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.