When I run strategy seminars, I usually do a session on long-run trends in the macroenvironment. While firms can’t usually influence macro-trends such as interest rates, demographics and legislation, changes and trends can open up strategic opportunities and threats. While some of these can be predicted with a degree of certainty, such as an aging population in Europe, others are harder to estimate (oil prices for example).

I don’t put a lot of faith in predictions regarding these trends. Our psychology means that we have a tendency to extrapolate from the past to predict the future and this means that we continually miss discontinuous change. Some of the famous predictions about the future of technology are part of business folklore:

I think there is a world market for about five computers (Thomas Watson, IBM President, 1958)

There may not be much value in trying to make accurate predictions but I believe that scenario thinking through possibilities is a good way envisage which business opportunities might be worth exploring and learning about. I’ve written before about ‘real options‘ strategy and this is a very good way to use real options when confronted with uncertainty in long-term futures.

There are many books on the future of economies and society but one report that I have been using lately in my seminars is by Australia’s premier public science and technology organizations, the CSIRO. It’s not an organization that’s well known outside Australia, but wireless LAN, the molecular science behind flu drugs like Tamiflu and Relenza, and GC Mass Spectrometry are all CSIRO technologies. CSIRO is also behind cutting edge areas such as services science- something that will become a big deal in service-based economies in the future.

In compiling the report, the CSIRO sought advice from its staff across its many divisions and the result was five major trends that will define the future of technology and the way that people live. While I had given some thought to some of these trends, there were others that struck me as being new and important. You can download the full report here.

In various posts I’ve considered limited resources, particularly with consequences for energy innovation and some ideas for managing innovation in the context of an aging workforce. However, CSIRO megatrends hold other possibilities for innovation.

Digitization of everyday aspects of life is already having a big impact on how I live and work. Today I scheduled my travel to work based on information updates from an iPhone app and my family were going to the museum rather than the park because of rain that showed up on the weather radar app. As bandwidth and computing power increases, I am really looking forward to the demise of the lecture as the basis for university education.

Mobility will provide opportunities for services innovation. A while ago I gave a talk to a banking conference about the way that the lifelong relationship with a bank branch will be a thing of the past. New services will be needed to follow workers around the world and help them transition into new jobs in different countries. Some companies are already making a business out of catering for a mobile workforce in the Australian mining industry.

One of the most interesting trends what the report identifies as ‘a personal touch’ with the customization of goods and services. Think about how the geolocator is such a part of customization of so many smart phone apps. Someone also told me recently that there are over 100 permutations of the Fiat 500 in terms of features and colours. In the education business we are just starting to understand how the higher education business model will be completely reinvented by technology to focus more on a personal learning experience and less upon mass content delivery via lectures and textbooks.

Overall, the CSIRO has created a thought-provoking list of megatrends. What else would you add to the list? Over to you….

Here’s a great talk by David Gauntlett outlining some of the ideas from his upcoming book – it’s 9 minutes long and well worth the time:

It’s a bit of a jolt to run across something that resonates so strongly with some of the ideas that we’ve been developing here. Look at his three reasons that making is connecting:

Making is connecting because you have to connect things together (materials, ideas, or both) to make something new.

Making is connecting because acts of creativity usually involve, at some point, a social dimension and connect us with other people.

And making is connecting because through making things and sharing them in the world we increase our engagement and connection with our social and physical environments.

He’s talking about the importance of connecting in personal creativity, but compare that to what I’ve been saying about the importance of connecting in business models:

… connection works in two related but distinct ways. The first is that we connect ideas to each other. This is the innovative act – as Schumpter said, “(Economic) development in our sense is then defined by the carrying out of new combinations”. This is where I put a lot of effort when I’m coming up with blog posts, with research papers, and even with ideas for consulting jobs. Making novel connections is a skill that I work hard to build.

The second way that connection works is that we connect ideas to people. This is the outbound side of Connection. I write about the idea connections that I make in my blog – as people read it, they start connecting with the ideas. I give as many public talks as I can – from last September until now I have given more than twice as many public talks as I had in the previous three years combined. In Canberra last week I had a talk with Geoff Garrett, who said “Innovations travel on two legs.” There’s something to be said for that idea – and I have a lot of discussions about my ideas face-to-face – it’s one of the most effective methods of outbound connection.

I continue to believe that connecting ideas is the fundamental creative act in innovation. It’s great to find others like Gauntlett that are a lot further along than I am in thinking about these things. I’m definitely looking forward to the book!

