Innovation

The Culture of Innovation Revisited

It is easy to give a view on the important issue of how to create a culture of innovation. Rather more difficult is to clarify what type of innovation and culture change is relevant to any given circumstances. We are currently overwhelmed with messages to “fail fast” but that is just one culture of innovation and it hardly guarantees success. It's time to widen the agenda.

November 10, 2016

Thinking about the culture of innovation

It is good to see creative people like Dave Gray and Alex Osterwalder address the culture of innovation issue. Dave’s ability to visualise and Alex’s track record of building systematic tools augurs well for some kind of innovation culture method.

On a different track Paul Hobcraft and Jeffrey Phillips have begun writing about platforms. Platforms are likely to reshape significant segments of the economy. They are already doing that (see here for China’s tech platforms and here for their impact on global trade). But the management approach to a platform strategy is a vastly different form of innovation than what you find in the fail fast culture that Dave and Alex address.

In these different contributions, the crux of the innovation problem becomes apparent. Is there just one innovation culture or should we be looking at finding the right culture for the right objectives?

The culture of innovation as a broad church

In fact, when we talk about a culture of innovation we are talking about many different things:

  1. The ability to trial a plethora of new ideas, as a kind of quick sorting method, eliminating the dross (hopefully)
  2. Lean innovation and the iterative development of one product and business model, maintaining an appropriate cost base as the project evolves
  3. An exploration of revenue consequences as the nature of a product changes, for example the trend towards downstream revenues, and whether the company is capable or not of managing this process
  4. A potential system change, such as the introduction of supply chain management in the 1980s or platforms in the 2000s
  5. Infrastructure change, as in the switch from petrol to electric vehicles and from electric to autonomous
  6. The development of new ecosystems, often around connectivity
  7. The introduction of new techniques, or as Fin Goulding frames it here on Hack and Craft News, the move towards visualisation and flow (see also here for more thoughts on fluidity in organisations).
  8. There is one other area worth noting. More and more innovation takes place against the backdrop of IT/Business cooperation – or its absence. The culture of innovation here can be strained but it is an essential enterprise change. Creative IT drives more new business potential in a connected economy.

It is obvious once you begin to articulate the context for innovation that the requirements of a culture of innovation are vastly different across use cases and contexts.

Decision making and the culture of innovation

It used to be said that the big challenge for companies lay in the choice between innovation and execution. The argument went you can’t innovate and execute at the same time. But now, very often, there is no choice. You have to innovate right where execution processes matter most.

There is also confusion over decision making criteria and objectives, and where responsibilities lie for different types of decisions. In a 2013 study of 30 companies in the midst of transformation a clear majority applied traditional ROI decisions to situations where change was the central objective.

This pushes executives to what Anthony Meadows has described as the “big numbers” game in transformation projects. To get a project off the ground, to get the right decision, you have to promise big returns. The promise is often a fantasy but that fantasy is integral to how companies sometimes function. Often these promises are developed under pressure from boards.

Very often, too, promises are made in order to protect the distribution of budgets. That’s not just about how much, but about who continues to get what, whose face is beginning not to fit. Budget changes can destroy culture. And it takes a very brave executive to volunteer to lose part of a portfolio for the good of the team.

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The many strands of innovation

In a 2016 study of AI Readiness (forthcoming for CerebrAI), I found a key factor in AI non-adoption is the broad burden of innovation that firms are facing.

There are many innovation burdens: Cloud, AI, IoT, big data, legacy replacement, the adoption of agile software techniques, the switch to devops and continuous integration. This is a lot of change. It is forcing companies, or should, to question or revise their learning capabilities, perhaps even to develop new learning models that will allow them to onboard major strands of innovation quickly.

What does a culture of innovation need to achieve?

I’ve had in the back of my mind for a long time the thought that firms have to deal with too much innovation.  Fail fast, fail cheap doesn’t always help to lower the burden. The opposite in fact.

In the 2000s CISCO managed to continue earnings growth by becoming a phone company. It makes and distributes enterprise phone systems and call centre equipment. It didn’t used to do that but as companies fled a commoditized sector CISCO moved in. Innovative? Maybe. Profitable? For sure.

The point is that obsessing over a culture of innovation for its own sake is self-defeating. An executive team have the responsibility to continue the life of the firm in as profitable a way as possible. It goes without saying that a culture of innovation can help or endanger that goal.

Increasingly the key innovations which firms need, involve them in process model innovation – that is, changing something foundational in the market and the processes through which the company finds success.

Process model innovation

Process model innovation is a neglected topic. Strange. Just about every major company is where it is today because it managed substantial process model innovation in the past twenty years. That would be introducing supply chain management or switching from physical locality to the Web. The game now is to become the platform.

Platforms are reshaping whole markets, just as the Web and supply chains did, and as ecosystems like ARM Holdings have done.

These types of changes require a high degree of intellectual mastery by executives. They require highly aligned executive teams, substantial investments, and rapid learning.

maze

In this culture of innovation, they are not asking employees to come up with a plethora of new products or ideas; the platform has substantial risk attached to it. It requires continuous process model innovation too. Companies like Netflix have succeeded, in their case in creating a globally distributed, cost cutting video content company, by constantly innovating how they do business not by innovating what business they are in.

In terms of the overall argument the idea of the culture of innovation has still to mature, in my view. There are business model changes (the switch to downstream revenues, the growth of service models, new product lines) but there is also the change to the fundamentals of the firm and the fundamentals of whole industries. The companies taking home the prize are the ones that shape this larger picture to suit their needs.