Innovation and Change. Not Innovation vs Change.


The Questions

I like to begin by asking very simple questions.

What is the difference between Innovation and Change?
How can I innovate and what do I do with the ideas I have?
How much Innovation is too much?
How does Innovation influence Change Capacity?

The Buzz

One’s mind, once stretched by a new idea, never regains its original dimensions.
Oliver Wendell Holmes (1809-1894)

Whenever I see someone at work coming back from a conference or talk, they look pumped-up, bouncy, and are always full of the latest buzz words.

“Hey Andrew, I went to the conference and it was great. We need to Innovate more.”
“Let’s set-up some Innovation teams!”
“Let’s do things differently!”

So what is the difference between Innovation and Change? We do “change” pretty well already, so how is innovation related to change?

Innovation or Innovative ideas are one of the inputs into the Agile and Kaizen oriented changes that we talked about in the last post.

In the last post we saw “the unavoidable necessity of change” and that change is both proactive and reactive. Change is often a result of increasing dissatisfaction brought about by entropy.

We saw that change can be achieved by;

a) pro-actively seeking out areas that need change and instituting that change as “continuous improvement” (Kaizen) and/or

b) reactively having the capability and capacity to deal with change as a “flexible evolution” (Agile).

So how does innovation come into the picture? How do we become “innovative” and what do we need to do differently to be seen as “innovators”? Some of the greatest recognized minds of our time are described as “innovators”.

“Innovation distinguishes between a leader and a follower”
Steve Jobs (1955-2011)

  • All innovation or innovative ideas are a deviation from the current state.
    Often derived from “increasing dissatisfaction”.
  • Innovation is a result of the desire to be more effective in what we do.
  • By innovating, you are proposing to change.

Thus we see the first difference between change and innovation. Change can be described as the process of transformation and innovation as the idea that we use to build a change in the first place, with the emphasis on being more effective.

The Definition of Innovation

Innovation can be defined simply as a “new idea, device or method”. However, innovation is often also viewed as the application of better solutions that meet new requirements, un-articulated needs, or existing market needs. Such innovation takes place through the provision of more-effective products, processes, services, technologies, or business models that are made available to markets, governments and society. The term “innovation” can be defined as something original and more effective and, as a consequence, new, that “breaks into” the market or society. Innovation is related to, but not the same as, invention, as innovation may involve the practical implementation of an invention (i.e. new/improved ability) to make a meaningful impact in the market or society, and not all innovations require an invention.

Innovation is defined as both a process and an outcome. Innovation is the generation, admission and realization of new ideas, products, services and processes.

It is the idea that turns into a change which makes us more-effective and has meaningful impact.

Two main dimensions of innovation are the degree of novelty (patent-ability) (i.e. whether an innovation is new to the firm, new to the market, new to the industry, or new to the world) and the type of innovation (i.e. whether it is process or product-service system innovation).

A service change that is extremely novel, and has a markedly different impact on society can be seen as innovative. The iPhone was seen as innovative because it brought together several different concepts (a cell phone with very good call quality, an iPod for music, a well-integrated PDA, an Internet device that offered web browsing and email, and web application support.) all in one device. It created a new market and had a meaningful impact on the entire world.

Why is the word innovation itself so popular?

We like “innovation” because it offers us four immediate psychological benefits.
(The fourth will be covered later)

1. By definition, innovation is new, unaccepted generally and contains inherent change, therefore it plays well into our confirmation bias, i.e. “I was part of the generation, admission and realization of a new idea, product, service or process, therefore it must be good” and

2. Prospect Theory, the Certainty Effect and Loss Aversion Theory show that we are more likely to lean towards ideas that have some gain and avoid any loss. i.e. “A new idea can only bring benefits and I can always go back to the old way if it doesn’t work out” and

3. Our remuneration schemes are a balanced scorecard of “hard data” such as cost savings and revenue generation however most firms dedicate a heavy portion of the recognition to intangible work such as leadership skills, support of the corporate value message and “change and innovation“. i.e. improving the perception of the company, thus making it more attractive to customers and employees. We are recognized because “we had a great business idea” and that increases our sense of self-worth. In addition, if successful, it will increase the revenue or decrease the costs of the company.

So innovation as a concept makes us feel good, avoids apparent loss, increases our sense of self-worth, gives us recognition and, if successful, provides financial gain.

