Investing in Knowledge Based Capital Encourages Disruptive Innovation

When considering issues related to the development of innovation within any economy, it is worthwhile to discuss the elements that can create an environment, or innovation ecosystem (1), that nurtures disruptive innovation. As you may recall, disruptive innovation is the ability of seemingly new and “less desirable” alternatives to steal market share or ultimately drive out incumbents from any given market.

uae-knowledgeKnowledge Benchmarks and Innovation

The 2014 Abu Dhabi Innovation Index report makes apparent the elements that enable innovation within emerging economies – most especially Natural Resource Rich Economies such as those in the UAE that have a large share of the economic mainstay in natural resources with very little diversification into other industries.

It is well known that radical innovation is dependent on the presence of knowledge and skills. In the Abu Dhabi Innovation Index, key indices used as benchmarks were specific to knowledge, including knowledge access, anchoring, diffusion, creation, and explotation. A further analysis of these benchmarking metrics may be used to identify what this may mean in terms of disruptive innovation.

  • Knowledge Access: The ability of an economy to connect and link to local and international networks of knowledge and innovation.
  • Knowledge Anchoring: The modification of applied knowledge to suit the context of the local market or region. (Note that knowledge anchoring is slightly different from general education or schools and colleges that teach agile development or business model design.)
  • Knowledge Creation: The ability to generate and bring new knowledge to the world in the form of ideas, discoveries, designs and inventions.
  • Knowledge Diffusion: The collective capability of an economy to adopt, adapt and assimilate new innovations, practices and technologies.
  • Knowledge Exploitation: The ability to utilize new knowledge for social and commercial purposes in order to create value from it.

In an OECD executive report in 2013 titled “Supporting Investment in Knowledge Capital, Growth and Innovation,” the following statement was made in the executive summary, highlighting the importance of “knowledge capital” to innovation:

Today’s firms are looking beyond research and development (R&D) to drive innovation. They invest in a wider range of intangible assets, such as data, software, patents, designs, new organisational processes and firm-specific skills. Together these non-physical assets make up knowledge-based capital (KBC).

Knowledge-based Capital and Innovation

It has been rightly said that innovation leads to a knowledge-based economy (on a macro level). It can also be pointed out that an aggressive drive toward knowledge-based capital (KBC) is an important factor for developing innovation within an ecosystem. Thus, when businesses invest heavily in KBC, there will be a direct (or indirect) impact on the local innovation ecosystem. [Read more...]

The New Innovation Mandate: Borderless Innovation

open-doorI’ve spoken before about “borderless innovation,” the idea of looking beyond physical borders — the four walls that enclose your office, your department, your company or your country – and even social borders — the gap between public and private organizations, between big businesses and entrepreneurs. I wrote a blog post on this topic in 2010, and I’m pleased to report that many innovative organizations around the world are now demonstrating these concepts.

Although traditional innovation has relied heavily on internal problem solving and idea generation (often tasked to the R&D department with little cross-functional interaction), the new innovation paradigm is much more open, with organizations seeking input and cooperation from their entire ecosystem.

Bruce Mau, a leader in design thinking and innovation and co-founder of Massive Change Network, explains the benefits of borderless innovation as follows: “If you have to rely on one group of people to solve a problem that has been in some cases challenging us for decades and if you are trying solutions in sequence it takes forever; whereas, if you can activate the marketplace to take on that problem and solve it collectively there is so much more creative power in the collective than in the individual.”

In other words, organizations are learning that “two heads (or more) are better than one” when it comes to innovative problem solving and idea generation.

Examples of Borderless Innovation

The recently released “Abu Dhabi Innovation Index” found that, compared to a number of countries frequently cited as innovative, Abu Dhabi firms co-operate more frequently with other organizations during the process of innovation. According to the report, Abu Dhabi firms have sought to exchange knowledge with a number of external partners including suppliers, customers, universities, specialists, and even competitors. In addition, around 50% of Abu Dhabi firms report internal cooperation (between different business entities), which is also an important aspect of borderless innovation because it removes the silo mentality that hinders innovation.

ibtikari2A great example of this cooperation is the Ibtikari program, which was launched by Khalifa Fund for Enterprise Development. Ibtikari helps cultivate entrepreneurial culture among UAE Nationals and encourages innovation around a specific theme. It brings together entrepreneurs and innovators interested in a specific industry, plus those with business/marketing/operation backgrounds, to generate ideas and design innovative business models that could become startups funded by Khalifa Fund. In an article for Zawya, Abdullah Saeed Al Darmaki, CEO of Khalifa Fund, credited the program’s second round (Ibtikari 2.0) to the collaboration between Khalifa Fund, Abu Dhabi Tourism Authority and the ICT Fund. “The success of such initiatives comes as a result of the comprehension cooperation between different entities,” he said. [Full disclosure: Innovation 360 was retained by Khalifa Fund to assist with facilitation and marketing of Ibtikari 2.0.]

