Non Consumption

Still talking about innovations in the education industry?

One thing that Clayton Christensen, Harvard business professor, discusses in his book, The Innovator's Solution, is the idea of "competing against non consumption." Essentially, this revolves around offering a product (I use product to describe both products and services) that is not as good as that which is already sold by encumbant firms.

But how can you compete with a product that's worse? You are not really competing with the encumbants, rather, you are competing against non consumption. The people who will buy your product, in this case, a university degree, would not have been able to purchase a degree from any university previously. This could have been because it was inconvenient or too expensive, for example.

The University of Phoenix and firms that offer business training courses in innovation or similar professional courses are not looking to lure would-be Oxford or Chicago students, they are looking for non-consumers. They are looking for customers that the incumbants are motivated to ignore.

If you are a new firm, you have got to look for customers that incumbant firms are not motivated to pursue. In other words, choose your battles where the forces of business are in your favour.

Firing the Professor

Since the last post about the University of Phoenix, Donald Trump, the entrepreneur, has established his own university.

This brings me to a very important point about university education. These new, non-traditional universities, while all offering the core offering of an education, don't offer prestige or status, as do the top universities. This does not, however, mean that they are inferior in terms of the education they offer.

Want prestige? Go to Harvard. Want a relevant business education? Try Donald Trump. (Or Phoenix et al.)

University of Pheonix

Which organizations are creating a new dimension of performance?

The University of Phoenix, and other non-traditional universities, are creating a new dimension of performance. The new dimension of performance is accessibility.

Are traditional universities worried about these new universities? Probably not, but they should be, especially those universities that are caught between the top-tier universities such as Harvard, MIT, Oxford etc. and new universities such as the University of Phoenix. In other words, the universities that are neither prestigious nor cheap and accessible.

Before you sneer at these new universities, you should think back to the boss at General Motors who, when asked about the threat of Japanese car makers, replied:

What do the Japanese know about making cars?

Drucker and Innovation

Peter Drucker has discussed innovation countless times over the years. I particularly like the way he looks at innovation as "creating a new dimension of performance." Note how Drucker doesn't say "improve the performance of an existing dimension."

"Marketing and innovation are the two chief functions of business. You get paid for creating a customer, which is marketing. And you get paid for creating a new dimension of performance, which is innovation. Everything else is a cost center."

This pretty much sums up innovation in firms that seek to change the rules of the game.

Which firms have created a new dimension of performance (as opposed to improving the performance of an existing dimension)? I'll post an answer to that later.

Michael Flatley

Love him or hate him, Michael Flatley, the ex-Riverdance dancer is a great innovator, and a master when it comes to giving out words of wisdom. One of his particularly memorable quotes was this one: "When somebody tells me that it won't work, I know that I am getting close to success."

He must have been thinking of these blokes when he said that. Look what they said when faced with innovations:

"Who the hell wants to hear actors speak!" - H.M. Warner, Warner Bros., 1927 when presented with the idea of "talking movies."

This one about the railways is kind of long, but incredible nonetheless:

Dear President Jackson,

The canal system in this country is being threatened by a new form of transportation known as “railroads” . . .

If the canal boats are supplanted by railroads, boat builders would suffer, and towline, whip, and harness makers would be left destitute . . .

God never intended that people should travel at such breakneck speed.

Sincerely,

Martin Van Buren
Governor, State of New York, 1829

(Source: Treese & Lawrence, 1998)

What is so amazing about these, is that those guys believed they were right. And the guys who are rejecting today's innovations with the same certainty also believe they are right.

What is a process?

You hear the word "process" almost every day, but do we have a workable definition so that we are all talking in the same language?

Here's a definition of process from Clayton Christensen:

" . . . patterns of interaction, coordination, and decision making that transform resources into products.(2003, p. 183)

These processes can be formal or informal. As you can imagine, it is the informal processes that cause the most headaches for the innovator because they are very difficult to change. These informal processes are often "set in stone" despite what the firm's boss says.

So why's all this important? It's important because there are times when a new -- or separate -- process must be established. When are these times? The times when a disruptive or a radical innovation looms on the horizon. In times like these, the old processes end up being a real disability.

So when somebody (probably a customer or front line employee) comes along and tells a middle manager at Blockbuster that movie downloads are going to be commonplace in future, it is an almost certainty that nothing will be done until it's too late.

The Innovation Process

What exactly is the innovation process and where does it start and end? This is a good question to ask anybody interested in or responsible for innovation management at a firm. I'm going to post about the second part of this question, the where-does-it-start-and-end part.

First of all, the innovation process doesn't end. It's incessant and iterative (as opposed to linear).