There seems to be no “down-side”. Being seen as an “innovator” only has positive connotations. An English expression we hear a lot from childhood is, “it is better to have tried and failed than never to have tried at all.”

‘Tis better to have loved and lost, than never to have loved at all.
“In Memoriam” by Alfred, Lord Tennyson, 1849

So why isn’t everyone innovating like crazy?

Innovation, as it leads to the generation of new ideas, is free. You can come up with as many ideas as you want, but they cost money to implement, and as innovative ideas are new, the number of risk-taking potential backers for innovative ideas are few.

In addition, our schools are oriented towards learning “what already is” and while lateral thinking is encouraged, there is no mechanism for innovation or innovative thought. We are taught to “follow the rules”. So it is quite a shock for many young people to enter the workforce and be expected to innovate when they have not previously been encouraged to do so. So how do we learn to be innovators? How do you go from being a good “learner” to being an “innovator”?

The best way is not to ignore your good ideas!

For big ideas think “angel funding” and “start-up” or “entrepreneur”. For our day to day think of being more-effective in everything we do.

What about innovations like: reward employees for coming to work on time with a lunch voucher, self-washing socks, nano-mites that clean your teeth 24×7, etc… The ideas are endless. Some good and, well, some that are not likely to take off.

Therefore we need to look at innovation not as a one-off spark of genius, but rather as a way of operating, a way of thinking.

When the London Philharmonic Orchestra chose the 50 greatest pieces of classical music, the list included only 6 by Mozart despite his producing over 600 pieces before his death at thirty-five. Thomas Edison lodged 1,093 patents in his lifetime however can you think of any other apart from the Electric Light?

This goes to show that good ideas are not singular. Innovation is not a spark, but rather a result of a concerted way of thinking, a culture of invention and change from which truly effective and meaningful ideas emerge. Getting someone to listen however can be challenging.

And sometimes it goes horribly wrong.

Who remembers the Segway? It was a miracle of innovation. It was going to solve all our mobility, traffic and emission problems in one fell swoop. Yet, Time called it “one of the 10 biggest technology flops of the decade”. Do you know anyone who owns one?

According to Paul Sloane at InnovationManagement.se, there are 5 key reasons that the Segway did not become a hit;

  • Expectations were too high. The Segway was described as the future of transport. As an innovation it was said to be on a par with the PC or the internet. Inevitably it could not live up to this level of hype. PR exposure is generally useful but this time it was overdone.
  • It was a product not a solution. The product works well but it lacked a support context. Where can you park it? How do you charge it? Do you use it on roads or side-walks? Our cities are designed for pedestrians or speedy vehicles and this was neither so it had no proper infrastructure to support it.
  • No clear need or target market. Who was the target market? Who really needed this? It was an appealing novelty but there was no compelling need for anyone to buy it – and it was very expensive.
  • It was an invention rather than an innovation. The Segway was patented and kept under wraps until its launch. There was no user feedback or iteration in the process. Its inventors were then surprised when people criticised or ridiculed the design for being ‘dorky’ rather than cool.
  • Regulation. The Segway fell foul of regulation in many countries where it was banned from side-walks and roads because it did not fit any existing categories. This is a problem for a truly revolutionary product – but it was not properly anticipated.

As such, innovation is not without it’s risks.

A Change in Culture

McKinsey research reveals a wide gap between the aspirations of executives to innovate and their ability to execute.

Innovation is seen as a very positive goal, however setting-up for innovation is hard because there is no “best practice”, no “right way” to encourage people to be creative and innovative.

The McKinsey research shows that most executives are generally disappointed in their ability to stimulate innovation: some 65 percent of the senior executives surveyed were only “somewhat,” “a little,” or “not at all” confident about the decisions they make in this area. What explains the gap between the leaders’ aspirations and execution?

This comes down to the “value” that companies are placing on “innovative ideas” and how companies are practically able to capture and input these ideas into the product and service development cycle.

The McKinsey research outlines 3 key changes toward fostering an innovation-centric culture.

A first step is to formally integrate innovation into the strategic-management agenda of senior leaders to an extent that few companies have done so far. In this way, innovation can be not only encouraged but also managed, tracked, and measured as a core element in a company’s growth aspirations.

Second, executives can make better use of existing (and often untapped) talent for innovation, without implementing disruptive change programs, by creating the conditions that allow dynamic innovation networks to emerge and flourish.

