A PRESCRIPTION FOR BUSINESS INNOVATION -PART TWO

Four: Innovation & Society: How Technologies Limit Freedom, Human Nature Confounds Innovation, and Consumer Decision Tools Doom Marketing

Those of you with HR backgrounds are probably wondering why I have not spoken about non-individual, community aspects of civilization and why and how these arose if the innovative individual is perfectly able to do it all him- or herself. These issues are relevant because of the role of teams, organizations and other social constructs in the process of innovation.

Let’s take another look at our proto-human, now equipped with the six basic types of manually powered machine (lever, wheel, screw, pulley, plane, and wedge — the latter in the form of flint-head arrows), plus other early innovations like controlled fire, animal domestication and crop cultivation. Like other creatures he’s adopted the family unit as a social convention, but now he’s experimenting with a more sophisticated social construct, the tribe. Question is, why? Is it Darwinian — Did humans that banded together have a higher likelihood of survival than loners? Or is it purely social — Do humans, like other creatures, have a basic need for social contact with others that goes beyond family? Whichever it is — a survival need or a social need, it required innovations to make it work, innovations like a code of laws and behaviours to prevent and resolve disputes between individuals, and shared language.

At this point, in the view of some anthropologists, a tug-of-war began between our essential individual, autonomous nature and the perceived benefits of increasingly advanced, abstract and restrictive ‘technologies’ like division of labour, specialization, private and communal property, governments and other hierarchical social organizations, including the modern corporation. All these social ‘technologies’ limit individuals’ freedom, and much of our civilization has been about trying to find a delicate balance between individual ‘rights’ and the apparent benefits afforded by technologies that compromise them. This tug-of-war continues to play out today, in our suspicion of government, the existence of ‘militias’, libertarian movements, evolution of privacy laws, and struggles over property ownership. The battle is far from over, with slavery, one particularly extreme social construct favouring hierarchical efficiency over individual liberty, still practiced in many countries, and women, children and animals treated as property with no rights or freedoms whatsoever in many others.

This tension also plays out in the modern corporation, itself a feudal social construct which is neither egalitarian nor democratic. Corporate efficiencies have produced technologies that have massively improved material wealth and (most believe) quality of life in the few centuries since they were invented. But these advantages have come with a huge cost of personal freedom — In many countries employees are virtual slaves of their employers, with no hope of realizing their full personal potential. In many companies promotion and remuneration have nothing to do with performance or competency.

Here are some of the consequences for innovation of this individual/collective tension, in today’s companies:

• Employees hoard rather than sharing knowledge, including knowledge that could yield innovation, to protect their position and rank in the company
• Employees rarely volunteer new ideas, fearing ridicule, retribution, being ignored, or having credit for the idea stolen by their boss if it succeeds
• Managers safely and instinctively squelch innovative ‘crazy ideas’ of subordinates
• Managers, fearing the wrath of shareholders (today’s ‘absentee owners’), are risk averse, preferring to buy ideas once they have been successfully developed by others, over incubating the company’s own ideas, even though the latter is cheaper and more effective
• Employees compete for credit rather than sharing it
• Employees, since they are rated on their individual performance, consider teamwork and collaborative activities less important than individual, solitary ones
• Managers instinctively delegate tasks in a project to individuals rather than teams (since it’s easier that way to place blame if something goes wrong), and individuals usually prefer being given individual rather than team assignments as well

If people are social by nature, why are corporations so unable to tap into this to leverage the power of teams to enhance innovation? The answer may be simple. In The Hidden Life of Dogs, author Elizabeth Marshall Thomas explains that most animals have an inherent desire to socialize with their peers, that seems totally unrelated to survival needs. In fact, dogs that wander from homes where they are well-fed and cared for appear to be looking for social contact with other dogs for its own sake, just as children like to hang out with others doing things they can do just as effectively alone. At the same time, both dogs and children often become extremely jealous, competitive, possessive and unsociable when these same fellow creatures impose on their personal ‘territory’: family, toys, food bowl, and members of the opposite sex.

Perhaps this is a universal trait that we need to consider when designing innovation programs: Everyone loves to engage in social activities that are fun, challenging and unthreatening, but when the social activity impinges on individual ‘territory’ or property, or on scarce resources, social and collaborative behaviour ceases and confrontational, competitive behaviour takes over.

