Innovation Framework

This essay/rant has evolved over nearly nine months, but was finally brought to a close after I re-used the material in an interview last month. Genesis was one of our sales executives asking for help in preparing for a customer meeting to discuss Sun's "innovation framework." I found the question fascinating, because I never think of having a process for invention or disruption; it just kind of happens. However, from a corporate strategy point of view, there are arms lengths of books published on creating new business models in the name of spurring innovation. If you can convert innovation into dead trees, there's a framework in there somewhere.

Our discussion turned into a cataloging of the mechanisms for identifying disruption and leveraging the corresponding change in market size (or market existence -- like that for pre-fab salad), operating costs, distribution costs, or costs of goods sold.

First and best-known entrant in the art of projecting disruption is scenario planning, popularized by Peter Schwartz and now institutionalized through the Global Business Network . Scenario planning combines market and behavior analysis; you start with a big pile of possible disruptions or exogenous events, and boil them down into two ideally orthogonal forces that will shape the business under evaluation. You then look at the four combinations of extreme situations of those forces, and build a narrative describing what the world will look like. Scenarios aren't about right or wrong, or optimizing for one ideal outcome; the future is typically a melange of more than one scenario as the identified contributing factors shape the market with differing degrees of force. What you're planning for isn't a singular future but the disruptions that shape that future.

Schwartz's claim to fame is that his scenarios prepared Royal Dutch Shell for disruptions in the oil market in the mid-70s. What's bad for some parts of the market (consumers) can be good for others (producers). I participated in one full-blown scenario planning exercise around the future of silver halide versus digital photographs. The market driving forces shaping our narrative were picture taking versus storytelling and standalone devices versus networked devices. Consider the mid-90s timeframe and these were fair questions, and our scenarios painted some interesting potential investment areas and disruptions to the market. The narratives we dictated back to management contained some "stay the course" advice; if digital photography never attained the quality of analog film, or if networking remained the domain of low reliability modems and AOL, existing franchises around film processing, rapid print making, and analog image science were safe.

What we missed, however, was that "storytelling" didn't mean using photographs for a storyboard or digital scrapbook. One of our scenarios was called "Personal Spielberg" describing a desktop digital editing and composition application. We had the ideas right, but the players wrong; it's not the digital photography players who built iMovie; it was Apple. And the demand for digital home studio output exploded with YouTube. We didn't know what a Long Tail was, and therefore we weren't looking for one. On a more practical and personal scale, though, storytelling circa mid-2008 is abundantly clear if you join FaceBook; your photo albums show another face to your life, with or without captions. Add some book lists, favorite music, share with your friends, and perhaps the Moody Blues were right about the Our scenarios were nicely constructed but completely missed the dominance of social networking as a continually evolving story, pictures as color commentary.

Scenario planning is much more of a strategy tool than an innovation tool, because it builds on known and project constraints and asks "What would you do if?" type questions. It doesn't push the boundaries of using technology to change the strength or force of those constraints.

More recently, Kim and Mauborgne at the Harvard Business School have promoted the Blue Ocean model for innovation. The basic premise is that "red ocean" markets are those already in existence, with each player growing as a function of overall market growth and through taking market share from each other. The blue ocean strategy focuses on finding new, non-consumptive markets based on the relative value of product or service features demanded by consumers in those markets. The disruptions come from combining the most valued features in non-intuitive ways to create a new market. Bagged lettuce combines the produce aisle and the convenience of the prepared foods aisle in the supermarket; nobody knew it would be a billion dollar business. One of my favorites (indicated by waistline) is Pret-A-Manger, the UK based sandwich shop that combines the speed of ordering lunch in a fast food outlet with the fresh ingredients and healthier eating choices of a local deli. The name itself is a play on pret-a-porter, the notion of high-end clothing (or food) ready to consume without the time intervention of a tailor or the guy slicing turkey one sandwich at a time.

Blue ocean strategies overlap in two ways with the digital world. First, open source software is a key entry point to non-consumptive markets. The best way to get someone who has never used your software to try it, evaluate it, or take an interest is to remove all barriers to entry. The analysts (and occasional) customers who ask me "How will Sun make money by giving things away?" miss the fact that "giving things away" is a blue ocean strategy that expands markets, while "making money" is a red ocean tactic to compete and take share in those newly entered fields of play. The second dip of the network endpoint in the blue ocean is the use of blue ocean strategic thinking to define new, small markets and identify the attributes that drive consumers to value them. It's Chris Anderson's Long Tail as seen by an MBA, not a web site developer. And I have to give Anderson credit for the most recent, and possibly most powerful, Long Tail model for describing innovation as the confluence of more products, better, lower-cost distribution, and a transition from mass-produced hits to niche-consumed special interests.

