In the first chapter of The Innovation Formula for small business leaders and entrepreneurs, Langdon Morris explained the importance of questions and maps that describe competition, change, the future, innovation and strategy that are intended to help you understand the significant forces that are shaping business today, and to harness the ones that are already shaping tomorrow. In the second chapter, we look at a third core element that this book is organized around, which is the innovation formula.
Yes, we do believe that there is a formula for success at innovation, and we have found over the years that it doesn’t matter whether you’re running a garage, a sandwich shop, or a multinational auto manufacturer, success in each case relies on your performance in the same five areas. Whether you’re the CEO of GM or the chief cook and bottle washer, you have to think about the same problems, study, learn, research, experiment, engage in some risk, and manage it closely. How you do these, of course, is entirely different depending on the size of your business, but nevertheless the actual elements seem to be consistent across all businesses.
The formula consists of the six major topics: complexity and change, risk, speed, engagement, leadership, and tools. Here is a quick summary of the key ideas and the reasoning that you’ll find throughout the rest of this serialized book.
Complexity and Change
The external environment is an unyielding and unceasing source of change, and your organization must adapt to it if it’s going to survive. Hence, complexity and change literally define the context in which innovation and its close cousin, strategy, are relevant. It is to external change that drives market needs and preferences, and hence it is a critical role of leadership to be attuned to the rhythm, character, and specifics of what is happening out there in the increasingly wild world. The other critical role is of course leading the process of responding to those changes.
When we understand what’s happening in the external environment we can organize the pursuit of innovation, correctly targeted, so that we produce the right innovations to meet current and future market needs. But if only it were so easy. In fact, it is intellectually and operationally challenging to figure out what’s the right thing to do, the right products and services to create.
Furthermore, having a clear vision of the future products and services is not at all the same as actually having them in hand.
Hence, there is a double risk. First, anticipating future needs correctly is by no means an easy task. What if, for example, you see clearly what the needs of the future will be, but in the end it turns out that you’re wrong? This, of course, is the story of countless failed companies, which aimed for a target in the future market that the actual market itself never selected?
Second, even if you do get it right, there’s still the many problems associated with developing the right products and services to meet the anticipated needs. Can your designs and plans actually work? Can you complete the development work in a timely way? Does your organization have the internal talent and the right external partners to master the many challenges?
Risk, then, is inherent in the innovation management problem, and it is inescapable. So the right amount of risk is essentially the least possible risk.
“Least possible,” however, is trickier than it may at first sound. Least, after all, is really none, but of course the point of competition and change and all that is that taking no risk means making no innovations at all, which is actually a very risky approach, because it leaves you entirely vulnerable to those very changes. Consequently, “least possible” really means the least you can take on while still remaining viable, but even knowing exactly how much risk that is, is actually unknowable.
And so the problem now becomes one of information, because you probably don’t know what innovations your competitors are working on, nor everything about the new and innovative technologies that may be coming, etc., etc., which means that while you cannot afford to do nothing, to just wait for the future to bury your business, you are obliged to act, compelled to act, to act proactively yet with incomplete information.
This is the character of the risks you must take. Taking them well, thoughtfully, strategically is what’s necessary. Achieving this, navigating through this difficult but fascinating landscape will take some thought and a lot of effort.
Despite the many risks you plunge ahead, thoughtfully, to create your organization’s future. You are now engaged in the depths of the innovation process itself.
That process is not such an easy one, as it must be thorough and thoughtful, of course, but above all it must be fast. Again, the premise here is that your information is incomplete, and you just don’t know how fast your competitors will move, nor do you know exactly how the market will respond to their new ideas, nor to yours. So the best way to deal with the compounding of uncertainty is to go fast, to learn fast, to learn what works and what doesn’t work through techniques such as agile sprints, rapid prototyping, minimum viable products, a-b testing, and related techniques (which we will discuss in chapter 5). We express this in the innovation formula as speed, and of course there is a lot of value in getting solid results fast, faster than your competitors.
The next element of the formula relates to the culture of your organization, for you and your partner are the ones who are going to develop ideas, figure out which ones are great, and turn them into something useful, test them, and bring the very best to the market.
Theoretically, you could find the smartest person in your organization, set them to the innovation task, and achieve good or even great results. Practically, though, the issues that have to be dealt with are probably deeper and broader than a single individual can master, because today’s innovation projects integrate knowledge across multiple domains, each of which itself runs quite deep.
Hence, we know that innovation is not an individual activity, but a team sport. The optimal innovation process is one in which your organization is engaged, one in which all of the strengths, thoughts, and talents of everyone, and also those of the broader ecosystem in which your organization participates, are fully engaged.
It’s also true of organizations that deep and thorough engagement comes about only when there is superbly focused leadership. We know that innovation can happen in organizations where the risks are understood, and where the ambiguities and uncertainties that are inherent in the process are known and acknowledged, and where there is willingness to engage in the necessary levels of risk taking.
We also know that in organizations where people are punished for making intelligent mistakes, for thoughtfully trying new things that fail, for thinking about how to do things better, and differently, the spirit of innovation is swiftly and decisively stifled. Hence, leaders must embrace and promote the critical elements which enable an innovation culture to emerge, or it will not emerge.
The last clause of the formula concerns the tools and methods that we use to manage the entire innovation effort. All other things being equal, better tools and methods are likely to support better results, and while this does not necessarily mean that you have to invest a lot of money in new technology, you do need to think through carefully and invest appropriately in methods, processes, and organizational structures that enable and promote innovation efforts, and which set the tone and context in which innovation can thrive.
So these are the six elements in the innovation formula; here they are expressed in pseudo math:
(Complexity and Change) > Innovation
Innovation = f (Risk) (Speed) (Engagement) (Leadership) + (Tools)
Or in English, Complexity and change means that Innovation is essential for survival. Achieving innovation a function of Risk, times Speed, times Engagement, times Leadership, plus Tools.
In previous books, I and co-authors have examined many aspects and facets of this formula in considerable detail, and in our work with enterprises large and small all around the world we’ve worked with them to implement it, to make innovation real, important, and effective for their organizations.
And as I mentioned above, we believe that exactly the same innovation formula works for GM and Toyota as it does for the local restaurant and the auto garage, and that it will probably work for your small business too. So while nearly all of the nuances and details or its implementation will certainly be different from the Fortune 500 firm to the local business in Peru, China, New York, or Auckland, we are convinced based on many years of practice that the actual thinking process, that the critical questions and the guiding maps, will be nearly the same.
This book is the fifth one in a series that explores all of this in a lot detail. It was preceded by Permanent Innovation, The Innovation Master Plan, The Chief Innovation Officer, and Agile Innovation, and you may be interested in checking these out if you’re the sort of person who likes to absorb a lot of detail and wants to study the deeper reasoning.
If you’re not the person who wants to read a lot of detail, then hopefully the concise contents of this book will help you to understand the challenges, and design the right responses.
In each subsequent chapter we will explore the formula one element at a time, beginning with a quick look at the broader context of complexity and change, followed by the remaining five elements, with a particular focus on what they mean for you, the small and medium sized business leader or entrepreneur, and also with focus on action and implementation.
This is not intended as theoretical exercise, but rather an entirely practical guidebook. We hope it helps you to arrive at the right destination, namely an innovative and thereby successful firm.