But isn’t competitive behaviour exactly what business thrives on? Doesn’t the rush of adrenaline and testosterone in the quest for competitive advantage and ‘winning’ yield high productivity, sharpened customer focus, and more new ideas?

I would argue that competition is at best a neutral factor in engendering innovation, and may in fact be detrimental. Most of the books on teamwork, such as The Wisdom of Teams, stress two essential preconditions to effective team behaviour:

• A specific, defined problem agreed to and shared by all team-members, and
• A sense of urgency that imposes a short-term deadline that the team-members can work towards

There are other factors that affect a team’s success, of course, such as the competencies and access to knowledge of the team members, and the effectiveness of the processes by which the team works. What is important here is that nowhere is a competitive threat, competitive challenge or competition of any kind considered essential to team effectiveness. Even in sports, the best teams focus on what they do well (the attributes of their team’s excellence) and the achievement of specific objectives (like scoring points) rather than being distracted by competing with the other team, ‘winning’ and exploiting the other team’s weaknesses. Good teams usually take solace in having played well even in a losing cause, and are alarmed when they play badly but still manage to win. In fact, a major competitive tactic in business is to force one’s competitors to shift their focus to your agenda, to take their eye off their team’s goal to instead compete with you.

Furthermore, many businesses are now reaching out to involve customers, alliance partners and even competitors in their problem-solving teams, because they help bring different points of view to the creative process, and because these external partners share both the defined problem and the sense of urgency with the internal team. In a world of accelerating change, no competitive advantage is sustainable — innovations and new technologies can almost instantly reinvent industries, products, services, and offerings, and eliminate any competitive advantage the old ones may have had. Despite massive and sustained oligopolistic efforts to prevent it, customers are beginning to wrest absolute control of business direction and success from almost every industry’s producers, management strategists and marketers, and now set the agenda and reward companies that respond to their needs and build new serving capability, not those that bash the competition, sue their customers, or create barriers to competitive offerings. The Bush regime’s corporatist agenda has been only a temporary setback in this inexorable trend.

A side-note about branding: Many marketing people, lamenting over the passage of market control from producer to consumer, cite the increasing importance of branding as an organizational strategy, and of brand loyalty as a success factor. For this reason, they argue, aggressive, proactive marketing is not dead. They fail to appreciate that consumers, faced with the severe scarcity of (a) time to assess product alternatives and (b) objective comparative analysis like Consumer Reports, tend to use ‘brand’ as an unsatisfactory surrogate decision-making tool. If you as a consumer want to buy a car, or select a television program to watch, the ideal decision-making process would be:

1. Find an analytical tool that identifies all of the relevant selection criteria, rates all of the available alternative products against these criteria, and allows you to identify and ‘weight’ the criteria that are important to you. This tool would ‘remember’ and start with the criteria and weightings you used the last time you made a similar decision.
2. Use the tool to generate a ‘first cut’ list of alternatives ranked by your personal criteria, and show the sensitivity of the ranking to changes in your criteria weightings (some days you may like to watch a thought-provoking program, and on others you may prefer something light and funny; one year you may want a practical car, and the next something sportier).
3. Find a tool that uses ‘neural network’ technology to draw upon your past choices for these and other products, correlate them against the choices of other people whom you trust or who have a history of making similar choices to yours, and generate a second list of alternatives, ranked by the collective consensus of your peer group. This tool would ‘learn’ from past choices and from your evaluations of them.
4. Integrate the two lists and use subjective overrides to make your final selection.

In the case of a big-ticket selection like a car, you would probably invest significant time in making the final decision. In a small-ticket selection like a television program, the final decision could be greatly simplified or even fully automated, so your television would automatically go to the highest-ranked program in the two lists, and signal to you a ‘score’ showing the computed probability you will like it (since your ultimate decision may be not to watch anything).

Tools like these exist today (Consumer Reports is an example of the former; the Recommendations Lists of Amazon.com are an example of the latter), but they are not yet very robust or reliable. In their absence, brands and brand loyalty are the surrogates: ‘I always buy Chrysler products’ or ‘I usually watch CSI on Thursday nights’ is your brain’s way of substituting brand for the more ideal tools noted above. Once these tools exist (and the Information Age is ripe for them), product brands will simply become community-identification brands (‘I drive Chrysler products because they reflect who I am and I want others to see that and associate with me, or not, because of that identification’). At this point, brand community-association becomes merely one more selection criterion of the analytical tool. With the advent of the near-perfect consumer information these tools provide, traditional marketing has no remaining role, and the knowledge-driven transition of power from producer to consumer is complete.

