How to Save the World

Dave Pollard's environmental philosophy, creative works, business papers and essays.

How to Save the World

A PRESCRIPTION FOR BUSINESS INNOVATION:
CREATING TECHNOLOGIES THAT SOLVE BASIC HUMAN NEEDS

Four years ago I wrote a well-received paper entitled A Prescription for Business Innovation: Creating Technologies that Solve Basic Human Needs. This substantially rewritten and updated version was written in April, 2004.

Introduction: Why I'm Here

My modest objective in this presentation is first, to tell you some new, interesting and useful things about innovation, and, second, to persuade you that innovation is the most important determinant of every business' success, and perhaps even the quality of our lives. I want to convince you that in your business, whether it employs one person or one million, innovation is probably the solution to whatever is currently keeping you awake at night -- whether that be sales growth, cost control, customer satisfaction, employee retention, or maximizing shareholder value.

And if you, like me, spend some of your sleepless hours worrying about things more altruistic than your personal and business success, I want to convince you that innovation is probably also the solution to most of the problems that have befallen our suffering planet, in part because past innovations have created many of these problems.

And finally, if I'm successful in this evangelical task, I want you to leave today not only with renewed hope about the future of your company and our world, but with some new tools to make innovation happen in your business.

I would like to ask you to listen to these ideas with an open mind, suspend briefly your disbelief, and give this your full attention. If this was that easy to explain, someone much smarter than I would have done it years ago.

One: Learning from our past: How Need Drives Innovation

The advent of a new millennium has recently given many business, political and economic thinkers pause to consider what will be, as most put it, the 'Next Big Thing':

A New Economy Forum sponsored by Credit Suisse First Boston attempted to develop a 'synthesis' of leading thinkers' innovation models that might answer that question.
Forward-thinking publications like Fast Company and Wired have presented alternative visions of the future from some extraordinary minds in many different disciplines.
And conferences of world political, social and business leaders like the Davos World Economic Forum try to grapple with the bigger questions of how the holders of power can make the world a better place, while helping out their particular stakeholders in the process.

The catch-phrases of these business-driven thought leadership events are not new: competitive advantage, sustainable development, the connected knowledge economy, globalization, convergence, digitization, moving at the speed of thought. What is new is that there are now three divergent models being used to predict our future, fighting for audience attention (the names assigned to them are mine):

Acceleration Model: The future will be a continuation of the recent past, only much faster
Chaos Model: The future will be utterly unlike the past, driven by radically new and discontinuous events
Evolutionary Model: The future will be, like the past, a continuous series of mostly predictable changes

From the perspective of business innovation this matters because almost everyone agrees that the successful businesses of the future will be complex, adaptive, agile, proactive, and creative -- they will not wait for market demands to change them, but will instead continuously reinvent their companies, anticipate future demands, and make strategic, risky, value-creating investments and decisions, what John Kotter calls Leading Change. In order to do this -- to make intelligent decisions and investments before demand is articulated, to view risk-taking and the creation of future options for action as essential, not foolhardy -- requires at least some consensus about 'where the future is headed'. Selecting one of the above three theories about the future is an important start in doing so.

Technophiles who favour the Acceleration Model tend to be infatuated with artifacts of the last thirty years: more digital, faster, smaller, lighter. Advocates of the Chaos Model, on the other hand, believe there are no rules for our brave new world of the 21st century. Their advice for business and other leaders is to be opportunistic and think short-term.

I lean towards the Evolutionary Model. I believe that using an understanding of the past, with the right perspective, can help businesses anticipate the future with exceptional clarity and probability of success. There are two reasons I hold this belief, and they form the basis for much of the rest of this presentation:

Technology is Not Evil: Technology was, is, and always will be, about improving the quality of human life (though it has had some disastrous, unintended consequences), and
People Change Reluctantly: People change much more slowly than technology, and ultimately won't accept, adopt, or pay for any technology that they aren't yet ready for, or which doesn't fill a real human need.

