Vigilant Innovation

Configuring search and select processes to avoid disruption

Bill Russell

• Publisher: De Gruyter Oldenbourg
• Year: 2020
• ISBN:
  9783110653380
• Edition: 1
• Topic: Business
• Subtopic: R&D
• Index: Business

Drawing on over a hundred years of research into innovation and an in depth research study, the book brings to life the reality of managing established firms to secure advantage through vigilant innovation approaches in disrupting digital era markets.

Exploring how organizations manage new offering development focused innovation across a portfolio of core, adjacent and breakthrough environments, the focus is on the search and select phases of the innovation process, and how established firms identify and validate a range of opportunities.

Companies face the paradox of how to establish search and select processes for focal markets, while also setting up routines to sense and respond to disruptive innovation signals from adjacent and more peripheral markets. The book builds on research into peripheral vision, and considers how organizations manage the crucial early stages of a vigilant innovation process.

The research project at the heart of the book focused on 10 case companies in the publishing sector. The new frameworks developed by the author were informed by over 60 interviews, the innovation literature and the author's experience as a researcher, consultant and practitioner.

1 Creating customers in the digital era

Peter Drucker (1954) famously asserted: “There is only one valid definition of business purpose: to create a customer ….” The organizations that continue to grow in disrupting environments develop the capabilities to create customers in both core (known) and beyond the core (less known) arenas. Effective innovation strategies typically address both the “do better” development of existing technologies, products and services, and the development of new capabilities, technologies and value propositions in emerging arenas that demand more radical “do different” processes, routines and technology solutions. Innovation involves identifying tools, ideas and opportunities to create knowledge and take new and improved services and products (offerings) to market.

To continue to “create customers”, organizations need to develop the search and select routines that enable them to develop what has historically been called their product line-up. While new product development (NPD) has traditionally been seen as the process through which established firms have refreshed what they offer to customers, a quick look at the numbers suggests that we need to update our terminology. Services account for almost 70% of the global economy. In the United States they make up almost 80% of economic activity, and 86% of total employment. I will refer to “offering development”, rather than “product and/or service development” as the main focus of the book in recognition of the increasingly dominant role that services take across low, middle and high-income countries.

A challenge for organizations is that the management of traditional activities in low uncertainty environments is still highly influenced by Frederick Taylor’s principles of scientific management dating back to the early twentieth century (Furr & Dyer, 2014; Taylor, 1911). Rooted in task analysis, the job of the manager was to make sure that each task was standardized as much as possible, with workers directed to follow prescribed processes. Taylor’s principles of task specialization, work standardization, the division of labour and accountability spread through industry and management education, with examples drawn from the likes of Ford and General Motors. Most large firms are still organized around management structures enabling task specialization, e.g. finance, marketing, operations, R&D and procurement/supply chain management.

While Taylor’s principles have done much good, they were born of a particular set of principles – which were designed for managing the tasks relevant to sustaining a customer, but they are limited when it comes to Drucker’s “central purpose” of business, which is now updated to relentlessly “create” customers in turbulent, digitally enabled environments. Many of the lessons of management research and established corporate routines enable individuals to be good managers of execution, but do little to develop opportunity centred innovation in the core – which is changing faster than ever due to digitalization – as well as beyond the core. There is a need to consider the entrepreneurial management approaches needed for firms to be vigilant in high uncertainty arenas – specifically in the area of opportunity identification and validation.

Successful innovation in digital environments

A key consideration in the study of any aspect of business in the 21st century is the impact of the “digital revolution”, facilitated by the exponential rise in processing power and connectivity. We are seeing a profound in change the size and reach of organizations, and how they are organized, managed and connected to customers, users and suppliers. The business world continues to be in a constant state of flux, with the impact of technological innovation arguably the most important factor. However, many commentators argue that the changes society and organizations are experiencing have distinctive characteristics. Brynjolfsson and McAffee (2014, 2015) posit that we are experiencing the “Second Machine Age” involving the automation of cognitive tasks, contrasting with the industrial revolution – “The First Machine Age” – which increasingly saw manual labour operating physical machines in locations such as factories, ships and on railway tracks.

The concept and terminology of the “Fourth Industrial Revolution” (Schwab, 2017) has been rapidly adopted to indicate the novel ways that digital technology is now embedded in society and humans, following on from the earlier three industrial revolutions centred on steam engines, followed by electrification and then widespread deployment of microprocessors. This book will use the “Digital Era” as a means to refer to the pervasive use and integration of digital components, products and services. It is telling that seven out of the top 10 companies on the 2018 Forbes ranking of the world’s most innovative companies are digitally centred firms, with the exceptions being Tesla, Hindustan Unilever and Incyte – a biopharmaceutical company (Davenport, 2019b).

