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Patterns of Discontinuous Innovation Capabilities

 

What kinds of capabilities do firms need to develop to be able to deal with
both  discontinuous innovation?
Discontinuous innovation is a volatile, unpredictable, and essentially fluid state—on
the edge of chaos. A new game is emerging—triggered by discontinuous shifts
in markets, technologies, or external regulations—but quite what the rules are,
or even the precise nature of the game, is not clear. They emerge over time as
the fluid and turbulent state gradually gives way to a more stable set of
conditions with a clear trajectory for future development.

The paradox of discontinuous innovation is that whilst it is very hard to see it
coming , there is a certainty that it will happen! We just don’t know when or where.
So organizations can’t afford to ignore it—if they are established players they risk
losing their place at the table if they can’t cope in a world where the underlying
rules of the game have changed. And if they are entrepreneurs looking for opportunities
the clean canvas on which the new rules can be written is a wonderful but rare chance.

History is full of examples where discontinuities—market, technology, busi-
ness model, etc.—change the rules of the game and disrupt the existing world.
When this happens there are winners and losers—winners who spot and
exploit the emerging opportunities and losers who miss seeing (or reacting
quickly enough) until it is too late to act. But it’s not simply a matter of ‘new
entrantswin, established players lose’—manyof today’s longest-established and
successful businesses have developed the ability to grow and become stronger
by being able to ride the waves of discontinuous change. The skill lies less in
exploiting any particular discontinuity’s characteristics than in the ability to
spot it coming early and then make strategic decisions about dealing with it.
Does it threaten or strengthen established competencies? Can we exploit it
alone or do we need to explore ways of working with others—and if so, with
whom? Do we need a different approach to defining and exploring this
market—perhaps as a parallel or complementary activity to our mainstream?
Can we balance the ‘bread and butter’ of steady state innovation with more
radical exploration beyond our frontiers?

some  examples  of capabilities for dealing with discontinuous innovation are:

Extending Peripheral Vision
Dealing with discontinuity requires the capacity to pick up early and weak
signals about the emergence of discontinuities. So organizations need to try
and enhance their ‘peripheral vision,’ carrying out (re)search activities into new
and unexpected areas. But this is often difficult to justify not least because of
the difficulty of deciding where to focus such alternative search activity. It is a
little like the story of the drunk searching for his keys under the lamp-post
because it is better illuminated. Clearly he needs to extend his search to the
dark areas beyond—but how does he choose a particular direction in which to
begin his search from 360 degrees of such darkness?
One approach is to increase both the number of antennae available to the
organization, and the ‘open innovation’ strategies of firms like Procter &
Gamble and IBM are designed to do this, often involving extensive use of the
internet as a technological ‘amplifier’ for weak signals.
Another approach uses the well-established principles of early involvement
of active users12to configure a stakeholder network which contains both an
early warning system and an innovation development capacity. Given that
trends in the industry are likely to lead to some discontinuous innovation this
offers then a mechanism for placing awide number of bets and also identifying
possible partners for future development activity.
This kind of approach is being explored by the British Broadcasting Corpor-
ation—a major producer of broadcast media now trying to deal with the
discontinuous challenges of the new digital media environment. Attempting
to second guess a massivelycomplex world ‘out there’ from the standpoint of a
small R&D group is clearly a non-starter. One alternative is to try to engage a
rich varietyof players in those emerging spaces via a series of ‘open innovation’
experiments. BBC Backstage is an example, trying to do with new media
development what the open source community did with software develop-
ment. The model is deceptively simple—developers are invited to make free
use of various elements of the BBC’s site (such as live news feeds, weather, TV
listings, etc.) to integrate and shape innovative applications. The strapline is
‘use our stuff to build your stuff’—and since the site was launched in May 2005
it has already attracted the interest of hundreds of software developers. Ben
Metcalf, one of the program’s founders, summed up the approach. ‘Top line,
we are looking to be seen promoting innovation and creativity on the Inter-
net…if someone is doing something really innovative, wewould like to…see
if some of that value can be incorporated into the BBC’s core propositions.’
New business models are often the result of emergence from within a group
of different stakeholders—essentially the architects and the players of the new
game. So another strategy is to get involved in exploring radically different
approaches in order to be in earlyenough to pick upweak signals and in deeply
enough to shape what emerges. For example, the Danish pharmaceutical firm
Novo Nordisk is exploring a number of avenues in parallelwith its ‘steady state’
pharmaceutical product development model. It is looking, for example, at
future models which might involve a much higher level of care services
wrapped around a core set of products for treating chronic diseases like
diabetes. Its activities include working with health education programs in
Tanzania, carrying out extensive psycho-social research on diabetes sufferers
to establish actual needs and problems in diagnosis and treatment, and con-
tributing to multi-stakeholder groups like the Oxford Health Alliance set up in
2003 with members drawn from an international set of academics, health
professionals, government agencies, and private sector firms sharing a common
goal—‘to raise awareness among influencers and educate critical decision-
makers so that the pressing case for preventative measures can advance, and
we can begin to combat chronic disease.’
CEO Lars Rebien Sørensen doesn’t underestimate the mindset change this
represents: ‘in moving from intervention to prevention—that’s challenging
the business model where the pharmaceuticals industry is deriving its reven-
ues!…We believe that we can contribute to solving some major global health
challenges—mainly diabetes—and at the same time create business opportunities
for our company.’