The report of the 1999 Credit Suisse First Boston New Economy Forum draws together some very powerful innovation models, into a single synthesized model that can be used to explain how technologies have impacted society and civilization since it began about thirty millennia ago:

Fig 1a
Figure One: How Fundamental Needs spawn Innovations & Technologies
(Adapted from Credit Suisse First Boston New Economy Forum 1999 Synthesis)

According to this model, innovations like crop cultivation, the printing press, and the harnessing of solar energy, have always arisen in response to an urgent human need -- overcoming the sudden food scarcity after the Ice Age, bringing literacy to the masses, and solving the energy crisis respectively in these three examples. Technologies are applications of these innovations. The intriguing organic-looking ovals for each technology are also from the Credit Suisse Synthesis, which proposes are technologies are best developed using the following process:

Fig.2a
Figure Two: Development Process for Technologies
(from Credit Suisse First Boston New Economy Forum 1999 Synthesis)

Let's now take a look at this synthesis model in more detail, to test whether it represents the way in which historical innovations have occurred, and then what this might tell us about innovations of the future.

Two: Man's Earliest Innovations: A Brief History of Technology

The first humans to walk on our planet, according to most anthropologists, were not the mighty hunters most of us might picture. In fact we were particularly disadvantaged, lacking both keen senses and a hide adapted to changing climates and weather. As a result, early humans were scavengers, ignominiously surviving off the leftovers of creatures with better innate hunting 'equipment'. In the first scene of 2001: A Space Odyssey, Kubrick & Clarke hypothesize that a carrion bone was the first human tool. Marshall McLuhan explained in his book Understanding Media that this early human was using the bone, this very first tool or technology, as an extension of his hand, giving it strength, reach and durability his hand alone did not have. McLuhan argued that all technologies are extensions of the human body and the human senses, and it is these technologies that have allowed the poor, badly-pelted, sensory-deprived human species to buck Darwin's odds and survive.

So picture our poor shivering proto-human looking among the bones of a wolf's recent meal for new tools beside the greasy bone, and thinking, in true McLuhanesque and 20th century economics terms: 'If the bone as an extension of my hand helps me to compensate for my competitive disadvantage in the hunter-gatherer marketplace, why can I not use other tools similarly? Then, lacking the appropriate scientific training but still intoxicated over his first innovation, he or she comes across a dead wolf and considers the following applications of this technological insight:

If I put the wolf's head on my head, will I gain the wolf's acute senses, wiles and powers? (Not that different from the thinking applied many centuries later by the Ford Motor Company in the naming of cars and design of hood ornaments after various fierce animals)
If I eat the dead wolf, will I gain the wolf's acute senses, wiles and powers? (Many cultures still eat powdered horn and animal genitalia based on this 'logic')
If I strap a live wolf to myself, will the wolf and I become one creature, with both the wolf's senses, wiles and powers and my brilliant and innovative mind?

Of course, the correct answer is (c), which, except for the use of a leash or harness instead of a tight strap, remains one of the most important technologies in our short human history: animal domestication. Interestingly, the development of a non-choking animal harness, and a stirrup for riding larger animals, took centuries, according to a review in the Economist of the last millennium's greatest inventions. What's more, it occurred first in China, possibly enabling their civilization to develop much more quickly than Western civilization, until, for reasons only hinted at in the Economist , China suddenly stopped developing new technologies in the 15th century.

Without animal domestication and crop cultivation, we as a species might well not have survived to come up with newer and more sophisticated innovations like the wheel, paper and the computer.

Three: Six Principles about the Innovation Process

The first humans used precisely the process shown in Figure Two to develop and 'commercialize' the technology applications of the innovations of animal domestication and crop cultivation. It is the same commercialization process taught in business schools today. However, the success of the process is only as good as the idea, the innovation, that lies at its front end. Business schools are actually very good at explaining the recipe, but they, and most educational and business institutions, are absolutely terrible at teaching people how to find the essential new ingredients -- the 'grey matter' at the left side of Figure Two, the ideas & innovations that make the recipe work. The problem isn't a scarcity of good ideas either -- it is the lack of rigour and investment in infrastructure to surface, capture, develop and qualify new ideas prior to commercialization.

Figure Two also recognizes that many innovations and technologies are derived from other innovations and technologies, and often come from applying an idea or a technology from one application domain, or from nature, to an unrelated application domain. The BBC/Discovery program Connections made this point very powerfully, and its author James Burke continues to develop both examples of such non-obvious connections, and exercises to help us learn to discover more -- in essence, to become more innovative. Burke's latest book explains how a problem with the irrigation of Italian gardens led to the invention of the carburetor, for example.

