Chapter 5

Sources of Innovation

Go online to access your interactive e-book and additional

resources for this chapter at www.innovation-portal.info

5.1 Where do Innovations Come From?

Where do innovations come from? There's a good chance that asking
that question will conjure images like that of Archimedes, jumping
up from his bath and running down the street, too enthused by the
desire to tell the world so that he forgot to get dressed. Or Newton,
dozing under the apple tree until a falling apple helped kick his brain
into thinking about the science of gravity. Or James Watt, also
asleep, until woken by the noise of a boiling kettle. Such ‘Eureka’
moments are certainly a part of innovation folklore – and they
underline the importance of flashes of insight which make new
connections. They form the basis of the cartoon model of innovation
which usually involves thinking bubbles and flashing light bulbs.
And from time to time they do happen – for example, Percy Shaw's
observation of the reflection in a cat's eye at night led to the
development of one of the most widely-used road safety innovations
in the world. Or George de Mestral, who noticed the way plant burrs
became attached to his dog's fur whilst returning home from a walk
in the Swiss Alps. This provided him with the inspiration behind
Velcro fasteners.
But of course there is much more to it than that – as we saw in
Chapter 2. Innovation is a process of taking ideas forward, revising
and refining them, weaving the different strands of ‘knowledge
spaghetti’ together towards a useful product, process or service.
Triggering that process is not just about occasional flashes of
inspiration – innovation comes from many other directions, and if we
are to manage it effectively we need to remind ourselves of this
diversity. Figure 5.1 indicates the wide range of stimuli which could
be relevant to kick-starting the innovation journey, and we will
explore some of the important triggers in this chapter.
FIGURE 5.1 Where do innovations come from?

5.2 Knowledge Push …

One obvious source of innovation is the possibilities which emerge
as a result of scientific research. From the earliest days curious men
and women have experimented and explored the world around them
and various Greek philosophers, Roman engineers, Egyptian
astronomers, Persian mathematicians, Chinese doctors and a host of
others laid the foundations of what we loosely call ‘science’.
Although some of the earliest work was something of a solo act we
should remember that from a very early stage this process of
exploring and codifying at the frontiers of knowledge became a
systematic activity – and one which involved a wide network of
people sharing their ideas. We sometimes think that organized
science was a child of the twentieth century but a quick look at the
ways in which the medieval Guilds managed the processes of
knowledge acquisition, extension and diffusion reminds us that this
is a well-established pattern. The fame of key cities like Venice or
regions like Flanders owed as much to the organized scientific
knowledge in fields like gun-making or textile manufacture as to the
entrepreneurial activities of traders and merchants.
In the twentieth century the rise of the modern large corporation
brought with it the emergence of the research laboratory as a key
instrument of progress. Bell Labs, ICI, Bayer, BASF, Philips, Ford,
Western Electric, Du Pont – all were founded in the early 1900s as
powerhouses of ideas.1 They produced a steady stream of
innovations which fed rapidly growing markets for automobiles,
consumer electrical products, synthetic materials, industrial
chemicals – and the vast industrial complexes needed to fight two
major wars. Their output wasn't simply around product innovation –
many of the key technologies underpinning process innovations,
especially around the growing field of automation and
information/communications technology also came from such
organized R&D effort. Table 5.1 gives some examples of science
push innovations. The Innovation Portal provides several case
studies describing the continuing importance of the science push
approach – Corning, Kodak, 3M and Philips.
 It's important to see the pattern which such activity established in
terms of innovation. Organized R&D became a systematic
commitment of specialist staff, equipment, facilities and resources
targeted at key technological problems or challenges. The aim was to
explore but much of that exploration was elaborating and stretching
trajectories which were established as a result of occasional
breakthroughs. So the leap in technology which the invention of
synthetic materials like nylon or polyethylene represented was
followed by innumerable small scale developments around and along
that path. The rise of ‘big Pharma’ – the huge global pharmaceutical
industry – was essentially about big R&D expenditure but much of it
spent on development and elaboration punctuated by the occasional
breakthrough into ‘blockbuster’ drug territory. The semiconductor
and the computer and other industries which depend on it have
become linked to a long-term trajectory which followed from the
early ‘breakthrough’ years of the industry. Moore's Law (named after
one of the founders of Intel), essentially sets up a trajectory which
shapes and guides innovation based on the idea that the size will
shrink and the power will increase by a factor of 2 every two years.1
This affects memory, processor speed, display drivers and various
other components which turn drives the rate of innovation in
computers, digital cameras, mobile phones and thousands of other
applications.
This can apply to products or processes; in both cases the key
characteristics become stabilized and experimentation moves to
getting the bugs out and refining the dominant design. For example,
as we saw in Chapter 1, the chemical industry has moved through a
series of process innovations (replacing steelmaking by charcoal
burning with the Bessemer process or moving from the Leblanc
batch process for soda ash to the continuous Solvay operation), each
of which dominates for a period before being replaced with a
superior version. These changes do not happen overnight; it takes
decades of work to refine and improve the process, and to fully
understand the chemistry and engineering required to get consistent
high quality and output. We also saw the same pattern in product
innovations – for example, in the case of photographic technology
where the dominant design gradually emerged with an architecture
which we would recognize – shutter and lens arrangement, focusing
principles, back plate for film or plates, and so on. This design was
then modified still further – for example, with different lenses,
motorized drives, flash technology – and, in the case of George
Eastman's work, to creating a simple and relatively ‘idiot-proof’
model camera (the Box Brownie) which opened up photography to a
mass market. Moving to the digital era has ushered in a new
generation of devices which moved from the stand-alone camera to
embedding its functionality in phones, computers and other products.

BOX 5.1 The Ubiquitous Tale of Polyethylene

 Like it or loathe it, polythene is one of the key material
innovations to come out of the twentieth century. It is the
world's ‘favourite’ plastic measured in terms of consumption –
60 million tonnes/year find their way into films, plastic bags,
packaging, cosmetics and a host of other applications.
Discovered by accident by chemists working at ICI in the UK
in 1933 the original low density polyethylene product has gone
through a classic pattern of incremental and occasional
breakthrough innovation – giving rise to new products – like
high density PE and film and to process innovations like the
Phillips catalysis process which enabled better yields in
production.

Activity exploring compentency mapping is available in your

interactive e-book at www.innovation-portal.info

This idea of occasional breakthroughs followed by extended

periods of exploring and elaboration along those paths has been
studied and mapped by a number of writers.2, 3 It's a common pattern
and one which helps us deal with the key management question of
how and where to direct our search activity for innovation – a theme
we will return to shortly. It forms the basis of much R&D strategy in
big corporations – and also opens up space for individual inventors
to spot new niches and different directions.
 Spirit is a Russian company founded in 2000 which draws on the
extensive knowledge base built up during the Cold War around voice
recognition technology to provide solutions for major global
companies like Cisco and Oracle. It was founded by an entrepreneur
who saw the potential of tapping this knowledge base. In similar
fashion James Dyson demonstrated considerable entrepreneurial
skills (including persistence!) in bringing science to bear on the
problems of making a better vacuum cleaner; his company has
subsequently built a strong position using the same science-based
approach to rethink appliances like washing machines, cooling fans
and hand driers. The Innovation Portal gives further details in a
separate case study on Dyson.

Case Study describing Spirit is available in your interactive e-

book at www.innovation-portal.info

5.3 Need Pull …

Knowledge creation provides a push, creates an ‘opportunity field’
which sets up possibilities for innovation. But – as we saw in
Chapter 2 – we know from innumerable examples that simply
having a bright idea is no guarantee of adoption. The American
writer Ralph Waldo Emerson is supposed to have said ‘build a better
mousetrap and the world will beat a path to your door’ – but the
reality is that there are plenty of bankrupt mousetrap salesmen
around!2 Knowledge push creates a field of possibilities – but not
every idea finds successful application and one of the key lessons is
that innovation requires some form of demand if it is to take root.
Bright ideas are not, in themselves, enough – they may not meet a
real or perceived need and people may not feel motivated to change.
We need to recognize that another key driver of innovation is need
– the complementary pull to the knowledge push. In its simplest form
it is captured in the saying that ‘necessity is the Mother of invention’
– innovation is often the response to a real or perceived need for
change. Basic needs – for shelter, food, clothing, security – led early
innovation as societies evolved and we are now at a stage where the
need pull operates on more sophisticated higher level needs but via
the same process. In innovation management the emphasis moves to
ensuring we develop a clear understanding of needs and finding ways
to meet those needs. For example, Henry Ford was able to turn the
luxury plaything that was the early automobile into something which
became ‘a car for Everyman’, whilst Procter & Gamble began a
business meeting needs for domestic lighting (via candles) and
moved across into an ever-widening range of household needs from
soap to nappies to cleaners, toothpaste and beyond. Their ‘Pampers’
brand of nappies illustrates this process well; its origins in the 1950s
lay in the experience of one of their researchers, Vic Mills, who was
babysitting his newborn grandson and became frustrated at the time
and trouble involved in washing cloth nappies. They began a
development programme and the product eventually came to market
in 1961; it is still a major contributor to the business, with around
$10bn in global sales in 2011.
 VIEWS FROM THE FRONT LINE 5.1

Two hundred years ago Churchill Potteries began life in the UK

making a range of crockery and tableware. That it is still able to
do so today, despite a turbulent and highly competitive global
market says much for the approach which they have taken to
ensure a steady stream of innovation. Chief Executive Andrew
Roper highlights the way in which listening to users and
understanding their needs has changed the business. ‘We have
taken on a lot of service disciplines, so you could think of us as
less of a pure manufacturer and more as a service company
with a manufacturing arm’. Staff spend a significant proportion
of their time talking to chefs, hoteliers and others. ‘… sales,
marketing and technical people spend far more of their time
than I could ever have imagined checking out what happens to
the product in use and asking the customer, professional or
otherwise, what they really want next’.
Source: ‘Ingredients for success on a plate’, Peter Marsh, Financial Times, 26/3/08, p.
16. Copyright The Financial Times Ltd.

Just as the knowledge push model involves a mixture of

occasional breakthrough followed by extensive elaboration on the
basic theme, searching around the core trajectory, so the same is true
of need. Occasionally it involves a new to the world idea which
offers a new way of meeting a need – but mostly it is elaboration and
differentiation. Various attempts have been made to classify product
innovations in terms of their degree of novelty and whilst the
numbers and percentages vary slightly the underlying picture is clear
– there are very few ‘new to the world’ products and very many
extensions, variations and adaptations around those core ideas.4–6
Figure 5.2 indicates a typical breakdown – and we could construct a
similar picture for process innovations.
Understanding buyer/adopter behaviour has become a key theme
in marketing studies since it provides us with frameworks and tools
for identifying and understanding user needs.7 (We return to this
theme in Chapter 9) Advertising and branding plays a key role in this
process – essentially using psychology to tune into – or even
stimulate and create – basic human needs.4 Much recent research has
focused on detailed ethnographic studies of what people actually do
and how they actually use products and services – using the same
approaches which anthropologists use to study strange new tribes to
uncover hidden and latent needs.8, 9

FIGURE 5.2 Types of new product

Source: Based on Griffin, A. (1997) PDMA research on new product development
practices. Journal of Product Innovation Management, 14, 429
 Case Study 5.1 gives an example of Hyundai understanding its
customers, showing how a major corporation builds in such
techniques to develop a rich understanding of latent and potential
user needs. The Innovation Portal provides case study examples
(RED and The Open Door Project) that show how this approach can
be used in the public sector.

Case Study describing Tesco Fresh & Easy is available in

your interactive e-book at www.innovation-portal.info

Need pull innovation is particularly important at mature stages in

industry or product life cycles when there is more than one offering
to choose from – competing depends on differentiating on the basis
of needs and attributes, and/or segmenting the offering to suit
different adopter types. There are differences between business to
business markets (where emphasis is on needs amongst a shared
group, for example, along a supply chain) and consumer markets
where the underlying need may be much more basic – food, shelter,
mobility – and appeal to a much greater number of people.
Importantly there is also a ‘bandwagon’ effect – as more people
adopt so the innovation becomes modified to take on board their
needs – and the process accelerates.11

CASE STUDY 5.1

 Understanding User Needs in Hyundai
Motor
One of the problems facing global manufacturers is how to tailor their products to
suit the needs of local markets. For Hyundai this has meant paying considerable
attention to getting deep insights into customer needs and aspirations – an approach
which they used to good effect in developing the Santa Fe, reintroduced to the US
market in 2007. The headline for their development programme was ‘touch the
market’ and they deployed a number of tools and techniques to enable it. For
example, they visited an ice rink and watched an Olympic medallist skate around to
help them gain an insight into the ideas of grace and speed which they wanted to
embed in the car. This provided a metaphor – ‘assertive grace’ – which the
development teams in Korea and the US were able to use.
Analysis of existing vehicles suggested some aspects of design were not being
covered – for example, many sport/utility vehicles (SUVs) were rather ‘boxy’ so
there was scope to enhance the image of the car. Market research suggested a target
segment of ‘glamour mums’ who would find this attractive and the teams then began
an intensive study of how this group lived their lives. Ethnographic methods looked
at their homes, their activities and their lifestyles – for example, team members spent
a day shopping with some target women to gain an understanding of their purchases
and what motivated them. The list of key motivators which emerged from this
shopping study included durability, versatility, uniqueness, child-friendly and good
customer service from knowledgeable staff. Another approach was to make all
members of the team experience driving routes around Southern California, making
journeys similar to those popular with the target segment and in the process getting
10
first-hand experience of comfort, features and fixtures inside the car, and so on.

Of course needs aren't just about external markets for products and
services – we can see the same phenomenon of need pull working
inside the business, as a driver of process innovation. ‘Squeaking
wheels’ and other sources of frustration provide rich signals for
change – and this kind of innovation is often something which can
engage a high proportion of the workforce who experiences these
needs first hand. The successful model of kaizen which underpins the
success of firms like Toyota is fundamentally about sustained, high
involvement incremental process innovation along these lines12, and
we can see its application in the ‘total quality management’
movement in the 1980s, the ‘business process re-engineering’ ideas
of the 1990s and the current widespread application of concepts
based on the idea of ‘lean thinking’.13–15
Case Study 5.2 provides an example. In particular the film of
Veeder Root and the video interview with Emma Taylor of Denso
Systems highlight the challenges and opportunities in this area. The
Innovation Portal provides a video clip of Veeder-Root.

Video Clip showing an interview with Emma Taylor of Denso

Systems is available in your interactive e-book at
www.innovation-portal.info

CASE STUDY 5.2

‘Pretty in Pink’
Walking thorough the plant belonging to Ace Trucks (a major producer of forklift
trucks) in Japan the first thing which strikes you is the colour scheme. In fact you
would need to be blind not to notice it – amongst the usual rather dull greys and
greens of machine tools and other equipment there are flashes of pink. Not just a
quiet pastel tone but a full-blooded, shocking pink which would do credit to even the
most image-conscious flamingo. Closer inspection shows these flashes and splashes
of pink are not random but associated with particular sections and parts of machines
– and the eye-catching effect comes in part from the sheer number of pink-painted
bits, distributed right across the factory floor and all over the different machines.
What is going on here is not a bizarre attempt to redecorate the factory or a failed
piece of interior design. The effect of catching the eye is quite deliberate – the colour
is there to draw attention to the machines and other equipment which have been
modified. Every pink splash is the result of a kaizen project to improve some aspect
of the equipment, much of it in support of the drive towards ‘total productive
maintenance’ (TPM) in which every item of plant is available and ready for use
100% of the time. This is a goal like ‘zero defects’ in total quality – certainly
ambitious, possibly an impossibility in the statistical sense, but one which focuses the
minds of everyone involved and leads to extensive and impressive problem-finding
and solving. TPM programmes have accounted for year on year cost savings of 10–
15% in many Japanese firms and these savings are being ground out of a system
which is already renowned for its lean characteristics.
Painting the improvements pink plays an important role in drawing attention to the
underlying activity in this factory, in which systematic problem-finding and solving is
part of ‘the way we do things around here’. The visual cues remind everyone of the
continuing search for new ideas and improvements, and often provide stimulus for
other ideas or for places where the displayed pink idea can be transferred to. Closer
inspection around the plant shows other forms of display – less visually striking but
powerful nonetheless – charts and graphs of all shapes and sizes which focus
attention on trends and problems as well as celebrating successful improvements.
Photographs and graphics which pose problems or offer suggested improvements in
methods or working practices. And flipcharts and whiteboards covered with symbols
and shapes of fish bones and other tools being used to drive the improvement process
forward.