Superconnect, the new book by Richard Koch and Greg Lockwood, includes this great quote from Denis Diderot in his Encyclopédie:

Everything is linked together… beings are connected with each other by a chain of which… some parts are continuous, though in the greater number of points continuity escapes us… the art of the philosopher consists in adding new links to the separated parts, in order to reduce the distance between them as much as possible.

I would say that this is also the art of the innovator – “to add new links to the separated parts, in order to reduce the distance as much as possible.”

This includes both of the connection steps – connecting ideas to each other (the source of novel new ideas), and then connecting ideas to people.

The thing that I particularly like about thinking about it in this way is that if you are innovating to reduce the distance between people, you are more likely to come up with things that are genuinely new, and more importantly, to come up with things that create genuine value.

Incremental improvements to existing things don’t do this. Instead, consider part of Umair Haque’s description of what makes Apple unique – their willingness to completely rethink existing categories:

Challenge products. Most companies make the same toothpaste, car, or shoe — just in a slightly different color or flavor. Not Apple. Every once in a while, it challenges the existing dominant design, the accepted ideal of what a product should be. That is, of course, the story of the iPad. Yes, tablets have been around for a while — but none with the features, attributes, and pricing of the iPad. Instead of contesting the same old stuff, Apple challenged everyone to rethink it.

That’s the art of the innovator. To create some artful innovation yourself, start thinking about how you can build those links.

(photo from flickr/Matti Mattila under a Creative Commons license)

Connecting ideas is the fundamental creative act of innovation. Trying to harness this creativity within ourselves and our organisations is the first step in managing innovation as a process. Of course, this is a step that resists systematisation – as Simon Bostock points out, innovation is a cloud not a clock. In that post he quotes Jonah Lehrer:

Karl Popper, the great philosopher of science, once divided the world into two categories: clocks and clouds. Clocks are neat, orderly systems that can be solved through reduction; clouds are an epistemic mess, “highly irregular, disorderly, and more or less unpredictable.” The mistake of modern science is to pretend that everything is a clock, which is why we get seduced again and again by the false promises of brain scanners and gene sequencers. We want to believe we will understand nature if we find the exact right tool to cut its joints. But that approach is doomed to failure. We live in a universe not of clocks but of clouds.

Malcolm Gladwell shows why this process might be hard to manage in his story called Late Bloomers (originally in the New Yorker, then in his book What the Dog Saw). One problem is that there are radically different styles of creativity.

Gladwell talks about several examples of people that came into their own creatively later in life. One comparison that he makes is between Picasso and Cézanne. Picasso was precocious – his genius was apparent from pretty much the first painting he showed in public in his early 20s. On the other hand, Cézanne took much longer to develop. The consensus now is that his early work was for the most part terrible (in part because he was not technically skilled when he began) – his string of masterpieces didn’t start until he was in his 50s. In addition to differences in when their artistic talent emerged, there were also substantial differences in the ways that they thought about creativity:

Prodigies like Picasso, Galenson argues, rarely engage in that kind of open-ended exploration. They tend to be “conceptual,” Galenson says, in the sense that they start with a clear idea of where they want to go, and then they execute it. “I can hardly understand the importance given to the word ‘research,’ ” Picasso once said in an interview with the artist Marius de Zayas. “In my opinion, to search means nothing in painting. To find is the thing.” He continued, “The several manners I have used in my art must not be considered as an evolution or as steps toward an unknown ideal of painting. . . . I have never made trials or experiments.”

But late bloomers, Galenson says, tend to work the other way around. Their approach is experimental. “Their goals are imprecise, so their procedure is tentative and incremental,” Galenson writes in “Old Masters and Young Geniuses,” and he goes on:

“The imprecision of their goals means that these artists rarely feel they have succeeded, and their careers are consequently often dominated by the pursuit of a single objective. These artists repeat themselves, painting the same subject many times, and gradually changing its treatment in an experimental process of trial and error. Each work leads to the next, and none is generally privileged over others, so experimental painters rarely make specific preparatory sketches or plans for a painting. They consider the production of a painting as a process of searching, in which they aim to discover the image in the course of making it; they typically believe that learning is a more important goal than making finished paintings. Experimental artists build their skills gradually over the course of their careers, improving their work slowly over long periods. These artists are perfectionists and are typically plagued by frustration at their inability to achieve their goal.”

Where Picasso wanted to find, not search, Cézanne said the opposite: “I seek in painting.”

