Category: Z General – Students and Graduates

The fact is, innovation is (relatively) easy to define, but it is notoriously difficult to achieve, as Dave Richards finds out

The concept of ‘value’ embraces commercialisation, commercial success, wealth, utility, adoption and wellbeing, but in a way that doesn’t unduly limit our definition or thinking about what constitutes innovation.

‘Value’ is a more comprehensive psychological construct than utility. Humans can value, appreciate and love things that aren’t useful.

Another key reason to place the concept of value at the heart of innovation is to consider your why, what and wow. Why does your organisation exist? What does it deliver in the world? What’s your ‘wow factor’ that makes your brand or offering stand head and shoulders above others? Would anyone care if your organisation tipped over its collective shoelaces and died?

The essence of any organisation is its business model. At the core of any business model is a product – whatever good or service the enterprise produces that is intended to be of value to someone, usually thought of as the ‘customer’. The rest of the business model is simply whatever the enterprise does to produce the product, and whatever it does to get the product into the hot little hands of the intended customers. In its simplest form, a business model is simply about manifesting value in customer experience.

Of course, in reality, most organisations deliver a complex product portfolio, but we can nonetheless think of whatever is produced as the ‘product’. Further, there might be incredibly complex international supply chains, distribution channels, sales and marketing, and much more involved, but at its essence, a business model consists of these three simple elements. We can also use the term ‘value delivery model’, especially when considering public or social enterprises that might not like to think of themselves as businesses.

The concept of ‘customer’ is also somewhat complex. Whether this customer is a paying consumer or the recipient of charity or public services, they are nonetheless a ‘customer’. And sure, there is some psychological complexity here, in that some customers might be users, while others might be choosers (or buyers), influencers, all three, or any combination. Further, there is typically an incredible level of diversity of customer experience resulting from even the simplest of products, let alone complex product portfolios delivered in a wide variety of ways. Life is complex.

Given the above – that any enterprise should exist to create and deliver value to customers – the best definitions of innovation are ‘fresh thinking that creates value’ or ‘people creating value through the implementation of ideas’ or ‘something new that delivers value to the world’ – recognizing that the concept of ‘value’ must therefore also be clearly and unequivocally defined to fully understand what we mean by ‘innovation’. So, what is value?

Value is a psychological experience, or perception. Value is not absolute, and it’s not equivalent to money. Money, after all, is a human construct designed to enable commerce, trade and wealth. But if you think about it, even when money was made with precious metals, there was nothing inherently valuable about it, other than the value people placed in it based on their expectations for how they might use it. Value is more about love than money. Sure, people pay for love (some more than others), and will pay much more for something they truly love than something that is merely useful. Even the concept of money is psychological, and the value humans place on various forms of currency is also based on their perceptions, expectations, hopes and fears – all psychological phenomena.

Based on all of the above, I offer this definition:

Innovation is the realisation of net new value as experienced by people, resulting from the implementation of ideas (by the same or other people) for value creation.

The degree of innovation success at any given point in time is measurable return on investment (ROI) – the value created relative to the value (time, money, effort or other resources) invested to create it. ROI is usually expressed as a ratio, or percentage:

Innovation ROI = (Value Created – Value Invested) / Value Invested

Whether or not, or to what extent innovation is considered ‘successful’ is therefore a relative judgment. The level of ROI considered ‘acceptable’ by any given organisation, board, or investor will depend on other investment options, and perhaps other strategic considerations.

Being able to agree upon measures of value is critically important both for conversations about innovation, the development and implementation of innovation strategies, and of course the assessment of innovation results.

Money (commercial success, costs, budgets, profits) is of course a common and relatively easy way to measure perceived value – as it’s constantly tied and correlated to value experience in real time, in various local and global markets. But as alluded to above, if we focus only on money as our measure of psychological value, we might miss very important nuances. Leading organisations have learned that measures of customer experience, loyalty (e.g., net promoter scores) and love (of brands, products, etc.) can be vital for predicting and measuring success or failure. Four key concepts to bear in mind: (1) garbage in, garbage out; (2) not all that can be measured is important; (3) not all that’s important can be measured; and (4) the devil is in the detail.

Let’s end this series by defining another term – ‘unnovation’ – to refer to cases where the ROI is negative, negligible or simply disappointingly low. The fact is, innovation is (relatively) easy to define, but it is notoriously difficult to achieve, as witnessed by the fact that innovation success rates are very low (less than 10%) across all types of enterprises and industries globally (Dobin Group, 2012; Richards, 2014; VIIMA, 2018).

Dave Richards is Co-Founder of the MIT Innovation Lab, and a highly acclaimed author, speaker and consultant on strategic innovation leadership. He is the author of The Seven Sins of Innovation: A Strategic Model for Entrepreneurship  and holds a PhD in mathematical psychology and neuroscience from the University of Toronto.

