Business Model Innovation- the why, what, where and how?

This survey by IBM on business model innovation comes out with these key findings:
1. Business Model Innovations are more likely to come from collaborators and partners (only 14% feel it comes from internal R&D).
2. In spite of the right intent about Innovation, senior executives are struggling with the execution of Innovative projects. Despite a desire to make changes, 80 percent of CEOs said their organizations have not been very successful at managing change in the past.
3. More than a third of CEOs polled said the top obstacle to innovation was an unsupportive culture and climate in their companies.

What does this tell us? There is a broad and growing consensus in the global economy about the why of Innovation. Questions like- why is innovation important to my industry?, why should I take up Innovation now? - are clearly answered in the minds of decision makers. What is not so clear is the what, where and most importantly, the how of Innovation.

The late Peter Drucker, in his seminal book Innovation and Entrepreneurship, gives a detailed answer to the Where question. He talks about the conceptual areas where an innovator must look in order to discover opportunities. Some such areas are: changes in demographics, disruption in the natural rhythm of a process, changes in perceptions of the population, unexpected success or failure and new knowledge.

Clayton Christensen, the author of various best sellers on Innovation (Innovator's Dilemma, Innovator's Solution, Seeing the Future) talks primarily about the What of Innovation. He provides a systematic overview of what the innovation process really is, what its nature is. In his second book (Innovator's Solution), he talks about the how as well- addressing issues such as appropriate resource allocation methods, the right marketing techniques, and so on. I haven't read his third book, but would love to shortly.

This leaves us with the how. Two books I recently read attempt to address this vexing and complicated question- Vijay Govindarajan and Chris Timble's "10 Rules for Strategic Innovators" and W. Chan Kim and Renee Mauborgne's "Blue Ocean Strategy". Both books give tools and analytical frameworks for decision makers, so that they can structure the uncertainty inherent in the innovation process, and make informed decisions.

BusinessPundit: Why "Good to Great" Isn't Very Good

BusinessPundit: Why "Good to Great" Isn't Very Good

This article talks about how "Good to Great" isn't that great a book, after all. What caught my attention in the linked article was this point by the author:

"humans tend to conveniently make random demarcations in data to get the patterns and results that we want, when you are looking for something specific, it is amazingly easy to find data to support your preconceptions."

Clayton Christensen in The Innovator's Solution talks about the same problem in the world of business. He explains how most "theories" are based on attributes rather than circumstance, and how this can be misleading and fallacious. For example, you see a white cow eating grass, and conclude that all white animals eat grass. Till you bump into a snow leopard. The problem in the argument you used (before the leopard got the better of you) was that while there was a correlation between the color of the animal and its eating habits, it was not a causal correlation. The cow did not eat grass because it was white, but rather because of the way it was constituted.

This is a classical problem in science. Physics noble prize winner Richard Feynman called the technique for avoiding this problem "bending over backwards". The point is that when you formulate a theory using certain facts and observations, you must not only give the conditions in which the theory works, but also the conditions and circumstances in which the theory does not.

In fact, I would like to generalize the statement and point out similar "analytical engineering" techniques being used by a lot of consultants, market research firms, management "gurus", and the likes. They would develop some interesting-sounding theory and then "go looking" for evidence. What ends up happenning is that they retro-fit the evidence they find, sometimes bending it out of shape to make sure it fits.

They do this because it works for them. Collins earned millions out of royalty. One set of people for whom it doesn't work are the actual entrepreneurs and innovators on the ground. If they build a product based on a faulty theory of innovation, the results will be evident within 6 months. So the only people who can really talk about innovation are those who have built innovative products and made them a success in the marketplace. The problem there is that these people are often not very good at theory-building, at generalizing from their experiences and the experiences of others.

Incidentally, W. Chan Kim's Blue Ocean Strategy points out that most of the companies which Good to Great called great acually lost their market leadership within 5 years. Did they lose their greatness in the short duration (short considering the scale of analysis that Jim Collins - the author- and his team used)?

The Randomness of Corporate Innovation.

