Competition is becoming “perfect”
Due to a number of macroeconomic factors competition is closing in to what the economists call a “perfect market”. In a perfect market buyers and sellers have complete information about products and prices, and this is the era we are moving into due to globalization through advanced communication technologies, a.k.a. the Internet. Availability of new technology is now becoming universal, human skills and competencies are now more mobile and transformational, access to extensive venture capital is omnipresent, while simultaneously international trade is increasing; both due to the exponential growth of e-commerce, to evolving global logistics systems, and to more flexible trade policies1. All of this put together completely shifts the way companies need to act on a global market. Competition is getting so fierce that the only way to stay competitive is to perpetually diversify yourself. And as soon as your new diversification is out of the box you will have less than days before your competitors pick up on it, so you will have to re-differentiate yourself all over again. These forces put a lot of strain on an organization’s innovation management system.
The need for speed
BCG’s latest annual innovation report states that “speed enables companies to catch consumer trends as they emerge”2. The report constitutes that speed is more crucial for innovation profitability than accuracy. One should rather make sure to hit the market fast and first, than sit around the design table for too long. The respondents in the BCG report states that the biggest hurdle to profiting from innovation is the slow pace of development. The mantra “you snooze, you loose” has never been more accurate.
A good example of the opposite is Zara clothing that delivers new fashion designs from the drawing board to stores in an impressive two to four weeks. But they only deliver limited batches to a restricted number of stores that has come to function as “fashion labs”. Whatever designs take off at those stores then go into broader production. Many software companies, such as Adobe, are working in the same way with labs and beta releases. So in the same manner they are speeding out new innovations to try-out markets where they are tested and evaluated by real customers in real settings.
One must both know when to act and how to act
Thus companies need to have systems implemented to sense trends as soon as they transpire. Even if one can try to proactively predict forthcoming trends and imminent requirement shifts, uncertainty is the only certainty there is. The point is that regardless if you think you can predict change, the change you predicted will probably not be the one you actually encounter. Thus, despite the importance of planning for change, a sensory system to detect unexpected change needs to be in place. And with similar importance there must be functions in place to swiftly be able to act whenever the sensors go off. And to further complicate matters even the detection systems needs to be proactive. This means that it is not satisfactory to only await for the change to appear, one needs to penetrate relevant target groups to actively scan for it. Hence scanning to detect market change [reactively] and analyzing target groups for insights [proactively] are two functions that must be closely integrated in an organization’s innovation management system in order to speed up development.
Project managers are already aware of this
Nowadays very few modern projects are executed using waterfall-like, non-iterative models. Agile project management is an early reponse to the exact situation mentioned above. Resourceful innovators started to recognize that requirements kept changing once target groups were introduced to new products. So instead of developers imagining having the ideal set of requirements from the offset, projects became agile and iterative, giving project managers and innovators space to experiment and evaluate editions. As you can see, this approach is very similar to Zara’s fashion releases, because preparing for unexpected change is a common denominator. Consequently, today most development projects (and hopefully even non-development projects) are run using flexible, iterative and adaptive models. This gives room for modifications and proper adjustments along the way, which is the exact purpose for applying such models.
Open innovation descended from agility as well
Even the concept of open innovation grew out of costly, incorrect and slow development processes. Innovation was traditionally more of a production process where the innovator came up with an idea, put it into production and then launched it to the market. Then if the market was dissatisfied with the innovation the innovator usually suffered severe financial consequences and had to start all over again. Since risk became too much of a factor various models of open innovation originated. Through concepts such as lead user innovation3, crowdsourcing, and innovation contests4 the involvement of target groups was brought forward in the process and in many cases development was even initiated by consumers themselves. Once again one could reap economic benefits from iterative target group involvement, a notion we in this article refer to as “adaptive”. Adaptive in the sense that one continuously experiments, evaluates and adapts to the results in an iterative fashion.
Strategy also requires an agile – thus adaptive – approach
Business strategy sits in the same boat as project management with plausible headaches if too rigid. In fact, setting a course and sticking to it even when major hurdles appear might be the last decision a captain makes. So as with anything in a business environment a corporate strategy needs to be continuously reevaluated to adapt to new circumstances. One of the first perceptions of this enlightenment was the concept of dynamic capabilities as presented by Berkeley professor David Teece in 19975. Dynamic capabilities refer to the firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments. And since environments are generally changing more rapidly than ever before there are few organizations that can prosper without a dynamic organizational setup.
Basically all management activities, regardless of level and scope, need to absorb an adaptive approach. Be it CEO:s or PM:s, nobody should assume that they know more about the market than the market itself. Thus a humble investigative approach will be vital for corporate survival. As Darwin put it in 1859; development [evolution] favors the fittest, not the strongest. The biggest advantage with a management system compared to natural selection is that one can neglect the evolutionary approach (random selection) and form an innovation approach (systematic selection) containing purposeful structures leading to innovative results in a much faster pace.
Adaption is crucial
It is not sufficient for organizations to be agile, in the sense that agility refers to being swift in following a predetermined path. Our case here is that there are no predetermined paths, there will always be too many unknown factors for a final path to be determined. Business objectives are moving targets and need to be treated as such. To hit a moving target one needs to repeatedly shoot, reload and aim again. Even the term “adaption” means “the act of changing to suit new conditions” which is precisely what business and nature has in common.
Build an adaptive innovation management system
The importance of adaption in business is also highlighted by the ISO Technical Committee 279 – the international committee for bringing forward a global standard for innovation management systems. The committee has defined seven principles for innovation management (so called IMP:s), out of which one is “adaptability“. The committee identified adaptability to be of the same paramountcy as i.e. culture and future-focused leadership, so the conception can in no way be ignored by anyone who wishes to construct an innovative organization, since it is one of the seven pillars of an innovation management system.
So to summarize this article in a condensed form that can be applied by organizations, these are five key components of an adaptive innovation management system:
- A sensory system for reactively discovering trends (market changes and inconsistencies).
- A proactive system for discovering target group insights (market changes and inconsistencies).
- A triggered system for accelerating conceptualization and development when inconsistencies are found.
- A “labs structure” where new innovative concepts can be tried with real-life target groups.
- An evaluation system for how to act would the innovation be successful (or not).
1 Young, J.A., 1985. Global Competition: The New Reality. U.S. Government Printing Office.
2 Ringel, M., et al, 2015. The Rising Need for Innovation Speed. The Boston Consulting Group.
3 Von Hippel E., 2005. Democratizing Innovation. The MIT Press, 1st ed.
4 Lakhani, K.R. & Boudreau, K.J., 2013. Using the Crowd as an Innovation Partner. Harvard Business Review, April 2013.
5 Teece, D. et al, 1997. Dynamic Capabilities and Strategic Management. Strategic Management Journal, Vol. 18, No. 7. (Aug., 1997), pp. 509-533.