Video Clip showing an interview with Helle-Vibeke

Carstensen of the Danish Ministry of Taxation on the ways she
and colleagues have been working to introduce innovation is
 available in your interactive e-book at www.innovation-
portal.info

This kind of process improvement is of particular relevance in the

public sector where the issue is not about creating wealth but of
providing value for money in service delivery. Many applications of
‘lean’ and similar concepts can be found which apply this principle –
for example in reducing waiting times or improving patient safety in
hospitals, in speeding up delivery of services like car taxation and
passport issuing and even in improving the collection of taxes!
Once again we can see the pattern – most of the time such
innovation is about ‘doing what we do better’ but occasionally it
involves a major leap. The example of glassmaking (Case Study 5.3)
provides a good illustration – for decades the need to produce
smooth flat glass for windows had been met by a steady stream of
innovations around the basic trajectory of grinding and polishing.
There is plenty of scope for innovation in machinery, equipment,
working practices, and so on – but such innovation tends to meet
with diminishing returns as some of the fundamental bottlenecks
emerge – the limits of how much you can improve an existing
process. Eventually the stage is set for a breakthrough – like the
emergence of float glass – which then creates new space within
which incremental innovation along a new trajectory can take place.
It's also important to recognize that innovation is not always about
commercial markets or consumer needs. There is also a strong
tradition of social need providing the pull for new products,
processes and services. A recent example has been the development
of innovations around the concept of ‘micro-finance’ – see Case
Study 5.4. The Innovation Portal has an interview with Melissa
Clark-Reynolds who founded Minimonos (an online game platform
for children that currently has over 1 million users) to help meet the
challenge of raising concerns about environmental sustainability.

CASE STUDY 5.3

Innovation in the Glass Industry

It's particularly important to understand that change doesn't come in standard sized
jumps. For much of the time it is essentially incremental, a process of gradual
improvement over time on dimensions like price, quality, choice, and so on. For long
periods of time nothing much shifts in either product offering or the way in which
this is delivered (product and process innovation is incremental). But sooner or later
someone somewhere will come up with a radical change which upsets the apple cart.
For example, the glass window business has been around for at least 600 years and
is – since most houses, offices, hotels and shops have plenty of windows – a very
profitable business to be in. But for most of those 600 years the basic process for
making window glass hasn't changed. Glass is made in approximately flat sheets
which are then ground down to a state where they are flat enough for people to see
through them. The ways in which the grinding takes place have improved – what
used to be a labour-intensive process became increasingly mechanized and even
automated, and the tools and abrasives became progressively more sophisticated and
effective. But underneath the same core process of grinding down to flatness was
going on.
Then in 1952 Alastair Pilkington working in the UK firm of the same name began
working on a process which revolutionized glass making for the next 50 years. He
got the idea whilst washing up when he noticed that the fat and grease from the plates
floated on the top of the water – and he began thinking about producing glass in such
a way that it could be cast to float on the surface of some other liquid and then
allowed to set. If this could be accomplished it might be possible to create a perfectly
flat surface without the need for grinding and polishing.
Five years, millions of pounds and over 100 000 tonnes of scrapped glass later the
company achieved a working pilot plant and a further two years on began selling
glass made by the float glass process. The process advantages included around 80%
labour and 50% energy savings plus those which came because of the lack of need
for abrasives, grinding equipment, and so on. Factories could be made smaller and
the overall time to produce glass dramatically cut. So successful was the process that
it became – and still is – the dominant method for making flat glass around the world.

CASE STUDY 5.4

The Emergence of Micro-Finance

One of the biggest problems facing people living below the poverty line is the
difficulty of getting access to banking and financial services. As a result they are
often dependent on moneylenders and other unofficial sources – and are often
charged at exorbitant rates if they do borrow. This makes it hard to save and invest –
and puts a major barrier in the way of breaking out of this spiral through starting new
entrepreneurial ventures. Awareness of this problem, led Muhammad Yunus, Head of
the Rural Economics Program at the University of Chittagong, to launch a project to
examine the possibility of designing a credit delivery system to provide banking
services targeted at the rural poor. In 1976 the Grameen Bank Project (Grameen
means ‘rural’ or ‘village’ in Bangla language) was established, aiming to:

extend banking facilities to the poor;

eliminate the exploitation of the poor by money lenders;

create opportunities for self-employment for unemployed people in rural

Bangladesh;

offer the disadvantaged an organizational format which they can understand

and manage by themselves;

reverse the age-old vicious circle of ‘low income, low saving & low
investment’, into virtuous circle of ‘low income, injection of credit,
investment, more income, more savings, more investment, more income’.

The original project was set up in Jobra (a village adjacent to Chittagong

University) and some neighbouring villages and ran during 1976–1979. The core
concept was of ‘micro-finance’ – enabling people (and a major success was with
women) to take tiny loans to start and grow tiny businesses. With the sponsorship of
the central bank of the country and support of the nationalized commercial banks, the
 project was extended to Tangail district (a district north of Dhaka, the capital city of
Bangladesh) in 1979. Its further success there led to the model being extended to
several other districts in the country and in 1983 it became an independent bank as a
result of government legislation. Today Grameen Bank is owned by the rural poor
whom it serves. Borrowers of the Bank own 90% of its shares, while the remaining
10% is owned by the government. It now serves over 5 million clients, and has
enabled 10 000 families to escape the poverty trap every month. Younis received the
Nobel Peace Prize for this innovation in 2006.

Sometimes the increase in the urgency of a need or the extent of

demand can have a forcing effect on innovation – the example of
wartime and other crises supports this view. For example, the
demand for iron and iron products increased hugely in the Industrial
Revolution and exposed the limitations of the old methods of
smelting with charcoal – it created the pull which led to
developments like the Bessemer converter. In similar fashion the
emerging energy crisis with oil prices reaching unprecedented levels
has created a significant pull for innovation around alternative energy
sources – and an investment boom for such work. The origins of
‘lean thinking’ – an approach which has revolutionized
manufacturing and large parts of public and private sector services –
lie in the experience of Japanese manufacturers like Toyota in the
immediate post-war period. Faced with serious shortages of raw
materials, energy and skilled labour it was impossible to apply the
resource-intensive methods associated with mass production and
instead they were forced to experiment and develop an alternative
approach – which became known as ‘lean’ because it implied a
minimum waste philosophy.14 The Innovation Portal gives example
case studies describing ‘crisis-driven’ innovations.
 CASE STUDY 5.5

Crisis Driven Innovations

ALNAP is a learning network of humanitarian agencies including organizations like
the Red Cross, Practical Action, Save the Children and Christian Aid. It aims to
share and build on experience gained through coping with humanitarian crises –
whether natural or man-made – and has spent time reflecting on how many of the
innovations developed as a response to urgent needs can be spread to others.
Examples include high energy biscuits which can be quickly distributed, building
materials which can be deployed and assembled quickly into makeshift shelters and
robust communication platforms which can be quickly established to improve
information flow around crisis events. Their website gives a wide range of examples
of such crisis-driven innovations.

Source: www.alnap.org/resources/innovations.aspx

5.4 Whose Needs?

When considering need pull as a source of innovation we should
remember that one size doesn't fit all. Differences amongst potential
users can also provide rich triggers for innovation in new directions.
Disruptive innovation – a theme to which we will return later – is
often associated with entrepreneurs working at the fringes of a
mainstream market and finding groups whose needs are not being
met. It poses a problem for existing incumbents because the needs of
such fringe groups are not seen as relevant to their ‘mainstream’
activities – and so they tend to ignore them or to dismiss them as not
being important. But working with these users and their different
needs creates different innovation options – and sometimes what has
relevance for the fringe begins to be of interest to the mainstream.
Clayton Christensen in his many studies of such ‘disruptive
innovation’ shows this has been the pattern across industries as
diverse as computer disk drives, earth moving equipment, steel
making and low cost air travel.16
For much of the time there is stability around markets where
innovation of the ‘do better’ variety takes place and is well-managed.
Close relationships with existing customers are fostered and the
system is configured to deliver a steady stream of what the market
wants – and often a great deal more! (What he terms ‘technology
overshoot’ is often a characteristic of this, where markets are offered
more and more features which they may not ever use or place much
value on but which comes as part of the package).
But somewhere else there is another group of potential users who
have very different needs – usually for something much simpler and
cheaper – which will help them get something done. For example the
emergent home computer industry began amongst a small group of
hobbyists who wanted simple computing capabilities at a much
lower price than was available from the minicomputer suppliers. In
turn the builders of those early PCs wanted disk drives which were
much simpler technologically but – importantly – much cheaper and
so were not really interested in what the existing disk drive industry
had to offer. It was too high tech, massively over-engineered for their
needs and, most important, much too expensive.
Although they approached the existing drive makers none of them
was interested in making such a device – not surprisingly since they
were doing very comfortably supplying expensive high performance
equipment to an established mini-computer industry. Why should
they worry about a fringe group of hobbyists as a market? Steve Jobs
described in an interview their attempts to engage interest, ‘… So we
went to Atari and said, ‘Hey, we've got this amazing thing, even built
with some of your parts, and what do you think about funding us? Or
we'll give it to you. We just want to do it. Pay our salary, we'll come
work for you.’ And they said, ‘No.’ So then we went to Hewlett-
Packard, and they said, ‘Hey, we don't need you. You haven't got
through college yet.’
Consequently the early PC makers had to look elsewhere – and
found entrepreneurs willing to take the risks and experiment with
trying to come up with a product which did meet their needs. It didn't
happen overnight and there were plenty of failures on the way – and
certainly the early drives were very poor performers in comparison
with what was on offer in the mainstream industry. But gradually the
PC market grew, moving from hobbyists to widespread home use
and from there – helped by the emergence and standardization of the
IBM PC – to the office and business environment. And as it grew
and matured so it learned and the performance of the machines
became much more impressive and reliable – but coming from a
much lower cost base than mini-computers. The same thing
happened to the disk drives within them – the small entrepreneurial
firms who began in the game grew and learned and became large
suppliers of reliable products which did the job – but at a massively
lower price.
Eventually the fringe market which the original disk drive makers
had ignored because it didn't seem relevant or important enough to
worry about grew to dominate – and by the time they realized this it
was too late for many of them. The best they could hope for would
be to be late entrant imitators, coming from behind and hoping to
catch up.
This pattern is essentially one of disruption – the rules of the game
changed dramatically in the marketplace with some new winners and
losers. Figure 5.3 shows the transition where the new market and
suppliers gradually take over from the existing players. It can be seen
in many industries – think about the low cost airlines, for example.
Here the original low cost players didn't go head to head with the
national flag carriers who offered the best routes, high levels of
service and prime airport slots – all for a high price. Instead they
sought new markets at the fringe – users who would accept a much
lower level of service (no food, no seat allocation, no lounges, no
frills at all) but for a basic safe flight would pay a much lower price.
As these new users began to use the service and talk about it, so the
industry grew and came to the attention of existing private and
business travellers who were interested in lower cost flights at least
for short-haul because it met their needs for a ‘good enough’ solution
to their travel problem. Eventually the challenge hit the major
airlines who found it difficult to respond because of their inherently
much higher cost structure – even those – like BA and KLM which
set up low cost subsidiaries found they unable to manage with the
very different business model low-cost flying involved.
FIGURE 5.3 The pattern of disruptive innovation

Low end market disruption of this kind is a potent threat – think

what a producer in China might do to an industry like pump
manufacturing if they began to offer a simple, low cost ‘good
enough’ household pump for $10 instead of the high tech high
performance variants available from today's industry at prices 10–50
times as high? Or how manufacturers of medical devices like asthma
inhalers will need to respond once they have come off-patent – a
challenge already being posed in markets such as generic
pharmaceuticals? This kind of ‘reverse innovation’ is beginning to
happen – for example, GE began making a simple ultrasound scanner
for use in their Indian markets where the need was for something low
cost, robust and portable so it could be taken out by midwives in
visiting remote villages. But the basic package was also of
considerable interest in many other markets and the product has
become a best-seller – in the process changing the company's
orientation towards product design.17
 CASE STUDY 5.6

Innovation at the Base of the Pyramid

India represents an interesting laboratory for the development of radically different
products and services configured for a large but not particularly wealthy population.
Examples include the Tata Nano car, developed and now on sale for around $3000
and a mobile phone which retails at $20. In 2010 the country's Human Resources
Development minister unveiled a $35 computer, targeted first at the school market
(which is huge, around 110 million children in the first instance) and to be followed
by higher education students. The minister commented that: ‘The solutions for
tomorrow will emerge from India. We have reached a stage that today, the
motherboard, its chip, the processing, connectivity, all of them cumulatively cost
around $35 [£23], including memory, display, everything.’
By way of comparison this tablet-style computer competes with Apple's iPad
currently retailing in the USA for $450. It offers a simple but robust device, running
on open source Linux operating system, using Open Office software and can be
powered by solar panel or batteries as well as mains electricity. It has no hard drive
but additional functionality can be provided via a USB port.

It is also important to recognize that similar challenges to existing

market structures can happen through ‘high end’ disruption – as
Utterback points out.18 Where a group of users require something at
a higher level than the current performance this can create new
products or services which then migrate to mainstream expectations
– for example, in the domestic broadband or mobile telephone
markets.
Disruptive innovation examples of this kind focus attention on the
need to look for needs which are not being met, or poorly met or
sometimes where there is an overshoot.19 Each of these can provide a
trigger for innovation – and often involve disruption because existing
players don't see the different patterns of needs. This thinking is
behind, for example, the concept of ‘Blue Ocean strategy’ 20 which
argues for firms to define and explore uncontested market space by
spotting latent needs which are not well-served.

CASE STUDY 5.7

Gaining Competitive Edge through

Meeting Unserved Needs
An example of the ‘blue ocean’ approach is the Nintendo Wii which has carved a
major foothold in the lucrative computer games market – a business which is in fact
bigger than Hollywood in terms of overall market value. The Wii console is not a
particularly sophisticated piece of technology – compared to the rivals Sony PS3 or
the Microsoft Xbox it has less computing power, storage or other features and the
games graphics are much lower resolution than major sellers like Grand Theft Auto.
But the key to the phenomenal success of the Wii has been its appeal to an under-
served market. Where computer games were traditionally targeted at boys the Wii
extends – by means of a simple interface wand – their interest to all members of the
family. Add-ons to the platform like the Wii board for keep fit and other applications
and the market reach extends – for example to include the elderly or patients
suffering the after-effects of stroke.
Nintendo have performed a similar act of opening up the marketplace with its DS
handheld device – again by targeting unmet needs across a different segment of the
population. Many DS users are middle-aged or retired and the best selling games are
for brain training and puzzles.

Over-served markets might include those for office software or

computer operating systems where the continuing trend towards
adding more and more features and functionality has possibly
outstripped users needs for or ability to use them all. Linux and open
office applications such as ‘Star Office’ represent simpler, ‘good
enough’ solutions to the basic needs of users – and are potential
disruptive innovations for a player like Microsoft.
Central to this idea is the role of entrepreneurs – by definition
established players find it difficult to look at and work with the
fringe since it is not their core business or main focus of attention.
But entrepreneurs are looking for new opportunities to create value
and working at the fringe may provide them with such inspiration. So
the pattern of disruptive innovation is essentially one where
entrepreneurs play a role in changing and reshaping business and
social markets through often radical innovation. Smart organizations
look to defend themselves against disruption to their world by setting
up small entrepreneurial units with the licence to explore and behave
exactly as free agents, challenging conventional approaches and
looking at the edges of what the business does. The Innovation Portal
has various case studies showing examples of disruptive innovation
challenges and responses – Philips, Cerulean and Kodak.

Tool exploring ‘how well do we manage discontinuous

innovation’ is available in your interactive e-book at
www.innovation-portal.info

THE ROLE OF ‘EMERGING MARKETS’

On a global scale there is growing interest in what have been termed
the ‘bottom of the pyramid’ (BoP) markets.21 This term comes from
a book by C.K. Prahalad who argued that 80% of the world's
population lived on incomes below the poverty line – around $2/day
– and therefore did not represent markets in the traditional sense.
But seeing them as a vast reservoir of unserved needs opens up a
significant challenge and opportunity for innovation. (See Table 5.2
for some examples of the challenges and opportunities).

TABLE 5.2 Challenging assumptions about the bottom of

the pyramid

Assumption Reality – and innovation opportunity

The Although low income the sheer scale of this market makes it
poor interesting. Additionally the poor often pay a premium for access to
have no many goods and services – e.g. borrowing money, clean water,
purchasi telecommunications and basic medicines – because they cannot
ng address ‘mainstream’ channels like shops and banks. The innovation
power challenge is to offer low cost, low margin but high quality goods
and do and services across a potential market of 4 billion people.
not
represen
ta
viable
market
The Evidence suggests a high degree of brand and value consciousness –
poor are so if an entrepreneur can come up with a high quality low-cost
not solution it will be subject to hard testing in this market. Learning to
brand- deal with this can help migrate to other markets – essentially the
conscio classic pattern of ‘disruptive innovation’
us
The By 2015 there are likely to be nearly 400 cities in the developing
poor are world with populations over 1 million and 23 with over 10 million.
hard to 30–40% of these will be poor – so the potential market access is
reach considerable. Innovative thinking around distribution – via new
networks or agents (such as the women village entrepreneurs used
by Hindustan Lever in India or the ‘Avon ladies’ in rural Brazil) –
can open up untapped markets.
The Experience with PC kiosks, low-cost mobile phone sharing and
poor are access to the Internet suggests that rates of take-up and
unable sophistication of use are extremely fast amongst this group. In India
 to use the e-choupal (e-meeting place) set up by software company ITC
and not enabled farmers to check prices for their products at the local
intereste markets and auction houses. Very shortly after that the same farmers
d in were using the web to access prices of their soybeans at the Chicago
advance Board of Trade and strengthen their negotiating hand!
d
technolo
gy

Source: Based on Prahalad, C.K. (2006) The Fortune at the

Bottom of the Pyramid, New Jersey: Wharton School
Publishing.

