t necessarily all expected to show a return on investment. The internet wouldn’t be what it is today without the R&D work of the likes of AT&T and GE. Television wouldn’t have been what it is today without the work of the BBC (who developed both CEEFAX and NICAM over the years).

We still have a plethora of near-monopoly organisations – in fact, their global nature means the likes of Google and Facebook are probably more  powerful than the AT&Ts of old. It doesn’t strike me, though, that their is quite the social contract today of R&D for the greater good, either between those corporations and society at large, or those corporations and their shareholders.

2. Late-stage acquisition
Find a company that’s has built something new that you like and then buy it. Again, a very established model.

Pros:

• Innovation has been made less risky because the company you are acquiring has already innovated whatever it is that they do to a point of proof.
• By buying the company, you can reduce the risk of either it becoming a competitor, or a competitor getting their hands on it.

Cons:

• Innovation is only in the boundaries of what start ups are getting past early stages of funding
• Keeping value after an acquisition is notoriously difficult – big firms often end up with less value than the cost of acquiring and integrating.

Conclusions
For most start-up tech firms these days, the only realistic exit strategy is to be acquired. Whilst we will see the emergence of the next Facebook (for example) at some point, it won’t be a direct competitor to Facebook. In the meantime, it’s way better to be targeting acquisition by one of the big boys (or by a smaller firm which in turn will be acquired in time).

The problem that this leaves for innovation is that, in turn, the ideas that get through early stages of startup and gain investment will be the ones that investors ultimately think will lead to acquisition in the long term. And that in turn shapes the sorts of ideas people are starting up with.

Acquisition by bigger firms can often actually crush innovation, though, either by design or because of the challenges of integration post-acquisition.

3. Early-stage incubation/acceleration
Playing the incubation/acceleration game by putting small amounts of investment into helping start ups at an early stage of development through competitive programmes. This will then sometimes lead to preferential options to invest in those companies that progress.

Pros:

• Really good on the PR/Corporate & Social Responsibilities front to make your company look both socially engaged and innovative
• The chance of unearthing a diamond in the rough

Cons:

• This is becoming an increasingly crowded market, and start ups (particularly tech start ups) will have a tendency to have ideas where the market for ideas is going – so expect a rash of messaging start ups in light of the recent What’s App acquisition.
• Because it’s early stage, the chances of success are much slimmer. It’s a case of smaller bets on longer odds.

Conclusions

Unless you are an investment company, managing a big portfolio of differing-scaled risks, or a tech company (where you can use these approaches to sell in your own technology services), the world of incubation and acceleration feels to be one which is more a CSR and community engagement model, than a route for major innovation in of itself. Balanced against other activities, however, an organisation may also find it learns about how to innovate through this sort of programme.

4. “Closed” innovation models
Running programmes to help foster innovation within the organisation. Examples would include the (infamous) Google 20% time (something that I’ve heard from many people in recent years was a PR story more than reality), or running hackathons and similar events in house.

Pros

• Giving employees the opportunity to develop new ideas is a really good way to motivate and engage them. It’s a change from the day job.
• From Post-It notes to GMail, there are famed examples of how giving people structures in which to innovate can create entirely new businesses.

Cons

• It’s one thing to come up with ideas, its another to turn them into products and services. If the organisation isn’t culturally open to step changes, they won’t happen. Running a hackathon won’t change that.
• Similarly, winning over employees to the idea that new ideas will be fostered needs to happen before such initiatives will work. Often companies will look at rewarding great ideas, when actually the reward might lie in giving the space and time to do the activity in the first place.

Conclusions

Running internal innovation programmes can have a much broader impact on the general culture of an organisation than merely the new idea output. Helping change the culture of an innovation-less organisation (or a incremental change culture) is key – not just the activities.

5. Open innovation
Throwing open the organisation’s doors to invite innovation from outside. From X-Prize type events, to opening up data and APIs, to hack events, many organisations are taking this type of approach.

Pros

• Great ideas often come from outsiders – people who aren’t constrained by “the way things are done around here”.
• Open innovation models means that the organisation has more control over the agenda than if they go to companies that already have ideas

Cons

• Throwing open the doors (even if only ajar) can be incredibly counter-cultural to many organisations
• It again is one thing to generate the ideas, another to do anything with them

Conclusions

In many ways open innovation models are the children of the world in which we are now in where closed, proprietary information is become less of an asset than it was in the days before the Internet. Open data initiatives have started to show the promise of what might be, but there again illicitly-opened data (a la WikiLeaks) might have scared some away from this kind of approach.

So there you go – a bit of a rough and ready primer, but some pointers for what innovation might look like. Central to all of this, it seems to me, is that creating a culture where step-change innovation can happen is a prerequisite of any of these methods and techniques bearing any fruit. It would be wrong to assume that that is something easier in certain industries – some of the least innovative companies I know are information technology and Web companies who have found a niche and now don’t vary from it as they focus on increasingly small-return incremental changes.

It’s also not necessarily the case that as size of company increases the level of innovation decreases. Size can promote a focus on specialism, which can inhibit step changes, but it’s not all preordained.