Innovation second and third order effects

I've had a really good laugh lately at the people running around tripping robots.  I wonder if that's an actual job description (Robot Tripper) or if Google and others simply look for volunteers who are willing to trip the robots. Aren't the people doing this afraid that one day the robots will seek revenge? 

But here's where innovation turns down a potentially blind alley.  Why do we need bipedal robots, and is being upright and bipedal a evolutionary feature that may have had an advantage in the past, but no longer?  In other words, if the robot gets tripped, so what?  We humans evolved to operate only in an upright position, but that doesn't mean that robots need to.  If a bipedal robot gets tripped, why doesn't it simply sprout wheels and go on its way?

In all seriousness, what we view now as advantages and features may eventually be bugs.  There are few activities that demand that a robot have bipedal capability or propulsion, when other forms of movement are equally viable and less subject to disruption.  We humans probably evolved in an upright position from a former crouched position because seeing over the grasslands meant earlier warnings about predators.  Since we no longer live in sub-saharan grasslands and constantly scan for predators, we are probably more likely to evolve in the future into beings permanently bent at the waist from sitting so much and permanently bent at the neck from scanning our devices.  Perhaps we should structure our future robots in the shape of a question mark rather than upright.

This is the problem with a lot of innovation thinking - anticipating a future that's based on the observable past.  This approach often fails to incorporate the amount of change, and the direction of change in the environment.  It's what militaries call "fighting the last war", building trenches when the enemy is building highly maneuverable tanks.  In the short run we may need bipedal, upright, humanoid robots simply because the physical environment we live in and work in is designed for humans to operate in, and therefore robots shaped like humans may be more efficient.  But I doubt it will take long before the environments change to adapt to robots and humans will adjust.  Already robots are delivering food and medicines in hospitals, and there are fully automated "dark" warehouses where no humans are employed, only robots.  McDonalds is exploring new restaurant designs that could be fully automated, with few or no human employees.  What's interesting about that design is that the "back office" - kitchen, freezers, etc - could be radically redesigned to save space, since humans will rarely or never go there, while the dining area would retain its human-centric design. 

All of this to say that as we innovate, we need to consider two important issues.  First, innovation, especially disruptive innovation, rarely takes on the shape, contour or business model of what already exists.  Just ask BlockBuster or Tower Records.  Second, we have to consider the secondary and tertiary effects of innovation.  Do the robots conform to human centric designs or do buildings and factories become tailored to the robots that work there?  Most likely the latter, since robots don't need light, or heat, or safety equipment, or gyms, or cafeterias.  Too often we "innovate" only the most obvious piece of the equation - the evident product or service - and neglect how much change is occuring.  This evident innovation simply reinforces past ideas and conventions, while the rest of the world is leaving them behind.  Too often we innovate only a component of the total solution - developing a bipedal robot, when we actually should be rethinking the environment where a robot, regardless of its locomotion, is optimally deployed.

I'd love to end this post with a reference to playing checkers or chess, introducing the more complex dimensions of innovation, but that reference won't do.  It's too constrained.  Good innovators need to be thinking about the multi-variant possibilities of future scenarios rather than innovating based on past conventions and needs.  Further, once a potential future option becomes a reality, we must also understand how to operate in that new future.  Why build bipedal robots in an upright position when that's not optimal or valuable, but simply mimicking human construction?

Innovation and Maturation

So many companies make so many claims about innovation, and yet so few are really, deeply engaged in innovation.  In the next decade we'll say goodbye to some of the firms who are talking about innovation but aren't exercising the muscles.  Disruption and market transformation will occur (will? is occuring) at a far faster clip than before, and as Warren Buffet likes to say, when the tide goes out we'll know who was swimming in the buff.

How do we get a better understanding of who is merely talking about innovation, and who is actually practicing it?  Beyond that, is there a way to determine who is merely sustaining a veneer of innovation, and which firms are driving innovation into the core of their business?  Can we create a barometer of innovation capability and engagement?  I think the answer is "yes", based on evidence we can observe and measure.

Three maturation paths

There are at least three ways we can determine if a company is truly engaged and serious about innovation.   These are:

• The level of innovation capability
• The breadth of innovation output
• The amount of simultaneous innovation

Let's look at each of these in turn.