I think that there are parallels in innovation. There are innovations that seem to spring straight out of the heads of their young creators, like the search algorithm upon which Larry Page and Sergei Brin founded Google in their mid-20s. That’s Picasso-style creativity.

And then there ideas that take a while to germinate, and many iterations, like the Dyson Vacuum. James Dyson took over five years and hundreds of prototypes to get his bagless system to work. This invention, launched while he was in his late-30s, represented a major leap forward in terms of technical sophistication and accomplishment relative to his earlier inventions. This is Cézanne-style creativity.

This has a couple of implications for innovation management:

1. At a personal level, we need to know which approach works best for us – the intuitive, broad, big picture, jump-straight-to-the-answer Picasso-style method, or the deliberate, slow, iterative Cézanne style.
2. As managers, we need to avoid using ideas like this to support stereotypical thinking. Picasso worked in the same way all the way through his career. His creative style was established early and persisted. So it is not an issue where young people are creative one way, and older people are creative in another.
3. If we are working with groups of people that are not experienced thinking creatively, we might need to set up innovation systems organised more around seeking, iteration, and Cézanne-style creativity.

There are many challenges in trying to manage innovation as a process. Accounting for different styles of creative thinking is another factor that we must consider in doing this.

On the other hand, all this might just be trying to turn a cloud into a clock…

(picture from flickr/Odalaigh under a Creative Commons license)

We had winter graduations today. I really enjoy graduations. The ceremony itself is a bit tedious, but the joy and celebration of the event always makes it worth going to (plus I get to wear the puffy hat!).

Sitting on stage watching the graduates get their diplomas always makes me think of the how the event is quite different for students and for faculty.

For students, graduation is an event – a milestone. They can approach being a student in a relatively ad-hoc manner, since the vast majority of them will go on to work and never set foot in a classroom again.

It’s different for faculty. For me, graduation is part of a process. Every year I have a new stream of students coming through my classes. I do my best to help them to go out and do great stuff, and after each graduation we get a chance to see if it worked. I need a process for this, since I repeat it every semester.

This also reflects the challenge of innovation management. Many people try to manage their ideas on an ad-hoc basis. They are unused to going through the stages from idea generation through to execution. But getting good at each of these steps is what it takes to create an innovation management process, which we need to succeed over the long-term.

Here’s the takeaway message: don’t think of having a great idea as an event. Think of it as part of a process. This is the best way to ensure that your great idea will get executed and will spread. It is also the best way to ensure that somewhere down the road, you’ll have another great idea.

I love the Old Spice Guy as much as the next man (which means, of course, that I enjoy his commercials greatly in a shared spirit of manliness and a joint appreciation of expensive magnifying glasses). The original commercial is inventive and funny, and the social-media-based campaign that they ran last week is enormously innovative. If you haven’t seen any of this yet, here is the original spot:

And here is the description from Read Write Web of the recent campaign:

A team of creatives, tech geeks, marketers and writers gathered in an undisclosed location in Portland, Oregon yesterday and produced 87 short comedic YouTube videos about Old Spice. In real time. They leveraged Twitter, Facebook, Reddit and blogs. They dared to touch the wild beasts of 4chan and they lived to tell the tale. Even 4chan loved it. Everybody loved it; those videos and 74 more made so far today have now been viewed more than 4 million times and counting. The team worked for 11 hours yesterday to make 87 short videos, that’s just over 7 minutes per video, not accounting for any breaks taken. Then they woke up this morning and they are still making more videos right now.

Here is the response to 4Chan:

All very creative, and the use of social media to drive the campaign last week is incredibly innovative. Procter & Gamble, the company that owns the Old Spice Brand, the Old Spice Guy himself Isaiah Mustafa, and advertising agency Wieden + Kennedy have all been justifiably praised for this campaign. The media attention has been enormous, the buzz has been even bigger, and videos have been shared pretty much everywhere by everyone.

So what could possibly be wrong with all of that?

Well, one thing.

None of it seems to be helping P&G sell any more Old Spice. Here is a summary from BNet:

For instance, it was none other than P&G that picked up the Film Grand Prix this year for Old Spice’s “The Man Your Man Could Smell Like” TV spot from Wieden + Kennedy. There is little doubt about the viral hit’s popularity. Launched in February, the official version has racked up nearly 12.2 million YouTube views.

But sales of the featured product—Red Zone After Hours Body Wash—aren’t necessarily tracking with that consumer appeal: In the 52 weeks ended June 13, sales of the brand have dropped 7 percent according to SymphonyIRI.

