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February 7, 2008

How To Farm Lightning™: sustaining innovation in a shrinking world

Authors: Brendan Dunphy and Paul May February 2008 EARLY DRAFT – not to be released!

Introduction This whitepaper summarises the innovation challenges faced by corporations today in the face of increasingly unstable and dynamic globalised markets and the principles of the How to Farm Lightning Innovation programme. Change in all its forms and regardless of its origins or drivers create both opportunities and challenges for all those impacted, from Customer and Regulator to Citizen and Supplier. Accelerating rates of change brought about by more fluid flows of capital, removal of physical borders or maturing of developing economies all contribute to a more dynamic world economy and new competitive sources, not just from another region or country but also other industries. With some notable exceptions, most high-tech companies that survive are not the most efficient but the most adaptable, embracing change rather than resisting, seeking agility above efficiency in recognition that today‟s success is short-lived and building an innovative organisation is of far more value than any individual product, no matter how successful it is………what can other industries learn from this, if anything? The move from hunting and fishing societies to husbandry marked the beginning of a profound change in the way mankind organised itself, its relationship with the world and its worldview. Early farming tools were barely more than a stick to hoe but with these innovations whole new societal structures appeared, such as the growing role of women. As these societies evolved further the animal-drawn plough emerged and men once more assumed the role of breadwinner given the physical strength required to power this innovation. The history of human evolution, culture and society is very closely tied to that of innovation in general, each wave of innovation transcending that which came before and eventually failing to meet the increased demands of a population ever more sophisticated in their needs and desires. Although these historical innovation waves or cycles are clearly visible to us now, they are much less visible within the institutions and structures that make-up our society, such as governments, corporations and communities. Innovation theory as it applies to corporations has come a long way in the last few decades spurred by advances in technologies that have themselves spurred the birth of new business models, channels, products and services. Innovations larger role and impact is less well understood, in particular as it relates to the rapidly evolving sustainability agenda. Copyright Brendan Dunphy & Paul May 2006-2008

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February 7, 2008

How To Farm Lightning™: sustaining innovation in a shrinking world

Some companies live and die by the innovation mantra (consumer electronics, IT etc) but for most it is just a part of the business equation and one that crops up only occasionally or is owned by product management, corporate strategy or R&D….it is business as usual, or more aptly “business unusual” i.e. something we have to occasionally struggle to do in spite of real work. This is no longer sufficient for several reasons: the “innovation context” has been changing without us realising it e.g. challenges we face as a society brought about by globalisation, climate change, competition from emerging markets, the sustainability agenda etc  The perception that innovation is only applicable to product development (the outputs of our organisation) and not to realise that greater value can be generated via „innovative organisations‟ than any innovative product.  To place innovation on an altar, something that only a few high priests can understand and worship, beyond mere mortals. The cult of the innovation star to which we and the media worship.  meaningful (profitable) innovation can ONLY arise when it fully embraces the customer and other parties in the value network AND EXTERNAL and DIVERGENT parties from outside the existing value chains, where threats will arise. 

Today’s corporate Innovation challenges 1.

Moving the locus of innovation from products to organisation, process and business models – creating a sustainable capability to innovate.

2.

Innovating beyond our fields….embracing customers, suppliers and partners. Much innovation theory and practice has arisen in the context of relatively stable or evolutionary markets and does not address the broader or emergent drivers of change, whether social or cultural (value based).

3.

Who are our competitors? The auto industry is no longer driving innovation, within its industry. Why? Because all disruptive (and many evolutionary) innovations have nothing to do with the auto industries traditional assets or strengths (mass production, logistics, etc) but rather electronics, new fuel sources, emerging markets etc. The people who hold these assets live and work elsewhere, such as Silicon Valley. Do we know what is happening in our industry and to the value of our traditional assets; are they increasing or decreasing in value? How do we acquire or develop the assets we need in the future?

4.

The Sustainability agenda….eventually it will impact our whole business; how can we possibly respond to this without “wholesale” innovation at the broadest organisational and industry levels? Is it “competency destroying” or is it “competency enhancing”?

5.

Beyond individual stars to innovation galaxies – individual stars may be ok for sporadic Copyright Brendan Dunphy & Paul May 2006-2008

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February 7, 2008

How To Farm Lightning™: sustaining innovation in a shrinking world

and periodic innovation in the old worldview but are grossly inadequate for the new. We need to find new ways to leverage human capital to work as „x-teams‟ and access broad and divergent knowledge. How do we get this huge cultural and behavioural change in-place, where d we start? 6.

Many established industries (such as auto) have failed to address systemic challenges to their viability, individually and collectively, or at a pace too slow given the pace of change necessary.

7.

In today‟s more “connected” and accelerated (reduced product life cycles )world even B2B suppliers need to understand the end user if they are to ensure the can respond to changing needs of their customers more quickly and competitively. Understanding consumer trends etc

Successful innovation practice in today’s world… 1.

If you make “things” out of other things, take a very deep breath – now go factor in the non-explicit (external) life cycle costs for product/business to gain a true picture of your vulnerability to disruptive innovations……….use meaningful and relevant metrics e.g. per car made/sold, litre of milk produced, energy generated etc. - go cry or look for another job….

2.

Have a strategic reason to innovate –a burning platform, develop alternative scenarios, focus on strategy and culture….