Applying the historian’s perspective is instructive, as it reminds us that the scale of transformation experienced by individuals, society and organizations over the past 200 years or so has been extraordinary. The initial impetus and then momentum of the industrial revolution was found first in Europe, and then in the US, building from 1800–1920 (Birkinshaw, 2018; Chandler, 1990; Ferguson, 2011). Between 1850 and 1920 seismic changes took place in business and in society, bringing increased mobility, pollution and wealth – much of which was distributed unevenly. Innovation of various kinds also underpinned the growth of large firms driven by entrepreneurial innovators such as Ford, Firestone and Edison.

Birkinshaw (2018) argues persuasively that the scale of change from the industrial to the digital era is as significant as the transformations associated with the transition from the pre-industrial to the industrial age. In the digital era, an increasing proportion of the services and products that organizations and individuals consume are digital – communication platforms, streamed entertainment and games played on digital devices. In the B2C service economy, even physical products are digitally enabled – phones, cookers and cars. In the B2B space that comprises more than half of the world’s economy (Lilien, 2016), the digitalization of processes, communication and growth of e-commerce is transforming practice.

The trend towards digitalization involves manufacturing firms integrating their offerings with intelligent digital systems which enable their products to function without human intervention, connecting with other machines. As firms such as Alibaba have risen in importance, suppliers have established digital platforms to automate payments, rebates and invoices, transforming the efficiency of the transaction process. With human-machine, machine-human and machine-machine – or virtual – communication becoming the norm in B2B relationships, internet access enables the efficient working of the B2B economy. The development and expectation of the constant updating of data underpins the Internet of Things (IoT). Progressively inanimate objects will upload data without human involvement. Some have even gone so far as to claim that IoT can change the world (Ashton, 2009).

The digital business environment is fundamentally different from the way that business was organized in the twentieth century and before. Digital technology is changing the structure of firms, and how they are organized. While the industrial age saw the growth of large, hierarchically organized firms such as BMW, GE and Siemens, born digital firms such as Alibaba, Amazon, Google, and Spotify are more open to bottom-up decision making, as shown in Figure 1.1.

Figure 1.1: Changes from the industrial to the digital era (Birkinshaw, 2018, p. 191).

Established firms that are digitally mature recognize that the distinctive requirements of managing their organizations and wider ecosystems are changing. They are learning to adapt and win in rapidly changing digital markets. To be successful, firms and their managers recognize that the firms who are setting the pace need to develop leaders with the capabilities suited for the digital era (Kane, Palmer, Phillips, Kiron, & Buckley, 2018). The emerging traits of effective digital management seek to enable organizations through:

• Pushing decision-making further down into the firm
• Developing different cultures and mindsets from traditional business – because digital business is faster, more flexible and distributed
• Experimentation and iteration
• Individuals continually developing their own skills

Offering development in a VUCA world

The world in which today’s firms compete has become less certain, riskier and more volatile, uncertain, complex and ambiguous (VUCA). The innovation process essential for success takes place within very different organizations in multiple contexts, varying from steady state to sectors subject to major technological and market disruption. The digital era sees established firms seeking to solve new and often rapidly changing problems for their customers. This is particularly the case when customers and users are experiencing their offerings in changing, digitally dependent environments. Established firms, challenged by both startups and experienced competitors, are changing what they manage, and how they manage processes, people, customers, ecosystems and technology.

The need to search for innovation options, and then select the most promising opportunities, is central to classic and contemporary innovation theories, as these steps support the processes designed to “create the customer.” This book is primarily concerned with how established organizations manage innovation search and select activities considering new offering development opportunities across core, adjacent and breakthrough settings in disrupting digital environments. We will use the lens created by a study into the innovation search and select processes in the higher education centred STM publishing industry to see how established organizations, with an average age of 178 years at the time of data collection, have adjusted to the complexities of searching for and selecting opportunities in the digital era.

Increasingly complex markets, cultures and job roles can benefit from over a hundred years of research into innovation, with Gabriel Tarde’s first plotting of an S-shaped technology diffusion curve in 1903 a great example of how long scholars have been reflecting on the path of innovation and its ever twisting partner – technology. In the 1980s researchers developed their thinking about new product development, moving from the exploration of new product design options under uncertain conditions through to the emergence of a dominant design. Once a dominant design has been accepted by product designers, customers, and suppliers, the logic was that established firms focused less on product innovation, and more on the process aspects involved with delivering physical products and the standardization of production techniques coupled with the integration of supply chains (Utterback & Abernathy, 1975).