Innovation capability

Long ago, over a decade ago when we started OVO, it was unusual to find people who could run an effective brainstorming activity within most companies.  Innovation was rare and brainstorming activities were more likely focused on solving Six Sigma challenges than aligned to creating new products and services.  As time has passed, some innovation skill has filtered in, and many companies have acquired innovation training.  Innovation capacity grows as more people have the skills to lead innovation, and as corporations establish more formal methods and processes.  While there are definitely more people with more innovation awareness in corporations, there is still a lack of consistent innovation methods or processes.  The new explore:exploit mantra, which is emerging and yet I believe incomplete, demonstrates that many companies are beginning to understand the importance of distinctions between the efficient practices that sustain current products and the divergent processes and methods that create new ideas.  Until a company can adequately sustain existing products and efficiency WHILE executing new innovative projects and managing ideas, doing both within a defined framework, there is little innovation capacity.

Breadth of Innovation Output
Beyond the new explore:exploit dynamic we hear, daily it seems, about the importance of "business model innovation".  It seems as though every year introduces a new innovation theme of the year or quarter, with business model innovation as the current hot topic.  Doblin did us all a favor by defining ten types of innovation (products, services, business models, experiences, brands, value networks and so forth).  A firm cannot succeed by innovating in only one of these dimensions, because change is happening in all dimensions.  Focusing on product innovation is important, but so is business model innovation, and customer experience innovation.  Nascent innovators will focus primarily, if not exclusively, on one innovation outcome or type.  People who place inordinate emphasis on one type (like the current business model craze) are doing so for their own purposes, not providing the right emphasis that suggests that multiple types are important.  To assess the maturation level of a particular company, simply review the innovations that they report.  How many different types are represented?  How radical or disruptive are any of the outcomes?  In most cases you'll find little variation, representing only a couple of innovation types.  Further, most innovation in nascent innovators is incremental, with few attempts at radical or disruptive innovation.

Innovation Capacity

When a company congratulates itself on one innovation, it can be evidence of a dramatic innovation, combining business models, design, new product innovation and a host of other factors.  Apple's introduction of the iPhone was such an occurrence.  Since Apple was betting big on a small handful of products, their innovation capacity was less important than the impact of the output and the disruptive behavior of the solution.  Few companies have four discrete products in the way that Apple did at the time.  This means that maturation has not only to do with observable capability (methods, processes and capable people) and a range of outcomes (product, service, business model innovation) but must also sustain multiple, simultaneous innovation activities, in a number of phases.  Any company can sustain one innovation activity for some period of time, but only a company that is truly mature in innovation can sustain multiple projects at the same time with wildly different intended outcomes.  This simultaneous innovation demonstrates that innovation isn't reliant on a few highly motivated people but is a core philosophy anchored in good process and corporate culture.

When you hear companies talking about their innovation acumen, capability or experience, let's evaluate three key factors to see just how capable and mature they are:  their observable and defined processes and people, their plans for and ability to generate a range of innovation outcomes and their ability to sustain operations while managing multiple, simultaneous innovation activities.  These three factors will signal a truly mature innovator.  A company that can demonstrate one or two of these factors will have advantage over others that only demonstrate one, but only a firm that can demonstrate all three is truly innovative.

Why business model innovation is so compelling

There's a real sense that we in the corporate world are standing on the brink of an amazing transition, moving from relatively older, static models of competition based on corporate size and mass, to new competitive realities dictated by speed, agility and innovation.  For at least a couple of centuries, as we look back over the dominant corporations of the past, we can see that size and scale were the predominant factors.  Whether we think about some of the original corporations (like those that governed the tea trade in India and England) or more modern corporations like the US automobile companies or banks, the prevailing wisdom has been to grow large and use size, mass and reach to defeat other competitors.  Embedded in this thinking, or perhaps even dictated by this thinking, is an inherent business model:  size matters.  By growing large you can distribute costs more effectively, serve more customers from the same basic set of products, scale revenues and introduce efficiencies and command market power and dominate sales channels.  In a market where size matters, only a few players dominate and the rest compete for the leftovers.

But as we know, large companies become defensive, complacent and inert, held in place by investments and past performance, overly risk averse.  Their size and their business model ultimately becomes a barrier for new innovation and new growth.  The very thinking and models that helped them grow become barriers for further development.  And, of course, the models that got them to a specific position aren't necessarily relevant as tastes, consumers and channels change.  It's strange to think that Sears was once the largest retailer in the world, and actually made a significant transition from a catalog company (in many respects the world's first Amazon) to a company that based its model on presence in shopping malls. Now that Sears is relatively undifferentiated, and consumers are no longer spending time at malls, the model based on stores in malls and a highly distributed assortment of low and mid range products doesn't work.  But Sears is locked into a business model that is exceptionally difficult to change.  They can't pull out of mall stores overnight.  What was once promising as a model is now driving Sears toward a disaster.

