Historical Innovation – In the first half of the 20th century, Alfred Sloan created the modern corporation at General Motors. In many ways, it was based on the military. Senior leadership at headquarters would make plans, while managers at individual units would be allocated resources and made responsible for achieving mission objectives.
Innovation today – The rise of digital technology made this kind of structure untenable. By the time strategic information was gathered centrally, it was often too old to be effective. In much the same way, by the time information flowed up from operating units, it was too late to alter the plan. Because of this, agility and iteration became the mantra. Due to pressures from the market and from shareholders, long-term planning is often eschewed for the needs of the moment. With high User expectations as well as business needs and the digital era changing, there will be an ongoing need to update the thinking – to combine long-range planning with empowered execution – to meaningfully improve business outcomes going forward.
An example of the new style of innovation is when Steve Jobs came up with the idea for a device that would hold “a thousand songs in my pocket,” it wasn’t technically feasible. There was simply no hard drive available that could fit that much storage into that little space. Nevertheless, within a few years a supplier developed the necessary technology and the iPod was born. Notice how the bulk of the profits went to Apple, which designed the application and very little to the supplier that developed the technology that made it possible. That’s because the technology for developing hard drives was very well understood. If it hadn’t been that supplier, another would have developed what Jobs needed in six months or so. Yet today, we’re on the brink of a new era of innovation. New technologies, such as revolutionary computing architectures, genomics and artificial intelligence are coming to the fore that aren’t nearly as well understood as digital technology. So we will have to spend years learning about them before we can develop applications safely and effectively. For example, companies ranging from Daimler and Samsung to JP Morgan Chase and Barclays have joined IBM’s Q Network to explore quantum computing, even though that it will be years before that technology has a commercial impact. Leading tech companies have formed the Partnership on AI to better understand the consequences for artificial intelligence. Hundreds of companies have joined manufacturing hubs to learn about next generation technology. It’s becoming more important to prepare than adapt. By the time you realize the need to adapt, it may already be too late.
With the new style of innovation about exploring technologies and business models long before they become commercially viable is increasing, it’s understood that competitive pressures and addressing current business needs are very important. Further, just because digital technology is not advancing the way it once did doesn’t mean that it will disappear. Many aspects of the digital world, such as the speed at which we communicate, will continue. So it is crucial to build a continuous pipeline of problems to solve. Most will be fairly incremental, either improving on an existing product or developing new ones based on standard technology. Others will be a bit more aspirational, such as applying existing capabilities to a completely new market or adopting exciting new technology to improve service to existing customers. However, as the value generated from digital technology continues to level off, much like it did for earlier technologies like internal combustion and electricity, there will be an increasing need to pursue grand challenges to meaningfully improve business outcomes. That’s how truly new markets are created. Clearly, this presents some issues with resource allocation. Senior managers will have to combine the need to move fast and keep up with immediate competitive pressures with the long-term thinking it takes to invest in years of exploration with an uncertain payoff. There’s no magic bullet, but it is generally accepted that the 70/20/10 principle for incremental, sustainable and disruptive innovation (or H1, H2, H3) is a good rule of thumb – with an increasing emphasis on growing the % of Disruptive / H3 innovation to drive change (versus being marginalized by it).
Historically, when Sloan designed the then modern corporation, capacity was a key constraint. The core challenge was to design and build products for the mass market. So long-term planning to effectively organize plant, equipment, distribution and other resources was an important, if not decisive, competitive attribute.
Innovation today is now about digitization and globalization that has flipped Sloan’s model with vertical integration giving way to specialization / personalization. Because resources were no longer concentrated in large enterprises, but distributed across global networks, integration within global supply chains became increasingly important. With the rise of open source software, application and system interfacing, cloud technology, etc. – these capabilities are hugely important in driving change as we become more digital in an on-line, real-time, all-the-time world. Creating proprietary technology that is closed off to the rest of the world has become unacceptable since Customers expect to use API’s that integrate with various technologies – including your competitors. Over the next decade, it will become increasingly important to build similar connection points for innovation. For example, the US military set up the Rapid Equipping Force that was specifically designed to connect new technologies with soldiers in the field who needed them. Many companies are setting up incubators, accelerators and corporate venture funds for the same reason. Others have set up programs to connect to academic research. What’s clear is that going it alone is no longer an option and we need to set up specific structures and ecosystems that not only connect to new technology, but ensure that it is understood and adopted throughout the enterprise.
The shift from one era to another doesn’t mean that old challenges are eliminated. Even today, we need to scale businesses to service mass markets and rapidly iterate new applications. The problems we need to take on in this new era of innovation won’t replace the old ones, they will simply add to them. Extending on this, expect value to shift from agility to exploration as new technologies become more prevalent. Organizations that are able to deliver new computing architectures, revolutionary new materials and miracle cures will have a distinct competitive advantage over those who can merely engineer and design new applications. It is only senior leaders that can empower these shifts and it won’t be easy. Shareholders will continue to demand quarterly profit performance. Customers will continue to demand more product capabilities with extensive flexibility, strong support and value. For an enterprise to meaningfully increase relevance and revenue going forward, the need is to monetize value creation and prudently manage risk with the creation and delivery of new services having high appeal in the market that effectively leverages existing and new technologies.
Because success is temporary, to make innovation rewarding today requires a new mindset that recognizes the skills and strategies of the past have little bearing going forward. To win now requires speed, agility, operational excellence, technology prowess, an openness to a new business model, a venture investing approach, as well as strong look ahead and entrepreneurial skills. And realize the game has changed. Since innovating for impact today is a major learning opportunity, please contact CAIL and others in the Innovation ecosystem to fast track the process.
Nov 12, 2019 CAIL / Greg Satell Innovation Commentary