Monday, October 22, 2012

The Real Value of Innovating

Innovating is about value—either adding value or creating new value altogether. While the debate continues whether innovating is more about improvement or disruption, the more important question may be how we think about value.

Often “values” and “value” are used interchangeably, though a colleague often corrects me when I get too close to using them in the same sentence. Values, he contends, are about what is held important to a person or a society, whereas value is an economic attribution placed on an object, product or service. He believes the two terms must be kept separate and distinct.

While I understand his viewpoint, I wonder whether our insistence on separating these two connotations of the same word unintentionally masks an underlying link: a link between extrinsic value with intrinsic value?

While I am unschooled in axiology (the study of value), in economics Adam Smith called out two types of extrinsic value—value in use and value in exchange—in his fourth chapter on money in his famous The Wealth of Nations. Smith observed that things with the greatest value in use often have little or no value in exchange, while things with great value in exchange frequently have little or no value in use. Take water as an example. Perhaps nothing is more useful than water, but it will purchase scarcely a thing. (Adam Smith was not a Californian, clearly.) On the other hand, diamonds have little value in use (except for specialized industrial uses), yet they carry significant exchange value. Smith went on in his next chapter to comment on prices and monetary value but stayed with these two types of extrinsic value.

It is noteworthy that Smith thought his greater opus was not The Wealth of Nations, the book for which he is most noted in our time. Instead, Smith regarded his previous work, The Theory of Moral Sentiments, to be his masterpiece. In Moral Sentiments, Smith puts forward a morality based on proportionality or aesthetics. What is just, good and right is that which is appropriate. And what is appropriate is that which the “detached” conscience of an individual discerns to be a proportioned response. Many historians suggest that Smith’s notion of the “invisible hand” of the marketplace is actually derivative of this “detached” observer theory.

Were Smith alive today he might suggest that when it comes to value there may be an inherent connection between intrinsic and extrinsic value. Yet when this essential link between the two becomes so difficult to perceive, or in the case of my colleague, important to keep separate and distinct, we as a society begin to give ourselves over to a transactional foundation wherein the exchange of value and the means of that exchange (e.g., money) is divorced from intrinsic value.

What does all this have to do with innovating—the creating of new value or the improvement of existing value? If the two—intrinsic and extrinsic value—are inexorably linked, then we cannot avoid the tough questions: Are we focusing our inventive and innovating energies where we should? Where is our precious engineering talent being directed? Is it toward purely extrinsic value improvements? Are we willing to take on creating new, original, intrinsic value?

Is there a link between the moral economy (typically confined to close-knit communities) and innovating? Are shared moral values the moist rich soil nurturing the collaboration of innovators? Does intrinsic value reflect moral values?

Covance, headquartered in Princeton, NJ, is one of the world’s largest and most comprehensive drug development services companies. Beyond its extrinsic value—a highly profitable $2 billion worldwide company—it has more than economic reasons for being. I spoke recently with John McCartney, a member of the Covance Board. He indicated that several at Covance are driven not merely by economic performance, which is considerable, but by a passion for best-in-class productivity cycles times. With these cycle times, Covance helps large pharma customers get medicines to market faster, thereby improving human health. This intrinsic value­—improving human health—may be more related to Covance's extrinsic value (e.g., market capitalization, profitability, etc.) than we realize.

Richard Rohr, in his recent book Falling Upward, tells of Thomas Merton, the American Trappist Monk who pointed out that “we may spend our whole life climbing the ladder of success, only to find when we get to the top that our ladder is leaning against the wrong wall.”

Innovating is ladder climbing of sorts, whether climbing to add or create value. Some efforts are short like stepladders, while others are like extension ladders. In the former we are likely improving on the value already there. With extension ladders, our innovating should be creating some original value, otherwise we would not take the risk to climb up the extension. In these cases, whatever wall we are leaning against as innovators, I hope we are on the solid footing of intrinsic value. 

