Tuesday, June 30, 2015

Innovation: Exploiting and Exploring

In every aspect of life we create simple dichotomies to simplify decision making.  Something is right or wrong, black or white.  We do this to simplify our lives, shorten decision making time and become more efficient.  Creating these false dichotomies means we often miss excellent opportunities for much deeper consideration.

Take innovation for example.  No matter where you turn companies and experts are creating all sorts of innovation dichotomies.  Products or services?  Incremental or disruptive?  Exploiting strengths or exploring new opportunities?  Constantly creating an either/or dichotomy, when the real opportunities are far richer and deeper.

Exploit or Explore?
I can say without fear of rejection that most innovation at the corporate level is incremental, extending existing products and services by adding new capabilities or features.  There's nothing wrong with incremental innovation.  It creates solutions that keep existing customers engaged and creates short term revenue.  It allows an organization to "exploit" its existing capabilities and portfolios.

On the other hand, very little innovation in corporate levels is focused on transformation or disruption.  There are several reasons for this fact.  First, transformative or disruptive innovation is unpredictable.  It's hard to determine the benefits or outcomes of something completely new.  Second, transformative or disruptive innovation can work against the existing business model, in effect leading to cannibalization of existing products and services.  When the overwhelming priority is to sustain the business model and make money with existing capabilities and resources, it can be very difficult to contemplate disrupting the business model.  Third, disruptive innovation can be expensive, and time-consuming.  For these reasons and others, too little focus and energy is expended on transformative or disruptive innovation.

It's not really either/or
But you see we've introduced a false dichotomy:  exploitive versus exploration, and are forcing leaders to make tradeoffs between these two alternatives, without fully understanding several important factors.

First, too often innovators ignore the breadth and depth of innovation possibilities.  Doblin has described, and many of us use their description, of ten different types or outcomes of innovation:  products, services, business models, channels, brands, value networks and so forth.  Yet many corporations artificially narrow this to simply creating new products, when in effect we should be focusing on innovating business models, channels and experiences.  Again, false narratives and thinking narrow options far too often and too early.

Simultaneous and broadly defined

Instead of narrow definitions, we need to open up innovation definitions to larger thinking.  Corporations need a balanced blend of innovation to exploit existing capabilities (incremental, cost-cutting, efficiency focused innovation) AND exploring new markets and opportunities (transformational, disruptive innovation).  Secondly, corporations need a much broader definition of desired innovation outputs or targets (products, services, business models, etc), rather than simply tinker with product innovation.


If you accept the idea that innovation must be more broadly defined and simultaneously working on both exploiting and exploring opportunities, then there are implications for your business.  First, you'll need to reallocate resources.  Far too many resources are focused on simply running the day to day business. Far too little resource is invested in innovation, of any type.  Second, you'll want to rethink how you assign people.  Your best people need to be working on your future, not your present or your past.  Assign your best people to innovation.

Third, focus on a balance between exploiting and exploration, based on the amount of competition and change in your industry.  The faster the change, the higher the competition, the more you should be focused on exploration, because significant change is going to happen.  You can cause it or you can react to it after the fact.

Fourth, work on creating a much more fluid organization, able to adapt to changing circumstances - changes you create and changes thrust on you by external forces.  Solid, rigid organizations create barriers to change and then crumble as new products and new business models emerge.

Fifth, focus on changing and adapting your business model.  Too much emphasis is placed on product innovation, and too little on adapting and shifting business models.  Ultimately it's not a product or service that drives success in the market, it's the business models, and increasingly we can see that business model longevity is shrinking in the same way that product cycle longevity is shrinking.  No longer do we hail the impact iTunes had on the music industry, now we look in wonder at how quickly streaming options have overtaken iTunes, forcing even Apple to react.

To remain competitive corporations must become far more aggressive innovators, constantly innovating existing products and capabilities (exploitation) and constantly evolving and identifying new markets, segments, technologies and opportunities (exploration).  As they do the latter, they must become far more nimble and agile, able to modify and shift business models.  Increasingly, business model innovation must be the focus of innovation efforts, with products and services viewed as by-products of a business model innovation.

A new change model

All of this means corporations need a new model of change, moving away from the unfreeze/refreeze models of the past, because in the future there is no time to refreeeze, only to repurpose, shift and adjust.  These concepts and demands call for greater fluidity in the organizational structure, nimbleness in the corporation culture and better strategy and implementation in the management ranks.  Innovation, business model adaptability and change management are not nice to haves, they are the competitive advantage of the emerging marketplace.  Paul Hobcraft and I proposed some ideas about a new change model and the concept of a "fluid" business structure in a series of articles published on Innovation Excellence.

Trying to accomplish both exploitation and exploration in a "frozen" organization won't work - all the constructs are focused on exploitation.  This is why ambidextrous organizations are important and why we need new change models.  You cannot afford to focus on exploitation alone, and few firms would even think of a solitary focus on exploration.  You need to be doing both, simultaneously, which will demand new flexibility, new agility, the ability to change at speed, and execute established processes efficiently while conducting exploration capably.  Innovators need to identify and adopt completely new models of change in order to thrive.
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posted by Jeffrey Phillips at 7:14 AM


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