In a recent article, John Hagel articulates a remarkable theory regarding product innovation:
- The rewards for product innovation accrue over time, though with diminishing returns
- Product life cycles are becoming ever shorter
- Thus total rewards for product innovation will be smaller than in the past
Hagel believes that given this change, product and process innovation no longer produce a positive return on investment; thus a new kind of innovation is needed – “Institutional Innovation.” The organization must become a living embodiment of innovation. This includes
- Diversity of ideas – to create a Darwinian ecosystem in which the best ideas can rise to the top
- Relationships connecting people across the organization, to enable interdisciplinary innovation
- Modularity among processes and departments – this is a complex but often-used analogy that applies a successful technique in computer science to organizational design
- Distributed decision-making
- Feedback loops – a mechanism of measuring the success of a particular activity (in this case an innovation) and making corrective adjustments accordingly. My favorite feedback loop is the OODA Loop (Observe, Orient, Decide, Act) developed by Col. John Boyd for the U.S. Air Force. The technique allowed fighter pilots to react in combat situations faster and more accurately than the enemy combatants
- Incentive structures – since everyone likes Christmas bonuses
But before you go re-engineering your company, beware…
“Institutional Innovation” is a path that few companies have successfully executed.
Perhaps there is an easier way, an approach to product innovation that can still produce positive ROI, even in the current climate. The approach I’m thinking of is something I’ve called Growth Explosions. Yes, have diversity of ideas. Yes, have relationships crisscrossing the organization. Yes, have feedback loops. But more importantly – lean how to watch for and exploit once-in-a-lifetime opportunities. For they actually come along more often than that.
With a little bit of product innovation, a strong tailwind of market demand, a good nose for opportunity and a dash of luck – a company should focus on cashing in on black swans as they drift by.