Solutions to meeting these needs will have to be highly innovative,

but the prize is equally high – access to a high volume low margin
marketplace. For example, Unilever realized the potential of selling
their shampoos and other cosmetic products not in 250 ml bottles
(which were beyond the price range of most BoP customers) but in
single sachets. As G. Gilbert Cloyd, Chief Technology Officer,
Procter and Gamble commented in a Business Week interview, ‘…
We've put more emphasis on serving an even broader base of
consumers. We have the goal of serving the majority of the world's
consumers someday. Today, we probably serve about 2 billion-plus
consumers around the globe, but there are 6 billion consumers out
there. That has led us to put increased emphasis on low-end markets
and in mid- and low-level pricing tiers in developed geographies.
That has caused us to put a lot more attention on the cost aspects of
our products …’
Prahalad's original book contains a wide range of case examples
where this is beginning to happen in fields as diverse as healthcare,
agriculture and consumer white goods and home improvements.21
Subsequently there has been significant expansion of innovative
activity in these emerging market areas – driven in part by a
realization that the major growth in global markets will come from
regions with a high BoP profile. The Innovation Portal has a link to a
video interview with C.K. Prahalad discussing BoP cases.
Significantly the different conditions in BoP markets force a new
look and enable the emergence of very different innovation
trajectories. Case Study 5.8 gives an example of a revolutionary
approach to eye care and this is described in more detail on the
website. Such approaches radically improved productivity whilst
maintaining the key levels of quality; in the process they open up the
possibilities of low-cost healthcare for a much wider set of people.
Such models have been applied to a variety of health areas, including
elective surgery for hip and knee replacement, maternity care, kidney
transplants and even heart bypass surgery where Indian hospitals are
now able to offer better quality care at a fraction of the cost of major
hospitals in Europe or the USA! The Innovation Portal gives a case
study on Lifespring Hospitals.

Case Study on NHL is available in your interactive e-book at

www.wileyopenpage.com

Importantly many companies are actively using ‘bottom of

pyramid’ markets as places to search for weak signals of potentially
interesting new developments. For example, Nokia has been sending
scouts to study how people in rural Africa and India are using mobile
phones and the potential for new services which this might offer,
whilst the pharmaceutical firm Novo-Nordisk has been learning
about low-cost provision of diabetes care in Tanzania as an input to a
better understanding of how such models might be developed for
different regions.22’ 23 We'll return to this theme when we look at the
idea of ‘extreme users’ as sources of innovation.

CASE STUDY 5.8

Learning from Extreme Conditions

The Aravind Eye Care System has become the largest eye care facility in the world
with its headquarters in Madurai, India. Its doctors perform over 200 000 cataract
operations – and with such experience have developed state-of-the art techniques to
match their excellent facilities. Yet the cost of these operations runs from $50–300,
with over 60% of patients being treated free. Despite only 40% paying customers the
company is highly profitable and the average cost per operation (across free and
paying patients) at $25 is the envy of most hospitals around the world.
Aravind was founded by Dr G. Venkataswamy back in 1976 on his retirement from
the Government Medical College and represents the result of a passionate concern to
eradicate needless blindness in the population. Within India there are an estimated 9
million (and worldwide 45 million) people who suffer from needless blindness which
could be cured via corrective glasses and simple cataract or other surgery. Building
on his experience in organizing rural eye camps to deal with diagnosis and treatment
he set about developing a low-cost high quality solution to the problem, originally
aiming at its treatment in his home state of Tamil Nadu.
One of the key building blocks in developing the Aravind system has been
transferring the ideas of another industry concerned with low-cost, high and
consistent quality provision – the hamburger business pioneered by the Croc brothers
and underpinning McDonalds. By applying the same process innovation approaches
to standardization, workflow and tailoring tasks to skills he created a system which
not only delivered high quality but was also reproducible. The model has now
 diffused widely – there are now five hospitals within Tamil Nadu offering nearly
4000 beds, the majority of which are free. It has moved beyond cataract surgery to
education, lens manufacturing, research and development and other linked activities
around the theme of improving sight and access to treatment.
In making this vision come alive Dr V has not only demonstrated considerable
entrepreneurial flair – he has created a template which others, including health
providers in the advanced industrial economies, are now looking at very closely. It
has provided both the trigger and some of the trajectory for innovative approaches in
healthcare – not just in eye surgery but across a growing range of operations.

Case Study describing Aravind Eye Clinics is available in your interactive

e-book at www.innovation-portal.info

5.5 Towards Mass Customization

Arguably Henry Ford's plant, based on principles of mass
production, represented the most efficient response to the market
environment of its time. But that environment changed rapidly
during the 1920s, so that what had begun as a winning formula for
manufacturing began gradually to represent a major obstacle to
change. Production of the Model T began in 1909 and for 15 years
or so it was the market leader. Despite falling margins the company
managed to exploit its blueprint for factory technology and
organization to ensure continuing profits. But growing competition
(particularly from General Motors with its strategy of product
differentiation) was shifting away from trying to offer the customer
low-cost personal transportation and towards other design features –
such as the closed body – and Ford was increasingly forced to add
features to the Model T. Eventually it was clear that a new model
was needed and production of the Model T stopped in 1927. The
Innovation Portal gives an extensive case study covering Ford's
Model T.
The trouble is that markets are not made up of people wanting the
same thing – and there is an underlying challenge to meet their
demands for variety and increasing customization. This represents a
powerful driver for innovation – as we move from conditions where
products are in short supply to one of mass production so the demand
for differentiation increases. There has always been a market for
personalized custom made goods – and similarly custom configured
services – for example, personal shoppers, personal travel agents,
personal physicians, and so on. But until recently there was an
acceptance that this customization carried a high price tag and that
mass markets could only be served with relatively standard product
and service offerings.24
However, a combination of enabling technologies and rising
expectations has begun to shift this balance and resolve the trade-off
between price and customization. ‘Mass customization’ is a widely
used term which captures some elements of this.25 MC is the ability
to offer highly configured bundles of non-price factors configured to
suit different market segments (with the ideal target of total
customization – i.e. a market size of 1) – but to do this without
incurring cost penalties and the setting up of a trade-off of agility
versus prices.
 Of course there are different levels of customizing – from simply
putting a label ‘specially made for … (insert your name here)’ on a
standard product right through to sitting down with a designer and
co-creating something truly unique. Table 5.3 gives some examples
of this range of options.
 Until recently the vision of mass customization outran the
capabilities of manufacturing and deisgn technologies to deliver it.
But increasing convergence around this area and falling costs have
meant that the frontier has now been reached. With simple user-
friendly computer design tools and new manufacturing technologies
such as 3D printing it now becomes possible to design and make
almost anything and to do so at an increasing economic cost. Whilst
it might once have seemed a science fiction fantasy it is now possible
to design and print clothing, shoes, jewellery, furniture, toys, spare
parts – essentially any three-dimensional shape. An increasing
number of online service businesses are appearing and offering to
translate individual ideas into physical products, and hobby users can
install 3D printers and computer-aided design linked to their
computers for under $5000. The Innovation Portal has a link to a
video clip of Frank Piller, a researcher who has specialized in
innovation and mass customization.
This trend has important implications for services, in part because
of the difficulty of sustaining an entry barrier for long. Service
innovations are often much easier to imitate and the competitive
advantages which they offer can quickly be competed away because
there are fewer barriers to entry or options for protecting intellectual
property. The pattern of airline innovation on the transatlantic route
provides a good example of this – there is a fast pace of innovation
but as soon as one airline introduces something like a flat bed, others
will quickly emulate it. Arguably the drive to personalization of the
service experience will be strong because it is only through such
customized experiences that a degree of customer ‘lock on’ takes
place.26 Certainly the experience of Internet banking and insurance
suggests that, despite attempts to customize the experience via
sophisticated web technologies there is little customer loyalty and a
high rate of churn. However, the lower capital cost of creating and
delivering services and their relative simplicity makes co-creation
more of an option and there is growing interest in such models
involving active users in design of services – for example, in the
open source movement around software or in the digital
entertainment and communication fields where community and
social networking sites like Facebook, Flickr and YouTube have had
a major impact.

Video Clip of an interview with Simon Tucker of the UK's

Young Foundation (an organization that supports and
promotes social entrepreneurship) is available in your
interactive e-book at www.innovation-portal.info
 Once again we should be clear that this is not simply a trend in the
commercial marketplace; social innovation is increasingly about
trying to match particular needs of different groups in society with
solutions that work for them. Customizing solutions for the delivery
of public services to different groups is becoming a major agenda
item, particularly as governments and service providers recognize
that ‘one size fits all’ is not a model which applies well.

CASE STUDY 5.9

Living Labs
One approach being used by an increasing number of companies involves setting up
‘Living Labs’ which allow experimentation with and learning from users to generate
ideas and perspectives on innovation. These could be amongst particular groups – for
example in Denmark a network of such laboratories
(www.openlivinglabs.eu/ourlabs/Denmark) is particularly concerned with the
experience of ageing and the likely products and services which an increasingly
elderly population might need. A description of the Lab and its operation can be
found at www.edengene.co.uk/article/living-labs/
In Brazil the Nokia Institute of Technology (INdT) develops user driven
innovation platforms to support mobile products and services and as part of that
process tried to enable large scale involvement of motivated communities
(www.indt.org/) Their Mobile Work Spaces Living Lab is working in several
technological fields and with communities across rural and urban environments.

Case Study describing INdT is available in your interactive e-book at

www.innovation-portal.info
 Video Clip showing an interview with Ana Sena at INdT is available in
your interactive e-book at www.innovation-portal.info

Understanding what it is that customers value and need is critical

in pursuing a customization strategy – and it leads, inevitably – to the
next source of innovation in which the users themselves become the
source of ideas.

5.6 Users as Innovators

Although need pull represents a powerful trigger for innovation it is
easy to fall into the trap of thinking about the process as a serial one
in which user needs are identified and then something is created to
meet those needs. The assumption underpinning this is that users are
passive recipients – but this is often not the case. Indeed history
suggests that users are sometimes ahead of the game – their ideas
plus their frustrations with existing solutions lead to experiment and
prototyping and create early versions of what eventually become
mainstream innovations. Eric von Hippel of Massachusetts Institute
of Technology has made a lifelong study of this phenomenon and
gives the example of the pickup truck – a long-time staple of the
world automobile industry. This major category did not begin life on
the drawing boards of Detroit but rather on the farms and
homesteads of a wide range of users who wanted more than a family
saloon. They adapted their cars by removing seats, welding new
pieces on and cutting off the roof – in the process prototyping and
developing the early model of the pickup. Only later did Detroit pick
up on the idea and then begin the incremental innovation process to
refine and mass produce the vehicle.27 A host of other examples
support the view that user-led innovation matters – for example,
petroleum refining, medical devices, semiconductor equipment,
scientific instruments and a wide range of sports goods and the
Polaroid camera.
Importantly active and interested users – ‘lead users’ – are often
well ahead of the market in terms of innovation needs. In Mansfield's
detailed studies of diffusion of a range of capital goods into major
firms in the bituminous coal, iron and steel, brewing and railroad
industries, he found that in 75% of the cases it took over 20 years for
complete diffusion of these innovations to major firms.28 As von
Hippel points out some users of these innovations could be found far
in advance of the general market.29
One of the fields where this has played a major role is in medical
devices where active users amongst medical professionals have
provided a rich source of innovations for decades. Central to their
role in the innovation process is that they are very early on the
adoption curve for new ideas – they are concerned with getting
solutions to particular needs and prepared to experiment and tolerate
failure in their search for a better solution. One strategy – which we
will explore later – around managing innovation is thus to identify
and engage with such ‘lead users’ to co-create innovative solutions.
Tim Craft, a practising anaesthetist, developed a range of connectors
and other equipment as a response to frustrations and concerns about
the safety aspects of the equipment he was using in operating
theatres. The Innovation Portal has a podcast interview of Tim Craft
describing the birth of his company, Anaesthetic Medical Systems,
and its underlying philosophy.

CASE STUDY 5.10

User Involvement in Innovation – the

Coloplast Example
One of the key lessons about successful innovation is the need to get close to the
customer. At the limit (and as Eric Von Hippel and other innovation scholars have
3
noted ), the user can become a key part of the innovation process, feeding in ideas
and improvements to help define and shape the innovation. The Danish medical
devices company, Coloplast, was founded in 1954 on these principles when nurse
Elise Sorensen developed the first self-adhering colostomy bag as a way of helping
her sister, a stomach cancer patient. She took her idea to various plastics
manufacturers, but none showed interest at first. Eventually one, Aage Louis-Hansen
discussed the concept with his wife, also a nurse, who saw the potential of such a
device and persuaded her husband to give the product a chance. Hansen's company,
Dansk Plastic Emballage, produced the world's first disposable colostomy bag in
1955. Sales exceeded expectations and in 1957, after having taken out a patent for
the bag in several countries, the Coloplast company was established. Today the
company has subsidiaries in 20 and factories in 5 countries around the world, with
specialist divisions dealing with incontinence care, wound care, skin care,
mastectomy care, consumer products (specialist clothing etc.) as well as the original
colostomy care division.
Keeping close to users in a field like this is crucial and Coloplast have developed
novel ways of building in such insights by making use of panels of users, specialist
nurses and other healthcare professionals located in different countries. This has the
advantage of getting an informed perspective from those involved in post-operative
care and treatment and who can articulate needs which might for the individual
patient be difficult or embarrassing to express. By setting up panels in different
countries the varying cultural attitudes and concerns could also be built into product
design and development.
 An example is the Coloplast Ostomy Forum (COF) board approach. The core
objective within COF Boards is to try and create a sense of partnership with key
players, either as key customers or key influencers. Selection is based on an
assessment of their technical experience and competence but also on the degree to
which they will act as opinion leaders and gatekeepers – for example, by influencing
colleagues, authorities, hospitals and patients. They are also a key link in the clinical
trials process. Over the years Coloplast has become quite skilled in identifying
relevant people who would be good COF board members – for example, by tracking
people who author clinical articles or who have a wide range of experience across
different operation types. Their specific role is particularly to help with two elements
in innovation:

Identify, discuss and prioritize user needs.

Evaluate product development projects from idea generation right through to

international marketing.

Importantly COF Boards are seen as integrated with the company's product
development system and they provide valuable market and technical information into
the stage gate decision process. This input is mainly associated with early stages
around concept formulation (where the input is helpful in testing and refining
perceptions about real user needs and fit with new concepts). There is also significant
involvement around project development where involvement is concerned with
evaluating and responding to prototypes, suggesting detailed design improvements,
design for usability, and so on.
The Innovation Portal provides a full case study on Coloplast.

Sometimes user led innovation involves a community which

creates and uses innovative solutions on a continuing basis. Good
examples of this include the Linux community around operating
systems or the Apache server community around web server
development applications, where communities have grown up and
where the resulting range of applications is constantly growing – a
state which has been called ‘perpetual beta’ referring to the old idea
of testing new software modules across a community to get feedback
and development ideas.30 A growing range of Internet-based
applications make use of communities – for example, Mozilla and its
Firefox and other products, Propellerhead and other music software
communities and the emergent group around Apple's i-platform
devices like the iPhone.31
Increasing interest is being shown in such ‘crowd sourcing’
approaches to co-creating innovations – and to finding new ways of
creating and working with such communities. The principle extends
beyond software and virtual applications – for example, Lego makes
extensive use of communities of developers in its Lego Factory and
other online activities linked to its manufactured products.32 Adidas
has taken the model and developed its ‘mi Adidas’ concept where
users are encouraged to co-create their own shoes using a
combination of website (where designs can be explored and
uploaded) and in-store mini-factories where user created and
customised ideas can then be produced. The Innovation Portal gives
extensive case studies on Lego and Adidas.
Such engagement may provide a powerful new resource for the
‘front end’ of innovation. One example is Goldcorp – a struggling
mining company which threw open its geological data and asked for
ideas about where it should prospect. Tapping into the combined
insights of 1200 people from 50 countries helped them find 110 new
sites, 80% of which produced gold. The business has grown from
$100m in 1999 to over $9bn today. Companies like Swarowski have
recruited an army of new designers using ‘crowd sourcing’
approaches – and in the process have massively increased their
design capacity. Organizations like the BBC, Lego and Ordnance
Survey are increasingly engaging communities of software
developers, sharing source code and inviting them to ‘use our stuff to
build your stuff’. The Innovation Portal also has an audio clip of
David Overton of the UK's Ordnance Survey talking about the
challenges faced by the national geographic information resource.

Video Clip of an interview with Michael Bartl of the German

company Hyve is available in your interactive e-book at
www.innovation-portal.info

Video Clip of Catherina van Delden of Innosabi, discussing

how the company mobilizes communities of innovators is
available in your interactive e-book at www.innovation-
portal.info

The approach also opens up significant options in the area of

social innovation – for example, the crisis response tool ‘Ushahidi’
emerged out of the Kenyan post-election unrest and involves using
crowd sourcing to create and update rich maps which can help direct
resources and avoid problem areas. It has subsequently been used in
the Brisbane floods, the Washington snow emergency and the
aftermath of the Tsunami in Japan. Case Study 5.11 provides some
examples on the theme of ‘open collective innovation’. The
Innovation Portal has a case study describing ‘open collective
innovation’.

