Q8: Is it Serendipity? How Ecosystems Enable Innovation
You don’t need me convincing you of the value innovation represents for an organization. It is the one factor, applicable to nearly every context of operations and product, that enables organizations to stay competitive and thriving over time. So, if some components are there to capture and preserve existing value creation (as discussed in Q7), innovation serves as the preceding component that enables one to identify what is to be captured. But it’s certainly not a cakewalk.
Falls and Comebacks of Innovation
Innovation is probably the most difficult part of any competitive business. And often, it’s not for a lack of trying. We brainstorm. We perform design sprints. We create physical spaces that seek to stimulate innovation. We spend millions and billions on R&D. Yet, even leading companies — like Nokia, Kodak, Blockbuster, Pan Am and Tower Records — fall short. Naturally, part of it has to do with organizational inertia, which is why much innovation comes from faster-moving startups — and sometimes it simply has to do with not having structures or vehicles in place to address the fact that winning concepts often require change over time to stay winning.
On the flipside, some of the companies that we consider innovation leaders of our time were defined by large pivots and changes in approach. Netflix, IBM and Nintendo are prominent examples that have reinvented themselves to stay competitive over decades. Were these companies simply luckier than those that declined? I think not. Causation is naturally overly ambitious to assess here, but a correlation is how organizations that successfully pivot often aren’t too territorial about how to fulfill their respective visions. In other words, they do not put a boundary or cap on what their companies are to carry out. At least, that’s been the case for the companies mentioned above.
Most innovation does not entail a pivot or change of the magnitude these companies had to subscribe to, but the point I’m making here is that in a make-or-break situation, some organizations still find ways to be innovative by exerting less control over their vision. The vision may stay the same in many respects, but the pursuit of said vision changed significantly for these companies, to the point where they may have completely abandoned certain niches to focus on others previously outside the confines of their activities. In fact, these organizations acknowledged that the mission must change over time to accommodate the vision. But, what does any of this have to do with ecosystems?
Control, Resources and Fast-Tracked Innovation
In the same sense that trust poses an open question of where it is to be found (discussed in Q7), innovation does the same. What makes innovation even more difficult is the fact that with many questions unrelated to it, we may already know where to look. If I’m looking to acquire a given resource, I often also have an idea of the source. If it’s an app, I go to the Play Store (sorry, Apple fans). If I’m looking for a book, I go to Amazon or Audible. If I need furniture, I go to IKEA. The point is, if I know what resource I’m in search of, I have some semblance of a procedure for getting from point A to B. If I don’t know what to look for — which often is the case with innovation — well, where do I even begin?
This search process is naturally still part of every business — R&D is done in this interest, and sometimes it’s rather about re-combining existing assets in new ways to come up with new use cases. Not all innovation is coming up with things from scratch, but even in those endeavors our options are endless, and if competition is fierce, out-of-the-box approaches will be required to keep up — which, by definition, implies giving into non-traditional and less controlled conditions.
Ecosystems help this process significantly, and platforms are the prime example of it. Back when the three above-mentioned companies had to pivot, they had to actively go looking for a new angle. In IBM’s case, it seems as though they’ve been pivoting actively for years and decades. In fact, it’s by keeping their vision open-ended, within reason, that they’ve been able to move from hardware to software, from product to service, from blockchain to AI, and everything in between. At the end of the day, it’s what’s saved their business when nothing else could.
In some sense, they embraced the notion that innovation within a set subset or vision can take unexpected shapes and forms, and come from unanticipated sources. My personal favorite example is how Steve Jobs’ calligraphy class was the most valuable thing he took from college (before dropping out), and what defined the typeface and fonts for the first Mac. In information systems we often talk about how innovation kind of just “happens”. But, it isn’t as serendipitous as it sounds — it’s rather the increased probability of meaningful interaction, afforded by digital innovation, that makes it seem like innovation “happens” arbitrarily. That’s the perceived magic of it all. Let me explain.
