Is all investment about the future?

Buy back questionI was reading an article by Doug Collins on the “three wishes for the innovation practitioner for 2015” where he points out “2014 was the year for share buybacks and dividends“.

An article from Bloomberg reports that companies in the Standard & Poor’s 500 Index are “poised to spend $914 billion on share buybacks and dividends this year, or about 95 percent of earnings.”

95% of earnings – Doug rightly says “wow” and offers a thoughtful set of observations

“Every organization that enjoys free cash flow makes a decision on where to allocate that resource. If the opportunity available to the organization meets or exceeds the hurdle rate—the desired, expected rate of return—then, in theory, they invest in that opportunity. If not, then no: the organization returns the cash to the investors. Of course, earnings come after investments the organization makes in innovation—research & development expenses, for example. Many do invest a lot in R&D”

He then remarks “And yet…..and yet” ….

“This offers the implicit message from the firm to the investment community: “we do not have a better use for this cash (i.e., the ideas we might pursue do not seem as promising and as compelling as we would like).”

“We know that we cannot cut, or cost save, our way to growth. By extension, we know that we cannot grow a business for the long-term by returning all profits to the investors. Doing so suggests a lack of vision—a lack of acuity into what the customer wants and what the market demands”.

Then you begin to read through the Bloomberg article

“Companies in the Standard & Poor’s 500 Index really love their shareholders. Maybe too much!  Money returned to stock owners exceeded profits in the first quarter and may again in the third”

The Bloomberg article goes on “Buybacks have helped fuel one of the strongest rallies of the past 50 years as stocks with the most repurchases gained more than 300 percent since March 2009. Now, with returns slowing, investors say executives risk snuffing out the bull market unless they start ploughing money into their businesses”

Some further quotes from the Bloomberg article

“You can only go so far with financial engineering before you actually have to have a business with real growth,”

Buybacks are something corporations can take control of and at low borrowing costs, they’re a viable option,”

If management can’t unearth future opportunities for growth, as a shareholder, I lose confidence.”

Buybacks have become sort of the low-risk medicine in the C suite,”.

The reality is capital expenditure comes with risk, significant amount of risk, especially in a slow-growth world. Buybacks offer a lot of flexibility.

So you do have to ask the really hard question: where is the future REAL growth going to come from?

So why are our companies not ploughing additional money back into their business, partly it serves the interest of top management who are often compensated on EPS. Business today remain utterly reluctant to buy new equipment, build factories or hire more workers, while management regards the recovery as uneven, it has regarded the buyback strategy as the best bet. How totally wrong!

Clearly the view that your own stock is under-priced, you believe your strategy is the right one and you are certainly not going to sit on hordes of cash, it is perhaps value-destroying to “our” shareholders. Yeah right including mine!

This is where the whole compensation of management has gone off the rails. If tenure at the top is shortening- as it is- then pushing your stock price performance helps for a two to three-year period helps you as the manager. Yet it really is simply “kicking the future down the road” for others to deal with, if it is not too late. It is very unlikely these buybacks will help performance of the company over a decade but then again most management has ‘cashed in their chips’ by then.

Simply too much cash and buy-backs are stopping innovation and new growth

Now of course if this ‘bull market’ does come to the end of its run this year as many are predicting then the ‘game’ of improving financial ratio’s gets so much harder. Buybacks do reduce the assets on the balance sheet (cash is an asset), the return on assets (ROA) increases and if the shares bought back are ‘retired’ the return on equity (ROE) equally goes up.

Today our markets and the investors view higher ROA and ROE as the greater positive over the need to invest in the promise of a better future. Yet change is stirring, new business models are revolutionizing industries, crazy ideas will be creating new markets and this call of the unknown holds an interesting promise of future ‘higher’ returns. The Darwinian effect is raising its head and innovation holds one big key to evolving differently to manage in these changing times.

Are these prop-up ratio’s providing short-term relief, holding strategies to what would otherwise be an ailing stock from poor investment in innovation or new assets or helps them get out of excessive dilution. These signal a company struggling.

The reluctance to raise capital investment has left companies with the oldest plants and equipment in almost 60 years. The average age of fixed assets reached 22 years in 2013, the highest level since 1956, according to annual data compiled by the Commerce Department.

Do you recall the Capitalists Dilemma?

I am sure many of you can recall the article in the HBR “The Capitalist’s Dilemma” by Clayton M. Christensen and Derek van Bever from the June 2014 Issue. This is where they outline the three types of innovation 1) Performance-improving innovations replace old products with new and better models 2) Efficiency innovations help companies make and sell mature, established products or services to the same customers at lower prices and 3) Market-creating innovations, our third category; transforming more complicated or costly products so radically that they create a new class of consumers, or a new market.