CASE STUDY 5.11

Open Collective Innovation

An increasingly important element in the innovation equation is co-creation – using
the ideas, experience and insights of many people across a community to generate
innovation. For example, Encyclopaedia Britannica was founded in and currently has
around 65 000 articles. Until 1999 it was available only in print version but, in
response to a growing number of CD and online based competitors (such as
Microsoft's Encarta) it now has an online version. Encarta was launched in 1993 and
offered many new additions to the Britannica model, through multimedia
illustrations carried on a CD/DVD; like Britannica it was available in a limited
number of different languages.
By contrast Wikipedia is a newcomer, launched in 2004 and available free on the
Internet. It has become the dominant player in terms of online searches for
information and is currently the sixth most visited site in the world. Its business
model is fundamentally different – it is available free and is constructed through the
shared contributions and updates offered by members of the public.
A criticism of Wikipedia is that this model means that inaccuracies are likely to
appear, but although the risk remains there are self-correcting systems in play, which
mean that if it is wrong it will be updated and corrected quickly. A study by the
journal Nature in 2005 (15 December) found it to be as accurate as Encyclopaedia
Britannica yet the latter employ around 4000 expert reviewers and a rewrite
(including corrections) takes around five years to complete.
Encarta closed at the end of 2009 but Encyclopaedia Britannica continues to
compete in this knowledge market. After 300 years of an expert-driven model it
moved, in January 2009, to extend its model and invite users to edit content using a
variant on the Wikipedia approach. Shortly after that (February 2010) it discovered
an error in its coverage of a key event in Irish history which had gone uncorrected in
all its previous editions and only emerged when users pointed it out!
In similar fashion Facebook chose to engage its users in helping to translate the site
into multiple languages rather than commission an expert translation service. Its
 motive was to try and compete with MySpace which in 2007 was the market leader,
available in five languages. The Facebook ‘crowdsource’ project began in December
2007 and invited users to help translate around 30 000 key phrases from the site:
8000 volunteer developers registered within two months and within three weeks the
site was available in Spanish, with a pilot version in French and German also online.
Within one year Facebook was available in over 100 languages and dialects – and
like Wikipedia it continues to benefit from continuous updating and correction via its
user community.

Another important feature of crowdsourcing across user

communities is the potential for dealing with the ‘long tail’ problem
– that is, how to meet the needs of a small number of people for a
particular innovation? By mobilizing user communities around these
needs it is possible to share experience and co-create innovation. The
Innovation Portal has a case study describing how communities of
patients suffering from rare diseases and their carers are brought
together to enable innovation in areas which lie at the edge of
mainstream health system radar screens.

5.7 Extreme Users

An important variant which picks up on both the lead user and the
fringe needs concepts lies in the idea of extreme environments as a
source of innovation. The argument here is that the users in the
toughest environments may have needs which by definition are at
the edge – so any innovative solution which meets those needs has
possible applications back into the mainstream. An example would
be antilock braking systems (ABS) which are now a commonplace
feature of cars but which began life as a special add-on for premium
high performance cars. The origins of this innovation came from a
more extreme case, though – the need to stop aircraft safely under
difficult conditions where traditional braking might lead to skidding
or other loss of control. ABS was developed for this extreme
environment and then migrated across to the (comparatively) easier
world of automobiles.30 The Innovation Portal has a link to set of
videos outlining the experience of 3M working with Eric von Hippel
as it tries to make use of lead user methods in its innovation
development work.
Looking for extreme environments or users can be a powerful
source of stretch in terms of innovation – meeting challenges which
can then provide new opportunity space. As Roy Rothwell put it in
the title of a famous paper, ‘tough customers mean good designs’.33
For example, stealth technology arose out of a very specific and
extreme need for creating an invisible aeroplane – essentially
something which did not have a radar signature. It provided a
powerful pull for some radical innovation which challenged
fundamental assumptions about aircraft design, materials, power
sources and so on, and opened up a wide frontier for changes in
aerospace and related fields.34 The ‘bottom of the pyramid’ concept
mentioned earlier also offers some powerful extreme environments
in which very different patterns of innovation are emerging.
For example, in the Philippines, there is little in the way of a
formal banking system for the majority of people – and this has led
to users creating very different applications for their mobile phones
where pay as you go credits become a unit of currency to be
transferred between people and used as currency for various goods
and services. In Kenya it is used to increase security – if a traveller
wishes to move between cities he or she will not take money but
instead forward it via mobile phone in the form of credits which can
then be collected from the phone recipient at the other end. This is
only one of hundreds of new applications being developed in
extreme conditions and by under-served users – and represents a
powerful laboratory for new concepts which companies like Nokia
and Vodafone are working closely to explore.22 The potential exists
to use this kind of extreme environment as a laboratory to test and
develop concepts for wider application – for example, Citicorp has
been experimenting with a design of ATM based on biometrics for
use with the illiterate population in rural India. The pilot involves
some 50 000 people but as a spokesman for the company explained,
‘we see this as having the potential for global application’. The
Innovation Portal has an interview with Girish Prabhu of Srishti
Labs, a company specializing in such solutions.

Video Clip of interview with Suzana Moreira of moWoza, a

social enterprise in southern Africa, is available in your
interactive e-book at www.innovation-portal.info

RESEARCH NOTE 5.1

Jugaad Innovation
In a recent book Navi Radjou, Jaideep Prabhu and Simone
Ahuja explore an approach to innovation which is rooted in
emerging economies like India, China and Latin America –
but which draws on some long-established principles.35
Through a variety of case studies they suggest that crisis
conditions often trigger new approaches to innovation, and
that the pressure to be frugal and flexible often leads to novel
and sometimes breakthrough solutions. The phrase ‘scarcity
is the mother of invention’ might be applied to examples
such as the low technology design for a fridge which keeps
food and liquid cool yet is based on a simple ceramic pot –
the ‘mitticool’. Whilst this may seem a low-tech solution the
problem in India is that around 500 million people have to
live with an unreliable electricity supply which means that
conventional refrigerators are unusable. The simple device
has been so successful it is now mass produced and sold
worldwide providing employment for the village in which
the idea originated.
‘Jugaad’ is a Hindi word which roughly translates as ‘an
innovative fix, an improvised solution born from ingenuity
and cleverness’. Such an approach characterizes
entrepreneurship – and examples of such innovation can be
found throughout history. But the authors argue that the very
different conditions across much of the emerging world are
creating opportunities for jugaad innovators finding solutions
to meet the needs of a large population for an increasingly
wide range of good and services. In the process they are
marrying very different needs with an increasingly wide
 range of networked technological options – for example,
evolving new forms of banking based on mobile phones or
deploying telemedicine to help deal with the problems of
distance and skills shortage in healthcare.
Of particular significance is the potential for such solutions
to then find their way back to the industrialized world as
simpler, ingenious solutions which challenge existing high
technology approaches. The potential for such reverse
innovation to act as a disruptive force is significant. The
Innovation Portal gives some examples of jugaad innovation
in the area of healthcare.
Source: Radjou, N., J. Prabhu, and S. Ahuja (2012) Jugaad Innovation: Think
Frugal, be Flexible, Generate Breakthrough Innovation, San Francisco: Jossey
Bass.

Such experiments can open up significant new innovation space

by bringing new rules to the game. For example, India's giant Tata
Corporation has been developing the ‘1–lakh car’ – essentially a car
for the Indian market which would retail for around $3000. Despite
considerable cynicism from the industry the Nano has been launched
at close to this price and represents the first response to a classic
extreme environment challenge. Producing something at this target
cost which also meets emission controls and provides a level of
features to satisfy the growing Indian middle class is already a
significant innovation achievement given that the closest competitor
cars retail for nearly twice that price. Creating the wider system for
service and support, for insurance, for financing purchase, for driver
training and so on imply a very different approach to bringing
driving within the reach of a large population. As low-cost airline
and other disruptive innovators found, the learning effects across
large volumes of rapidly growing markets mean that many
innovative solutions are developed and create a business model
which has significant challenges for established incumbents.
Arguably this is not simply a local innovation but an experiment
towards the kind of industry-changing system which Henry Ford
pioneered a century ago.

5.8 Watching Others

Innovation is essentially a competitive search for new or different
solutions – whether in the sense of commercial enterprises
competing with each other for market share or in the wider sense of
public service, where the competition is for doing more with limited
resources, or between law and order versus crime, or education and
illiteracy. In such a contest one important strategy involves learning
from others – imitation is not only the sincerest form of flattery but
also a viable and successful strategy for sourcing innovation. For
example, reverse engineering of products and processes and
development of imitations – even around impregnable patents – is a
well-known route to find ideas. Much of the rapid progress of Asian
economies in the post-war years was based on a strategy of ‘copy
and develop’, taking Western ideas and improving on them.36 For
example, much of the early growth in Korean manufacturing
industries in fields like machine tools came from adopting a strategy
of ‘copy and develop’ – essentially learning (often as a result of
taking licenses or becoming service agents) by working with
established products and understanding how they might be adapted
or developed for the local market. Subsequently this learning could
be used to develop new generations of products or services.36, 37
A wide range of tools for competitor product and process profiling
has been developed which provide structured ways of learning from
what others do or offer.38 The Innovation Portal offers several
examples of these tools.
One powerful variation on this theme is the concept of
benchmarking.39 In this process enterprises make structured
comparisons with others to try and identify new ways of carrying out
particular processes or to explore new product or service concepts.
The learning triggered by benchmarking may arise from comparing
between similar organizations (same firm, same sector, etc.), or it
may come from looking outside the sector but at similar products or
processes. For example, Southwest Airlines became the most
successful carrier in the USA by dramatically reducing the
turnaround times at airports – an innovation which it learned from
studying pit stop techniques in the Formula 1 Grand Prix events.
Similarly the Karolinska hospital in Stockholm made significant
improvements to its cost and time performance through studying
inventory management techniques in advanced factories.40 The
Innovation Portal has a case study of the Karolinska Hospital and its
use of techniques originating in manufacturing.
Benchmarking of this kind is increasingly being used to drive
change across the public sector, both via ‘league tables’ linked to
performance metrics which aim to encourage fast transfer of good
practice between schools or hospitals and also via secondment, visits
and other mechanisms designed to facilitate learning from other
sectors managing similar process issues such as logistics and
distribution. One of the most successful applications of
benchmarking has been in the development of the concept of ‘lean’
thinking, now widely applied to many public and private sector
organizations.41 The origins were in a detailed benchmarking study
of car manufacturing plants during the 1980s which identified
significant performance differences and triggered a search for the
underlying process innovations which were driving the differences.42

5.9 Recombinant Innovation

Another easy assumption to make about innovation is that it always
has to involve something new to the world. The reality is that there
is plenty of scope for crossover – ideas and applications which are
commonplace in one world may be perceived as new and exciting in
another. This is an important principle in sourcing innovation where
transferring or combining old ideas in new contexts – a process
called ‘recombinant innovation’ by Andrew Hargadon – can be a
powerful resource.43 The Reebok pump running shoe, for example,
was a significant product innovation in the highly competitive world
of sports equipment – yet although this represented a breakthrough
in that field it drew on core ideas which were widely used in a
different world. Design Works – the agency which came up with the
design – brought together a team which included people with prior
experience in fields like paramedic equipment (from which they
took the idea of an inflatable splint providing support and
minimizing shock to bones) and operating theatre equipment (from
which they took the micro-bladder valve at the heart of the pump
mechanisms. Many businesses – as Hargadon points out – are able
to offer rich innovation possibilities primarily because they have
deliberately recruited teams with diverse industrial and professional
backgrounds and thus bring very different perspectives to the
problem in hand. His studies of the design company, IDEO, show
the potential for such recombinant innovation work.9, 44
Nor is this a new idea. Thomas Edison's famous ‘Invention
Factory’ in New Jersey was founded in 1876 with the grand promise
of ‘a minor invention every ten days and a big thing every six
months or so’. They were able to deliver on that promise not because
of the lone genius of Edison himself but rather from taking on board
the recombinant lesson – Edison hired scientists and engineers (he
called them ‘muckers’) from all the emerging new industries of early
twentieth century USA. In doing so he brought experience in
technologies and applications like mass production and precision
machining (gun industry) telegraphy and telecommunications, food
processing and canning, automobile manufacture, and so on. Some of
the early innovations which built the reputation of the business – for
example the teleprinter for the NYSE – were really simple cross-over
applications of well-known innovations in other sectors.43

Video Clip of David Simoes-Brown (100% Open) discussing

‘open innovation’ space and recombinant innovation is
available in your interactive e-book at www.innovation-
portal.info
 One of the key characteristics of ‘open innovation’ is its emphasis
on knowledge flows in and out of organizations and this creates
considerable scope for recombinant innovation. Examples of
established knowledge from one sector being applied elsewhere
include the use of ground management systems for aircraft handling
in the UK air traffic control system – this uses software originally
developed in Formula 1 motor racing by the Maclaren racing team.
Recombinant innovation is also possible within large organizations
where opportunities to use knowledge created in one area and
applied in another can be exploited. For example, Dupon scientists
were working in the 1960s on fibres which were similar to nylon but
had much greater strength – an idea which had potential for the tyre
cords used in one of their core business areas. In 1965 Stephanie
Kwolek developed a process for making aramide fibres which the
company called ‘Kevlar’ – it had the property of being five times
stronger than its equivalent weight in steel. However, the tyre makers
were initially slow to adopt and so the technology was offered to
other divisions, finding new markets in bullet-proof vests, helmets,
ropes, boats – and eventually the tyre market itself.
Kodak is an example of a company that was able to reuse its
strong knowledge base in coating photographic film (which became
redundant as the industry moved to digital images) in the field of
high speed, high volume printing. The Innovation Portal gives a case
study on Fujifilm, which made a similar move away from
photography, deploying its deep knowledge base to enter new fields
in skincare.
 In many ways recombinant innovation involves a core principle
understood by researchers on human creativity. Very often original –
breakthrough – ideas come about through a process of what Arthur
Koestler called ‘bisociation’ – the bringing together of apparently
unrelated things which can somehow be connected and yield an
interesting insight.45 The key message here for managing innovation
is to look to diversity to provide the raw material which might be
combined in interesting ways – and realizing this makes the search
for unlikely bedfellows a useful strategy.

5.10 Design-led Innovation

‘Market? What market! We do not look at market needs. We

make proposals to people.’
– Ernesto Gismondi, Chairman of Artemide, quoted in Verganti

One increasingly significant source of innovation is what Roberto

Verganti calls ‘design driven innovation’. Examples include many of
the recent successful Apple products where the user experience is
one of surprise and pleasure at the look and feel, the intuitive beauty
of the product. This emerges not as a result of analysis of user needs
but rather through a design process which seeks to give meaning
shape and form to products – features and characteristics which they
didn't know they wanted. But it is also not another version of
knowledge or technology push in which powerful new functions are
installed – in many ways design-led products are deceptively simple
in their usability. Apple's iPod was a comparative latecomer to the
MP3 player market yet it created the standard for the others to follow
because of the uniqueness of the look and feel – the design attributes.
Its subsequent success with iPad and iPhone owes a great deal to the
design ideas of Jonathan Ive which bring a philosophy to the whole
product range and provide one of the key competitiveness factors to
the company.
As Verganti points out, people do not buy things only to meet their
needs – there are important psychological and cultural factors at
work as well. He suggests that we need to ask about ‘meaning’ of
products in people's lives – and then develop ways of bringing this
into the innovation process. For example, Apple's iPhone changed
the meaning of the phone from a communications device to the core
of a highly interactive social system, whilst Nintendo's Wii changed
the meaning of computer gaming from a largely solitary activity to
an interactive family pursuit. This is the role of design – to use tools
and skills to articulate and create meaning in products – and
increasing services as well. He suggests a map (see Figure 5.4) in
which both knowledge/technology push and market pull can be
positioned – and where design-driven innovation represents a third
space around creating radical new concepts which have meaning in
people's lives.
The increasing importance of design as a source of innovation also
engages with the world of services. Joseph Pine used the term
‘experience economy’ to describe the evolution of innovation from
meeting needs towards creating experiences.46 In an increasingly
competitive world differentiation comes increasingly from such
‘experience innovation’, especially in services where fulfilling needs
takes second place to the meaning and psychological importance of
the experience. For example, the restaurant business moves from
emphasis on food as an essential human need and towards
increasingly significant experience innovation around restaurants as
systems of consumption involving the product, its delivery, the
physical and cultural context, and so on. Increasingly service
providers such as airlines, hotels or entertainment businesses are
differentiating themselves along such ‘experience innovation’
lines.47

FIGURE 5.4 The role of design driven innovation

Source: Based on R Verganti (2009) Design driven innovation, Harvard Business
School Press.

