Archive for January, 2010

Networks for Design Driven Innovation

Posted by Tim in business models, design, evolving economic entities, networks on 3 January 2010

How do we come up with substantially new products, services and ways of doing things? When we are able to do this well, innovation provides our organisations with difficult to replicate competitive advantages. Yesterday, I talked about some of Roberto Verganti’s ideas in this regard in his book Design-Driven Innovation. One of the key points in the book is that breakthrough innovations come from creating a new meaning for your product or service. I interpret this as a form of business model innovation. So how do we create new meanings?

One of Verganti’s ideas that I find very appealing is that doing this combines cultural and technological ideas. He says that one of the ways to do this is to find interpreters – people that are experts in fields (often cultural) outside of your industry. You build alliances with interpreters so that you can collaboratively form new meanings for your products or services. He illustrates this concept like this:

And here is why he says that this creates unique advantages:

Managers tend to be attracted to codified approaches to innovation. They love tools, step-by-step processes, applications, instruments. They implicitly assume that innovatino systems can be bought and replicated at once. Indeed, one reason for the acclaim for user-centered innovation… is that it has been codified and packaged in a form that is digestible to executives. Highly codified approaches, however, have a downside: competitors can easily replicate them.
The relational assets that back design-driven innovation are of a completely different nature. They are embedded not in tools but in relationships among people. Relational assets rest on how one or more people in your organization know the intrpreter… This relational knowledge cannot be codified in address books but rather is tacitly preserved and nurtured by people. Like any form of social capital, it cannot be bought immediately but must be built over time. Such knowledge requires cumulative investments, punctuated by attempts, failures, and successes.

I think that this is correct, and it raises several important points:

First, it emphasises the critical interplay between culture and technology. We know that innovations are technologies – even new processes can be thought of as technologies according to Brian Arthur. Nevertheless, technologies don’t become innovations until we know what they are for – and this meaning is always cultural. For example, SMS messaging has quite different meanings in Japan, Australia, and South Africa, even though the actual technology is the same in all three cases. Thinking seriously about culture can only make us better innovators.
Second, the uniqueness and complexity of our collaborative networks is a significant source of competitive advantage. We already know that we can’t build competitive advantage on codified knowledge. Verganti argues that three are relatively small numbers of exceptional interpreters in each of the areas included in his network schematic – so relationships with these interpreters tend to be unique and impossible to replicate. The way that we use our network to construct unique know-how is a great example of tacit knowledge, which we can use to build a competitive advantage.

Finally, Julien Bleecker summarises nicely in his review of the book:

It is not about following trends, but exploring alternative scenarios and materializing designed contexts that are proposals to users — points of entry to quite new experiences, with new meanings

If this is correct, then design-driven innovation is an excellent method for dealing with environmental uncertainty. By assessing a range of unique scenarios, organisations have an opportunity to shape the future, at least a little bit. Which is about all we can ask for, these days. I know that there are some issues with how well research based on Northern Italian firms generalises to the rest of the world – the business ecosystem there is unique. Still, Verganti’s book rings true to me – I think that it is a method that is well worth further exploration.

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Design Driven Disruption

Posted by Tim in book riffs, business models, design, innovation strategy on 2 January 2010

This morning I thought of yet another way to talk about the incremental-radical innovation spectrum. Incremental innovations help you do things better, while radical innovations help you do things differently. If you follow the prescriptions in most business books, even when talk about having a radical message, you will end up doing things better. Actually, in some cases, if you follow the prescriptions in business books, you’ll end up doing things worse – which is why you need to be a bit careful when you’re reading them. However, I’m currently reading Design Driven Innovation by Roberto Verganti - and if you follow the prescriptions in this book, you’ll end up doing things differently.

Verganti’s book is unusually deep. There are an unusually large number of concepts in this book that are worth considering and acting upon, and I’ll discuss several of them over the next few days. Here is John Caddell’s description of the book:

Verganti, a favorite of this blog, attacks one of the central mysteries of innovation–how can a company successfully create a product that is a radical break from the past, and which shows the way to a new future?

We’ve seen these products at work. The mobile phone is one. The personal computer is another. We know that you can’t survey users to determine what these products will look like or what they should do. So how to create them?

