Why and Where are Your Innovation System?

The purpose of a company’s innovation system is conceived in different ways. Some think growth is the purpose, others view development as the purpose, while still others make no distinction between growth and development. 

Some companies use their innovation system to renew existing core products and services. Others see its purpose as limited to developing new products and services. Some companies include merger and acquisitions efforts in their innovation system, others don’t. Some see innovating as marketing’s job, while others see it as a shared responsibility between R&D and market development.

While differences among companies regarding the purpose and scope of their innovation system can make comparisons and generalizations between them difficult, one perspective is to view the purpose of an innovation system as a means through which a company adapts itself to its surrounding environment. Without some type of adaptive capability, changes occurring in the business ecology in which customers, technologies and competitors interact go undetected until it is too late; mistakes are more probable, and sooner or later the company will find itself “behind the curve.”

Viewed as the ability of a company to sense, respond and adapt, a company’s innovation system must simultaneously enable responsiveness to external changes while furthering the host company’s interests.   

Think of an innovation system like a porch on a house. When you are on the porch you are neither completely inside nor completely outside. Similarly, as an adaptive capability, a company’s innovation system must necessarily be located in between. The system must stretch into the surrounding ecology if it is to have an accurate sense of what is going on, but also attach to the “proprietary” boundaries of the company’s house, real or imagined. Staying inside the boundaries of a company ignores the new realities enumerated by Henry Chesbrough in his book Open Innovation. Viewing a company’s innovation system as entirely outside a company’s boundaries will create overwhelming not-invented-here antibodies, killing most innovating efforts before they are carried to term. 

Anyone interested in building and improving such an adaptive capability–or innovation system–must align the system with two fundamental coordinates. One is the nature, character and relative flexibility of the host company’s business. David Teece, Chesbrough and others have described this and the importance of a company’s willingness to reconfigure its way of producing profitable value for customers. The other coordinate is the relative position the company chooses to take in its surrounding ecology.

In his thesis "Motors of Sustainable Innovation: Towards a theory of the dynamics of technological innovation systems" (2009), Roald A. A. Suurs, suggests that within their own external ecology, companies are either enactors or selectors of technologies, the former being more willing to develop whereas the latter are more ready to “buy” technology developed by another. A company willing to play an enactor role will have an innovation system with a very different profile than a company that sees itself as a selector. The enactor will place bets on certain technologies to invest in and develop themselves, whereas the selector will remain more agnostic to technology, looking rather to their own ability to quickly choose and commercialize what others have developed. 

One approach is not necessarily better or worse than the other. Some companies choose to do both. Being clear about what position the company chooses to take will make a significant difference in how its innovation system is designed, organized and resourced.       

This article was originally published in Innovating Perspectives in March 2011. For this and other back issues of our newsletter, please visit our website at innovationsthatwork.com or call  (415) 387-1270.

Darwinian Innovation

Adaptation is an essential capability in a company's ability to innovate. 

External conditions change, sometimes quickly, sometimes slowly.  Competitors can either replicate your company's success or erode the difference between what your company offers as compared to what the competitive company offers (commoditization). Customers can change requiring more of this or less of that, and these changes affect the relative value of what your company offers them. Internal developments aimed at improving existing operations reveal vulnerabilities and opportunities, and naturally lead to variations. The ancient philosopher Heraclites said something to the effect that you can't put your toe into the same stream twice.   This is as true for individuals as it is for business, even though the flows of the streams may vary.

The need and ability to adapt is essential for all companies, and arguably more difficult, for companies with established track records. The success of established companies is predicated on doing some things right and doing enough of the right things. Many, if not most of these companies, started from an original, entrepreneurial adaptation. Their success was born out of a fresh insight and the ability to effectively make or deliver a value proposition to customers for an acceptable return. As success grows, that very success can become the enemy of innovation, as it creates resistance to subsequent adaptations in the need to focus and concentrate resources on the original success formula. Subsequent adaptations from success is not only counter-intuitive, it may also be counter-productive. Like they say, if it ain't broke, don't fix it.

A worthwhile look at adaptation can be found in Geoffrey Moore's recent book, Dealing With Darwin: How Great Companies Innovate at Every Phase of Their Evolution. Moore's book caused us to return to the Darwinian algorithm—variety, selection and retention—as the essential elements in the process of adaptation in the context of innovation. These elements also differentiate the roles of sponsors from innovation midwives, two of the three key roles in many organization's informal and implicit innovation networks.  

Variety

Companies that successfully innovate repeatedly work with a portfolio of potential innovations.  Venture capitalists manage risk in part by simultaneously investing in not one, but a set of distinct ventures. Ian McMillan's Entrepreneurial Mindset reminds us that even entrepreneurs have a list of alternatives, knowing that at any time the number one item on their list may run into an immovable roadblock. They keep alternatives to which they can quickly move if they have to.

The capability to generate or percolate a variety of alternate innovation opportunities in which to invest is a principle that is generally acknowledged.  However, developing, maintaining and re-circulating reservoirs of customer insights, collaborative relationships and technologies, in addition to specific integrated business opportunities, may not be done as formally and systematically as it could be done. Likewise, keeping several innovative balls up in the air may be only half of the challenge in maintaining variety. The other half may be the discipline of listening and observing both external and internal realities and how they may be changing or not, being careful to differentiate signals from noise. Remember Peter Drucker's observation that the most reliable source of innovation comes from what surprises the firm, whether good or bad, big or little.

Selection

We can't do everything, even if we did have sufficient resources. Adaptation demands choice, focus and a certain degree of concentration of our time, talent and expertise. When we select, we often rely on conceptual analysis and internal debate. When the environment selects, the selection is based upon survival and experienced success or what some call resilience. 

Too often our selection processes rely exclusively on conceptual analysis and internal debate.  While these are essential to any selection process, they need to be counter balanced with actual experience, preferably in the field. So much of the success of an innovation is based upon the right combination of micro-foundational elements, choreographed in the right dance. In short, selection is based both upon our choice between alternatives and the readiness, receptivity and recognition—acceptance—of the intended beneficiaries (market).

Retention

Perhaps paradoxically, once we have committed to an innovation, based on analysis and some experience in the field, adaptation shifts (adapts again) to a new state—one that is all about effective execution. Certainly there is fine-tuning that will inevitably be required as we introduce and integrate the innovation. However, at this stage, the continued success of the innovation selected—assuming that we made the right selection—is all about what innovation academics often call diffusion and what marketers call market penetration, which requires us to draw more from operational than innovation skills and disciplines.

Adaptation is the key that unlocks the door of sustaining a stream of innovations, and echoes back to the nurture vs. nature debate: you are a product of your environment (nurture) or you are a result of your genes (nature). The truth undoubtedly lies somewhere in between. So also with the micro-foundations of our enterprise's success, some of which come from effective management and execution and some of which comes from the unavoidable collaborations with our business's external environment. Gary Erickson, founder of Clif Bar & Company, and Hiroshi Okuda, Toyota's recently retired CEO, both know that an essential part of adaptation is to pay attention to the signals within and around you and act on what you sense in order to gain first hand experience. When you do, you are well on your way to successful adaptation.

This article was originally published in Innovating Perspectives in July 2006. For this and other back issues of our newsletter, please visit our website at innovationsthatwork.com or call (415) 387-1270.