5.11 Regulation
Photographs of the pottery towns around Stoke on Trent in the
Midlands of the UK taken in the early part of the twentieth century
would not be much use in tracing landmarks or spotting key
geographical features. The images in fact would reveal very little at
all – not because of a limitation in the photographic equipment or
processing but because the subject matter itself – the urban
landscape – was rendered largely invisible by the thick smog which
regularly enveloped the area. Yet 60 years later the same images
would show up crystal clear – not because the factories had closed
(although there are fewer of them) but because of the continuing
effects of the Clean Air Act and other legislation in the UK. They
provide a clear reminder of another important source of innovation –
the stimulus given by changes in the rules and regulations which
define the various ‘games’ for business and society. The Clean Air
Act didn't specify how but only what had to change – achieving the
reduction in pollutants emitted to the atmosphere involved extensive
innovation in materials, processes and even in product design made
by the factories.
Regulation in this way provides a two-edged sword – it both
restricts certain things (and closes off avenues along which
innovation had been taking place) and opens up new ones along
which change is mandated to happen.48 And it works the other way –
deregulation – the slackening off of controls – may open up new
innovation space. The liberalization and then privatization of
telecommunications in many countries led to rapid growth in
competition and high rates of innovation, for example.
Given the pervasiveness of legal frameworks in our lives we
shouldn't be surprised to see this source of innovation. From the
moment we get up and turn the radio on (regulation of broadcasting
shaping the range and availability of the programmes we listen to) to
eating our breakfast (food and drink is highly regulated in terms of
what can and can't be included in ingredients, how foods are tested
before being allowed for sale, etc.) to climbing into our cars and
buckling on our safety belt whilst switching on our hands-free phone
devices (both the result of safety legislation) the role of regulation in
shaping innovation can be seen.49
Regulation can also trigger counter innovation – solutions
designed to get round existing rules or at least bend them to
advantage. The rapid growth in speed cameras as a means of
enforcing safety legislation on roads throughout Europe has led to
the healthy growth of an industry providing products or services for
detecting and avoiding cameras. And at the limit changes in the
regulatory environment can create radical new space and
opportunity. Although Enron ended its days as a corporation in
disgrace due to financial impropriety it is worth asking how a small
gas pipeline services company rose to become such a powerful beast
in the first place. The answer was its rapid and entrepreneurial take
up of the opportunities opened up by deregulation of markets for
utilities like gas and electricity.50

5.12 Futures and Forecasting

Another source of stimuli for innovation comes through imagining
and exploring alternative trajectories to the dominant version in
everyday use. Various tools and techniques for forecasting and
imagining alternative futures are used to help strategy-making – but
can also be used to stimulate imagination around new possibilities in
innovation. For example, Shell has a long history of exploring future
options and driving innovations, most recently through its Game
changer programme.51 Sometimes various ‘transitional objects’ are
used, like concept models and prototypes in the context of product
development, to explore reactions and provide a focus for various
different kinds of input which might shape and co-create future
products and services.52, 53

RESEARCH NOTE 5.2

Thinking About the Future

Innovation futures are likely to be very different from the

current context – the trouble is that we don't know how!
Three major research projects have been trying to develop
alternative pictures of how innovation will work in the future
in terms of challenges, solutions – and how we might
approach managing it. In the first, Anna Trifilova and Bettina
von Stamm have pulled together a book and a website
drawing on the insights of nearly 400 researchers,
practitioners and policy-makers from over 60 countries. This
‘Delphi’ panel approach paints a picture of the different ways
in which ‘the future of innovation’ is being seen. See
www.thefutureofinnovation.org.
The second project is a European Union programme –
INFU – Innovation Futures for Europe and has been working
with multiple partners to develop scenarios for the future of
 innovation. They present a variety of scenarios and invite
further elaboration and addition through an interactive
website – www.innovation-futures.org.
Finally Tim Jones has been working with another network
of researchers, practitioners and policymakers trying to pull
together current themes in effective innovation management.
In particular the focus is on innovation and growth and how
leading organizations in the public and private sector are
meeting these challenges. There is a website and an
accompanying book which has more detail on the project:
www.growthagenda.com/.

The Innovation Portal has examples of tools to help you think

about alternative futures. The case study on Philips also shows the
use of futures tools in shaping and developing a radical innovation
programme.

Audio Clip of Helen King of the Bord Bia organization in

Ireland is available in your interactive e-book at
www.innovation-portal.info

Chapter 8 explores this theme and the related toolkits in detail.

5.13 Accidents
Accidents and unexpected events happen – and in the course of a
carefully planned R&D project they could be seen as annoying
disruptions. But on occasions accidents can also trigger innovation,
opening up surprisingly new lines of attack. The famous example of
Fleming's discovery of penicillin is but one of many stories in which
mistakes and accidents turned out to trigger important innovation
directions. For example, the famous story of 3M's ‘Post-it’ notes
began when a polymer chemist mixed an experimental batch of what
should have been a good adhesive but which turned out to have
rather weak properties – sticky but not very sticky. This failure in
terms of the original project provided the impetus for what has
become a billion dollar product platform for the company. Henry
Chesbrough calls this process ‘managing the false negatives’ and
draws attention to a number of cases.54 For example, in the late
1980s, scientists working for Pfizer began testing what was then
known as compound UK-92,480 for the treatment of angina.
Although promising in the lab and in animal tests, the compound
showed little benefit in clinical trials in humans. Despite these initial
negative results the team pursued what was an interesting side effect
which eventually led to UK-92,480 becoming the blockbuster drug
Viagra.

CASE STUDY 5.12

Cleaning up by Accident
Audley Williamson is not a household name of the Thomas Edison variety but he
was a successful innovator whose UK business sold for £135m in 2004. The core
product which he invented was called ‘Swarfega’ and offered a widely used and
dermatologically safe cleaner for skin. It is a greenish gel which has achieved
 widespread use in households as a simple and robust aid with the advertising slogan
‘clean hands in a flash!’ But the original product was not designed for this market at
all – it was developed in 1941 as a mild detergent to wash silk stockings.
Unfortunately the invention of Nylon and its rapid application in stockings meant
that the market quickly disappeared and he was forced to find an alternative.
Watching workers in a factory trying to clean their hands with an abrasive mixture of
petrol, paraffin and sand which left their hands cracked and sore led him to rethink
the use of his gel as a safer alternative.

Source: Based on The Independent, 28/2/2006, p. 7.

The secret is not so much recognizing that such stimuli are

available but rather in creating the conditions under which they can
be noticed and acted upon. As Pasteur is reputed to have said,
‘chance favours the prepared mind!’ Using mistakes as a source of
ideas only happens if the conditions exist to help it emerge. For
example Xerox developed many technologies in its laboratories in
Palo Alto which did not easily fit their image of themselves as ‘the
document company’. These included Ethernet (later successfully
commercialized by 3Com and others and PostScript language (taken
forward by Adobe Systems). Chesbrough reports that 11 of 35
rejected projects from Xerox's labs were later commercialized with
the resulting businesses having a market capitalization of twice that
of Xerox itself.
In similar fashion shocks to the system which fundamentally
change the rules provide not only a threat to the existing status quo
but a powerful stimulus to find and develop something new. The
tragedy of the 9/11 bombing of the Twin Towers served to change
fundamentally public sense of security – but it has also provided a
huge stimulus to innovate in areas like security, alternative
transportation, fire safety and evacuation, and so on.49
RESEARCH NOTE 5.3
In a major research project around ‘ideation’ – where do
innovation ideas come from? – Robert Cooper and Scott
Edgett looked at 18 possible sources in the field of product
innovation. Their sample covered 160 firms in the business
to business and business to consumer markets, split
approximately 70%/30% and covering a wide size range.
They looked at how extensively each method was used but
also asked managers to report on how effective they felt each
technique to be. Their results are summarized below:55
 Source: Based on Cooper, R. and S. Edgett, Ideation for product innovation: What
are the best methods?, in PDMA Visions2008, Product Development Management
Association. pp. 12–16

5.14 A Framework for Looking at Innovation

Sources
It's clear that opportunities for innovation are not in short supply –
and they arise from many different directions. The key challenge for
innovation management is how to make sense of the potential input
– and to do so with often limited resources. No organization can
hope to cover all the bases so there needs to be some underlying
strategy to how the search process is undertaken. One way is to
impose some dimensions on the search space to help us frame where
and why we might search for innovation triggers.
One important question is the relative importance of the push or
pull forces outlined previously. This has been the subject of many
innovation studies over the years, using a variety of different
methods to try and establish which is more important (and therefore
where organizations might best place their resources). The reality is
that innovation is never a simple matter of push or pull but rather
their interaction; as Chris Freeman, one of the pioneers of innovation
research said ‘necessity may be the mother of invention but
procreation needs a partner’! Innovations tend to resolve into vectors
– combinations of the two core principles. And these direct our
attention in two complementary directions – creating possibilities (or
at least keeping track of what others are doing along the R&D
frontier) and identifying and working with needs. Importantly the
role of needs in innovation is often to translate or select from the
range of knowledge push possibilities the variant which becomes the
dominant strain. Out of all the possible bicycle ideas which were
around in the mid-nineteenth century – some with three wheels,
some with no brakes, some with big and small wheels, some with
direct drives, some without even a saddle – we eventually got to the
dominant design which is with us today.56 Similarly the iPod wasn't
the first MP3 player but it somehow clicked as the one which
resonated best with user needs. The Innovation Portal has an
interesting case study of the evolution of the bicycle.
In fact most of the sources of innovation we mentioned above
involve both push and pull components – for example, ‘applied
R&D’ involves directing the push search in areas of particular need.
Regulation both pushes in key directions and pulls innovations
through in response to changed conditions. User-led innovation may
be triggered by user needs but it often involves creating new
solutions to old problems – essentially pushing the frontier of
possibility in new directions.
There is a risk in focusing on either of the ‘pure’ forms of push or
pull sources. If we put all our eggs in one basket we risk being
excellent at invention but without turning our ideas into successful
innovations – a fate shared by too many would-be entrepreneurs. But
equally too close an ear to the market may limit us in our search – as
Henry Ford is reputed to have said, ‘if I had asked the market they
would have said they wanted faster horses!’ The limits of even the
best market research lie in the fact that they represent sophisticated
ways of asking people's reactions to something which is already
there – rather than allowing for something completely outside their
experience so far.
Another key dimension is around incremental or radical
innovation. We've seen that there is a pattern of what could be
termed ‘punctuated equilibrium’ with innovation – most of the time
innovation is about exploiting and elaborating, creating variations on
a theme within an established technical, market or regulatory
trajectory. But occasionally there is a breakthrough which creates a
new trajectory – and the cycle repeats itself. This suggests that much
of our attention in searching for innovation triggers will be around
incremental improvement innovation – the different versions of a
piece of software, the Mk 2, 3, 4 of a product or the continuing
improvement of a business process to make it closer to lean. But we
will need to have some element of our portfolio focused on the
longer-range, higher risk which might lead to the breakthrough and
set up a new trajectory.
A third issue is around timing – at different stages in the product
or industry life cycle the emphasis may be more or less on push or
pull. For example, mature industries will tend to focus on pull,
responding to different market needs and differentiating by
incremental innovation in key directions of user need. By contrast a
new industry – for example, the emergent industries based on
genetics or nano materials technology – is often about solutions
looking for a problem. So we would expect different balance of
resources committed to push or pull within these different stages.
This kind of thinking is reflected in the Abernathy/Utterback
model of innovation life cycle which we covered in Chapter 1.57 This
sees innovation at the early fluid stage being characterized by
extensive experimentation and with emphasis on product – creating a
radical new offering. As the dominant design emerges attention shifts
towards more incremental variation around the core trajectory – and
as the industry matures so emphasis shifts to process innovation
aimed at improving parameters like cost and quality. Once again this
helps allocate scarce search resources in particular ways.
A fourth and related issue is around diffusion – the adoption and
elaboration of innovation over time. Innovation adoption is not a
binary process but rather one which takes place gradually over time,
following some version of an S-curve.58 At the early stages
innovative users with high tolerance for failure will be followed by
early adopters. This gives way to the majority following their lead
until finally the remnant of a potential adopting population – the
laggards in Roger's terms – adopt or remain stubbornly resistant.
Understanding diffusion processes and the influential factors (which
we will explore in more detail in Chapter 8) is important because it
helps us understand where and when different kinds of triggers are
picked up. Lead users and early adopters are likely to be important
sources of ideas and variations which can help shape an innovation
in its early life, whereas the early and late majority will be more a
source of incremental improvement ideas.59

RESEARCH NOTE 5.4

Where Do Innovations Come From?

Transformations in the US National
Innovation System, 1970–2006

Using an innovative research method, UC Davis scholars

Fred Block and Mathew Keller analyzed a sample of
innovations recognized by R&D Magazine as being among
the top 100 innovations of the year over the last four
decades. They found that while in the 1970s almost all
winners came from corporations acting on their own, more
recently over two-thirds of the winners have come from
 partnerships involving business and government, including
federal labs and federally-funded university research.
Moreover, in 2006 77 of the 88 US entities that produced
award-winning innovations were beneficiaries of federal
funding.
Source: Based on information from http://www.itif.org.

5.15 How to Search

Of course the challenge in managing innovation is not one of
classifying different sources but rather how to seek out and find the
relevant triggers early and well enough to do something about them.
In developing search strategies we can make use of some of the
broad dimensions highlighted previously – for example, by ensuring
we have a balance between push and pull, and between incremental
and radical. A good place to start understanding broad strategies is
to look at what firms actually do in searching for innovation triggers.
There are many large-scale innovation surveys which ask around
this theme – for example, the European Community Innovation
Survey (www.cordis.europa.eu/cip/index.html) which looks at the
innovative behaviour of firms across 27 EU states (Table 5.4).
Similar data showing the distribution by firm size in the UK is given
in Table 5.5.
 Data from studies like these gives us one picture – and it
reinforces the view that successful innovation is about spreading the
net as widely as possible, mobilizing multiple channels. Although
surveys of this kind tell us a lot they also miss important elements in
the sources of innovation picture. A lot of incremental innovation
and how it is triggered lies beneath the radar screen, and there is a
bias towards product innovation where we know that a great deal of
incremental process improvement goes on. And it doesn't capture
position or business model innovation so well, again especially at the
incremental end. It tends to focus on the ‘obvious’ search agents like
R&D or market research departments – but others involved, for
example, purchasing – and within the business the idea of suggestion
schemes and high involvement innovation.15 But it gives us a broad
picture – and underlines the need for an extensive net.
 Building rich and extensive linkages with potential sources of
innovation has always been important – for example, studies by
Carter and Williams in the UK in the 1950s identified one key
differentiator between successful and less successful innovating
firms as the degree to which they were ‘cosmopolitan’ as opposed to
‘parochial’ in their approach towards sources of innovation.60 There
are, of course, arguments for keeping a relatively closed approach –
for example there is a value in doing your own R&D and market
research because the information collected is then available to be
exploited in ways which the business can control. It can choose to
push certain lines, hold back on others, keep things essentially within
a closed system. But as we've seen the reality is that innovation is
triggered in all sorts of ways and a sensible strategy is to cast the net
as widely as possible. In what is termed ‘open innovation’
organizations move to a more permeable view of knowledge in
which they recognize the importance of external sources and also
make their own knowledge more widely available.61 Figure 5.5
illustrates this principle.
 This is not without its difficulties – on the one hand it makes sense
to recognize that in a knowledge-rich world ‘not all the smart guys
work for us’. Even large R&D spenders like Procter & Gamble
(annual R&D budget around $3bn and about 7000 scientists and
engineers working globally in R&D) are fundamentally rethinking
their models – in their case switching from ‘Research and Develop’
to ‘Connect and Develop’ as the dominant slogan, with the strategic
aim of moving from closed innovation to sourcing 50% of their
innovations from outside the business.62 But on the other we should
recognize the tensions that poses around intellectual property (how
do we protect and hold on to knowledge when it is now much more
mobile – and how do we access other people's knowledge?), around
appropriability (how do we ensure a return on our investment in
creating knowledge?) and around the mechanisms to make sure we
can find and use relevant knowledge (when we are now effectively
sourcing it from across the globe and in all sorts of unlikely
locations?) In this context innovation management emphasis shifts
from knowledge creation to knowledge trading and managing
knowledge flows.63

FIGURE 5.5 The open innovation model61

Chesbrough, H. (2003) Open Innovation: The New Imperative for Creating and
Profiting from Technology, Harvard Business School Press, Boston, MA.
 We will return to this theme of ‘open innovation’ and how to
enable it, shortly.

5.16 Absorptive Capacity

One more broad strategic point concerns the question of where,
when and how organizations make use of external knowledge to
grow. It's easy to make the assumption that because there is a rich
environment full of potential sources of innovation that every
organization will find and make use of these. The reality is, of
course, that they differ widely in their ability to make use of such
trigger signals – and the measure of this ability to find and use new
knowledge has been termed ‘absorptive capacity’ (AC).
The concept was first introduced by Cohen and Levinthal who
described it as ‘the ability of a firm to recognize the value of new,
external information, assimilate it, and apply it to commercial ends’
and saw it as ‘largely a function of the firm's level of prior related
knowledge’.64 It is an important construct because it shifts our
attention to how well firms are equipped to search out, select and
implement knowledge.
The underlying construct of AC is not new – discussion of firm
learning forms the basis of a number of studies going back to the
work of Arrow, March, Simon and others.65, 66 In the area of
innovation studies the ideas behind ‘technological learning’ – the
processes whereby firms acquire and use new technological
knowledge and the underlying organizational and managerial process
which are involved – were extensively discussed by, inter alia,
Freeman, Pavitt, Bell and Lall.1, 67, 68 Cohen and Levinthal's original
work was based on exploring (via mathematical modelling) the
premise that firms might incur substantial long-run costs for learning
a new ‘stock’ of information and that R&D needed to be viewed as
an investment in today's and tomorrow's technology (Cohen and
Levinthal, 1989, p. 569). In later work they broadened and refined
the model and definition of absorptive capacity to include more than
just the R&D function and also explored the role of technological
opportunity and appropriability in determining the firm's incentive to
build absorptive capacity.
Absorptive capacity is clearly not evenly distributed across a
population. For various reasons firms may find difficulties in
growing through acquiring and using new knowledge. Some may
simply be unaware of the need to change never mind having the
capability to manage such change. Such firms – a classic problem of
SME growth for example – differ from those which recognize in
some strategic way the need to change, to acquire and use new
knowledge but lack the capability to target their search or to
assimilate and make effective use of new knowledge once identified.
Others may be clear what they need but lack capability in finding and
acquiring it. And others may have well-developed routines for
dealing with all of these issues and represent resources on which less
experienced firms might draw – as is the case with some major
supply chains focused around a core central player.69
Reviewing the literature on why and when firms take in external
knowledge suggests that this is not – as is sometimes assumed – a
function of firm size or age. It appears instead that the process is
more one of transitions via crisis – turning points.70 Some firms do
not make the transition, others learn up to a limited level. Equally the
ability to move forwards depends on the past – a point made forcibly
by Cohen and Levinthal in their original studies.

