Book Review: Mapping Innovation

(A playbook for navigating a disruptive age) By Greg Satell

SUMMARY

Greg Satell takes the approach in this book of a simple truth of a) Innovation happens through hard work and a systematic approach. In other words, it is in vain to let innovation's purpose and outcome be looking for the single and random idea that will disrupt an entire industry. Instead, the book offers a framework named the "Innovation Matrix", mapping the innovation approach for your organisation and your industry.

Satell offers examples for various aspects of innovation throughout the book, examples from both science as well as from business.

The final part of the book makes a point of innovation now predominantly takes place (or should take place) within an ecosystem, tapping into the vast resources of the crowd and existing platforms.

WHAT TO LIKE ABOUT THIS BOOK

Practical examples are always a treat and welcome, and backs up Satells' theories. As always, arguments founded on data and facts trumphs opinions alone.

What more to like is the author's attempt to provide a structured approach to innovation as a concept, topic and task: How to navigate the (for many) unknown territory of innovation: What is is, and how to approach it.

WHAT COULD BE IMPROVED IN THE BOOK

There are not many critical points to make concerning this book. "Out there" on the web some critical voices find the book either too superficial, too long, or too repetetive. It is always possible to present a book through an excerpt like Instaread-Blinkist-Goodread, but reading the essentials and skipping the more elaborate sections is also a responsibility of /option for the reader.

THE DETAILS

chapter by chapter:

PART ONE. HOW INNOVATION REALLY HAPPENS

CH-1 Innovation is never a single event:

This first chapter lay down the foundation for one of Satell's principles briefly mentioned above; innovation is structured work, understand the main phases of the innovation process: "To understand innovation, break it down into its parts of discovery, engineering and transformation". (p.7)

Furthermore, Satell repeats his mantra(?) of stop looking for the "Next Big Thing":

"Big thoughts are fun to romanticize, but it's many small insights coming together that bring big ideas into this world". (p.16)

"Innovation, more than anything else, is combination. Innovation is quite clearly not a path but an ecosystem". (p20)

CH-2 Innovation is combination:

This chapter is where Satell elaborates the concept of how innovation is first and foremost about combining "what exists out there" in new products, services and business models. And, we should/could of course look beyond our own sector and product line to get inspired.

In their book "Second Machine Age", MIT professors Eirik Brynjolfsson and Andrew McAfee emphasises the same concept, under the label of "recombinant innovation".

And, again, to prove nothing is new under the sun, recombinant innovation is what Henry Ford talked about when he stated: "I invented nothing new. I simply assembled the work of other men". And, this is true, as the three main inventions that explains Henry Ford's (disruptive) success with his affordable family car T-ford in the 1920s was built on the three already existing capabilities:

• Automobile (invented in 1886, Karl Benz)
• Interchangeable auto parts (invented in 1801, Eli Whitney)
• Assembly line (invented in 1901, Ransom E. Olds)

"Before a new paradigm can be accepted, a period of crisis ensues". (p23)

"One of Einstein's greatest strengths as a scientist was that he was able to discard accepted paradigms when they got in the way of solving a problem. (Inspired by scottish philosopher david hume". (p.27)

"Much like Einstein, the two had uncovered no new facts, but rather combined evidence in order to come up with a completely new model". (p35) (Watson, Crick and discovery of DNA)

"Einstein, Darwin and other famous scientists did not confine their explorations to their own fields". (p37)

"If a problem is difficult enough, it needs to borrow from multiple fields of expertise. To break free of an existing paradigm, we need to search beyond the realm of which it was established. Innovation more than anything else, is combination". (p38)

PART TWO. MAPPING THE INNOVATION SPACE

CH-3 The Innovation Matrix:

Question: "How to pursue innovation? White lab coats, external partner, specialist in the field, crowdsource it or explore fundamental questions within a field?" Answer: Start by creating a map. (p.42)

The Innovation Matrix: This is the "key" method laid out in Satell's book, and it requires to questions to be replied to: Question 1 - How well is the problem defined?. Question 2-Who is best placed to solve it?

Basic Research: "When your aim is to discover something completely new, neither the problem nor the domain is well defined. (George Smoot: "If we only did applied research, we would still be making better spears"). Most Basic Research is publicly funded and openly published.

(Angle for private companies: "Co-Create"/Partner with academia so they don't have to wait for results to be published publicly)

Breakthrough Innovation: "The most impactful discoveries came from combining deep expertise in closely related fields with just a smidgen of knowledge from some unlikely place" Solution: Look outside your own domain/cross-domain teams. Example: Engineers trying to create supersensitive sensors for water pollutants. Solution by marine biologist: Create a sensor for when a clam opens its shell]. (p.50) Solution 2: Set up a prize/competition. (meaning: a mix/combo/version of hackathons, crowdsourcing, Co-Creation,Incubator)

Sustaining Innovation: "Every technology needs to get better". Think Moore's Law for instance: Doubling of CPU capacity every 18th months... Satell presents how the Business Analytics company Experian solved this. (p.53): Innovation in four key functional areas (data, analytics, decisions and delivery) across four verticals (financial services, retail, telecom, and automative). Result: Revenue increased four fold -94 and -99: From 250m usd to 1bill usd.

