Tim and I write a lot about managing innovation as a process. This is important for a number of reasons, but the two main ones are that if we manage innovation this way then it isn’t dependent on any particular person and that it is proactive and constant rather than reacting to a crisis. In short, its about managing innovation as a sustainable contribution to the performance of the organization.

A few weeks ago the Federal Public Service Management Advisory Committee released an excellent report on innovation in the Australian public service called “Empowering CHange”. Following from the “Public Sector Innovator’s Playbook” by Eggers and Singh, from the Kennedy School of Government at Harvard University, the authors of the report also recogiise the importance of sustainable innovation.

In their model of the process, Eggers and Singh describe a cycle that is based upon the principles of idea generation, idea selection and the execution and diffusion of the innovation. One of the standout contributions of the Empowering Change report is a diagnostic tool of questions relating to different parts of the innovation cycle. The objective of this is that it could be used as a survey instrument by different public sector agencies to assess which parts of the cycle are working well and which parts need intervention and improvement.

This diagnostic tool is a good idea and it is similar to one that we use in teaching and consulting that has been published in the Harvard Business Review by Hansen and Birkinshaw and researched by Jim Love and Steve Roper. When we survey organizations and students with this tool we find a very consistent pattern. Nobody seems to have a problem with generating ideas but selecting the best ideas is always a stumbling block and many firms don’t get past this to really develop their execution capabilities.

Yesterday I was in Canberra giving a talk to a delegation of senior Indonesian public service managers on innovation. This was a very enjoyable talk for me to do because I like talking about innovation with people who work in a very different context from the usual groups that I talk to. Indonesia itself is a public sector challenge with rapid population growth, ethnic diversity and several population centers spread across many islands. The Indonesian public service has undergone rapid change since 2001 and is developing senior managers to manage the challenges facing the nation.

Out of curiosity I gave these managers the survey of the innovation cycle from Empowering Change. My thinking was that maybe I would see the same pattern of strengths in generation and weakness in selection but the context of the Indonesian public service was so culturally and economically different that I might see a different pattern. To keep the survey short I asked everyone to just identify their strongest and weakest part of the cycle.

Across this group of 30, the weakest link by a wide margin was idea selection and the strongest part was idea generation. The result with idea generation was less clear because while many people identified it as a strength, several also said that it was a weakness in their agency. I’m not sure of the reason for this- it may be partly to do with the cultural difference between east and west where Asian cultures tend to be more hierarchical and consensus-seeking than more individualistic Anglo cultures.

Nonetheless, the most impressive result remains. Even in this very different management situation it is idea selection and not idea generation that is the weakest point in the innovation process.

Here is a quote from the FIFA spokesperson Nicolas Maingot responding to questions about the persistently horrible standard of refereeing at the World Cup:

Maingot also said FIFA was investigating why the giant video screen at the Soccer City ground showed a replay of the controversial Tevez opening goal in contravention of an understanding it had with the local organising committee.

“There was a controversial incident shown on the giant screens at Soccer City and this should not have happened,” he said.

“It is handled by the organising committee and last night was a clear mistake and this should not happen and we will have a closer look at that.”

So, to recap, the problem at the World Cup is not the egregious blown calls. The problem is showing replays of the egregious blown calls.

This is classic incumbent behaviour. FIFA is not only not innovative, they are actively resisting innovations that have been shown to work well in nearly every other major sport. Why should they worry? After all, football is the world’s game.

It’s not as though there is any other competition for our time and attention, right?

I’ve been watching football (soccer) since I was about 15 years old, and it has consistently been the most poorly officiated sport I’ve ever seen. This hasn’t hurt the sport over those 30 years I guess. But I’ve pretty well lost patience. Time to find some other ways to spend my time and attention.

Few others will follow my lead. Probably. For now.

On the other hand, newspapers managed to convince themselves for 15 years that the internet wouldn’t really have any impact on them, and US automobile manufacturers managed to ignore the threat from well-made economical cars built in Japan for 20 years.

When change comes, it comes quickly. If you fail to innovate to meet changes in the environment, change will hurt you. Even if you are huge, deeply embedded monopoly like FIFA.

Here is a telling passage from Googled: The End of the World as We Know It by Ken Auletta, about Larry Page, one of the two founder of Google, reflecting on the career of Nikolai Tesla and the start of Google:

Page told me he learned from Tesla that “you can invent the world’s greatest things, but if you just invent them it doesn’t accomplish much… I found it very sad. You can imagine if he were slightly more skilled in business, or with people, he’d have gotten a lot more done.” Brilliant ideas along would not suffice. Timing and follow-through, and raising resources, really mattered.