This is the danger of innovation for its own sake – you can be highly innovative and still not have an impact on your bottom line. There are steps to take to try to address this problem:

1. Make sure that your innovation management program is integrated with your overall strategy. If innovation is not linked to strategy, you will not meet your goals. Innovation is not an end in itself, it is a means to improve the way your organisation functions.
2. Develop innovation metrics that measure bottom-line impacts, not just innovation output. Innovation metrics are incredibly important. You need to not only measure innovation outputs (patents, creative awards, etc.), but you also need to measure the impact of innovation. If you are developing an innovative advertising campaign, it needs to not only generate interest and profile, it needs to increase your sales. All innovation must in some way make your organisation more effective.

I hope that P&G is rewarded by all of this in the end. It has been an incredibly inventive effort, and the spots are consistently hilarious. But the overall lesson here is that innovation must lead to results, otherwise it is a waste of effort and resources.

Update: This report suggests that the short-term response to the social media campaign has been an increase in sales of 107% over the previous month. This is actually pretty good news – it shows that the response to the genuinely innovative social media campaign has been substantially stronger than the response to the old-style clever commercial. Be sure to read the comments to see some good discussion of this point.

Yesterday I went to a seminar from Bill Eggers, hosted by Deloitte. Bill is a specialist in thinking about governmental reform and the digital economy, but most of his messages about innovation apply to all organizations. It’s been a long time since I took three pages of notes in a seminar so I might do a few different posts on some of Bill’s ideas over the next few weeks.

As you might know from our posts, a lot of the research work that Tim and I do relates to the role of networks in transferring knowledge within organizations. When the right knowledge goes to the right place, the result can be a change of products or processes – in other words, innovation. When we work with larger organizations it becomes apparent that transferring knowledge becomes harder because people start to lose track of who-knows-what and who-knows-who. The result tends to be that these organizations start to face declining returns to scale as learning and innovation become harder.

In Bill’s talk he brings up a slide of declining returns to scale in the Japanese beer industry. This isn’t surprising because we know that all industries work like this. As the industry produces more product over time, it gets harder to find more efficiencies to drive the unit cost down.

Most activities incur declining returns to effort too- even simple tasks like a computer game such as Tetris. As we expend more effort, the marginal improvements we make diminish. Note this this issue of diminishing returns is different from the diminishing returns to organizational size but it relates to my next point.

But while there is a general principle of declining returns to scale and effort, Bill showed a curve generated from the computer game, World of Warcraft, which shows increasing returns to effort and scale. As players put more time into the game, their rate of progress increases rather than decreases. So what is going on here?

I haven’t played World of Warcraft but a big part of it is that it’s a virtual community of gamers. As people get more familiar with the game they become part of the network that enables the exchange of expertise. The bigger the network, the more expertise. This increasing returns phenomenon is a network effect and it is the presence of the network that means WoW players get increasing returns to effort and Tetris players get declining returns.

I think that there is a lot of value in trying to set up these virtual networks to get around the problem of large organizations, and to take advantage of untapped expertise in the population, but I also think that there are going to be some limiting conditions to the effectiveness of these networks.

WoW seems to work well because it is a very focused community with its own language. This means that everyone understands most things that are being talked about. In many organizations that we do our network research on, there are many communities of specializations, which results in a fragmentation of the network.

Another issue is that most of the knowledge involved in WoW is codifiable. We can put the information into words and numbers and the receiver will be able to make sense of it and learn. In organizations, a lot of knowledge is tacit and experiential, which limits what can be achieved in virtual space.

These caveats aside, the prospect of increasing returns to scale through the digital innovations that are being brought into organizations are tantalizing. The “rules” of learning and organization may yet be totally re-written.

The importance of managing innovation as a process is one of our key themes here. Because the success of any single great idea is pretty close to impossible to predict, the best way to successfully innovate is to try a lot of things, and to manage ideas through a process. If you do this, you can become better at innovating.

So innovation can be managed. But can innovation management become a profession? Should it even try?

Howard Gardner and Lee Shulman list six characteristics of professions in an article in Daedalus from 2005 called The professions in America today: crucial but fragile:

1. a commitment to serve in the interests of clients in particular and the welfare of society in general;
2. a body of theory or special knowledge with its own principles of growth and reorganization;
3. a specialized set of professional skills, practices, and performances unique to the profession;
4. the developed capacity to render judgments with integrity under conditions of both technical and ethical uncertainty;
5. an organized approach to learning from experience both individually and collectively and, thus, of growing new knowledge from the contexts of practice;
6. and the development of a professional community responsible for the oversight and monitoring of quality in both practice and professional education.