RESEARCH NOTE 5.5

Absorptive Capacity

Research by Zahra and George (2002) noted that carrying out

studies of absorptive capacity has become fraught with
difficulty owing to the diversity and ambiguity surrounding
its definition and components. Zahra and George decided to
review and extend the absorptive capacity and suggested that
several different processes were involved – rather than a
simple absorption of new knowledge there were discrete
activities linked to search, acquisition, assimilation and
exploitation. Potential AC relates to Cohen and Levinthal's
(1990) research on how a firm may value and acquire
knowledge, although not necessarily exploit it. The firm's
ability to transform and exploit the knowledge is captured by
Realised AC. In short, absorptive capacity is a set of
organizational routines and processes which are used to
create a dynamic organizational capability. The authors state
that firms need to build both types of absorptive capacity in
order to maintain a competitive advantage.
Zahra and George discuss how Potential and Realised AC
are separate but complementary, and why the distinction is
useful. By distinguishing between potential and absorptive
capacity we are able to ascertain which firms are unable
leverage and exploit external information. This can provide
useful implications for managerial competences in
developing both aspects of AC. They use the potential and
absorptive capacity constructs to build a model of the
antecedents, moderator and outcomes of the construct. For
instance, they propose that a firm's experience and exposure
to external knowledge will influence the development of
potential absorptive capacity. Activation triggers, such as a
change in dominant design may also play a moderating
influence in determining the locus of search for external
sources of knowledge. Finally they introduce the role of the
social integration mechanism in reducing the gap between
potential and realized absorptive capacity. These mechanisms
can help distribute information throughout the firm and
provide an environment whereby information can be
exploited.
Their work spawned extensive discussion and application –
but the resulting proliferation of use of the term led to
problems highlighted by Lane, Koka et al. (2006), who tried
to evaluate how much divergence there has been in the field.71
These authors analysed 289 absorptive capacity papers from
14 journals to understand how the construct had been used
and to identify the contributions to the broader literature of
absorptive capacity. From their analysis, the authors
concluded that the construct had become reified. ‘Reification
is the outcome of the process by which we forget the
authorship of ideas and theories, objectify them (turn them
into things), and then forget that we have done so’ (Lane et
 al., 2006, p. 835). They identified only six papers which
extended the understanding of absorptive capacity in any
meaningful way.
Todorova and Durisin (2007) also focus on the dynamic
characteristics of the absorptive capacity construct, by
examining the relationship between identification and
acquisition of relevant knowledge, and the ability to apply
that knowledge to commercial ends. In particular they claim
that ‘transformation’ should be regarded not as a consequence
but as an alternative process to ‘assimilation’ suggesting a
more complex relationship between the components of
absorptive capacity. In addition, they highlight the role of
power relationships and socialization mechanisms within the
dynamic model of absorptive capacity.72

The key message from research on AC is that complex construct –

acquiring and using new knowledge involves multiple and different
activities around search, acquisition, assimilation and
implementation. Connectivity between these is important – the
ability to search and acquire (potential AC in Zahra and George's
model) may not lead to innovation. To complete the process further
capabilities around assimilation and exploitation (Realised AC) are
also needed. Importantly AC is associated with various kinds of
search and subsequent activities, not just large firm formal R&D;
mechanisms whereby SMEs explore and develop their process
innovation, for example are also relevant.
AC is essentially about accumulated learning and embedding of
capabilities – search, acquire, assimilate, and so on – in the form of
routines (structures, processes, policies and procedures) which allow
organizations to repeat the trick. Firms differ in their levels of AC
and this places emphasis on how they develop and establish and
reinforce these routines. In other words their ability to learn.
Developing AC involves two complementary kinds of learning. Type
1 – adaptive learning – is about reinforcing and establishing relevant
routines for dealing with a particular level of environmental
complexity, and type 2 – generative learning – for taking on new
levels of complexity.73, 74

5.17 Balancing Exploitation and Exploration

A core theme in discussion of innovation relates to the tensions in
search behaviour between ‘exploitation’ and ‘exploration’
activities.75, 76 On the one hand firms need to deploy knowledge
resources and other assets to secure returns and a ‘safe’ way of
doing so is to harvest a steady flow of benefits derived from ‘doing
what we do better’. This has been termed ‘exploitation’ by
innovation researchers, and it essentially involves ‘the use and
development of things already known’.77 It builds strongly through
‘knowledge leveraging activities’78 on what is already well-
established – but in the process leads to a high degree of path
dependency – ‘firms accumulated exploitation experience reinforces
established routines within domains’.79
The trouble is that in an uncertain environment the potential to
secure and defend a competitive position depends on ‘doing
something different’, that is, radical product or process innovation
rather than imitations and variants of what others are also offering.80
This kind of search had been termed ‘exploration’ and is the kind
which involves ‘long jumps’ or re-orientations that enable a firm to
adopt new attributes and attain new knowledge outside its
domain’.81, 82
The above-mentioned tension comes because the organizational
routines needed to support these activities differ. Incremental
exploitation innovation is about highly structured processes and often
high frequency small scale innovation carried out within operating
units. Radical innovation, by contrast, is occasional and high risk,
often requiring a specific and cross-functional combination of
resources and a looser approach to organization and management.83
There is no easy prescription for doing these two activities but
most organizations manage a degree of ‘ambidexterity’ through the
use of a combination of approaches across a portfolio.84, 85 So, for
example, technological search activity is managed by investment in a
range of R&D projects with a few ‘blue sky’/high risk outside bets
and a concentration of projects around core technological
trajectories.86 Market research is similarly structured to develop deep
and responsive understanding of key market segments but also
allowing some search around peripheral and emergent
constituencies.7, 87

5.18 Tools and Mechanisms to Enable Search

Within this broad framework firms deploy a range of approaches to
organizing and managing the search process. For example, much
experience has been gained in how R&D units can be structured to
enable a balance between applied research (supporting the ‘exploit’
type of search) and more wide-ranging, ‘blue sky’ activities (which
facilitate the ‘explore’ side of the equation).86 These approaches
have been refined further along ‘open innovation’ lines where the
R&D work of others is brought into play, and by ways of dealing
with the increasingly global production of knowledge – for example,
the pharmaceutical giant GSK deliberately pursues a policy of R&D
competition across several major facilities distributed around the
world. In similar fashion market research has evolved to produce a
rich portfolio of tools for building a deep understanding of user
needs – and which continues to develop new and further refined
techniques – for example, empathic design, lead user methods and
increasing use of ethnography.
Choice of techniques and structures depends on a variety of
strategic factors like those explored earlier – balancing their costs
and risks against the quality and quantity of knowledge they bring in.
Throughout the book we have stressed the idea that managing
innovation is a dynamic capability – something which needs to be
updated and extended on a continuing basis to deal with the ‘moving
frontier’ problem. As markets, technologies, competitors, regulations
and all sorts of other elements in a complex environment shift so we
need to learn new tricks and sometimes let go of older ones which
are no longer appropriate. In the following section we'll look at some
particular examples of tools and mechanisms for innovation search
that are emerging in response to an ‘open innovation’ context, which
sees increasingly high levels of knowledge (market, legal, technical,
etc.) and the need to tap into it more effectively. The Innovation
Portal describes a wide range of tools that can be utilized in the
search process.
MANAGING INTERNAL KNOWLEDGE
CONNECTIONS
One area which has seen growing activity addresses a fundamental
knowledge management issue which is well expressed in the
statement – ‘if only xxx (insert the name of any large organization)
knew what it knows’! In other words how can organizations tap into
the rich knowledge (and potential innovation triggers) within its
existing structures and amongst its workforce?
This has led to renewed efforts to deal with what is an old problem
– for example, Procter & Gamble's successes with ‘connect and
develop’ owe much to their mobilizing rich linkages between people
who know things within their giant global operations and
increasingly outside it. They use ‘communities of practice’88 –
Internet-enabled ‘clubs’ where people with different knowledge sets
can converge around core themes, and the deploy a small army of
innovation ‘scouts’ who are licensed to act as prospectors, brokers
and gatekeepers for knowledge to flow across the organization's
boundaries. (We discuss this in more detail in Chapter 6.) Intranet
technology links around 10 000 people in an internal ‘ideas market’
– and some of their significant successes have come from making
better internal connections.62
3M – another firm with a strong innovation pedigree dating back
over a century – similarly put much of their success down to making
and managing connections Larry Wendling, Vice President for
Corporate Research talks of 3M's ‘secret weapon’ – the rich formal
and informal networking which links the thousands of R&D and
market-facing people across the organization. Their long history of
breakthrough innovations – from masking tape, through Scotchgard,
Scotch tape, magnetic recording tape to Post-its and their myriad
derivatives – arises primarily out of people making connections.
It's important to recognize that much of the knowledge lies in the
experience and ideas of ‘ordinary’ employees rather than solely with
specialists in formal innovation departments like R&D or market
research. Increasingly organizations are trying to tap into such
knowledge as a source of innovation via various forms of what can
be termed ‘high involvement innovation’ systems such as suggestion
schemes, problem solving groups and innovation ‘jams’.

VIEWS FROM THE FRONTLINE 5.2

Sources of Innovation
We look in the usual places for our industry. We look at our
customers. We look at our suppliers. We go to trade bodies. We
go to trade fairs. We present technical papers. We have an input
coming from our customers. What we also try to do is develop
inputs from other areas. We've done that in a number of ways.
Where we're recruiting, we try to bring in people who can bring
a different perspective. We don't necessarily want people
who've worked in the type of instruments we have in the same
industry… certainly in the past we've brought in people who
bring a completely different perspective, almost like
introducing greensand into the oyster. We deliberately look
outside. We will look in other areas. We will look in areas that
are perhaps different technology. We will look in areas that are
adjacent to what we do, where we haven't normally looked.
And we also do encourage the employees themselves to come
forward with ideas.
Some of our product ideas have come from an individual who
was sitting as a peripheral part of a little project team that was
looking at different project ideas, different products for the
future of the business. He had an idea. He created something in
his garage. He brought it into me and says, what about this?
And we looked at it. We had a quick discussion about it, talked
to the management team and initiated a development that we did
for one of our suppliers. That came right from outside the area
we normally operate in. It came through one of our employees,
a long-service employee, so not someone who was recent to the
business. But it was triggered by him thinking in a different
way. An idea came that he has married up to a potential market
need because of the job he worked in when he was working in
the service and repair area. He said, right, there's an opportunity
for this product. He created a prototype out of a piece of
drainpipe and some pieces he had taken from the repair area and
made a functional model and said, what about this? And from
that, we actually created a product that has spawned a product
range of small manual instruments, which traditionally the
business hasn't been involved with for probably 20 years. So,
that's an idea that came from within the business. It came from
an existing employee, but it's not something that we would have
thought of as part of our normal pipeline.
We didn't immediately see, oh, there's a demand for this, let's
do that. This came from him having some local knowledge and
talking to customers at lower levels and saying, there's actually
a demand for this small product. It's small, it's relatively niche,
it's not going to set the world alight, but it enhances our product
range and it puts us into an area where we've never been before.
So, we're very receptive to those ideas coming forward. We
create an environment where we encourage people to question
and challenge. We've actually got an appraisal system where we
look at people's competencies rather than performance, and one
of the competencies we want is, is that person going to question
and challenge? Are they willing to say, how can we do this
better, how can we do this more effectively? So, continuous
improvement is something we look for. But we also want people
to hold up hands and say, hang on a minute, why are you doing
it that way? What about this? I've seen this because of
something I've done, one of my hobbies or in some of the social
activities, and we encourage people to bring those ideas in and
work with us to develop that into a product idea. We've actually
set up a mechanism where we run a project team where we take
people from all areas of the business … this is no longer just a
product development area. We then put them in a room with all
the resources they need for three or four days and say, what we
want out of this is a number of product ideas that are different to
what we do. Where can we go in the future? Where can you
take this little business? Working within the limits of what we're
capable of they will come up with product ideas, and the last
one that we ran, we had seven or eight product ideas came out
…
– Patrick McLaughlin, Managing Director, Cerulean
 The Innovation Portal shows a full video version and transcript
of the interview with Patrick McLaughlin.

Mobilising ‘high involvement innovation’ – tapping into the ideas

of employees – is a long-standing and powerful approach, as we saw
in Chapter 3. New technologies around intranets and the parallel
trend towards greater social networking mean that many suggestion
schemes are being given a new lease of life. For example, France
Telecom (the parent for the Orange mobile phone business) has been
running its ‘idee cliq’ scheme for several years and now routinely
gets around 30 000 ideas every day from its employees.89
One rich seam in this involves the entrepreneurial ideas of
employees – projects which are not formally sanctioned by the
business but which build on the energy, enthusiasm and inspiration of
people passionate enough to want to try out new ideas. Encouraging
internal entrepreneurship – ‘intrapreneurship’ as it has been termed90
– is increasingly popular and organizations like 3M and Google
make attempts to manage it in a semi-formal fashion, allocating a
certain amount of time/space to employees to explore their own
ideas.91 Managing this is a delicate balancing act – on the one hand
there is a need to give both permission and resources to enable
employee-led ideas to flourish, but on the other there is the risk of
these resources being dissipated with nothing to show for them. In
many cases there is an attempt to create a culture of what can be
termed ‘bootlegging’ in which there is tacit support for projects
which go against the grain.92 An example in BMW – where these are
called ‘U-boat projects – was the Series 3 Estate version which the
mainstream company thought was not wanted and would conflict
with the image of BMW as a high quality, high performance and
somewhat ‘sporty’ car. A small group of staff worked hard in their
own time on this, even at one stage using parts cannibalized from an
old VW Rabbit (Golf) to make a prototype – and the model has gone
on to be a great success and opened up new market space.93

EXTENDING EXTERNAL CONNECTIONS

The principle of spreading the net widely is well-established in
innovation studies as a success factor – and places emphasis on
building strong relationships with key stakeholders. In a recent IBM
survey of 750 CEOs around the world 76% ranked business partner
and customer collaboration as top sources for new ideas whilst
internal R&D ranked only eighth. The study also indicated that
‘outperformers’ – in terms of revenue growth – used external
sources 30% more than underperformers. It's not hard to see why –
the managers interviewed listed the clear benefits from collaboration
with partners as things like reduced costs, higher quality and
customer satisfaction, access to skills and products, increased
revenue, and access to new markets and customers. As one CEO put
it, ‘We have at our disposal today a lot more capability and
innovation in the marketplace of competitive dynamic suppliers than
if we were to try to create on our own’ while another stated simply
‘If you think you have all of the answers internally, you are wrong’.4
This emphasizes the need both for better use of existing
mainstream innovation agents – for example, sales or purchasing as
channels to monitor and bring back potential sources of innovation –
and for establishing new roles and structures. In the former case there
is already strong evidence of the importance of customers and
suppliers as sources of innovation and the key role which relevant
staff have in managing these knowledge sources. In the field of
process innovation for example, where the ‘lean’ agenda of
improving on cost, quality and delivery is a key theme, there is
strong evidence that diffusion can be accelerated through supply
chain learning initiatives like the UK Industry Forum in the auto
components, aerospace, textiles and other sectors.94, 95
But the ‘open innovation’ challenge also points us to where further
experimentation is needed to make new connections. Research has
been carried out across a network of ‘Innovation Labs’, bringing
together companies and researchers, where they explore some of
these search strategies and report their findings.

