The Quest for the Innovation Holy Grail

One of the questions that I am most often asked is what is the key to being an innovation powerhouse with the enviable history of outstanding and disruptive innovation that Bell Labs undoubtedly has? And, as I am beginning my transition or ‘regeneration’, I thought it would be a good time to address this question. So, here goes.

I think it makes sense to start with the definition of ‘innovation’. A few years’ ago, I found a simple dictionary definition of innovation as the ‘implementation of an invention’, or in formulaic form:

Innovation = Invention + Implementation     

I think this is a very good baseline definition; for something to be an innovation, it should comprise both a novel concept (the invention) and have a practical form (the implementation). Richard Hamming in his seminal talk You and Your Research (which should be mandatory reading for any innovator), points out that one must have a plan of attack for a problem to be defined as important enough to be worthy of dedication, and I think this is a similar idea – purely intellectual pursuits and questions are certainly stimulating and worthy of debate and exploration, but the term innovation should only be applied once a practical solution – an implementation – has been found. Note: one can argue that many great innovations (such the personal computer and the iPhone) were largely implementations based on existing inventions, and this is undoubtedly true, but I don’t think this at odds with this definition; after all, it says nothing about whether the invention and the implementation originate from the same group or company, or whether they occur in the same period of time, or not.

But I now want to extend the definition to consider the fact that something being innovative is insufficient to determine whether or not it will be successful in the market, which is implicitly what we mean when we talk of ‘innovation’. So, I would propose the following extension to the definition:

Successful Innovation = (Invention + Implementation) ^ Market        

That is, for an innovation to be recognized as successful, there is a critical dependence on ‘Market’ factors. These factors include:

·       Economic advantage: how much better is the cost:performance relative to existing solutions in the market to create the financial imperative for change

·       Market timing: how much need or demand is there in the market at the current time, compared to the existing solution, which may still be adequate, if not optimal

·       Marketing: how much is it possible to influence or even create the market demand, which is critical when the solution is unfamiliar or unknown to the target market

·       Incumbency: how easy is it to displace the existing solution(s) to allow the new solution to develop significant market share

·       Sustainable differentiation: how easy is it to emulate the innovation with an equivalent one that could replace it in the market and diminish the market impact

These factors are often overlooked when talking about ‘innovation’ – I think we have an idealized belief that if something is truly innovative it simply must succeed in the market. But there are innumerable cases where the opposite is true – the most ‘innovative’ solution has lost out in the market either to the incumbent solution, or to a less technologically innovative solution that has superior ‘market factors’. Conversely, the opposite is almost never true; I can’t recall a case in which a great innovation that has low or no prevailing market advantages wins in the market.

Clearly I am not alone in this view; referencing multiple sources, Wikipedia includes the following on the subject of innovation (emphasis added): “innovation is distinguished from creativity by its emphasis on the implementation of creative ideas in an economic setting”

I think these market factors are so critical to the success of any innovation that they have a ‘power law’ effect on the innovation equation, as represented in the equation above.

Now, given this definition, let’s turn to the subject of successful disruptive innovation versus sustaining innovation. The distinction between the two will be understood by anyone familiar with the writings of Clayton Christensen (author of the Innovator’s Dilemma, and other related texts). In short, sustaining innovations are an extension of the existing technology or solution in the market and therefore favor the incumbents, as they are full-featured and typically complex, whereas disruptive innovations are a manifest change to the status quo, and typically are pioneered by new entrants, and tend to be less feature rich, but are significantly easier to implement, and with attractive economics (lower capital and/or operational costs). 

Let’s look at these two types of innovation in the context of our successful innovation equation. Both can be examples of ‘successful innovation’, albeit it with radically different consequences on the market, as is clear from the preceding description. I would argue that the following table is a reasonable characterization of the two in this context:

In essence, a sustaining innovation relies on market power in the form of incumbency, combined with a significant marketing budget, and a hard-to-compete-with, feature-rich but complex implementation to be successful in the market, whereas a disruptive innovation relies on taking a completely different approach to the problem, with a different (lesser) feature set, and a ‘good enough’ implementation with radically different economics, and a marketing strategy that relies on the market enthusiasm for novelty rather than the size of the budget, to be successful. The sustaining innovation tries to manage the market timing by advocating for continuity of features and capabilities which is the origin of its ‘sustainable differentiation’; the disruptive innovation tries to manage the market timing by advocating for new, enhanced or optimized capabilities, which may be easy to reproduce initially, but the more streamlined implementation allows rapid addition of new capabilities that become increasingly hard to replicate over time. 

If we now split this analysis into the Invention/Implementation factors and the Market factors, you can see from the table that the disruptive innovation edges the former, whereas the sustaining innovation edges the latter, largely due to the power of incumbency. And given the power law nature of the market factors, this often tips the balance in favor of sustaining innovation. 

Until it doesn’t. And the disruptive innovation takes over.

This is almost always because at some point the incumbent solution becomes too complex, and too unwieldy, to support the new requirements in the market. Indeed, in the 1940s, the economist Joseph Schumpeter famously argued that this dynamic tension is a continuous process that is at the very heart of capitalism and called it ‘creative destruction’.

So, the key question becomes how can an incumbent recognize the coming schism in the market, and in time to react to the change, and win, in the new world order? That’s the six million dollar (maybe that should be six billion dollar nowadays?) question and one I will be exploring more in coming posts. The quest is on!