We are today often failing to create the market-creating innovations. Market-creating innovations need capital to grow—sometimes a lot of capital and risk and this is deemed unhealthy in today’s more uncertain environment but you are ‘creating’ lots of cash by running lean. Buy backs are safer, the risks lower and top management’s projects their confidence that this is better for shareholder wealth. Shareholders take the money but over time I would certainly argue lose confidence in a lasting future and constantly switch shares to chase the cash! So shares get propped up even more and the circle starts again and the future gets sacrificed just that little bit more.

The Capital Dilemma article was suggesting the need for a New Orthodoxy of New Finance.

It does recommend the emancipating of management. “Many managers yearn to focus on the long-term but don’t think it’s an option. Because investors’ median holding period for shares is now about 10 months, executives feel pressure to maximize short-term returns. Many worry that if they don’t meet the numbers, they will be replaced by someone who will. The job of a manager is thus reduced to sourcing, assembling, and shipping the numbers that deliver short-term gains”

Re-evaluating differently

While we value innovation alongside non-innovation in the same way the demands for returns on investment place unfair demands on internal innovation projects. Investing in the future is so much harder and while there is this lack of confidence in new innovation, alongside this lack of external pressure for different judgements, we are looked into that diminishing short-term viewpoint dominating our boardrooms.

Hopefully if this present bull market does end, innovation, the sources for new growth, alongside greater mergers and acquisitions (M&A) suddenly gets its ‘growing’ voice back in the boardrooms. Suddenly corporate behaviour moves from financial prudence and cash becomes released for accelerating real expansion.

We have lacked the right type of investment in the future

I just wonder if those at the top really understand that it is not just cash that will ‘create’ innovation when they require it, when they have  that sudden need to chase for real growth if the stock markets turn mean? This acceleration comes from driving new innovation. If they have not been sustaining investments in their resources; their assets and their people and we know these have been far more diluted through this pursuit of lean management, dispersing most of the gains with the cash piles achieved, then the company is in real trouble.

They might soon realize that real innovation and the skills needed has been running on ‘empty’ or just the past fumes of low-octane incremental fuel, with little sustaining power, apart from this propping up the short-term. This sudden realization might create a sheer sense of scrabbling. A scrabble just to regain those forgotten skills and bring real lasting health back into our companies where people are valued again for what they can bring.

It would be nice to see a pursuit of growth back on the agenda, through pushing all the buttons needed surrounding innovation, and to see top management really earning their place, unearthing future opportunities for real growth, something shareholders will be increasingly looking to see.

Risk Opportunity

Risk and opportunity are the ‘yin and yang’ for innovation and when you are looking to really grow to give really valuable shareholder return then top management is going to have to re-learn much.

“Recognizing the power of ‘yin and yang for innovation’ can give you the order of things and how and why they relate to each other. Complementary and conflicting opposites do contribute to a greater innovation understanding but they do need consistent attention to manage”

It is critically important to have this ‘flow and balance’ and allow it to constantly evolve. Lets get back to investments that are about the future and that needs a healthier appetite for innovation investments.

The growing need is to move innovation into the cloud.

Moving innovation into the cloudAs business organizations continue to struggle with the decision of ‘if and when’ and then ‘what’ within their systems and processes should go into the cloud, there is this gathering, if not overwhelming view, that the cloud will bring IT closer to the business needs of today.

Innovation is certainly one of those in need of concerted effort to bring up to date within organizations, to make it more inclusive and that can come through delivering it across the organization within the cloud. Highly visible, agile and core to the organizations future, seen by all and truly valued.

Let me outline my initial thoughts here, put the seat belt on for the ride please: making the business case.

The cloud solutions do seem to look promising for those adopting a strategy of increased use of the cloud as a future IT approach. They seems less emphasis on the cost savings but its potential to improve business flexibility and gain access to a wider array of technologies and solutions. Also there is a growing view that the cloud supports critical aspects required today and in the future, that are more radical in organizational design.

Those that look to run IT processes in the cloud, such as development tools, test tools, development systems, test systems, service management and performance management as well as incorporating SaaS offerings (such as Salesforce) with their internal systems, and with this host of cloud hosted systems to make hybrid architectures that promise radical changes can be realized within our organizations.

If these changes can be delivered, then I think they will be welcome by all sides inside organizations, each grappling with all the changes swirling around the business today and forecasted to become even more volatile in the future.

Clearly organization design and its core processes and systems needs fresh, vastly different approaches, to tackling chronic organizational rigidity that is seen today. Business unit leaders are frustrated with a lack of new, more radical solutions to their needs of being responsive and agile.

Switching into the cloud can transform IT as a provider of on-demand service when the business needs it!

Switching to the cloud can also radically alter the position of IT as a real provider of the services you need to do the job, when it is needed, more on-demand. It can offer those in ITa future role of looking constantly towards being the ‘go to’ service provider, that is constantly adding the supporting structures for supporting new value and impact in flexible systems and processes that can constantly be adaptive to meet the business needs.

Critically the cloud can help significantly in the quest for speed, agility, scalability as well as being designed for the increasing need of having in place support structures for a more ambidextrous organization. These need different solutions than today’s systems and will become the big IT challenge to manager over the next few years.

