So what is holding innovation back? A new GE report

GE Global Innovation Barometer 2014I always look forward to the GE Global Barometer and the 2014 report is no exception, actually it really has moved the needle on what is presently holding innovation back. The Barometer has explored the actions or constraints that senior business executives are worrying over in their pursuit of innovation.

The fieldwork was undertaken in April and May, 2014 and covered 3,200 phone interviews to people directly involved in the innovation strategy or process. It covered 26 countries and was conducted by Edelman Berland on GE’s behalf.

The supporting website provides the GE view of how this report reflects and provides an overview, an interactive, resources and key point headings sections to explore.

I  personally think GE have actually been a little too low-key on this report and frankly far too conservative on the potential takeaways in reading their ‘take’ in the overview. It has significant implications for our organizations to grapple with but each is certainly not alone, it is a collective need to move innovation forward or you place much at risk if you don’t find solutions to the issues raised in this report.

This year the Barometer broke out of its past and steamed ahead.

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Why we often can’t self-disrupt

In the past few days I enjoyed listening to a webinar by Clayton Christensen and Max Wessel for the Forum for Growth and Innovation, a Harvard Business School research centre initiative.  The Forum for Growth and Innovation seeks to develop “breakthrough theories to help businesses become more successful innovators and create new, robust sources of growth”.  The webinar was all around surviving disruption but discussed also “looking beyond the horizons”.

The Theory of Disruptive Innovation

To offer a quote from the Forums own website (www.thefgi.net.):  “Disruptive innovation describes a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves ‘up market’, eventually displacing established competitors”.

“An innovation that is disruptive allows a whole new population of consumers access to a product or service that was historically only accessible to consumers with a lot of money or a lot of skill. Characteristics of disruptive businesses, at least in their initial stages, can include: lower gross margins, smaller target markets, and simpler products and services that may not appear as attractive as existing solutions when compared against traditional performance metrics”.

The webinar raised in my mind many unanswered questions.

Central to the thinking for disruptive innovation is to address the jobs-to-be-done. Another nice piece that describes Clayton Christensen’s work in this area of JTBD is here. This seemingly simple idea has profound implications for re-framing industries.

Well in many of my unanswered questions there are some JTBD aspects clearly to this as well. Still that is another story for another day.

One question I had was this:

“Why do we have internal difficulties to self-disrupt?”

In most cases organizations are not able to self-disrupt and this is largely covered by this veritable list of constraints. So I set about thinking what these could be, here is my rather ‘stark’ list, can you think of any more?

  • Organizations often are far too close to existing markets to recognize that they are actually shifting; they ignore or miss the signs in many ways.
  • They get so fixed on their own perceptions they don’t see change coming – often until it is too late and have lost that intuitive, entrepreneurial touch within the mix.
  • They have invested too much, they hang on, often reducing prices, pushing more volume into the markets, crank out even more “extras” to try and off set change.
  • Organizations are full of rigidities, rules, procedures, processes and personalities and often no one is prepared to put their hand up to challenge the present paradigm.
  • The reinforcing values are just plain tough to change, you need dynamite to shift these
  • The people within organizations love the comfort of the nest they have built around themselves, who wants to bail out and expose themselves?
  • The processes become over burdening, hard to change, far too complex to change without significant commitment and top management support
  • Cultures are wonderful things but the dark side is they can stifle and constrain far more than promote and let free.
  • Leadership is locked into the strategy, tied into compensation on delivery on the existing, not on the preferred, far more radical, risky alternatives
  • Organizations, especially large ones are less than nimble, they fail to adapt and respond quickly enough – they prefer to double-down’ with more of the same but faster, leaner and more determined than ever, missing the real dangers occurring under their noses
  • Today, we are putting more and more of our organizations into boxes, they are becoming highly structured and specialized to maximise effectiveness and efficiency.
  • Markets are more global, faster, fiercer to compete in, often organizations are reluctant to explore and experiment with new business models, or push into adjacencies for fear.
  • Lastly it does not matter how hard many organizations try, they lack real intelligence in market and customer needs, hence why the jobs-to-be-done is one essential component.

