Creating Value Through Innovation

Who really gets excited about maximizing shareholder value? Or even profits? Is that enough to get you out of bed and in to work every single day? One of the reasons that I got interested in innovation is that it is about making things better – which to me is far more interesting. That’s why when I talk about innovation I define it as “executing new ideas to create value.”

All three parts of that definition are important – you need a genuinely new idea, you have to actually execute it, and it has to create value. The last part can be tricky because value can also be defined in a number of ways. In his upcoming book The New Capitalist Manifesto: Building a Disruptively Better Business, Umair Haque talks about value as something that makes the world a better place. The book is a handbook for building organisations that create precisely that type of value.

Personally, I like that as a goal much better than shareholder value or profits. After all, those are really just scorekeeping methods more than anything.

Haque is trying to provide ideas that don’t just innovate at the margins – he is aiming to trigger behavioural innovation, which is very disruptive indeed.

There are many appealing ideas in the book, which I recommend reading. One that jumped out at me is a story he tells about Google forming a unit called the Data Liberation Front. The objective of this group is to work with all of the Google products so that customers can transfer their data to other applications as easily as possible. In other words, if you do all of your work in Google Docs, and then decide that you want to switch to Microsoft Office, the DLF is trying to make that switch work as smoothly as possible.

How does this make any sense? It works because it requires innovation to create products and services that pull people in – that keep them coming back. Here is a quote from Brian Fitzpatrick, the guy that founded the group:

If we’re locking users in, chances are there’s no sense of urgency to innovate and make products better. What keeps people coming back to search? Is it because they signed a two-year contract? No way! The reason people keep coming is it meets their needs best…

You can think of it as a better, new type of lock-in: lock-in through innovation. Yesterday’s was based on formats or barriers, like frequent flyer programs: the goal was to create a hostage situation.

We’re not liberating data out of altruism. We’re doing it because it makes good business sense, because it drives long-term sustainable growth.

Haque then goes on to say:

Listen, though, to Fitz’s final lesson, because he’s saved the best for last: “Disrupt yourself before someone else comes along and does it. Everyone says someone will come along and replace Google. We think it should be Google.” Now that’s the beating heart of a resilient organization.

It’s counterintuitive, but initiatives like the Data Liberation Front are the real lifeblood of Google’s evolutionary edge. Much has been written about Google’s experimental approach: rapid, frequent, always-on “bucket” tests in which a baseline product is compared to versions with minor differences, so the “best” product or service can be discovered. But initiatives like DataLib go deeper: they provide the evolutionary pressure that makes Google keep experimenting in the first place.

Continuous experimentation is a key to innovation success. But this is talking about innovating at a meta-level – creating an environment that both requires and supports experimentation, and consequently, which requires and supports innovation.

The New Capitalist Manifesto is most useful in getting you to think about these types of issues. Haque focuses on how to change our behaviours in ways that create new structures, which is both innovative in itself, but which also help to support innovation.

Many of his points resonate with ideas from The Power of Pull by John Hagel, John Seely Brown and Lang Davison. Haque argues that with the Data Liberation Front, Google is building a strategy based on creating value rather than one based on building barriers to competition. This is definitely a pull strategy – and you can hear that idea in the quotes from Fitzpatrick.

There are significant benefits to using this kind of pull strategy:

  • As Haque argues, it forces you to innovate continuously to stay ahead.
  • More importantly, it forces you to innovate so that you create genuine value – you have to create products, services and ideas that attract people, and that materially make their lives better to succeed. This is a risky strategy, because it is hard to do this. But the payoffs are substantial.
  • Finally, by forcing you to innovate to create genuine value, pull strategies are inherently more sustainable.

Innovate to create genuine value. Making the world a better place is a good reason to innovate. And it is a lot more interesting and rewarding than all those scorekeeping reasons.

Student and teacher of innovation - University of Queensland Business School - links to academic papers, twitter, and so on can be found here.

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