Let’s start with a business trivia question.

In 2011 the Imax Group achieved an excellent profit result that delivered an S&P industry leading return on shareholder’s equity of nearly 50% over the financial year. In number two position was business information service McGraw-Hill at 42% ROE. Can you guess what type of business came in third place above Viacom and Dolby Laboratories?

The answer is academic publishing business Elsevier Reed with an ROE of nearly 40%. Fellow academic publishing house John Wiley and Sons also made it into the top 10 media stock list with an ROE of 22%. Anyone who says that you can’t make money out of publishing hasn’t found these fabulous cash generators that make a lot of money out of selling access to academic journals.

I’m not going to argue that it’s wrong to profit from academic research (I do work in a business school after all) but I do want to make a point about how the concentration of journal ownership and the market power that these companies enjoy is restricting the capacity for academics to make valuable contributions to industry and society. Of course universities aren’t the only source of innovation for industry but they do have an important role in exploring frontier ideas that wouldn’t normally be supported by businesses.

Publishing research in peer-reviewed journals is a significant part of most academic’s jobs. Surveys of business also show that journals are also important for getting new ideas into the public domain and are a significant source of innovation. The following example from the Center for Business Resarch at Cambridge University is very typical with informal contacts, student recruitment and publications being the most prevalent sources of innovation, while formal IP such as patents and licenses is relatively unimportant.

Importance of University Innovation Source for Business

Publications are an important part of getting ideas out into the public domain and also shared with other academics. In other words, an effective publication process is essential for univerities to matter to society, business and each other. However, we have reached the point where about half of all academic journals are owned by three publishing companies- Elsevier, Wiley and Springer. What is more, there is a fundamental misalignment between what is good for these businesses and what is good for the university innovation ecosytem.

Basic business strategy theory tells us that it’s only possible to make those spectacular returns on equity when there are high entry barriers to the industry, suppliers have low bargaining power to raise prices and buyers have little choice but to accept the prices that they are asked to pay. In this case, getting a new journal started is extremely hard, academics are mostly sole-operators with limited power over the journals and libraries must pay whatever price is asked to subscribe to the leading journals.

There have been some efforts to create alternative publication channels but some publishers have been working hard to preserve their market power. Elsevier has been particularly active in this respect by supporting the Research Works Act in the US that would have prevented government-funded employees (most academics) from publishing in open access journals. The backlash from the academic community has been impressive with over a thousand signatures to a boycott of Elsevier that cites predatory pricing behaviour and initiatives such as the support for the Research Works Act that is aimed at making sure that established journals, such as those owned by Elsevier, remain the toll-bridge for publication.

As an academic, I think we have to take a fair bit of responsibility for getting into this situation. In many ways we have increased the barriers to entry into the industry by increasing the power of a limited number of established journals. Starting up a new journal has always been hard but journal ranking systems now make it nearly impossible. Journal quality is most commonly assessed with citation metrics. The more that articles in the journal are cited, the more highly that journal is ranked. Promotion and grant success is now more determined by these metrics than what has actually been discovered. Rather than hear a colleague say that “I discovered something new last year” it is now more common to hear “I had three tier-1 publications”. That might sound harmless but it takes several years to build up citation metrics and nobody wants to submit their best work to a journal without citation metrics. The result- no new journals.

So the situation is that the quantity of research in the academic world is increasing but the number of journals isn’t catching up. As a result, many journals are now claiming rejection rates of well over 90%. My guess is that the top 30% of most journal submissions contain valuable information and I would defy a journal with a 99% rejection rate to explian what the quality difference is between articles in the top fifth percentile. In short, valuable ideas are not getting out to where they should be and this is an economic waste. Taking several years to get a paper published is not unusual.

But it gets worse than that. As the difficulty in publishing in highly-ranked journals increases, so does the amount of time and effort taken to succeed. Where does this time come from? Sadly, it probably comes from the top two sources of university contacts that matter for innovation in the form of informal relationships and educating student graduates.

Peer review is important and we should never lose sight of that. However, the journal publication model is broken and plays into the hands of oligoplists. I’m not expecting the number of blog tweets to feature in my performance review any time soon but it’s certainly time for a change.

I’ve been working on a research project looking at innovativeness in project teams and it’s given me the opportunity to go back through the evidence of what makes innovative teams. Without giving you the long literature review I can tell you that this is a really well worked area over more than two decades. However, the good news is that there is a body of accumulated evidence on the factors that promote innovative behaviour in teams. In short, we have an evidence-base of what works and what doesn’t.