“I realized I wanted to invent things, but I also wanted to change the world,” Page once said. He became convinced that in order to effect scientific change he needed to start a business. Inventing things, he once said, “wasn’t any good; you really had to get them out into the world and have people use them to have any effect.”

There’s really not much that needs to be added. Brilliant ideas are not enough. We have to execute them, and we have to get them out in the world so that people use them.

Another important lesson from Google…

For the second day in a row, Hugh MacLeod’s daily newsletter has sparked a thought for me. Here it is:

This reminded me of a conversation that I had recently with one of our potential research partners. We are trying to find a corporate partner for my PhD student Nadja’s research work, and we were pitching the project to a couple of people, one of whom I’ve worked with at another firm. In her proposal, Nadja said “Leading practice companies need to follow leading practice for water management.” Nick’s response to that was roughly:

I disagree with that. Leading practice companies can’t be leading practice in everything. They need to be leading practice in the things that are critical for them, but for everything else they just need to be fit-for-purpose. For example, I don’t want to be leading practice in payroll – there are other people that I can outsource that to – we just need to be fit-for-purpose.

I think that this is probably true, not just for water management, but for innovation as well. Even the most innovative firms in the world are not innovative in everything – they have some parts of the business where they are simply fit-for-practice. This is why it is so important to link innovation to strategy. Doing so will allow us to be innovative in the activities that are most critical strategically.

Innovation is critical to success, but we need to target our innovation efforts. What activities do we need to be great at, and which just need to be fit-for-purpose? Focus innovation on the areas where we need to be great.

Innovation is not just about having a great idea (which is why it’s a lot more than just R&D) – it’s about executing ideas and getting them to spread. Here’s a case in point: Google. I ran across this video through George Siemen’s outstanding newsletter – a talk at the Palo Alto Research Centre by Marissa Mayer from Google:

Here is George’s summary of the key point in the talk:

Around the 30 minute mark she nicely sums up Google philosophy: find innovation weak points (areas where technology has advanced, but hasn’t been applied to “real world” problems) and exploit opportunities to improve the end-users experience.

Think about that for a second – the technology has advanced, but it has not been applied usefully. Google’s innovation strategy is basically to find areas with great ideas but no execution – and then they execute.

I just finished going to the annual DRUID Summer Conference, which, as usual, was very interesting. One of the striking things in the conference though is the HUGE amount of innovation research that is based on studying patents. This is understandable, because patent data is relatively easy to obtain, and you can get gigantic amounts of it, which makes your statistics look great. The problem is that patents are just ideas. They tell us about where the technology is advancing, but they don’t tell us anything about who is actually executing these ideas, or who is successful at getting them to spread.

But if we’re interested in innovation, we have to be more concerned with these last two steps. Innovation is a process – you are more successful at innovating if you manage it as a process. We will be more successful at researching it if we study it as a process.

Too many people think that innovation is all about great ideas. It is not. Innovation is about executing great ideas. Google’s ongoing success lies in finding research areas where the ideas aren’t getting executed well, and they’re not getting diffused. Google is a pretty good company to learn from – innovation is all about executing ideas.

I look forward to the football (soccer in Australia) world cup when it comes around, particularly when Australia qualifies or the Dutch are doing well. This time it’s been a slightly unhappy experience – not just because the Australians got thumped by Germany but also due to the constant drone that comes through my TV like a swarm of angry wasps. It turns out that the noise is due to an African innovation called the vuvuzala which is a long plastic trumpet. It’s cheap, lightweight and very loud, which makes it the perfect instrument for supporters. Good luck to the entrepreneur who invented it because it’s a nearly perfect piece of design.

I’m just not sure how long I can keep watching without turning the sound off. Apparently the television networks who have paid a fortune to cover the cup are also trying to develop a ‘vuvuzala filter’ at great expense.

Today I found this Australian tribute to the Vuvuzala on You Tube. I hope you enjoy it.

When I first got interested in managing innovation, I was coming at it from the point of view of a scientist. To someone with a PhD in biochemistry it was ‘obvious’ that most innovation resulted from the commercialization of science. Looking at OECD innovation indicators back in the 1990s I used to get frustrated that Australia’s investment in research and development and production of patents was so low compared to other countries. Surely Australia was going to be in trouble through lack of national innovative activity, wasn’t it?

Over 10 years later, I have changed my views, largely through seeing the evidence and meeting a lot of people in many innovative firms. The trap that I fell into all those years ago was thinking about innovation as a linear process, with scientific progress being the fountain for all innovations. The origins of this thinking go back to the 1950s and despite the evidence that innovation goes a long way beyond the commercialization of discoveries, we are still left with pockets of this intellectual legacy.