Finally, they can take explicit steps to foster an innovation culture based on trust among employees. In such a culture, people understand that their ideas are valued, trust that it is safe to express those ideas, and oversee risk collectively, together with their managers. Such an environment can be more effective than monetary incentives in sustaining innovation.

One survey found, ranked in decreasing order of popularity, that systematic programs of organizational innovation are most frequently driven by: improved quality, creation of new markets, extension of the product range, reduced labour costs, improved production processes, reduced materials, reduced environmental damage, replacement of products/services, reduced energy consumption, conformance to regulations.

Conversely, failure can develop in programs of innovations. Causes of failure internal to the organization are primarily cultural infrastructure related and causes associated with the innovation process itself. Common causes are: poor goal definition, poor alignment of actions to goals, poor participation in teams, poor monitoring of results, poor communication and access to information.

Let’s go back to my colleague that just came back from the conference.

“Hey Andrew, I went to the conference and it was great. We need to Innovate more.”
“Let’s set-up some Innovation teams!”
“Let’s do things differently!”

So why are my colleague, and all the other attendees at the conference so pumped up when they return? It turns out that there is a scientific reason for it found in brain chemistry .

“When we see something new, we see it has a potential for rewarding us in some way. This potential that lies in new things motivates us to explore our environment for rewards. The brain learns that the stimulus, once familiar, has no reward associated with it and so it loses its potential. For this reason, only completely new objects activate the mid-brain area and increase our levels of dopamine.”

Pure Novelty Spurs The Brain, Science Daily, August 27, 2006

Therefore we can see a fourth motivator, we are actually physically happy when innovating!

I asked my excited colleague practically “how” he planned to get this new ball rolling and we realized quickly that the organization is not culturally set up for accepting innovation as an input into the change program. We are not currently innovating to drive change, but rather we are letting dissatisfaction and entropy make us reactive so we hop from fire to fire, putting out the flames.

Think back to the Apple iPhone example. Every year Apple releases something new and innovative. Controversial? Possibly yes. But undoubtedly innovative. So how is it that our organization apparently lacks innovative culture traits, yet Apple so obviously has them?

More than likely the reasons are rooted in our financial operating model and our existing business cultural behaviours.

The Cost of Change and Change Capacity.
How much will innovation cost?

So we know that we are bad at leveraging innovative ideas and need to culturally change to foster innovation. Those innovations will drive change and we will become innovative Service Leaders rather than our current jobs as Pest Control (IT parlance for constantly fixing bugs).

Firstly we need to understand that change programs can leverage innovative thought. Innovative ideas are feeders into change programs.

Innovation and Change work together not against each other. Before we look into the cost of innovation, let’s take a look at the cost of change as it happens today.

One organization I know quite well is good at change. Especially small incremental change. They have dedicated teams who have strict control procedures for effecting changes into their IT infrastructure. Employees and contractors are expected to read and affirm their commitment to policies and procedures and it is unusual that something goes wrong if the protocols are followed.

Each change request that is raised by the consumers of these IT services is discussed in a prioritization meeting. It is given a resource estimation and a business priority before development starts. A very good example of a fixed capacity IT Supply Chain.

If there is some larger program of work to be conducted then that is budgeted separately and funds are requested to effect that change. It has different people involved, different approval and communication structures.

Thus the organization sees “Operational Costs” and “Change Costs” very differently.

The problem comes when we look at how the annual budget is put together. These two streams of work are unfortunately not recognized as being part of the same Service.

Running costs are seen as a “cost of doing business” and as long as they don’t change much from year to year then the costs are not challenged. These are the costs of “keeping the lights on” and most financial reports indicate that these costs are “absolutely necessary” to keep the business running.

“Change Costs” are one-off large change activities that are seen as improvements and innovations to the services offered. They are often cyclical in order to deal with “dissatisfaction and entropy” as we saw in the last post. They are also, if large enough, explained to the shareholders as a “look at what WE are doing” item. i.e. The organization is placing value on a large singular capital item that delivers, then depreciates and hopefully does not change. But we know from our Agile and Kaizen lessons, that this is not the case and change is inevitable.

Every time a new IT system is implemented we think about how long it will last for. Accounting principles make us depreciate the capital cost over 5 years, but in the age of ever increasing innovation will software today be relevant in 5 years? Will we fall behind our competitors in commercial advantage by running 5 year old software?