Furthermore, Figure Two acknowledges the importance of the story in the successful commercialization of innovations. It is hard to pick up a business book or attend a business conference these days without being lectured on the importance of story-telling, but the idea is neither new nor complicated: Stories convey the context for the application, they explain how it can be used in the user's or developer's day to day life. Knowledge transfer is an essential precondition to commercialization. The easiest way to transfer knowledge, i.e. to explain or persuade, is to do so in a way that lets the learner internalize what they are hearing i.e. to fit it into their own mental models of how things work. And the simplest way to enable internalization is by telling a story, be it a Utopia or Future State Vision, a parable with a built in lesson, or a simple recounting of processes and events that lets the learner relive the teacher's experience as if it were their own.

From all this we can derive six basic principles about the Innovation Process (again, the names given to them are mine), to add to the two espoused earlier about cultural resistance to innovation:

Need Drives Innovation: Necessity is the mother of invention, and as the fundamental human needs listed in the top row of Figure One above illustrate, the important innovations and technologies of human history have addressed the greatest human needs of their age. Without an urgent human need, a burning platform, a Business Case, there will be no innovation, since the preconditions for it, as John Kotter explains in Leading Change, do not exist. An obvious corollary of this principle is:
Innovation Starts with the Customer: If successful innovations must address an urgent human need, then the front-end of the innovation process should be situated at the point of contact with the humans expressing that need, i.e. the sales and customer service people in businesses, not the R&D laboratory or the marketing department. With some notable exceptions where the need for the innovation was only identified later, innovations coming from R&D tend to be solutions in search of problems, and those coming from Marketing tend to be solutions for which needs need to be artificially created through advertising.
Innovation Drives Technology: The solutions developed by companies' products and services are all technologies that apply one or more innovations.This is equally true of pregnancy test kits, tax preparation software, satellite-and-computer-based learning courses, futures options, automobiles and corn (whether genetically modified or not). So-called 'competitive advantage' comes either from offerings that better satisfy human needs (faster, better, cheaper etc.), or from new technology applications of new innovations that render the old offerings obsolete i.e. 'reinvent' the market. But as much as business would like to turn the model on its head (develop the offering, then use technologies and marketing to create a need for it), real needs like the ones at the top of Figure One cannot be created. They can be recognized, and they can change as more fundamental needs are solved, but they cannot be created. Need drives Innovation and Innovation drives Technology.
Innovations are Interconnected: Innovation is not a mystical creative process, explains Edward de Bono in Serious Creativity. It is a learnable, repeatable process. Great minds and great companies can learn to 'see the connections', provided they don't narrow their scan (across time and across different disciplines of business and thought) too much. Here's a great example of how broad scanning engenders innovation, an example which also shows how many innovations exist in nature awaiting our discovery, if we don't destroy them first:: Scientists have recently discovered that butterfly wings contain no pigment. They are covered by overlapping 'tiles' 50 times thinner than a human hair. Each tile contains multiple layers of cells, separated by air gaps. When the light bounces off the tiles, the layers reflect colors with an iridescent sheen. There is a whole industry of thin-film coatings, whose products are used in everything from spacecraft hulls to anti-counterfeiting devices on paper currency, that may be revolutionized by application of this innovative colouring technology.
Stories Transfer Knowledge: If you want to teach, or if you want to set up a killer database that everyone will contribute to and use, make sure your subject-matter is stories. Distilling stories to 'lessons' destroys the essence of their value by disabling the learner's ability to internalize, digest, and learn from, the contextualized experience of the teacher.
Innovation Requires Discipline & Patience: The strange fish-like organism pictured in Figure Two is the process by which almost all successful ideas are commercialized. It is a journey that, even for most great ideas, is rarely completed. It is essential to have the discipline, patience, and courage to follow this process rigorously.Without such rigour, a great idea can easily be buried by premature skepticism, unscientific criticism, dangerous complacency and fear of risk. The process works.