Five: The Structure & Culture of Innovative Organizations: Business Gets Feminine and Consumers Seize Power from Producers

It is now accepted wisdom that the organization of the future must be flatter, more empowering, less hierarchical and more networked, in order to be sufficiently agile and responsive to the ever-more-powerful customer’s needs. Much has been written about organizational ‘ecology’ and the ability of communities of practice to self-organize to solve identified common problems more quickly and effectively than command-and-control driven organizational structures. There is a growing awareness that self-organizing communities operate best when their leadership uses what are usually considered ‘female’ modes of operation rather than the traditional ‘male’ ones:

• Decisions are made by democratic consensus rather than by fiat
• Persuasion and change occurs by engaging decision-makers in thought processes and finding shared mental models, rather than the wielding of power and authority
• Problem-solving teams select (and when necessary, change) their own leader(s) rather than having one imposed on them
• Problem-solving teams form themselves, drawing on individuals’ networks, and disband themselves when the problem has been solved, much the way the human body’s immune system organizes itself to fight infection
• Rather than formal permanent roles, positions, and ‘up-or-out’ career paths, individuals move laterally from project to project, wherever their skills and experiences are best suited, and often wear multiple hats on simultaneously-running projects, rather than having a single title
• Rewards and remuneration are based on the depth of developed skills, experiences and networks, the things that have value to the organization in the future, rather then on past performance (which is rewarded with one-time bonuses at the completion of a project) or on seniority or title
• ‘Management’ at the top is replaced by ‘Improvisational Strategizing’ at the centre of the organization

The real contention over this new organizational culture is whether it is efficient enough to justify a new organizational structure to support it, or whether instead some kind of balance between hierarchical and autonomous structures is needed. Is it empowering, or is it naÔve, to believe that if an organization sets specific strategies and goals and then ‘gets out of the way’, the employees will effectively figure out the best way to achieve them? Can the tools, the infrastructure of technologies, knowledge-bases and equipment, needed to achieve organizational and project objectives, be left up to project teams to develop as needed and ad hoc, or must they be rationalized and inventoried and efficiently ‘managed’? Who controls the purse-strings, and approves allocation of budgets and resources for each project — can project teams really do this themselves or do these resources also need to be centrally ‘managed’?

These issues are important to the future of business innovation. We must decide whether an organization saddled with the structures and controls of an old ‘management’ style can hope to be sufficiently agile, responsive to customers, creative and focused on new product development, to survive when that survival depends on strategic improvisation and continuous innovation.

There are two huge and contradictory trends occurring in organizational structure today: globalization and fragmentation. Globalization is occurring because small organizations cannot achieve the scale and resource capacity needed to be viable, and fragmentation, the spinning off and incubation of small, narrowly focused ‘best of class’ companies, is occurring because large organizations are too unwieldy, inefficient and inflexible to be innovative and respond to customers’ rapidly evolving needs. So we have today the worst of both worlds: large, fat, unresponsive global companies and emaciated unscalable small ones. Furthermore, because of today’s concentration of money and power in the hands of increasing global corporate giants, this system is in disequilibrium, with dysfunctional non value-added consequences such as these:

• Once-innovative companies like Microsoft are being besieged by antitrust authorities
• Companies acquire other companies simply to break them up and close them down
• New start-ups are designed expressly to be bought out before they actually produce anything
• Investment analysts claim that synergies from corporate acquisitions create new value, and that subsequent break-ups into more focused and specialized companies also create value
• Large organizations are rewarded for cruelly exploiting weak social and environmental laws in their subsidiary companies’ countries and simultaneously creating unemployment at home, when they ‘offshore’ production to those countries

The recent macro-economic review by Credit Suisse First Boston, echoing the prognostications voiced by many economists at recent economic summits, foresees the evolution of today’s corporate structures into three new, prevailing types of enterprise, which could fix the above dysfunctions (since different economists use different names for these, I’ve used my own):

1. Global Utilities: Large organizations that provide world-class large-scale communication, asset management and distribution infrastructure.
2. Producers: Small organizations that assemble resources and ‘build to spec’ technologies, tools, products and offerings, for entrepreneurs, project teams and consumers.
3. Innovators: Small organizations that study human problems and needs and create, discover and design solutions to them.