Many of these are things worth striving for – but we certainly still have a way to go to establish a set of skills unique to the profession & in the development of a professional community. Developing a community of professional innovation managers could go a long way towards improving the practice and outcomes of innovation efforts.

On the other hand, maybe trying to make the process of innovation management routine actually takes all of the innovation out of the process.

I’m not entirely sure what I think of the idea myself, so I thought I’d just throw it out to you.

Do you think innovation management should try to be more like a profession?

If so, what do we need to focus on improving to get there?

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Here’s a great quote from Cognitive Surplus by Clay Shirky:

Defending yourself in advance against all the possible ramifications of success has strong diminishing returns. As a general rule, it is more important to try something new, and work on the problems as they arise, than to figure out a way to do something without having any problems.

I’ll go one further and say that trying to figure out a way to do something without having any problems is actually impossible. Trying to make an idea perfect before we try it is the same as saying “we’re not really going to try it.”

New ideas must be executed – they are no good to anyone if they’re just ideas. The best approach is to build, launch and tweak. The way to do this is to figure out if the idea is executable (build), get it out in the world (launch), get feedback on what works and what doesn’t and fix the things that don’t work (tweak). Then repeat.

Our great new ideas will become great innovations by improving through iteration.

(here’s Phil Long’s take on Cognitive Surplus…)

You have probably heard of the phrase “jumping the shark”. This phrase goes back to an infamous episode of the 1970s sitcom called “Happy Days” when the producers, faced with declining popularity, tried to revive the show by getting the Fonz to jump over a shark on water skis. In the corporate world, there are many ways to jump the shark when faced with business problems. Hiring a star CEO, restructuring or making an acquisition can all be shark jumps but I’m currently thinking that there is a unrecognized form of jumping called a ‘total solutions’ strategy.

I’ve been talking to several companies about strategy over the past six weeks and nearly all of them were flirting with idea of becoming a ‘solutions’ business. This is seductive because it holds the promise of cross-selling more products and services, as well as greater pricing power and the reduced chance of your buyer deserting you for another supplier. So far so good, so what’s the problem. Well, the problem is that this strategy is really hard to execute. When I give presentations, I like to use a lot of examples of different companies and their websites are a convenient way of picking up key facts and figures. I haven’t turned this into a large-scale study but I strongly suspect that there is a correlation between the mentioning of the word “solutions’ on the corporate website, and the destruction of shareholder value. I have about five examples from Australian top-200 companies and I suspect there are many more.

Some businesses might be able to become integrated solutions providers, but many don’t. Why is the promise of a solutions business such a trap for so many executives? I’ve come up with a few reasons why this might be the case. You might be a able to think of a few more.

‘Solutions’ aren’t a substitute for good old-fashioned strategy
I’ve been looking at a ‘total lifting solutions’ crane hire business that is now trading below its asset value. This company offers every crane you can think of from little ‘cherry pickers’ to massive crawler project cranes. The problem is that the smaller end of the business is subject to very few barriers to competition (every undegrad business student can tell you about Porter’s 5-forces). There is no point being a solutions business if half of it makes you a price taker. “You cannae change the laws of strategy” with a buzzword.

‘Solutions’ become a mandate for diversification and acquisitions
As a test of my solutions and share performance hypothesis, I looked at the website of the worst performing stock in my share portfolio. To my horror, the front page mentions total solutions in the marine engineering industry. Where the company seems to have gone wrong is taking on more business units to become a ‘one stop shop’ (another phrase that should put fear in the hearts of shareholders). The issue then becomes a classic case of corporate indigestion. Too many businesses across several product and service lines and the challenges of actually integrating all of these and getting people in the company to know ‘who does what’ becomes too hard to overcome.

‘Solutions’ become an obstacle to clear thinking
Like the Dilbert cartoon, it is sometimes hard to see what is actually meant by solutions. Everything is a solution. A glass of water is a solution to being thirsty and a haircut is a solution for long hair. Thinking about strategy and business models is hard work and ambiguous words like ‘solutions’ become an obstacle to clear thinking.

I might be being a bit harsh, but I think there is a real problem here. Next time you hear someone use the ‘s’ word, be very careful.