One business-school academic who has produced a significant amount of research on the subject is Professor Michael West of the Aston Business School in the UK. I first met Michael at an applied psychology conference in 1997 when he was a keynote speaker and I was impressed by the practical focus of his research. Recently I’ve gone back to his work because he is one of the rare business school academics who recognise the importance of both creativity and execution in the innovation process. Tim and I have also written about the two sides of innovation and it has become the basis for much of our own research and consulting work.

If you break innovation into a mix of idea generation and execution then it becomes pretty obvious that innovation teams need to be good at different things to successfully innovate. Focussing on idea generation and creativity rarely results in more innovations. On the other hand, a process for implementing new ideas, without support for creativity and bold experiments usually results in a lot of small improvements, but little game-changing innovation.

A very important study of Michael West’s that I keep going back to was published as long ago as 1996 in the Journal of Applied Psychology, but it’s been very heavily cited since then. Using a sample of 27 senior management teams from 35 UK hospitals, West and Anderson looked at the relationship between team composition, team processes and innovation. I think the results have a very important message for innovation managers.

The best predictors of radicalness and novelty was the presence of individual innovators. However, the overall level of innovation was closely linked to group processes that are related to execution such as commitment to objectives, participation and task orientation to ‘get the job done’. Putting together a team of innovators is important but unless this is backed up with an execution discipline, the results are less likely to appear.

An individual innovator may have many good ideas but a task-oriented team of innovators will realise the value of the idea.

Most of you would know the Nietzsche quote “that which doesn’t kill is makes us stronger” (or it could be a Kelly Clarkson quote, depending on your age). My main point for today is that quote also applies to innovation and this has far reaching implications for anyone trying to make a firm or industry more innovative.

Last year I was talking with Narelle Kennedy, CEO of the Australian Business Foundation, who has done a great job in connecting businesses, research academics and politicians to get a sensible and informed debate on innovation and growth in Australia. With colleagues at the University of Queensland Business School we have been running a large longitudinal survey of innovation and performance in Australian firms. One of the consistent patterns in the survey is that firms are far more likely to innovate when they are in a tough competitive environments. When I explained this to Narelle her response was something along the lines of “that makes sense, you need to experience pain to innovate”.

Narelle is exactly right! The list of evidence that innovation comes out of hard times and challenges is very long. For example, this is a central message in Michael Porter’s classic work “The Competititive Advatage of Nations”. To quote Porter:

A nation’s competitiveness depends on the capacity of its industry to innovate and upgrade. Companies gain advantage against the world’s best competitors because of pressure and challenge. They benefit from having strong domestic rivals, aggressive home-based suppliers, and demanding local customers.

And this is also the reason why protecting industries from competitive pain and providing public funds for pain relief rarely makes a business more competitive. With mainly good intentions, millions of dollars have been spent supporting the Australian car industry and yet it continues to die a slow and painful death. Like a billion dollar game of Russian Roulette, each government hopes that they can provide enough support so that the big collapse will occur during the life of the next government.

A good case in point for the ‘benefits of pain’ is a pretty amazing chart from Business Insider of the efficiency gains in the airline industry. I use the airline industry as an example of cut-throat competition in my MBA strategy class and Warren Buffett’s famous quote is particularly good:

If a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.

This is the kind of environment that produces the cummulative innovations that result in chart below (taken from Alan Kohler’s Eureka Report).

While traffic has increased 45%, fuel usage has increased 3%. To stay alive in this industry, firms need to continually find ways to improve pricing power and reduce costs and fuel efficiency is a big part of that.

If you want to be more innovative, embrace pain and challenge yourself.

How often have you heard someone say something like “No need to reinvent the wheel”?

It’s such a common phrase we don’t even think twice when we hear it. The thing is, a lot of the time there is a huge need to reinvent the wheel.

If we didn’t reinvent the wheel on a regular basis, we’d be driving using cars, bicycles, wheelchairs, shopping trolleys, vacuum cleaners, and an almost infinite number of other things using wheels that look like this:

That wouldn’t be so good.

If we never reinvented the wheel, we wouldn’t have things like the Osmos Orbital Wheel:

In addition to looking really cool, the Orbital Wheel has significant advantages over regular wheels in performance, reliability and safety.