There is a constant talk in IT circles of “everything is a service” and if this translates as the business expects this can have a real transforming ring to it. Business groups require faster execution, reduced time-to-value and higher levels of flexibility, and perhaps, IT might have a way to deliver these through the cloud. The promise is ‘hanging out’ there it seems.

Bringing innovation fully into the corporate fold

Thankfully, for many perhaps, innovation has been a little out, off on one side of enterprise resource planning. To some degree this has helped but also is rapidly becoming a real performance drag, innovation needs to be more central in core process thinking.

I believe the solution is to buy into ‘innovation in the cloud’ as the next practice idea. Today many innovation processes and systems have been fairly stand alone, remote from the clutches of IT and not being ‘integrated’ into the Enterprise Resource platforms so far, would all have to go and that will have a few cries of “OMG no!”

On-premise IT solutions for innovation remain highly constrained.

I’m certainly against innovation continuing to stay in the on-premise platform at all. Of course, any migration plans will give the current systems sometime but the cloud just seems to be an alluring prospect that meets many of innovations needs.

Innovation can only really thrive and move considerably up a notch or two in performance and recognition, if it can obtain the integrated flexibility and achieve the more open access to all shades of business agility that can be found, if we have the opportunity.

Innovation runs counter to repeatable processes; it needs to leverage this ambidexterity of having access to all that makes it adaptable- nimble, agile, constant change, and experimentation, prototyping that is tailored to explore incremental innovation in faster, more flexible ways.

Alongside this to allow for more radical innovation that taps into greater needs for mobility, usability, elasticity and yet still be aligned to leverage, exploit and maximise opportunities needs to run in parallel.  It sounds a tall order doesn’t it, yet I’m not sure it actually is, when you stand back and think about this and try to begin to piece together all the pieces of the puzzle.

I think there are multiple ways forward exploiting the cloud

There are many thoughts one could explore with a little bit of imagination, alongside a decent knowledge of what is possible today and what can be possible in the future, that is already in our ‘present line-of-sight by using something like the three horizon methodology. I’ve also written about the need for a “innovation mashup previously, as well as I can see the clear advantages that all these emerging platforms are providing that are delivering radically new innovative business models. Large organizations need to climb on board to thinking innovation differently.

Large organizations are lagging in the ‘responsive league’ clearly, they need to think beyond holding everything in house and look towards a more radical innovation agenda for change. Growth does not come from incremental dripping techniques; it comes from spotting emerging opportunities and turning those into commercial value as quickly as possible. The current legacy within any innovation systems is creating such a drag on organizations current innovation performance and why are our organizations not recognizing this?

Putting innovation in the cloud is itself disruptive.

It offers the real chance to innovate existing business practices, it can give increased visibility. Innovation can be ‘seen’ throughout the organization, not tucked away in dark corners, scrabbling to gain attention. If you take the example of what did in cloud computing to transform the customer end, then why can’t getting innovation on multiple platforms in the cloud really show its potential as well? Then innovation connects and suddenly the customer becomes a co-creator of value and collaboration really comes to the fore also, as something necessary and needed.

The speed of any innovation implementation process is determined by demand and acceptance though.

Any new design is determined by its adoption, diffusion and usage, all the way through to exploitation and uptake. I’ve written about the need to adopt improved practices for capturing and distributing knowledge through applying absorptive capacity that give greater structure and receptiveness to change that is increasingly needed to cope with growing inflows of information, knowledge and increased big data insights.

We need to find ways to ‘push’ organizational readiness for innovation to change and that comes from the top really pushing harder to achieve real growth from new opportunities but supporting the infrastructural changes this requires, a real place for IT and HR to become more involved in preparing change.

We also need to reflect on what is needed to help assimilate innovation as it will continue to have a complex, non-linear need in processes and this often in the past has simply kept it out of the ERP space, for example.

Equally due to this exclusion, sometimes the constant need to focus on innovation falls out of the corporate line-of-sight daily, as it is not part of this core, organizational supported process, it operates on one side for many to feel not involved. It comes back into the spotlight only when something has not happened, not as promised and that then ‘expends’ lots of negative energy chasing down answers, seeking explanations.

Resolving existing thorny issues need to be brought bring into the innovation cloud equation.

We need to tackle some problems within the innovation that will simply not ‘go away’ but will remain thorny issues until we tackle them ‘full on’.

The greater emphasis on the softer aspects of innovation in skills, attributes and collaborative techniques calls for different thinking on talent development, learning new topics, working in different, far more project related ways that are responsive and agile to ‘seize the opportunity’ by actively seeking the solutions that are available but most probably beyond the walls of the organization and this can be through the cloud.

The art of letting go and opening up to collaboration and co-creation is a growing challenge for all organizations. The pressure is on finding the ‘ways and means’ to enable that to happen. Another strong argument for promoting the cloud where you have a constant array of collaborative tools and applications help draft, design, brainstorm, make mock-ups live, sharing to do lists in real-time, manage projects, offer concept board development on the fly, provide facilities for all aspects of audio, mind mapping and creative enhancing techniques and on and on.

