In traditional discussions of innovation there was always a divide between execution and innovation. Or put another way, process model innovation (changing the core) has been something of a taboo. A belief grew up that execution, the process, has to be protected from change.
That belief persists but may not be true or always helpful. At the very least it needs to be challenged.
Being down on process model innovation
The argument went something like this:
“The organisation cannot continue with strong execution (its existing process model), which brings the success that markets are looking for, as well as innovating in any part of its core activities (process model innovation). Execution and innovation have to be kept separate.”
Agile methods might have provided a solution to that conundrum. But the idea of a separation or duality has persisted. Ralph-Christian Ohr has recently pointed out that these dual concepts of innovation hit against a serious problem. They don’t give many clues as to how a new initiative outside the core can scale.
With that in mind, and with a view to offering an insight on this, here are three current manifestations of dual innovation.
Three versions of dual innovation
The first resides in the idea of disruptive innovation. Christensen and his colleagues, who have acted as the guardians of disruptive innovation, always insisted that disruptive innovation needed to take place outside the organisation, and follow the path that many startups and new market entrants followed. According to the New Yorker:
“Christensen concluded that the only way a big company could avoid being disrupted was to set up a small spin-off company, somewhere far away from headquarters, that would function as a start-up, make the new low-end product, and be independent enough to ignore what counted as sensible for the mother ship.”
The second resides in the Gartner concept of Bi-Modal IT. Gartner, one of the world’s leading analyst firms, believes most companies need to separate strategies for predictable and uncertain futures:
“Bimodal is the practice of managing two separate but coherent styles of work: one focused on predictability; the other on exploration. Mode 1 is optimised for areas that are more predictable and well-understood. It focuses on exploiting what is known, while renovating the legacy environment into a state that is fit for a digital world. Mode 2 is exploratory, experimenting to solve new problems and optimised for areas of uncertainty.”
The third resides in the idea of an ambidextrous organisation developed first in the 1970s but gaining more popularity today.
Ambidexterity in an organisation is achieved by balancing exploration and exploitation, which allows the organisation to be creative and adaptable, while also continuing to rely on more traditional, proven methods of business.
An example of dual transformation thinking
In fact the idea is being taken further by Christensen’s own consultancy Innosight, where Scott Anthony has begun to talk of dual transformation: strengthening today while creating tomorrow, strengthening a core of lower cost products, while creating a portfolio of new products that become the focal point of the future.
One of the case studies that Scott uses is Netflix, and its switch away from mailing out DVDs to streaming content to algorithmically identifying the content that people want through its own content production. This is transformation A, a shift in the underlying business model. This should be reflected in changes to the metrics companies use to measure what they do.
Transformation B is the willingness to get down and dirty with new changes taking place in the market. The case study is Amazon and its gravitation to Cloud services. Seeking exciting growth opportunities, new markets (what I called radical adjacency a few years ago). The litmus test is: are the people you are competing against changing?
Transformation C is the careful adaptation of capabilities from A to B. The case study is Medtronic (the world’s largest device company and pacemaker manufacturer) and its work in India.
Medtronic created a new system where they could diagnose heart problems much more quickly than the existing primary health care system and added a microloan service to facilitate uptake of pacemakers. Given that diagnosis and cost were the main barrier to sales, this new system allowed unprecedented growth in a poor market.
Anthony is particularly strong on the notion that we must prevent the DNA of the core from gravitating to new growth opportunities, a concept that spills over from the disruptive innovation work of Innsight.
I think there is something missing in these different ways of formulating a dual nature of the firm. In particular it misses what I called elsewhere the new opportunities for process model innovation.
Process model innovation and firm transformation
What is actually taking place around us is process model transformation.
Netflix, the company Anthony quotes as a strong A transformation, managed these changes by switching out of a conventional management structure, employing only the best people it could find, and delegating decisions to teams that congregate around different platforms (customer experience, customer billing, experimentation etc).
Second, over the same time frame that Netflix has pivoted in major ways we have seen a wide variety of firms adopt platform-based organisational structures. These incorporate a marketplace of some form, a transaction engine, APIs and similar features that externalise many of the functions of the company, particularly in the area of product development.
Finally, we are beginning to see the development of a post-agile process. Agile was meant to be an end-to-end process for software development. In fact there have been much greater hopes for it. By bringing customers into product development it was hoped that internal processes could be more agile in meeting changing market needs.
At its best agile might deliver on this but there is a growing feeling that it can’t and does not. In fact the software community is moving beyond agile to what we have called FLOW here on Hack & Craft News.
In Flow environments the ideal is to take advantage of the social interaction between people to create much faster innovation within the core.
Flow also allows legacy IT to become part of a new work method which emphasises both breaking down large problems into small steps and visualising these so that the problem of legacy migration, for example, and creating value from the migration process, becomes the focal point for social interaction, crowd opinion and optional proposals.
These different developments – internal cross-silo platforms; platforms that help externalise some forms of highly-scaled innovation; and the emergence of a post-agile work method, all point to process model innovation being the new area where companies are finding competitive advantage.
Process model innovation, as well as platforms, are ways to scale new initiatives. Platforms single-handedly have changed the scale of business operations in many companies. Where they have failed to provide scale, it is usually the fault of entrepreneurs who have overreached themselves.
What we are calling Flow has a similar impact. By accelerating the dialogue around innovation and making more processes transparent, Flow provides a stronger, more resilient and more innovative core. We’ll be back with more on that soon.