While all these stay in place, or not recognized as inhibitors to your own disruption capabilities, it is not surprising it is in the end those up and coming usurpers, the nimble and unencumbered, that thrive and begin to disrupt. You simply struggle when you leave it to late- your organization needs to resolve many of the above issues before it is ever capable of responding.

Look more in than out – that is where your danger often lies

Sometimes we are spending all those significant efforts scanning the horizon for the next big disruptive ‘thing’ but in the end it is the internal difficulties that ensure it is ignored until it is too little, too late. Work on the warning signs daily.

“Perpetuating history”, as Clayton Christensen would certainly say, “simply opens the doors to disruptive innovation”. We need to really recognize ALL the symptoms on why we can’t internally self-disrupt. Surviving disruption is something we all need to take the survival course on, so we all can recognize and deal with its introduction and constant threat to total disorder and multiple impact points upon our business. Watch out, disruption is all around us.

Seeking Innovation Productivity through Creative Destruction.

The whole issue of innovation productivity is getting more and more one of the key arguments for re-gaining economic growth. The problem becomes the real impact of ‘creative destruction’ that can often go with this.

I recently wrote in a blog (http://bit.ly/mXZjC3 ) called ‘the Risks of Dampening down Innovation Productivity” that with contracting economic performance, innovation performance suffers as well. I’d like to look at a few of the hidden or even darker sides to this, not because it is simply a Monday blues sort of thing, but there are growing implications if we don’t clarify why ongoing innovation investment is really needed and what it can often cost on society.

The tough economic times we are presently facing

We are faced with some tough times; markets are contracting, business performance is struggling to maintain its previous levels, there is increasing argument we are heading for a double dip recession, although I feel we are already in this. Jobs are tough to hold onto and even harder to find.

Presently economic policy is driven by the need to hang on to what we have got. Is this the right approach?  Does this really deliver a growth strategy that generates new jobs or simply try to hold onto the ones we have? Many people feel the later and anyone in a job that feels vulnerable or concerned for their immediate future, welcomes any economic stimulus that helps protect them.  The concern though is the ill wind we all feel, blowing in from the east and its global competition effect requires us to become more productive to compete. We can’t stagnate. We can’t simply tread water.

We need a clear set of growth strategies not just stimulation packages

For a growth strategy, needed for attracting new jobs it is going to be tougher, far more politically unattractive. Many of the bigger organizations recognized within our economies are already part way into a risk-adverse approach, not really experimenting or pushing aggressively for new growth opportunities that involve higher than normal investments.

Talking around a number of different issues and opportunties recently with Drew Marshall of Primed Associates (http://thinkprimed.com), he further confirmed that it seems ‘Scarcity’ has become something of a touchstone conversation with organizations recently; even those sitting on large capital reserves are framing all their innovation efforts in this context. Large ‘chunks’ of the economic stimulus being announced in different countries presently will go into these organizations, to further strengthen their balance sheets but to create new jobs is more questionable. Scarcity can be viewed in many ways- of markets, of opportunities, of qualified people, of fresh capital, informal panic, reacting to worrying news by reducing activities.

There is a strong argument for a more dynamic growth distribution.

Innovation calls for strong experimentation, for investment, for seeking out new bolder opportunities. If we lose this real investment appetite for innovation, we lose our business dynamism and productivity growth. Economies become increasingly ‘static’, the organizations that were inefficient either have to change their ways to expand their current capabilities, or shrink and exit.

It is the increased competitive pressures of a ‘stalled’ economy in the West, increased global competition that will create this further disruption.  If everyone hangs-in and settles for a shrinking share of the markets we simply lower the productivity growth as investments get cut back, saving are sought out and then offers of economic stimulus support are gratefully taken to help in this. All of this ‘negative’ activity creates longer term prosperity problems. We ‘play’ into someone else’s’ hands who are making appropriate investment and we simply can’t afford to do that.

