Tremendous resources – well balanced?

We commit tremendous resources to innovation, no doubt. Just look at the sheer size of the Research & Development departments of the big players across many industry sectors, and consider the multi-billion budgets they invest. For example, consider Samsung’s R&D budget for 2016 (around 13 billion US$) and compare with the Gross Domestic Product (GDP) achieved around the globe in 2015. According to recent data summarised by the Worldbank, only 119 of 195 nations achieved a GDP higher than Samsung’s R&D budget. Or in other words, Samsung’s R&D department has more money to spend for R&D in consumer electronics alone than each of 76 nations have across all government sectors.

So we cannot claim a general lack of investment in innovation. There is no quantitative shortage, the question is not: ‘How much do we invest in innovation?‘ However, there is a qualitative challenge, and the key question is: ‘How do we invest?‘ – How do we allocate money, people, knowledge, attention?

Ultimately it’s pretty simple: resource allocation occurs in the existing organisations, it works through the established processes. After all, these structures were created to manage resources efficiently, and that’s what they really do well. But using those structures, regardless of their proven efficiency, has a massive downside: because they were built to address known problems, we inadvertently focus our resources on exactly those known problems. As I’ve discussed in the previous post, these established organisations and processes make us structurally blind for novel problems.

Today I’ll argue that even if we were to see all the emerging, new problems, we’d still focus our resources on the known problems. And that’s due to the low-risk strategies, along which the established structures allocate the resources they are entrusted with: preferably picking the low-hanging fruit and investing in the rather safe bet. In the short-term, that’s the domain of business as usual, of Clayton Christensen’s efficiency innovation. In the medium-term, that’s the field of research, of Christensen’s sustaining innovation. Such investment strategies are largely targeting a predictable and rather certain return-on-investment. They pursue a predominantly economic idea of innovation, with an almost purely monetary focus. In this view, ‘efficiency innovation helps me grow my margins‘. And ‘sustaining innovation helps me grow my market share, or might help to grow the market‘. But very little is done to find and nurture new markets, to pursue disruptive innovation: innovation that addresses unknown problems is chronically underfunded and under-attended. For two simple reasons.

The first reason points to a problem of justification. With a strong focus on known problems, any organization has a very clear idea of the problems it needs to implement solutions for. So the questions the innovator is asked to answer are pretty well-defined. And any innovator who offers an interesting answer to the question(s) asked will rather easily get resources, as his case is easily justified within the established criteria. But imagine a bright idea that could help answer many questions that have not yet been asked. Regardless of its broad potential, this idea doesn’t fit the criteria, as it seems to stand outside the established set of known questions. This innovator needs an investor with considerable risk tolerance (and visionary imagination), and that’s not to be found within the established structures.

The second reason suggests a problem of accounting. When striving for efficient resource management, accounting is an important tool. And that is rather straightforward for tangibles and countables, like money or people. But knowledge and attention, the other two elements of resources I see as highly relevant for innovation, resist conventional quantification. They are difficult to account for, and expressing their relevance in certain monetary terms is equally challenging. Therefore, they are usually considered as ‘somehow tied to people‘, and implicitly ‘accounted for‘.

Which leads us to another critical observation: knowledge and attention are not considered as independent innovation resources. We do not seem to realise the fundamental differences between money and people on one side and knowledge and attention on the other. And as a result of that lack of differentiation, neither knowledge nor attention are allocated with a clear target in mind. High time to think a little harder.

I’ve argued before that useful knowledge is the key resource to build an innovation supply chain around. But that’s no conventional supply chain, and knowledge is no conventional resource. Knowledge is non-rival: you can use again and again without reducing your stock knowledge; and it’s essentially non-excludable: it is really difficult to ensure that others cannot use the knowledge you have. But we treat knowledge like any other rival resource: hoarding it and trying to keep it to ourselves until we decide use it. Overall, the focus is on ‘having knowledge‘, much like ‘hoarding intellectual capital‘; we don’t really have a concrete idea of ‘applying knowledge to solve a problem‘; we don’t know how to ‘get the intellectual capital to work‘. We still act as if we were afraid of losing knowledge by using it. At first that might sound bizarre, but it testifies to the scale of the challenge: we need to take really large strides to get out of our comfort zone of ‘all-resources-are-equal’: in order to harness the full promise of the knowledge society, we first need to do full justice to the idiosynchracies of knowledge as a resource.

The story of attention as a resource is quite different. Of all the resources needed for innovation, attention is probably the one in shortest supply. Everybody has a limited attention span, and that cannot be multiplied or extended. Attention is a zero-sum game: if you get more attention, inevitably somebody or something else will get less. No wonder then that there’s massive competition over attention. But are we really seeking the attention of the right people? Mainly, we want the attention of the people who have money; in this sense, attention is the key to funding. But there are more, and more diverse targets of attention: What about the people with ideas for potential solutions? Or those with a good understanding of the problem we are trying to address? Those people are likely cash-poor, but they are rich in useful knowledge. So it’s worth our while to get their attention and seek their support. And increasingly, we employ tools and networks outside and beyond traditional organisational stovepipes: think about citizen science, the makers movement, or open-source software. Hence I believe we are making progress regarding our attention management: we have identified some key lessons and are learning them.

Moving forward, I’d suggest we address two challenges with priority, both of them related to ‘the right balance‘. The first challenge deals with the type of resource required: for a given problem, do we need more money, more people, more knowledge, and/or more attention? To answer that question, we must understand money, people, knowledge, and attention as rather independent resources. Only by mentally separating them can we make sure to allocate the right resources (in quality and quantity) when and where they are needed.

The second challenge deals with the type of problem to be addressed: Is it a known problem or a novel one? For a short-term benefit or rather long-term? To tackle this challenge, we need to strike a sound balance between safe bets and high risks, between shorter-term and longer-term benefits. This calls for concepts like innovation portfolio management: while the bulk of resources is invested in rather safe bets and returns in the short- to medium-term, a healthy portion of 10% of resources is reserved for high risk / high pay-off ideas, for moonshots that result in epic failure or in grand success. You might take Google’s Alphabet as a prime example for this approach.

Still, tackling innovation through portfolio management is a genuine leap of faith for many. And while that might still be comparatively easy for a single budget, how to deal with the different types of resources outlined above? How to orchestrate the interests of different resource owners? Across a corporation? Across industry sectors? Across an entire society? That’ll be really tricky, but it’ll be essential to avoid that insular investments (no matter how large) generate disjointed outcomes. We’ll need some coherent vision of the problems we must address and the solutions we seek to implement. So what’s our idea of innovation governance across society?  More food for thought …

 

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