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

Innovation Process

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:

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.
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).
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.
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 naïve, 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):

Global Utilities: Large organizations that provide world-class large-scale communication, asset management and distribution infrastructure.
Producers: Small organizations that assemble resources and 'build to spec' technologies, tools, products and offerings, for entrepreneurs, project teams and consumers.
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:

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.
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.
Cooperation is Replacing Competition: Competition is now dysfunctional, a vestige of earlier times of resource scarcity, and cooperation is now essential to effective innovation.
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.
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.
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.

Attribute	Female Organization	Male Organization
Organizational Structure	Networked	Hierarchical
Decision-Making Process	Consensual	Command-and-Control
Team Operation Process	Self-Selected, Self-Directed	Appointed, Managed
Leadership Selection Process	Self-Selected	Imposed
Leadership Style	Unassuming, Demonstrative, Responsive	Dictatorial, Self-Aggrandizing, Condescending
Employment Model	Project to Project	Up or Out
What Gets Rewarded	Potential Value of Skills, Experiences, Relationships	Past Performance
Who Makes Enterprise Decisions	Small, Improvisational 'Centre'	Disconnected 'Top'
Key Advantage	Flexible	Efficient

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.

Six: Prescription for an Innovative Organization

Innov Process

The first four years of the century have seen some serious setbacks in business innovation. The corporatist-backed Bush administration has introduced legislation to reduce corporate liability to consumers, and has been extremely lax in enforcing social and environmental laws. Organizations like the RIAA and Nike have showed that the courts will allow large corporations great latitude to sue customers (including infringing on their privacy rights) and to lie to customers in their advertising (about sweatshop operations, offshoring etc.) Corporations like Enron have abused public trust and destroyed thousands of families' livelihoods and life savings. And massive defense and security expenditures have siphoned off funds that might have been invested in innovation, and have made corporations and lenders nervous about any investment while governments and corporations are so seriously overextended and exposed to interest rate fluctuations. The result is a climate of great animosity between corporations and customers, and unprecedented risk aversion.

At the same time, recent surveys indicate a growing corporate awareness that "you cannot cut (or offshore) your way to greatness", that the limit to improving profitability by reducing costs and margins has now more or less been reached, and that innovation must again move to the forefront if corporations are to have any hope of sustaining that profitability.

So corporations are looking for low-cost, effective ways to develop new products, new processes, new delivery channels and new technologies that will meet important human needs, provide real value to customers, and be affordable by those customers. This challenge occurs at a time when the distribution of wealth among customers is massively skewed, both within and between nations, towards a tiny elite, when many governments and most corporations and individuals are buried under a crushing debt load, and when the need for innovation to solve critical environmental, social and political problems has never been higher. Simply put, we are living in an age when we cannot afford innovation, and cannot afford to be without it. Perhaps the most critical innovation need therefore is for creative mechanisms to finance, price and pay for the costs of innovation itself. Funding, pricing, and cost management are now inseparable parts of the innovation process.

The prescription I propose draws on a wide variety of innovation processes that have been advanced by thought leaders on the subject, especially during the 1990s when the appetite for investment in innovation peaked, including Peter Drucker's, Cap Gemini's, Credit Suisse's, Gary Hamel's, and others listed in the bibliography below. This prescription draws as well from several innovation processes that I am personally aware of from my years working with Ernst & Young and its clients, and some lessons from how nature, which has been innovating since long before we appeared on the planet, goes about it.

This prescription has eighteen steps in eight stages illustrated in the chart above: Listen, Understand, Organize, Create, Experiment, Listen Again, Design, and Implement. The three stages shown in blue -- Understanding, Organizing and Implementing -- are analytical processes, well-suited to the left-brained deductive thinkers who predominate in most organizations. The three stages shown in green -- Creating, Experimenting, and Designing -- are creative processes, better suited to right-brained inductive thinkers who are relatively scarce in most organizations. The two Listening stages shown in red are communication processes, that need to involve customers and other stakeholders, and everyone in the organization involved in the innovation process. Assigning (or contracting) the right people for each stage in the process is essential to its effectiveness, and to its affordability. If it's done well, it can draw on the strengths of everyone inside and outside the organization who has a stake in a successful innovation effort.