This is both the promise and the danger of business model innovation.  Commenters and consultants talk blithely about business model innovation as if existing companies can readily and rapidly change their business models on the fly.  For existing companies, business model innovation is important, if for no other reason that change is more frequent and more disruptive, which leads to the invalidation of old models.  Existing companies must learn to balance the efficiencies gained from existing models and the ability to constantly evolve their models to new competitive realities.  As we like to say when we talk to clients about innovation, we've got to build the plane while we are flying it.  There's no other option, and this is especially true for business model innovation.  Sears cannot suddenly change its business model, abandoning stores, abandoning faithful customers and vendors.  If you want to see how that plays out, go look at JC Penney's attempt to innovate its stores and eliminate coupons and discounting.  That experiment lasted only a year or two before Penney's brought back its former management team.

Penney's experience doesn't suggest that you shouldn't innovate your business model, only that you can't suddenly change it and lose good, faithful customers who don't understand the change.  Business model innovation is something every company should be constantly experimenting with, and communicating to its employees and customers why these experiments are taking place and what changes they are expecting and planning for.

Business model innovation is so compelling because it is so unusual (at least to date) and so powerful.  We can look at examples like iTunes, NetFlix and Airbnb as real business model disrupters.  We can also note that every one of these was a new entrant into an existing industry, not bound by convention or past investments in the industry.  Does this mean that incumbents should ignore business model innovation and simply wait to be disrupted?  Absolutely not.  In fact many of the "innovations" that these disrupters introduced were opportunities that existing incumbents could have addressed but ignored.  Take for example Airbnb.  What Airbnb offers is a reservation system to allow you to rent a vast array of properties, none of which they manage or own.  But Marriott and Hilton don't own many of the buildings they brand, and their reservation systems work just fine in those locations.  What would have happened if Marriott or Hilton had expanded the definition of accomodations to include renting rooms or condos in the same way that Airbnb does?  After all, the hotel chains have a captive audience who trust their branding and want points.  It's not such a stretch to think that Marriott or Hilton or other trusted, established brands could have done what Airbnb did.  And this is only an example of a business model change that expands the opportunities, rather than a change like Netflix that completely disrupts the existing model and market.

Business model innovation is so compelling because it is so difficult for existing companies, but that's not a reason not to do it.  Existing companies should be examining their business models and understanding the impacts of business model innovation.  Which innovations expand the market and model (like Airbnb)?  Which disrupt or destroy the market (like iTunes)?  What can/should we do to evolve, adjust, modify and move our models?  Where are the testing grounds?  How do we experiment with new models before the old models come under attack or become obsolete?

The real challenge is that most companies are barely cognizant of product innovation, which has its own challenges but isn't as difficult or compelling as business model innovation.  This is akin to going directly to high school, skipping elementary and middle school, foregoing the education and experience.  Again, that doesn't mean business model innovation should simply be ignored, because the pace of business model innovation is increasing as we get better and better connectivity, better payments tools and platforms and better information management and data analysis.  These platforms will allow completely new business models, and will shift existing competition very quickly. 

In fact, business model innovation is a lot like a terrible accident on the road, so heartbreaking and sad that you can't look, and so compelling and awe-inspiring that you can't help but watch.  We need to get off the sidelines and get involved with business model innovation, but not in the way you've been told.  Every company needs to start defining its existing business models, understanding potential weaknesses that can be exploited.  They need to start experimenting with new business models and understanding new technologies and platforms.  It's naive and wrong to assume that established business models will sustain.  Those that understand the impending changes and put in place the capabilities and mechanisms to experiment, learn and adapt will be the ultimate winners.

One Thousand innovation posts and more to come

It seems fitting that on the first day of a new month, early in a new year I'll pen what is my 1000th post on innovation.  Looking at that number makes me think that innovation is either a vast topic or that I repeat myself quite frequently.  Happily, I believe both alternatives are true, keeping with the both/and mantra of innovation.