Other companies are adopting borderless innovation principles by combining R&D and external corporate investments with early stage accelerators and incubators. A number of global corporations have done this including McDonald’s, General Electric (GE), Citrix and Capital One, to name a few. Here at home, DP World launched a similar initiative, TURN8 seed accelerator, in 2013.

Borderless innovation is not only the domain of large companies – it is often exhibited in the openness of startups, especially those in the tech sector who routinely release “beta” versions of their app or website specifically to garner feedback from those outside the company. This feedback is then considered to make the product better before releasing to the general public.

Large organizations, especially in the Middle East, often shy away from this type of tactic. Yet being more open with their projects is exactly what they need to move beyond old ways of thinking and produce truly innovative offerings. (By the way, market research, while important, doesn’t count as borderless innovation.)

So what can your organization do to increase borderless innovation?

First, work toward a culture of innovation, which promotes trust and encourages risk-taking. This means investing in people, tolerating risk and failure, supporting inquiry and the scientific method, encouraging opposing points of view, banning politics and embracing the individual.

Second, take advantage of advances in technology, computing and communications. With the rise of social networks (both internal and external), companies can seek ideas and input from a wider array of stakeholders than ever before – customers, prospects, employees, suppliers, partners, etc. Not only will this give you a larger pool of ideas to draw from, it can also provide you with innovative solutions to problems that your own team has been stymied by.

Third, increase internal collaboration to 100%. I’ve been a proponent of “every man” innovation for a while now. That is the notion that innovation within an organization is every man’s (or woman’s) responsibility. Not just the R&D department. Not just the leadership. Everyone. (It’s one of the reasons I structured training offerings for everyone from the CEO to the front line employee.) I love this quote from James Patterson, a VP at Capital One Labs: “Innovation should come from all corners of your organization — make sure you are seeking out diverse perspectives and engaging the curious people in your organization who think about problems bigger than themselves.”

Fourth, establish partnerships with the private sector. The Abu Dhabi Innovation Index characterizes the benefits of such partnerships as follows:

As Abu Dhabi Government’s investment in innovation enabling activities increase, the risk for growing inefficiencies between capacity and performance will increase. Therefore, private sector partnership in innovation projects will be necessary to mitigate against such risks. Private sector involvement will help steer innovation investments towards market needs and make more efficient use of combined public-private resources.

These are just a few ways that your organization can adopt borderless innovation and enhance the caliber of your innovation efforts. What other ideas do you have?

3 Reasons Why Companies Fail at Intrapreneurship – and How to Succeed

Intrapreneurship, or creating a startup culture within an existing large business, is a fairly well known element in corporate jargon these days. With a new wave of urgency sweeping the corporate landscape and the threat of extinction, it is not surprising that large companies have started looking to intrapreneurship to help them fast track new offerings and explore innovation opportunities. This article is not an effort to describe the merits of intrapreneurship, but instead is aimed at highlighting a few reasons why companies are unsuccessful at inculcating intrapreneurship or startup culture into their normal activities.

What is IntrapreneurshipWe all like to emulate the Apples, Googles and Starbucks of this world, and in desperate attempts to start something new, many companies rush forward in what they claim to be well-thought-out-strategies for successful intrapreneurship. These attempts are often related to mission statements, vision statements, goal setting and trainings.

In this article, I will highlight three major reasons why many attempts by large companies to engender intrapreneurship have ended in failure.

Art versus Science

Developing a sub-culture within a larger organization is difficult, and rushing ahead optimistically without a solid plan will not work. However, the process of engendering intrapreneurship is usually not subjected to the same amount of thoroughness that other processes like financial planning and budgeting are. Until companies begin to see the cultivation of an intrapreneurship culture as a science, they will most likely leave the results of their efforts to serendipity.

The Solution: Intrapreneurship should be managed with a paradigm of causes and effects, inputs and outputs, and planning and scheduling. In other words, building this kind of culture should have its accountability points, dedicated resources, and gates of evaluation. At LinkedIn, for example, employees can propose a new idea once every quarter. They form a team to work on the idea and pitch it to an executive team. They are then given three months to work on the idea and improve its viability. These kinds of processes – coupled with the appropriate enablers, such as an online idea submission portal – provides a method for intrapreneurship and makes it repeatable.

[Read more...]

Innovation Management: A Paradigm for Change or Simply a Buzzword?

innovation-quote-jobsEver since the world has become aware of the importance of innovation, almost every company has created a strategic plan toward becoming more innovative or toward jumpstarting its innovation journey. While the amount of buzz around this topic is commendable, it is not difficult to see that innovation is more of a lip service and buzzword for a TV commercial, than it is a crucial strategic goal of many organizations. In other words, the low level of adoption of innovation as a strategic goal and as part of a management program depicts a lack of clear understanding of what innovation is and the consequences of not putting resources toward it.

