The Selective Innovation Trap

Strategy and innovation are inextricably linked.  To move forward in any direction, you need to change and improve the way you do things in an environment of changing context.

However, where many go wrong is in assuming that strategy must precede innovation.  Often, if not the great majority of the time, it is the other way around.  Innovations, such as the steam engine, railroads, the Internet and the search engine change the substrate within which economic organisms evolve.

Therefore, it is important not to fall into the trap of selecting specific areas in which to innovate.  A preponderance of evidence shows that creating an innovative environment is more important than the ability to pick winning areas.

MITI

One of the great experiments in selective innovation was Japan’s Ministry of International Trade and Industry (or MITI), which was created to guide industrial policy out of the rubble left by World War II.  In addition to basic economic policy, it was also responsible for funding research and directing investment into the most promising areas.

Initially, MITI was an enormous success.  It’s forward thinking management of Japanese industry created an economic miracle in the 1970’s and 1980’s.  Companies like Toyota and Sony became global icons, while western nations viewed the Japanese economic juggernaut with a mix of fear and envy.

Then came Japan’s Lost Decade, and the tight network of elite banks and corporations proved to be too rigid to adapt to an enormous asset price bubble.  Meanwhile, the loose network of garage start-ups and venture capital in America’s Silicon Valley created new information-based industries that no one saw coming.

While Japan had been, and to some extent continues to be, a leader in the old industrial economy that MITI designed for, it remains a laggard in information age industries even today, 20 years after the Lost Decade began.

You can’t plan for what you don’t see coming.

The Great Reset

Richard Florida, in his new book, The Great Reset, argues that innovation and productivity often increase during and directly after economic crises.  He points to various metrics, such as increases in the number of research labs, patents and total factor productivity during extreme downturns as paving the way for the prosperity that comes after.

He further posits that it is often the failure of existing economies that create new ones.  New paradigms arise from the ashes of the old.  For instance, he points out that while it was increases in industrial productivity that led the postwar boom, today it is innovation in the creative and service sectors that drive progress.

We all, of course, live in existing paradigms.  We can not expect to experience new ones until they actually happen.  Moreover, we can not bring about a new age by ourselves, they are spawned by a complex network of factors and actors.

It is folly to believe that you can predict the next revolution.  As John Lennon wrote, “Life is what happens when you’re planning other things.”

“Strategy People”

Many companies have their own version of Japan’s MITI.  These are “strategy people.”   Usually immensely bright, but with little operational experience, these people are supposed to direct not only resources, but drive innovation.  Their job is to look forward and not be encumbered by the messiness of everyday business life.

Inevitably, “strategy people” are viewed as irrelevant, if not detrimental, by front line professionals who must compete in the world of today.  Moreover, because relations between strategic departments and operations are often strained, “strategy people” are often cut off from the developments that they are supposed to be shaping.

In truth, the best strategy people have earned their stripes in operations.  They not only value front line staff, but have been there themselves and can speak from hard experience earned through tough successes and heartbreaking failures.

Time Telling vs. Clock Building

Jim Collins likes to talk about “time telling vs. clock building.”  Time tellers like to have the answers.  Sometimes they will be right and sometimes they will be wrong.  Clock builders, on the other hand, initiate and continually improve processes.  They don’t try to have all the answers, but are constantly in search of better ways to do things.

In a similar manner, innovation theorists, such as Florida and others, argue that innovation has to take place everywhere.  Companies such as Google and 3M have all of their employees spend time on projects of their own choosing.  Toyota and Best Buy encourage front line staff to innovate themselves.  The list goes on…

So the best way to avoid the selective innovation trap is simply not to try to pick winners, but to innovate as a normal course of business.  Innovation needs to drive strategy, not the other way around.

– Greg