Clearly there are good reasons to reinvent the wheel. How do we know when to do so? Here are some guidelines for wheel reinvention:

• Innovate in Your Core: you don’t need to be good at everything. In response to this statement “Leading practice companies need to follow leading practice for water management,” one of our research partners once said:
  

  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.

  It’s probably smart to avoid reinventing the wheel in the parts of your operation that just need to be fit-for-purpose. However, in the operational activities that are critical, it can be highly profitable to reinvent the wheel. This is where new business models often originate.

• Explore related areas: a lot of fruitful wheel reinvention has come from looking at how the wheel might be applied in related areas. That is how we ended up using wheels in all of their various applications. This is what Steven Johnson talked about as “exploring the adjacent possible” in Where Good Ideas Come From: The Natural History of Innovation.

  Saul Kaplan has expanded this idea very well in a number of posts. Here he discusses how to create space for wheel reinvention:

  The trick is to explore and test new models while at the same time continuing to live within current ones. This requires establishing adjacent innovation platforms with the freedom to explore new ways to create and deliver value, especially approaches that are disruptive to the current model. Adjacent innovation platforms must have the freedom to experiment with different rules and financial models. Connected adjacencies require senior leadership sponsorship, support, and protection or they will fail. They must be free to recombine and connect capabilities in new ways unconstrained by the existing organization. Those working in the adjacencies must be empowered to borrow and flexibly deploy capabilities and technologies from inside and outside the organization in novel ways.

• Find areas of poor performance and innovate there: if you look at where the Osmos Orbital Wheel is being used, it is showing up primarily in racing applications. This is where its performance advantages show up the most. A lot of important wheel reinvention happens at the extremes – when we are trying to meet the needs of the most advanced (or the most reluctant) users.

I’m pretty happy that I’m not using crude wooden wheels everywhere these days. Reinventing the wheel is how we move forward. In many cases, the biggest innovations are not completely new ideas, but rather something that already exists being repurposed. That’s what reinventing the wheel is all about.

So by all means, please reinvent the wheel.

By Greg Satell (mostly) and Tim Kastelle

Guest post by Ralph Ohr

One of my main interests is looking at the intersection of organizational and human  capabilities. Business is accomplished through people, thus individual mindset, behavior and capabilities determine organizational performance. When it comes to innovation, a recently published research paper, titled ‘The Bias Against Creativity’ serves as a good example. The findings indicate a paradox that people desire but reject creativity. The authors explain this paradox  by proposing that people can hold a bias against creativity that is not necessarily overt, and which is activated when people experience a motivation to reduce uncertainty. They further conclude:

If people hold an implicit bias against creativity, then we cannot assume that organizations, institutions or even scientific endeavors will desire and recognize creative ideas even when they explicitly state they want them. This is because when journals extol creative research, universities train scientists to promote creative solutions, R&D companies commend the development of new products, pharmaceutical companies praise creative medical breakthroughs, they may do so in ways that promote uncertainty by requiring gate-keepers to identify the single “best” and most “accurate” idea thereby creating an unacknowledged aversion to creativity.

This suggests two main points:

• People being involved in innovation are required to truly embrace creativity and novelty. They prove it through their ability to deal with ambiguity and uncertainty. Further, they are not inhibited by an unconscious bias against novel ideas, while claiming to drive innovation forward. Biased people, particularly in case of decision makers and executives, may seriously harm innovation activities.
• In order drive innovation, people need to be able to manage tensions. The paradox, that people are often curious about novel ideas and leaving the status quo, while at the same time being pulled back by their fear of uncertainty and risk, reflects .

Innovation occurs along a continuum from maintaining and improving the already existing (incremental innovation) to entering novel regime in terms of technology, meaning or business model (radical innovation). Both ends of the continuum require particular capabilities and human characteristics in order to get accomplished properly. As innovation activities are often embedded in a portfolio approach across this continuum, innovation management depends on integrating and balancing opposite requirements.

As Tim Kastelle points out, we need to learn and use integrative thinking to tackle these kinds of tensions. Integrative thinking is about creating new models that contain elements of individual models, but are superior to each. I think this can also be applied to personal orientations and mindsets on the human level. In the following I’d like to share some psychological concepts, describing opposite orientations and being relevant for innovation. Everyone has a natural tendency between these poles – and is therefore predestined for corresponding innovation tasks. By means of integrative thinking, we can learn to consciously move to our weaker pole. This may help us to become more flexible, particularly if we intend to develop entire innovation portfolios.