The Randomness of Corporate Innovation.

This businesseweek article by Bruce Nussbaum talks about how corporate Innovation is inherently unpredictable, and how over 50% of game-changing innovations arise from initiatives outside companies' formal structures and processes for Innovation.

Let me ask this in return: how will you fare if you were let loose in the pacific ocean with no knowledge of swimming?

I think that there is another way to look at the whole problem, which is that given our lack of clear understanding of Innovation as a discipline, as a business process and as a practice, it is amazing that even 40% of the companies achieve success through their innovation structures. We do not know how to swim, yet we are managing to stay afloat in the pacific.

Won the Tuck Essay Contest

The Tuck school of business recently organized a essay contest. The subject was: "How can strategic innovation be used for solving real world problems like corruption?". I won the first prize- a neat iPod, a signed copy of Prof. Vijay Govindarajan's new book (10 rules for strategic innovators: from ideas to execution), and an admission into Prof. VG's excellent session on Strategic Innovation. Let me thank the Tuck school for creating this opportunity; such systems which facilitate the flow of information and insight in the society play a key role in enhancing the innovation-capability of any region/country.

Quite a few people have asked for the essay- so I am putting the original submission right here, inline:

How can strategic innovation be applied to solve real world problems such as corruption?

-------------------------------------------- ANSWER BELOW---------------------------------------------

Let us look at Strategic Innovation not as a buzzword heard in corporate alleys, but as a broader means to achieve an all-encompassing end: Change. The need for Change is ubiquitous- from removal of poverty to limiting corruption, from improving performance of athletes to establishing new social institutions. The question is- why are we not already using the principles of Strategic Innovation to solve such real world problems? How can we do this in the future?

The answer lies pithily, again, in one simple word: Context. Strategic Innovation as a discipline has attained a certain maturity in the corporate world, but is in its nascence in other contexts. Applying strategic innovation in these new contexts, therefore, demands a re-look at the core and periphery of strategic innovation: in the frameworks used, in the principles applied and in the analyses adopted.

The late management expert Peter Drucker gave the best analysis of the special considerations for using innovation in public service projects [1]. According to him:

- The key inhibitor for innovation in such areas is effort-orientation.

- The biggest challenge, therefore, in using strategic innovation for such areas is having a focus on results.

Besides Mr. Drucker’s advice on result-orientation, another crucial question to answer is: where do we look for the potential for Innovation? From the strategic innovation perspective, there are two such areas in issues like corruption and poverty [2]:

1. New Solutions to Known problems: In such cases, the innovation would lie in finding new ways of solving problems which have precedents in other contexts. For instance, the known problem of supply chain management is solved innovatively by the Tiffin suppliers in Mumbai, overcoming many of the contextual problems [3].
2. New Solutions to Unknown problems, which are generally not found elsewhere and we don’t have precedents for them. A number of approaches to removing poverty are of this nature. We don’t know what to do in such cases, and so we have little knowledge about how it is to be done. The analysis has to start from a step back, by defining the problem first.

With this in mind, the approach to solving real world problems like corruption is given in Exhibit 2. The key steps in the process are:

1. Understand the context and generate context-specific insights
2. Modify Strategic Innovation frameworks and principles
3. Piloting and feedback, and repeat steps 1 and 2 if necessary
4. Full scale managed execution of Strategic Innovation

[1] Innovation and Entrepreneurship by Peter F. Drucker (pp 179), HarperBusiness, Copyright © 1985 by Peter F. Drucker.

[2] The third possibility, that is a known problem and a known solution which would work in this context, becomes a management issue. For instance, if we know that the police dept. can remove 40% of the corruption simply by making sure its existing processes are managed properly, that does not constitute innovation.

[3] see, for example, http://edition.cnn.com/2004/BUSINESS/08/16/mumbai.dabbawallahs/

Open Innovation by Microsoft

Microsoft recently arranged a design contest for building the next generation PC. See these links:

http://images.businessweek.com/ss/06/01/ms_design/index_01.htm
http://www.startsomethingpc.com/

This is a great example of Open Innovation, wherein a company leverages external knowledge of partners, suppliers, customers, universities and any other community (designers, in this case) for carrying our part of the innovation process.