Disruptive Innovation: Clayton Christensen's key insight from Innovator's Dilemma: incumbent companies fail, not due to being incompetent and not able to identify and bring to markets new technology and concepts. Instead, these new initiatives fail the internal ROI-requirements for current products/customers' requirements/markets. Instead, the incumbents "overshoots" by adding features to products and services that market does not need (i.e. are not willing to pay for). Result: Disruptive entrants offer "good enough" products/services at a lower price. CC states: Disruptive innovations perform worse on traditional parameters, but better against new parameters (that were not considered by the incumbents as important) (p.56).

CH-4 Developing New Business Models to Disrupt the MarketPlace:

A Business Model is the conceptual logic of how a company Create - Deliver - Capture and Defend business value. Satell starts the chapter off giving a quick introduction to the concept of "Lean Launchpad", by Steve Blank. (Blank by the way being the inspirator(?) for the more recent work of Ries and his LeanStartup).

In short. the "Lean Launchpad" consists of the three elements:

1. Customer Development: Basically, this is all about ensuring you are aligned with customer's (known and unknown) needs. Customer-Centric development is the key. Here's some introductions to customer-centricity: 101 Design Methods and Value Proposition Design. Satell provides the example of Rank Xerox, that introduced a new business model to the copy-industry; offering leases for (otherwise expensive) machines that were only billable over a volume threshold of copies per month. (on a smaller note, Xerox was later "disrupted" by Japanese companies like Canon, offering "good enough" desktop copiers/printers. (See comment above concerning "Disruptive Innovation").
2. The Minimum Viable Product: An MVP differs from the prototype in that it is not mean for testing the product itself and its attributes. Instead, an MVP will test business hypotheses in terms of business viability; w number of customer segments x and y will pay z for the product/service.
3. The Pivot: Radical change of the business model can be needed, simply as the initial theory of a business concept's Desirability-Feasibility-Viability does not hold, your knowledge about the markets-customers-business model are increased iteratively through the Build-Measure-Learn cycle. A mindset of "kill your darlings" will be required in order to make the pivotal change. Satell tells the story of how the company Votizen went through various phases before it found a viable business model. One easy-to-grasp (graphical) presentation of your business model is the Business Model Canvas by Strategyzer/Osterwalder:

CH-5 Opening Up Innovation:

One example of how companies are opening up to innovation is the "strategic" move by Microsoft who released a SDK for developers outside MS to create the (XBox) Kinect (p.92). Game controllers for TV games no longer needed.

One of the most well-known examples of crowdsourcing is the creation of the Linux OS" (p.93). And, a quote in this respect summons up how Linux' father figure Linus Torvalds considered the Open Community: "Given enough eyeballs, all bugs are shallow". Satell presents several nice examples of the "power of the crowd". Pharmaceutical company Eli Lilly set up an incubator back in 2000 called e.Lilly/InnoCentive, draining ideas from the Internet. InnoCentive offered prizes up to $25k, causing a significant influx of ideas. Apparently, the power of the crowd managed to solve successfully the first year one third of difficult problems being unsolved for a long time. One major finding was people approaching the problem from new angles; a chemist also applying knowledge from the physicist area, and so on. Some more statistics: By 2007, approx. 400 problems posted by 50 companies had been solved by the InnoCentive community of more than 120k solvers. In total, about a third of the problems being published got solved.

Satell then brings forward the question of what factors have brought today's situation where "internal innovation" and the "proprietary advantage" has deteriorated? He quotes author of Open Innovation - Henry Chesbrough, this is the result of four drivers:

1. Rise of the Venture Capital Market
2. Increased availibility and mobility of skilled workers
3. Incumbent companies opening up their licensed technologies, to own employees or even third parties
4. Increased technological niche capabilities/competencies by incumbent companies' vendors

Satell adds on his behalf, correctly in my opinion, a fifth reason:

5. The growth and simplification of crowdsourcing/open innovation through the Internet

CH-6 Innovating the Core The 70/20/10 Rule:

Every company faces a dilemma: The need to innovate for the marketplace of today, while also preparing for an alternative future. p.108

Satell brings forward the first and foremost question for a company to consider, when investing into innovation initiatives: Harvard's Theodore Levitt's essential question presented in the 60s: What business are we in? How company perceives itself and its core through its Mission, Vision, Values and Culture will decide its innovation investment portfolio. An example: Define yourself to be in the "movie business", and the innovation projects that will receive funding will probably be different from projects where you define yourself to be in the "entertainment business".

Satell quotes Zook and Allen ** when it comes to how to define what constitutes (or should constitute) a company's core: "The set of products, customer segments and technologies with which you can build the greatest competetive advantage..."