I’d argue that innovation needs the very best ways to tease out understanding, not locked in selected mindsets of product developers. We need to offer interactive, real-time collaboration tools to make the design and execution of innovation a whole lot better.

Lastly, without droning on more, we need to find ways to orchestrate, monitor, allow for broader performance monitoring, adding tools as needed on demand, to build and deploy capacity management and modelling outcomes against performance within innovation all are needed. We need to change the ways we report on our total innovation activity,  not in the days and weeks these requests can take, but at speed the cloud can potentially provide and the business requires, fast.

So I am making my call of innovation and its need to head towards the cloud fast!

We have come a long way in understanding innovation, yet it still stays locked in legacy systems and structures. We need to make future choices on what we want out of our innovation activity, much of the same as today or the ability to move it into a new domain of performance?

To do this we have to navigate through all the hype and mystic surrounding innovation, we have to be bolder in testing out capabilities to experiment and explore the options we have available today in new software, tools, thinking and applications.

We have to take clearer positions on the best applications to do the job and not settle for today’s poor compromises of having one stage gate system for example, we need to feel comfortable to leverage and extend our resources and capacities to innovate and learn on a continuous basis how to exploit the opportunities in agile, flexible and real-time ways.

Making the business case

For me, to achieve this we must go cloud-based, agile, and moving towards having a more ambidextrous organization design for innovation. This will help innovation to break out of the existing constraints and linear approach we have given it as its straight jacket. It will not come overnight, a cloud-based innovation capability but I see no reason why it can’t be delivered in less than five years.

I’m sure there are some out there wanting to bring this hugely disruptive potential into realization quicker than that, it has a real business case potential in my opinion. Does it for you?

Learning favours the brave

Knowledge and learning 4The challenges we are facing today seem to be coming faster at us, more complex to decipher and then re-evaluate how we should respond. To achieve faster response we certainly need to educate the organization more than ever.

We need to absorb more, we need to encourage learning more especially to pursue innovation. We need to actively set up learning ways within our organizations to establish their abilities to recognize the value of new, external information (knowledge), to assimilate it, and apply it to commercial ends.

Innovation within the organization needs not just greater recognition of its vital parts, but also of its status as a value enhancing and organizational life-changing event that we need to move towards increasingly in more organized ways. Innovation needs to be recognized as a clear discipline, a new expertise that is as powerful as Marketing became some decades ago.

Seeking out knowledge that feeds our innovations

Knowledge and learning 3The more we embrace change and recognize innovation demands more of our time, the more we seek out knowledge that ‘feeds’ innovation. And the more we ‘push’ for learning, the greater chance we have of thriving in a challenging world.

The expectation ‘bar’ needs to be raised from those practicing innovation, I feel the constant need is for those working within innovation they have this real need to raise their game significantly. Innovation needs organizing but it also needs a better understanding of its contributing parts.

Learning and Education should always start at home.

The earlier we learn, have open interactions and form linkages, the more we will be ready to advance innovation into what it must become: a discipline highly valued for what it contributes with in terms of wealth and growth potential.

We need to find the determination to underpin the capacity for innovation, lying within us all, and that comes from knowledge and education through collaborative learning. So what is your capacity for innovation really like within your organization? Is the learning required for innovation set up in structured ways or left to individual learning and experimentation?

Do either structured or informal ways feed back into the organizational learning system to benefit others? Or is the knowledge gained just left ‘resident’ in the person, not being put to that greater use?

Knowledge exchange is the way forward but we need to avoid the easy paths.

Knowledge and learning 2Organizations need to move well beyond their lazy reliance on best practice comparison and they need to find better ways to explore emerging practices. But that takes many into the realm of increasing uncertainties, and most people and organizations are not trained for this exploration and experimentation.

It is easy to copy but we often fail to recognize all the contextual factors that went into making it that one specific organizations good practice, and I guarantee these are not yours!

Best practice has their comparable uses but it is your focusing on the good and emerging practices within your own organization is the area to focus, for learning and wanting to improve into those that make your practices really work. Then applying, experimenting and learning from novel practices that provide growing confidence in creative thinking.

Also give some thought for next practice, those practices that prompt reinvention. They start such totally fresh thinking, they challenge existing paradigms and move you towards considering new business models.

Organizations constantly anticipate risk by reducing all the variables within risk and play safe with just being incremental. Is that wrong? No, as long as we have our reward systems geared to short-term performance, while we measure leadership success the way we presently do, and the shareholder just expects consistent dividends as their part of the equation and is quickly mobilized to force change if it does not meet this immediate aim, we head down the wrong path.

We are not sustaining our organization and we are not advancing ourselves either, we are destroying much in our current approaches. We do need to focus more on the competence-enhancing not competence-destroying aspects.