Disclaimer: the closest I've ever been to an MBA was going to a professional wrestling event at the old Boston Garden with two friends from Harvard Business School and a guy who used to call himself The Divine Bruce Yam (it involves Elliot Spitzer, so we'll stop there). That won't stop me from formulating a theory and giving examples, though.

If I had to pick one thing that's been at the heart of Sun's culture of innovation for 25 years, it's been the insistence that everything be networked, and assuming that the density of connectedness is monotonically increasing. If you take our vision of "everyone and everything connected to the network" (or, I could argue, "a network" where there may be multiple, sometimes disjoint meshes), then getting in front of the disruption wagon means looking at the set of constraints facing your business, and relaxing them to the point where you'd do things differently. That spurs innovation in strategy, products, services, and market mechanisms. Best example I can think of: When Jeff Bezos realized that ordering a book from an online catalog was independent from the source of the catalog, and therefore you could relax the constraint of equating "catalog" and "retail book store inventory." As soon as you could order any book in print, had disrupted the scale of online retailing.

So what are the constraints you can relax, spurring the need to think about markets or products in innovative ways?

Time. Time can be bent in non-relativistic ways by focusing on real-time as a customer service or data access attribute. How long does it take to get to the piece of data that you need to make a decision, refute a claim, or answer a customer question? The answer isn't always about writing neat SQL scripts or having an in-house search engine, because they are bound by the meta data (or lack thereof) that enables those result sorting mechanics. One part of the standard time-space trade-off is to optimize for available space (for example, making a large data set memory resident to avoid paging); however, space constraints benefit from Moore's Law while time constraints do not. Adding tags to data, building indices based on context, and aggregating data based on user input and feedback drives the time constraint. "Real time" also refers to the latency limited world; if you aren't thinking about solving these problems within the attention span of the average click-driven user, someone else will.

Space. Not only the classic counterpart to time optimization, relaxing a space constraint also means "removing assumptions about the solution space." Example: Amazon's Mechanical Turk, a model for "crowd sourcing" work across a much larger pool of talent. Just as flattened the book selling space by making the entire books in print catalog available, any innovation that broadens the input space (what can be worked on) or the transform space (who can do the work) is going to drive a space disruption in the market. Almost all of these space disruptions rely on networking technologies to match the flattened input and transform spaces with each other, be it crowd sourcing or the Hadoop/MapReduce model of moving computation to storage instead of the conventional reverse approach.

Developers or Contributors. Who are the developers for your applications? Your own IT department, Facebook developers who may engage with affiliated user communities, open source developers whose work products you consume, or commercial software companies' employees? Or some combination of all of them? The "new" definition of developer includes content as well as application developer; user generated content in training, virtual worlds, and support has become de rigeur. Taking advantage of a larger pool of developers and contributors is only possible if you relax some of the classic constraints enforced around rights to use. Recently I heard Philip Rosedale (founder of Linden Lab, creators of Second Life) talk about building customer premises Second Life worlds; Linden Labs gives away an edge of the network (and the rights they'd normally assert to be the ones building that world) knowing that users will want to populate those new boundary territories with walls, furniture, props, and other items purchased in the 2L economy. Relaxing the constraint about intellectual property distribution creates a new market player, and by extension, adds developers to the 2L network of economies.

Relaxing a constraint often leads to a surfeit of a resource formerly considered a rate-limiting factor. My introduction to this surplus economy thinking happened in 1985, in the days when a "network connection" meant you were on CSnet and could use a soldering iron, when I was on the staff of the Massive Memory Machine project. At that time, what was "massive" is less than you get in a single DIMM today, but challenging "conventional wisdom" about time-space trade-offs continues to drive innovation in computing.


But I would propose that innovation is an activity that can be \*enabled\* and \*fostered\* by a company, producing what some call a "culture of innovation". Equally, a company can have policies and traditions that stifle or inhibit independent thinking rather than encouraging and rewarding it.

If a company recognizes, rewards, and encourages independent and "out of box" thoughts and explorations, then the Pavlov's Dog effect comes into play and others will drool after the bones.

Just MHO.

Posted by Bill Walker on August 11, 2008 at 12:39 PM EDT #

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