Innovation has always been with us. Long ago, when man lived in caves, innovation was a way of life for everyone because it was essential for survival. As time went on innovation, as an activity, became the preoccupation of a few people. Today, the wheel has turned full circle. Innovation is making good business sense and has become everyone's business.
A historical perspective
Invention is the origin of a new artifact, like, for example, Charles Babbage's first computer. Innovation, on the other hand, concerns the conversion of that invention into a viable commercial proposition, as in the launch of a commercial computer by CTR, the company that preceded IBM. The final stage is development, which involves the continuous evolution and improvement of the initial commercial product.
It is essential in innovation that an idea take such concrete shape that a viable commercial proposition is established. Leonardo da Vinci thought up ideas for flying machines and submarines, but in the conditions of 16th-century Italy he could not bring together the capital, the materials and the skills to convert these ideas into innovations. The same could have happened some two centuries later to James Watt when he conceived of the steam engine. Fortunately, Watt managed to mould a partnership with a provider of capital. Therefore, for innovation to occur there must be a coming together of an idea with economic (money and equipment) and social (skills and attitude) resources.
It is instructive to study the evolution of innovation in China with what happened on this front in the West. Porcelain was known to the Chinese in 1000 BC, a full 1,500 years before it came to the West. Cast iron and the compass were commonplace in China in 500 BC, long before their wide-scale adoption by western technologies. It appears that while the diffusion of ideas and inventions could occur through travel and discourse, their conversion into innovations seemed to require something more than just intelligence or curiosity. It required economic resources for sure, but it also needed a social platform to take off.
Writers on innovation believe that the West was indeed greatly stimulated by Chinese ideas and methods. But the Chinese could not convert inventions and ideas into innovation. This was a society dominated by stability-seeking mandarins, a strong administrative cadre which permitted innovations only as far as they could be assimilated into the existing social order and made to perform roles useful to the mandarins themselves.
The broad conclusion one derives is that social resources are as important as economic resources or idea generation in the innovation cycle. This is contrary to a popular perception that innovation in organisations happens by itself because people are freewheeling and creative in their thinking. Such a view assumes that innovation cannot be process-driven or organised, since that goes against the basic process of innovative thinking.
This is exemplified by, for example, the Japanese thinking on "the whole personality". During the Meiji era, Japan's first theoretical philosopher, Kitaro Nishida, outlined what he called pure experience in abstract terms. We need a more earthy approach for the times we live in.
A case study of success
An interesting view, postulated by two professors from Hitotsubashi University, is that knowledge is created by four modes. Tacit knowledge is what is in the minds of people in the organisation, whereas explicit knowledge is what can be written down, filmed or copied. Knowledge is created in four ways. Tacit knowledge is transmitted as such through socialisation. When an IIM graduate is sent to work as a salesman for 12 weeks, he learns tacit knowledge about salesmanship from an experienced person. In our guru-shishya system, too, tacit knowledge was transmitted through socialisation.
Externalisation is the act of converting tacit knowledge into explicit knowledge, expressing a concept or an idea into something that another person can understand, often through a metaphor. When Henry Ford said he wanted "to make a car for the masses", he used such a metaphor. When Ratan Tata said that he wanted "a car with the interior space of an Ambassador, a running cost less than a Maruti and a price that is affordable", he was externalising his tacit knowledge articulately before the Indica took concrete shape.
Combination, the third method of knowledge creation, involves combining different bodies of explicit knowledge. Formal education in an MBA school is an example; it combines pieces of explicit knowledge into an explicit form of educational material. Internalisation is the process of embodying explicit knowledge into tacit knowledge. When the young MBA who has put in 10 years of work experience realises that he learned only 30 per cent at college and the rest in the real world, he is referring to internalisation as his process of learning.
Organisational knowledge creation is a continuous and dynamic interaction between tacit and explicit knowledge. First, the socialisation mode starts with building a field or platform of interaction. This field facilitates the sharing of members' experiences and mental models. Second, the externalisation mode is triggered by dialogue and collective reflection. Third, the combination mode is triggered by networking newly created knowledge and existing knowledge from various parts of the organisation. Finally, learning by doing triggers internalisation. Thus the knowledge develops in a spiral of expanding scope.
In reality, this happens like a three-dimensional spiral within organisations. The individual knowledge spiral interacts with increasingly larger groups within the organisation, thus morphing from socialising to combination to externalisation to internalisation in an increasing three-dimensional spiral.
The case of Matsushita Home Bakery is interesting for two reasons: what it really takes to deeply understand customer's needs, and the passing on of tacit knowledge. Due to a maturing of the home appliances market, Matsushita launched a programme called 'Action' in 1983. Three appliances divisions were integrated to save costs in the face of static sales, but sales did not improve and the integration itself came into question.