Creative destruction comes in many different forms

  • Policies that support ‘selective’ industrial policies skews existing producers interests even more and often at the expense of the consumer. In a global economy others that are better equipped, more modern, more efficient can make a more competitive offer. If your selections for support are really subsidised favours you often don’t improve the competitive climate, only ‘healthy’ competition really does that. If you don’t invest in advancement and keep active in offering consumers improvements (not necessarily lower prices) you lose market share…..eventually. Others see these times as opportunities and invest appropriately.
  • Ploughing increased investment in R&D also has a very limited short term effect. The horizons from research are longer in distance than the immediate need. By offering for example economic credits to R&D has value in the longer term but less for immediate impact. It is the value of deepening the intangible capital that need the focus but ‘stimulus packages’ don’t target the specifics just often the generalities.
  • When we invest and support a number of our less than dynamic industries we are passing up the chance to invest in the future. New high growth firms account for a disproportionate share of job creation and can have up to a 2.5 multiplier effect over three years. Of course these firms are contributing small economic share to the economy but are the very seeds of our future. We need to accelerate the entrepreneurial climate, not hold it back by starving it of capital or its share of any stimulus package. Policies tend to favour the ‘mature’ not the young at heart.
  • The more we can support organizations willing to invest in innovation activity, the more the uneconomical ones in the same industry shrink, this adds growth and new economic activity that is a much healthier position. This enables organizations to withstand and re-equip for this increased growing global competition but this does comes at a price of disruption. We need a greater ‘selective’ survival of the fittest otherwise we prelong the organizations that actually create a drag on the industry they operate within. We do need real Darwin-ism here not prelonging inefficiencies.
  • As increasingly more calls will be made for deeper structural reform and reducing barriers to trade even further, you will get growth but at a cost, the cost of destruction of many of the existing organizations. Greater disruption and increased uncertainty.
  • This has its ‘knock-on’ effects, the ones that become even more politically unpalatable; the shifting job market where people and their families get uprooted, in search of a new job.
  • Society is facing a tough set of challenges- if organizations do not innovate, create new growth, new products and compete effectively we fail to get what some call ‘creative destruction’.
  • It is the need for rapid diffusion of new technologies, new methods and designs that facilitates ‘creative destruction’ as it equips those that invest with the ‘capital’ to compete better.
  • Livelihoods, established communities, institutions and economic security all get caught up in these tough decisions that have an inevitable occurance for many, at some time. Seeing destruction is extremely hard when it has these very personal impacts on our lives and politicans often get caught in the middle.

Subsidies, tax credits and lower taxes it is argued never quite generate the solutions promised.

There can be both ‘productive’ and unproductive churn taking place.

The need of any crafting of policy in times like these, is to look well beyond the ‘knee-jerk’ effect, we need to have clear job creating purpose underlying economic stimulus. Innovation needs to be clear, is it the means to economic ends? More jobs, better jobs, greater productivity. The answer is yes but the real-world trade offs do have higher destruction than we often want.

Sometimes innovation in the short term is neither giving us societal or economic good.  I recall recently an article by Michael Schrage where he suggests innovation has “perverse and unpredictable impact on nations and employment.” He points out “innovation comes with risk and costs attached.” Innovation ensures creative destruction.

We seemingly need innovation in all its different forms and we need to continue to invest in it, otherwise we reap the cost for even more destruction. We are facing much uncertainty as we see these job losses continue from many less than ideal organizations simply shedding to survive.

It is through appropriate investment in innovation productivity we can see the rise and potential for growth. We are travelling down a hard road at present with social and political costs. Managing innovation investment correctly today is critical but it has to be continued, even with all the disruptions it provokes. As Michael Schrage poses in his conclusion in his article “what kind of growing economy do we want to have?” We sometimes pay a high price for innovation.

What are the new paradigms in innovation?

There are some huge shifts taking place across innovation activities. The simple fact that innovation has been thrown open and organizations and individuals can simply explore outside their existing paradigms is offering us something we have yet to fully grasp and leverage. This is a W-I-P for us all.

Secondly innovation is simply getting faster, better is another story, but it is expected to move from idea or concept to final launch in ever decreasing compressed time

As they say ‘you can’t have one without the other’. Open innovation is potentially allowing for this compression of time but where we still ‘lag’ is within our organizations to reap the rewards. Why? We are still stuck in the previous structures, systems and processes designed for internal developments that were designed for different times.