3.

Seeing weak signals where others only see noise or rhetoric ….opportunity in chaos …looking at the same tings as everyone else but seeing something different etc. e.g. using “sustainability” as a lens, more lenses the better…ability to hold conflicting views at the same time

4.

For traditional resource intense and industrial (matter or atom-based) industries, recognise that the context that has generated the current business model, products, culture etc is not the one you will be operating under in the future as material scarcity increases, energy costs rise etc. For bit-based industries, and those capable of transforming themselves to this, the economic context is completely different….

5.

Recognise that competitor collaboration serves to retain the status quo as it increases the barriers to entry, stifling innovation. Of course, this may be a valid strategy….

6.

Recognise that different global markets (consumer, emerging survival etc) have totally different economics and major shifts in markets e.g. developed to emerging for mobile phones, will have profound implications way beyond „the product‟, shifting the locus of innovation with them….if you focus on the wrong one then no matter what innovations you generate you will die….

7.

Take another deep breath understand the innovation beast (as it applies to industry, markets and the business), understand how change happens – trust, risks, failure, theory and cycles.

8.

Understand the “parable of the seeds” and how it applies to innovation…………. The Copyright Brendan Dunphy & Paul May 2006-2008

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How To Farm Lightning™: sustaining innovation in a shrinking world

parable of the seeds…. In the parable, a sower dropped seed on the path, on rocky ground, and among thorns, and the seed was lost; but when seed fell on good earth, it grew, yielding thirty, sixty, and a hundredfold………….. 9.

Leadership sponsorship & visible participation & support especially when the going gets tough, as it will. Change the „worldview‟ – from efficiency to effectiveness, educate & communicate, understand and challenge existing thinking, attitudes & behaviours that are a barrier to change and directly address, esp middle management

10.

Look beyond the organisation to Customers, Suppliers and Partners, Value networks as well as supply chains and channels, environment, eco-system and business landscape.

11.

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What you reward is what you get……..Re-align reward & motivation metrics, address the missing skills and tools, create a high profile focus via a programme

2.

Create an „innovation network‟ that transcends the hierarchy and embraces all parts of the business…create a buzz Integrate to sustain – integrate innovation into the cultural and strategic fabric of the organisation in order to sustain….especially performance targets 5innovation specific or not?), decision making processes and cycles e.g. planning and budgeting cycles, leadership meetings etc NOT SEPARATE.

12.

Develop a virtuous (seasonal) innovation cycle and build upon past success….(a la TTLP)

13.

Recognise that leadership and practitioners (top down vs bottom up) have different perspectives and expectations of innovation – my people can‟t do it vs my management wont let me do it – both are wrong!

14.

Resource it or forget it…..failure to prioritise is one of the main reasons for failing to capitalise on innovations (RPV theory)

15.

Source projects with those needed to succeed, not those that are available and ignore seniority and grades….seek and embrace divergence…..involve externals

16.

Innovation & Sustainability policy “Sustainable development is the ability of the current generation to meet its needs without compromising the ability of future generations to meet theirs.” “The challenge of global sustainability should be viewed as a major discontinuity with the power to radically transform the structure of many industries”. 1 Why the future lies elsewhere…..the counter-intuitive strategies required to solve global 1

Global sustainability and the creative destruction of industries, Stuart L. Hart & Mark B. Milstein, Sloan management review Fall 1999.

Copyright Brendan Dunphy & Paul May 2006-2008

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How To Farm Lightning™: sustaining innovation in a shrinking world

warming Why it is more important to stimulate innovative solutions for climate change than it is to mandate reductions ….. Why mandating CO2 reductions and energy savings is bad for the planet………..and why disruptive innovations are the route to saviour Why differing global markets require differing sustainability strategies – mature (western consumer), emerging (new consumer), Survival Why the goal of sustainability is a golden opportunity to innovate new ownership and business models and why corporations will resist this aided and abetted by governments and institutions…and why emerging markets will establish supremacy in sustainability and western markets will never catch-up…. Why it is important that incumbents are not „protected‟ by mis-guided government legislation mandating across the board cuts, as the industry is asking for – this is classic “barriers to entry” strategic thinking and would achieve its aim, which is primarily to ensure the survival of the current industry eco-system, avoid potentially costly disruption and reduce risk. Voluntary regulation – post Bopal chemical industry 1988 led to voluntary regulation (Care Program) which eventually became mandatory for membership of the CMA. Levelled the playing field for all members and effectively prevented more radical solutions to the core problems that remained of toxicity, production and storage, etc. Government regulation – industry wants across the board cuts in e.g. emission (see Accenture survey) to retain the existing competitive playing field. Sounds good but what will the impact on innovators, new entrants, innovation? Will it generate „radical‟ innovations or „evolutionary‟, will it be business as usual e.g. more fuel efficient engines or business unusual e.g. car pooling?

Brendan Dunphy Brendan is an independent consultant and business adviser. He has worked as a Director of an ICT technology lab, advised a wireless VC fund, started several businesses and helped numerous international corporations and teams to change to achieve their business strategies.

Paul May Paul is a business consultant and author who works widely with innovative businesses. He has developed innovations in insurance, procurement, intellectual property management and mobile applications. Copyright Brendan Dunphy & Paul May 2006-2008

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