We need to re-balance the “risk and opportunity” to push our use of new knowledge into fresh innovation that ‘advances’ on the existing. To recognize the difference we need to encourage knowledge to be ‘freely’ exchanged, and then provide the environment to encourage a re-educating on ‘seeing and exploring’ new possibilities that allow us to grow.

Shifting the knowledge needle takes real commitment

Knowledge and learning 1Can we recognize that choosing the tougher pathway of building our own distinct capabilities, learning block by learning block, is the right one to follow. This allows us to build capacities that are ours, seeking out the knowledge to build the absorptive capacity that acquire, assimilate, transform and exploit, so as to give us greater chances of finding new innovation that is valued and allows us all to grow and gain from this dedicated learning.

I can’t change our prevailing system but I can point to alternatives and suggest we have other options, ones pursued by the few, which are more visionary and brave and often disrupting the accepted. These are building on novel and unique practices, extracted not from others best practices but from emerging practices learn by deliberate design and our own personal experiences, formed within our organizations unique view of the ‘take of and place in’ the world.

Finding our own way relies mostly on us to find the answers. We grow by seeking out knowledge as it feeds our minds to find our unique ways to contribute and share.

Reducing confusion, promoting diffusion for new knowledge in innovation

The third and final part of exploring knowledge and education for innovation

Part three – the value is in changing, doing and exchanging

How are we going to engage more people within the innovation process? Getting people involved is getting people “doing”. We learn far more when we are doing and gaining experience yet organizations are always in seems to me consciously or unconsciously reducing the experimental part to any persons learning.  We need to reverse this and simply encourage the exploring of new skills, gaining new experiences and probing established rules to value them but also to challenge and push them. Innovation is certainly not a friend to rules, established protocols and traditions. ‘It’ looks to attract the diverse opinions, the people willing to speak up and be heard as they often have observed and feel something can be changed and ‘itch’ for the chance to explore and learn from this.

Coupling, uncoupling and recoupling in complex systems

Innovation is a complex system where the coupling, uncoupling and re-coupling of  technology, design, product, organization, art and science, to name just a few of the parts, that need to constantly engage for good worthwhile innovation to happen, is important for us to recognize. Organizations have real difficulties with this ‘fluid need’ to allow innovation to evolve as the natural tendencies are to apply, traditional, established ways to track, to attempt to ‘file away’ something that can be related too within the experiences. This is why encouraging enquiry, by pushing experiences you ‘form’ less and ‘allow’ more to evolve before you make the judgement. Innovation needs to be allowed to stay ‘fluid’ as long as possible before the final commercial ‘freeze’ moment when all the combinations emerge as new to the world.

We also come back to the intrinsic nature of innovation; it needs different resources, skills and knowledge experiences to come into play. It is this very diversity of opinion, if allowed to engage and explore, gives us the chances of advancing innovation, of achieving a more radical solution. Perhaps we ‘promote’ incremental innovation far more than we realize because we don’t go out and engage in broader communities due to not having the time, the inclination or the understanding of its real value. Equally because we are simply not encouraged to do so, hence my argument we need a clear innovation knowledge exchange structure in place working through the absorptive capacity structure.

Openness and Convergence

Besides all the well-argued aspects of open innovation that certainly includes that famous statement that “all knowledge does not reside in one place” the more we interact, cooperate and network we share knowledge. Often the regret is the ‘brief’ is getting tighter and tighter to work from, so as to speed up discussions, the searches and ‘lock-in’ solutions the more we ignore weaker signals that are out there, hinting at even greater innovation opportunity. We chose to push past these due to this incentive, this often ‘hard’ metric that we work strictly on the ‘brief’ unless we simply trip over something so blindingly better.

Although we are certainly evolving innovation the more we open-up we do need to build in some slack time to explore, often go with a hunch and follow our noses. We are in danger of losing this opportunity in our focused intents. Open innovation will not yield all it can promise if we don’t allow for more open knowledge exploration that might be out of the ‘norm’ but still within the parameters of what we are wanting to achieve – innovation that offers compelling competitive advantage – and we often can’t achieve that if we remain blind to those ‘weak signals’ that knowledge exchange that is encouraged to recognize, value and assimilate.

The Dangers Lurking in Innovation

We all speak of enhancing innovation capabilities but it can be both competence-enhancing and competence-destroying. We build on “preferred” routes to enhance our existing capabilities as this is traditionally viewed as the way to become ‘competitive’. Actually the very opposite can and does happen. Significant breakthroughs, changes in conditions, markets or technologies leave us increasingly unprepared. More and more disruption is occurring and with this it is bringing increasing obsolescence.

We do need to acquire new skills, not ones layered on pre-conceived ideas and practices but on ones that promote new “fields of activity” we built into our thinking. We need more intensive innovation that explores at the emerging new edges of innovation management.

