Is it Time to Rewrite the Innovation Playbook: Ten New Requirements in the Age of Hyperinnovation

By: Haydn Shaughnessy / Nick Vitalari

In the world of hyperinnovation innovation itself is changing. In place of a monolithic R&D based innovation culture we suddenly have a proliferation of innovation approaches and new pressures on enterprises to innovate. Haydn Shaughnessy and Nick Vitalari argue the innovation playbook needs to be rewritten, and relabelled.

As part of a larger research project on innovation and business platforms we have interviewed a range of global companies about their innovation practices and strategic concerns. The research is due out later this year. Here are some early results. What are people in large companies saying about the pressures of innovation? The findings, in our view, point to a need to overhaul how we see innovation. Solutions will not be found in new innovation tools like open innovation but require fundamental reappraisal of how markets function and the competitive position of the enterprise.

1. There is pressure to move from episodic to continuous strategy: the question repeated in different ways by executives responsible for innovation is how do I deal with disruptive change and continuity at the same time? We phrase that as episodic versus continuous change. A related component is the challenge of making fundamental change acceptable.  Many organisations acknowledge the power of the corporate immune system to kill new ideas dead before they have a chance to grow and in effect to maintain an episodic culture.

2. The core purpose redefined – the system of acclaim, decision making, core and brand renewal.

• The system of acclaim in a company often embeds and preserves products and processes longer than they deserve and reinforces episodic change. A sociology of innovation would show us that contributions to innovation over time become a defence of the status quo. We institutionalise change quickly and then defend the new position – we forget that as humans we are recurrently innovative. Even so we are passionate defenders of the status quo and build esteem systems around past innovators.
• The culture of change. The absolute requirement to have top management involvement in change was quoted frequently in our interviews, and the need to embed this in the corporate brand and in the culture at all levels. Some companies, for example Chubb, see ideation events and exercises as being as much a method for culture change as the front end of a funnel. Ideation systems are therefore not always about ideas.
• Innovation at the level of brand. The brand has to become more reflective of a company’s inner core innovation commitment. As we move away from R&D as a dominant innovation mode many companies are struggling to replace that with a softer innovation identity.
• New processes for delegated decision making. We are beginning to see new decision making processes around innovation. These tend to be based around funding for novel ideas. The funding processes vary but typically a contingency fund or internal venture fund to kick-start new products (in some cases this can be an external fund – e.g. Lilly, BMW), incremental or radical; incubator type facilities to grow a new business to a scale that it can withstand the corporate immune system; and closer coordination and better access to very top management to get accelerator decisions for radical innovations.

These are just four examples of how culture change is layered and involves concrete measures such as who makes decisions, and how the brand is designed, as much as it is about ‘people’.

Enterprises are buckling under their complexity, employees are freelancing the innovation game forcing change on to the firm by bringing their own smartphones, laptops and software.

3. New challenges for long range analytics and foresight – Two factors – multiple geographies and radical adjacency moves – are creating a heightened need for sensing change (Samsung specifically use the role description ‘sensing’) and creating better scenarios (Ericsson).  The expectation that surprising things can and will happen is pervasive and most executives we talked to see this in a positive light. It represents opportunity. Foresight is therefore as important as the ideagora. Most innovation literature focus on Front of Innovation (FEI), generating and evaluating ideas – but foresight is more significant than ever and we are seeing a revival of the use of foresight tools like scenario planning.

4. Disruptions to the value chain and transitioning from process to product – whole industries face the challenge of transitioning their operating system and operating philosophy from process to product and service. This is in part due to the challenges of low returns to R&D. But it is also about the disruption of the value chain. There is so little added-value in bulk operations but also no early warning or market-based insights to signal change. Process companies (for example paper and steel) are less vulnerable the closer they are to an end-market where they can use competitive tools like relatively low-cost design, in place of high cost R&D. This in turn is adding to convergence pressures on downstream markets, and intensifying the level of competition in areas like consumer electronics, home systems cars, networks, and more.

