Innovation small and big

Innovation is a powerful concept. It influences our personal aspirations, business settings, social movements, world of technology, fashion, media, health services – you name it. It is networked and diffused, complex and measureable, it challenges and increases competitiveness. The discourse on innovation has become so fragmented and pervasive that we feel it may have lost its gravity. Sometimes, it pushes us further than we have ever been before. Occasionally, it makes us do things never done before. Yet, more often than not innovation fails. We have come to understand why and we have a perspective that we want to share.

Theory of innovation has pronounced two, main types of innovation: incremental and disruptive. The former is about upgrading or perfecting existing products and services, without altering the business model. The latter is about creating wholly new products and services that are based on new business models, with the effect of disrupting existing or yielding entirely new markets and consumption patterns.

Companies are not organised to deal with challenges and change, which are outside of their existing business model. Companies are structured to take care of current operations, serving consumers or clients. The strategic, long-term, internal innovation always looses in this configuration, preventing businesses from surpassing and redefining themselves. Avoidance to push the limits of business operations, including cannibalising their own business, brings companies stagnation. The need for constant redefinition cannot be stressed enough – especially in today’s economy of flux.

Furthermore, companies are typically pre-programmed for improvements and optimization, but not for disruption. While incremental innovation is already core of business for most companies, disruptive innovation is regularly misunderstood. This translates onto capabilities: whereas companies are good at making their existing products, services or processes better, they tend to fail with innovation that transforms their business. We believe that disruptive innovation is absolutely necessary in today’s world of ambiguity and connectivity. We also believe that the synergy of incremental and disruptive innovation frameworks will always be greater then the sum of their parts, and will bring optimal growth for businesses and economies threatened today by Asia’s rapid expansion. Thus, it is crucial to appreciate innovation holistically, mastering both innovation types and balancing your portfolio with them.

Linear thinking and the “never-seen-before”

When we are children, we have an infinite set of opportunities – the world is our oyster. As we embark on a lifetime journey of self-development, we suddenly learn that it is more beneficial to rely on experience than experiment. When we make a decision or plan for the future, we refer to the past. We go back to explore what and how we have done previously, and usually we go for a solution that worked before. Moreover, as we grow older, we are continuously judged based on our past performance. We dismiss failures as unconstructive and we tend to emphasize proven successes.

Experience is the most valued trait, especially in business. It seems ironic then, that it is also innovation’s biggest deterrent. Climbing a career ladder commonly happens by exploiting experience. As you progress through to next levels, you utilize the experience gained in the particular framework of this organisation. Especially when jockeying for the top, C-level positions, you are more likely to utilize proven and tested solutions because of both external and internal pressure factors. It is the safest bet after all to follow accepted practice. Yet somehow, experience inertia fails when put in the context of dealing with emerging business models. So, is it good enough for the fast-paced economies and shifting consumer wants of today?

The failure to look beyond existing skill sets means that, although management teams are capable of day-to-day operations, they are inept at creating industry trends or new markets. Past experiences prove insufficient when dealing with challenges never dealt with before. By recycling proven and tested solutions, we reject the unknown and experimental. This praxis reverses the fundamental principle of innovation – embracing uncertainty and ambiguity. If a company is only as capable as the cumulative skill set of their management team, can it imagine a future different from yesterday and today? Are organisations prepared to deal with a future they never anticipated?

Innovate or die

Most management teams use past experience for future inspiration. By celebrating past success they tend to limit their business from developing outside of the everyday routine. What intensifies this stasis is an asynchronous association between a business’ rate of change and the market shifts. In other words, the world of innovation is faster than the pace of adoption among management teams. Only 15 years ago, a company’s ability to change went together with the market’s pace of change. Today the management skill set still takes 20 years to be renewed, while major business model innovations occur every 5 to 10 years. Naturally, juggling your daily activities while taking a leap at building new business platforms is a hard task. But if both your rate of idea adoption and your long-term strategic activities are lagging behind current business operations – your organisation is in trouble.

Most companies will not innovate unless they have no other choice. At which point typically, they are already in a state of crisis. In the fast-paced and shifting markets of today, crises happen all the time. They are a threat and an agent of change at the same time. Most companies are unprepared to deal with crises, because above all else they value experience. But once a crisis is a fact, companies are left with only two options – either to innovate or to die.

Cutting instead of building

The principal responsibility of companies is to generate profit for the shareholders. Profit is the difference between turnover and costs. Empiric evidence indicates that most companies will choose to cut costs rather than to create higher turnover. Even one of the greatest business model innovations of the past 20 years came as a cost cutting strategy, and goes under the name of “outsourcing”.