A great example of new fields of activity is MIX

A real valuable example of this is the work taking place within the Management Innovation  eXchange (MIX) as an open innovation project aimed at reinventing management for the 21st century. The premise: “while “modern” management is one of humankind’s most important inventions, it is now a mature technology that must be reinvented for a new age”. This is a meeting place where The MIX is designed for all those who are frustrated by the limits of our legacy management practices. It’s for all the inspired thinkers and radical doers who believe we can — and must — find alternatives to the bureaucratic and dis-empowering management practices that still rule most organizations.

Principles of the MIX – Everyone Wins When Everyone Shares

“The MIX represents a pioneering attempt to use the open innovation model to help accelerate the evolution of a critical social technology — its management. Rather than struggling in isolation to reinvent the processes and practices of management, MIX members can leverage the expertise and insights of a global community of like-minded innovators. The success of the MIX hinges on the willingness of its members to share their ideas and experiences, which depends in turn on a belief that more can be gained by sharing than by hoarding. Truth is, there’s a lot more management innovation going on in the world at large than in any particular organization. Thus the MIX gives every progressive management innovator the chance to share a little and learn a lot”.

Certainly learning favors the brave

We certainly need to educate across innovation more than ever. It needs not just greater recognition of its vital parts, it needs to be recognized as a value enhancing and organizational life-changing event we need to move towards increasingly. Innovation needs to be recognized as a clear discipline, a new expertise that is as powerful as Marketing became some decades ago.

The more we embrace change, recognize innovation demands more of our time, the more we seek out knowledge that ‘feeds’ innovation and we ‘push’ for learning far more about its impact and its complex parts, the greater chance we have of thriving in a challenging world.

The expectation ‘bar’ needs to be raised and those practicing within innovation, dealing in some of its parts do need to raise their game. Learning and Education always should start at home. The more we learn, have open interactions and form linkages the more we will be ready to advance innovation into what it must become, innovation management, recognized as a discipline and highly valued for what it contributes in wealth and growth potential.

We need to find the determination to underpin the capacity for innovation, lying within us all, and that comes from knowledge and education through collaborative learning. So what is your capacity for innovation really like?

The real value of knowledge exchange

Continuing in the series on knowledge and education for innovation.

Part two – what needs to improve in innovation?

I asked in the first part of this series of blogs –How do we advance the learning needed for innovation?  So first, do we (all) agree that we do need to improve the education around the subject of innovation and its management? Do we need to recognize it as an essential discipline that should be fully recognized with our organizations? Today it is not central, it is not driving the business surprisingly when you stop and think about it, older more established practices drive the business and innovation is a responder. I think this needs reversing totally.

We live in knowledge-based societies and we need to constantly increase our share of understanding as this new knowledge becomes the building block for innovation to take hold and grow our wealth, create the next generation of products or services.

Our challenges are greater and more complex today.

Modern society is becoming a fairly intense place, it is growing in complexity, reducing constantly our need to reduce our reaction times so we need to ‘read and react’ far quicker than in the past. We are being highly challenged in adapting our existing practices and processes within innovation to speed up. In reality top of mind for CEO’s is the innovation gap, they want to quickly see and fill and secondly, their worry over the innovation delay.

We need to find new mechanisms on innovation to allow for a better transfer.

The appreciation of knowledge – its collection, its understanding and interpretation and in its transformation and exploitation are not being valued as highly as they should within this need to speed up, to close gaps and reduce delay but more importantly, to contribute to higher value outputs that “fuels”  new innovation activity.

The production and reproduction of knowledge becomes key –  it drives activity and direction for innovation activity. As we create, accumulate and disperse knowledge we become more engaged outside our own walls. We need to seek constantly a comparative advantage and to achieve this goal we are seeking more and more open exchanges to allow this flow of knowledge to be captured.

We are becoming increasingly interdependent and permeable to disturb what “we think we know” to “what we need to know”. Relationships, networks, dedicated resources searching; collecting and assessing knowledge all rapidly contribute to our growing need for new capacities. We then need to build the appropriate capabilities to translate and exploit this new knowledge. Our “need to innovate” is becoming our sole means to survive and prosper in this highly competitive world we continue to create and knowledge becomes the key to this.

Knowledge cannot be allowed to be left to chance today but needs a coherent, structured way to be captured, used and valued. “Our knowledge” is our potentially most highly prized tradable asset. The skills we build from this understanding allow us to build, explore and experiment so we can translate this into new innovations.

Content and Context are the essential partners.

As we look at innovation today, often one of four aspects are missing or under-served for what an organization is trying to achieve. The ‘context’ that innovation is set is usually the most poorly described part. The ‘content’ can fill rapidly but this tends to be full of endeavour and activity as the results have not been as clearly articulated as they should have been. The ‘purpose’ and the ‘process’ make up the other parts. Knowing the purpose comes from setting the context –  this clarifies the inputs that form purpose. Lastly we have the process where the activities should flow through. Each of these four dimensions is often not as solid or robust as they should be, and increasingly, new knowledge is not getting translated to leverage its potential due to these weaknesses within our management of innovation.

