On Innovation, Interaction and Change

Innovation

I had the privilege of hearing Larry Keeley, Co-founder of Doblin, the innovation strategy firm, at the GCB Innovation Round Table last night. He painted a vivid picture of the white water global economy in which we find ourselves as a context for his talk on innovation. In brief, the degree of uncertainty and change has created a “nervous time” for corporate executives. The pace of change is probably unprecedented in the experience of the human race (my take on this below). He implied that the anxiety around terrorism is amplifying this underlying general nervousness:

• We face a high degree of ambiguity on political, economic and societal levels. People hate ambiguity.
• Complexity has two meanings: things are difficult to understand and we cannot know the outcome of our actions (because there are too many inter-related concepts, dependencies and data for us to comprehend). People find this overwhelming.
• Volatility of markets; Wall Street (fill in the blank for other markets) punishes executives for vagaries in the numbers, which has led to a legendary “make the numbers at any cost” attitude. People find this mystifying and unsettling because it constantly produces nonsensical behavior.

If we define innovation as measured risk-taking and using new thinking to create an advantage, that usually involves taking people out of their comfort zone. Since the environment does not permit executives to be in a comfort zone in the first place ;-), it is very difficult for companies to find the moxie to innovate. Keeley strongly implied, though, that innovation is a way to thrive in this environment because it’s the new way to create value. However, the way that “innovation is done” by corporations is vapid and off-base. Doblin’s numbers say that it fails 95.5% of the time.

Innovation Framework

After that, Keeley laid out a very compelling framework for innovation that identified several types of innovation and gave substantial examples of firms that used them. Moreover, he believes that innovation is a practicable science as soon as we understand the patterns and learn to apply them appropriately. There are four categories (which contain sub-categories): Finance (Business Model; Network), Process (Enabling Process; Core Process), Offering (Product Performance; Product System; Service) and Delivery (Channel; Brand; Customer Experience). Here it is exploded:

Innovation and Operational Excellence

Of course, even the most on-point innovation will not produce results if it’s the wrong kind. Doblin has done extensive research into patterns for various industries and even countries to measure how they stack up according to each type of innovation. This framework is a key tool that they use to help companies learn to do the right kind of innovation: software companies, for example, compete brutally in Product Performance and Product System because engineers are product junkies. But look at how salesforce.com is trying to change the rules by distributing software differently.

Innovation’s time is coming, according to Keeley, because operational excellence is becoming so widespread that it doesn’t offer a sustainable advantage any longer. Therefore, companies that unlearn what they think is true about innovation (which produces a whopping 4.5% success rate) will emerge as leaders.

Interaction and Change

As I’ve written elsewhere, I firmly believe that our macro-concept of business itself contains many assumptions from the imprint of the industrial economy from which we are just now emerging. Industry entails manipulating and transforming heavy raw materials or parts that constrain most areas of a business and make companies difficult to change. Because the economy was more stable during the industrial economy, innovation was practiced rarely, and few companies ever developed a true competence. Today, they try to practice innovation with a corporate mindset, using industrial processes of elimination to sort ideas. The very concept of a corporation stems from the industrial economy, and its cornerstone was economies of scale. The competence was production, efficiency and power, not new ideas. New ideas were needed, but infrequently, because product life cycles were long.

Larry’s depiction of the “nervous time” reflected what I predicted during the height of e-business: interaction among suppliers and customers drives product (service) life cycles. The more interaction, the shorter the life cycle. Ubiquitous digital networks enable us to communicate information in ever-increasing ways. If a product’s performance, or a vendor’s promise, is lacking, we can let millions of people know about it instantaneously.. as individuals! Companies don’t control information about products the way they did before digital networks.

In addition, consumers’ collective perception of value is constantly changing based on new information. This *requires* innovation in order to not only survive but thrive in the knowledge economy, where information about the underlying product is often more important than the product itself, at least in the product’s perceived value and differentiation. Today’s hot product has a very short lifespan because the supplier market analyzes its success, applies new technology or (using Doblin’s chart) a new business model or service or experience to change the collective perception of value.

In short, innovation has traditionally had the role of placekicker on the corporate team, and now it’s the quarterback.