Here are the eighteen steps. They are in reasonably sequential order, but are somewhat recursive: For example, as part of creating alternative solutions (step 12) it may be necessary to go back and scan for some additional ideas (step 1). Who should do each step depends to some extent on the industry and size of your organization: Large organizations may benefit from having a dedicated Innovation Team responsible for this, while in a very small organization it may be a scheduled part-time task of the whole management team, drawing as well on the diverse backgrounds and ideas of an informal Advisory Board.

Listen

1. Listen broadly for ideas: Appoint your Innovation Team and have them set up an 'environmental scan' that systematically looks for innovations and connections not only in your industry but also outside it, outside your country, outside of business entirely. Have the Team read about, learn about, and meet with people from the broadest possible spectrum of human enterprise and natural discovery. Subscribe to journals like Innovation, and the RSS feeds of periodicals and websites that report ideas and new technologies from a wide range of disciplines. Reward members of the Team for serendipitous readings and meetings, debrief with them promptly and regularly, filter, refine and inventory their ideas and learnings for consideration at the Understand, Create and Design stages of the innovation process. Inputs: readings, newsfeeds, conferences, interviews, meetings. Outputs: a manageable inventory of ideas and insights (categorized and contextualized appropriately so that they can be simply understood and practically applied).

2. Listen to 'pathfinder' customers, competitors, and colleagues: Plug yourself in to the 'voice of the customer'. Set a minimum time quota for everyone in your organization to spend face-to-face with business customers, or with customers' customers or end consumers. Identify 'pathfinder' customers -- those who are most attuned to their organization's future direction and its need to change. Employ a 'Think the Customer Ahead' program that engenders effective listening, elicitation skills, story-telling skills, and creative thinking skills , a capacity explained in Imparato & Harari's book Jumping the Curve. Often the customer isn't able to articulate his or her needs in a way that lends itself to quick technology solution development. Listening to the customer is an iterative process, that entails learning about the customer's business, understanding the things that keep them awake at night, suggesting a lot of 'what if's', proffering opportunities, points-of-view and possibilities, not just asking baldly about needs and offering off-the-shelf solutions. Connect with customers indirectly as well, using all the media at your disposal -- phone surveys, e-mail, website surveys, customer satisfaction surveys (with lots of open-ended questions), self-diagnostic tools, videoconferences, etc., to capture as much information as you can about your customers, their customers, and their markets. Inputs: conversations, interviews, surveys. Outputs: needs, ideas, stories, industry future state visions, five-forces and SWOT analyses.

3. Listen to the front lines: Talk with the people who hear directly from customers and other stakeholders every day -- people in sales, customer service, even delivery and reception staff. Ask them what they're hearing, and what they think most needs improvement or rethinking. Create 'space' -- physical and electronic -- where everyone in the organization can surface, discuss and advance problems, needs and ideas collaboratively. Let anyone 'subscribe' to the inventory of news and ideas created in step 1 above. Consider maintaining a running list of the company's Top 10 Challenges to encourage focus and creative thought from everyone in the organization. Make sure top-level executive sponsorship for innovation is visible to everyone on the front lines. Give people time off their 'regular work' to focus on organized innovation projects, and tools and process guidance to use that time effectively. Reward front-line people for new product and other innovative ideas that they surface from their conversations with customers and others. Inputs: conversations, idea & collaboration spaces, interviews. Outputs: needs, ideas, stories.

Understand

4. Understand who your actual and potential customers are: Study companies like The Body Shop that know their customers, their needs, their buying preferences and criteria intimately. These are companies that spend a lot of face time with customers and have rigorous processes in place to capture what they learn, probe what they need, and explore the potential market for new innovations. And identify and get out and meet with potential customers as well, to understand why they're not already customers and what could change that. And then have your Innovation Team cast a wider net and ask who might be customers that are currently not served by either your company or your competitors. Learn the lessons of Christensen's The Innovator's Dilemma and The Innovator's Solution -- how disruptive innovations can (sometimes inadvertently) transform whole industries, and how that presents your company with both threats and opportunities that could completely change the profile or even definition of your customers. Inputs/Outputs: list of actual and potential customers and what they currently buy, could be buying, and will and won't be buying in the future, and why.

