Why the Future of Innovation is Open

As outlined in my previous post, sustainable innovation requires evolution and revolution. Over the long term, organizations need to be capable of both moving along existing growth trajectories and creating new ones when the old business matures or stalls. This can be depicted as recurring movement along innovation s-curves. In the case of a new venture, acquiring lean start up skills can significantly increase the likelihood of successfully passing through the s-curve for the first time. Yet, research shows, only a minority of startup ventures are able to manage this challenging journey. Unlike Google, most of them struggle or are incorporated by bigger companies before they scale up.  As Tim Kastelle points out, s-curves basically consist of the following stages (see figure):

  • Invention (Y): The time from when you first have an idea to the time when the idea is genuinely ready to spread. This can be, for instance, the application of a new technology or the development of a novel product.
  • Diffusion:  According to Steve Blank, this stage can be divided into two sub-stages, referred to as Search and Execution.
    • Search (X): this period covers the search of a repeatable and scalable business model. These activities usually involve early adopters to validate the innovation.
    • Execution (following X): In order to spread the innovation, the business model is executed and continuously refined. Crossing the ‘chasm’ and scaling requires an appropriate value proposition in place.

 

Innovation Curve

 

S-curves basically reflect value chains: innovation success is eventually determined by being able to scale novel ideas. Being first-to-scale, in turn, is based on inventing and properly validating the idea. One main characteristic of a chain is: it’s just as good as the weakest part.

An important point here is that every stage requires dedicated capabilities and culture in order to be completed successfully and efficiently. Invention is mainly based on technical and research expertise, whereas the business model search process depends on hypotheses testing, experimentation and customer-related skills. Finally, successful execution relies on commercialization competency and operational capabilities.

With regard to innovation culture, Costas Markides and Paul Geroski distinguish between ‘Colonizers’ and ‘Consolidators’. They describe the differences between these different players as follows:

The fact that firms that create new product and service markets are rarely the ones that scale them into mass markets carries serious implications for the modern corporation. Our research points to a simple reason for this phenomenon: The skills, mind-sets, and competencies needed for discovery and invention not only are different from those needed for commercialization; they conflict with the needed characteristics. This means that firms good at invention are unlikely to be good at commercialization, and vice versa.

Some firms are natural colonizers, able to explore new technologies quickly and effectively and to make the creative leap from a technological novelty to a product or service that meets customer needs. What these firms are good at is creating new market niches. Other firms are natural consolidators. They are able to organize a market, turning a clever idea into something that reliably and regularly meets the promise, can attract consumers, and can be manufactured and distributed efficiently to a mass market.

Very few firms are good at both sets of activities.

As a result, the authors make a radical claim: To succeed in scaling up new radical markets, don’t even try to create them. They suggest for established businesses to leave the challenge of market creation to startup firms and to focus their own attention and resources on consolidation:

 We believe that big established firms do not have to be actively involved in both the colonization and the consolidation of new radical markets. Given their skills and attitudes, incumbents will be better off if they stick to consolidation, positioning themselves to exploit the pioneering efforts of others. One primary way established firms can accomplish this is by developing a network of feeder firms and serving as a venture capitalist to them.

Indeed, in face  of increasing pace of change, resulting in decreasing life cycles and shortened s-curves, this might be an important point to consider. Effective and efficient coverage of each innovation stage may require a craft vs. scale specialization and ‘job-sharing’ among different players, rather than targeting at doing all activities under one roof.  This suggests the formation of value networks with complementary roles along the innovation chain according to the following chart:

 

 

Major preconditions for the formation of these value networks are openness and the willingness to collaborate, rather than to compete to each other. Large firms take a key role as ‘interface’ to the market. They are required to tie open and customer-oriented business models by integrating and orchestrating their partner networks. „The most exciting new business models are networks connecting capabilities across boundaries“, says Saul Kaplan. Why? Simply: customer value doesn’t care about silos and boundaries. Organizational capabilities to reinvent and create new business models become more and more important. There are two reasons for this: Firstly, innovation activities tend to shift from product and process innovation towards business model innovation. Secondly, business model innovators outperform traditional innovators (e.g. product innovation within an existing business model) over time.

 

Source: http://www.bcg.com/documents/file36456.pdf

 

Recently, Scott Anthony has announced a new era of innovation, identifying big companies as drivers of innovation and transformation. One of his main points is that the trend towards business model innovation taps incumbents’ unique strengths. This goes well together with an argument made by Irving Wladawsky-Berger:

But, the kind of innovation that Michael Mandel writes about in his article is a mixture of disruptive and incremental. It favors large companies because of their ability to address complex systemic problems, manage the large-scale ecosystems that solving such problems requires, and bring their solutions to market all round the world. The problems are typically not based on new inventions, so it is hard think of them as representing disruptive innovations, but their scale and scope puts them in a class way beyond incremental. This kind of complex systemic innovation leverages lots of known ideas and makes them work together to help address important problems. (…)

Large companies that make the successful transition to an open, collaborative style of innovation will emerge as effective ecosystem leaders. Such companies will find that their scale is a major asset for the kind of complex systemic innovation that will be increasingly important in the decades ahead.