The Global Utilities would be either publicly owned or tightly regulated, operated on a not-for-profit basis. They would be measured on efficiency. The Producers and Innovators would be entrepreneurial partnerships, very project focused. Producers would be measured on agility, quality and customization, and Innovators on creativity, quality and quality-of-life improvement. All three types of enterprise would be measured additionally, of course, on customer satisfaction. None would be hierarchical, and few would spend an entire career with a single organization. I have argued elsewhere that, in fact, with today’s technologies there is no need for any of us to have to work more than a few hours a week to provide a high level of well-being for everyone anyway — the fact that we do work so unnecessarily hard and long is a function of the sustained myths of our modern Western culture and the extravagant and unsustainable wastefulness of our civilization.

Those with an entrepreneurial bent would form, or join, one or more Producer or Innovator enterprises over their working life. Those with a productivity bent would gravitate towards the Global Utilities. Many others would be self-employed, providing niche advisory services to all three types of enterprise.

You may think this is a very idealistic view of how ‘organizations should be reorganized’, but it is also a very logical one, and one that could easily be achieved today because of growing dissatisfaction with the dysfunctionality of today’s organizational structures, and the ability, thanks to the Internet and other powerful new ‘organizing’ infrastructure technologies, to bring this ‘reorganization of organizations’ about. Only a poverty of imagination, opposition from elite vested interests, and the inequitable distribution of power and resources, all of them well within human capability to rectify, are preventing us from realizing this potentially liberating, perhaps even Earth-saving, reorganization. In fact, this customer-driven revolution is already happening, quickly, quietly, and non-violently, its first manifestation being what Shoshana Zuboff in her best-seller calls The Support Economy: Why Corporations Are Failing Individuals and The Next Episode of Capitalism.

The advent of a New Economy, with Innovators focused intently and exclusively on solving real human needs and problems (and not on the hyper-marketed, artificial incrementalism and ‘copycat’ and ‘sequel’ new product development that today’s risk-averse oligopolies have our most creative minds fruitlessly working on) offers the potential of astounding acceleration of innovation and resolution of seemingly intractable human problems: pollution, over-population, unemployment, inequality, human and animal suffering, disease prevention, war and cruelty, biodegradation, mental illness. Some would say it’s not a moment too soon.

What does all this mean for today’s company looking to jump-start its innovation programs and processes, and today’s individual looking to participate in making his or her own, or his or her employer’s, enterprise more innovative? From the discussion above we can add six principles of innovation strategy to the eight principles developed earlier:

9. Hierarchy and Autocracy are the Enemies of Innovation: There is a strong creative tension between individuals and the communities they elect to or are asked to be part of, caused by divergent needs, drivers, and behaviours. Each individual and each community needs its own space. Flat, small, responsive, democratic organizations are inherently more innovative.
10. Innovation Needs an Urgent Problem: True innovation only occurs where there is consensus that there is an important problem to solve and a sense of urgency to solve it.
11. Cooperation is Replacing Competition: Competition is now dysfunctional, a vestige of earlier times of resource scarcity, and cooperation is now essential to effective innovation.
12. The Customer Rules: The customer is now king and needs only better decision making tools to become the sole driver of economic activity, rendering obsolete the need for marketing, branding, and other producer-driven mechanisms of influencing customer actions.
13. Female Organizational Style is More Innovative Than Male: As shown in the table below, organizational structures, processes and behaviours more commonly associated with businesses run by women are gaining traction in the New Economy, and that bodes well for innovation.
14. The Emerging New Economy Will Accelerate Innovation: Despite the current waves of globalization, corporatism and increased concentration of wealth and power, the Internet and other new technologies will inexorably break the strangle-hold of riak-averse oligopolies and unleash a new age of astonishing innovation.

Attributes of ‘Female’ versus ‘Male’ Organization Structures
(Adapted from Imperato & Harari, ‘Jumping the Curve’)

So now we have fourteen principles to guide us in creating innovative organizations.

Next Tuesday: In the final part of this paper, a prescription that draws on these principles, that organizations can use to evolve themselves into innovative companies. It will also explain the new 8-step Innovation Process diagram at the top of this post.