I remember back in the 90’s when implementing new ERP systems, CFOs would be very clear that they expected these systems to last for more than 10 years and bonuses were handed out for large capital deliveries.

Times are changing and the velocity at which software is evolving has increased. The same question today would unlikely garner a “10 years” response. Many comments I hear are “I need my software to evolve with my needs” and the cloud is aiming to do just that. Thus the speed of innovation and the money required to maintain commercial advantage in IT, is not aligned with current corporate thinking on how we build the annual budget. We are still thinking in terms of “big bang for big bucks”.

Current budget management thinking is tied with the performance of the organization and the “annual financial disclosure cycle” i.e. we need to wrap up the budget before the shareholders meeting.

But what if we didn’t? What if we were very closely aligned with the customer, offering a service that had a good capacity for continuous Change and Innovation? A Service that was able to adapt in-line with customer needs without the need for large peaks and troughs of capital injection?

The Annual Budget

The diagram below shows the correlation between the operational costs and change costs of a hypothetical IT Service that was built in 2014 for $100 and began operations in 2015 with a running cost of $25 and now running at $37.

In the last post we discussed “the unavoidable necessity of change” and that change is both proactive and reactive. When we look at how this impacts the cost of operation, we can see several interesting factors;

Operational and Change Costs

  1. We publish our “Operational Costs” as the cost of the Service to exist in it’s current state without any consideration of entropy.
    i.e. the CIO asks, “how much does this service cost to run?”
    We would respond that in 2018, the above chart shows an estimate of $37, as a result of the $150 large change program in 2017. That sounds reasonable and the CIO is happy.
  2. We publish our “Change Costs” budget for 2018 as a $138 discretionary program of work to deliver something before the end of the year.
    i.e. we need to spend $138 or we will lose it. A massive deliverable that will, undoubtedly contribute to an increase in the “Operational Costs” for next year.
  3. The linear trend of change related expenditure in no way matches the reported operating costs of the Service.

So we could argue that the cost of this Service is really shown below, with a mad rush to complete the deliverable by the end of the financial year, when everyone is extremely busy.

Operational and Change Costs 2

On average the Service is costing us $145 per year for the cost of the service with an annual trend of increase. (As we know entropy is inevitable)

So instead of telling the CIO that the Service costs $37 a year to run, what about we tell the truth that the Service is costing us an average of $145 a year to run and that is increasing? Probably get fired right?

So we need to;

  1. make some cultural changes that lead to an ability to innovate,
  2. maintain an ability to control costs,
  3. maintain an ability to manage change, including innovation and entropy mitigation.

…all for the benefit of the Customer via the Service that we provide.

Innovation Actions

Improvement #1
Potential for innovation in how we manage budgets.

Remove the artificial separation of Operational Costs vs Change Costs. We know that change is inevitable. Analyse your total historical Service Costs. Smooth the curve and give the Service Owner a budget target to spend up to the limit “all in”.

Encourage entrepreneurial thinking by running the Service as it’s own mini-business.

Remove uncertainty from the corporate budget by understanding the absolute limit of the spend and encourage responsibility for that spend.

This is a move to “Capacity Based Budgeting”. You will see an increase in self-reliance and a willingness to innovate. You will see Service Leaders negotiating hard with suppliers for better value for money and looking for ways to reduce their workload by innovating in the Service.

Remove the artificial “must deliver massive change at the end of the financial year so I don’t lose my budget” mentality through this smoothing.

In fact Audit firms are already moving to this model with their “continuous audit” methodology, meaning that they don’t need an army of accountants taking up your meeting rooms twice a year, instead, they are remotely accessing data, running over it with automated algorithms on a daily basis, freeing up your staff to focus on exceptions, not providing mountains of data. This “Service Delivery” model is becoming more and more prevalent as we commoditize previously complex activities through the use of Technology and …. you guessed it… innovation.

Improvement #2
Potential for innovation in how we conduct meetings.

In most organizations, the most common type of gathering is the “status meeting” or the “status presentation session”. In this meeting, we take a look at what happened and use that to make predictions about what is happening, and understand what preventative measures we can take to reduce risk and mitigate issues into the short term future.

You’ve all been in this kind of meeting and there is always someone on the verge of sleeping as in an inclusive organization, most of the attendees will already have some of the information and most of the time in the meeting is spent re-hashing information that is already known and available. Thus the amount of time spent on engaging individuals in innovative thinking is very small.