We need to think
beyond commercialisation and wealth creation to embrace concepts such as
utility and wellbeing. But do we require so much complexity to define
innovation? Dave Richards Investigates

Many organisations
are talking about innovation, without any real clarity or common definition,
leading some people to conclude that innovation is just a buzzword that we
should stop trying to have serious conversations about.

But that naïve
conclusion misses a vital truth. Deeply understanding what innovation is all
about enables global industry leaders to establish and maintain superior
performance, competitive advantage, and winning strategies for long-term value
creation.

Members of the MIT
Innovation Lab (which I cofounded in 1993 and codirected until 1996) clearly
demonstrate this understanding in everything they do.

3M is a great example
– a company with a mission of innovation, an unparalleled infrastructure of
technology platforms upon which to build new solutions, and a consistent track
record of delivering superior customer value, which of course translates into
value for other stakeholders. Some people might choose to ignore conversations
about innovation – and do so at their peril. Phrases such as ‘innovate or die’
come to mind.

Do you know the ‘official’
definition of innovation, mainly used (not very well) by governments to measure
and monitor national and regional levels of innovation?

The Organisation for
Economic Cooperation and Development wined and dined hundreds of academics and
civil servants in one of the world’s most expensive cities, Oslo, for weeks to
come up with it. The resulting ‘Oslo Manual’ definition of innovation is ‘a
firm connecting something new to a marketplace’. This definition is fatally
flawed for three reasons:

1 Only ‘firms’ can innovate, such that innovation within public or ‘third’ (charitable) sectors is (by definition) impossible – which hopefully we all agree would be a bad thing.

2 Anything ‘new’ to a marketplace is viewed as innovative. But should we really accept that anything ‘new’ is ‘innovation’? What about a new strain of flu, accidentally unleashed by a company trying to create a vaccine? What about the Edsel – a very new car design introduced by Ford in 1958 – a spectacular market flop? And what about RentMyChest.com, or InmatesForYou.com? Come on now!

3 Again, because only ‘firms’ can be the authors of innovation, users are precluded from driving or contributing to innovation, even though a considerable body of research (see von Hippel, at MIT) shows that users are often the first to come up with ideas for innovation, and that they frequently modify the products provided by firms to make them more useful and fit for purpose (e.g., surgeons modifying surgical instruments).

Luckily for us, there
are many far cleverer definitions of innovation offered by various experts,
none of which resulted from expensive boondoggles at taxpayer expense:

• ‘Innovation is the specific instrument of entrepreneurship. It is the act that endows resources with a new capacity to create wealth’ (Drucker, 1985).
• ‘Innovation = Invention + Exploitation’ (Roberts, 1987).
• ‘The starting point for innovation is the generation of creative ideas. Innovation is the process of taking those ideas to market or to usefulness’ (Ijuri and Kuhn, 1988).
• ‘New ideas – plus action and implementation – which result in an improvement, a gain or a profit’ (3M’s definition, according to Kelley and Littman, 2006).
• ‘People creating value through the implementation of ideas’ (attributed to the Innovation Network, by Kelley and Littman, 2006).
• ‘New products, business processes, and organic changes that create wealth or social welfare’ (attributed to the OECD, by Vaitheeswaran, 2007).
• ‘Fresh thinking that creates value’ (Lyons, of Goldman Sachs, attributed by Vaitheeswaran, 2007).
• ‘Innovation is new stuff that is made useful’ (McKeown, 2008).
• ‘Innovation is the conversion of knowledge and ideas into a benefit, which may be for commercial use or for the public good; the benefit may be new or improved products, processes or services’ (attributed to Smallwood by Waschke, 2011).
• ‘Note the difference between invention and innovation: invention is the creation of a new idea or concept – innovation is taking that idea, reducing it to practice, and making it a commercial success’ (THECIS, 2014).
• ‘Executing an idea which addresses a specific challenge and achieves value for both the company and customer’ (Skillicorn, 2016).
• ‘Something new or different that delivers value to the world, with the key criteria that I’m not innovating if I’m not bettering people’s lives’ (Barba, 2019).

Is innovation the successful commercialisation of ideas?

That’s a measure of innovation success for commercial enterprises. But again, what about non-commercial enterprises, and what about users adapting products to better meet their needs, perhaps without commercial motivations?

Clearly, we need to
think beyond commercialisation and wealth creation to embrace concepts such as
utility and wellbeing. But do we require so much complexity to define
innovation?

Isn’t there a single
concept that embraces commercialisation, commercial success, wealth, utility, adoption
and wellbeing?

Look out for part two
of this series, next week, to find out.

Dave Richards is Co-Founder
of the MIT Innovation Lab, and a highly acclaimed author, speaker and
consultant on strategic innovation leadership. He is the author of The Seven
Sins of Innovation: A Strategic Model for Entrepreneurship  and holds a PhD in mathematical psychology and
neuroscience from the University of Toronto.