The 1990s heralded major consideration of disruptive technologies, a concept introduced and popularised by Clayton Christensen in the Innovator’s Dilemma (Christensen, 1997). He argued that even when established firms are well managed and focus on their customers, they remain exposed to competition from unexpected sources. Christensen’s concept of disruptive innovation has secured a powerful and persistent influence with practitioners, while scholars have probed further to challenge some of its central theoretical arguments (Christensen, Mcdonald, Altman, & Palmer, 2018; Gans, 2016b). “Disruptive innovation/disruption” has often been used as a synonym for new threats and/or significant ongoing change. Consultants, journalists and writers across social media – particularly LinkedIn and Twitter – use the phrase “disruptive innovation” to bring to life the potential of new technologies and startups to reshape industries and change for ever competitive patterns. When established firms are confronting major difficulties in their established, core markets, they are said to be disrupted.

The current century can be seen as experiencing a “digital revolution,” driven by the exponential growth of computer processing power and connectivity. This digital era sees organizations experiencing fundamental changes in size, how they serve customers, and how they operate within business ecosystems. The big, vertically integrated organizations of the industrial period are being replaced by more focused, specialised companies linking sellers and buyers through digitally enabled platforms. This is an era of continual disruption, with technologically centred innovations and associated new business models transforming individual companies, whole industries and ecosystems. (Kumaraswamy, Garud, & Ansari, 2018)

The theory of disruptive technologies emphasises how challengers – who may be startups or established firms, can offer disruptive technologies (or innovations) to take sales and influence from established firms managing well refined activities in what can be seen as their core markets. Christensen’s argument is that new entrants start out with offerings lacking the features and performance of established firms, and that these new offerings are cheaper or more accessible than established products and services in mainstream markets. The “inferior” innovations offered by challengers are attractive initially to niche market segments which are either overserved, or not served at all, by established firms. The lack of attention of the established firms on emerging opportunities enables challengers to be considered by customers outside the selection environments of established markets (Kumaraswamy et al., 2018).

In Clay Christensen’s final interview before he died in early 2020, he describes three types of innovation, all of which have a different type of impact on an organization:

• Sustaining innovation: The process of making good products better
• Efficiency innovation: Trying to do more with less, which does not create new growth, as the aim is to squeeze out more than is being put in
• Market-creating innovations: Developing simple products for unserved populations who – up until now – have not been able to afford or have access to something

He saw market-creating innovations as the source of growth in economies and companies, as they mobilize resources, investment, operations, staff, and infrastructure to serve new and larger populations of customers (Christensen & Dillon, 2020).

While established firms may well be in a position to offer innovations that match or exceed those of the challengers, competing with the offerings of new competitors or responding to emergent, digitally enabled habits and expectations can cannibalize profitable offerings in established markets. Confronting this “innovator’s dilemma,” established firms regularly don’t pay serious attention to the challenger and their innovation, as they continue to focus on developing the sales and performance of their established offerings. Christensen argued that at some point the disruptive innovation becomes good enough to meet the needs of core customers, who then switch to the more affordable or more easily accessible offering. Incumbents, with well established routines, budgets and cultures connected to core market offerings and business models then struggle to compete with challengers, and see sales decline. Christensen’s original advice was to set up separate business units to manage innovation activity (Christensen, 1997).

This theory of disruption has been subjected to criticism, with a range of challenges including Christensen’s definition of the concept (King & Baatartogtokh, 2015; Lepore, 2014; Sood & Tellis, 2011). Christensen and colleagues engaged with these criticisms and responded with clarifications, and broadened the definition of disruption to include the emergence of fresh market footholds and new business models alongside low-end disruptions (Christensen et al., 2018; Christensen, Raynor, & McDonald, 2015). Despite these modifications, Christensen’s theory does not fully explain a number of high impact disruptions during the digital era such as the success of Apple’s high-end iPhone or Uber’s taxi-challenging platform. As The Economist put it (2015), the theory of creative destruction reaches back to Schumpeter (1942b), and while Christensen has done much to advance our understanding of the field, we nee...

Table of contents

• Title Page
• Copyright
• Contents
• 1 Creating customers in the digital era
• 2 The innovation process in disrupting environments
• 3 Search and select sub-capabilities that enable offering development
• 4 Vigilant innovation in the STM publishing sector
• 5 Diving deeper: Learning from five rich case studies
• 6 Looking for and validating opportunities: Future practice
• 7 Final reflections on vigilant search and select
• Index