Taken together, all this seems to indicate that the future will be about open and collaborative innovation, benefiting from ecosystems with dedicated roles for all stakeholders. On the people level, corporate catalysts are then going to play an ever important role to drive innovation. Those integrators combine entrepreneurial spirit with an ability to leverage corporate resources and to orchestrate the diverse network.

 

Takeaway

Sustainable innovation requires recurring innovation diffusion along s-curves. The different stages of the cycle demand distinct capabilities, cultures and mindsets. This suggests the formation of open ecosystems with dedicated roles for research organizations, startups and larger firms - in accordance with their natural strengths. Due to an ongoing shift towards business model and large-scale innovation, established firms will likely take a leading role in the future. On the people level, innovation is then primarily going to be driven by integrative thinkers with an ability to orchestrate the value network, referred to as corporate catalysts.

 

 

 

 

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Experienced innovation, technology and product management professional. Looking at the intersection of organizational and personal innovation capabilities. Integrative thinker. Boundary spanner. Author of the Integrative Innovation blog. You can follow him on Twitter @ralph_ohr.

Please note: I reserve the right to delete comments that are offensive or off-topic.

23 thoughts on “Why the Future of Innovation is Open

  1. Ralph-Christian,

    Thanks for a great post.

    I feel we need a revolution in our educational and talent recruitment systems to supply the innovation workforce of the future (and today).

  2. Thanks for the reply, Ralph-Christian.

    Revolutionizing higher ed is a major task. It’s not only about teaching innovation research. It’s about educating and training engineers, managers, developers, analysts, etc. to leave the higher ed institutions with a strong ‘Innovation DNA.’

    To teach the recruitment departments to select candidates on innovation capabilities is a a whole new ball gam :-)

    • Those are all really good points. I agree that it’s more important to teach the fundamental skills that are essential for innovation. It would be great to figure out a way to train people to be curious too…

      The recruitment departments are another matter entirely.

      • Tim,

        Sure, there are ways to teach the students those skills. Often the problem lies with the management boards of hard-core engineering departments (mech.engng, mechatronics, electrical engineering etc.) which are reluctant to really incorporate these “soft” (?) capabilities in their curricula. “That’s more a thing for the industrial engineering department,” is the adagium.

        “Gut feeling” to identify the real innovation talent among job candidates – not an easy task – is what is generally lacking at HRM departments of hiring companies.

  3. Hi there, please do pardon me for my slight impudence for i am a 16 year old, and i have there for some limited technical knowledge.What i would like to share with you is that there is actually a positive trend in the west whereby there is an educational overhaul-
    http://www.ted.com/talks/geoff_mulgan_a_short_intro_to_the_studio_school.html

    I would not go into further details cos i am a student from an asian demographic.With a western mindset and different values, i feel very alienated from my education system.To cut the long story shot,I would want to highlight to you that many more countries are now adopting a very asian approach in ‘educating’ students.
    Basically, the things that they teach are engineered in a way whereby the everything is narrowed down so that generations of people are slowly influenced into a conventional mindset*.In other words it can be said that the main purpose for this kind of implementation is just to create as many carbon copies of each other to gear people up into the workforce.The problem is this that, this kind of system affects the world society and economy in many negative ways.The primary focus or even worship of academic excellence have led to shrewd business practices, erosion of social & moral values etc.While this issue is debatable,in terms of diverse interests affecting overall economic demand for industries and political control,the moral of the story is that schools in the asian context should teach and encourage innovation to improve upon our society.

    IN case you are unable to understand or feel annoyed for my long post.I offer my apologies but this discussion about the relationship between business(innovation) and ‘education’ really intrigues me.

    Lastly i have recently read a interesting article giving a great insight in breeding innovation

    http://techcrunch.com/2012/09/16/why-its-never-mattered-that-americas-schools-lag-behind-other-countries/

    • Thanks for the comment, Jason.

      I agree with you that there is an important relation between education and business innovation. Education is a cornerstone to shape behavior and mindset conducive to innovation.

  4. Hi Ralph – a very good article. The trend you describe has been happening in Pharmaceuticals for some time. Small biotechs are spun out of university based on novel research; find promising molecules; get to proof of concept; are licensed/acquired by Big Pharma who fund expensive clinical trials; then (IF successful) launch the new drug. The biggest selling drug in the world at the moment, Humira, is an example.

    The days of the fully vertically-integrated “soup to nuts” company are diminishing. This is not to condemn or rule out internally generated innovation; far from it. R&D teams must focus on the endpoint, not apply “NIH” to the route that gets there. That way they will evolve to do what they are best at, plus become adept at working with external ecosystems and communities of innovation.

    Kevin

    • Thanks for the comment and giving a great example, Kevin!

      As you point out, “NIH” can be a major barrier to effective collaboration. Further, you are right in saying “focus on the endpoint” is important. But it seems to be the case quite often that organizations consider themselves as innovative, only if they master the frond end too. That issue seems to be related to the first mover vs. follower discussion.

      As for teams it gets well accepted that diversity can be conducive for effectiveness and efficiency. Similar interdependencies should be valid at an organizational level too. But way too often, players from different “camps” tend to stay in competition to each other.

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