We need two really critical things really fast.

The speed of change needs agility. We need to learn to adapt, anticipate and lead change before change leads us. Building an agile company to manage the enormous unpredictability and creative destruction going on around us is an absolute must.

Secondly we need to recognise that the capabilities and skills needed to manage in this rapidly shifting world must be different from many we provide and train into our people today. We need more ‘dynamic capabilities’: the ability to understand what is needed and apply these capabilities to the challenges on hand.

The past has simply flashed before our eyes

When you stop and think, after you have captured your breath, just reflect on what has happened in the last thirty years of where we have placed our emphasis within innovation

Firstly we focused on efficiency through innovation, then we applied quality to the process, then we introduced flexibility (leaner supply chains, smarter product processes) and recently we have moved to a more open innovation. This rapid movement or compression of innovation has been demanding, many simply have not kept up, or simply never changed and faded away

What is the future in any innovation focus?

We have skirted design innovation, we still attempt to link product and service, we are building more stand alone business models and we are experimenting with social media that seems to becoming established as Social product innovation-the practice of leveraging Social Computing principles and technologies to support the product development process, innovation and business goals, programs and resources. We are also striving to manage collaborative platforms, so as to manage projects that offer scale and market shifting paradigms. There is a giant mash up going on or mess up perhaps?

Disruptive, Radical and Volatile seems a reality

We seem to be heading into a real storm of change. Change brought on by over consuming, disposing quickly and demanding even faster, better, more improved products at ever lowering prices. This is not just a race to the bottom where commoditization lurks but where we simply will exhaust our resources, our planet and ourselves. We are facing some very unsettling times and we need to get equipped to deal with them fast in agile ways through new capabilities and competencies.

There is a race we are all in where eventually no-one wins. We need to change the race.

We do need a ‘real’ paradigm shift.

The problem is nothing stops, it simply keeps moving at ever increasing pace. We can’t consolidate, we can’t experiment as much as we would like and we can’t wait and see. We are all learning by doing and to do this we need to be highly agile, amass new capabilities and competences as we go- often on the fly, often by the seat of our pants. Innovation has become our treadmill perhaps. Can we afford to get off? To make a real paradigm shift?

What would that be- any thoughts?

Innovations ‘rates of exchange’ require better understanding

Innovation happens across time. We often constrain our innovation because we ‘shoe horn’ any conceptual thinking into a given time, usually the yearly budgetary plan seems to exercise a large influence in this constraining. We should make the case that different types of  innovation operate and evolve over different time horizons.

I call this the innovation rates of exchange.

A little of the theory: Coherence between organizational context and coordination of outcomes is subject always to those natural tensions of planning, resource allocation and the time imposed. Often decisions have a real tension built into them and they ‘shear’ against the real forces in play. Like our tectonic plates ‘shear’ and cause earthquakes, the ‘shear’ effect has a disruptive influence on innovation outcomes.

Often the time horizon of possible desired innovation often has these real conflicts. The actual realities and needs of the organization we lower the innovation impact in final delivery. We fall back on incremental solutions as the organization does not have the patience, appetite or desire to see through the potential fully.

It is such a pity the different time horizons for different types of innovation are not simply treatly differently in most organizations thinking and planning. We need to ‘account’ for innovation differently. This is where my suggestions around the three horizons can partly help, these I have extensively outlined in previous blogs to see the value of different mindsets for different horizon thinking.

Different types of innovation needs to be treated differently- certainly more than other parts of the business in the planning cycle.

Sometimes innovation cannot fit neatly within timing budgets, being assigned yearly targets and having tidy plans for allocating resources and expecting results. Innovation is simply messy; it does not often fit the norm of budgetary planning. There is a need to treat different levels of innovation differently. Incremental, Disruptive and Radical all have distinct characteristics that often don’t fit the norm in organizational mindsets to allow them to be worked through at their ‘right’ pace, we force them far to often.

We have three emerging horizons that need different treatment for innovation.

1.Those innovations meeting given goals- these should be within specified period covered by a yearly plan and cover mostly incremental innovation.

