Dec 18, 2016

Systematic Innovation

When I first encountered the term systematic innovation it created a cognitive dissonance. The notion that innovation could be a process excited the deliberate thinker in me. However, I’ve worked in startups for over a decade and it seems like an oxymoron. Innovation is that bright spark or random event, not some derivative of Taylorism. Yet the possibility excites me, so I started doing some research.

First, it makes sense to explore the definition of innovation. The famous economist Joseph Schumpeter used the term 'creative destruction' he popularized in the 40’s. Clayton Christensen coined ‘disruption’ at the turn of the millennia. According to Schumpeter, the "gale of creative destruction" describes the "process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one”. A process which he thought to be driven by technology. Ken Norton, prodigious product leader at Google, thinks that innovation is a paradigm that requires a different way of thinking. Through attempting to improve a product or process by an order of magnitude are you forced to frame a different solution. 10x is a mindset, but a useful test for gauging whether an idea is innovative. Peter Drucker, the famous business and management guru, believed that innovation can be defined in terms of entrepreneurship. ‘The entrepreneur shifts economic resources out of an area of lower and into an area of higher productivity and greater yield’. That’s a dry interpretation and Drucker much preferred to avoid the theoretical, but he coined the term systematic innovation. He believed that there was a methodology by which opportunities could be found and exploited:

Inside an Industry:
  • The unexpected - the unexpected success or the unexpected failure
  • The incongruity - between reality as it is or reality as it's assumed to be
  • Innovation based on process need
  • Changes in industry or market - that catches everyone unaware
Outside the Industry
  • Demographics
  • Changes in mood, meaning, and perception
  • New Knowledge, both scientific and unscientific

If Peter Drucker was extremely conservative in risk taking, Mervin Kelly, former head of Bell Labs, was the opposite. R&D is a spectrum from pure research, to applied research, to exploratory development, to early stage development. Mervin Kelly relied on more fundamental forms of research that could then be piped into development. “Inventing the future wasn’t just a matter of inventing things for the future; it also entailed inventing ways to invent those things”. He believed that R&D could be a formula and worked to create the proper conditions for innovation:

  • the world’s best scientific minds
  • thinkers and doers under one roof “a physicist on the way to the cafeteria was like a magnet rolling past iron filings"
  • trusted people to create and encouraged idle curiosity
  • record everything in notebooks
  • a problem rich environment

Many methodologies have ties to each other. For example, Bell Labs relied on good problems. Lean Startup begins with the problem definition. Clayton Christiansen relies on the ‘jobs to be done’ mindset and Kelly, thought innovation was a job to be done ‘better, cheaper, or both’. 10x thinking is present in many contemporary writings on startups. It’s where the commonality exists, I find value. Great thinkers build on those of the past and the right way of framing a problem has permanence, but is utterly simple. When Charlie Munger was asked why others haven’t followed his methodology, he quipped “because it’s too simple".

My research into systematic innovation has left me with practices of my own. When I read, I take notes. I choose what to read carefully. I write down what Drucker would consider key opportunities to exploit. I’m aware that innovation is a balance of passion and methodology. Passion can create a blinding bias I commonly refer to as ‘founder syndrome’. Methodology will keep you on the right track, but won’t keep you persisting if you don’t have passion. I look for good problems, not good ideas. I use the 10x filter. I believe that entrepreneurship is a tool. When you think you have a good idea, there are practices that can bring that notion to market effectively. Innovation requires with a proper framing of the problem, but it takes a keen mind to spot opportunities.