Tool using 12 search strategies and assessment is available in

your interactive e-book at www.innovation-portal.info

But the ‘open innovation’ challenge also points us to where further

experimentation is needed to make new connections. Table 5.6
identifies these and the following section explores some approaches
which represent this ‘frontier’ in terms of search behaviour.93
 Case Study describing Innovation Labs is available in your
interactive e-book at www.innovation-portal.info

Table 5.6 Extending search strategies for innovation

Search Strategy Mode of operation

Sending out scouts Dispatch idea hunters to track down new innovation
triggers.
Exploring multiple Use futures techniques to explore alternative possible
futures futures; and develop innovation options from that.
Using the web Harness the power of the web, through online
communities, and virtual worlds, for example, to detect
new trends.
Working with Team up with product and service users to see the ways in
active users which they change and develop existing offerings.
Deep diving Study what people actually do, rather than what they say
they do.
Probe and learn Use prototyping as mechanism to explore emergent
phenomena and act as boundary object to bring key
stakeholders into the innovation process.
Mobilise the Bring mainstream actors into the product and service
mainstream development process.
Corporate Create and deploy venture units.
venturing
Corporate Stimulate and nurture the entrepreneurial talent inside the
entrepreneurship organization.
and
intrapreneuring
Use brokers and Cast the ideas net far and wide and connect with other
bridges industries.
Deliberate Create diverse teams and a diverse workforce.
diversity
Idea generators Use creativity tools.
SENDING OUT SCOUTS
This is a widely used strategy which involves sending out people
(full or part-time) whose role is to search actively for new ideas to
trigger the innovation process. (In German they are called
ideenjager – idea hunters – a term which captures the concept well).
They could be searching for technological triggers, emerging
markets or trends, competitor behaviour, and so on, but what they
have in common is a remit to seek things out, often in unexpected
places. Search is not restricted to the organization's particular
industry; on the contrary, the fringes of an industry or even currently
entirely unrelated fields can be of interest.
For example, the mobile phone company O2 has a trend-scouting
group of about 10 people who interpret externally identified trends
into their specific business context whilst BT has a scouting unit in
Silicon Valley which assesses some 3000 technology opportunities a
year in California. The four-man operation was established in 1999
to make venture investments in promising telecom start-ups, but after
the dot.com bubble burst it shifted its mission towards identifying
partners and technologies that BT was interested in. The small team
looks at more than 1000 companies per year and then, based on their
deep knowledge of the issues facing the R&D operations back in
England, they target the small number of cases where there is a direct
match between BT's needs and the Silicon Valley company's
technology. While the number of successful partnerships that result
from this activity is small – typically four or five per year – the unit
serves an invaluable role in keeping BT abreast of the latest
developments in its technology domain.96
EXPLORING MULTIPLE FUTURES
Futures studies of various kinds can provide a powerful source of
ideas about possible innovation triggers, especially those which do
not necessarily follow the current trajectory. Shell's ‘Gamechanger’
programme is a typical example which make extensive use of
alternative futures as a way of identifying domains of interest for
future business which may lie outside the ‘mainstream’ of their
current activities. Increasingly these rich ‘science fiction’ views of
how the world might develop (and the threats and opportunities
which it might pose in terms of discontinuous innovations) are being
constructed by using a wide and deliberately diverse set of inputs
rather than using the relatively narrow frame of reference which
company staff might bring. One consequence has been the growth of
specialist service companies which offer help in building and
exploring models of alternative futures.
For example, Novo Nordisk, a major Danish pharmaceuticals
business makes use of a company-wide scenario-based programme to
explore radical futures around their core business. Its ‘Diabetes
2020’ process involved exploring radical alternative scenarios for
chronic disease treatment and the roles which a player like Novo-
Nordisk could play. As part of the follow-up from this initiative, in
2003 the company helped set up the Oxford Health Alliance, a non-
profit collaborative entity which brought together key stakeholders –
medical scientists, doctors, patients and government officials – with
views and perspectives which were sometimes quite widely
separated. To make it happen, Novo Nordisk made clear that its goal
was nothing less than the prevention or cure of diabetes – a goal
which if it were achieved would potentially kill off the company's
main line of business. As Lars Rebien Sørensen, the CEO of Novo
Nordisk, explained: ‘In moving from intervention to prevention –
that's challenging the business model where the pharmaceuticals
industry is deriving its revenues! … We believe that we can focus on
some major global health issue – mainly diabetes – and at the same
time create business opportunities for our company’.
Another related approach is to build ‘concept’ models and
prototypes to explore reactions and provide a focus for various
different kinds of input which might shape/co-create future products
and services. Concept cars are commonly used in the automotive
industry not as production models but as stepping stones to help
understand and shape what will be products in the future. Similarly
Airbus and other aerospace firms have concept aircraft whilst Toyota
is working on concept projects around housing, transportation and
energy systems.
More recently companies have started to see value in developing
such scenarios jointly with other organizations and discover exciting
opportunities for cross-industry collaboration (which often means the
creation of an entirely new market). The Innovation Portal gives a
number of examples of toolkits used for exploring futures.

USING THE WEB

At one level the Internet offers a vast library – and the mechanisms
to make new connections to and amongst the information it contains.
This is, naturally, a widely used approach but it is interesting to look
a little more deeply at how particular forms are developing and
shaping this powerful tool.
 In its simplest form the web is a passive information resource to be
searched – an additional space into which the firm might send its
scouts. Increasingly there are professional organizations who offer
focused search capabilities to help with this hunting – for example, in
trying to pick up on emerging ‘cool’ trends among particular market
segments. High velocity environments like mobile telecoms, gaming
and entertainment depend on picking up early warning signals and
often make extensive use of these search approaches across the web.
Developments in communications technology also make it
possible to provide links across extranets and intranets to speed up
the process of bringing signals into where they are needed. Firms like
Zara and Benetton have sophisticated IT systems giving them early
warning of emergent fashion trends which can be used to drive a
high speed flexible response on a global basis. The Innovation Portal
has a case study covering Zara's development using technology.
This rich information source aspect can quickly be amplified in its
potential if it is seen as a two-way or multi-way information
marketplace. One of the first companies to take advantage of this was
Eli Lilly who set up Innocentive.com as a match making tool,
connecting those with scientific problems with those being able to
offer solutions. As Innocentive CEO Darrel Carroll says, ‘Lilly hires
a large number of extremely talented scientists from around the
world, but like every company in its position, it can never hire all the
scientists it needs. No company can’. There are now multiple sites
offering a brokering service, linking needs and means and essentially
creating a global market-place for ideas – in the process providing a
rich source of early warning signals.
 A further extension of this is to use websites in a more open-ended
fashion, as laboratories in which experiments can be conducted or
prototypes tested. For example, www.secondlife.com – essentially a
role playing game with over a million users – offers an alternative
world where people can create different characters for themselves
and interact – in the process creating a powerful laboratory for
testing out ideas. Since by definition Second Life is the result of
people projecting their aspirations and interests in a different space it
offers significant scope for early warning about or even creating new
trends. The potential of ‘advergaming’ is being explored, for
example, by US clothing retailer American Apparel which opened a
virtual store in Second Life in 2006. In similar fashion social
networking sites such as Facebook (with 900 million members) have
become a powerful channel for finding and developing music and
other entertainment ideas, challenging ‘traditional’ marketing
approaches.

RESEARCH NOTE 5.6

Using Innovation Markets

Karim Lakhani (Harvard Business School) and Lars Bo

Jepessen (Copenhagen Business School) studied the ways in
which businesses are making use of the innovation market
platform Innocentive.com. The core model at innocentive is
to host ‘challenges’ put up by ‘seekers’ for ideas which
‘solvers’ offer. They examined 166 challenges and also
carried out a web-based survey of solvers and found that the
 model offered around a 30% solution rate – of particular
value to seekers looking to diversify the perspectives and
approaches to solving their problems. The approach was
particularly relevant for problems that large and well-known
R&D intensive firms had been unsuccessful in solving
internally. Innocentive currently has around 200 000 solvers
and as a result considerable diversity; their study suggested
that as the number of unique scientific interests in the overall
submitter population increased, the higher the probability
that a challenge was successfully solved. In other words,
diversity of potential scientific approaches to a problem was
a significant predictor of problem solving success.
Interestingly the survey also found that solvers were often
bridging knowledge fields – taking solutions and approaches
from one area (their own specialty) and applying it to other
different areas. This study offers systematic evidence for the
premise that innovation occurs at the boundary of disciplines.

Beyond these uses come those which bring users into the equation
as ‘co-creators’ – a theme we discussed earlier. For example, BMW
makes use of the Web to enable a ‘Virtual Innovation Agency’ – a
forum where suppliers from outside the normal range of BMW
players can offer ideas which BMW may be able to use. Although
this carries the risk that many ‘cranks’ will offer ideas these may also
provide stepping stones to new domains of interest.

WORKING WITH ACTIVE USERS

As we saw earlier, an increasingly significant strategy involves
seeing users not as passive consumers of innovations created
elsewhere but rather as active players in the process. Their ideas and
insights can provide the starting point for very new directions and
create new markets, products and services. The challenge now is to
find ways of identifying and working with such lead users.
One of the clues is that active users are often at the fringes of the
mainstream – in diffusion theory they are not even early adopters but
rather active innovators. They are tolerant of failure, prepared to
accept that things go wrong but through mistakes they can get to
something better – hence the growing interest in participating in
‘perpetual beta’ testing and development of software and other on-
line products. More often than not active users love to get involved
because they feel strongly about the product or service in question;
they really want to help and improve things. Lego found that the
prime motivator amongst its communities of user-developers was the
recognition which came with having their products actually made
and distributed. Microsoft maintains a group of so called ‘Microsoft
buddies’ – about 1500 power users of their products like web
masters, programmers, software vendors, and so on. Strong ties to
these customers support Microsoft. They participate in beta testing,
help to improve existing products, and submit ideas for new
functionalities. The users get no monetary rewards, but receive free
software and are invited to bi-annual meetings. To prevent a ‘not-
invented-here’ problem within Microsoft's internal development
teams, special liaison officers act as bridges between the ‘buddies’
and the development teams of the company.
 The German firm Webasto makes a wide range of roofing systems
for cars including the sophisticated cabriolet features on luxury cars
like the Porsche, Volvo, Saab and Ferrari. They went through a
systematic approach to understand what lead users are and how to
identify them. Building on existing literature they identified four
aspects that really drive people's propensity to innovate (cognitive
complexity, team expertise, general knowledge, willingness to help).
Based on those aspects they developed a questionnaire that they sent
out, depending on the project in question, to up to 5000 people from
their database. About 20% returned the questionnaires, there were
several selection steps (e.g. age bracket, innovation potential) before
they arrived at a lead user group of between 10 and 30. The lead
users committed to come for an entire weekend, and without pay.
The Innovation Portal has a description of tools to enable user
involvement, and also gives a link to a series of videos with Eric von
Hippel describing the application of these ideas within 3M.

‘DEEP DIVING’
Most market research has become adept at hearing the ‘voice of the
customer’ via interviews, focus groups, panels, etc. But sometimes
what people say and what they actually do is different. In recent
years there has been an upsurge in the use of anthropological style
techniques to get closer to what people need/want in the context in
which they operate. ‘Deep dive’ is one of many terms used to
describe the approach – ‘empathic design’ and ‘ethnographic
methods’ are others.9
Much of the research toolkit here originates from the field of
anthropology where the researcher aims to gain insights primarily
through observation and immersing him or herself in the day to day
life of the object of study – rather than through questioning only. For
example, to ensure their new terminal at Heathrow would address
user needs well into the future BAA commissioned some research
into what users in 2020 might look like, and what their needs might
be. Of course the ageing population came up as an issue; focusing on
the behaviour of old people at the airport they noticed old people
tend to go to the toilet rather frequently. So, the conclusion was to
plan for more toilets at Terminal 5. However, when someone really
followed people around they noted that many people going to the
restrooms did not actually go to the toilet – but went there because it
was quiet, and they could actually hear the announcements! The
Innovation Portal gives a case study and video on Tesco, which
provides a good illustration of the ways in which ethnography can be
used in the innovation process.

PROBE AND LEARN

One of the problems about a radically different future is that it is
hard to imagine it and hard to predict how things will play out.
Sometimes a powerful approach is to try something out – probe –
and learn from the results, even if they represent a ‘failure’. In this
way emergent trends, potential designs, and so on can be explored
and refined in a continuing learning process.
There are two complementary dimensions here – the concept of
‘prototyping’ as a means of learning and refining an idea, and the
concept of pilot-scale testing before moving across to a mainstream
market. In both cases the underlying theme is essentially one of
‘learning as you go’, trying things out, making mistakes but using the
experience to get closer to what is needed and will work. As Geoff
Penney Chief Information Officer of the US-based investment house
Charles Schwab once said, ‘To avoid running too much risk we run
pilots, and everyone knows it is ‘just’ a pilot and is not afraid of
making suggestions for improvement – or killing it’.
Not surprisingly prototyping is particular relevant in product based
firms. For example, Bang & Olufsen have revitalized their
prototyping department and made if refer directly to the innovation
hub of the company. The prototyping department is engaged in new
ideas as early as possible and the experiences are that this strongly
supports the process. And, after a period with disappointing results in
applying electronics in toys LEGO made a change in their
development approach towards more intensive use of prototypes.
Prototypes were created within a day – often within hours – after the
ideas matured. The result was a much more precise dialogue both
within the organization and with the main customers. Eventually, this
led to more simple technology – and more success in terms of sales.
But the principles also apply in services – for example the UK
National Health Service and the Design Council have been
prototyping new options for dealing with chronic diseases like
diabetes, heart conditions and Alzheimer's disease. The aim is to
learn by doing and also by engaging with the multiple stakeholders
who will be part of whatever new system co-evolves.

CORPORATE VENTURING
One widely used approach involves setting up of special units with
the remit – and more importantly the budget – to explore new
diversification options. Loosely termed ‘corporate venture’ (CV)
units they actually cover a spectrum ranging from simple venture
capital funds (for internal and externally generated ideas) through to
active search and implementation teams, acquisition and spin-out
specialists, etc. For example, Nokia has a very interesting corporate
venturing approach for finding innovation. They have moved
beyond ‘not invented here’ and are embracing ‘let's find the best
ideas where ever they are’. Nokia Venturing Organization is focused
on corporate venturing activities that include identifying and
developing new businesses, or as they put it ‘the renewal of Nokia’.
Nokia Venture Partners invests exclusively in mobile and Internet
protocol (I/P) related start-up businesses. They have a very
interesting third group called Innovent that directly supports and
nurtures nascent innovators with the hope of growing future
opportunities for Nokia.
SAP has set up a venture unit called SAP Inspire to fund start ups
with interesting technologies. The mission of the group is to ‘be a
world-class corporate venturing group that will contribute, through
business and technical innovation, to SAP's long-term growth and
leadership’. It does so by:

seeking entrepreneurial talent within SAP and provide

an environment where ideas are evaluated on an open
and objective basis;

actively soliciting and cultivating ideas from the SAP

community as well as effectively managing the
innovation process from idea generation to
commercialization;
 looking for growth opportunities that are beyond the
existing portfolio but within SAP's overall vision and
strategy.

The purpose of corporate venturing is to provide some ring-fenced

funds to invest in new directions for the business. Such models vary
from being tightly controlled (by the parent organization) to being
fully autonomous. (Chapter 10 discusses this approach in detail).

USE BROKERS AND BRIDGES

As we saw earlier, innovation can often take a ‘recombinant’ form –
and the famous saying of William Gibson is relevant here – ‘the
future is already here, it's just unevenly distributed’. Much recent
research work on networks and broking suggests that a powerful
search strategy involves making or facilitating connections –
‘bridging small worlds’. Increasingly organizations are looking
outside their ‘normal’ knowledge zones as they begin to pursue
‘open innovation’ strategies. But sending out scouts or mobilizing
the Internet can result simply in a vast increase in the amount of
information coming at the firm – without necessarily making new or
helpful connections. There is a clear message that networking –
whether internally across different knowledge groups – or externally
– is one of the big management challenges in the twenty-first
century. Increasingly organizations are making use of social
networking tools and techniques to map their networks and spot
where and how bridges might be built – and this is a source of a
growing professional service sector activity. Firms like IDEO
specialize in being experts in nothing except the innovation process
itself – their key skill lies in making and facilitating connections.9
A number of new brokers today use the Internet to facilitate
innovation. We have already mentioned Innocentive and other Web-
based brokers are companies like NineSigma and YET2. com, who
provide bridging capabilities for (external) inventors with ideas or
concepts to corporate development units. Others operate in a more
direct broking mode, acting as ‘marriage brokers’ introducing
partners and facilitating connections – examples include the
Innovation Exchange and 100% Open. The Innovation Portal
provides an audio interview with Richard Philpott as one example of
people operating in this new innovation space.