Has this always been the case? If we take a historical look at the adoption of management methodologies, we can get an inkling of what is currently happening with the adoption of innovation management.

In the middle of the last century, most management methodologies, processes and tools were focused on enhancing productivity (with Ford Motors taking the lead in the 1920s). However, by the 1980s, it was apparent that Quality Management was the next big thing. This later took the form of TQM (Total Quality Management) and Six Sigma, and no doubt companies invested massively in efforts driving quality management in the early 1990s.

Studying the evolution and adoption of these management methodologies, one can safely assume that a good definition of adoption is when corporations actually put their money where their mouth is. In other words, when they invest in the execution of whatever strategy they have developed—whether it is increased productivity or quality.

A good way to see this adoption lifecycle will be to actually subject it to the theory made popular by Everett Rogers in his book “Diffusion of Innovations”. While some may argue that management concepts can hardly be subjected to the diffusion model due to the wide application of this model to products or general ideas within a social system, I think it may be useful in understanding the response of typical companies today to important concepts in management—most especially, innovation management.

Diffusion-innovation

The Diffusion of Innovation theory explains that there are five categories of adopters of an idea or a product: innovators, early adopters, early majority, late majority, and laggards. We can apply this to the concept and practice of innovation management as a management methodology and principle. [Read more...]

The Importance of Feeling Threatened

There are few CEOs who don’t feel threatened by their company’s main competitors. Often significant and costly measures are taken to stay ahead of, or apace with, the competition. Yet how many CEOs have a system in place to warn them of other threats that can be just as deadly to the survival of the company?

We have seen big corporations lose the battle for market share to seemingly smaller and “less privileged” entrants. We have also observed how these small entrants were seemingly negligible and posed no obvious threats to the incumbent initially.

Exploiting-Chaos-Jeremy-GutscheIn his book, “Exploiting Chaos: 150 Ways to Spark Innovation during Times of Change,” author Jeremy Gutsche shares examples of companies that, due to complacency and lack of foresight, lost their positions as market leaders. A notable one was Smith Corona, the typewriter maker whose $500 million 1989 revenues and market dominance gave them a misleading confidence in their ability to remain profitable in the coming years.  Cutting short projects and a potentially viable partnership that may have led to their entry into the computing business, the CEO G. Lee Thomson stated in 1992 that, “There is still a strong market for our products in the United States and the world.” Of course, there is no need telling what became the fate of this company.

Today, one would honestly wonder why such a hugely successful company with access to a vast array of resources, as well as the power to reinvent themselves if they wanted to, should have fallen prey of the danger of disruption. Well, the answer is not farfetched if one considers the characteristics of companies that lose when it comes to innovation. Executives and managers typically act in accordance with the rational principles needed to survive. These rational principles are by themselves the danger to tomorrow’s success.

According to Clay Christensen’s work on disruptive innovation, incumbents are more likely to flee the segments that are least attractive to them at the time, such as an area where profit margins are low. However, new entrants will most likely enter into segments where the incumbents earn comparatively lower profit margins. Christensen cited the example of how minimills gradually disrupted the integrated steel companies as the latter fled from the lower-margin markets.

While this only makes sense, it is also the main reason why new entrants and new technologies are most likely to succeed in disrupting the incumbent.  In some cases, the incumbent underestimates the potential of a small entrant stealing their market share and eventually forcing them to lose profits and possibly become extinct. In others, the incumbent fails to recognize or act on potential gamechangers in its industry, leaving the new entrant free to capitalize on future trends. [Read more...]

How to Protect Your Organization from Disruptive Innovation

While large corporations may always think of improving their innovation portfolio, it is necessary to also become battle-ready for an almost inevitable scenario of disruption. This is particularly true for companies playing in the ever-dynamic space of technology.

The term “low-end disruption” was first coined by Clayton Christensen in his book “The Innovator’s Dilemma.” Disruptive innovations are known to change the landscape of an industry by providing products, services or business models that are not as good as the currently available ones – but are far more affordable or otherwise appealing to the masses.

For example, U.S.-based Southwest Airlines disrupted traditional airlines in the 1970s and 80s by providing an easy and affordable alternative to driving by providing “no frills” service and operating from non-mainstream airports. Another example is the Tata Nano, which offers simple car essentials at a very low price. Also, the Internet-based telecommunications service Skype is disrupting more traditional services by allowing long-distance and global calls at a much lower price and with more convenience.

Disruptive Innovation Theory

While disruptive innovation may be easier said than done, the catch here – which every established or incumbent company must focus on – is whether or not there is a market for disruptive innovation in their industries. [Read more...]