5. Understand and respect what end-consumers want and need: and based on that
6. Understand what immediate customers will need: Start with the end-consumer of your products and services, and the end-consumer of the products of your immediate customers. Their buying patterns, needs and preferences will determine the success of your customers, and that will in turn determine their buying patterns, needs and preferences. The end-consumer has the ultimate power, and, unlike corporations', their buying decisions are based on broader and more subjective criteria than business need and affordability. They buy things they want, not just things they need. If you sell to the auto industry, you need to understand why consumers, against all logic, buy SUVs. And if your company is making money from sweatshop labour or old growth forests, better come clean now. Business needs to end its abusive relationship with consumers -- overcharging them, misleading them, suing them, and selling them inferior, imported merchandise and services. Once consumers realize their true marketplace power, they will get back at adversarial suppliers with a vengeance. Business needs to respect them, respond to them, and be responsible members of the communities in which they operate. The Reputation Economy isn't here yet, but it's coming. If you cause consumers to dislike you or distrust you, you'll soon be dead. Inputs/Outputs: current state analysis and future state vision of wants and needs for both current and future immediate customers, and end-consumers, and a resultant future state vision and emerging needs profile for your industry.

7. Understand why these wants and needs aren't already met: Here's the hard part. Things are usually the way they are for a reason. You know there are wants and needs that aren't being met. The challenge is not to throw in the towel when you find out why. The technology doesn't exist? The solution would be very costly or risky to develop? The solution is not affordable to customers? The solution is too radical for customers to accept or too complex for them to understand? The organization currently lacks the capacity or competencies to produce the solution? That's what innovation is about. Take up the challenge with your eyes open about what must be overcome, but take up the challenge. If it was easy someone else would have already done it. Inputs/Outputs: list of challenges.

Organize

8. Organize those with a stake in solving the problem: Now you know what needs to be done, the next step is to organize the troops. Who can help solve the problem, assess the alternatives, provide the needed resources? Outputs: project team member list, including 'pathfinder' customers and other outsiders. (Note that the project team is responsible for solving a specific problem or need, while the Innovation Team has oversight over the entire innovation effort of the organization -- they aren't the same group).

9. Organize the program for solving the problem: There are a lot of techniques and methods that you can use to break through a problem and come up with solutions. The bibliography below is replete with them. In my experience, creative minds need a very broad framework (schedule, budget, high-level process) and a lot of freedom to figure out how to solve the problem within that framework. Self-organizing, self-managed innovation project teams seem to work well in some organizations but not in others. If you insist on imposing more discipline on the process, more hoops to jump through, control points and early-stage go/no-go filters, make sure the people you're imposing it on see the value in these constraints, and that they don't squeeze the boldest and potentially most successful ideas out in the process. Outputs: project schedule, budget, program.

10. Organize the resources needed to solve the problem: The project team needs sufficient tools and knowledge to be able to understand the problem, the customer need, and the variables that could impact the potential solutions. Inputs: all the Outputs from steps 1-7 above, redrafted into a cogent and digestible form.

Create

11. Create an environment and capability for innovation: Give the Innovation Team and the project teams permission to fail, and teach them how to fail early and inexpensively. Prevent executives from pushing their 'pet' projects to the detriment of others. Don't let the 'black hats' deep-six good, hairy, audacious ideas prematurely, and ensure that 'black hat' behaviours are not rewarded by senior management. Help the team avoid slipping into excessive caution or incrementalism. Keep the marketing group from unduly influencing the process with antiquated ideas for 'creating market demand' and launching products with press releases and self-serving promotional and advertising campaigns -- In the emerging customer-driven market these techniques will no longer make a mediocre product a success. Provide rewards and incentives for team members, and for other contributors to the innovation effort. Don't tolerate hoarding of ideas and knowledge, or inter-department 'charges' that block knowledge transfer and cross-functional collaboration. Share credit for good ideas and successes, and don't make innovation an area of internal competition. Help bright, creative, quiet people find their voice, and let people promote 'crazy' ideas without fear of ridicule. Teach the Innovation Team and the project teams (and others in the organization who show interest) techniques that will enhance their creativity and improve the innovation process, and give them time and resources to discover other techniques and try them out. Invest adequate, patient capital and resources for innovation. Give ideas sufficient time to find their market but don't throw good money after bad, no matter how well-intentioned. Understand sunk costs and learn from failures. Consider letting those involved in the innovation 'invest' personally in return for a share of the ultimate revenues or profits: Having some 'skin in the game' can be very motivating and empowering. Inputs: time, training, tools, space, sponsorship, leadership and resources. Outputs: people who are inspired, capable and encouraged to contribute productively to the innovation effort.

