Monday, March 14, 2016

The innovation tipping point

I've thought for a while now that we are on the brink of something big.  That innovation will finally reach a tipping point, and like Europe in the Renaissance we'll finally leave the "dark ages" and innovation will flourish everywhere.  Right now I believe that for many corporations, innovation is a mystery that seems to promise what we think impossible:  more revenue, more profit, more market share at little cost.  Who can blame people for being suspicious of a perpetual motion machine, when they've been assured that physics tells us it's impossible?

In a few years, a decade at the most, we'll look back at this point in the evolution of innovation as an activity, a tool and a strategy and wonder:  what were they thinking?  When the tipping point occurs, innovation will spread like wildfire, because finally all of the frameworks will be in place, finally corporate cultures will stop resisting, finally people will have the skills and time they need.  When this happens, we'll look back at the innovators of today and wonder why they worked so hard, for so little gain and so much repeated failure.  What we have to face is that the problem isn't innovation tools, or thinking, or people.  The problem with innovation is that we have yet to reach a tipping point, where the need for innovation overcomes the resistance and fear of innovation.  When that point occurs, innovation will run through corporations like the Black Plague through Europe, and possibly with many of the same results.

Two Edged Sword

The opportunity and problem with the innovation tipping point will be that for every "winner" there will be one or more "losers".  The winners for the most part will be those companies and corporations that harness innovation, in all of its forms, for their benefit, adapting to new competitive realities. The "losers" will be those companies and corporations that have been avoiding innovation, trying to "double down" on efficiency and existing products and services.  And when the tipping point happens, entire markets will shift.  We'll talk fondly about the fact that Tower Records and Blockbuster had time to witness their demise.  This is what Schumpeter was talking about when he referenced "creative destruction", and we're going to see more of it, regardless of the form of capitalism we choose to implement.

You see innovation is going to create not just new products and services, but will create new channels, new business models and new customer experiences.  Whole industries will be transformed.  Those companies prepared for a new competitive reality will prosper, as they serve new customers in new ways, with new products and services, constantly adapting to customer needs and rapidly changing competitive environments. Those firms that are too rigid, don't understand the breadth and depth of innovation outcomes will simply collapse from exhaustion, because they won't be able to respond quickly enough.  The fast follower strategy they are intending to implement will demand speeds and agility that they cannot fathom.

The tipping point

So, what's the tipping point look like, and how can we attempt to predict it?  The major barrier to significant innovation across corporations and industries isn't capability, its risk tolerance.  When the fear of innovation and what it means to conventions and industries falls, or when new entrants enter in mass and don't pay homage to the past conventions, and when the value of consistent innovation is higher than merely sustaining the past, then the whole steaming mass of corporate fear, risk avoidance and bureaucracy will tip over.  At that point a mad scramble will begin.

What does the approaching tipping point look like?  We believe it will occur as customers begin to demand not just new products, but true solutions that address their entire needs.  Understanding the customers' journey and solving not just product needs but service needs, business model needs and so on.  Companies will arise which examine the shape and structure of the need, and pay less attention to the historical shape and structure of the industry.  Tesla, NetFlix, Uber, Airbnb and others are already doing this.  Are you paying attention to what they are doing to established industries? 

Because it turns out that a younger generation, raised on technology, has never experienced any other type of demand fulfillment.  They don't care so much about how the need is filled, only that it is filled quickly, with style and if possible for free.

Why will innovation be so devastating?

One last thing to keep you up at night.  The innovation tipping point this time will be unlike over social and corporate disruptions.  The reason is that the secondary and tertiary effects will be much larger.  Take, for example, the move from horse drawn carriages to cars.

This transition was significant in many ways, because it transformed the populace and business.  While it caused strife for some existing businesses (stables, horse groomers and the always castigated whip manufacturers) it wasn't so devastating for other firms in the industry.  Carriage makers could transform their skills to build car bodies.  Mechanics who worked on carriages could work on cars.  Even stable owners could covert their buildings into garages.  So while there was transition, and there were winners and losers, many of the firms in support of the industry in question were able to transform during the disruption.  That may not be the case in the future.

Future disruption based on service, experience and business model innovation is likely to invalidate old industry conventions, making it much more difficult for suppliers and partners in an industry to rework their businesses.  Reworking products within the same business model is difficult but possible.  The carriage makers did that.  Reworking your products and services while business models are fluid is difficult if not impossible.  The tipping point will bring with it wholesale changes in the way we work, the business models we build and how new and existing companies are able to compete in a rapidly changing marketplace.  It will be more Black Plague than the Model T.

Finally, the tipping point will exacerbate issues in the workforce, which are already underway.  The more innovation that occurs, especially business model innovation, the more rewards will flow to those with unique skills, and the more we'll automate services and experiences.  Thus, while the groomsman could eventually become a mechanic, it may be more difficult for people to transition their skills as innovation accelerates. 

The tipping point is visible, if not well understood

We are closer to the tipping point of innovation than people want to believe.  The current political environment shows us that we are closer to 1789 France than ever.  Significant majorities of both parties, led by aggrieved constituents want change.  They want a more responsive, involved government, even if they aren't sure what that means.  They are rejecting the conventions of the old parties, demanding new forms of governance.  At the same time groups like ISIS are doing much the same thing to the Middle East and religion, demanding a new way of thinking, eliminating states.

What happens when that fervor moves from the religious and political realms into the business realm?  Is it so far removed?  Do corporations and industries have firewalls to keep out the kind of change fueled by this passion?  I doubt it.  The combination of passion, change, consumer demand and evolving technologies and business models is going to fuel an innovation renaissance.  Which side will you be on?

Science, through the Second Law of Thermodynamics, tells us that in a closed system, entropy must increase.  This means as the pace of change accelerates, consumer demands increase, new entrants constantly enter established markets and create new ones,  business models grow and diverge, the business world becomes more disrupted, more disoriented, not less.

We have a choice.  We can predict the tipping point and the changes that will occur, and prepare people, policies and businesses for the change, or we can organize to attempt to resist this change, to insulate ourselves, our companies and cultures from the impending changes.  Ask Blockbuster and Tower Records how insulation and playing catch up worked for them.  Pay attention, prepare for the innovation tipping point and win in the new economy, or ignore the changes and find yourself overwhelmed when the tipping point occurs.
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posted by Jeffrey Phillips at 8:19 AM


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