You'll forgive me for being a bit reflective here in the first section of this post.  I started writing Innovate on Purpose over a decade ago, as innovation seemed poised to take root in corporate America.  My colleagues and I at OVO Innovation created our consulting practice to assist large corporations in their innovation journey.  I decided to write about my assessments, my discoveries and the lessons learned along the way.  And over that time I've seen a lot of innovation, and innovators come and go.  I have to express my disappointment at the commitment to innovation that we've seen over the past decade, and I have to tell you that I believe a real reckoning is coming.  Like Jeremiah from the Old Testament I feel like a prophet of impending doom, but I also see the incredible possibilities that lie ahead of us once we finally decide that innovation is more important than efficiency and as we recognize the coming wave of business model innovation.

What's old is new again
Today (February 1, 2016) I did a quick scan of the social media sites, especially Twitter, to see what people were highlighting.  What's remarkable to me was the large number of tweets about innovation culture.  I saw this one on why the financial services, especially banks, lack a culture of innovation.  Having several large financial institutions as innovation customers, I can tell you that any company with a "risk" department struggles with innovation, and the same is true for highly regulated companies or industries.   In the same twitter stream Henry Hart Doss talks with Larry Keeley at Doblin about innovation culture, Doss taking the perspective that culture is important, and Keeley seeming to claim it isn't.

A decade on corporate leaders are still trying to get their heads around innovation, and decide whether it's a cultural phenomenon, or a process and tools issue, or something to do with design, and how it all links into strategy, all the while trying to isolate the disruptive aspects of innovation from the engine of profitability and efficiency.  At this point, many of the current leaders have missed the boat, and I believe we'll need to wait for the next generation of leaders who will recognize that these are all components of an integrated solution.  Innovation is impacted by the culture of the organization, is a process and tools issue, incorporates design and user experience and has a range of outcomes.  Until we see it as an integrated, mutually dependent whole, innovation is only toying at the margins and will always fail to deliver based on the outsized expectations that are set.  But these issues are just the tip of a larger iceberg that's appearing on the horizon.

What's going to happen
Here's my prediction about what's going to happen next.  Innovation, like a virus, mutates beyond expectation, shifting from an innocuous bug to a deadly contagion, as issues like business model innovation create significant disruption.  All we need is the emergence of a few trusted platforms upon which innovations can thrive, and major industries will quake and topple.  For example, payments is ripe for innovation, and what we lack are some basic infrastructure standards.  If those infrastructure standards are completed and a platform is created, we could witness a wholesale change in the way banking and financial services are created and offered.  We could see the rise of a real "retail" payments offering that wipes out retail banking, credit cards, payments, etc.  And that's just based on the rise of one platform.  If Uber and Airbnb can take grow so quickly based on their respective platforms, why can't we "uberize" other industries?

People will scoff, but the coming business model innovation wave will not simply topple giants, the way product innovation and design innovation humbled firms like Yahoo, Motorola and Nokia.  Those firms still exist, but as pale shadows of their former selves.  Business model innovation, the next emergent wave of innovation focus, will not wipe out individual businesses, it will rework industries and revenue streams.  We are on the cusp of a significant amount of disruption.  If you think you've seen a few disruptions, like what happened to Blockbuster when NetFlix really took off, then you get the general idea.  Except we'll be talking about industries, not individual companies, when people really understand what business model innovation can do.

Reflection
So, over a decade of blogging we've succeeded and we've failed.  We are still trying to convince executives about the importance of innovation culture, and the need to build innovation skills.  I think we can safely say that there's more focus and more awareness of the need for innovation in the corporate suite, but the commitment to conduct innovation is still not where it needs to be. 

This is going to change.  People who understand a hockey stick graph, or Gladwell's tipping point model will agree - we are nearing an inflection point, where we'll shift into a new business reality, leaving behind the large, slow behemoths.  What will replace them are fast, nimble business model innovators that can morph and adapt as consumers and markets change and adapt.  To do so they'll be much more flexible, configurable and able to identify trends and change as those trends change.  These firms and their leaders will understand the coming business model disruption.  In fact they are with us today, much like the small rodents and mammals were living with the last dinosaurs, scurrying around under their feet, ready to rise as the old guard passed away.

Yes, I'm being a bit apocalyptic, but when you reach 1000 posts you get the opportunity to opine about your longer range views.  The fact of the matter is that this coming disruption is an OPPORTUNITY, not a disaster, for those who see it coming and are prepared.  This isn't a nuclear winter wasteland, except for the people and firms that ignore the pending doom.

I'm looking forward to the next 1000 posts, and I'm sure they will happen, since so much is still to unfold.  Thanks for your indulgence and your readership.  I'll try to keep the flame burning in the next few years.