Same authors also refer to how a company's core can expand to adjacent areas based on core customers, core competencies and core sales channels. On one hand finding examples of adjacent growth is not hard (Disney), but (successful) growth outside the core (AWS a spinoff from e-trade) is not hard either. The authors reckognize this as well.

The Three Horizon's framework** acknowledges the uncertainty of the future for your company: customers' preferences, competitors' moves, disruptive technologies, regulatory changes. My comment: In other words, the macro factors ("PESTLE" for instance) affects your company in unknown ways and with uncertain impacts.

Instead, the Three Horizons suggests an innovation portfolio mix that incorporates this uncertainty. In short, the method suggests dividing your investments in three sub-portfolios:

My comments: This makes sense in an uncertain world. Place (most of) your money in (incrementally) innovating your sustaining business. Place (a few) bets in areas where uncertainty is high(er). This betting strategy is obviously what Venture Capitalist companies have been doing for decades. Google is one company that has adopted this strategy as well, check out my comments under "Article 7". Furthermore, Google has also adopted main principles of Design Thinking's agile and explorative design. Rapidly bringing forward a prototype or an MVP to ascertain the product's desirability-feasibility-viability. More about these techniques in some of my other reviews: ValuePropositionDesign, TheLeanStartup, GoogleVentureSprint, The Innovator's Method

** Chris Zook and James Allen, Profit from the Core

CH-7 Pursuing Innovation at Scale:

Satell makes the point of market trends, evolutions and disruptions moving at a continously increasing pace. One proof of this is that just slightly more than 10% of Fortune 500 companies from 1955 still are around in 2014.

IBM is exemplified in terms of how they have used the Innovation Matrix to their advantage throughout the decades where some of their fiercest competitors disappeared, only to be replaced by new ones.

IBM's Innovation Matrix looks as follows:

Basic Research: IBM extensively collaborates with its customers through IBM Research

Breaktrough Innovation: IBM participates in various research consortia where resources are drawn from other organisations. This in addition to IBM's vast own resources

Sustaining Innovation: IBM is a strong supporter of open source communities

Disruptive Innovation: IBM does not pursue this in particular. It still applies agile development methods and programs, among others "Blue Mix Garage": Teaching other companies Lean LaunchPad and Design Thinking techniques.

PART THREE. INNOVATION FOR THE DIGITAL AGE

CH-8 Leveraging Platforms to Access Ecosystems:

In this chapter Satell makes a case of the industrial era's competetive advantages as described in both Coase's "Nature of the Firm" as well as Porter's "Competetive Advantage" have diminished. Instead, the rise of platforms reduce/minimize the once-essential search costs and organisational costs, by bringing together talents, technology and information.

According to Satell, "Strategy is therefore no longer a game of chess, but a process of widening and deepening networks of connections".

Satell provides a significant number of examples where companies successfully either builds platforms for their own ecosystem purposes, or expands the (internal) capabilites within areas as research, innovation and product development. IBM's BlueMix, InnoCentive, UpWork. The list of platforms either gaining a significant position or even disrupting a wide number of sectors is growing day by day.

My comments: Paraphrasing Marc Andreesen and his "Software is eating the world", the party doing the eating for now of traditional pipeline and value chain based industries are platforms. Platforms sweep up industry after industry, and very few sectors seem immune to "platformication". The technical solution to integrate buers, sellers and third parties into a multi-side platform is Open APIs. These APIs expose services, data and information, here are a few examples within the Financial Services sector:

• Nordea Open Banking
• Danske Bank Open Banking
• "Platform" Open Banking
• Fidor Open Banking Platform
• SolarisBank Open API Platform

CH-9 Building Your Innovation Playbook:

Satell cites various studies in this chapter, evolving around the concept of how well performing teams outperform work laid down by individuals. In other words, individual traits (IQ, grit, efficiency, etc.) may be considered inferior to group traits. (My comment: Make a group perform well, and synergy is created, the output from the team is bigger than the sum of each individual's output). Another of Satell's quotes is that diversified teams perform better than homogenous teams. According to research from MIT/Carnegie Mellon/United College, the best performing teams have the following traits:

• Social Sensitivity: To what degree is the team members able to read and interpret what others are thinking and feeling, solely based on pictures of their eyes
• Equality: In groups where speech time was roughly equally distributed among the team members outperformed teams dominated by one or two individuals
• Gender distribution: Presence of women in a team was identified as a boost performance factor as well. (Though this may be partially explained by the first, "Social Sensitivity" as well, as women are considered to score in this field than men).

My comment: Design Thinking holds the concept of "Empathize", which is what "Social Sensitivy" is all about. Second: Contribution is all about equality. A team dominated by one or two is simply these individuals not allowing the group dynamics. Gender distribution by ensuring women are present then assumingly paves the ground for fruitful group dynamics as well)