It went like this: in the beginning companies outsourced production, then assembly and lately also the knowledge-intensive aspects of the business. It has become a steady process of transferring the knowledge base, which rapidly increased emerging market’s aptitude for delivering sophisticated services. Budding companies in developing economies spent the last 15 years learning and improving their skill sets by organising production for largest European and American corporations. Today they are capable of matching Europe and U.S. complexity of products and services, but they still do it at a significantly lower price tag. Meanwhile, the corporate world profits from continuous cost cutting as they outsource successive parts of business to emerging markets. They transfer wealth to the developing countries (which is a good thing), while prompting social and economic problems in Europe and U.S. by lowering living standards (which is a bad thing). Will Western economies need to shrink for Asia to grow? We believe that the current experience of the economic downturn is a direct result of those global shifts and marks the beginning of an era of social unrest and apathy. The cycle of economic recession and community disintegration perpetuates, as the current social situation in Spain and Ireland, or the riots in London reflect this condition.

Today, one in three jobs is at the risk of being outsourced to an emerging market – this is happening mostly at the hands of the biggest, global corporations. There is no realistic perspective for this process to change or revert, because corporations generate high profit for their shareholders, thereby fulfilling their business mission. They can cut costs at the same time as they enter a new growing and dynamic market. Who in their right mind would dodge such an opportunity? So, instead of fighting the system we need to build innovative frameworks for new business platform creation and entrepreneurship. Building new business models and creating new markets will help Europe and U.S. regain competitive advantage and generate sustainable growth through constant redefinition.

Disrupting the society

We believe innovation has the power to stimulate collective change. The current state of affairs in Western economies shows that capitalism is failing us. Even the hardened capitalists like Michael Porter and Warren Buffet are beginning to question the prevailing economic set up. The lack of transparency, increased speculation, fierce competition and self-indulgence of the financial sector has led to the crisis we are dealing with now. Capitalism is failing because instead of relishing human growth, it is increasingly alienating us. It is no Marxist revelation. Just reality in the form of WeAre99% movement or growing suicide rates in countries significantly affected by unemployment.

Capitalism’s approach to developing leadership has also failed. It relies wholly on linear thinking, where leaders rise basing their judgements on past experience and not on future capability. Instead of concentrating on creating highest and most sustainable value, they search for fast, cheap and easy solutions. All these observations and insights together create a picture of myopian leadership, which has failed both economically and socially, creating itself the greatest competitor Western economies ever had.

Innovation is not valued highly in the market. Markets hail experience and cost cutting, and innovation does not belong to either category. Our business models rely on linearity in thinking, a focus on efficiency and cutting costs, and the inclination to think in terms of quick, high-yielding results. On the other hand, innovation creates high value through platforms for sustainable growth. It has the capacity to become a significant model for creating positive economic and social change. The entrepreneurial factor hidden in disruptive innovation can help European and American economies regain their sharpness. The constant redefinition of what it means to generate value in a particular industry, market and context is the driving force in disruptive innovation. Governments, businesses and individuals who tap into this will win survival.

The Statement

At Edge, we help our clients look to the future everyday. Yet, to be frank, we struggle with designing a future for ourselves. Working for Client’s success we forget to look beyond today. We also tend to fall for the convenience of doing things as we have done before. By being honest about this and trying to change we hope to inspire others. If we struggle when it comes to redefining our business – even though we work in the business of redefining business – how much harder must it be for organisations or individuals who have never worked with ambiguity, creativity or innovation?

Since we finally recognize reasons behind the failure to redefine our business, as they melt down to the content of this article, it is now time to act. We need to put emphasis on redefining ourselves while managing our current business. The move does not mean our Clients will be marginalized. Quite the opposite: we believe we need to redefine our business for their sake. Both our Clients and us, we need to continuously re-evaluate what it means to do business. Building new capitalism, in the face of current system’s failure means creating added value through jobs, increasing complexity and assuming responsibility. With the business platform we are building, our aim is to have a significant impact on the society and economy. Leading by doing. Whether we succeed or fail is of course a big unknown. But at least we try. If we all start with ourselves without preaching and demanding change – we may actually be onto something bigger than the sum of our parts. Innovating and re-engineering the principles of business making will have influence over next generations of entrepreneurs, academia, corporations, and individuals. What seems like a big project is merely a collection of small steps. Start today. Start with yourself.