How many times in the last year, did you do the opposite? Write a paper or a document that outlined your serious innovative thoughts, backed it up by data and research so that you became more effective at what you and your organization do?

Probably not much, but this kind of meeting is becoming more popular.

The move to Service Delivery and Change Pipeline meetings is becoming more prevalent. Discussions on service utilization and Service Usage statistics. The use of analytical tools to look at what is working and what is not. Bringing the customer into the picture by focusing on how well you are currently, and planning to, address their Customer Story. Focusing on meetings that look at how we become more effective. Not re-hashing last week’s achievements.

In order to promote innovation and critical collaboration, organizations like Amazon are changing the way meetings are held. Before any discussion begins, members of the team—including Amazon CEO Jeff Bezos—consume six-page printed memos in total silence for as long as 30 minutes. They scribble notes in the margins and apply critical thinking and collaborative innovation approaches.

Improvement #3
Potential for innovation in Cultural Change of the Organization.

Despite what we would like to believe, as shown in the behaviours of Mozart, Edison and Picasso, brilliant innovation is rarely found in a single, genius idea, but rather in an environment when innovation is encouraged, the normal practice and part of the routine of teams of like-minded people.

Create Innovation-Oriented work practices, not as something special “to-do” but as a way of operating on a daily basis.

Engage Service Customers in the process of innovation. After all, customers probably have a very good idea about what they want.

Engage Marketing in the process of innovation. After all, they know what sells and what does not and they know how to package it.

Engage Human Resources and Talent Identification Specialists like Robert Half in the process of innovation by attracting great talent. (See #4)

All of this however can be very difficult to do if you don’t know where to start. And sometimes it can be impossible to start off internally. You need someone to bring it together, with you. My good friends at Deloitte Japan have specific laboratories tailored to bring the organisation to the point where it has the capability to innovate.

Improvement #4
Potential for innovation in how we recruit, motivate and train our People.

I’m sure that you all have now come to the conclusion that innovation is excellent and we should all be innovators. You may even be ready to step into a Deloitte Laboratory for a day to tap into your organization’s own innovative power. But, let me ask you some hard questions so you know how far you need to come to help your team to become innovative.

When was the last time that you or your team went on a training course?
When was the last time you went on a training course that focused on innovation?
(Not how to absorb someone else’s innovation or invention, but how to become innovative in your own company, yourself)

When was the last time you discussed your motives and motivation with your peers and your team?
What motivates you as a team member? What motivates your team members?
Do you understand under what conditions you perform at your best and become an innovator?

When did you interview someone who you appreciated for their “innovative” way of looking at problems? Did you feel jealous?
Did you reject that person because you felt threatened?
Have you hired someone you respect as an innovator?

How do you assess innovation in your teams?
How do you measure and reward innovative ideas?
What forums do you have for capturing innovative ideas?

Recruiting innovative talent, motivating others to become innovators and providing the framework for individuals to become innovative is one of the toughest challenges for Human Resources. Firstly educating Human Resource departments that innovative thinking is a necessity itself is likely a step in the right direction. Detecting innovative behaviour and fostering it will take some time.

Improvement #5
Potential for innovation in how we manage and utilize innovative knowledge.

Now that we have restructured the change process to be constant, meet more effectively, work as innovators on a daily basis and retain talented, innovative people, what do we do with all that innovative information? That Intellectual Property that could be the next iPhone level idea?

Taking advantage of all the ideas, working them into the design cycle, categorizing and assessing them and most importantly getting funding for the best ones, is almost as monumental task as generating the ideas in the first place.

Make sure to dedicate resources to capturing, cataloguing, reviewing, assessing and feeding back.

After all Picasso made over 15,000 items in his life, not all of them were famous.
Mozart himself was his own worst critic, pieces he thought were masterpieces never took off, and pieces he thought were fairly average, were loved and admired.

Too Much Innovation?

Finally, when do we say, “hang on, that’s just way too much”?

From this post we can see that Innovation and Change are complementary and not exclusive.

Innovation is about the generation of ideas and our Agile and Kaizen oriented change management principles help us to absorb those ideas into the Service.

Innovative ideas may not always be accepted by the customer (remember Segway), so involve the customer and your marketing department in pilots, trials and tests of innovative ideas before you go all-in.

But most importantly, innovation is not a “meeting on Thursday afternoon”, it is a way of thinking. Constantly working towards being more effective.

Credits and References