However, thinking is now changing quickly. Hard times call for new solutions and we are starting to take a good hard look at how innovation really works and what we can do to improve performance. Recent reports from the OECD on national innovation strategy represent a big shift from the old linear models that start with R&D and end in successful products. One of the major points from a study of innovation indicators is that the measurement of R&D is a poor indicator of innovation. Even in Australia where there are tax benefits for R&D spend, the product innovation difference between firms that report R&D and those that don’t is minimal.

The same is true for Norway and Mexico. Although there is a general trend of firms conducting R&D being more likely to report new-to-market innovations, there are still a lot of firms that don’t officially do R&D that are innovative.

So something is going on here that starts to challenge the old linear models and a real clue lies in the next chart from the same OECD report. This figure shows the percentage of firms that collaborate on innovation.

Not only do firms collaborate on innovation, but other OECD surveys show that many firms are getting their most significant ideas for innovative products, services and processes from outside the business. These can be customers, suppliers, competitors, consultants or universities.

Instead of thinking about innovation as a chain were an idea gets developed from inside the firm and commercialized, the modern reality of innovation is that it is a knowledge ecosystem where innovations come about through new connections within and between organizations. I’m not saying that science and research aren’t important – they are. However, rather than the being the origin of innovations, they are part of the system.

The old thinking on innovation was to pump in more science at the front end to get more innovations. The new paradigm is all about connections.

In 2006 I had a massive conference/research trip. I started with a stop in London to visit the Innovation Group at Imperial College, then I went to the DRUID Summer Conference in Copenhagen, the International Schumpeter Society Conference in Nice, and the Academy of International Business Conference in Beijing. One thing that was striking on that trip was the presence (and absence) of hybrid or electic transportation in each location.

In Nice, there were a bunch of hybrids (mostly Priuses), and also a huge number of low-emission vehicles like Smarts. The numbers in both categories were striking. And quite a contrast to the other three locations – where such vehicles were essentially non-existent. Lots of bicycles in Copenhagen and Beijing, lots of public transportation in all three, but not much in the way of hybrids.

That’s changed though. Last year I was back in France, and there were even more hybrids and Smarts than in 2006. And on my current trip, I’ve been astonished at how many hybrids are driving around London now – they appear to be more common here than they’ve been anywhere else I’ve been.

What’s changed?

The big change is the congestion charge in London. This was introduced shortly after my 2006 visit to reduce traffic to the central business district during the working day. It’s been successful in that. However, there are a number of vehicles that are exempt from the charge:

To be eligible to register for the alternative fuel vehicle discount, your vehicle must be powered by an alternative fuel, bio fuel or dual fuel and not solely by petrol or diesel. Electric vehicles must be powered entirely by stored electricity and defined as ‘Electric’ by the DVLA.

This policy innovation has clearly had a substantial impact on behaviour.

But what about the impact of policy on innovation? Every time there is a discussion of environmental regulation, the entrenched firms in affected industries always argue that this will restrict innovation. There is an overwhelming amount of research evidence that shows that this is not only untrue, but the opposite of what happens. Stricter environmental regulations consistently lead to higher levels of innovation.

The Denmark example is interesting here. What’s the biggest innovation in cars these days? Probably the Better Place electric car scheme. It is an enormously innovative business model – and one that has been enabled by policy changes in Israel and Denmark. Both countries have put in gigantic purchase-tax breaks on fully electric vehicles. This enables innovations like Better Place’s – but it not only helps them, it helps any firm developing electric vehicles. The tax policy change leads to innovation.

Then there’s China. I haven’t been back since that last trip, but Mark just went to the Expo in Shanghai. I asked him yesterday about electric vehicles there and he said that they are all over the place now. Apparently,

Shanghai is filled with electric scooters, like this:

Next week at the Expo there is a three day exhibition of electric vehicles developed in and for China. There are reportedly over 500 firms in China developing fully electric vehicles right now.

What’s driving this? A government initiative to have 500,000 ‘green’ vehicles (like the BYD6) on the road by the end of next year. Targets for the following years are even more ambitious. Soft targets like this are one form of policy innovation. There’s also speculation that at some point in the reasonably near future petrol-powered cars could be banned entirely in parts of China, like Beijing.

We’re about to see an explosion in alternate-fuel powered vehicle innovation in China. Well, actually, the innovation explosion is already taking place – it’s just that the evidence will become increasingly apparent to all of us.

Why does regulation drive innovation? Because innovation thrives on constraints. Constraints force us to be more creative – and environmental regulations create constraints.

This doesn’t mean that all government policies regulating business are necessarily good. But the knee-jerk argument that regulation inhibits innovation is simply false. Regulation creates a constraint, and constraints spur creativity – they actually encourage innovation.

This explains why when the electric cars start showing up wherever you are, there’s a pretty good chance they’ll be coming from China, not Detroit.