Cognitive orientation: Analytical thinking vs. Intuitive thinking

According to Roger Martin, analytical thinking is great for exploitation within the existing stage, i.e. improving core business through incremental innovation. Intuitive thinking is indicated for leaving the existing stage by exploring unknown terrains. Analytical thinkers focus almost exclusively on generating reliability – the ability to produce a consistent, replicable outcome.  In contrast, intuitive thinkers tend to focus on validity – the production of a desired outcome, whether or not it is consistent or replicable. This makes analytical thinkers more appropriate for incremental innovation, while intuitive thinkers tend to be more suited for radical innovation. In most cases we can’t analyze the way to growth.

Balancing analytical thinking and intuitive thinking enables to both exploit existing business and create new opportunities. That’s what Roger Martin defines as Design Thinking.

Creative orientation: Searchers vs. Finders

Galenson et al. (2003) found that modern artists can be divided into two groups:

Experimental innovators are driven by imprecise goals, so their procedure is tentative and incremental. The imprecision of their goals means that they rarely feel they have succeeded, so their careers are often dominated by the pursuit of a single objective. They paint the same subject many times, gradually changing its treatment by trial and error. They consider procedure as a process of searching, in which they aim to discover in the course of making.

In contrast, conceptual innovators have intended to communicate specific ideas or emotions. Their goals for a particular work can be stated precisely in advance. They often make detailed preparatory plans for their paint, and execute their final works systematically. Conceptual innovations appear suddenly, as a new idea produces a result quite different not only from other artists’ work, but also from the artist’s own previous work. Conceptual innovations are consequently often embodied in individual breakthrough paintings. The conceptual artist’s certainty about his goals, and confidence that he has achieved them, often leaves him free to pursue new and different goals.

These findings widely hold true for business and innovation, too. Peter Sims emphasizes the need for an experimental and emergent approach in order to manage uncertainty and risk for innovation in his great book Little Bets.

On the other hand, small steps are often in danger to range within existing regimes. In order to aim at the next breakthrough innovation, a vision or scenarios of future conditions need to be defined. It’s essential for breakthroughs ‘to skate where the puck is going to be, rather than where it is.’ This vision is to be approached gradually through experimental steps – as small as possible and as big as necessary – in order to remain adaptable. I think, only by integrating searching and finding, the innovation continuum can be properly covered.

Temporal orientation: Monochronic vs. Polychronic

Individuals conceive of time quite differently. The most common understanding of time in the western world is “clock time”. Ian Mc Carthy et al. (2010) focus in their research on the differentiation between monochronic and polychronic individuals and how they are suited for particular business tasks (you can even find a link to a self-test at the bottom of the post). They describe monochronics as viewing time as a unified and linear phenomenon. Monochronics prefer to work on individual tasks with given deadlines in a serial fashion. In contrast, polychronics tend to view time as a heterogeneous and malleable phenomenon. They like to work on many things simultaneously, and are much less concerned about missing deadlines. Mc Carthy further suggests that a monochronic orientation suits better to linear innovation frameworks, involving relatively discrete, sequential and determnistic stages. Such frameworks are primarily employed for incremental innovation activities. Whereas a polychronic orientation tends to correspond to highly interconnected environments where more nonlinear and iterative frameworks are required. Those frameworks are suited to deal with unknown outocmes and radical innovation.

A balanced temporal orientation enables people to accomplish tasks from both sides of the innovation spectrum. Moreover, most innovation processes require a higher polychronic orientation in the (messy) ideation stage, while being based on more linear and monochronic execution afterwards.

Takeaway:

There is an intersection between individual and organizational innovation capabilities. Human capabilities might not be a sufficient condition for organizational performance, but at least a necessary condition. In order to make innovation activities a success, we have to make sure that novel and creative ideas become truly accepted and acted upon by the people in charge. This requires having the right people in place, being equipped with beneficial capabilities and orientations to tackle the tasks across an innovation portfolio. This suggests hiring and allocating appropriate ‘specialists’ for incremental as well as radical innovation activities, respectively. The overall portfolio, however, needs to get managed by people who are capable of integrating opposing mindsets, orientations and approaches, therefore being able to connect to different individual characters.

Dr. Ralph-Christian Ohr has extensive experience in product/innovation management for international technology-based companies. His particular interest is targeted at the intersection of organizational and human innovation capabilities. You can follow him on Twitter @Ralph_Ohr.