2. Objectives that are more disruptive in nature-these are often attained later, after a lot of experimenting until a clear approach emerges. These need to be progressed within the period but have a likely longer horizon, in this case our horizon two within the three horizon framework but usually more than one planning cycle of 12 months. Sometimes they can take two to three years to emerge.

3. Ideals that offer Future Radical Promise- unattainable within the usual time period, more longer term, but the progress is certainly possible during and after the period planned as they move from a weak signal or an apparitional point by probing and investigating over an extended period of time. As this flow of understanding gets translated into something more tangible, as the future simply ‘firms up’, it falls more naturally into what fits more in the longer term horizon perspective but still needs allocating resource within the planning cycle. Breaking down these into milestone achievements that fit more within traditional planning cycles would make sense.

Our existing planning does needs to account for all three, they cannot be simply fitted into one set of plans, all having clear metrics and financials. In many cases it simply ignores the differences completely and forces short cuts, dilution of a great, potentially radical idea , so it becomes ‘boiled down’ into a series of part disrupting but more often incremental innovations.

The search for breakthroughs

Not accounting for those vital differences simply reducing the chances of more radical breakthroughs, the very thing the C-Level is often crying out for. We need to think our ‘numbers’ and planning differently for innovation, pure and simple, otherwise you end up with innovations competitors can easily copy, and quickly and you chase each other to the point of ever increasing commoditization.

Innovation has its own rhythm

We need a change in planning out innovation, it does not ‘beat to normal time’, and it does certainly have its own unique rhythm.

Any coherency of innovations purpose, of what you want to achieve, and applying this in a rigid accountancy planned way does not work, unless you treat innovation differently in planning cycles and recognize these clear different horizons. Innovation operates through a different set of behaviours and also in its delivery commitment and purpose from ‘business as usual’, it is searching for “business not so usual’. This requires different mindsets at the C-level. They need to manage expectations of when the potential value being extracted is worth and be patient for achieving a far more impactful return on investment. Breakthroughs happen but usually with a lot of hard work and sense of commitment, even when you have set backs.

Different innovation requires different thinking and planning. It is these different ‘rates of exchange’ in understanding that need more understanding and perhaps by using the three time horizons framework it might give innovation a more appropriate context to plan them differently than present and permit more disruptive and radical breakthroughs to occur.

Appropriate Innovation Makes Good Sense.

Innovation should always deliver on a specific purpose or promise, often it simply doesn’t. It needs to be suitable to our needs; it needs to resolve a given job-to-be done.

In the developed world we are consistently over-delivering innovation for many and there is a given cost to that, which we all pay for even though we often don’t really need it in the first place. Take for example, the software provided by Microsoft for its windows application, in its office versions, they all are over specified for our personal needs. The majority of these ‘sit’ on our computers taking up space and never used. This continued requirement which we are forced to constantly upgrade requires us to seek more computing power yet it is really inappropriate for most people’s needs.

Perhaps with cloud computing we can see more ‘stripped down’ versions from Microsoft in the future that reduce the initial purchase price, give us a basic kit to work within and through the use of cloud computing as and when we need additional software, we can go and download it by paying an ‘appropriate’ fee to either use it as a one off or to download it onto our computer. We achieve less clutter on our computer, faster start up and performance times, latest applications and a better way to manage our personal needs in a constantly tailored way, appropriate innovation.

Appropriate innovation is possible to be applied increasingly on many products and services with a different thinking of product or service final delivery. It is actually going on in many ways today but it has not been perhaps focused upon enough, in a way that leads to a transformation to meet the times we live in. These need to be more thrifty, tapping into a market need of more inexpensive alternatives that deliver to people the appropriateness at the involvement level they want or can afford to get the job done .

The internet can play an increasing part in this as it can allow us to tap into what we need when we need it. What needs to happen is this philosophy of appropriateness needs to be adopted by more firms and this ‘mind shift’ might lead to significant growth, adjusting there ability to deliver over specified solutions into ones that simply ‘do the job’- a present problem we need to tackle in developed countries, not just developing countries. We need to draw more people into usage, thus growing markets, extracting greater potential and achieving deeper market penetration.