LEARNING TO SEARCH AT THE FRONTIER

As we saw earlier there is a long standing discussion in innovation
literature around ‘exploration’ and ‘exploitation’ – both are search
behaviours but one is essentially incremental, doing what we do
better, adaptive learning whilst the second is radical, do different,
generative learning.76, 97
A key issue is how organizations can
operationalize these different behaviours – what ‘routines’
(structures, processes, behaviours) can they embed to enable
effective exploration and exploitation? Whilst literature is fairly
clear about routines for exploitation – essentially innovation
approaches to enable continuous incremental extension and
adaptation – there is less about exploration.5
Striking a suitable balance is tricky enough under what might be
called ‘steady state’ innovation conditions, but the work of
Christensen and others on disruptive innovation suggests that under
certain conditions (for example the emergence of completely new
markets) established incumbents get into difficulties. They are too
focused in their search routines (both explore and exploit) for dealing
with what they perceive as a relevant part of the environment (their
market ‘value network’) and they fail to respond to a new emerging
challenge until it is often too late. This is partly because their search
behaviour is so routinized, embedded in reward structures and other
reinforcement mechanisms, that it blinds the organization to other
signals.98–100
Importantly this is not a failure in innovation management per se –
the firms described are in fact very successful innovators under the
‘steady state’ conditions of their traditional marketplace, deploying
textbook routines and developing close and productive networks with
customers and suppliers. The problem arises at the edge of their
‘normal’ search space and under the discontinuous conditions of new
market emergence. The Innovation Portal provides tools for utilizing
(discontinuous innovation) DI search, including the DI audit.
In similar fashion incumbent organizations often suffer when
technologies shift in discontinuous fashion. Again their established
repertoire of search routines tends towards exploitation and bounds
their search space – with the risk that developments outside can
achieve considerable momentum and by the time they are visible the
organization has little reaction time.57 This is further complicated by
the issue of sunk costs which commit the incumbent to the earlier
generation of technology, and the ‘sailing ship’ effect whereby their
exploit routines continue to bring a stream of improvements to the
old technology and sustain that pathway while the new technology
matures.101 (The ‘sailing ship’ effect refers to the fact that when
steamships were first invented it gave a spur to an intensive sequence
of innovation in sailing ship technology which meant the two could
compete for an extended period before the underlying superiority of
steamship technology worked through).
It is also clear that another key issue is how to integrate these
different approaches within the same organization – how (or even if
it is possible) to develop what Tushman calls ‘ambidextrous’
capability around innovation management.102 Much recent literature
on disruptive, radical, discontinuous innovation highlights the
tensions which are set up and the fundamental conflicts between
certain sets of routines – for example, Christensen's theory suggests
that by being too good at ‘exploit’ routines to listen to and work with
the market incumbent firms fail to pick up or respond to other signals
from new fringe markets until it is too late.

5.19 Two Dimensions of Innovation Search

The problem is not just that such firms fail to get the balance
between exploit and explore right but also because there are choices
to be made about the overall direction of search. Characteristic of
many of these businesses is that they continue to commit to
‘explore’ search behaviour – but in directions which reinforce the
boundaries between them and emergent new innovation space. For
example, in many of the industries Christensen studied high rates of
R&D investment were going on to push technological frontiers even
further – resulting in many cases in ‘technology overshoot’. This is
not a lack of search activity but rather a problem of direction.
 The issue is that the search space is not one-dimensional. As
Henderson and Clark point out it is not just a question of searching
near or far from core knowledge concepts but also across
configurations – the ‘component/architecture challenge’. They argue
that innovation rarely involves dealing with a single technology or
market but rather a bundle of knowledge which is brought together
into a configuration. Successful innovation management requires that
we can get hold of and use knowledge about components but also
about how those can be put together – what they termed the
architecture of an innovation.103
One way of looking at the search problem is in terms of the ways
in which ‘innovation space’ is framed by the organization. Just as
human beings need to develop cognitive schemas to simplify the
‘blooming, buzzing confusion’ which the myriad stimuli in their
environment offers them, so organizations make use of simplifying
frames. They ‘look’ at the environment and take note of elements
which they consider relevant – threats to watch out for, opportunities
to take advantage of, competitors and collaborators, and so on. The
construction of such frames helps give the organization some
stability and – amongst other things – defines the space within which
it will search for innovation possibility. Whilst there is scope for
organizations to develop their own individual ways of seeing the
world – their business models – in practice there is often
commonality within a sector. So most firms in a particular field will
adopt similar ways of framing – assuming certain ‘rules of the
game’, following certain trajectories in common.
These frames correspond to accepted ‘architectures’ – the ways in
which players see the configuration within which they innovate. The
dominant architecture emerges over time but once established
becomes the ‘box’ within which further innovation takes place. We
are reminded of the difficulties in thinking and working outside this
box because it is reinforced by the structures, processes and toolkit –
the core routines – which the organization (and its key reference
points in a wider network of competitors, customers and suppliers)
have learned and embedded.
This perspective highlights the challenge of moving between
knowledge sets. Firms can be radical innovators but still be
‘upstaged’ by developments outside their search trajectory. The
problem is that search behaviour is essentially bounded exploration
and raises a number of challenges:

When there is a shift to a new mindset – cognitive

frame-established players may have problems because
of the reorganization of their thinking which is
required. It is not simply adding new information but
changing the structure of the frame through which they
see and interpret that information. They need to ‘think
outside the box’ within which their bounded exploration
takes place – and this is difficult because it is highly
structured and reinforced.104

This is not simply a change of personal or even group

mindset – the consequence of following a particular
mindset is that artefacts and routines come into place
which block further change and reinforce the status
quo. Christensen points out, for example, the difficulty
of seeing and accepting the relevance of different
signals about emerging markets because the reward
systems around sales and marketing are biased towards
reinforcing the established market. Henderson and
Clark highlight the problems of social and knowledge
networks which need to be abandoned and new ones set
up in the move to new architectures in
photolithography equipment. Day and Shoemaker show
how organizations develop particular ways of seeing
and not seeing.105 These are all part of the bounding
process – essentially they create the box we need to get
out of.

Architectural – as opposed to component innovation –

requires letting go of existing networks and building
new ones.96 This is easier for new players to do, hard for
established ones because the inertial tendency is to
revert to established pathways for knowledge and other
exchange – the finding, forming and performing
problem.96

The new frame may not necessarily involve radical

change in technology or markets but rather a
rearrangement of the existing elements. Low-cost
airlines did not, for example, involve major
technological shifts in aircraft or airport technology but
rather problem-solving to make flying available to an
underserved market segment.19 Similarly the ‘bottom of
the pyramid’ development is not about radical new
technologies but about applying existing concepts to
 underserved markets with different characteristics and
challenges.21 There may be incremental innovation –
problem solving – to make the new configuration work
but this is not usually new to the world but rather
problem solving.

5.20 A Map of Innovation Search Space

In summarizing the different sources of innovation and how we
might organize and manage the process of searching for them we
can use a simple map – see Figure 5.6. The vertical axis refers to the
familiar ‘incremental/radical’ dimension in innovation whilst the
second relates to environmental complexity – the number of
elements and their potential interactions. Rising complexity means
that it becomes increasingly difficult to predict a particular state
because of the increasing number of potential configurations of these
elements. In this way we capture the ‘component/architecture’
challenge outlined above. Firms can innovate at component level –
the left hand side – in both incremental and radical fashion but such
changes take place within an assumed core configuration of
technological and market elements – the dominant architecture.
Moving to the right introduces the problem of new and emergent
architectures arising out of alternative ways of framing amongst
complex elements.
 FIGURE 5.6 A map of innovation search space

Organizations simplify their perceptions of complex

environments, choosing to pay attention to certain key features which
they interpret via a shared mental model. They learn to manage
innovation within this space and construct routines – embedding
structures and processes and building networks to support and enable
work within it. In mature sectors a characteristic is the dominance of
a particular logic which gives rise to business models of high
similarity – for example, industries like pharmaceuticals or
integrated circuit design and manufacture are characterized by a
small number of actors playing to a similar set or rules involving
R&D spend, sales and marketing, and so on.
But whilst such models represent a ‘dominant logic’ or trajectory
for a sector they are not the only possible way of framing things.106
In high complexity environments with multiple sources of variety it
becomes possible to configure alternative models – to ‘reframe’ the
game and arrive at an alternative architecture. Whilst many attempts
at reframing may fail, from time to time alternatives do emerge
which better deal with the environmental complexity and become the
new dominant model.
Using this idea of different ‘frames’ we can explore four zones in
Figure 5.6 which have different implications for the ways in which
innovation is managed. Whilst those approaches for dealing with the
left hand side – zones 1 and 2 – are well developed we argue that
there is still much to learn about the right hand side challenges and
how to approach them in practical terms – via methods and tools.
Zone 1 corresponds to the ‘exploit’ field discussed earlier and
assumes a stable and shared frame within which adaptive and
incremental development takes place. Search routines here are
associated with refining tools and methods for technological and
market research, deepening relationships with established key
players. Examples would be working with key suppliers, getting
closer to customers and building key strategic alliances to help
deliver established innovations more efficiently.
The structures for carrying out this kind of search behaviour are
clearly defined with relevant actors – department or functions
responsible for market research, product (service) development, and
so on. They involve strong ties in external networks with customers,
suppliers and other relevant actors in their wider environment. The
work of core groups like R&D is augmented by high levels of
participation across the organization – because the search questions
are clearly defined and widely understood high involvement of non-
specialists is possible. So procurement and purchasing can provide a
valuable channel as can sales and marketing – since these involve
contact with external players.107 Process innovation can be enabled
by inviting suggestions for incremental improvement across the
organization – a high involvement kaizen mode.12
Zone 2 involves search into new territory, pushing the frontiers of
what is known and deploying different search techniques for doing
so. But this still takes place within an established framework – a
shared mental model which we could term ‘business model as usual’.
R&D investments here are on big bets with high strategic potential,
patenting and IP strategies aimed at marking out and defending
territory, riding key technological trajectories (such as Moore's Law
in semiconductors). Market research similarly aims to get close to
customers but to push the frontiers via empathic design, latent needs
analysis, and so on. Although the activity is risky and exploratory it
is still governed strongly by the frame for the sector – as Pavitt
observed there are certain sectoral patterns which shape the
behaviour of all the players in terms of their innovation strategies.108
The structures involved in such exploration are, of necessity,
highly specialized. Formal R&D and within that sophisticated
specialization is the pattern on the science/technology frontier, often
involving separate facilities. Here too, there is mobilization of a
network of external but similarly specialized researchers – in
university, public and commercial laboratories – and the formation of
specific strategic alliances and joint ventures around a particular area
of deep technology exploration. The highly specialized nature of the
work makes it difficult for others in the organization to participate –
and indeed this gap between worlds can often lead to tensions
between the ‘operating’ and the ‘exploring’ units and the boardroom
battles between these two camps for resources are often tense. In
similar fashion market research is highly specialized and may
include external professional agencies in its network with the task of
providing sophisticated business intelligence around a focused
frontier.
These two zones represent familiar territory in discussion of
exploit/explore in innovation search. But arguably they take place
within an accepted frame, a way of seeing the world which
essentially filters and shapes perceptions of what is relevant and
important. This corresponds to Henderson and Clark's architecture
and, as we have argued, defines the ‘box’ within which innovative
activity is expected to occur. Such framing is, however, a construct
and open to alternatives – and zone 3 is essentially associated with
reframing. It involves searching a space where alternative
architectures are generated, exploring different permutations and
combinations of elements in the environment. Importantly this often
happens by working with elements in the environment not embraced
by established BMs – for example, Christensen's work on fringe
markets, Prahalad's bottom of the pyramid or von Hippel's extreme
users.16, 21, 30
For example, the low-cost airline industry was not a development
of new product or process – it still involves airports, aircraft, and so
on. Instead the innovation was in position and paradigm, reframing
the business model by identifying new elements in the markets –
students, pensioners, and so on – who did not yet fly but might if the
costs could be brought down. Rethinking the business model
required extensive product and process innovation to realize it – for
example in on-line booking, fast turnaround times at airports, multi-
skilling of staff, and so on – but the end result was a reframing and
creation of new innovation space.
 Zone 4 represents the ‘edge of chaos’ complex environment where
innovation emerges as a product of a process of co-evolution. This is
not the product of a predefined trajectory so much as the result of
complex interactions between many independent elements.109, 110
Processes of amplification and feedback reinforce what begin as
small shifts in direction and gradually define a trajectory. This is the
pattern – the ‘fluid state’ – before a dominant design emerges and
sets the standard.57 As a result it is characterized by very high levels
of experimentation.
Search strategies here are difficult since it is impossible to predict
what is going to be important or where the initial emergence will
start and around which feedback and amplification will happen. The
best an organization can do is to try and place itself within that part
of its environment where something might emerge and then develop
fast reactions to weak signals. ‘Strategy’ here can be distilled down
to three elements – be in there, be in there early and be in there
actively (i.e. in a position to be part of the feedback and
amplification mechanisms).
With these four zones we have a simple map on which to explore
innovation routines. Our concern in this chapter is with search
routines – how do organizations manage the process of recognizing
and acquiring key new knowledge to enable the innovation process?
There are also implications for how they assimilate and transform
(select) and how they exploit and implement but we will not focus on
those at this stage. As we have suggested each zone represents a
different kind of challenge and leads to the use of different methods
and tools. And whilst the toolbox is well stocked for zones 1 and 2
there is value in experimentation and experience-sharing around
zones 3 and 4.
Table 5.7 summarizes the challenge.
 Quizzes to test yourself further are available online at
www.innovation-portal.info

Summary and Further Reading

In this chapter we've looked at the many ways in which the
innovation process can be triggered – and the need for multiple
approaches to the problem of searching for them. The management
challenge lies in recognizing the rich variety of sources and
configuring search mechanisms which balance the ‘exploit’ and
‘explore’ domains, providing a steady stream of both incremental
(do what we do, better) ideas and more radical (do different)
stimuli – and doing so with limited resources.
The long-running debate about which sources – demand pull or
knowledge push – are most important is well covered in Freeman
and Soete's work which brings in the ideas of Schumpeter,
Schmookler and other key writers (The Economics of Industrial
Innovation. 3rd edn. 1997, MIT Press). Public sector and social
innovation are important emerging areas where user needs are
central to design and delivery of innovation; good discussions can
be found in the work of Christian Bason (Leading Public Sector
Innovation, 2011, Policy Press.) and Robin Murray and colleagues
(The Open Book of Social Innovation, 2010, The Young
Foundation). Particular discussion of fringe markets and unmet or
poorly met needs as a source of innovation is covered by
Christensen (Seeing What's Next, 2007, Harvard Business School
Press.) and Ulnwick (What Customers Want: Using Outcome-
Driven Innovation to Create Breakthrough Products and Services,
2005, McGraw-Hill.), whilst the ‘bottom of the pyramid’ and
extreme user potential is explored in Prahalad's work (The Fortune
at the Bottom of the Pyramid, 2006, Wharton School Publishing)
and in the idea of ‘jugaad innovation’ (Jugaad Innovation: Think
Frugal, be Flexible, Generate Breathrough Innovation, 2012,
Jossey Bass.). The website Next Billion (www.nextbillion.net)
provides a wide range of resources and information about ‘bottom
of the pyramid’ and extreme user activity including video and case
studies.
User-led innovation has been researched extensively by Eric von
Hippel (The Democratization of Innovation, 2005, MIT Press.) and
his website (web.mit.edu/evhippel/) provides an excellent starting
point for further exploration of this approach. Frank Piller,
Professor at Aachen University in Germany, has a rich website
around the theme of mass customization with extensive case
examples and other resources (www.mass-customization.de/); the
original work on the topic is covered in Joseph Pine's book (Mass
Customisation: The New Frontier in Business Competition, 1993,
Harvard University Press). Andrew Hargadon has done extensive
work on ‘recombinant innovation’ (How Breakthroughs Happen,
2003, Harvard Business School Press) and Mohammed Zairi
provides a good overview of benchmarking (Effective
Benchmarking: Learning from the Best, 1996, Chapman and Hall).
The ‘Future of the automobile’ project offers a famous example of
this approach in practice (The Machine that Changed the World,
1991, Rawson Associates). Roberto Verganti's book (Design
Driven Innovation, 2010, Harvard Business School Press) is
complemented by a detailed discussion of deisgn management in
the context of innovation by Pascal Le Masson and colleagues
from the Ecole des Mines in Paris (Strategic Management of
Innovation and Design, 2010, Cambridge University Press).
The model of ‘punctuated equilibrium’ and the different phases
of innovation activity linked to search is explored by Tushman and
Anderson (Technological Discontinuities and Organizational
Environments. Administrative Science Quarterly, 1987. 31 (3): p.
439–465.) and Utterback (Mastering the Dynamics of Innovation,
1994, Harvard Business School Press) amongst others. ‘Open
innovation’ was originated by Henry Chesbrough and has been
elaborated in a number of other studies (Open Innovation:
Researching a New Paradigm, 2006, Oxford University Press) and
the Procter & Gamble story and Alan Lafley provides a readable
account from the perspective of the CEO of Procter & Gamble
(The Game Changer, 2008, Profile). The concept of absorptive
capacity was originated by Cohen and Levinthal and developed by
Zahra and George; Lane and colleagues provide an extensive
review of developments and models (The Reification of
Absorptive Capacity: A critical review and rejuvenation of the
construct. Academy of Management Review, 2006. 31 (4): p. 833–
863). Searching at the frontier is one of the questions being
addressed by the Innovation Laboratory, a network of around 30
academic institutions and 150 companies – see www.innovation-
lab.org for more details; their results are discussed in a series of
reports available at www.aim-research.org.

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1
Moore, Gordon E. (1965) Cramming more components onto integrated circuits.
Electronics Magazine.

2
Ralph Waldo Emerson, ‘If a man has good corn, or wood, or boards, or pigs to sell,
or can make better chairs or knives, crucibles or church organs than anybody else,
you will find a broad-beaten road to his home, though it be in the woods.’

3
Eric von Hippel (2005) Democratization on Innovation, MIT Press, Cambridge.

4
IBM 2006 Global CEO Study, 1 March.

5
(Indeed one paradox is that exploratory activities, by their nature, involve
experiments and forays into uncertain and uncharted territory so the ability to
routinize may be constrained. But arguably the approach to searching, if not the
actual pathways, can be repeated and built into structures and processes – routines).