IBM and the other companies mentioned made their pivots in times where digital innovation was far less accessible and advanced. Yet, in a tangible sense, by doing their utmost to keep their mission open-ended, the pivoting companies allowed their companies to serve as analog platforms, receptive to perspectives and initiatives outside the scope of their past structures. In fact, all three of the mentioned companies turned digital platform dynamics into core parts of their business over time. Why? Because innovation is largely aided by the notion of generativity — that is, what by Zittrain is defined as “unanticipated change through unfiltered contributions from broad and varied audiences.”
The “audiences” that Zittrain alludes to are so important in the context of innovation. We’re always drawing upon inspiration from somewhere, and in the past, companies like IBM had to rely on the right mindsets to get to where they are. Now, we have tools that actuate those mindsets seamlessly and with stronger capabilities. Yoo et al. (2010) talks about how generativity is positively impacted by heterogeneity or diversity of connection points — which is exactly what platforms, through various mechanisms and resulting dynamics, enable at serious scale, thus shortening the process for reaching innovative results significantly. And yet, we haven’t even talked about what AI might provide to fast-track even further.
This doesn’t mean that there shouldn’t be a boundary to how companies approach their product and service development. That’s how companies lose their identity — which is the biggest loss of all. Rather, it’s about finding a healthy balance between setting a boundary that keeps organizations’ identities intact, and providing enough resources within those boundaries to allow for out-of-the-box approaches to take shape. Some researchers actively address this through the difference between resourcing and securing, and how balance is integral to a platform’s ability to achieve intended results.
Also, not everything is about platforms and the ecosystems that result from them. Nonetheless, if we buy the claim I made in the first paragraph — that innovation precedes value creation — then the structural, non-platform ecosystems that allow for us to coordinate and benefit from socially embedded dynamics are the second step. Sometimes, we rely on platforms for the second step — but using Google Docs as opposed to building an open-source initiative on GitHub present various degrees to which this is being done. And since we’re still figuring out how to fast-track distributed work at its extremes, there remains a reason companies, with more rigidity, can be a preferred option — so if speed is the defining factor, the ecosystem transitions (from community to structure) discussed in Q7 will come in handy.
Ecosystem Transitions and Governance
These ecosystem transitions and structurations reiterate how important it is not to force innovation. Equally, one has to leave space for it to brew in the backend, all while reducing the barrier for innovation on every front. To bring up a recent example, Warren Buffett — arguably the most successful investor and holding company executive of all time — tells a young man at the recent annual meeting about the benefits of being a founder in the Berkshire Hathaway structure. He talks about how all they really need to be successful at Berkshire is to stay focused on the innovations and tasks they are passionate about, and that the rest can be left to others within the structure.
No one will be able to convince me that an early-stage founders’s accounting responsibilities help their innovation efforts. As trivial as it may be, that’s why CEO and CFO positions are often kept separate — as they should. Equally, we should think broader about how this notion extends to any form of synergistic activity within an organizations. Governance becomes an incredibly important component of this. In Q7, we discussed the importance of trust in making ecosystems more structural — this is no exception. If you want to be innovative, you have to be able to delegate and trust that everyone plays their role. Equally, the delegates in question need to see and feel that their incentives with the executive to move together toward a given vision. I’ll leave elaboration on the topic for a future post.
I could go on and on, but there is a main takeaway here. As ecosystem orchestrators — or platform designers, analog or digital — we need to understand that the more control we exert, the less likely we are to widen our horizons, and that in instances where innovation is the objective, resourcing without excessive structure may be the best bet. Equally, when the prospects of innovation have been identified, we need transitions to more structural ecosystems, with the right incentives and governance alignments to ensure that as much as we define boundaries, those boundaries do not get in the way of moving forward — and that if “moving forward” entails exiting the box, that we make that equally possible. It’s a tall order, but that’s the prospect of seamless yet complex ecosystems — one that is getting closer by the day.
Bardia Bijani
Managing Partner, FuzeQube Group