It starts in the mind and essentially results in hard cash. From the firm's perspective, the value creation that precedes the cash is created by cutting costs; adding perceived value, so that people will pay extra; or both of these, which is what world-class firms do.

World-class companies also know what customers don't value (the hard part); and remove these "unwanted" features in order to cut costs to the bone. At the same time, they are constantly looking for ways to improve their offering. It is paradoxical: cutting costs and creating value, but this is, as they say, " . . . the world of and."

The journey from the mind to the cash is fraught with often-predictable difficulties, and as Clayton Christensen puts it:

"Though the outcomes of successful innovations appear random, the processes that result in their success often are not."

There seems to be a general agreement these days that innovation is a learnable skill.

Predictable forces in innovation

Entrepreneurs are really up against it. They are often treated with disdain as they attempt to change the order of things. Joseph Schumpeter, evolutionary economist, noted that the entrepreneur faces opposition from both the artisan, who loses out as his "craft" becomes automated and the upper classes, who initially view the entrepreneur as a parvenu.


Machiavellia in his book, The Prince, also argued that those initiating any “new system” would face resistance from a number of fronts:

"For he who innovates will have for his enemies all those who are well off under the existing order of things, and only lukewarm supporters in those who might be better off under the new."


I wonder what Michael Dell's college buddies said to him when he was building those computers in his dorm room? And I wonder what they are saying to him now?

Innovation Strategies

In the West, we often look at Asian companies as pursuing a "fast follower" innovation strategy. Crawford (1980) would describe this type of behaviour as indicative of an "adaptive" innovation strategy. While an adaptive innovation strategy may work when you enter an industry pre-dominant design, this type of innovation strategy is not wise for industries that display "network externalities."

Network externalities refer to products "for which the utility that a user derives from consumption of the good increases with the number of other agents consuming the good" (Katz and Shapiro, 1985).

Which products?

Online auction; computer software; phones; faxes; video games; and, yes, vinyl turntables.

For these products, being the "fast follower" is not a good idea. An example of this can be seen in Taiwan. In Taiwan, eBay is currently the "fast follower" in Taiwan and is struggling against Yahoo's online auctions, who were first.

There are definitely situations where being first is critical to success -- winner takes all situation.

Storing Docs on an E-mail Server.

Have you ever sent yourself a Word doc, or similar, to yourself so you could access it later from another location?

I do this quite often as I don't have a printer at home. I will go to the office, open up my e-mail and print out the doc there. This is an example of a lead-user innovation. Users solving their own problems because there is currently no "product" available to them.

Those vinyl turntables with the weighted tone arm are another lead user innovation. The story goes that DJs would weigh down the record player arms with a pile of coins to stop the needle from jumping as they were doing there thing on the decks!

Breakthrough Innovation

Often, it is firms that take the credit for "breakthrough" innovations when in actual fact most breakthroughs come from lead users, claims Eric Von Hippel. Lead users are users who have needs that foreshadow those of the masses. Examples of breathroughs developed by lead users? The Internet; mountain bikes; and sports drinks.

There are a couple of lectures on this fascinating subject by Eric Von Hippel at the MIT Web site.

Highly recommended! MIT's Wicked Web site.

Innovation - The "what" and the "degree".

Most of the literature on innovation at the firm level distinguishes between process and product innovation. This is fine, but it tends to oversimplify. Other writers talk of administration innovation; technical innovation; managerial innovation etc. etc.

Rather than getting lost in all these different labels, I think it's better to just think of innovation as being relevant to any part of the business, whatever that business may be.

What's more important, in terms of day-to-day running of the business, is the degree of innovation that is being initiated. This is really important because a "small" innovation (incremental, evolutionary, or continuous) needs to be managed differentlty from a "large" innovation (radical, revolutionary, or discontinuous).

I hope I'm not boring the socks off you! I just would like to get some of the key issues out on the table before I start building up this blog, so that somebody can get something out of it!

Welcome! And what is innovation?

One of of the hardest things to establish when discussing innovation is the definition itself. I trawled the Net for hours trying to do this. I came up with dozens, with some focussing on the national level; some the region; others the firm; and many on the individual. Here are three:

"Implementing new ideas that create value." - U.S. Innovation Network

"The development of new ideas and their economic application as new products or processes." - Dept. Trade and Industry U.K.

"The intersection of invention and insight, leading to the creation of social and economic value." - U.S. National Innovation Initiative (2004)

Bringing these definitions together, three themes emerge: innovation is different from the old to a greater or lesser degree; innovation creates value; and innovation requires implementation. In my view, for something to be truly innovative, it should meet these three criteria.

So why should anyone care about these definitions? Well, rather than splashing innovation all over your firm's Web site, you should ensure that your firm at least has a workable definition. The last definition is my favourite of the three because it emphasizes insight, which really refers to market insight.