The resulting situation was one of creative chaos, during which the strategic intent of the business was widely explored and debated in the divisional organisation. As CK Prahalad has stated, strategic intent must have all three dimensions: discovery, direction and destiny. Ikuji Masumura, the strategy planner of the division, found that there were number of working women who increasingly simplified home cooking, which resulted in poorer diets. His team came up with the concept of an appliance that could produce 'easy and rich' food. A multifunctional team was formed for the project and a charter was framed.
Notice that, rather than rely on serendipity, the action of process definition was taken right after a customer-driven idea had been generated. Using all known technologies, a prototype was developed for an 'automatic home bakery'. To improve it, a software developer, Ikuko Tanaka, was deployed. Her task was to watch, initiate and practice what the master baker did while kneading the dough; simply put, her task was absorb his tacit knowledge. Then she had to convert this tacit knowledge into explicit knowledge by explaining it to her engineers, who would change the propeller design or the motor speed to mimic the kneading action of the master baker. It took Tanaka six months of apprenticeship with the master baker to learn what she had to do.
Finally, when the product was launched in February 1987, Matsushita had a runaway success. The company went on to further develop the concept and extend its application to other products. There are two big lessons that this case teaches: first, that innovation must be customer-driven and, second, that it needs processes to convert an invention into an innovation. But there are instances where this rule has been broken.
A case study of failure
This is a study of the disk-drive industry, as narrated by Clayton Christensen. Widely accepted principles of good management are only appropriate in the right situations. There are times when it is right not to listen to customers, when it is right to invest in developing lower performance products that promise lower margins, and when it is right to pursue small emerging markets. Christensen argues that there are two kinds of innovations: sustaining innovations that improve the performance of established products, and disruptive innovations that result in worse performance in the short run, but which brings to the market a somewhat different value proposition.
The primary components of a disk drive are a 'read-write head' mounted at the end of an arm that swings over the surface of a rotating disk, which is aluminium or glass coated with magnetic materials. There are at least two motors; one drives the disk and the other moves the read-write head. Then there are other electronics.
In the 1950s, when IBM first developed the disk drive, it was the size of a large refrigerator. There were 50 disks of 24 inches each and they could store 5 MB of data. It was originally named RAMAC (for random access method for accounting and control). Until the 1960s, only computer makers like IBM, CDC, Univac and Burroughs made these as a vertical integration. In the 1970s, specialists started to manufacture disk drives and they supplied these to computer manufacturers with a plug-compatible model for direct supply to customers of computer manufacturers.
Over the next 20 years the technology change in this field was enormous, with quantum changes in market size, storage capability, etc. Between the mid-1970s and the mid-1990s, as cumulative storage capacity increased rapidly the price per megabyte declined by as much as 5 per cent per quarter. There was an interplay of innovation that was sustainable and that which was disruptive, each with its special characteristics.
Sustainable innovations were driven by incumbents like IBM and CDC. As a result of their research dollars, the MB-per-square inch capability increased rapidly, and it moved smoothly from one technology to an evolutionarily better one. This was true for read-write technologies and it was also true for recording-storage technologies. But, simultaneously, research was also going on in disruptive technologies which could deliver a different value proposition to someone who is not necessarily a customer at that point.
In reality, a new value proposition of portable storage was emerging. This created new segments with new players over the 20 years from 1975, driving the market from 14-inch drive technology all the way down to 2.5-inch drives. There was mortality and consolidation of an unprecedented nature. This case teaches us how you can be such a successful company and so focused on your customer that you miss out on the non-customer.
All that strategy gurus tell you develop good evaluation systems, focus on large markets, analyse the market that exists, apply the known management techniques etc actually causes you to miss the disruptive innovation that may seduce the non-customer.
I am sure all this is bewildering. That is why innovation is like a mistress: wildly enchanting in concept, very difficult to satisfy and extremely expensive to indulge. The only difference is that whereas it is not essential to have a mistress, it is imperative for a company to make innovation its everyday business.
In his new book, Prahalad has developed the idea of co-creation with the customer: the consumer is to be seen as an extension of the company, thus offering it a new source of innovation and creativity. A variety of such co-creation experiences can lead to a personalisation of the company's offerings. Naturally, complexity as well as value increase as you move down this path.
Prahalad gives the example of Medtronic's Carelink system. In this an implanted cardiac device can be in communication with a Carelink network directly. The patient need not visit the doctor for monitoring; he can be monitored remotely. This is personalised cardiac care and it gives you a glimpse of how innovation may appear in a decade from now.
From a pragmatic view for the immediate future, the strong role of process and project orientation is self-evident, not in the substitution of creativity, but as complementary to it. This is quite different from the commonly held notions about innovation.
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