Design Gets Its Due in World Economic Forum

Businessweek writes about how the world economic forum in Davos, Switzerland, is getting a generous dose of Innovation related topics.

Building a city using Extreme Innovation

This story talks about how a group of citizens from Newark have build a sustainable community development model.

I have been thinking about applying the principles of Extreme Innovation to to build (or re-build) a city, providing basic amenities, public utilities (electricity, water), clean fresh air, green sorroundings, and a productive work environment. The point? To make it a case in point for urban governance.

Why is Extreme Innovation relevant? Building a city inherently looks like a non-competitive effort, in the sense that your gain is no-one else's loss. This is unlike a business scenario, wherein everyone is fighting for the same morsel. Then why do we need to innovate at all?

The need to Innovate comes not from the need for beating your competition, but from the need to solve problems. For instance: how do you provide employment to the poor residents without relying on a welfare scheme? How do you ensure civic sense without excess policing? How do you avoid the problems of corruption and mismanagement in the public utilities?

All these problems involve trade-offs, and solving them would require creative brainstorming, selection of relevant ideas, and effective implementation. In short: Innovation.

If anyone is game for being part of the project, drop me a mail.

Exploration vs. Exploitation- the ship analogy

This CIO article adresses an age-old problem: does an excessive focus on processes have an adverse impact on the innovation ability of a firm?

The article touches upon a 20-year study of the paints and photography industry, where leading firms missed out on disruptive innovations such as digital photography. The conclusion is that this was partly because the firms were so busy exploiting their current capabilities that they did not have the peripheral vision to explore new avenues.

This is always a confounding dilemma for companies. They can not let go of their current processes, and in fact have to get continually better at them. This gives them small sustaining innovations. The cost is that department heads and mid-level managers who hold budgets are wary of sacrificing their short term results for the sake of a risky and uncertain future.

What is the solution? Imagine your company to be a ship. You are racing against a fleet of other competitor ships, and so have to get the most of out of your engine. The engine is your current capability. While you figure out ways to push the limits of your engine harder and harder, you also have to think about new routes- new strategic directions which can put you nautical miles ahead of the competition. These strategic routes are the disruptive innovations. To change direction, sometimes you have to slow down, perhaps even turn the knob off your engine. You can't change direction unless you do that- the ship will overturn.

The job of the senior management is to decide when to turn, in which direction, to what extent, and what is the best possible way to maneuver when the time comes. In corporate-speak, this translates to:

- timing of disruptive change
- nature of disruptive change
- extent of change
- implementating the change effectively

Are you at the helm yet?

How old do you have to be to Innovate?

This page talks about how the average age at which Innovators do most of their productive work has increased over the past century. The same study also suggests that very few innovations are done by people under 27 and over 50.

Is it really so? In the world of Sergey Binn and Larry Page (Google founders), do you really have to be a certain age to be an effective Innovator? There will always be mavericks who will change the world at 25, but remember- Extreme Innovation is about repeatability in results, not only individual genius. So what governs the Innovation effectiveness of the smart but averagely talented Innovator?

There are (at least) 3 things we have to keep in mind while answering this: Domain Knowledge, Personal Maturity and having enough successes or failures behind you to learn the nuances of innovation. Clearly, the total amount of knowledge in various domains has increased substantially in the last few years, so one would expect the average age to increase.

What about the other two factors? The following questions are relevant:

1. Can something be done to train potential innovators in crucial skills early on (not in business schools)? Can we begin to train schoolchildren in relevant skills so they have a better chance of innovating early? This story talks about how school and college education is the key to a innovative workforce for the US, and it applies equally to all nations.
2. Is there a particular way to teach various domains so that children are more likely to innovate in them? For instance, a more practical, reality-based and experiment oriented approach would ensure that children have a more active learning. See this excellent online game, for instance, which teaches schoolchildren entrepreneurship.