Appropriate Innovation is not new, in actually comes in a number of well articulated guises already.

Clayton Christensen outlines his thoughts on disruptive innovation and he has written extensively about this approach. He argues by doing a clear jobs-to-be-done analysis you can spot market opportunities, not just for segments of under-served but those that are over- served that are ripe for disruption and new products or services that meet that ‘sweet spot’. We tend to see this more for developing countries but increasingly I would argue we need to apply this thinking to developed markets that are presently bogged down with little growth and market stimulus.

A second aspect of appropriateness has been discussed by Vijay Govindarajan as reverse innovation. He points out the rise from globalization, that organizations are applying reverse innovation by taking products and services developed specifically for the developing world that can become the new oxygen for future growth globally.

He argues “many western multinationals with all their resources, technical superiority, and established global present are being beaten to the punch. In the developing world, local competitors are often at the forefront of economic expansion. They are very different organizations in very different places, in very different industries. yet all are leaving established multinationals in their wakes- not just in emerging markets but also in developed markets.”

He states “that the biggest opportunity for multinationals in the next 25 years is to focus on the vast segment of unserved and underserved in poor countries.” Reverse innovation is not only required to capture growth in emerging markets; it will fuel future growth of multinationals in their home markets. It does this through a more appropriate innovation approach, aligning clear, specific needs and tailoring products and services to meet those. VG defines reverse innovation as very simply, any innovation likely to be adopted first in the developing world whereas a  disruptive innovation has a particular dynamic that endangers incumbents but both have ‘appropriateness’ to meeting need.

Recently the consulting company, A D Little, was discussing the future of innovation management and within one of its five concepts to watch it introduced frugal innovation. It sees new segments, new needs emerging that require a more radical new low cost. This frugality and affordability will alter the mindset of many. Present societies regarded as affluent will need to adapt and reduce down on their current expectations and fit their circumstances accordingly with ‘appropriate’ innovation that serves their specific needs.

Frugal innovation can be interchanged a lot with reverse innovation. Frugal innovation brings about a rethinking of the nature of innovation. Instead of “more” it is often striving for “less”, using clever technology to create greater simplification with a huge potential across many fields of product and service to allow society and individuals greater engagement at an appropriate cost.

There is a huge potential in considering these three concepts

If you take an argument of VG’s that there are three primary situations of 1) income gaps, 2) infrastructure gaps and 3) sustainability gaps and seeing we are increasingly suffering from these in the developed world as well as the developing world, they can really offer rich opportunities to view innovation through new lenses of appropriateness

All three concepts match to appropriate innovation- matching appropriate needs and innovations and aligning them to give a real growth potential.

Barriers and resistance

For all three concepts there is a real need to change the existing mindsets. You must overcome resistance to shifting power and control away from headquarters, from a selected few and they must be willing to reshape the organizational models  to be a more flexible one.You must overcome the initial resistance to prioritizing an investment that does not initially seemingly serve what you think are the interest of your mainstream customers. Each can cannibalise on existing concepts and this is a tough path to travel and break out but there is even more a pressing need to ‘go where the growth is’.

Appropriate Innovation is a real way forward to grow business.

The organizations that learn to shift towards “bottom up” innovation could provide the impetus needed to develop successful innovation-for-development strategies that meet appropriate customer needs. This is the approach to start.

People are often impatient; they don’t want to wait for solutions that are not appropriate they are seeking ones that fit their pocket, fit their needs. To discover these untapped new markets although it is not so clear cut initially is to perform a very precise jobs-to-be-done market analysis to discover these underserved needs.

To meet this need we should create a culture of inventing more convenient, lower- cost, appropriately specified, perhaps more on-demand products and services. In this way we can attract a larger population to tap into a greater market potential of appropriate services and products/.

There are plenty of people  who would be happy to purchase a product with less (but good enough) performance if they could get it at a lower price but where these is still going to be a reasonable margin for the providers. There are increasing ways to deliver ‘stripped down’ versions of nearly everything. We just need to learn what is appropriate, a move to greater simplicity and delivering appropriate innovation to meet given needs.