Verganti’s primary point is that to do this, you have to create new meanings with your innovations. When he talks about ‘design’, that is what he means – the creation of new meanings, not simply making things that look elegant and beautiful. In fact, he contends that the latter is now a baseline skill that all firms must have to stay in the game, rather than a source of competitive advantage:

Look at a product that is sitting near you at this moment. Do you find it cool, sleek, and stylish? If so, you are acknowleding the ability of its manufacturer to interpret the trendiest standards of beauty in the market. Do you have the clear feeling that a designer has devised its shape, or that a manufacturer asked a design firm to create the product’s user interface or style? That is a clear sign that deisngers have completed their exercise – that the product is stylish, in line with the dominant language of the market – but that they have also been very conservative. This is simultaneously both the success and the failure of design as styling.
If all companies invest in incremental design and if all do it the same way using the same languages, design loses its power to differentiate one firm from another. Like total quality management, this type of approach to design is mandatory – nothing more.
The difference between [firms pursuing radical innovation of meaning] and their competitors is not in whether they pursue incremental innovaiton but in whether they invest in radical innovation: these firms periodically search for dramatically new meanings, but their competitors do not. The radical innovators know that meanings in the market alternate between periods of incremental change and periods of rapid and disruptive transition. They aim to ensure that they will lead these transitions and let their competitors suffer the consequences.

Yesterday Graham Horton said that disruptive innovation is a fashion that is misunderstood and misused by most who talk about it. In general, I think that he is right, but I also think that Verganti is talking about disruptive innovation in a useful way.

Anders Sundelin recently wrote an interesting post about disruptive innovation too. It included this talk by Scott Anthony:

There is one point in that with which I strongly agree, but also one big hole in the argument. I fully agree that:

Disruptive innovation will result in major changes but they don’t often rely on technical innovation, in fact many times the technology is quite trivial, it’s the business model, the way a company organizes and acts that drives disruption.

I think that is unquestionably true. This is one of the things that Anthony talks about a lot, and he is absolutely correct. It’s a point that needs to be more broadly understood. However, I am less convinced by his presription for developing disruptive innovations. I think that starting with focus groups to identify unmet needs is probably not the best way to approach this.

This diagram is from Design Driven Innovation, and I would argue that Anthony is talking about the top left quadrant here – innovations that are technologically radical, but which maintain the same meaning. If you start your innovation process with focus groups, it’s impossible to radically innovate the meaning of your innovation.

Interestingly, both Anthony and Verganti discuss Nintendo’s Wii gamestation as a radical innovation. This reminds me a bit of the competing explanations of Honda’s success in America. The Boston Consulting Group studied the Honda case and concluded that it was an excellent example of well-executed strategy formulation and execution. Richard Pascale then revisited the case a few years later. Based on extensive interviews with the Honda executives involved, he concluded that the strategy was emergent, fairly random, and fortunate to have succeeded. To me, Anthony’s discussion of the Wii is like BCG’s explanation of Honda, while Verganti’s is more like Pascale’s.

I find Verganti’s explanation of the Wii more compelling. Rather than it being a triumph of analysis, he describes it as:

The Wii offered a radical change in meaning compared with its competitors. It was a physical experience to be played no with thumbs but with the entire body, using natural movements common to sports and vigorous games…. The Wii transformed what a console meant: from an immersion in a virtual world approachable only by niche experts into an active workout, in the real world, for everyone.

The Wii was technologically inferior to the current Playstation and XBox consoles in terms of what were considered to be the key metrics – processor speed, and display resolution. However, by combining existing technologies (MEMS accelerometers and gaming consoles, both already in wide use in different industries) in a novel way, Nintendo created a radical innovation in meaning.

Design Driven Innovation is a terrific book. I recommend it to anyone interested in managing innovation. There are aspects of it that will challenge your core beliefs, I think (there are parts that challenge mine, at least) – but that’s one of the things that I value in a book. And like I said, if you follow Verganti’s advice, you’ll end up doing things differently – and that’s what makes things interesting, right?

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My Theme for 2010

Posted by Tim in innovation on 1 January 2010

Here is a quote from R. Buckminster Fuller that sums up my theme for 2010:

You never change things by fighting the existing model. To change something, build a new model that makes the existing model obsolete.

I’m not big on resolutions, but I like Steve Shapiro’s ideas for building a New Year’s Theme. So my theme for 2010 is:

New Models

Happy New Year everyone. Thanks to all who have read, commented, subscribed and contributed to my innovation projects over the past year. This year I’m looking forward to working with you all to build some New Models.

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