Absorptive Capacity becomes essential to understand

As we rely increasingly on our growing ‘interactions and linkages’ we need a system to manage this. Absorptive capacity was introduced as an idea and first explored by Wesley Cohen and Daniel Levinthal in a 1990 article (“Absorptive capacity: a new perspective on learning and innovation”) and can provide us the knowledge learning path for building a real “knowledge exchange” process.

We can learn to exploit both innovation and learning in the following ways:


  1. Learning by searching – as we formalize our search activities we absorb new understanding that leads to new innovation potential
  2. Learning by doing – as we accumulate knowledge gained, we gain experience and the more we establish repetitive activities through exploring, prototyping methods and reduce the ad-hoc activities the more we can learn and gain from this approach
  3. Learning by using – as we utilize and adopt more, through exploration and adoption of new products, new technologies and methods, we are opening up to experiment and possibilities to extend this new ‘experience or knowledge’ even further.


  1. Learning from advances in science and technology – as we absorb new discoveries we capitalize on adding further value or diffusing this even more
  2. Learning from inter-industry spillovers – the increasing value of cross industry collaboration and exchanges is going beyond ‘just’ spillovers, they are increasingly significant to our learning and applying different  approaches that lend themselves to a greater commonality
  3. Learning by interacting – we increasingly go ‘across’ organizations and equally move ‘up and down’ them to seek out interactions with other sources of knowledge and growing expertise. These are further augmented by external collaborative exchanges and cooperation activities allowing for deepening knowledge, greater experimentation and interactions to deliver potentially ‘richer’ innovation.

Each of these six points of learning need exploiting for innovation.

Finally in this part, I’ve discussed absorptive capacity in previous articles “making innovation practice spread”, learning to absorb new knowledge for innovation and moving towards a more distributed innovation model to provide a fairly comprehensive set of discussions on this critical aspect of innovation and knowledge provision.

We are equally in need to recognize differences and value in tacit and explicit knowledge.

The distinctions and discussions about tacit and explicit knowledge are equally important to our “knowledge exchange”. Ikujiro Nonaka discussed four different modes of knowledge conversion and subsequent organizational learning in his SECI model

  1. Socialisation (the conversion of tacit knowledge to tacit knowledge);
  2. Combination (the conversion of explicit knowledge to explicit knowledge);
  3. Externalisation (the conversion of tacit to explicit knowledge); and
  4. Internalisation (the conversion of explicit to tacit knowledge).

To explain this we need to distinguish between tacit and explicit I outlined some thoughts in a previous article “tacit knowledge rich in its innovation implications” and further explored this in “making the appropriate impact”. The critical message here is that tacit knowledge vs. explicit knowledge is where the interaction between these two is vital for the creation of new knowledge that leads to future innovation potential.

Knowledge for innovation needs to build in both formal and informal ways.

With the recognition that absorptive capacity and richer combinations between tacit and explicit knowledge needs a real recognition of their vital part they are playing within innovation’s future health. Without new knowledge we can’t explore the potential for innovation. We do need to explore these far more in our advancing knowledge and education for innovation

My last part within this knowledge exchange series I want to finish with the ‘coupling’ within the innovation system, our need for greater convergence and the dangers lurking in innovation. Each has its place within knowledge and education for innovation.

What is your capacity for innovation really like?

In a series of articles I’d like to explore the value of knowledge and education for innovation.

Part one –  an opener to innovation change

How do we advance the learning needed for innovation? In my last article I wrote about the need to prepare ourselves for some forthcoming standards for innovation. In a number of  earlier articles, I have also written on a range of contributing factors that will advance innovation in its learning and adoption. In this series I want to go deeper – an emerging treaty for innovation advancement.

I have to be clear here, I am becoming increasingly frustrated by the seemingly lack of advancement in our understanding of innovation. Today we have a real challenge, all of us, in boosting our capacity for innovation. We need to achieve this ‘boost’ as the outcomes we can gain and are required are both economic and social in the potential value. We need to move beyond the existing and tackle the blockages to the preferred, when it comes to innovation achievements.

We face many challenges within a highly competitive world

As we seek out fresh opportunities, locally and globally, we are becoming increasingly challenged. The world is highly competitive. The key driver to meet these ‘twin’ challenges is innovation, not just for the short-term results businesses are so obsessed about but the critically important need to simply find the pathway to sustainable development through re-occurring innovation activities.

Sadly today we still marginalized innovation, we rely on incremental activities to pull us through the short-term and seemingly just keep putting off the longer-term. Much of management within organizations is mortgaging the future for today’s immediate gains. I loved this thought, although it may not contain much original thinking but it does offer what I felt reflects on this point: “we are simply kicking the innovation can down the road.”  This needs desperately changing for these economic and social reasons that are increasingly looming down that same road. Innovation needs to be better understood in what constitutes it and all the different ways it can be applied. We do need to understanding it better for its significant contribution potential to what we need to solve as social and economic problems.