12. Create lots of alternative solutions: Don't put everything at risk on one option. Use scenario planning and other techniques to identify and assess alternatives. Don't reject the really far-out alternatives prematurely -- cost/risk/benefit decisions usually can't be properly made until the customers have had the chance to say their piece again in step 15 below. Outputs: alternative solutions.

Experiment

13. Experiment: Try many things, learn fast from failures, tinker, iterate, combine, transfer: Try several alternatives simultaneously in different markets to speed up the assessment process. Use rapid prototyping and other iteration techniques to expose as many alternatives to the market as possible. Outputs: test results.

Listen Again

14. Listen to potential customers and help them imagine: Use prototypes and stories to make the innovative product, service, channel or technology as concrete as possible. Beware customers' propensity to say 'yes' at this stage when there's no required commitment. Go back to what you learned from customers in steps 1-7 and recite what you heard back to the customers for confirmation, explaining how the innovation addresses the need articulated by the customers. Listen objectively for confirmation or dissonance. Outputs: customer evaluations

15. Listen to acceptance criteria -- the ‘if’s: If the product appears to meet the need, the next task is to assess the customers' buying criteria: price and affordability, convenience, options, delivery time, upgradability etc. Some of these criteria may be show-stoppers that will require re-invention or other creative brainstorming, while others may be able to be addressed in the design stage below. Outputs: customer buying criteria

16. Listen to ‘what could go wrong’: Here's where you let the 'black hats' say their piece: What competitive threats exist or could arise? Is the innovation vulnerable to disruptive innovation from unexpected sources? Are there unforeseen production, quality control, political, regulatory, financial, marketing, or servicing landmines? What's the shelf-life? Could it become a commodity prematurely? Will it be prohibitively expensive to produce or to buy? Will it cannibalize existing product sales? Is it a strategic fit for the organization? Some of these 'what could go wrongs' may require re-invention or other creative resolution by the project team, while others may be able to be addressed in the design stage below. Outputs: list of threats and risks, and resolution plan.

Design

17. Design: consider customer-valued attributes, cost, intuitive ease of use, ease of change, ease of enhancement: The greatest idea in the world can still be torpedoed by bad design. The designer has to be told, in no uncertain terms, what attributes are important to the customer, how much at most the solution can cost, and the trade-off between ease-of-use and power. Technology products especially are often over-engineered because additional functions and features are easy and inexpensive to add, but they add complexity disproportionate to the benefits of the additional functionality, often to the point of turning off potential customers. And in this age of constant upgrades and inter-operability requirements, the solution must be easy to change, redesign and enhance. Inputs: specifications based on Outputs from steps 12-16 above. Outputs: completed designs.

Implement

18. Make the final go/no-go decision, then implement: If there are still several alternatives on the drawing board, whittle them down to a manageable number. If necessary, send the idea back for reinvention (step 11), re-testing (step 13) or redesign (step 17). If the previous steps have been done properly, this step should be the easiest. Once the decision has been made to go, the set-up, production, viral marketing, sales, distribution, employee and user training, partnering, after-sales service, success measurement and continuous improvement should be problem-free, since the 'what could go wrong' possibilities have already been considered and addressed, and people from all functional areas of the organization should have been involved and consulted during the Create and Design stages.

Seven: Applying the Prescription: Some Examples

To give you a flavour for how this prescription could work in practice, here are eight fundamental business problems from different industries, and some innovations that have recently been (or are currently being) successfully commercialized to solve them. In each case, the solution shown could reasonably have been derived using the principles and process in the prescription above:

Customer Problem / Need
Innovation / Technology Solution

Car and computer buyers can't get exactly what they want, and hate haggling with dealers.
Web sites let you design your own car or computer, find the closest model to your design, find the best price for that model, accept payment and deliver it to your door. Some will even take a completely custom order.

Television watchers find most fare awful, TV guides complicated, and VCRs even more complicated.
The new TiVo technology asks for and monitors your preferences, pulls e-schedules off the net & satellites, and automatically records and indexes your preferred shows, commercial-free, onto a hard drive.