This article was originally published in Innovating Perspectives in July 2012. For this and other back issues of our newsletter, please visit our website at or call (415) 387-1270. 

Monday, October 8, 2012

“Pregnant Pause” for Innovation

By now many veteran innovators have become accustomed to the immune system metaphor to describe what many of us previously referred to as the “not-invented-here” syndrome. The metaphor is increasingly being used in innovation and management discussions and literature, and for good reason. It fits.

That organizationsespecially companies with established revenue streamshave immune systems (implicit cultural norms, management practices and/or explicit policies or metrics) that can attack and ultimately reject (or kill) innovations is generally recognized and understood. That these immune systems themselves can adapt and evolve, and how these systems work, is less well understood.  However, current medical research in immunology might give us some clues.

Just this week our old friend, sage and master consumer scout Leo Shapiro alerted us to a developing field of medical research. This research is asking why a mother’s immune system does not reject the baby during her pregnancy. This caught our attention as we might learn something suggestive of solutions for corporations that have over-active immune systems which do not seem to pause when “pregnant” with an innovation, particularly a disruptive one.

Here’s what we discovered in our search for the best current thinking of medical research on why and how a mother’s immune system takes a ‘pause’ during pregnancy. See what connections you make.

“According to some experts, infertility, recurrent miscarriage, premature delivery and dangerous complications of pregnancy may all, in some cases, be linked to immunological abnormalities” (Nature, November 21, 2002). Three areas currently being investigated by immunological researchers include what could be called preparation, buffers and a two-part view of the immune system.

Apparently proteins carried by semen chemically signal the woman’s immune system, thereby preparing the system in such a way as to avoid rejecting the embryo. In addition, one of the functions of the placenta is to manage the chemical and hormonal interface between the mother’s system and the embryo’s systemessentially acting as a buffer against the mother’s own T-cells (those that otherwise would attack what is foreign or threatening). Finally, some researchers contend that the mother’s immune system itself has two parts. During pregnancy, one part—the part that would otherwise harm the fetusbecomes disengaged, while the other part stays active to protect the mother from diseases during the pregnancy.

Might there not be some lessons here for how we handle our host corporation’s immune system and its effect on innovation?

Advanced preparation of those people who might perceive the innovation as disruptive is warranted.  However, simply waltzing in to the office of an operating manager and giving him or her a ‘heads up’ about the innovation is not what we mean by preparation. Asking that manager about the issues and opportunities that are on the horizon of his business might be a better start to discovering where the potential connections might be. As we discovered in our previous five-company study (Soft Systems for Hard Cores), always, always, honor the core. Larry Plotkin, a veteran in innovation management practices at Hewlett-Packard, uses this agenda-less approach to gaining a greater sensitivity to what is going on in the core business. This enables him to be much more artful in preparing the core for the new.

“Buffers”whether in the form of separated teams or dedicated project leaders with sponsors, mentors and/or midwivesare an essential ingredient in protecting development work. Experienced R&D managers know how to be both transparent with what they are doing and protect certain efforts from the more adult-rated demands and rigors of the operating realities being addressed in the mainstream business. Some degree of structural separation is generally regarded as necessary to protect exploration and development efforts, and to protect the interests of the core operating business at the same time.

The two-part view of the immune system suggests that there may be parts or dimensions of the corporation’s immune system that can be temporarily “turned off” without threatening the rest of the immune system as a whole. What might those parts be? A current effort of one of our clients suggests that a sub-group of a core operating division may have a greater receptivity to an innovationeven if that innovation is disruptive—when that innovation uses familiar competencies and contributes self-evidently to a business challenge (e.g., competitive threat) the core business is facing.  Timing may be everything, and in this case, it was.

Preparing, buffering, turning off one parteach of these alone is likely insufficient to address the immune response of the host.  In combination, however, we are more likely to ensure the health of both the “mother” and the “child,” which should make for better innovations that work®.

This article was originally published in Innovating Perspectives in May 2004. For
this and other back issues of our newsletter, please visit our website at or call (415) 387-1270.