 The role of education and learning for innovation

The role of people within innovation can never be overstated. They make it happen, everything else is their enablers. We do need to understand what makes innovation truly work through increasing the comprehension of “combining” its many myriad parts. Innovation skills need an innovation friendly environment and we need to reform much of our existing approaches to innovation as practiced today.

Actually we need to really speed up our reforms and we need to achieve a clear consensus of what better frameworks and activities can deliver this. Of course I would offer a shameless plug of the Executive Innovation Work Mat to be part of this, why not? I do believe it is part of the emerging solution. In my opinion the work mat helps educate, frame and to learn from in it’s combining the critical aspects, so as to improve on our existing performance and build from this.

It is increasing recognized we are all in need to follow the lifelong learning track, as organizations are increasingly insisting on increasing human performance yet constantly reducing the ‘bodies’ to assist in this. We need to keep relevant or we also become caught up in this marginalization if we don’t and have a poorer potential in our future.

Technology can’t stand alone, it needs actively working.

Organizations are presently mistaking the promise of technology alone and this will not work; it needs people, their knowledge and experiences to apply the technology. Far too often we are not finding the time as increasing complexity is layered onto dwindling human resources. We are adding more pressure into the system by taking out the very solution we need to keep in place and utilize far more, that is our people.

We are pushed to keep up and to stay relevant; we have to bury often our personal grievances because if we surface them, then we might get singled out in the next round of often mindless people cuts. We do need to reverse this board room mentality and cutting out the diversity of opinion that should be valued not thrown away. We need to make our performance potential to be stretched even more, encouraging and sustaining these different opinions. We must find ways to break into this ‘boom or bust’ mentality in board rooms by reducing the very friction that stimulates greater innovation thinking.

So how can we achieve this? Openness, trust, partnership, valuing diversity is ones that readily spring to mind here. But more importantly we need to build an innovation road-map to scope out the innovation landscape and the dynamics.

Building real education into an innovation road-map

One place to start is to design a more comprehensive road-map of innovation made up of its integral parts. The more innovation is seen and the people that enacted this are recognized, not buried in plain sight, the more it will be valued. The more we see ‘it’ and what it contributes the more people become essential to their place within this mutual value proposition we need between the organization and its employees. The overarching plank of offering education on innovation is the real ‘glue’ as this is where the value of knowledge is central, in my view, to the way forward.

Knowledge, innovation knowledge, is made up of an awful lot of different things and this is where the real education comes in, front and center in developing new practices, in training, in educating, in translating this knowledge into lasting value. The more people are valued, the more they become ‘sticky’ and the more they use their knowledge, then it becomes mutually re-enforcing as their organizations grow to appreciate their worth. We need a new social contract between organizations and the people they employ and that should be on mutual appreciation of the ability to translate knowledge into new value-generating outcomes together. The more we identify the educational parts, the more we appreciate innovations complexity but then we can equally see the rich potential in the rewards that become achievable in taking this new route. Education leads, it provides the appropriate focus and this we can derive the training and knowledge to be applied, so we can improve results and innovation outcomes.

Knowledge Exchanging is our way forward.

Organizations need to move well beyond their rather lazy reliance on best practice comparison as they actually need to explore emerging practices far more but that takes many into a different realm, the realm of increasing uncertainties, and most people and organizations are not trained for this. They anticipate risk by reducing all the variables within risk and play safe with just being incremental. Is that wrong? No, while we have our reward systems geared to short-term performance, while we measure leadership success the way we presently do, while the shareholder just expects consistent dividends as their part of the equation, and is quickly mobilized to force change if it does not meet this immediate aim we head down the wrong path. We are not sustaining, we are destroying. We need to focus on competence-enhancing not competence-destroying. To know the differences we need educating on recognizing what makes up the difference.

I can’t change our prevailing system but I can point to alternatives and suggest we have other options, pursued by the few, which are more visionary and brave and often disrupting the accepted.

We need to start by reducing ambiguity.

One real key for the few seems to be the ability to reduce ambiguity, in the concepts, in their visions, in their focus. This reducing of ambiguity improves the chances of a successful outcome that everyone involved can understand the challenges, relate to the possibilities and constantly tracking back to this vision to obtain and advance the evidence of its possibilities and potential with a meaningful contribution. They do this mostly through knowledge exchange.

I’ll discuss this and what this means in the next article, then we will delve deeper into how knowledge is ‘made up’ and can be delivered to achieve a greater openness, convergence and capacity for innovation to take hold and thrive through its mutual dependencies. I’ll cover the ‘coupling’ within the innovation system, convergence and the dangers lurking in innovation. I’ll delve even further into where absorptive capacity builds our knowledge capacity and a pathway to apply fresh learning so we can all innovate better. Finally I’ll explore further on how we need to recognize the layers within innovation that do need to shear against each other to generate positive innovation tension and ways to find the space to allow innovation to grow differently through an innovation learning process.