5. The innovation deal flow – becoming the innovation channel for ideas is now a viable strategy for a small number of firms. P&G has become the exemplary case of a company that has almost transformed itself into an innovation machine, advertising its size and market access as its most significant assets, and using that to attract partnerships and innovations to it.

Other companies are a stage behind still utilising old methods (ideagoras, scouting (e.g. Nokia), sensing (e.g. Samsung) incubation (Lilly), venturing.

6. Renewing core competency – Companies with a strong tradition of innovation are having to take a new look at their core competence. Lab-based R&D is not providing the differentiation and product-drivers it used to. Innovation in ‘softer’ areas, not only design but also the use of social media, service design, and the business model are all equally reputation enhancing. In addition competition is arriving via other companies’ radical adjacency moves, (for example Apple and Google into mobile). Companies who have regarded themselves as leaders by dint of innovation capacity are now having to ask – well what are our real core competencies? What are the other strategic assets beyond R&D?

7. Dealing with enterprise complexity – Enterprises are buckling under their complexity, employees are freelancing the innovation game forcing change on to the firm by bringing their own smartphones, laptops and software. Going back to the early 1980s enterprises had to transition from ‘product’ focus to ‘service’ focus and during the same period from physical to virtual business processes. Now they are working out the logic of globalization and the converging value chain. Many large enterprises are still dealing with the first transition –  how to do good customer service. Innovation takes place against this background.

8. Understanding the impact of globalization on market structures and consumer needs and on B2B needs as we move towards mass differentiation. There is a bigger need for real involvement of users, user profiling and market listening as old product categories break down. For example in mobile telephony, the ‘app’ is not only ubiquitous it also defies categorization. The idea that a product belongs within a demographic is now a dangerous assumption. The growth of mass differentiation – the breaking down of old product categories based around class, gender, income group or geography is reflected in that fact that people want more choice. The western consumer is now targeted from abroad for example by Asia-based small scale manufacturers producing  high quality goods at a small fraction of the price charged by western brands. The volume of activity is not threatening but the impact on consumer attitudes needs to be understood.

Real time informatics and analytics, radical adjacency, re-branding, value chain disruption, breaking down traditional esteem systems, and new decision rights, are not conventional innovation issues.

9. Organising and utilising partnerships and IP issues associated with open innovation. Open innovation introduces a requirement to master partnership development (visible in large MNCs now creating partnership advisory roles and creating large scale partnering opportunities (Microsoft Biz Spark). In advanced business models like API strategies, that process is automated (Apple’s Apps Store). But for many companies developing partnerships in an atmosphere of trust and with well developed IP sharing principles is an asset they are chasing.

10. Real-time information, expertise and decision making. In the old industrial model we relied on static products for information – books, reports, training modules or documents. These were valued because they took time to produce, were invested with authority (if they were good) and often existed within an established paradigm or research tradition. Not even the advent of databases threatened the primacy of products that emerged in the age of print. However, it is difficult now to compete without access to flows of information (which can derive from something as simple and potentially banal as employee status updates) and to have the analytical capacity to capture the meaning of flow. Changes in search engine technologies (Solr¹) are helping to break down silos of information and roles by converting transaction data into searchable text  (and expert search),  giving more employees a Google-like search experience in place of structured query. Many managers struggle to deal with flow and as yet new work platforms are not being used optimally to help people with this challenge.

These factors taken together are not resolvable via innovation tools as we currently understand them. They are really about wholesale transformation of the enterprise, even requiring firms to find new ways to formulate strategy. For example real time informatics and analytics, radical adjacency, re-branding, value chain disruption, breaking down traditional esteem systems, and new decision rights, are not conventional innovation issues. The term innovation now acts as a proxy for strategic renewal and market disruption- what we really need is to uncloak it and recognise the breadth of change enterprises face.

By Haydn Shaughnessy and Nick Vitalari

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[1]Shaughnessy, Haydn The Cse aFor open Source Search in the Enterprise, GigaOm Pro,Sept 2010