How our innovation structures deceive us

It’s no surprise: for problems that have been around for a while, we usually develop certain structures to deal with them efficiently. Think about structures as organisations like companies or research laboratories, or processes like quality assurance or even the scientific method. Each of these established organisations and ready-made processes are designed for a purpose: to solve a specific known problem. And that’s what they are really good at: solving a known problem efficiently. But why is that so?

Already in 1937, Nobel Laureate Ronald Coase gave us the decisive hint. In his essay on “The Nature of the Firm”, he argues that companies thrive on reducing transaction cost. And that is best achieved by a high output of only a few standardized products, i.e., by minimizing the number of transactions required for delivering a specific product, and by simplifying these transactions. Following this approach through, you’ll end up with a small number of standardized interfaces that are connected through a rigid process: a highly efficient machine that is optimized for one single purpose.

Of course companies are only one of the structures we employ in the innovation supply chain, but they give a vivid example of the price for increasing efficiency: we pay with a decrease in agility, flexibility and variety. We pay with the decline of adaptability and resilience: we lose the ability to embrace and exploit the opportunities presented by novel problems; and we loose the ability to withstand the shock waves caused if those novel problems are not addressed and remain unresolved. As I’ve argued already a while ago: taken to extremes, efficiency will kill you slowly.

And that has two reasons. One is the rigidity of our structures: they are made to efficiently deal with known problems, and that’s what they are really optimized for. But anything outside the very narrowly defined window of operations is close to impossible to achieve. Novel problems usually don’t fit the existing structures, hence cannot be dealt with. And then there’s a second, deeper reason. As we see our problems through the lens of the established structures, we see all problems through the lens of what we already know. Unintentionally. And unavoidably. We are truly challenge to see novel problems, we are structurally blind for novel problems. In a sense, the very structures we use in our innovation supply chain deceive us. All of that has serious implications. Let’s look at a few simple scenarios.

If you have a hammer, every problem looks like a nail.

Of course, if a new problem fits with our structures, i.e., if your problem actually is a nail, we’ll readily deal with it. That is the case of efficiency innovations. And if your problem is simply to reduce the production cost for a product B, which is very similar to product A, is produced in the same plant, under similar conditions, for the same market, etc., then the solution you used for A in the past will work for B now again. You have a hammer, your problem is a nail: bang on!

But what if your problem is, say, a screw? Well, if the screw is rather small and your hammer is big enough, you can still get to some kind of a solution with brute force. Sometimes you see management methods executed exactly according to the latest book (or fashion), regardless of the real problems at hand. That’s like trying to force the problem into the mould of our established structures, i.e., we tweak the problem in such a way that we can address (parts of) it within the organisations and processes we have. Which then at best results in a partial solution to that novel problem. And the unresolved part doesn’t simply go away. In fact, these unresolved sub-problems will build up over time, and they are likely to create massive novel problems. In the long run, that’s not a successful strategy.

Worse still, what if your problem is a banana? Then your hammer would just create a mess. In such as situation, when we cannot make the problem fit, we tend to declare it either ‘not a problem‘ or ‘not my problem‘, leaving it to somebody to solve it. Now, if you are a company and have your clearly defined business model, you might afford that view: the novel problem doesn’t fit your mission, so you’d leave it untouched. But there’s a lot of judgment in this decision, and it bears tremendous risk. Lack of imagination for the market opportunities that a novel problem can create is one of the prime reasons why disruptive innovation usually comes from agile challengers from outside the established market, from outside the established structures: and these outsiders go on to effectively undermine the business model of the market incumbents. Therefore, the not-my-problem approach is unsustainable in the long run.

The alternative is as obvious as it is difficult: rather than trying to fit novel problems to existing structures, let’s adapt old structures to fit new problems. Such a proposal doesn’t have many friends, given the time and resources invested in the creation of the structures we already have. That resistance to structural change is beautifully framed in Clay Shirky’s principle that “an organization tends to preserve the problem it was initially created to solve“. That’s why our established structures don’t respond elastically to novel, unexpected problems: they are too happy with their status quo.

What we can do about it? Actually a lot. But that’s not a question of first dismantling all existing structures and then trying to rebuild something better from scratch. Rather, this is the time and opportunity for smart ideas how to work with what we have. Ideas like employing start-ups to catalyse business growth. Start-ups with their entrepreneurial culture are the exact opposite of established structures, and their view of the problem-scape is refreshingly unconstrained by status-quo considerations. Hence they offer tremendous potential, including their command of technologies, their openness, their focus on action, their customer orientation, and their general spirit of competitiveness. Why not bring all those benefits from the outside to the inside of the established structures, in this case particularly to corporations and big business? That would add value to all parties: the corporations and their bottom-line, to the start-ups and their fledgling business models, and to society at large, with a broader range of problems addressed and solved. A compelling idea worth pursuing further.

Of course, structures are only one element critical element of the innovation supply chain. As you can easily imagine from the example above, resources and mindset play equally important roles. And that’s what I’ll tackle in the upcoming posts.

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