Understandably, innovation improves the productivity of existing work processes by increasing specialization, redesigning processes, and/or investing in new equipment. This enriches society as a whole in the long run – as in total – society can consume no more than it products – the fundamental microeconomic paradigm.
However, we usually associate the term innovation synonymously with employee empowerment, initiative encouragement or risk taking – with an aim of challenging the ensconced ideology of ‘we do it this way because it has always been done this way’. As a result, the term itself is entrenched in a stereotype to the mainstream.
With this in mind, it’s important to distinguish that innovation itself is an umbrella term – housing various subsets that are each inherently distinguished from one another due to their prime focus, or innovation agenda.
Vijay Govindarajan and Chris Trimble’s groundbreaking book 10 Rules for Strategic Innovators: From Idea to Execution manages to outline the defining characteristics of the different subsets of innovation, whilst providing an excellent delineation (backed with case studies) of an emerging discipline, known as strategic innovation.
Essentially, the authors categorize the subsets as follows:
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Continuous process improvement involves countless small investments in incremental process innovations. For example, General Electric excelled at this pattern of innovation through its well known Six Sigma program. Another pertinent Australian example would be MLC (National Australia Bank’s wealth management arm) process improvement initiatives in back-end financial planning adviser support to create an integrated value added process architecture to better service their clients (advisers) and drive bottom line economics. However, these incremental initiatives also feed into whats known as process revolutions.
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Process revolutions also improve existing business processes, but in major leaps – say 30 percent increase in productivity – through the implementation of major new technologies (e.g. WallMarts RFID ‘smart-tags’ to facilitate inventory and supply chain management and control to drive business efficiencies)
- Product or service innovations are creative new ideas that do not alter established business models. Consumer products companies such as toy and game manufacturers excel in this type of innovation. A good Australian example is the introduction of CFD’s (contracts for a difference) derivatives to mainstream investors using elements of equity and debt financing.
The above three constitute the majority of innovations undertaken by established organizations with expendable resource and capability base– with a view of translating to their triple bottom lines (social, economic and environmental).
However, as explained by a qualitative and thorough review of the effects of organizational aging on growth and innovation entitled “Aging, Obsolescence, and Organizational Innovation”<!–[if !supportFootnotes]–>[1]<!–[endif]–>, organizations progressing through their lifecycle (or aging) improves competence at incremental innovation but damages competence at radical innovation. What it is essentially saying is that “as business[es] ripens, growth inevitable becomes more difficult” and the propensity for propelling growth (organically) eventually decays. So what options does this really leave us?
According to Govindarajan and Trimble, when organizations are faced with such a conundrum, they propose the adaptation of strategic innovations – which fundamentally involves engaging and implementing experimental business models (which they attribute as NewCo with their own set of defining characteristics, Organizational DNA and unique managerial approach) co-evolving with the CoreCo (the organization’s core business) in dynamic synergy through three main competencies: forgetting, borrowing and learning. These initiatives increase the propensity for architectural and business-model breakthroughs with the authors arguing that strategic experiments have the potential to re-engineer an organizations entire end to end lifecycles and deliver breakthrough growth and renewal by creating a NewCo which runs complementary in the innovation cycle to propel CoreCo.
Collectively, strategic experiments revolutionize the definition of a business rather than enhance performance within the proven business definition through product line extensions, geographic expansions or technological improvements by departing from the corporations proven business definition ad its assumption about how businesses succeed.
Footnotes
Jesper B. Sorensen and Toby e. Stuart in the Administrative Science Quarterly 45 (2000): p81-112.