Although newspapers are a terrible waste of paper, and hard to read on the commuter train, reading from a computer screen doesn't work either due to poor legibility and awkwardness.
Two innovations are converging on a solution to this: Erasable paper, which allows you to print out each day's newspaper onto the same recycled pages; and ultrathin large screens with memory, that allow you to read one page at a time on a crisp viewing device smaller than a paperback.

Clothing that gets torn or stained is cheaper and easier to replace than repair.
A new organic clothing technology has been developed, modelled after human skin, that heals and itself. There is even a 'spray-on' version that can help burn victims to heal without scarring.

Banks are facing 'spread' squeezes, forcing them to generate new revenues from user service charges instead of interest charges, but consumers hate service charges and see little value for money in them.
Progressive banks are offering customers a 'menu' of alternative ways of 'subscribing' to bank services, including variable rate (pay-per-use), fixed rate, 'frequent-flyer' rate (lower or no service charges for users who use many of the bank's services), and free-if-you-handle-it-yourself rates. They are also offering a variety of new services that use the Internet to ignore geography (offering mortgages and business loans on-line worldwide) and exploit existing infrastructure and knowledge (e.g. accounting and tax services, insurance, financial planning, credit management).

Retailers are caught in a squeeze between low-cost Power Centers and consumers' dissatisfaction with (and cost of) the 'retail experience'.
Car companies have invented the concept of 'try on' centers, where competitors share a low-cost, do-it-yourself space where consumers can try out competing models, and then place orders electronically that are delivered, to their specs, from a low-cost warehouse to the consumer's home. Where the 'retail experience' requires more than just try-outs, companies like Home Depot have created value-add services like education (how-to sessions) and adventure (rock climbing walls at some sporting goods stores) that now draw customers more powerfully than their products.

Audit firms have found their 'product' commoditized and vilified by regulators for not measuring what is now important to stakeholders.
A US University is exploring whether 'fraud insurance' would be cheaper than audits and just as satisfactory to stakeholders and regulators. Meanwhile, some firms have invented a variety of new ways to measure the value of a company, including EVA, Balanced Scorecards, and Social Responsibility Reporting.

Many people are intrigued with, and want, the benefits of computer and Internet technologies, but don't have the time or comfort with the technologies to use them.
High tech companies are inventing computer and Internet 'appliances' that perform a single task automatically, simply and transparently e.g. refrigerator that sends a message when items are out-of-stock, past their 'use before' date, or too cold or too warm.

Conclusion

This presentation was itself the result of addressing an unmet need: After reading dozens of books on innovation, I was unable to find one source that explained in clear terms what innovation is, in a business context, conveyed the urgent need for businesses to become more innovative, and provided an actionable prescription for doing so. This paper was initially developed to provide the Core Innovation Team of Ernst & Young with background on the history, current state and leading practices in business innovation, and I am now using it to develop part of a core curriculum on entrepreneurship, of which innovation is a critical element.

I hope this analysis has given you a better understanding of the subject and its importance, and some useful tools and ideas that you can use to make your organization more innovative as well. I would welcome the opportunity to continue the discussion on this subject, by e-mail or through the comments thread below. You can find more of my writings on business innovation in this index.

While I'm optimistic that this prescription will work within business and other organizations, large and small, I am less convinced that it will work to solve some of the more deep-seated human needs and inexorable problems that plague us today, such as global warming, pollution, the energy crisis, biodegradation, endemic war, violence, mental illness and disease, animal cruelty, urban sprawl and decay, crime, unemployment, and the inequitable distribution of resources, income, wealth and power. While the process should work in principle, it is unlikely that this process can be followed with sufficient rigour or resources without (a) a willingness by governments to spend much more money (paid for by taxes) to solve these problems, (b) a political will to solve such problems creatively and by consensus, rather than leaving it to private interests to address them or dealing with them by brute force, and (c) a much greater awareness, commitment and sense of responsibility by the body politic of the urgency and opportunity to solve these problems. But just as business will be driven once again to invest in innovation in the search to sustain profitability, it is likely that private citizens and public institutions will ultimately be driven to invest together in innovation in the search for a liveable, sustainable world. The process they then use will probably look a lot like this prescription.

Bibliography

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