Enhancing Signal-Processing Capacity
The difficulty is not simply one of picking up on a wide variety of signals.
Organizations operate in a world in which they are bombarded by a stream of
intonation which they need to filter and select from. They have typically
evolved a sophisticated signal-processing capacity which only permits strategic-
ally relevant information to enter. The challenge in managing discontinuous
innovation is to build a parallel capacity inwhich interesting but apparently ‘off-
message’ signals can be processed into a form where they can be communi-
cated to the rest of the organization.13
Coloplast—an award-winning Danish medical devices firm—has recognized
this difficulty, drawing a parallel with an immune system which detects alien
organisms and rejects them. In their sophisticated product development system
they have a series of filters which effectively screen out at avery early stage any
signals about innovation possibilities outside of a focused mainstream. As one
interviewee put it, ‘round here we don’t have a product development funnel,
we have a tube!’ In an attempt to extend their capability to deal with discon-
tinuous innovation they have set up a small team of technology and market
‘scouts’ whose task is not simply to pick up on potential weak signals but also
to explore and process them into a form in which the rest of the organization
can be made aware of them without the instant rejection they would normally
receive. Building the ‘business case lite’ for such ideas requires a sophisticated
understanding not only of the new possibilities but also the internal context
(political as well as resources) into which they will be introduced. Much of the
work of this team is around building coalitions of support for the new ideas
before they are brought into the formal strategic planning process.

Developing Alterative Strategic Frames
A significant problem for existing incumbents in the face of discontinuous
challenges appears to be a reluctance to reframe the underlying models of the
business. The example of Polaroid is widely cited where the slow response to
digital imaging as a completely new game rather than just a technological shift
led to the company’s downfall.14They aren’t alone—as writers like Foster and
Kaplan point out in many examples of firms which lose by being too heavily
committed to defending a status quo.15The problem is compounded by the
presence of manyaspects of organizational lifewhich reinforce old models—for
example reward systems which favor working with established customers16or
knowledge flows which underpin established product architectures.17
In order to escape this trap organizations seek to develop alternative ways of
framing their activities. One route for this is to explore alternative scenarios for
the future and to look at ways in which the current resource base could be
reconfigured to provide an alternative but viable business model. For example,
Shell has developed its long-established capabilities in scenario planning into
anapproach called ‘Gamechanger’in which detailed alternative future scenarios
are developed and used to provide challenging reframing possibilities. In turn
these help identify relevant domains within which ‘targeted hunting,’ for new
opportunities, can take place. Such exploration provides a mechanism for
pursuing several ‘parallel future’ development projects without compromising
mainstream activities and helps maintain a tolerance for ambiguity suited to
discontinuous conditions.
Such ventures do not always succeed, A specialist motor vehicle company
carried through an extensive scenario-based review of its options but became
increasingly concerned at the relative fragility of its current business model,
Rather than extend the reframing process it chose to retreat and consolidate
around the existing model and eventually sold off its future projects research
operation.

Extending Resource Allocation Approaches
A significant problem around discontinuous innovation occurs when well-
developed strategic resource allocation and review system are confronted
with radical challenges.19Whilst such systems evolve as a robust way of
managing a stream of projects under steady state innovation conditions they
may not be suited to discontinuities. For this reason a number of organizations
decentralize the funding process for high-risk/radical venturing and make use
of various forms of corporateventuring approach.20These arrangements range
from completely separate venture units to internal venture capital sources for
which project owners can make bids. The intention—although not always the
outcome—is to provide an alternative and parallel channel for exploring radical
options and allocating at least early-stage funding.

 

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