Whatever the objectives, innovation is never easy. Whether you want to tackle a small glitch or a huge problem, whether you are looking for a minimal improvement or a global breakthrough, whether you are motivated by a new customer’s explicit request or whether you are motivated by social progress and collective well-being, you will always have many risky parameters to consider: needs and expectations, financial implications, rules and regulations, available knowledge and skills and a myriad of technical or technological constraints.
The trick is that managing all these variables can easily distract organizations from their ultimate goal, and when it comes to innovation, it often means squandering fortunes for a return on investment that can be disappointing.
More strategic clarity through landscape innovation
To get a clearer picture, Gary P. Pisano, an American economist, proposes a tool called “Innovation Landscape”.
The innovation landscape identifies four main types of innovation strategies. Presented in matrix form, it is structured around two axes: the nature of the problems and the ideas for solutions. By dividing each axis into two sections, you will find the four quadrants of the innovation landscape, or rather, the four basic types of innovation: routine, research, disruptive and nasty innovation.
This kind of presentation almost intuitively identifies two levels of analysis (at least) that organizations can use to make their innovation plans: the degree of uncertainty and the cost inherent to each of these generic strategies.
And this involves observing innovation both upstream (when it comes to raising capital) and downstream (when it comes to “monetizing” these innovations).
Indeed, for innovation to take place, resources (human, financial, material, etc…) are needed at a cost. And when an innovation takes place, it is imperative that it should provide value increments (sell more to the same customer, sell to more customers, reduce costs,…).
The diagram below helps better illustrate this point, always in connection with Pisano’s four generic innovation strategies:
Thanks to this scheme, it becomes easy to guess, for example, that an extremely aggressive innovation strategy (roughly corresponding to the top right quadrant) will require highly skilled skills, and therefore potentially more expensive, and that once innovation is on the market, the challenge facing the organization will be to be able to sell it since a new idea that addresses an unknown problem corresponds by definition, if we borrow from Marketing jargon, to the creation/stimulation of a new need, therefore potentially, to the creation of a new market.
Controlling risk: A priority for your innovation strategy
As you will have understood, these decision-making situations are characterized by degrees of predictability and uncertainty that are quite difficult to analyze and anticipate. Consequently, each area of the matrix will be characterized by an overall level of risk that would be a combination of two factors: the costs associated with innovation efforts (OPEX and CAPEX) and the degree of uncertainty as to the possibility of generating value increments for the innovating organization (Revenues, Margins and Break-even).
Before deciding, remember Schumpeter:
Looking at the matrix, it can be tempting to move to the lower left quadrant and decide to do routine innovation because it is less expensive and less uncertain. Be careful, because simply saying, too much innovation can be as risky as not enough innovation. So it’s not systematic.
It should not be forgotten that innovation allows companies to survive in the long term and that a bad choice can be fatal to their future (Kodak has not innovated enough and Tesla may be innovating too much?).
Schumpeter postulates that evolution cannot come from a quantitative change (increase in production or capital), but from the qualitative transformation of the production system. It shows that the determining factor in this evolution is innovation: innovation is at the heart not only of the growth process, but also of more important structural transformations.
The legendary economist has identified innovation as the critical dimension of economic change. He argues that economic change revolves around innovation and has sought to prove that market power resulting from innovation can produce better results than price competition or the power of the invisible hand (Adam Smith). Schumpeter also argues that technological innovation often creates temporary monopolies, allowing abnormal profits that would soon be competing with rivals and imitators. These temporary monopolies would be necessary to encourage companies to develop new products and processes.
In a simpler way, and if we refer again to our “Innovation Landscape”, it would mean, schematically, that disruptive, research or nasty innovation are also quite feasible and viable strategic options and that choosing a more expensive and less certain option would potentially lead to greater economic progress for the organization (see Apple’s iPod for example).
Let’s start with the routine innovation quadrant. Such an innovation strategy offers a unique combination of known ideas to solve a known problem, for example by taking a solution that has worked elsewhere and using it for your problem. The only novelty lies in the adequacy between the problem and the solution. This routine innovation, also known as efficiency innovation, aims to optimize goods and services and make their production, distribution and delivery simpler, easier, faster and less costly.
You will find the opposite extreme in the quadrant of nasty innovation (top right). Here, innovation seeks to find new ideas to solve unknown problems. Without sufficient knowledge of the problem space or solution space, novelty can be everywhere. For this type of innovation, which is often neglected, there is no routine: it is an unknown field full of possibilities. Thus, for the time being, the organization is acting as a sprinter that overtakes the pack, waiting for capital, politics and economic agents to chart a viable course.
To conclude, it is important to choose your innovation strategy carefully and this according to several parameters:
- Risk tolerance, i.e. the ability and willingness to lose all or part of the initial investment in exchange for a higher potential return,
- Adequate levels of investment,
- Market positioning: Is the Company a leader or a follower? Is it in a phase of market penetration? Is it in a monopoly?
- The degree of maturity of the Company as well as that of the market,
- The level of organizational maturity of the Company: Its processes, its available skills, its tools and its means,…
Answering these questions easily allows organizational strategists to place the innovation cursor on the right frequency, that is, the one that would give the best chance of success in terms of the risks it faces.
Remember that, as Alvin Toffler put it, “The future always comes too fast and in the wrong order”: Whatever your strategic choices, the future will jump on your assumptions, jump at you from unexpected angles, take you by surprise whatever your imagination.
It may be very uncomfortable and deeply disconcerting, but it is often this “quantic” state of things that allows for the great advances possible through innovation.